Opinion ID: 721438
Heading Depth: 2
Heading Rank: 4

Heading: Above-Market Recovery for Great Plains Gas

Text: 272 The Great Plains Gasification Plant was constructed to convert coal into synthetic natural gas (SNG). In Order No. 636-A, FERC noted that in Transcontinental Gas Pipe Line Corp., 55 FERC p 61,446, reh'g denied, 57 FERC p 61,345 (1991) (Transco), it had approved a settlement that provided for a volumetric surcharge on system throughput to recover the above-market gas costs and associated transportation costs related to Transco's obligations to purchase synthetic gas from Great Plains. Order No. 636-A, p 30,950, at 30, 657-58. Several petitioners complained that this arrangement was in substantial conflict with the competition-enhancing purposes of Order No. 636. FERC admitted as much in Order No. 636-A, but determined that the volumetric surcharge is consistent with the Commission's goal of providing a smooth transition from the prior regulatory environment to the new market-oriented environment. Id. at 30,658. Furthermore, FERC followed its reasoning in Transco, concluding that it is 'reasonable for all [the pipeline's] customers to share in the above-market costs of the nation's first large-scale synthetic fuels plant, whose technological benefits would have redounded to all future gas users ... by increasing the supply of available gas.'  Id. 273 The PUCs challenge FERC's treatment of Great Plains gas, contending that it conflicts with the goal which forms the heart of Order [No.] 636--providing consumer access to competitively priced supply. They also cite Commissioner Langdon's partial dissent in Order No. 636, in which he stated that every comma, word, sentence and paragraph of the order is internally inconsistent with respect to Great Plains gas. Order No. 636, p 30,939, at 30,472 (Langdon, C., concurring in part and dissenting in part). I fail to see how the [volumetric surcharge] will ultimately benefit the consumer, or transmit accurate pricing signals. Id. The PUCs also claim that FERC's decision requires gas consumers to subsidize Great Plains, an outcome the Commission has previously rejected with respect to failed SNG plants. 274 FERC responds to the PUCs' claims by arguing that Elizabethtown III, 10 F.3d at 873-74, has already settled this issue. Elizabethtown III reviewed FERC's orders approving restructuring agreements between Transco and its customers. The petitioners challenged Transco's passthrough of its above-market cost of SNG from Great Plains on the basis that customers should pay rates based only upon the costs they cause the pipeline to incur. Id. at 873. We rejected that argument, however, concluding that the departure from cost-causation principles was justified because, had the Great Plains plant succeeded in increasing the supply of natural gas, it would have contributed also to reducing the price of natural gas, to the benefit of all natural gas consumers. Id. at 874. 275 The PUCs argue that Elizabethtown III is inapposite because it did not consider the treatment of Great Plains gas in a restructuring proceeding in light of the overall purposes of Order No. 636. Although the PUCs are correct that Elizabethtown III does not address Great Plains gas in light of Order No. 636, we note that the case was both argued (February 23, 1993) and decided (December 17, 1993) after the issuance of Order No. 636 (April 16, 1992), Order No. 636-A (August 12, 1992), Order No. 636-B [319 U.S.App.D.C. 119] (November 27, 1992), and even Order No. 636-C (January 8, 1993). The Elizabethtown III court thus had ample opportunity to consider the consistency of the Great Plains volumetric surcharge with the overall policy objectives of the Order No. 636 regime. Petitioners point to no developments since the Elizabethtown III decision that effectively distinguish that case from the issue before us, and we are accordingly constrained by Elizabethtown III 's treatment of the Great Plains issue. We therefore reject petitioners' challenges to FERC's treatment of Great Plains gas.