Opinion ID: 777086
Heading Depth: 2
Heading Rank: 1

Heading: Waiver of the rate ceilings for short-term capacity releases by shippers

Text: 19 The heart of Order No. 637 was the Commission's decision to lift — for a two-year period — the cost-based rate ceilings that it previously imposed on short-term releases of pipeline capacity by shippers with long-term rights to that capacity. Order No. 637 at 31,263. At the same time the order retained the ceilings for similar sales by the pipelines themselves. Id. Both aspects are attacked: the experimental decontrol — by certain shippers (collectively, Exxon), the exclusion of pipelines — by certain pipelines. 20 The Natural Gas Act (NGA), 15 U.S.C. § 717, et seq., mandates that all the rates and charges of a natural gas company for the transportation or sale of natural gas shall be just and reasonable. 15 U.S.C. § 717c(a). (It is undisputed for the purposes of this appeal that a shipper reselling its capacity is a natural gas company to that extent and thus subject to FERC jurisdiction over such resales. E.g., Texas Eastern Transmission Corp., 48 FERC ¶ 61,248 at 61,873, 1989 WL 262232 (1989); see also Order No. 636-A, Order on Rehearing, Pipeline Service Obligations and Revisions to Regulations Governing Self-Implementing Transportation Under Part 284 of the Commission's Regulations, FERC Stats. & Regs. [Regs. Preambles 1991-1996] (CCH) ¶ 30,950 at 30,551 (1992) (Order No. 636-A); United Distrib. Cos. v. FERC, 88 F.3d 1105, 1152 (D.C.Cir.1996) ( UDC ).) In its prior rulemaking aimed at enhancing competition by unbundling various pipeline services, the Commission recognized that a significant percentage of pipeline capacity reserved for firm service often went unused. Order No. 636, Pipeline Service Obligations and Revisions to Regulations Governing Self-Implementing Transportation Under Part 284 of the Commission's Regulations, FERC Stats. & Regs. [Regs. Preambles 1991-1996] (CCH) ¶ 30,939 at 30,398-400 (1992) (Order No. 636); cf. UDC, 88 F.3d at 1149. It granted authority for the holders to release such capacity, but, concerned that capacity holders might be able to exercise market power, imposed a ceiling on what the releasing party could charge. Order No. 636 at 30,418; Order No. 636-A at 30,553. The ceiling was derived from the Commission's estimate of the maximum rates necessary for each pipeline to recover its annual cost-of-service revenue requirement, Order No. 637 at 31,270, which the Commission simply prorated over the period of each release, id. at 31,270, 31,271. 21 As the Commission observed activity the market under this arrangement, however, it came to believe that the ceilings probably worked against the shippers they were designed to protect. With the rate ceilings in place, a shipper looking for short-term capacity on a peak day, and willing to offer a higher price in order to obtain it, could not legally do so; this reduced its options for procuring shortterm transportation at the times that it needed it most. Order No. 637 at 31,275-76. So the Commission decided to grant a two-year experimental waiver of the ceilings on releases of firm capacity. For this limited period, short-term capacity releases (defined for these purposes as less than one year) may proceed at market rates. Order No. 637 at 31,263. Capacity sales by the pipelines themselves, both short and long-term, continue subject to the cost-based rate ceilings. Order No. 637-A at 31,572. We here address the claims of the shippers who object to the experiment itself and the pipelines who object to their exclusion from its opportunities. 22