Opinion ID: 146475
Heading Depth: 3
Heading Rank: 2

Heading: Imposing Standards in the Middle of the Pipeline

Text: Florida Gas also argues that the Commission's decision to impose the new standards in the middle of its pipeline was arbitrary and capricious. It argues that this decision deviated from the Commission's consistent prior practice of imposing such standards only at delivery/receipt points. The Commission counters that it has no such practice. Regardless of whether there was a prior practice of this sort, Florida Gas also asserts that the only logical place for imposing the new standards is at delivery/receipt points. At those points, there is a change in control, and the pipeline can identify and refuse nonconforming deliveries to ensure that its commingled stream will meet applicable gas standards. Florida Gas raised these objections in its petition for rehearing. When the Commission refused to budge, Florida Gas sought to skirt the problem. It first filed tariff sheets that would have applied the Market Area standards at its Western Division receipt points, the last points at which it could exercise control over the composition and quality of the commingled steam before it reached the Alabama-Florida border. The Commission rejected this approach. Fla. Gas Transmission Co., 119 F.E.R.C. ¶ 61,185 (May 25, 2007) (letter order). Florida Gas then sought to eliminate the language applying the new standards to gas entering the Market Area from the Western Division. The Commission likewise rejected this approach. Fla. Gas Transmission Co., 120 F.E.R.C. ¶ 61,128 (Aug. 2, 2007) (letter order). We agree with Florida Gas that the Commission did not adequately respond to its objections. First, the Commission argued that it was consistent to subject all gas that enters the Market Area to the new standards. Although it is in one sense consistent to treat all gas identically, it is a foolish consistency in this case, for doing so equates two categorically different sources: the commingled stream from the Western Division and off-system receipts in the Market Area. Given the record, treating these two sources identically makes no sense. Second, the Commission characterized the Alabama-Florida border as a receipt point. Initial Order ¶ 230. But there is simply no receipt point at the Alabama-Florida border. Third, it argued that Florida Gas was in the same position as any pipeline seeking to comply with the quality standards imposed by a downstream pipeline. Order on Rehearing ¶ 138. But this treats Florida Gas as two separate pipelines, which it is not. If it were two different pipelines, there would be a delivery/receipt point at their interconnection, a change in control, and presumably an interconnection agreement addressing gas quality. In this case, however, there is one pipeline, no delivery/receipt point, and no change in control. Thus the Commission's responses do not address Florida Gas's fundamental objection, which is that it lacks the practical ability to control the quality of its commingled stream at the Alabama-Florida border unless it can control the quality of the upstream deliveries it receives before they commingle. Moreover, the Commission failed to identify any mechanism through which Florida Gas (or any other pipeline) could maintain a compliant commingled stream without controlling the quality of upstream deliveries. Although the Commission rejects the suggestion that it has a policy of imposing gas quality standards only where there is a change in control, it does not dispute Florida Gas's assertion that its decision imposing the new standards in the middle of the pipeline is unprecedented. Since a commingled gas stream is the blended product of upstream deliveries, its composition necessarily varies based on the composition, volume, and timing of those deliveries. Imposing the standards on a commingled stream without allowing the pipeline to control the quality of upstream deliveries hamstrings the pipeline's ability to meet those standards. The Commission's assertion that past performance suggests that Florida Gas may be able to meet the new standards at the Alabama-Florida border without changing its Western Division tariff, id. ¶ 139, only highlights the complete lack of evidence that Western Division gas poses any identifiable problem. If the Commission desires to impose standards in the middle of a pipeline, it must give a rational basis for doing so and explain in practical terms how it expects the pipeline to meet those standards going forward. It has not done so in the orders before us.