A federal appeals court yesterday threw out a Federal Energy Regulatory Commission decision that had begun to provide cheaper natural gas and told the agency to rewrite the ruling.
The U.S. Circuit Court of Appeals upheld most portions of a 1985 FERC ruling that set up guidelines changing how gas pipeline companies operate. Previously, pipelines owned the gas they transported, buying it from producers and selling it to utility companies that usually had no other supplier. The FERC decision turned the pipelines into transportation companies, giving utilities the opportunity to buy gas from the cheapest producers and pay the pipelines to ship it for them.
The three-judge appeals court panel sent 65 lawsuits involving most of the natural gas industry back to FERC to reconcile inconsistencies in its decision.
It was not clear yesterday what the effect of the ruling would be on the price of natural gas in the Washington area. Columbia Gas Transmission Corp., which supplies the majority of natural gas to Washington Gas Light Co., said yesterday that it does not expect any immediate effect from the court ruling.
Last winter, Washington Gas Light customers saw a 6 percent decrease in fuel costs because of transportation of cheap gas by Columbia, one of the few major pipelines that has been willing to transport gas for its utilities, said WGL spokesman Cate Barnett. Columbia spokesman William Chaddock said yesterday that the company plans "no immediate changes," but is waiting to review the court ruling.
The court said the FERC ruling failed to address two key issues. Under the transportation rules, utilities can reduce the amount of gas they have contracted to buy from those pipelines that refuse to transport natural gas. The court said those rules "suffer from a want of both legal authority and reasoned decision making."
FERC also never decided what to do about long-term contracts many pipelines signed with producers to buy gas. Many pipelines are paying huge sums for high-priced gas while the price of gas has fallen. Some pipelines have refused to pay the producers and now owe them about $6.8 billion for high-priced gas.
Pipelines have wanted to buy out the long-term contracts before agreeing to transport gas and want to pass on part of those costs to utility customers. Though FERC has made some provisions for that, some pipelines are not satisfied and have refused to transport natural gas for their customers.
"The commission's decision not to take any affirmative action to solve the problems posed by the uneconomic producer-pipeline contracts also fails to meet the standards of reasoned decision making," the court said. The court said the issue of letting utilities refuse gas from pipelines cannot be separated from the question of whether pipelines must pay for high-priced gas.
"There is no immediate impact on transportation," said Tamara Allen-Young, a FERC spokeswoman. However, Allen-Young said it wasn't clear what would happen once the court tells the FERC how to implement the opinion, probably within a few weeks. "We don't know what happens to gas supplies then," she said.
WGL spokeswoman Cate Barnett said the local utility expects FERC to set up special rules that allow pipeline to transport gas for utilities while the regulatory issues are thrashed out. "It seems pretty unlikely that the whole transportation system would shut down," she said.