The Columbia Gas Transmission Corp., in a decision that could significantly reduce natural gas prices nationwide, yesterday was ordered to pay refunds that may total millions of dollars to customers in nine states, including the Washington metropolitan area.
An administrative law judge for the Federal Energy Regulatory Commission ruled that Columbia, the principal gas supplier for the Washington area, had engaged in unjust and abusive practices that resulted in the company paying more than it needed for natural gas. Essentially, the FERC official ruled that Columbia has been overpaying its gas suppliers and then passing the costs on to its customers.
The decision, which plows new ground in defining abuse under the Natural Gas Policy Act, is one of four similar proceedings before the agency and is expected to set the precedent for the others. By setting strict management standards aimed at keeping the price of natural gas within market-related limits, the decision is likely to have a substantial long-run impact on gas prices and play a key role in the debate over whether to remove government price controls from natural gas.
Columbia was able to recover more than $800 million in 1981 and 1982 from its customers in Washington, Baltimore, Richmond, the Midwest and other areas by passing on the high costs it paid its affiliated suppliers.
If yesterday's decision is upheld, Columbia will have to refund a portion of those charges. The exact amount will be determined in additional proceedings.
In a wide-ranging decision, Columbia was ordered to discontinue a number of "unjust" and "unreasonable" practices, including desisting from cutting back on purchases of cheaper gas in order to buy more high-cost gas.
The company also was ordered to end a "conflict of interest" situation in which a Columbia affiliate that sells gas to the pipeline company was allowed to negotiate those prices on behalf of both itself as a seller and Columbia as a buyer.
The decision is not final unless it is affirmed by the Federal Energy Regulatory Commission. Although that body generally upholds the decisions of its administrative law judges, the ruling in this case rejects both the opinion of the FERC staff that Columbia was playing within the rules and a policy statement by the commission itself that high prices passed on through "purchased gas adjustments" may only be overturned in cases of misrepresentation.
With his decision yesterday, administrative law judge Michel Levant tosses an incendiary issue to the five energy commissioners.
Columbia Gas Transmission Corp. spokesman Bill Chaddock said the company would not be able to comment until it receives a copy of the order, which caught the pipeline company and others by surprise, coming as it did late in the last work day before the New Year holiday.
"It would be unfair and inappropriate to comment till then," Chaddock said. "We'll just have to take a look at it."
"There's no doubt it's a significant ruling that, if upheld, is going to benefit consumers, although we don't know how much," said Paul Young, a spokesman for Washington Gas Light Co. "It seems that he has struck right at the heart of the whole discussion."
WGL was one of a large number of protesters that had asked FERC to reexamine the "purchased gas adjustment" charges that Columbia passed on to its customers. Others included Baltimore Gas and Electric Co., the People's Counsel of Maryland, the cities of Charlottesville and Richmond, Va., the Citizen/Labor Energy Coalition, the Process Gas Consumers Group, Sen. Howard Metzenbaum (D-Ohio), several state public service commissions, and several utility companies in Ohio.
More than 40 percent of Columbia's gas is sold to Ohio customers.
Metzenbaum called the decision "sensational" and said it represents "a very courageous ruling on the part of the administrative law judge."
"If it holds up," Metzenbaum added, the ruling "is like a breath of fresh air as the year closes, in a year that has not had many victories for consumers."
"It's a great victory for consumers," agreed Ed Rothschild of the Citizen/Labor Energy Coalition. "I think the commission is going to be hard pressed to reverse this decision."
In a policy statement earlier this year, FERC had said that fraud and abuse mean various degrees of "misrepresentation." More recently, the commission has said that purchase gas adjustment proceedings were not the proper place to challenge the buying practices of pipeline companies and that such challenges should be mounted in general rate cases.
In his ruling, Levant said yesterday that the commission's definition of abuse "appears to be too narrow in light of evidence developed on this record." None of the protesters had charged fraud.
Among other findings, Levant said that evidence in the proceedings "lead to the conclusion that Columbia did not take necessary steps to insure that it obtained the cheapest gas possible" from pipeline sources and that it had not operated a purchase cutback program in a way most beneficial to its customers.
Levant also found that Columbia paid "greatly escalated" prices for high-cost, deregulated gas, resulting in a considerable surplus within the company's system. At the same time, Columbia was cutting down on the amount of lower cost gas it bought.
"A practice which results in the sale of greater quantities of high-cost deregulated gas, by withholding low-cost regulated supplies, is tantamount to deliberately removing regulated gas supplies form the market, and, therefore, contravenes the congressional objective of continuing the sale of regulated gas," he wrote.
While Congress left unregulated the prices of certain types of gas to encourage development, it regulated the cost of gas that already had been found, in order to keep overall prices down. The rationale was that allowing large increases in the prices of gas already available would not provide an incentive for exploration, but would simply provide unnecessarily large earnings for the producers of "old" gas.
Levant ruled that Columbia's practices "represent serious violations by a natural gas company of fundamental obligations" under the law to provide service at low, reasonable rates.