posted on Wednesday, November 22, 2006 1:56 PM
by
Gunnar Birgisson
Court Decision Likely to Roll Back Applicability of Standards of Conduct for Both Pipeline and Utility Affiliates
A three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit in a November 17 ruling struck down a divided (2-1) FERC expansion of the applicability of Standards of Conduct that prohibit interstate natural gas pipelines and electric transmission grid owners/operators from sharing non-public pipeline or transmission- grid information with affiliates. Before the November 2003 expansion, the Standards applied only to the marketing affiliates of the pipes and transmission systems; after, it applied to all “energy affiliates.” Responding to natural gas pipelines’ complaints that the expanded applicability would cost the industry an estimated $240 million annually and was based on no evidence of preferential treatment of “energy affiliates,” the panel held that FERC’s “vast expan[sion] of the reach of the Standards,” based only on a theoretical possibility of affiliate favoritism, violated the Administrative Procedures Act requirement of reasoned decisionmaking. FERC has 45 days to petition for rehearing, barring which the case will be remanded to the agency. On remand, according to panel, FERC may (1) confine the Standards to market affiliates — those who actually buy and sell the transmission capacity of the pipes and wires, (2) develop a factual record of abuse that would justify the expanded applicability, or (3) try to develop support for the expansion based on a “theoretical threat of abuse.” The panel cautioned that the theoretical approach would likely fail.
As precedent, the panel decision reigns in the Standards as applied only to “energy affiliates” of natural gas pipelines, such as producers, gatherers, processors and risk managers, and not to the comparable affiliates of electric transmission system operators. But this distinction is likely to vanish on remand since the agency prefers uniform rules for accessing natural gas pipelines and electric transmission systems to the extent possible. Moreover, since one of the most vocal opponents of the expansion from early in its genesis, then-Commissioner Joe Kelliher, is now the FERC Chair, odds are that the agency won’t seek rehearing and, instead will retreat on remand to its original application of the Standards only to marketing affiliates of the pipes and grid operators.