The U.S. Circuit Court of Appeals in Washington has upheld most of the Federal Energy Regulatory Commission's Order 500 revisions and the take or pay crediting mechanism in the original rule.
The court upheld Orders 500 H and 500 1 and accepted FERC's explanation about why it did not use Natural Gas Act Section 5 powers to change take or pay contracts.
Pipelines had argued for the latter course, but the court agreed with FERC that such an action would extend commission jurisdiction to many gas sales contracts outside FERC's purview.
The court said, "We have no basis whatever for forcing the commission into interference with thousands of contracts in the form either of generic rules or interminable case by case decisions, which in either event would be only dimly related to the price difficulty that is the core of the pipelines' problem and is plainly off the commission's reservation."
The Natural Gas Supply Association said the court's decision pleases producers. "Hopefully," NGSA said, "this will lay to rest debilitating issues of the past."
The court ordered FERC to reconsider whether it can pregrant abandonment of firm transportation that customers have converted from sales demand.
That procedure freed pipeline companies from seeking individual approval from FERC to abandon transportation service after contracts expire.
The court said FERC had failed to adequately explain its reasoning for pregranted abandonment but did not cite any legal obstacles to the practice.
The court also ordered FERC to reconsider a provision for "double crediting" that allows one pipeline to claim credit for transporting gas another pipeline has bought from a producer.
"This appears to provide rich opportunities for mutual back scratching among pipelines-to arrange for transporting of each other's gas for the purpose of generating credits," the court said.
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