News Developer, DOE defend synfuel operation

Dakota Gasification Co. (DGC) and the U.S. Department of Energy have attacked a finding by an official of the Federal Energy Regulatory Commission involving synfuel production in North Dakota. At issue is a preliminary decision by FERC Administrative Law Judge Michel Levant. Late last year he overturned 1994 contract settlements among DGC, DOE, and pipeline companies that buy synthetic gas from DGC's Great Plains coal gasification plant near Beulah, N.D. (OGJ, Jan. 8, p. 24).

Feb. 12, 1996

3 min read

Dakota Gasification Co. (DGC) and the U.S. Department of Energy have attacked a finding by an official of the Federal Energy Regulatory Commission involving synfuel production in North Dakota.

At issue is a preliminary decision by FERC Administrative Law Judge Michel Levant. Late last year he overturned 1994 contract settlements among DGC, DOE, and pipeline companies that buy synthetic gas from DGC's Great Plains coal gasification plant near Beulah, N.D. (OGJ, Jan. 8, p. 24).

Levant held that the settlements were not prudent and created a new price formula. He ordered the pipelines to make refunds to their customers.

Pipeline customers had filed documents claiming that they were being overcharged for gas from the synfuels plant. However, among other things, DGC contends that the refund of more than $275 million would force a shutdown of the 11 year old operation.

FERC has said it will make a final decision by yearend.

DGC's argument

DGC urged FERC to reject Levant's finding of last Dec. 29 because he incorrectly refused to consider national energy interests and improperly ordered retroactive refunds to gas purchasers.

In its Jan. 29 filing, DGC said FERC should reaffirm its Opinion 119.

That opinion, issued in 1981, upheld passthrough of synthetic gas costs by pipelines to their customers as outlined in original gas purchase agreements. Opinion 119 was the result of settlement negotiations following the District of Columbia Court of Appeals overturning FERC's initial order, Opinion 69, that approved the Great Plains project.

Pipeline customers helped draft the gas purchase agreements and did not contest the settlement, DGC said. "Now, 15 years later, they seek to get out of that settlement."

DGC also said Levant:

Erred in his finding that there are "truly exceptional circumstances" to reopen Opinion 119.
Has no authority to order a retroactive refund under FERC rules governing this type of complaint proceeding. So if there are any rate changes ordered by FERC, they must be prospective from the date of a final FERC order, not retroactive to 1993 as ordered by Levant.
Did not adequately consider the harm his decision could inflict on North Dakota and its residents. A study has found the plant's direct and indirect economic benefit to be $494 million/year in North Dakota.
Made no adequate justification for the new price or transportation rate ordered in his December decision.

DOE's stance

DOE in its response to Levant's finding told FERC the contract settlements are prudent because they resolve long term court disputes, reform high priced gas contracts in today's competitive market, provide a long term source of gas at market based prices, protect the financial and energy policy interests of DOE and taxpayers, and coincide with previous FERC policy and decisions.

DOE also reasserted the public interest in the Great Plains project through the settlements that provide long term, reliable supplies of natural gas, continued operation of the plant, and continued development of innovative technologies.

"By keeping the plant operational, the technological, environmental, and energy security and diversity concerns that prompted the government's support for the Great Plains project will continue to be addressed," DOE said.

"It was DOE's intent in 1988 to convey all its rights and privileges under the original gas purchase agreements to DGC, and DGC relied on FERC's Opinion 119 finding that those agreements were prudent."