(CN) – A gas pipeline operator can change its negotiated rates with shipping companies without approval from the Federal Energy Regulatory Commission, the D.C. Circuit ruled.
Iberdrola Renewables sued the FERC for allowing Alliance Pipeline, operator of an 887-mile natural gas pipeline stretching from northern North Dakota to Chicago, to change its rates on Iberdrola’s predecessor in interest, PPM Energy.
The plain language of the contract between Alliance and PPM Energy allowed rate changes without agency approval, Judge Thomas Griffith ruled, denying Iberdrola’s petition for review.
PPM Energy had selected a negotiated rate with Alliance rather than a recourse rate, calculating that it would benefit more from bargaining. In late 2007, Alliance proposed to increase the negotiated rate by 6 percent, causing it to exceed the recourse rate for the first time.
PPM Energy asked the commission to review the rate hike, but the agency refused, saying Alliance was allowed to change negotiated rates to keep pace with operating costs. Under the Natural Gas Act, the FERC only reviews changes to negotiated rates if the contract demands it, the ruling states.
“That the negotiated rate now exceeds the recourse rate does not entitle Iberdrola to FERC review of Alliance’s rate changes,” Judge Griffith wrote.
Iberdrola argued that the contract did not have a mechanism to control how Alliance calculates operating costs, making rate increases ambiguous.
“We do not doubt that such a mechanism would be of benefit to this shipper and might lead to greater clarity regarding the basis of the rate change,” Griffith wrote. “But that is not the deal that was struck.”
The contract itself is clear and unambiguous, “leaving the shipper exposed to Alliance’s reported changes in operating costs,” Griffith concluded.