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US Supreme Court lets stand FERC rates for Transco gas pipeline expansions

The North Carolina Utilities Commission has failed to get the U.S. Supreme Court's help in its drive to challenge Transcontinental Gas Pipe Line Co. LLC's interstate natural gas pipeline expansions on the grounds that the projects negatively affected North Carolina.

The commission, or NCUC, challenged the project rates for months, taking the issue all the way up to the high court, but on Oct. 15 the Supreme Court declined to review another court's decision that the commission lacked standing.

The NCUC in multiple pipeline dockets has questioned whether the Federal Energy Regulatory Commission's approach considers whether pipeline returns reflect market conditions. Specifically, the commission has challenged whether FERC's approach produces recourse rates that serve their intended purpose: providing a check on a pipeline's market power in reaching negotiated rates with project shippers.

The state regulators previously lost on the question of their standing to make the challenge in the U.S. Circuit Court of Appeals for the District of Columbia, when they tried to overturn FERC orders authorizing three Transco projects approved in February 2017.

The projects at issue were the 1.7 Bcf/d Atlantic Sunrise expansion, the 448 MMcf/d Dalton expansion and the 250 MMcf/d Virginia Southside II expansion. Already in service, all three are part of Transco's effort to expand its mainline system, which overlaps key eastern U.S. market areas where both supply and demand is growing fastest.

Atlantic Sunrise was a predominantly producer-backed expansion designed to help unlock production from the prolific northeastern Pennsylvania producing area and send it to markets farther south. Dalton and Virginia Southside were primarily demand-pull projects aimed at bringing more low-cost supplies into growing demand markets in the Southeast and mid-Atlantic.

After FERC approvals, the NCUC — joined by the New York State Public Service Commission as an intervenor — asked the D.C. Circuit to set aside the FERC orders on the grounds that the recourse rate FERC used relied on an outdated and inflated pretax return. Because recourse rates are intended to constrain a pipeline company's ability to exercise market power during negotiations with customers, they argued that these rates undermined negotiated rates.

But the D.C. Circuit, in an unpublished judgment April 3, found that the state commissions did not provide enough evidence to show they had been affected, meaning they lacked standing to lodge the complaint. For instance, the court found neither party had shown a substantial probability that capacity from Atlantic Sunrise would flow into their respective states. (North Carolina Utilities Commission v. FERC, 18-1018)

It was that judgment that the Supreme Court on Oct. 15 declined to review.

In seeking a Supreme Court review, the NCUC had argued that the D.C. Circuit finding conflicted with precedent on the "special solicitude" afforded to state litigants that challenge federal agency actions affecting the state's interests. NCUC argued that it was empowered to appeal before federal and state courts "as in its opinion may be needed" to secure just and reasonable rates and service for utility users in its territory.

FERC countered that the NCUC failed to show that North Carolina ratepayers would pay higher rates because of the projects, or that subscribed capacity would even be delivered to North Carolina. FERC also said the NCUC failed to show the recourse rates tainted negotiated rates that had already been agreed on.

Moreover, FERC said NCUC misconstrued the legal precedent in Massachusetts v. EPA, in which the Supreme Court in 2007 recognized the state and its residents suffered a concrete injury in the form of rising seas that swallowed coastal land. Contrary to the NCUC contention, FERC said the court in Massachusetts did not supplant traditional grounds for determining standing.

NCUC's petition is one of a series of protests it has pursued on natural gas pipeline projects. Others targeted include Transco's 582 MMcf/d Leidy South project and the MVP Southgate project, an extension of the main Mountain Valley Pipeline project that would serve SCANA Corp. utility PSNC Energy.

Maya Weber is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.