On June 16, 2016, FERC granted Southwest Gas Corporation’s (“Southwest Gas’s”) request for rehearing and approved Paiute Pipeline Company’s (“Paiute’s”) proposal to impose a fuel retention charge of zero, and a separate, stand-alone lost and unaccounted for (“L&U”) gas charge, for transportation service that only utilizes Paiute’s Adobe Lateral.

In its prior December 14, 2015 Order, FERC rejected Paiute’s proposal. Because the Commission granted rehearing in its June 16 Order and accepted Paiute’s proposal, the Commission also addressed and accepted Paiute’s original proposal to revise its imbalance trading mechanism. As a result, Paiute will also impose a charge (reflecting the different fuel retention and L&U rates) for imbalance trades between gas transported solely through its Adobe Lateral, and gas transported on other portions of its pipeline system.

Southwest Gas asserted in its rehearing request that rejection of Paiute’s proposed zero fuel retention charge and its proposed stand-alone L&U gas charge was inconsistent with Commission policy because no fuel was actually consumed in providing transportation service on the Adobe Lateral. The Commission responded that its policy is that all transportation service will be assessed a fuel charge unless a pipeline can prove that no fuel is actually used in providing transportation service. Since Paiute and Southwest Gas demonstrated that there would be no compression on the Adobe Lateral, the Commission agreed that no fuel would be used in providing service over the Adobe Lateral, and granted rehearing on this issue, authorizing Paiute to employ a fuel retention charge of zero for service on the lateral.

The Commission also granted rehearing with respect to Paiute’s proposal to use a separate, stand-alone L&U gas charge for service on the Adobe Lateral. The Commission noted its policy that “[e]ven when no fuel component is charged for a certain transaction . . . the Commission has required pipelines to charge a lost and unaccounted for gas charge.” The Commission further found that Paiute proposed to install gas measuring equipment at the interconnection between the Adobe Lateral and Paiute’s system and also at the delivery point on the lateral, enabling Paiute to determine the specific amount of L&U gas existing with respect to providing transportation service on the lateral.

Because the Commission granted rehearing with regard to the first two issues, it determined to reconsider Paiute’s original proposal to impose a charge with respect to imbalance trading between the Adobe Lateral and other portions of its pipeline system. Paiute proposed the following new tariff provision:

For purposes of trading imbalances between the system and the Adobe Lateral at Delivery Location 8 – Adobe, the trade shall be adjusted for the difference between the system-wide Gas Used by Paiute percentage and the lost and unaccounted for gas percentage on the Adobe Lateral at Delivery Location 8 – Adobe for the month preceding the month in which the imbalance trade occurs.

The Commission found that Paiute had justified its proposed tariff language imposing a charge on certain imbalance trading. The Commission found that Paiute had demonstrated that the imbalance trades would be adjusted solely for the difference in fuel usage and L&U rates existing between the Adobe Lateral and the rest of Paiute’s system. Therefore, the Commission determined that Paiute’s proposal was narrowly tailored to keep the pipeline neutral as to its recovery of actual fuel usage and L&U gas.

The order can be found here.