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FERC Loses BNP Paribas Appeals Case in D.C. Cir.

By Jenny Tsay, Esq. on February 25, 2014 | Last updated on March 21, 2019

The Federal Energy Regulatory Commission (FERC) may need to reconsider its regulations regarding who pays for natural gas storage after the court ruled against it in BNP Paribas Energy Trading GP v. FERC.

It was disputed by BNP Paribas that FERC incorrectly assigned costs for natural gas storage. However, the judicial panel held that FERC failed to show any relevant changes to their historic, proportional-to-usage payment plan.

So how should fees be calculated?

Storage Fee Calculation

When it comes to charging companies for natural gas storage, The Natural Gas Act requires the rates to be just and reasonable and not unduly discriminatory. According to the BNP opinion, if FERC wants to charge and treat similarly situated parties differently, then it must come up with a rational connection between the facts and reasoning.

Historically, natural gas storage costs were calculated by the proportional use by the companies. So FERC generally can't single out one company to pay the full cost if multiple companies share the benefits of it. However, in this case, FERC ruled that the cost of new base gas should be paid by new customers of the storage facility, rather than being shared by all companies equally.

So BNP Paribas argued in the lawsuit that by unequally applying the cost, FERC was going against their traditional model of sharing the costs.

Cost Causation Principle

In determining how gas storage costs are calculated, FERC uses the cost causation principle. In BNP, the court observed that in order to satisfy the principle, the same treatment should be applied to both old and new customers, even if new customers are the ones increasing costs. Second, even if new customers are jacking up prices, the continuing customers may be the ones hiking it up in the future, so dividing the cost proportionally ensures that everyone benefits at some point.

Finally, in the true tradition of justice, the court opined that sometimes, equitable factors may occasionally trump the cost causation principle. However, there must be an adequate reason to stray from it.

The D.C. Circuit's recent decision in the Verizon net neutrality case has the FCC revising their laws, so the BNP Paribas decision may be a gesture to get the FERC to revise their regulations as well.

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