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decided: February 29, 1988.


Appeal from the Orders of the Pennsylvania Public Utility Commission, in the case of Pennsylvania Public Utility Commission v. Union Gas Company, Nos. M-7805005F085, R-842752 and P-86009.


John M. Quain, with him, Norman James Kennard, Tucker Arensberg, P.C., for petitioner.

Billie E. Ramsey, Assistant Counsel, with her, Bohdan R. Pankiw, Deputy Chief Counsel, Daniel P. Delaney, Chief Counsel, for respondent.

John H. Isom, with him, Jesse A. Dillon, Morgan, Lewis & Bockius, for intervenor, Union Gas Company.

Judges MacPhail, Palladino, and Senior Judge Kalish, sitting as a panel of three. Opinion by Judge Palladino.

Author: Palladino

[ 114 Pa. Commw. Page 126]

Carbonaire Company, Inc. (Petitioner) appeals from three orders of the Pennsylvania Public Utility Commission (PUC), which orders had the effect of denying Petitioner eligibility for various special rates set by the PUC.

The facts are long and complicated, but must be recited in order to properly frame the issues before us. With the hope that those interested will benefit from thorough exposition, we begin by setting forth the players in this proceeding. Union Gas Company -- Lehighton District (Union) is a regulated public utility which sells natural gas and provides transportation service (of customer-owned natural gas) to the public. Both Petitioner and New Jersey Zinc Company, Inc. (NJZ) are industrial customers of Union. NJZ operates a zinc

[ 114 Pa. Commw. Page 127]

    smelter in Palmerton, Carbon County, Pennsylvania, and is a major producer of certain zinc products. Petitioner, which was spun off from NJZ in 1984, produces ammonia and carbon dioxide products and has a "symbiotic" relationship with NJZ.*fn1 The other major player in this drama is the Transcontinental Gas Pipe Line Corporation (Transco), an interstate pipeline company which sells and transports natural gas. Up until the latter part of 1985, Transco provided transportation service, on an interruptible basis, to both Petitioner and NJZ.*fn2 It is important to note that although Petitioner and NJZ are similarly situated with regard to their method of purchasing and obtaining natural gas, they do not utilize the gas in the same way. NJZ is considered an end-user (November 13 order, p. 2) (i.e., uses natural gas as a heat source), while Petitioner uses natural gas as a raw material in the production of ammonia and carbon dioxide. The record indicates that up until the unfortunate breakdown of harmonious co-existence among all the players, NJZ's normal gas usage was 3,000 Mcf per day (November 13 order, p. 5), while Petitioner's normal usage was 3,700 Mcf per day (November 13 order, p. 6).

With exposition of the players complete, we begin our examination of the plot, from our vantage point in the loge, consisting of a series of PUC orders impacting upon the operation of NJZ, Petitioner and Union. The

[ 114 Pa. Commw. Page 128]

    catalyst for this flurry of proceedings before the PUC took the form of regulations promulgated by the Federal Energy Regulatory Commission (FERC). The FERC order in question, issued on October 5, 1985, set forth rules governing the transportation of natural gas to end-users, such as NJZ. On October 24, 1985, Transco announced it would not be providing service to NJZ under the new regulations. Transco stated its intent to stop service to NJZ as of November 1, 1985. Faced with the alternatives of shutting down production or purchasing gas from Union at the $6.70 per Mcf prevailing Union rate, NJZ petitioned the PUC for emergency relief and requested that the PUC establish a reduced temporary rate for the gas NJZ was going to have to purchase from Union, averring that it could not afford to pay Union's prevailing rate. One day later, on October 31, 1985, Union filed a similar petition and offered a temporary solution to NJZ's transportation problem. The solution called for Transco to transport a quantity of gas to a storage field on October 31, 1985. The stored gas would then be distributed to NJZ by Union, as needed by NJZ. The maximum storage capacity would be utilized, and it was estimated the stored gas would supply NJZ's needs for 25 days.

The PUC, by order entered November 13, 1985, approved Union's request for emergency relief, with some modification. The PUC's order stated that the special rate (of $3.16 per Dth*fn3) for the storage supply of gas was to be effective for service rendered on and after November 1, 1985. The PUC also expressly ...

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