Why Has the FERC Allowed for the Recovery of GSR Costs?
According to the FERC: “While pipelines may make up lump sum payments to reform such contracts, and such costs will be labeled ‘Order 636 transition costs,’ the pipelines will presumably receive more favorable prices or other valuable consideration resulting from contract reformation. If the Commission had not issued Order No. 636, and the contracts in question were not reformed, the pipeline would likely have had to pay the higher prices or be subject to the less favorable contract terms, and, assuming the costs were not excessive due to fraud, abuse, or similar grounds, the pipeline (under a pre-Order No. 636 regime) would be legally entitled to recover the prudently incurred costs of such contracts from its customers. Thus, the pipeline’s sales customers and former sales customers that will share the costs of realigning gas supply contracts will also stand to benefit from the realignment of those contracts.”4 However, GSR cost recovery will not be as extensive as was allowed under O
