Court Denies Appeal on Allocation of Costs Arising from Catalyst Default in AGL Market

July 8, 2011
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The Georgia Court of Appeals has denied a petition from MXenergy to review a lower court's ruling which affirmed the Georgia PSC's allocation of costs arising from the default of Catalyst Natural Gas, LLC in 2008.

Normally, a true-up process in the market compensates suppliers which over-deliver gas to the system (and whose gas is used by other marketers) by imposing charges on those which under-supply the system. However, the Catalyst default resulted in a short position by Catalyst with no means for long marketers supporting the delivery requirements for Catalyst customers to recover those charges.

The PSC agreed to a temporary use of monies normally directed to the Universal Service Fund (such as from penalties and asset management) to compensate long suppliers for 60% of any monies otherwise owed under normal operation of the true-up process but which could not be recovered due to the Catalyst default. Long suppliers were forced to absorb the remaining 40% of any costs resulting from the Catalyst default.

MXenergy appealed the decision, arguing that failure to compensate long suppliers for 100% of their monies owed represented an impressible taking.

The appeals court agreed with a lower court and denied MXenergy's claim.

"The commission did not forcibly appropriate MXenergy's property," the appeals court said. "MXenergy, as part of its voluntary participation in a regulatory scheme to which it had consented through its certification as a natural gas provider, nominated and delivered a specified amount of natural gas to the common system of Atlanta Gas Light. When another marketer later failed to fulfill its obligation to pay for the gas used by its customers, the regulatory scheme allocated the resulting costs among the remaining marketers in accordance with an established process. This is not a 'forced appropriation,' but exactly the consequential injury in the course of exercising lawful power contemplated by Louisville & Nashville," the appeals court said.

The appeals court affirmed that, "[t]he court shall not substitute its judgment for that of the agency as to the weight of the evidence on questions of fact."

The appeals court agreed that the decision to allocate only a portion of the monies otherwise directed to the Universal Service Fund to the Catalyst shortfall was, "a regulatory business issue and a question of regulatory policy," that was supported by the evidence. "Because some evidence supports that conclusion, MXenergy's argument in this regard is to no avail," the appeals court said.

The case is MXenergy Inc. v. Georgia Public Service Commission, A11A0200

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