Associated Gas Distributors v. Federal Energy Regulatory Commission

MIKVA, Circuit Judge,

concurring in the judgment in part and dissenting in part:

I join in most of the majority’s conclusions about this massive and historic order. Unfortunately, even in the many instances in which I share the majority’s judgments, I remain wary of endorsing the totality of its exposition and analysis, and therefore I concur in the results only. Certainly a case of this scope requires a judicial response of some length and care, and I commend the majority’s devotion to that task. But the majority’s exhaustive, scholarly investigation of the history, regulation, and inner workings of the natural gas industry is, I believe, dangerously overbroad. I am concerned that tucked within the opinion’s labyrinthine treatment of the issues are loose language and stray observations that could be viewed to stand for the position of this court on a range of matters only peripherally before us in this case but that may be squarely presented in the future. I believe we would have better served these and future parties with a more concise exposition of the basis for each of our holdings today. In addition, I part company with the majority on the issue of the “optional expedited certificates,” which I believe improperly impinge on the power of state commissions to ensure affordable rates for individual consumers.

*65 Before detailing my one point of discord with the majority’s conclusions, I summarize the points of agreement. I fully agree that the Commission has statutory authority under the NGA and the NGPA to impose the open-access requirements. I also agree that as currently written, the so-called “first-come, first-served” condition is far too inchoate to bind industry members; before the Commission can seek to enforce this condition, it must elaborate how it works in practice, and that explanation must pass judicial review. I also share the majority’s view that there is no legal defect in the rate provisions of Order No. 436. And I agree with the court’s disposition of the contract demand adjustment provisions: the Commission chose to rely on faulty authority for implementing the CD conversion, and it failed to provide independent grounds for the CD reduction provision. On remand, FERC.can attempt to correct both these inadequacies.

I share the majority’s appraisal of the Commission’s treatment of the take-or-pay issue. The Commission’s decision to take no affirmative action to ease take-or-pay liabilities is especially questionable in view of the fact that Order No. 436 actually exacerbates the already acute problem in at least two ways. First, the nondiscriminatory access condition significantly weakens the pipelines’ bargaining position vis-á-vis producers; it is fanciful to imagine that producers will agree to meaningful reforms in their take-or-pay contracts when they know that the pipelines must transport their gas in any event. Second, the CD adjustment provisions prevent the pipelines from enforcing contracts that would pass along at least some of the high costs of take-or-pay contracts to the local distribution companies (LDCs). Thus, the pipelines effectively get squeezed from both ends. The Commission’s insouciance in the face of these circumstances, many of which it helped bring about, is inappropriate. On remand, the Commission has a number of options before it, but I believe these should not include doing nothing whatsoever to assuage the take-or-pay situation. To the extent the majority invites the Commission to opt again for inaction but simply employ different reasoning, I dissent from the suggestion. How best to apportion these spiraling take-or-pay liabilities among the different players in the industry is admittedly a delicate problem. But the Commission’s decision to close its eyes and hope the problem will go away is no solution and should not be tolerated on remand.

Finally, I believe the majority’s treatment of the optional expedited certification procedures unduly vitiates the ability of state commissions to provide for affordable energy for their residents. These procedures will make it far easier for pipelines to “bypass” LDCs — the local utilities with whom most consumers deal directly — and sell gas directly to large industrial end users. As the majority points out, maj. op. at 1035, the chief reason that LDCs are vulnerable to bypass is that they frequently are required to subsidize residential consumers by charging higher rates to these large industrial end users. State commissions impose such two-tiered rate structures in order to protect local consumers, many of whom otherwise would be hard-pressed to afford their most basic energy needs. This practice has a long existence in the public utility field, and there is nothing in federal law that prohibits it. By facilitating efforts to bypass LDCs, the Commission effectively has overridden the states’ ability to make such policy choices. Industrial end users will now be able to leave the system and get cheaper gas from the bypassing pipeline, leaving captive residential consumers to pay a greater proportion of the LDC’s fixed costs. Thus, with no express invocation of federal preemptive power, the Commission has prevented the state commissions from protecting affordable rates for local consumers, which is a quintessential example of a matter of essentially local concern that should be regulated locally. See Panhandle Eastern Pipe Line Co. v. Michigan Public Service Comm’n, 341 U.S. 329, 333 , 71 S.Ct. 777, 779 , 95 L.Ed. 993 (1951). This is why the state commissions were virtually uniform in urging the Commission to reconsider and in asking us to set aside this portion of Order No. 436. I believe the Commission, *66 and now this court, too quickly dismissed these important concerns about intrusion into the states’ sphere of authority and too casually disregarded the needs of the everyday consumer, whose energy bill is likely to increase dramatically as a result of this ill-considered provision. I believe also that the majority fails utterly to hold the Commission to its legal requirement of providing a reasoned explanation for its departure from its previous policy against bypass. See Panhandle Eastern Pipe Line Co., Opinion No. 539, 39 F.P.C. 581 (1968). For these reasons, I dissent from that part of the court’s opinion approving of the optional expedited certification provisions of Order No. 436.