Petition — City of Willcox v. Federal Energy Regulatory Commission
Supreme Court brief1978
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Court, U. &
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SEP 28 1978
IN THE
Supreme Court of the Mnited States
OCTOBER TERM, 1977
“ Wy-4g9 |
CITY OF WILLCOX AND
ARIZONA ELECTRIC POWER COOPERATIVE, INC.
Petitioners,
v.
FEDERAL POWER COMMISSION
Respondent.
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
ARNOLD D. BERKELEY
Suite 407
1925 K Street, N.W.
Washington, D.C. 20006
Attorney for Petitioner
September, 1977
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DICESARE - Printing — #314101 — Washington, D.C. 20006
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TABLE OF CONTENTS
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SUPP eee Ce CON GR bbe b keke ce diwdecwessecsn 3
REASONS FOR GRANTING THE WRIT.............. 7
ns A. vadeoatiaecne weet obese eens < 7
1). BOILER FUEL USE AND ABROGATION OF
SEE CUTE o.vdc bacdnae saeesbbneente 13
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APPENDICES
Appendix A— City of Willcox v. FPC, Opinion of June
YR erie hE ors a Se eee A-|
Appendix B— City of Willcox v. FPC, Opinion Denying
Rehearing of August 16, 1977.......cccccccccccecs A-63
Appendix C--FPC Opinion No. 697 .............5. A-75
Appendix D.—FPC Opinion No. 697-A............. A-125
Appendix E —Natura!l Gas Act, Section 4........... A-159
Appendix F —Natural Gas Act, Section 5........... A-163
Appendix G-—-Natural Gas Act, Section 19.......... A-165
LIST OF AUTHORITIES
American Smelting and Refining Co. v. FPC, 161 App.
D.C. 6, 494 F.2d 925, cert. denied 419 U.S. 882,
Be ee er reer ere Pry re err ee
City of Willcox v. FPC, decided June 14, 1977, rehearing
denied August 18, 1977 (D.C. Cir.) .............
Interstate Commerce Commission v. Louisville and
Nashville Railroad Co., 227 U.S. 88, 90-93 ......
Louisiana Power and Light Company v. FPC, 526 F.2d
Se CT a 6a CRE bS 064 dRR EW ESTE WESS Cad es oe
Morgan v. United States, 304 U.S. 1, 18
Ohio Bell Telephone Co. v. Public Utilities Commission,
ee es SO ED w6 6 d06b<c2cendstadiéons
N.L.R.B. v. Johnson, 322 F.2d 216, 220 cert. denied 376
RI aI GE EEE NT EM Sig ae ES OE SY re OO RCRD
Rodale Press, Inc. v. FPC, 132 U.S. App. D.C. 312, 407
ee EE PPT ee eee
SEC v. Chenery Corporation, 318 U.S. 80, 87-95.....
State of Louisiana v. FPC, 503 F.2d 844, 861........
United States v. Abilene and §.R. Co., 265 U.S. 274..
STATUTES:
Natural Gas Act, 52 Stat. 821-833, as amended:
15 U.S.C. 717(c)—717(r)
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DES invaberdciaes bee kk Vane ceiaaedtanees
NTI ME eee ee el pee bees «
Page
iv
ADMINISTRATIVE:
Pre Goby We. Gir, GP Pree Oe 38s cecdc ssseccenccwes a5 6
E! Paso Natural Gas, FPC Opinion No. 697, 51 FPC
BEOD ovevctiscecdtevaptaseesdscoedéackotneewnee 6,9
El Paso Natural Gas Co., FPC Opinion No. 697-A,
TE GEG: CPM ce ct bench eenessunvssenkikevianee 7,9
United Gas Pipe Line Co., order of November 30, 1973,
Docket Nos. RPTI-Z960 GF. onc cciveccccseccces 8, 12, 13
United Gas Pipe Line Co., Docket RP71-29e7 al, ......... 10
IN THE
Suprene Court of the United States
OCTOBER TERM, 1977
CITY OF WILLCOX AND
ARIZONA ELECTRIC POWER COOPERATIVE, INC.
Petitioners,
Y.
FEDERAL POWER COMMISSION
Respondent
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
The City of Willcox, Arizona and Arizona Electric Power
Coopcrative, Inc. (AEPCO) pray that a writ of certiorari be
issued to review the judgment and opinion of the United States
Court of Appeals for the District of Columbia Circuit entered in
this proceeding on June 30, 1977.
OPINIONS BELOW
The opinion of the Court of Appeals in City of Willcox and
Arizona Electric Power Cooperative, Inc., et al. v. Federal Power
Commission, not yet reported, appears as Appendix A to this
petition. The principal order of the Federal Power Commission
(FPC), Opinion No. 697 issued June 14, 1974 (Appendix C) and
its order denying rehearing, Opinion No. 697-A, issued
December 19, 1974 (Appendix D), are reported at 51 FPC 2053
and 52 FPC 1876, respectively.
JURISDICTION
The opinion of the Court of Appeals was entered on June 30,
1977. Timely petitions for rehearing were denied by Order dated
August 18, 1977 (Appendix B). This petition for certiorari is filed
within 90 days of June 30, 1977, the date upon which the Court
below issued its mandate. The jurisdiction of this Court is
invoked under 28 U.S.C. Section 1254(1) and Section 19%b) of the
Natural Gas Act, 15 U.S.C. §717r(b).
STATUTES INVOLVED
The statutory provisions germane to the decision of this case
are Sections 4, 5 and 19 of the Natural Gas Act, 15 U.S.C.
§§717(c), 717(d) and 717(r). These statutory provisions are set
forth in full as Appendices E, F, and G, respectively.
QUESTIONS PRESENTED
1. Whether the FPC denied due process of law, violated
Sections 4 and 5 of the Natural Gas Act, made findings
unsupported by any record evidence and stated reasons which
failed to justify its action in authorizing El Paso Natural Gas
Company (EI Paso) to allocate its inadequate gas supplies among
its customers on the basis of unverified “nominations” of
requirements in each of five hierarchical “end-use” priorities?
2. Whether the FPC denied due process of law, violated
Sections 4 and 5 of the Natural Gas Act, and stated reasons which
failed to justify its action in requiring all electric utility and
industrial boiler fuel use of natural gas to be cut-off completely
before any curtailment is imposed on other industrial users who
also can burs fuel oi! or coal, and in abrogating the superior
contractual rights of firm industrial users over interruptible users
in each priority?
STATEMENT OF THE CASE
This petition challenges the failure of the United States
Court of Appeals i or the District of Columbia Circuit to reverse
FPC orders which completely invert preexisting contractual
service priorities, a'locate El Paso’s inadequate gas supply among
its customers ona basis which permits them to “nominate” more
gas in the higher prioritics than they require, and compels boiler
fuel customers to absorb, in the first instance and predominantly,
the entire burden of curtailment on this pipeline system. This
inversion of curtailment prioritics is extremely costly to the
ultimate consumers of the electricity generated by Arizona
Electric Power Cooperative, Inc. and to the residents of the City
of Willcox!
E! Paso is an interstate gas pipeline serving customers in
California and in several states east-of-California. Willcox is a
city buying gas for its own use and other gas for resale to Arizona
Electric Power Cooperative, Inc., which its a rural, non-profit
'On a comparable thermal energy basis, measured by per million
BTU, AEPCO’s cost for natural gas is $.934 and its cost for fuel ofl is
$2.768. Thus, AEPCO incurs an additional cost of $1.717 per Mcf of
curtailed gas volumes. The data upon which these calculations are
based is derived from the “March, 1977 Report on Fuel Cost and
Quality”, issued by the FPC in Press Release No. 23305, August 1, 1977.
electric cooperative association engaged in the generation and
transmission of electrical power sold, on a firm basis, to four
other REA cooperatives which are totally dependent upon it (R.
1823, 4089). Over 65% of the electricity sold by the cooperative is
for residential and commercial consumption (R. 7091, 8323).
Willcox obtains its entire gas supply from El Paso and cannot
purchase gas elsewhere.
Willcox buys firm gas from El Paso and sells firm gas to
the cooperative under a contract extending from March 31, 1970
to December 31, 1983. These long-term contractual
arrangements are geared to the firm daily quantity of gas
required to operate a 98.5 megawatt combined cycle gas and
stcam turbine generating unit under full load conditions on an
economical basis (R.7084). This plant was designed to burn only
natural gas and built and financed in reliance upon firm
contractual delivery rights. When curtailed, it burns only diesel
fuel, the lightest, purest and most expensive grade of fucl oil. It
cannot burn any other fuels.
The FPC proceeding in which the challenged orders were
issued was initiated by El Paso’s July 6, 1971 tariff filing which
proposed to modify its plan prescribing priorities of service
during curtailment. For over 20 years, El Paso’s customers had
operated without complaint under tariffs which differentiated
only between residential, commercial, and industrial use, and
which treated all industrial use alike, except for the
subordination of interruptible to firm customers and of direct to
resale customers (R.246; 248; 249; 377; 241-42; 346; 9,781; 7,744;
7,816; R.16,590, note 3; R.10,802-03; 10,838; 10,713-11,264). El
Paso’s 1971 tariff proposal was cast in the same mold. It allocated
the pipeline’s capacity entirely on the basis of historical takes and
contract rights. Hearings were held only in the context of El
Paso’s tariff proposals and the then-conventional framework of
inquiry governing curtailment proceedings, which did not
contemplate a hierarchy of service priorities within the industrial
use class. No agency notice in this case even intimated that steam
generating boiler fuel use might be cutoff ahead of all other
industrial uses. No party to the permanent curtailment
proceeding ever proposed such a drastic reordering of existing
curtailment delivery priorities.
Hearings were concluded and briefs on the so-called
“permanent curtailment plan” were filed with the Administrative
Law Judge on July 21, 1972. El Paso, however, withdrew its tariff
filing on August 17, 1972 and asked the FPC to prescribe a new
short-term interim curtailment plan to meet the “emergency”
(R.11,928-70). Acting under Section 5 of the Act, the FPC
granted that motion and ordered the record reopened for the sole
purpose of receiving evidence on the need for an interim
emergency plan (R.12, 225-29.) Reopened hearings were held on
this limited issue, and initial and reply briefs were filed on
October 3 and October 10, 1972.
On October 31, 1972, the FPC prescribed a five step
“end-use” curtailment plan which subordinated boiler fuel use to
all other industrial use (R.13,355-68.) This change in El Paso’s
curtailment plan was not necessary to protect residential or
commercial users since they already enjoyed a complete priority
in deliveries over all industrial users (R.9781; 7744, 7816.) Nor
did the subordination of boiler fuel uses to other industrial uses
afford any economic benefits to residential or commercial gas
users. On the contrary, this policy imposes the ultimate cost of
purchasing higher priced substitute fuels upon the residential and
commercial consumers of electricity—who are also the
residential and commercial consumers of gas. In other words, the
electric utility or industral firm does not pay its own fuel bill.
Rather, it passes this cost on to the ultimate consumers of the
electricity it generates or the product it manufactures. Thus, this
2 That limited record is now being used by the agency and the Court
below to support the subordination of boiler fuel.
new FPC “end use” policy benefits only the industrial concern
which uses gas for heat, or for power in a process other than
steam generation.
In prescribing this interim plan, the agency disclaimed any
intent to rule upon the merits of the permanent plan (R.13, 664,
13, 360). The plan was to be effective only until October 31, 1973,
unless earlier terminated by agency approval of a permanent
plan. During the life of the interim plan, proceedings directed
toward the formulation of a permanent plan continued.
But, on January 8, 1973, before the Administrative Law
Judge rendered an initial decision, the agency issued Order No.
467 in Docket R-469. This statement of policy fixed a uniform
hierarchy of curtailment-related service priorities for all
interstate pipelines. /n almost all respects, these priorities were
identical to those adopted on October 31, 1972 in the short-term,
interim, “emergency” plan for El Paso. Thus, boiler fuel was
permanently subordinated to all other industrial uses, although
no such proposal was ever made in the permanent plan hearings.
On June 14, 1974, the FPC issued Opinion 697 prescribing a
permanent curtailment plan for El Paso’s system identical to the
interim emergency plan except for one minor change which
conformed those priorities to Order No. 467.4
Thus, there was no notice and can be no record evidence, on
the “end-use” factors which the FPC made the sole basis for its
radical changes in El Paso’s preexisting contracts and tariffs.
AEPCO believed that it was unfair for the FPC to render a final
adverse decision without any notice or without affording it the
‘Except that it subordinated interruptible custorficrs in a Priority
SB.
‘Thus, a special Priority 2 was given for storage injection gas.
opportunity to submit record evidence. Therefore, AEPCO
requested a reopening of the record so that evidence might be
taken on the matters first introduced in the agency’s final decision
(R. 16,953). This request was denied by Opinion 697-A
(Appendix D).
Accordingly, AEPCO filed a timely petition for review with
the United States Court of Appeals for the District of Columbia
Circuit. That Court ruled in its favor on certain of the issues
discussed in its opinion (Appendix A), i.c., fuel storage, pp. 34-38
and turbine fuel, pp. 24-25, but rejected its claim for equality of
curtailment for boiler fuel and other industrial fuel use (pp.
20-23). It also rejected the claim that the FPC’s end-use
curtailment plan based ona hierarchy of priority end-uses among
industrial customers could only be fairly administered on the
basis of actual data showing past historic end-use in each priority
(pp. 52-55). This latter ruling sanctioned the permission granted
by the FPC to El Paso to administer its curtailment plan solely on
the basis of self-serving customer “nominations” of requirements
in each priority.
REASONS FOR GRANTING THE WRIT
I. END-USE DATA
1. This petition raises issues of first impression and
exceptional importance. The Court of Appeals decision here on
the issue of whether the FPC is Iegally obliged to compel
interstate pipelines to collect data on the actual end-use
requirements of their customers, and to verify such data, is of
transcendent importance to the administration of the Natural
Gas Act and will affect every pending and future curtailment
case.
2. The overstatement of high priority requirements by
customers to the pipeline or distributor suppliers creates
fictitious shortages in Priority | and 2. During a period when
there is a shortage of natural gas, such overstatement of high
priority requirements endangers (rue residential and small
commercial customers not able to convert to other fuels by
diverting high priority gas to low priority use. This is plainly nor
in the public interest.
Furthermore, the adverse impact is not limited just to that
interstate pipeline system whose customers have overstated their
higher priority requirements. The United States has not seen the
last period of acute natural gas shortages such as those which
occurred in the 1976-77 winter. During such periods, pipelines
with less severe shortages assist pipelines with greater deficiencies
by selling them surplus gas or gas earmarked for low priority use.
Any toleration by the Courts or the FPC of overstatement of high
priority needs on one pipeline system clearly and directly impairs
the ability of that pipeline to supply gas to other pipelines which
are actually suffering more severe curtailment.
3. Until this case, the uniform practice of pipelines in
curtailment was to collect end-use data from their customers and
to themselves police such data. Many pipelines formed so-called
Data Verification Committees which, while not an adequate
substitute for adversary hearing procedures, were better than El
Paso’s complete refusal to gather actual data, or in some way .
investigate and verify the accuracy of its customers’ priority
classifications.
4. The FPC recognized that both end-use data and an
assessment of impact were essential to the implementation of the
five priority end-use curtailment plan it prescribed for another
pipeline. Thus, in an order issued November 30, 1973, in United
Gas Pipe Line Co., Docket Nos. RP7I-29, et al. the FPC
postponed the implementation of a plan virtually identicaF to the
SExcept that it subordinated interruptible customers in a Priority
5B.
plan prescribed here because of the lack of such data.
Furthermore, a reversal of the FPC’s action in making Opinion
697 and 697-A effective without any end-use data would result in
restoration of the preexisting El Paso contract and tariff
curtailment plan. That plan is an end-use plan affording the first
and second highest priority to residential and commercial
customers and to those industrial consumers who use gas for
purposes for which fuel oil or coal are not readily available
substitutes. © Thus, the situation in this proceeding parallels the
situation in the United proceeding where the FPC’s action in
vacating its order prescribing the five-step plan restored a similar
three step plan. The KPC there stated:
We note that United's three-priority plan now in
effect is an end-use plan. We can, therefore, permit its
use temporarily without impairment of our decision to
require, nationally, curtailment to be based on end-use
considerations. Our action here should not, therefore.
be confused with those situations where we have
refused to allow a continuation of ratable curtailment
plans not based on end-use considerations. [Slip Op..
p. 5].’
5. The Court of Appeals recognized that if the FPC had
authorized El Paso to assign end-use priority classifications to
particular customer requirements without any data, its action
would have constituted reversible error (App. A, p. 53).
Unfortunately, the Court was unaware that El Paso had been
given a specific license to do just this.
*The latter feature results from the FPC’s action in prescribing a
Priority 2 for industrial feedstock, plant protection and process gas,
which was agreed to by all partics and has now become a final and
nonappealable element of any El Paso curtailment plan.
’Ratable curtailment plans are those where the same system
average curtailment percentage is imposed on each customer.
10
Every curtailment plan limits each customer to a so-called
“quantity entitlement” which is the volume of gas taken in a
specific pre-curtailment “base year”. This prevents attachments
of new requirements by some customers to the detriment of those
customers who adhere to this service moratorium. “End-use
data” means the actual gas volumes consumed at the burner tip
by an individual customer in each of the different end-use
priorities. This is actual end-use data of the type necessary to
preserve the lawfulness of any end-use curtailment plan and there
is no other kind of end-use data.
El Paso however has substituted customer “nominations”,
i.e., customer requests for gas in each curtailment priority for
end-use data. Thus, “wishes” have been substituted for “facts”.
No customer can distort end-use data on the volume of gas
actually burned in a past period. But, every customer can
“nominate” more high priority gas than it actually has ever used,
or now needs. The accuracy of end-use data can be verified by
resorting to historic facts, but it is impossible to verify
“nominations” by any method. The temptation for gas
distributors and direct industrial customers to overstate their gas
requirements is so compelling that it is the rule, not the exception.
This Court may judicially notice the position taken on this very
issue by the FPC’s Staff Counsel in the United Gas Pipe Line
Company curtailment case, Docket RP71I-29 ef al., Phase 11.
There, the Staff challenged Priority 2 process gas requirements
and “questioned the validity of more than 90 percent of the direct
market process [gas] entitlements allocated by United.” *
Thus, the Court of Appeals has inadvertently legalized the
arbitrary, capricious and unreasonable scheme of administering
a curtailment plan which it expressly found would be illegal.
"Fin. 125, p. 41, Staff Initial Brief, filed February 18, 1977.
1!
6. The holdings of the Court of Appeals that the FPC's
findings on end-use data can be sustained by presumptions and
need not be supported by evidence (App. A, p. 53) is plainly in
conflict with the unbroken succession of cases in this Court
holding that an administrative agency must base its findings of
fact upon evidence of record, and that nothing can be treated as
evidence which is not introduced as such. Morgan v. United
States, 298 U.S. 469, 480; United States v. Abilene and S.R. Co.,
265 U.S. 274.
Therefore, the assignment of end-uses to priorities here
cannot constitutionally be based upon a complete disregard of
the rules of evidence and mere administrative fiat. This Court has
specifically condemned claims to such authority by
administrative agencies as a deprivation of statutory fair hearing
and due process of law. Interstate Commerce Commission vy.
Louisville and Nashville Railroad Co., 227 U.S. 8&8, 90-93.
Likewise, in Ohio Bell Telephone Co. v. Public Utilities
Commission, 301 U.S. 291, 300-305, this Court struck down a
state regulatory commission's action in basing findings upon
facts officially noticed, without any opportunity to cross-
examine and present rebuttal evidence, as “condemnation
without trial” rather than “the fair hearing essential to due
process” (/d., at 300). It is vital to note that this Court insisted
that quasi-judicial proceedings be conducted in full compliance
with the “inexorable safeguard” of a fair and open hearing,
stating in words particularly pertinent here:
There can be no compromise on the footing of
convenience or expedience, or because of a natural
desire to be rid of harrassing delay when that minimal
requirement has been neglected or ignored. [Emphasis
added. ]
7. There is no factual basis in the record to support the
Court's view that collection and testing of actual end-use data
12
would be a burden. That collection would involve sending to each
ultimate consumer and to each distributor one “fill-in-the-blank”
questionnaire. If obtaining end-use data is so burdensome, why
has it been possible to collect it in other FPC pipeline proceedings
and in much more comprehensive Federal Energy
Administrastion questionnaires? °
8. The Court's argument that AEPCO must demonstrate
specific errors in the data before it is entitled to a hearing is clearly
without merit. For, by definition, AEPCO can only offer such
proof after, not hefore, end-use data ts first collected and it ts
afforded the right to cross-examine and present rebuttal
evidence. The Court has unlawfully shifted the burden of proof
from the FPC, which is the proponent of the lawfulness of the
permanent plan and its administration, to AEPCO.
Furthermore, AEPCO has shown specific and major defects
in F1 Paso’s so-called “data”. For exaraple, other pipelines which
have collected end-use data show usage in each of the separate
subpriorities of every priority, but El Paso has asked its
customers to furnish nominations only for the (total in each
priority. This fundamental flaw further impairs the already
limited value of these “nominations” because each priority
includes several distinct and unrelated elements. Thus, Priority 2
encompasses large commercial use, industrial plant protection
use, industrial feedstock use, industrial process gas use and
customer injections of gas into storage.
9. Apart from constitutional rights, Sections 4 and 5 of the
Natural Gas Act afford AEPCO the right to a full adjudicatory
hearing. The FPC applied this well settled doctrine to end-use
data in its Order ' in the United curtailment case, Docket RP71-
29, et al. The Court of Appeals plainly erred in accepting the
*FEA Form GI01-Q0O.
issued November 30, 1973.
13
FPC's efforts to distinguish United on the ground that in that
proceeding many complaints were made and here only AEPCO
complained. Certainly, the lawfulness of an administrative
agency's action cannot be determined by counting noses and this
novel test is surely no answer to our claim of denial of due process
rights. In any event, gas distributor customers of El Paso who
benefit from exaggerating their own high priority requirements
are not likely to complain and only low priority customers such
as AEPCO, who thereby lose gas, will protest. Nor is there any
merit to the Court’s claim that there was more “relative novelty”
to the El Paso five step plan than to the United five step plan
(App. A, p. 53). As we have already observed, infra, p. 9, in each
case, the difference between the preexisting curtailment plan and
the new proposed plan are nil.
If. BOILER FUEL USE
AND ABROGATION OF CONTRACT RIGHTS
1. The decision of the Court below sustains the FPC’s
antiboiler fuel policy although no evidentiary hearings were held
to evaluate the fairness of this policy or its economic
consequences which arc to impose a hidden tax of many millions
of dollars each year upon the residential and small commercial
consumers of electricity. Clearly, the legal issue presented here is
one which has an immediate and substantial dollar impact upon
every citizen of the United States. The FPC projects that 1977-78
winter season curtailments will rise to 22.8% of the total
nationwide gas requirements served by interstate pipclines. '' The
cost of replacing this vast quantity of gas with an equivalent
"Comparison of Actual (1976-77) and Projected (1977-78)
Interstate Pipeline Natural Gas Firm Deliveries, Firm Curtailments,
and Firm Requirements By States, for Winter Period November
through March” issued by the Federal Power Commission in Press
Release 23391, September 16, 1977.
14
quanity of fuel oil is $1,689,000,000 '?, to be borne primarily by
residential and small commercial consumers of electricity
through automatic increases in electric rates. Even greater
curtailments in future years will further increase this cost. The
FPC’s policy is clearly wrong and completely adverse to the
public interest.
While this FPC policy compels boiler fuel users to absorb all
curtailment on their pipeline system in the first instance, that.
burden is shared by non-boiler fuel industrial users when the
deficiencies become so severe that curtailment of the preferred
higher priority is needed. The key point is that boiler fuel users
have been compelled by the FPC to shoulder more than their fair
share of such curtailment. Even during the summer season when
gas for lower priority use is relatively abundant, the boiler fuel
users may still be completely cut-off.
The FPC’s anti-boiler fuel policy cuts off gas service to any
customer of an interstate pipeline using natural gas to generate
electricity, or to raise steam for industrial purposes, while
continuing service to other industrial users who are equally able
to burn fuel oil or coal as substitute fuels (R. 1453, 1465, 1475,
8277). The FPC does not deny that industrial gas users who use
gas for non-boiler fuel purposes are able to use other fuels
(R.16,605) but claims only that “alternate fuels could be more
easily substituted for natural gas in boiler fuel applications than
in other applications” (/d.). Even if true, this fact plainly does not
justify relieving the nonboiler fuel industrial user of a fair share
of the economic burden of the nationwide gas shortage. In any
event, the Court of Appeals rejected this first finding advanced by
the FPC to support the subordination of boiler fuel for lack of
record evidence (App. A, p. A-21).
"These incremental costs are based on the prices paid for such
substitute fuels by electric utilities, which generally pay slightly less than
other industrial consumers.
15
The FPC’s curtailment policy gives residential and
commercial consumers of natural gas a priority over industrial
users. But, this policy inconsistently imposes the highest cost
burden upon residential and commercial consumers of
electricity, who should be entitled to the same consideration and
treatment as direct users of gas. Although the FPC recognizes the
superior public and social interest of residential and comimcrcial
gas consumers, it has unrealistically treated the same type of
consumers of electricity gencrated by gas as industrial
consumers. In reality, they are the same consumers. The FPC
mistakenly limited its consideration entirely and exclusively to
one isolated factor, i.e., the ability of the direct gas consumer to
use substitute fuels, while ignoring all other factors.
Again, without any evidentiary support, the FPC has
ordered a transfer of funds from the pockets of industrial
consumers of electricity to those of industrial consumers of
natural gas. In some instances, the industrial gas user is able to
pass on the higher cost of substitute fuels, while the industrial
consumer of electricity is unable to raise its prices. In some
instances, fuel costs are a small and unimportant factor in the
costs of an industrial gas user, while the power costs incurred by
the industrial consumer of electricity may be a very large portion
of its total costs. Nevertheless, the FPC automatically prefers the
industrial gas user in every case. Yet, the FPC has neither made
an inquiry into these matters nor afforded the parties adversely
affected the opportunity to present any evidence. AEPCO
respectfully submits that the FPC should be complelled to hear
evidence on these highly relevant issues as to both human needs
and industrial electricity users.
2. The Court of Appeals unlawfully disregarded AEPCO's
statutory right to retain the contractual preference of a firm
customer over interruptible customers. These rights arise from
the terms of relevant contracts and tariffs. AEPCO’s contractual
entitlement affords it a delivery preference during curtailments
16
over El Paso’s own direct sale industrial customers and over the
interruptible industrial customers served by California
distributors (R. 9781).
The Court upheld the validity of such contract rights vis a vis
customer requirements in the same priority (App. A, pp. 47-50),
but eliminated the right to receive firm deliveries in lower
priorities over interruptible deliveries in higher priorities.
In this respect, the Court's decision is squarely in conflict
with two recent decisions of the Court of Appeals for the Fifth
Circuit in, respectively, State of Louisiana v. F PC, 503 F.2d 844,
861 (1974) and Louisiana Power and Light Company v. F PC, 526
F.2d 898, 905-907 (1976). In both these decisions, that Court
carefully distinguished between the evidence necessary to
subordinate boiler fuel and that required to overturn a
contractual curtailment priority. Thus, in State of Louisiana, it
found that there was sufficient evidence to relegate boiler fuel to
an inferior status (p. 860) but that a remand of the record was
required because the agency had failed to support its finding that
the contractual preference provided by a four priority plan was
unlawful because it violated Section 4(b) of the Act (p. 861).
3. The decision of the Court of Appeals unlawfully sustains
the FPC’s anti-boiler fuel policy by changing the agency's
findings of fact and its policy rationales. This decision by the
Court below squarely conflicts with the decision of this Court in
Securities & Exchange Commission v. Chenery Corporation, 318
U.S. 80, 87-95 (1942). Chenery restricts a reviewing Court
to consideration of the precise grounds relied upon by the agency
and prohibits affirmance on any other grounds, which might
have been, but were not adopted.
The FPC curtailment plan subordinated boiler fuel to all
other industrial use of gas for three reasons, the first of which the
Court rejected. Th: second reason is a more economical and
17
efficient control of pollution. The Court correctly found that this
advantage stemmed from an “efficiencies of scale” concept which
is based only on differences in size between one gas appliance and
other such appliance (R. 7052-53). Witness Markus recognized
this, and advocated a census of boilers based on size so that
curtailments could be imposed first on the largest units and last
upon the smallest unit (R. 7054-55). The FPC rejected this
“efficiency of scale” concept, and based curtailments upon the
aggregate volume of boiler and non-boiler gas usage in each
priority, at an individual plant location (R. 16,605-06). No census
of relative size of boiler fuel and non-boiler fue: appliances has
ever been taken. The Court of Appeals cannot lawfully sustain an
agency's action by changing its findings of fact and its policy
determinations.
in addition, the Court sustained the FPC’s second and third
rationales entirely on the mistaken view that relative size of gas
usage at each plant location was the dividing line between
Priority 3 on the one hand, and Priorities 4, and 5, on the other
hand. But, by definition, a Priority 3 non-boiler fuel industrial
user taking more gas each day than a Priority 4 or 5 boiler fuel
user enjoys a higher priority. Again, the Court changed the FPC’s
rationale and invaded its province.
4. The Court of Appeals decision upholding the FPC's
antiboiler fucl policy conflicts with this Court’s many decisions
guaranteeing parties to administrative agency proceedings the
right to know the claims of opposing parties and to present
appropriate rebuttal evidence (e.g., Morgan v. United States, 304
U.S. 1, 18). Here, the FPC held hearings on the short term,
interim curtailment plan which it advised parties would be
limited in scope to the provisions and one year term of that plan
(R. 12,225-229). In addition, the Administrative Law Judge
struck from the record all testimony and exhibits relating to any
period beyond that year (R. 8236-39). Its subsequent reliance on
that record eviscerates the right to cross-examine and present
18
rebuttal evidence and is, therefore, clearly unconstitutional
(Rodale Press, Inc. v. FPC, 132 U.S. App. D.C. 312, 407
F.2d 1252, 1256-57, 1258 (D.C. Cir. 1968).
The Court of Appeals decision is also squarely in conflict
with the decision of the Sixth Circuit in NV. L. R. B. v. Johnson, 322
F.2d 216, 220 (1963) cert. denied, 376 U.S. 951 (1964). Johnson
held that after an agency hearing examiner had given assurances
that evidence was admitted for one specific purpose, it was
improper to use that evidence fora different purpose. This is
precisely what the FPC has done here. The on/y evidence in
support of the FPC’s second and third justifications for its boiler
fuel policy is found in the hearing record of the short term,
interim, emergency curtailment plan. Thus, the Court below
relied upon evidence offered by witness Markus in connection
with the interim plan to sustain the FPC’s second and third
rationales for the permanent curtailment plan. Indeed, the Court
referred specifically only to transcript pages 7050-53 and 7062,
which is the Markus interim plan testimony. The Court generally
intimates that other testimony was cited by the FPC, but that
agency relied on only two pages of the permanent plan transcript.
At R. 1838, a witness advocated the subordination of electric
utility use only to process use and not to all other industrial use
(R. 1837-38). At R.4364, a witness testified that non-boiler fuel
users in Priority 3 could not use residual fuel oil. This implicitly
concedes that they could use iighter grades of fuel oil, such as
diesel oil. In any event, both of these citations bear only upon the
FPC’s first rationale, which was completely rejected by the
Court.
5. The Court below esred in relying on the FPC’s pollution
control rationale. The Priority 3 customers to whom the boiler
fuel customers were subordinated have already fully converted to
oil burning appliances and thus will not realize the alleged econ-
omies of pollution control. Furthermore, the Johns-Manville
witnesses relied upon by the FPC and the Court admitted that
19
their pollution control economies were valid only for the short
life of the interim emergency curtailment plan and that, in the
long run, all industrial users could install alternate fuel and
pollution control facilities (E.g., R.1829-30, 1832, 1837 (Truax);
R.7059 (Goldfield); R. 8280, 8288-89 (Markus)).
The Court below and the FPC have made an overly
simplistic analysis restricted to the single factor of economies in
pollution control. They have ignored the many other and equally
relevant factors in balancing the anti-boiler fuel factors and
countervailing factors. The latter factors include, among others,
elimination of discrimination against residential, commercial
and industrial electricity users in favor of their gas burning
counterparts, the social benefits of fairer and lower electric rates
versus the less crucial prices of industrial products, the good faith
and reasonable reliance by boiler fuel users on firm supplies of
naural gas which caused them to build plants unable to burn
abundant and cheaper alternate fuels such as coal, and the need
to use gas for boiler fuel in power plants located in metropolitan
arcas to minimize air pollution, e.g., Transcontinental Gas
Pipeline, 38 FPC 906 (1967). In American Smelting and Refining
Co., v. FPC. 161 App. D.C. 6, 494 F.2d 925 (1974), cert. denied,
419 U.S. 882, 945-946, the Court of Appeals insisted that the
agency perform exactly such a balancing process when it reversed
the FPC’s finding that boiler fuel was per se inferior to all other
industrial uses.
20
CONCLUSION
For the reasons stated, a writ of certiorari should issue to
review the judgment and opinion of the Court of Appeals for the
District of Columbia Circuit.
Respectfully submitted,
ARNOLD D. BERKELEY
Suite 407
1925 K Street, N.W.
Washington, D.C. 20006
Attorney for Petitioner
September 28, 1977
APPENDICES
A-1
APPENDIX A
Notice: This opinion is subject to formal revision before publication
in the Federal Reporter or U.S.App.D.C. Reports. Users are requested
to notify the Clerk of any formal errors in order that corrections may be
made before the hound volumes go to press.
united Stairs Court of Ayyprals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 74-2123
CITY OF WILLCOX AND ARIZONA ELEcTRIC POWER
CoorERATIVE, INC., PETITIONERS
Vv.
FEDERAL POWER COMMISSION, RESPONDENT
SAN Dineco GAs & Evectric Co.
AMERICAN SMELTING AND REFINING Co., ET AL.
SOUTHERN UNION GAs Co.
GENERAL Motors CoRPORATION
EL Paso NATURAL GAs Co.
NAVAJO TRIBAL UTILITY AUTIIORITY
DEPARTMENT OF WATER AND POWER ETC.
Tie PeorLe OF THE STATE OF CALIFORNIA, ETC.
Tucson GAS & ELEctTrRIC Co.
Paciric GAs & ELecrric Co.
NEVADA POWER COMPANY
SOUTHWEST GAS CORPORATION
SOUTHWEST NATURAL GAS CONSUMERS
ARIZONA FueL Users ASSOCIATION
PIONEER NATURAL GAS CoO., INTERVENORS
Bills of costs must be filed within 14 days after entry of judgment. The
Court looks with disfavor upon motions to file bills of costs out of time.
A-2
2
No. 75-1019
ARIZONA PuBLIC SERVICE COMPANY, PETITIONER
Vv.
FEDERAL POWER COMMISSION, RESPONDENT
SAN Dirco GAs & ILEctTric Co.
Crry oF WiLLcox, ARIZONA AND ARIZONA ELECTRIC
Power Coopr., INC.
AMERICAN SMELTING AND REFINING Co., ET AL.
SouTHeRN UNION GAs Co.
NAVAJO TRIBAL UTILITY AUTHORITY
}ENFRAL Motors CorroraTion
Tucson GAs & E1ecrric Co.
Paciric Gas & EvLectric Co.
SouTHeERN CALIFORNIA EDISON Co.
1, Paso NATURAL GAS Co.
PROPLE OF THE STATE OF CALIFORNIA AND THE PUBLIC
UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
NEVADA Powgr CoMPANY
SOUTHERN CALIFORNIA GAS Co.
Souriwest NATURAL GAS CONSUMERS
SouTHuwest /GAS CoRrorRATION
Arizona Fue. Users Asso.
PIONEER NATURAL GAS Co., INTERVENORS
, ea soe A
No. 75-1062
NEVADA POWER COMPANY, PETITIONER
Vv.
FRDERAL POWER COMMISSION, RESPONDENT
A-3
3
AMERICAN SMELTING & REFINING Co., ET AL.
GENERAL Motors Corr.
Tucson Gas & Evectric Co.
SOUTHERN CALIFORNIA GAS Co.
SAN Dieco GAs & Evectrric Co.
Paciric GAs & ELrecrric Co.
CiTy OF WILLCOX ARIZONA AND ARIZONA ELECTRIC
Power Coor., ING.
NAVAJO TRIBAL UTiuiry AUTHORITY
PEOPLE OF THE STATE OF CALIFORNIA AND TITE PUBLIC
UTILITIES COMMISSION OF THE STATE OF CALIFORNIA
ISL PASO NATURAL GAs Co.
SALT River PRoIECT AGRICULTURAL
IMPROVEMENT AND POWER DIstRICT
SOUTHWEST GAs Corr.
SOUTHERN UNION GAs Co.
SOUTHERN CALIFORNIA EDISON Co.
SOUTHWEST NATURAL GAS CONSUMERS
ARIZONA Fur. Users Asso.
PIONEER NATURAL GAS Co., INTERVENORS
No. 75-1245
PACIFIC GAS AND ELECTRIC COMPANY, PETITIONER
Vv.
FEDERAL POWER COMMISSION, RESPONDENT
SOUTHERN UNION GAS Co.
CITY OF WILLCOX ARIZONA, ET AL.
NAVAJO TRIBAL UTILITY AUTHORITY
AMERICAN SMELTING AND REFINING Co., ET AL.
SouTHWEST GAs Corp.
THE PEOPLE OF THE STATE OF CALIFORNIA, FT AL.
EL PAso NATURAL GAS Co.
GENERAL Motors CoRPORATION
A-4
4
SOUTHERN CALIFORNIA EDISON COMPANY
ARIZONA PUBLIC SERVICE Co.
NEVADA POWER Co.
TUCSON GAS AND ELectric Co., INTERVENORS
No. 75-1246
SAN Dieco GAs & ELECTRIC COMPANY, PETITIONER
Vv.
FEDERAL PowER COMMISSION, RESPONDENT
SOUTHERN UNION GAs Co.
City OF WILLCOX, ETC.
PEOPLE OF THE STATE OF CALIFORNIA, ET AL.
GENERAL Motors CorRPORATION
Paciric GAs & ELectric Co.
NAVAJO TRIBAL UTILITY AUTHORITY
XL PASO NATURAL GAS Co.
SoutTiwest GAS Corr.
SOUTHERN CALIFORNIA EDISON Co.
NEVADA POWER COMPANY
AMERICAN SMELTING AND REFINING Co., ET AL.
+ ARIZONA Pusuic Service Co.
Tucson GAs & ELEctrIc Co.
SOUTHWEST NATURAL GAS CONSUMERS
ARIZONA FueL. Users ASSOCIATION
PIONEER NATURAL GAS Co., INTERVENORS
No. 75-1247
SOUTHERN CALIFORNIA GAS COMPANY, PETITIONER
Vv.
FEDERAL POWER COMMISSION, RESPONDENT
A-5
5
SAN DIEGO GAS, ET AL.
SOUTHERN UNION GAs Co.
CITY OF WILLCOX, ETC.
DEPARTMENT OF WATER AND POWER OF THE CITY OF
Los ANGELES
THE PEOPLE OF THE STATE OF CALIFORNIA, ET AL.
PACIFIC GAS AND ELECTRIC Co.
NAVAJO TRIBAL UTILITY AUTHORITY
EL Paso NATURAL Gas Co.
GENERAL MOTORS CORPORATION
SOUTHERN CALIFORNIA EDISON Co.
AMERICAN SMELTING AND REFINING Co.
ARIZONA PUBLIC SERVICE Co.
SOUTHWEST GAS Corp.
NEVADA POWER COMPANY
Tucson GAs & ELECTRIC Co.
SOUTHWEST NATURAL GAS CONSUMERS
ARIZONA FUEL USERS ASSO.
PIONEER NATURAL GAS CO., INTERVENORS
No. 75-1248
SOUTHERN CALIFORNIA EDISON COMPANY, PETITIONER
Vv.
FEDERAL POWER COMMISSION, RESPONDENT
NEVADA POWER Co.
EL PASO NATURAL GAs Co.
THE PEOPLE OF THE STATE OF CALIFORNIA, ET AL.
SAN DIEGO GAS AND ELECTRIC Co.
AMERICAN SMELTING AND REFINING CoO., ET AL.
NAVAJO TRIBAL UTILITY AUTHORITY
PACIFIC GAS AND ELECTRIC Co.
TucsON GAS AND ELECTRIC Co.
SOUTHWEST NATURAL GAS CONSUMERS
ARIZONA FUEL USERS ASSOCIATION
PIONEER NATURAL GAS Co., INTERVENOR
A-6
6
Petitions for Review of Orders of the
Federal Power Commission
Argued September 13, 1976
this date
theme
Decided June 30, 1977
Judgment entered
Arnold D. Berkeley, with whom David R. Straus was
on the brief, for petitioner in No. 74-2123 and inter-
venors City of Willcox and Arizona Electric Power Co-
operative.
Peyton G. Bowman, with whom C. Floyd Mathews was
on the brief, for petitioner in No. 75-1019.
Arnold Fieldman, with whom Reuben Goldberg was
on the brief, for petitioner in 75-1062 and intervenor
Nevada Power Company.
Howard V. Golub, with whom Malcolm H. Furbush
was on the brief, for petitioner in No. 75-1245 and in-
tervenor Pacific Gas and Electric Co. Daniel I, Gibson,
entered an appearance for intervenor PG&E Co.
Rollin. BE. Woodbury, with whom HH. Robert Barnes,
Alan N. Nedry, Edward C. Farrell and Arthur T. De-
vine were on the brief, for petitioner in No. 75-1248
and intervenors Southern California Fdison Company
and Department of Water and Power of the City of Los
Angeles. Frederick H. Ritts entered an appearance for
Department of Water and Power of the City of Los
Angeles.
John H. Rurns, Jr., Attorney, Federal Power Com-
mission, with whom Drexel D. Journey, General Counsel,
Robert W. Perdue, Deputy General Counsel, and Allan
Abbot Tuttle, Solicitor, Federal Power Commission, were
on the brief, for respondent. George V. McHenry, Jr.,
A-7
7
Solicitor, Federal Power Commission, at the time the
record was filed, also entered an appearance for respond-
ent. Richard C. Steffey and William J. Grealis, Attor-
neys, Federal Power Commission, entered an appearance
for respondent.
C. Frank Reifsnyder, with whom Harris S. Wood was
on the brief, for intervenor El Paso Natural Gas Com-
pany.
Edward J. Grenier, Jr., with whom Frazer F. Hilder
was on the brief, for intervenor General Motors Corpora-
tion. Richard J. Pierre, Jr. and Richard P. Noland also
entered an appearance for intervenor General Motors
Corp.
Randolph W. Deutsch, with whom Richard D. Gravelle
and J. Calvin Simpson were on the brief, for intervenors
People of the State of California and the Public Utilicies
Commission of the State of California. John S. Fick also
entered an appearance for intervenors People of the
State of California and Public Utilities Commission of the
State of California.
David R. Pigott was on the brief for petitioner in No.
75-1246. Donald J. Richardson, Jr. also entered an ap-
pearance for petitioner in No. 75-1246 and intervenor
San Diego Gas and Electric Company.
Thomas PD. Clarke was on the brief for petitioner in
No. 75-1247 and intervenor Southern California Gas
Company. Jeffrey A. Meith also entered an appearance
for intervenor Southern California Gas Company.
Jerome Ackerman, Ringham B. Leverich and Nicholas
W. Fels were on the brief for intervenors American
Smelting and Refining Company, et al. James R. Mc-
Cotter also entered an appearance for intervenors Amer-
ican Smelting and Refining Company, et al. Cameron R.
Graham, Robert J. Haggerty, A. S. Grenier and Phil W.
Jordan were on the brief for intervenors Pioneer Natural
Gas Company, Southern Union Gas Company and South-
A-8
8
west. Natural Gas Consumers. Constance L. Howard and
Charles 11. McCrea entered an appearance for intervenor
Southwest Gas Corporation. John T. Ketcham entered an
appearance for inlervenor Pioneer Natural Gas Company.
Lawrence V. Robertson, Jr., Thomas F. Brosnan and
John F. Harrington were on the brief for intervenor
Tucson Gas and Electric Co.
Cameron R. Graham was on the brief for intervenor
Southwest Natural Gas Consumers.
Richard H. Silverman was on the brief for intervenor
Salt River Project, Agricultural Improvement and Power
District in No. 75-1052. Joel L. Green entered an ap-
pearance for intervenor Salt River Project, Agricultural
Improvement and Power District in No. 75-1062.
David B. Graham, filed a brief on behalf of Natural
Rural Electric Cooperative Association, as amicus curiae
urging affirmance.
Waller F. Wolf, Jr. entered an appearance for inter-
venor Navajo Tribal Utility Authority.
James R. Bieke entered an appearance for intervenor
Arizona Fuel Users Association.
Before BAZELON, Chief Judge, and TAMM and MAc-
KINNON, Circuit Judges.
Opinion for the court filed by Circuit Judge Mac-
KINNON.
Opinion filed by Chief Judge BAZELON, concurring in
part and dissenting in part.
MACKINNON, Circuit Judge: The natural gas short-
age necessitating curtailment of deliveries on the El
Paso Natural Gas System is the subject of the present
appeal. Recognizing that decreasing availability would
soon cause severe hardship, the Federal Power Com-
mission issued Order No. 431 in April of 1971. By
that order, all jurisdictional pipelines were required to
A-9
9
file new tariffs with the Commission to provide for ration-
ing of natural gas among eventual users. El Paso com-
plied on July 6, 1971, submitting a contingency plan
that allocated scarce natural gas according to the ultimate
consumers’ contracts with their suppliers, and reflecting
the total amounts of gas that the consumers had used
in the past. )
In August of 1972, after hearings had been held be-
fore the FPC, the original proposal was withdrawn. Fl
Paso requested the FPC to issue an interim curtailment
plan, to be effective until a permanent plan could issue.
On October 31, 1972, the Commission released Opinion
No. 634 (J.A. 315, Tr. 13355) which established an in-
terim plan, awarding natural gas allotments to the var-
ious distributors on the basis of the eventual use to
which the gas would be put. A modification followed
with Opinion No. 634A (J.A. 339, Tr. 13746), issued on
December 15, 1972. The challenge to this interim plan
was decided in American Smelting and Refining Co. v.
FPC, 161 US.App.D.C. 6, 494 F.2d 925, cert. denied,
419 US. 882 (1974) (hereinafter, “ASARCO”). The
attack was made by many of the same petitioners here
and was, in large part, sustained.
On June 14, 1974, a permanent curtailment plan was
announced for the El] Paso System. See Opinion No. 697
(J.A. 411, Tr. 16587). Once again, a supplementary
opinion was required; this was issued in Opinion No.
697A on December 19, 1974 (J.A. 484, Tr. 17080). Opin-
ion No. 697 was also an “end-use” curtailment plan.
It was ordered to be treated only as an interim plan
(in Opinion No. 697A), until an environmental impact
statement had been completed. El Paso was required to
file a set of revised tariffs in keeping with Opinions No.
697 and 697A.‘ That is the present status of the plan.
*The ripeness aspects of this situation are discussed in
Part VI, p. 38, infra.
A-10
10
Opinions No. 697 and 697A classify all ultimate users
of natural gas into five priorities, with residential and
small commercial users receiving top priority, and large
volume industrial boiler users with alternate fuel ca-
pabilities receiving lowest priority.’
Seven petitioners now press objections to the proposed
permanent curtailment plan.’ Fifteen other parties have
intervened as amici curiae.*’ Many conflicting objections
? Subject to the modifications of Opinion No. 697A, the
priorities announced by the FPC for El Paso are:
Priority 1. Residential, small commercial (less than 50
Mcf on a peak day).
Priority 2. Large commercial requirements (50 Mcf or
more on a peak day), industrial requirements for plaat
protection, feedstock and process needs, and pipeline
customer storage injection requirements.
Priority 3. All industrial requirements not specified in
Priorities 2, 4 and 6.
Priority 4. Industrial requirements for boiler fuel use
at less than 3,000 Mcf per day, but more than 1,500
Mcf per day, where alternate fuel capabilities can meet
such requirements.
Priority 5. Industrial requirements for large volume (in
excess of 3,000 Mcf per day) boiler-fuel use where al-
ternate fuel capabilities can meet such requirements.
(Opinion No. 697, J.A. 424-25, Tr. 16599).
* They are:
City of Willcox and Arizona Electric Power Cooperative,
Inc.
Arizona Public Service Company
Nevada Power Company
Pacific Gas and Electric Company
San Diego Gas and Electric Company
Southern California Gas Company
Southern California Edison Company
‘They are:
El Paso Natural Gas
Salt River Project Agricultural Improvement and Power
District
[Continued]
A-11
11
are raised, some of which have merit. [ight questioned
areas will be separately addressed. In our review the
Federal Power Commission’s authority is to be especially
respected in matters of policy and logistics; consistency
must be maintained in applying the Commission’s policy
judgments; complaints rooted in particular circumstances
can best be treated on specific application for relief by
the concerned parties to the Commission; and the settled
law from this circuit and others which have addressed
curtailment will, in the absence of importantly differ-
ent circumstances, govern the resolution of complaints
raised here.
I. Scorr or Review
Initially, there is some dispute as to what provision
of the Natural Gas Act provides the Federal Power Com-
mission with the authority to review and promulgate
curtailment plans. In Opinion No. 634, dealing with an
interim curtailment plan, the Commission cited FPC v.
Louisiana Power & Light Co., 406 U.S. 621 (1972), which
* [Continued]
Tucson Gas & Electric Co.
ASARCO rs
Compania Minera de Cananea, S.A. de C.V.
Inspiration Consolidated Copper Co.
Kennecott Copper Corp.
Pioneer Natural Gas Co.
Southern Union Gas Co.
National Rural Electric Cooperative Ass’n
Southwest Natural Gas Consumers
Nevada Power Co.
Gencral Motors Co.
People of the State of California
Public Utilities Commission of the State of California
In addition, several of the petitioners also filed amicus briefs:
City of Willcox and Arizona Electric Power Cooperative,
Inc.
Pacific Gas and Electric Company
Southern California Gas Company
~33 =
| BEST COPY AVAILABLE)
A-12
12
upheld the Commission’s authority to issue Order No.
431 requesting natural gas distributors to file curtail-
ment plans. “While that affirmance was based primarily
upon a tariff filing under Section 4 of the Natural Gas
Act,” the FPC stated in Opinion No. 634, “we are also
operating pursuant to Sections 5* and 16° of the Act in
this case.” (Footnotes inserted.)
®15 U.S.C. § 717d(a) (1970) provides:
(a) Whenever the Commission, after a hearing had
upon its own motion or upon complaint of any State,
municipality, State commission, or gas distributing com-
pany, shall find that any rate, charge, or classification de-
manded, observed, charged, or collected by any natural
gas company in connection with any transportation or
sale of natural gas, subject to the jurisdiction of the
Jommission, or that any rule, rerulation, practice, or
contract affecting such rate, charge, or classification is
unjust, unreasonable, unduly discriminatory, or prefer-
ential, the Commission shall determine the just and rea-
sonable rate, charge, classification, rule, regulation, prac-
tice, or contract to be thereafter observed and in force,
and shall fix the same by order: Provided, howcver, That
the Cummission shall have no power to order any increase
in any rate contained in the currently effective schedule
of such natural gas company on file with the Commission,
unless such increase is in accordance with a new schedule
filed by such natural gas company; but the Commission
may order a decrease where existing rates are unjust,
unduly discriminatory, preferential, otherwise unlawful,
or are not the lowest reasonable rates.
(52 Stat. 823) (1938).
*15 U.S.C. § 7170 (1970) provides:
The Commission shall have power to perform any and
all acts, and to prescribe, issue, make, amend, and rescind
such orders, rules, and regulations as it may find neces-
sary or appropriate to carry out the provisions of this
chapter. Among other things, such rules and regulations
may define accounting, technical, and trade terms used
in this chapter; and may prescribe the form or forms of
all statements, declarations, applications, and reports to
A-13
13
When Opinion No. 634 was before this coutt in
ASARCO, we held that although section 16 of the Act
empowered the Commission to alter and promulgate pro-
posed curtailment plans, that section required reliance
on section 5(a) of the Act as a “core section” to pro-
vide the substantive counterpart to section 16's proce-
dural authority. The brief of El Paso as intervenor ar-
gues that the permanent curtailment plan, unlike the
interim plan, was premised on section 4 of the Act as
the “core section,” but there is no basis for this in the
Commission’s Orders No. 697 or 697A. Nor could there
be, since the Commissio.a in these orders is imposing
its changes on the curtailment plans, rather than merely
suspending 15] Paso’s proposed plan. For the purpose of
imposing an alternate plan, section 6 is necessary.
“Whenever the Commission . . . shall find that any
. . Classification . . . or that any practice, or contract,
affecting such . . . classification is unjust, unreasonable,
unduly discriminatory, or preferential, the Commission
shall determine the just and reasonable . . . classifica-
tion, . . . practice, or contract to be thereafter observed
and enforced, and shall fix the same by order .. .” 15
be filed with the Commission, the information which they
shall contain, and the time within which they shall be
filed. Unless a different date is specified therein, rules
and regulations of the Commission shall be effective thirty
days after publication in the manner which the Commis-
sion shall prescribe. Orders of the Commission shall be
effective on the date and in the manner which the Com-
mission shall prescribe. For the purposes of its rules and
regulations, the Commission may classify persons and
matters within its jurisdiction and prescribe different
requirements for different classes of persons or matters.
All rules and regulations of the Commission shall be filed
with its secretary and shal! be kept open in convenient
form for public inspection and examination during rea-
sonable business hours.
(52 Stat. 830) (1938).
A-14
14
U.S.C. § 717d(a) (1970). Sections 1(b) and 16 afforded
ample authority to issue the general order requesting
curtailment plans to be evaluated under section 4(b) (as
the Supreme Court held in Lowisiana Powcr) or to sus-
pend a proposed rate change, but nowhere in section 4
is there granted the power to impose alternate rates.
The importance of the statutory section from which
the Commission’s action takes its legitimacy was pointed
out by the Fifth Circuit in Louisiana v. Federal Power
Commission, 503 F.2d 844 (5th Cir. 1974). In Louisiana,
an interim curtailment plan had been issued, followed
by a permanent plan with modifications. Since the in-
terim plan had been promulgated after a section 4 hear-
ing, the Commission was on record as having found it
to be not unreasonable or discriminatory. “|W hen FP?C
holds a hearing and orders a new curtailment plan, or
revises an old one, it is exercising authority granted by
section 5(a) of the Natural Gas Act. . .. Under that
section, however, before FPC can issue a remedial order
it must find that the existing curtailment plan is ‘unjust,
unreasonable, unduly discriminatory, or preferential.’ ”
503 F.2d at 861.
Similarly, in this case, the interim plan was promul-
gated as one meeting the standard of not “unjust, un-
reasonable, unduly discriminatory, or preferential.” Ac-
cordingly, those aspects of Opinion No. 697’s rate struc-
ture that amend the structure of Opinion No. 634 must
be justified for reasons sufficient to uphold the change
(and not merely the new structure) under a substantial
evidence standard. Imposing this section 5 requirement,
however, does not mean that the court cannot take cog-
nizance of the fact that the Opinion No. 634 curtail-
ment structure was imposed on an emergency basis, and
without as full deliberation by the Commission as was
possible for the permanent curtailment plan.
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16
Il. DEFINITIONS
The FPC has chosen to apply a set of definitions to its
curtailment order. Several petitioners raise the general
complaint that, since the definitions were promulgated
in Order No. 493-A, a proceeding which was closed after
the hearings on Order No. 697, to apply them to Order
No. 697 is not valid under the Administrative Procedure
Act.
In the first place, the definitions stated in Orders No.
493 and 493-A were reached after a full hearing, with
notice to the parties, in compliance with section 4 of the
Administrative Procedure Act, 5 U.S.C. §553 (1970).
See “Utilization and Conservation of Natural Resources,”’
50 F.P.C. 831 & 1316 (1973). That these definitions
would be used by the Commission in implementing end-
use curtailment plans was obvious on the face of the
order. And several parties to the present proceeding
(including the City of Willcox, Arizona Electric Power,
Southern California Edison, and General Motors) were
among those whose objection to Order No. 493 led to the
revised Order No. 493-A. 50 F.P.C. 1316, 1317.
A second response is that the parties who took part
in the proceedings leading up to Order No. 697 were
given full opportunity to comment upon the curtailment
plan in all of the applications to which the Order No.
493-A definitions would refer, even if Order No. 493-A
itself was not yet promulgated. The Commission was
entirely within its authority to conclude that, based solely
upon the evidence adduced in connection with Order No.
697, the definitions announced in Order No. 493-A were
proper and useful to the implementation of Order No.
697."
* Various petitioners invoke our decision in Pacific Gas &
Electric Co. v. FPC, 164 U.S.App.D.C. 371, 506 F.2d 33
(1974), which held the Commission’s Order No. 467 to be
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16
As a general matter, therefore, the Order No. 493-A
definitions may be used in Order No. 697. There could
be challenges to specific definitions, however, which would
merit this court’s intervention. Three definitions are
singled out in the briefs: turbine fuel, fuel for irriga-
tion, and fuel required for ignition and flame stabiliza-
tion. Turbine fuel will be considered separately in part
Ill, infra, p. 20.
Fuel For Irrigation Use
In Opinion No. 697-A, the Commission classified ir-
rigation as a Category 3 end-use, along with other in-
dustrial uses for natural gas. The decision at that time
anticipated the possibility of subsequent change, depend-
ing upon the unavailability of alternate fuel sources for
irrigation. In Opinion No. 745, issued on November 13,
1975, almost a year after Opinion No. 697-A, that pos-
sibility had developed and the Commission, after hear-
ings, reclassified irrigation use of natural gas on the El
Paso system as an “industrial process use,” to be placed
in Category 2. That treatment was confined in an or-
der denying rehearing, on July 2, 1976 (RP 72-6).
Hence, the origir . complaint lodged by several peti-
tioners, before Opinion No. 745, that the curtailment plan
improperly placed irrigation in a low priority, has lost
almost all of its force. What remains is the charge,
made most clearly by Southwest Natural Gas Consumers,
Pioneer Natural Gas Company, and Southern Union Gas
Company in their September 17, 1976, letter and sub-
sequent submissions, that the more favorable treatment
of gas intended for irrigation use was granted only as
merely a non-binding statement of policy, not applicable with-
out more to particular curtailment orders (and hence exempt
from the requirements of the Administrative Procedure Act).
For each of the two reasons just stated, however, that deci-
sion does not apply to the application of Order No. 493A.
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17
a matter of extraordinary relief, affording them no as-
surance of the priority they desire. That position mis-
takes the nature of Opinion No. 745 on two counts.
First, petitioners suggest that the language “extraor-
dinary relief” in the opinion denying rehearing belies the
notion of permanent reclassification contained in Opinion
No. 745. But that verbeage was only concerned with
the procedural route leading to the order in RP72-6;
it in no way makes the substantive result in Opinion
No. 745 any less permanent. Opinion No. 745 was
reached in a quasi-extraordinary relief proceeding which
incorporated ‘elements of a genvral reclassification pro-
cedure as well as a hearing on extraordinary relief. The
decisions on several issues in that opinion emphasize
its reasonably pernianent nature. For example, on page
2 of the order denying rehearing, the Commission ex-
plicitly rejects a proposal that irrigation uses be re-
classified into a lower priority as soon as alternative fuel
sources became available. The reasons given by the Com-
mission for not adopting a short-term Category 2 clas-
sification, and also for rejecting General Motors’ proposal
for irrigation classification according to the cost of con-
version, were not expressions of short-term convenience,
but grave doubts as to the Commission’s own ability to
administer such systems over the long run.
The second line of argument that Opinion No. 745
should not moot petitioners’ claims regarding irrigation
relies on the Commission’s brief in Docket No. RP75-62,
involving curtailment on the Cities Service Gas Company
line. In that proceeding, the FPC presently indicates it
will advocate an industrial classification for irrigation
fuel. Passing over the problems of relying on an initial
brief of an agency as a conclusive statement of agency
policy, there is ample reason not to credit the FPC’s
position in Cities Service as relevant to El Paso. As the
initial brief in Cities Service clearly explains, the in-
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18
dustrial classification of irrigation fuel on that system
was due to factors peculiar to that system, including the
historical practices of Cities Service and the extent of
likely curtailment. The Commission’s order in El Paso
will remain in effect unless and until need for further
hearings arises, at which proceeding petitioners may be
heard. That status is as permanent as any aspect of the
curtailment plan, and petitioners’ complaints regarding
irrigation fuel must be dismissed as moot.
Ignition and Flame Stabilization
It is argued that petitioners’ complaints concerning
ignition and flame stabilization utilization of natural
gas have over this same period become less ripe. In
Opinion No. 634, the Commission defined Priority Cate-
gory 2 as including “Large commercial requirements and
industrial requirements for plant protection, feedstock
and process needs.” Pursuant to that definition, E1 Paso
submitted a proposed tariff sheet defining the term
“process gas” as “gas required as a fuel for which there
is no feasible alternative. This term includes gas re-
quired for ignition. fuel and flame stabilization in the
generation of electric energy.” (J.A. 353, Tr. 13776).
That definition was applied for purposes of the interim
plan.
The Commission, meanwhile, was preparing its general
definition orders, Order No. 493 and Order No. 493-A.
Process gas was defined in the October 29, 1973, order as
“gas use for which alternate fuels are not technically
feasible such as in applications requiring precise tempera-
ture controls and precise flame characteristics.” “Utiliza-
tion and Conservation of Natural Resources,” 50 F.P.C.
1316, 1820 (1973). At the time of promulgating Opinion
No. 697, the Commission looked to this Order No. 493
definition and found that it adequately expressed the
characteristics of those ignition and flame stabilization
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19
uses intended for special priority under Opinion No.
634. Hence, it was no longer necessary for the definition
of process gas to include explicitly ignition and flame
stabilization.
When El Paso filed its tariff sheets on March 27, 1975,
and April 11, 1975, in supposed compliance with Opinion
Nos. 697 and 697A, the priority of ignition and flame
stabilization fuel had been made explicit—but it was
Priority Category 3 rather than 2. This decision was
based upon El Paso’s judgment of the ability of its
users to substitute for natural gas in these functions.
A storm of protest followed, much of which is reflected
in petitioners’ complaints to this court.
However, we do not presently reach whether E] Paso’s
factual determination was adequate, or whether the Com-
mission’s explanation for the change in its language be-
tween the interim and permanent curtailment plans is
satisfactory. On December 24, 1975, the Commission
issued an order in Docket No. RP72-6 stating that “it is
necessary to hold a limited hearing in this proceeding . . .
to consider whether some or all alleged flame stabiliza-
tion and ignition requirements are Priority 2 uses as
the customers insist or are properly classified in El
Paso’s proposed tariff sheets.” The Commission ordered
that “a public hearing shall be held as soon as practical”
on this matter. (RP 72-6 at 15).
The possible availability of findings of fact relevant to
the ignition-flame stabilization-process gas question argues
for waiting. There has been no indication to this court
of action on the proposed hearing since it was announced
in December of 1975; however; and it is open to any of
the petitioners here to seek again our immediate review
should the hearing have been unwarrantedly postponed.
The present status of the curtailment order requires
some intermediate relief, however. Opinion No. 634 pro-
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20
vided Priority 2 classification for ignition and flame
stabilization use of natural gas. The explicit reason
offered by the Commission in Opinion No. 697 for remov-
ing the reference to ignition and flame stabilization was
only that it was superfluous; not that those uses were ac-
tually more able to substitute alternate fuel than had
originally been thought. Hence, El Paso’s lowering of
the priority for all natural gas devoted to these uses can
only be seen as a substantial change in what was in-
tended by the interim and permanent curtailment or-
ders. The hearing proposed by the Commission will de-
termine whether there is adequate evidence justifying
this change; but in the meantime, the only curtailment
priority approved by the FPC and sustainable by sub-
stantial evidence was the one established by the interim
order, which, according to the FPC, was intended to be
carried over into the permanent plan. Until the Com-
mission determines, after a hearing, that there is sub-
stantial evidence proving that all flame stabilization and
ignition uses for natural gas can, with “technical feasi-
bility,” be replaced by alternate fuels (as all those terms
have been defined by the Commission), Priority 2 classi-
fication. must be accorded to flame stabilization and
ignition.
Ill. Borers
In ASARCO, supra, we reversed the subordination of
boiler fuel uses to other end-uses provided in the interim
plan because of the FPC’s failure to articulate the rea-
sons for such treatment. In Opinion No. 697, the Com-
mission atlempts to remedy this omission by listing
three reasons supporting the lower priority for boiler
fuel use: (1) alternate fuels could be more easily substi-
tuted for natural gas in boiler fuel applications than in
other applications; (2) the “increase in air pollution re-
sulting from the use of alternate fuels could be more
efficiently and economically controlled” on boiler installa-
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21
tions because of their larger size; and (3) economic dis-
ruption would be minimized by curtailing single large
users such as boilers. (J.A. 431, Tr. 16,604-05). The sec-
ond and third of these are persuasive.
Because the FPC is sustained on other grounds, the
inadequacy of its first explanation will be considered only
in footnote."
*In its brief, the Commission points to three instances in
the record to defend its first reason. None of these sustain
the proposition that, as opposed to other industrial uses, boil-
ers were more able to use alternative fuels. The evidence all
related to different issues.
The first reference is to testimony by the witness Truax
that it would take time before substitutes could be developed
for industrial uses requiring natural gas as a process fuel.
At it strongest, the testimony would only support a conclusion
that boilers, as one example of non-process fuel users of natur-
al gas, could more easily find substitutes for natural gas than
could users of natural gas as a process fuel. (J.A. 67, Tr.
1837). This says nothing about boilers within the class of
non-process (industrial) fuel users.
The second record citation is to testimony by the witness
Helmut Frank. On the general issue of alternatives to natural
gas, the witness testified that “residual fuel oil is not a prac-
ticable alternative for current gas users,” except for under-
boiler use, as in steam-generated clectric plants.” (J.A. 91,
Tr. 4863). Once again, that single statement cannot support
the inference that all boiler fuel usage is more able to shift
to residual fuel than all other industrial uses for natural gas.
The last record evidence relied upon returns to the process-
industrial fuel distinction. The witness Markus commented
on the aiternative fucl availability for process use of natural
gas, and concluded that the capital costs of re-tooling those
plants using natural gas as a process fuel to permit them to
accept other fuels would be quite high. (J.A. 97-99, Tr. 7048-
7050).
Entirely lacking in all of the record evidence cited is a
simple statement by a single expert that alternative types of
fuel could more easily substitute for boiler fucl usage of
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In the Commission’s second explanation, the larger size
of boiler installations, as compared with other natural gas
users, is suggested as a reason for the more economical
control of air pollution, which would result from the use
of alternate fuels, by boilers rather than by other opera-
tions. There is sufficient record evidence for this conclu-
sion. Among other testimony the Commission refers to
the witness Markus on this point. (J.A. 99-102, Tr. 7050-
7053). He draws a distinction between boilers at electric
natural gas than for any other industrial use of natural gas.
Had Order No. 697 subordinated all industrial use to all proc-
ess use, that would have been upheld by the record citations;
but the disadvantageous treatment of boiler fuel vis-a-vis
other industrial uses has not been sustained.
When Opinion Nos. 643 and 643A, involving curtailment on
the Arkansas Louisiana Gas Company system, were considered
by this court, and when Opinion Nos. 647 and 647A, involving
curtailment by United Gas Pipe Line Company, were ruled
on by the Fifth Circuit, Louisiana v. Federal Power Commis-
sion, 603 F.2d 844 (5th Cir. 1974), the subordination of
natural gas in boiler fuel uses was sustained. Arkansas Power
& Light Co. v. FPC, 170 U.S.App.D.C. 393, 398, 517 F.2d
1223, 1228 (1975), cert denied, 424 U.S. 933 (1976) ; Lozisi-
ana, supra, 503 ¥.2d at 860. It would be tempting to accept
this preference as a settled matter on the basis of these other
decisions. However, the nature of the issue prevents this.
As the Federal Power Commission itself has realized, “‘there is
no superior or inferior use of natural gas per se; it depends
upon the circumstances.” Chandeleur Pipe Line Co., 45 F.P.C.
370, 371 (1971). The fact has been amply justified by the
several pieces of record evidence that have been brought to
light: fuel use is quite different in electricity generation, in
turbines, in under-boiler applications, and in other boiler
usages. The purpose of our reversing and remanding the
boiler fuel provision in ASARCO was to obtain the type of
information, particular to the usages on the El Paso system,
that would sustain the logic of a “boiler-fuel vs. all-other-use”
distinction. The evidence to which the Commission now points
is of no more avail in this regard than the invocation of “es-
tablished Commission policy” that was found insufficient in
ASARCO. 161 U.S.App.D.C. at 26, 494 F.2d at OAK.
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23
generating stations and boilers at industrial plants, with
the former being both more efficient and more able to
substitute alternative fuels. The basic difference is size;
electric generating boilers are of a larger magnitude, and
the witness notes that a “large pollution control installa-
tion can control pollution at a lower cost per unit of fuel
consumed than can a small installation.” Most important,
the witness gave testimony that the benefits to both kinds
of boiler uses “reflect efficiencies of scale not feasible for
the operator of a typical industrial boiler.” (J.A. 100,
Tr. 7062). This testimony provides the Commission with
an adequate defense for its pollution control argument.
In this connection, we recognize that the Arkansas-
Louisiana and United Gas curtailment plans’ boiler sub-
ordination mentioned above (see footnote 8) were not
sustained on the pollution-control argument. The fault in
each instance, however, was not a failure of logic, but an
absence of record support. At least for the El Paso sys-
tem, that fault has now been corrected.
The last justification offered is closely patterned to the
previous one. Since boilers are the largest users of natu-
ral gas, on a per plant basis, more natural gas can be
curtailed with fewer plants affected if boilers are the
first curtailed. The record portions cited by the FPC’s
brief are inapposite, but there is sufficient evidence al-
ready alluded to in the discussion of the second rationale
to uphold this explanation. We note that the phrasing of
this advantage has changed from that suggested by the
Commission in the Arkansas-Louisiana and United Gas
curtailment plans, supra. In those cases, the premise was
that boilers could more easily substitute alternate sources
of fuel, and for that reason the economic disruption from
curtailment would be minimized by cutting back boilers
first. The Commission no longer relies on that premise
for the justification based on minimization of economic
dislocation.
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24
Opinion No. 697’s inclusion of natural gas used by
electricity-generating turbines within the boiler fuel cate-
gory raises a separate problem. The interim curtailment
order, Opinion No. 634, excluded “gas-powered turbines
utilized for electric generation” from the definition of
boiler fuel use (J.A. 341, Tr. 13,748), but this decision
was reversed in Opinion No. 697. The stated reason for
this change was that “[a]s a practical matter, we cannot
control the use of natural gas in electric generating boil-
ers without including volumes available for use in gas
turbines within the definition of boiler fuel use.” (J.A.
506, Tr. 17,102). Turbine use has been found to be less
efficient than boiler utilization for the generation of elec-
tricity. That finding is sustained on record evidence. See,
e.9., J.A. 100, Tr. 7051. But the Commission went on
from that fact to infer that natural gas allocated to tur-
bine use would be diverted to electricity generation
through boilers whenever possible. That step of inference
is totally without support in any piece of evidence of ac-
tual diversion. On this record, it is entirely surmise. No
doubt the Commission is entitled to a great deal of lati-
tude in predicting how its orders will be applied by the
industry. The Commission places its entire argument
concerning this question on that proposition.” But Opinion
No. 697 is not a new order, written as the Commission's
first venture into curtailment. It follows upon an interim
order, and changes in that interim order must be justi-
fied. (See Part I, supra). In the absence of the slightest
* The dissent would uphold the lower classification of natural
gas devoted to turbines on the basis that such a use is less
efficient than boiler use. That factor alone would not justify
lower priority since turbines might also use alternate fuels
less efficiently, or with more detrimental impact on the en-
vironment, than boilers. However that question may be re-
solved, the only basis upon which the Gommission's order
relied was the possibility of substitution (J.A. 506; Tr.
17,102), and that basis cannot be sustained.
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25
reference of abuse during the period of the interim order,
there is nothing to sustain the Commission’s change of
mind on turbine fuel usage. Even if the provisions of
section 4(b) of the Natural Gas Act, rather than the
specific-finding of discrimination provision of section 5
(x), were held to govern the promulgation of Opinion No.
697, there is lacking here any evidence of “undue prefer-
ence or discrimination.”
The Commission also counters with the argument that,
since the turbine-fuel objection is principally raised by
Arizona Electric Power Company (AFPCO), it could
seek a special reclassification. (Brief for Respondent at
58). That is an attractive suggestion, but courts must
he careful not to close out legitimate claims on the hopes
that they will be otherwise redressed. Perhaps Arizona
Electric could obtain a reclassification, but to procced
by individual variance is to admit that the overall con-
cept is valid. Arizona Electric does not allege particular
facts whereby ils situation should be distinguished from
such a generally valid order, it attacks the fundamental
basis for the order. Before commending Arizona Electric
lo the particular relief suggested by the Federal Power
Commission, we would have to be convinced that the
general plan was, indeed, sustainable. And that case has
not been supported by substantial evidence.
IV. THe BASE PERIOD
The curtailment plan envisions a maximum limit on
the amount of natural gas going to each of El Paso's
customers. These “base volumes” become applicable when-
ever Fl Paso’s supply of natural gas falls short of the
current demand. They prescribe the total amounts of
natural gas by priority classification available for the _
various users. |
Three problems have arisen from the time periods in
the past which were used in establishing the base volumes.
Opinion No. 634, issued on October 31, 1972, established
A-26
26
the twelve month period immediately preceding that date
as the appropriate measuring lime. The first objection
raised 'o that procedure was that, by measuring actual
historical use of Kl Paso gas over that twelve month
period, the plan paid no attention to the then-developing
shortage of non-Kl Paso natural gas. That shortage was
allegedly critical to the California customers who, as
explained before, did not rely exclusively on Fl Paso.
rhe two California users maintained that setting the
Kl Paso gas supplied during the last twelve months as
the maximum volumetric entitlement in time of curtaii-
ment unfairly assumed that all users were otherwise
identically situated. Because of the developing searcily
of non-[I Paso natural gas, it was likely that the Cali-
fornia users would have to increase their reliance on
i Paso natural gas in the near future; but that con-
tingency had not been envisioned in the El Paso cur-
tailment plan.
When this complaint was before this court in the
context of the interim plan, we decided that, because of
the emergency, short-term nature of Opinion Nos. 634
and 634-A, it was not fatal to ignore the developing
pre-existing curtailment” of non-El Paso sources felt
by the California customers. ASARCO at 942. Our de-
cision there was explicitly premised on an expectation
that the Commission would consider the local California
natural gas shortage in promulgating a final, permanent
plan, and would “enunciate findings with respect to that
situation” as well. Now that the permanent plan has
come before us, we again consider whether the Commis-
sion’s decision to ignore the pre-existing shortage of local
gas in California was unduly discriminatory to the Cali-
fornia users.
Two related issues have also become involved in our
review of the time period established for calculating
hase volumes. First, no explicit’ prohibition against ad-
ding new users to the various distributors’ systems w?th-
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27
in the general El Paso system was contained in the in-
terim curtailment order. Several of the EOC distributors,
subsequent to the date of Opinion No. 634, did add new
customers, including customers in the top priority levels."
Opinion No. 697A took account of this by establishing
a moratorium on adding new customers, for purposes of
receiving curtailment allotments of natural gas. As for
those new users added during the twenty-five and one
half month interval between the interim and final plan,
Opinion No. 697A provided that the base period for
volumetric calculation would be “actual historical takes
for the 12 month period ending October 31, 1972, ad-
justed to also reflect the annualized effect of attached
Priority 1 and 2 loads existing as of October 31, 1974.”
(J.A. 489, Tr. 17,085). In addition, penalties were im-
posed for all natural gas withdrawn in excess of the
volumetric limits, except where necessary to protect a
Priority I or 11 use. The date of Opinion No. 697A was
December 19, 1974.
Tucson Gas & Electric and Arizona Public Service
Company (“APS”) raise the objection that the gap be-
tween October 31, 1974, and December 19, 1974, places
them in a predicament. These companies during this
period were adding high priority users in reliance on the
interim order’s absence of any limitation on attach-
ments, only to be told later that those users could not
be included in the curtailment allocation. The argument
is carried even further that, since these utility com-
panics are required under state law to receive permis-
sion before they can refuse a requested extension of
service to a user in what has come to be a high priority
classification, it was unreasonable to impose a moratorium
on attachments even as of the date of the issuance of
” Tucson Gas & Electric Company added 3,000 residential
and commercial users during the October 31-December 19,
1974 period. (Brief of Tucson as Intervenor at 18). (The
term “EOC” means “East of California.”)
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28
Order No. 697A. Instead, it is contended, the curtail-
ment plan should have taken cognizance of all new at-
tachments until such time as Tucson and AI’S could
receive authorily from the State of Arizona to refuse
such new requests for service.
The last problem arising out. of the base period de-
termination stems from the meteorology of the period:
the winter of 1973 and pre-November 1974 were un-
usually warm. Hence, the Arizona users allege, their
reliance on El Paso natural gas was abnormally low
and a more expectible average of natural-gas use should
have been employed.
The second of these three problems is most usefully
discussed first. It is arguable how justified was the re-
liance of those natural gas distributors who added cus-
tomers subsequent to the interim curtailment. order.
There was never any doubt that the conditions of the
eventual curtailment plan would require some calcula-
tion of a maximum amount of natural gas, and that for
each distributor, such a calculation would necessitate a
ceiling on the number of customers to be served. On a
fuller record, it might be concluded that those exceptions
should be afforded only to those distributors who, having
sought refusal powers from their state regulatory bodies
immediately upon the issuance of the interim plan, were
nevertheless denied. However that may be, the Com-
mission has stated quite a different position, which bears
upon all three problems here addressed. In Opinion No.
GHYTA, the FPC stated, “we recognize . . . that growth
in the higher priorities would in fact have occurred in
the normal course of load upgrading, since no express
prohibition was contained in the interim plan and in
view of our decision not to impose overrun penalties for
the interim plan. ... [We find that the only reasonable
alternative is to require El Paso to adjust the Opinion
No. 697 base period to reflect that growth.” (J.A. 488,
Tr. 17084).
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29
The Commission's own judgment is that it is entirely
appropriate for the natural gas distributors to have
added customers up until the time they were explicitly
told not to do so. The logie of that position extending
their entitlement must be consistently applied. Aeccord-
ingly, it was arbitrary for the Commission to refuse to
order the inclusion of those users added up until the
date that Opinion No. 697A was actually promulgated,
and the explicit prohibition on attachment of further
high priorily users was declared. Uewever, because the
December 19, 1974, order by the Federal Power Com-
mission was preemptive it was reasonable to exclude from
the base used for the curtailment plans those users
added after that date, even if that was before the time
distributors obtained state permission to exclude them.
The FPC argues that APS and Tucson were dilatory in
requesting authority to refuse new, high priority users
on their respective systems. If that were so, that would
be an additional ground for excluding post-December 19,
1974, customers. Both APS and Tucson delayed until
late February. Whether the additional two-month in-
terval was excusable and reasonable or whether APS
and Tucson should be held to be bound from the date
they received notice of the Commission order providing
for the exclusion from the base period of new customers
added thereafter we leave to be settled at a hearing
before the Commission on remand. Nothing prevents
the FPC as a matter of discretion from granting special
relief to suppliers in this predicament, but that is not
required.
The Commission’s decision in Opinion No. 697A to
depart from the six-month time period ending on October
$1, 1972, was molivated by a desire to accommodate cer-
tain BOC customers of El Paso, who otherwise would
have had more actual demand on their system for natural
gas than had been recognized in the curtailment plan.
That disposition must be applied equally to the Cali-
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30
fornia customers as well. Their position also involves
more demand on their system for natural gas (because
of a searcity of non-Fl Paso gas) than had been recog-
nized in the curtailment plan. To alter the curtailment
plan for EOC customers might not have been necessary ;
but, having done so, the FPC assumed an equivalent ob-
ligation for the California customers as well.
The Commission relies on four pages of Opinion No.
697, and two attached exhibits, to satisfy our mandate
in ASAR CO to “consider the pre-existing shortages in
California and to enunciate findings with respect to that
situation.” ASARCO, supra, 161 U.S.App.D.C. at 23,
AMA F.2d at 942. The evidence recited in those pages of
the opinion (J.A. 434-39, Tr. 16608-16611) refer to the
non-It] Paso sources of natural gas for the California
customers. The Commission admitted that “deliveries to
interruptible customers [by non-It] Paso sources| have
heen declining since 1970,” and concluded that “this
decline in service can he attributed to two factors only.
One, that the California source supplies are declining,
which is a fact of record, and (2) that the gross in-
dustrial market for natural gas in Southern California
has been growing, which is also a fact of record. (Tx.
105). Solutions to both of these causal factors are clearly
outside the scope of the Commission's jurisdiction.” (J.A.
436; Tr. 16609-16610).
These references do establish that the Commission paid
attention to the shortage of natural gas in California,
but they fall far short of providing a basis for justifying
the FPC’s failure to provide some relief to the California
users because of that shortage. To say that. scarcity is
due to high demand and low supply is simply to state a
tautology of economics. It is well within “the scope of
the Commission’s jurisdiction” to consider the need for
natural gas in the area even though the need has become
more critical because of a developing scarcity of local
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31
gas, and to increase the supply by a more lenient cur-
lailment plan that did not treat as equivalents two sels
of customers in vastly different situations regarding their
supply of natural gas. Jt was precisely the factor of
growing demand (between the time of the interim and
final curtailment orders) that the Commission found to
be fully expectible and deserving of consideration for the
Arizona customers. California customers are entitled to
have their needs similarly considered.
The Commission parries by stating thal, even if true
that the California users will have more occasion to rely
on 1 Paso, as their alternate fuel sources dry up:
One significant and highly variable factor controls
the abilily of industrial consumers exposed to natu-
ral gas curtailment to continue their operations, to
wit, their abilily to use and secure alternate fuels.
There is no evidence in this record that industrial
consumers in California are in a worse posilion with
respect. to their ability to use or to secure alternate
fuels than consumers located in I-O-C. (J.A. 437,
Tr. 16610)
The simple refutation is thal. California consumers
will be forced more often to resort to alternate fuels
because of their heightened scarcity of natural gas. That
disparate scarcity, if such be the fact, between California
and EOC users, raises a prima. facie inference that FPC
treatment of both classes of consumers identically, in
terms of historical reliance on FE] Paso, is discriminatory
in the most important sense of the Act, the need for
natural gas. The Commission would have to establish
that. California consumers were singularly more able to
employ alternate fuels than EOC consumers before it
could rebut that prima facie case. The Commission has
not. done so.
The Commisison is required to give more considera-
tion to the peculiar shortages in California in order to
comply with our ASARCO opinion, and, also, as a matter
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32
of affording equal treatment to California and EOC cus-
lomers. This does not mean that 1] Paso must supply
the full amount of the shortfall experienced in Cali-
fornia because of local conditions. Other factors such
as the difference in priorities of use, and a proven greater
ability lo use alternate fuels, might, in the end, support
a decision requiring less than full contribution. But the
precise resull cannot be foreseen, cannot be dispensed
with by the conclusory statement offered by the Com-
mission on this record, and must be made the subject
of explicit findings following a full hearing."
The final objection raised concerning the base volumet-
rie curtailment period does not necessitate intervention by
this Court, but may be amended by the Commission in
its reconsideration of the matters that are to be re-
manded. It was not mandatory for the Commission to
consider whether the periods of measurement used in
establishing the base volumes covered an unusually warm
period in Arizona. If the Arizona distributors claim they
have a right to additional volumetric entitlement because
the base period covered an unusually warm winter they
—_—_—_——_—
"The dissent reads too severely what is required by our
remand of this point. We do not hold that the Commission
policy of equal curtailment of full and partial requirements
customers, ov pipeline-by-pipeline regulation, be “subverted”
in any way. The problem we see, rather, is with the base
period, during which the California customers’ reliance on
1 Paso was allesred to be less than it has now become. The
Commission's own order recognizes that alternate supplies to
California usera have dropped since “the time the record was
compiled in this procecding” (J.A. 136, fn. 8; Tr. 16,609, fn.
8). Whatever policy the Commission wishes to follow, it must
be based on an appreciation of present needs of the several
areas relying on the Fl Paso system, rather than on historical
records of use measured in September of 1972 (J.A. 417; Tr.
16,592); particularly given the Commission's recognition
(supra) that California customers’ reliance on Fl Paso was
at that time in a stale of flux relative to EOC users.
A-33
33
are free to petition the FPC for a variance, but they will
be required to show that the weather in their area oper-
ated to discriminate against them relative to consumers
in other areas on the pipeline. If the effect of the weather
during the base period was reasonably uniform through-
out the entire system all distributors would be affected in
the same way and none would he entitled to special con-
sideration.
In sum, a remand to the FPC is necessary regarding
the base used for volumetric entitlements and the claims
of the Arizona distributors. Volumetric entitlements to
El Paso customers must reflect consideration of total na-
tural gas needs and the possibility of satisfying said needs,
at, least to some extent, from El Paso gas, rather than
rigidly reapportioning entitlements solely on the basis of
historical use of El Paso gas. This is what is required by
the Natural Gas Act's prohibition against discrimination,
15 U.S.C. $§ 717¢e, d (1970). It may be that the Com-
mission in ils judgment will decide that the increasing
California shortages cannot, in fairness to other users
of higher priority on the system, be met by additional
entitlements of El Paso gas, or can only partially be met
from that source, but this docs not mean that the Com-
mission can avoid its statutory obligation by a conclusory
finding that it lacked jurisdiction. It has jurisdiction,
even though the volume of available El Paso gas, the
higher priorities of other distributors, and the ability to
use alternate fuels may seriously restrict the ability or
need for the Commission to exercise its jurisdiction to
increase California entitlements.
The Commission must also turn its attention on remand
to the post-Opinion No. 634 additional users on the Ari-
zona systems. Unless the PC holds new hearings and
sustains a change in its position on including those users
in the volumetric entitlement calculations, it must extend
consideration to all new users added up to the time of
Opinion No. 697A’s promulgation, December 19, 1974, not
just to October 31, 1974.
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34
No change is presently mandated concerning weather
conditions over the base period.
V. Fue. STORAGE
The injection of natural gas into storage tanks by
PG&E and SoCal, the two California customers of Fl
Paso, creates a difficulty in the curtailment categories
that was first addressed in our ASARCO opinion. The
interim plan on review there, Opinion No. 634, treated
natural gas retained in storage as outside the scheme of
any end-use deserving priority classification. Conversely,
when such natural gas was withdrawn from storage, it
was treated as though it had been supplied from an inde-
pendent source.
The interim plan had allocated natural gas between
the California and EOC users in accordance with the
percentage reliance of each user upon the El Paso sys-
tem. All the EOC users relied exclusively on El Paso,
but the California users had alternate sources for natu-
ral gas, with the result that they received about 80% of
their total supplies from El Paso. The central concept of
the curtailment plan is to accord as much natural gas as
possible within each priority category, up to a user’s
total needs, and then to progress to the next highest prior-
ity level. But in determining what a user’s total needs
were, the California customers were evaluated at their
needs from Fl Paso, or about 80% of their actual total
needs.
With a fixed amount of natural gas supplied by Fl
Paso, the California users made up the difference at
peak times from other sources, and at slack times, in-
jected the El Paso-supplied surplus into storage tanks.
The EOC customers, in contrast, stored no Fl Paso fuel
but altered their daily purchases depending upon condi-
tions.
A-35
3h
By treating the natural gas taken from the California
users’ storage tanks as coming from an_ independent
supply, Opinion No. 634 reduced the estimate of those
users’ reliance on Fl Paso. It seemed as though more
natural gas was coming from non-E] Paso sources than
was actually the ease. Accordingly, the allocations to the
California customers of curtailed gas were lower than
they should have been. It was this unfairness that
prompted the remand of the issue in ASARCO.
The response of Opinion No. 697 was to treat storage-
injection as an end use in itself, and afford it Priority 2
classification. The Commission’s reasoning was “Natural
gas used for injection into storage should also be accorded
a relatively high priority as the primary purpose of storage
is the protection of service to residential and other
temperature-sensitive consumers during the winter heat-
ing season.” (Tr. at 16,602; J.A. at 428). That state-
ment incorporates two separately distinguishable conclu-
sions concerning origin, and then priority, of storage gas.
Since Opinion No. 697, like Opinion No. 634, views
withdrawals from storage as an independent source of
fuel supply, our mandate in ASARCO is sought to be
complied with by recognizing the 1 Paso-origin of stor-
age fuel as it enters storage, rather than when it is taken
out. from storage. That is an acceptable way of guaran-
teeing that the California users are not viewed as less
deperdent. upon Kl Paso natural gas than they actually
are. The second step is to decide in which of the five
priorities the natural gas allocated to storage should be
placed. If the storage gas were measured as il was used,
this would present no problem, for then it would simply
be added to the other volumes of gas being utilized for
each of the priority classifications. But the Commission’s
decision to consider storage fuel as it enters storage pre-
sents it with a difficulty from which it is not fully ex-
tricated by Opinion No. 697A.
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36
In Opinion No. 697, all storage gas was accorded Pri-
ority 2 classification. This solved the problem of under-
estimating California users’ reliance on El Paso. Uow-
ever, it accorded a high priority to substantial quantities
of natural gas that might not eventually be consumed in
a high priority end-use. The FP'C’s language in Opinion
No. 697, quoted above, was weak on its face: because the
primary purpose of storage gas was Priority 1 or 2 uses,
the exclusive priority classification for such gas would be
Priority 2.
The Commission’s proposed correction, in Opinion No.
GH97A, was to afford Priority 2 classification only to that
percentage of a customer’s storage gas equal to the per-
centage of natural gas actually devoted to a non-storage
Priority 1 or 2 end-use by the particular customer. This
meant that all other storage gas was treated as not com-
ing from the El Paso system, either at the time of in-
jection or at the time of eventual utilization. To that ex-
tent, the Commission has failed to comply with our
ASARCO decision, where, with reference to a proposal
by the FPC staff rejected by the Commission, it was
stated:
There is no suggestion that the proposed storage ad-
justment formula would impede implementation of
the interim plan. The mere fact that the solution is
complicated cannot justify the Commission in refus-
ing to provide just and reasonable interim curtail-
ment procedures. We therefore remand this matter
to the Commission for further consideration of the
proposed storage adjustment formula.
ASARCO, supra, 161 U.S.App.D.C. at 24, 494 F.2d at
943.”
* Opinion No. 697A did correct one weakness in Opinion
No. 697. Opinion No. 697 had recognized only net storage
fuel injections over the course of the year as being supplied
by El Paso. (Net storage fuel injection represented the ex-
A-37
37
Hence, the Commission failed to accomplish what it
set oul to do in Opinion No. 697A regarding the stor-
age fuel priority classification. Rather than relying on its
former assumption that storage fuel was primarily in-
tended for residential and other high priority uses, the
Commission offered the solution described above. But the
premise of that solution, that natural gas taken from
storage will be distribuled across all end uses and priority
classifications, is not correct. Storage gas is relied upon
primarily for low-priority end-uses. When the need for
storage use arises, it must ve that the other sources of
natural gas have not been able to supply all current de-
mand. But the higher priority uses would have been
met first. Hence, the function of storage gas must be
to supply the lower tier of priorities in the order of their
preference. Admittedly, there could be occasions where
the shortage was so severe, that in order to supply even
the top priority category, resort to storage would be
necessary. But as a general rule, at least for the im-
mediate present, the percentage of storage gas that is
cess fuel injection into storage over fuel withdrawn from
storage for consumption). Opinion No. 697A realized that,
over a year, that measure would not be reflective of the gross
volumeof Fl Paso gas thal was injected into storage. Opinion
No. 697A adopted a scheme that would approximately measure
the gross amount of El Paso gas being pul into storage. A
direct measure of that amount was not attempted. Instead,
the Commission took account of the fact that most storage
gaa is injected in the summer, and withdrawn for use in the
winter (although some withdrawals do occur in the summer,
and there are sometimes injections in the winter). Hence,
injections minus withdrawals in the summer months (7.¢., net
summer injections) are a rough approximation of gross total
injections over the year (J.A, 496-97; Tr. 17092-93). While
a more precise estimate would be desirable, the FPC's choice
of method in Opinion No. 697A is not so arbitrary as to com-
pel reversal—-particularly because an issue purely of measure-
ment technique is involved,
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38
used for higher priority end-uses will be less than the
percentage of all gas that is used for higher priority
end-uses.
A remand to the Commission on the issue of storage
is therefore necessary. In revising ils permanent curtail-
ment plan for the E1 Paso system, the Commission must
guarantee: 1) That all use of FE) Paso-originating natural
gas (whether detained in storage for a period of time or
nol) be recognized in setling the percentage reliance of
California customers upon El Paso. 2) That double count-
ing be avoided either by considering the El Paso origin
of the natural gas as it is injected into storage, or as it
is withdrawn from storage; but not both. 3) That the
priority accorded to natural gas kept in storage be in
proportion to the eventual end uses of that gas, unless the
Commission wishes lo support with an evidentiary hear-
ing the importance of storage gas irrespective of the end
use to which it is eventually put. This last position was
strongly hinted at in the Commission’s brief, but. formed
no part of the storage-priorily decision by the Commis-
sion itself, and hence cannot be accepted as an explana-
tion before this court. Securities and Exchange Commis-
sion v. Chenery Corporation, 318 U.S. 80 (1943).
VI. ENVIRONMENTAL IMPACT STATEMENT
A problem is raised by the intervenor Salt River Proj-
ect Agricultural Improvement and Power District con-
cerning the compliance of Order No. 697 with the Na-
tional Environmental Policy Act of 1969. Under that
Act, all federal agencies are required, “to the fullest
extent possible,” to
include in every recommendation or report on pro-
posals for legislation and other major Federal actions
significantly affecting the quality of the human en-
vironment, a detailed statement by the responsible
official on . . . the environmental impact of the pro-
posed action... .
A-39
39
42 U.S.C. § 4332 (1970). The proposed permanent cur-
tailment plan has been issned without any environmental
impact statement. Although the Commission at one time
maintained that curtailment plans were, because of their
contingent nature, exempt from the requirement of fil-
ing an environmental impact stalement, il now recog-
nizes that the court’s ASARCO opinion, and that of the
Fifth Cireuit in Louisiana v. FPC, 503 V.2d 844 (5th
Cir. 1974), have ruled unacceptable thal manner of
procedure. Accordingly, in Opinion No. 697A, the Com-
mission reluctantly concludes:
We are therefore constrained to remand this pro-
ceeding for the limited purpose of preparation and
circulation of an environmental impact stateraent in
accordance with Section 102(2)(c) of NEPA. This
step is taken in spite of our belief that the impact
statement. so developed will add little of substance
to the environmental record already developed in
this proceeding.
This left the question of what force the Commission
wished to attach to Opinion No. 697 before the environ-
mental impact statement issues. Finding that immediate
implementation of the plan was necessary, the Commis-
sion decided that Order No. 697 (and 697A) “should
therefore be considered as a revised interim plan until
such time as the Commission rules on its appropriateness
as a permanent plan for the Fl Paso system.” (J.A. 509-
510; Tr. 17105-17106). The Administrative Law Judge
to whom the opinion was remanded was given authority
“to modify the plan as may be required by the environ-
mental evidence” adduced at this hearing (/d.)
The fact that this plan is officially an interim one does
not oust the jurisdiction of this court. See ASARCO,
supra; Louisiana, supra. They are nonetheless final
FPC actions. And if the changes made on the basis of
the environmental hearings are as minor as the FPC ex-
A-40
40
pects, any review of the permanent curtailment plan
can be considerably abbreviated by reason of the opinion
in this case (except, of course, for challenges to the
adequacy of the environmental impact statement).
It is Salt River’s contention, however, that the issuance
of Opinion No. 697 should be held up, even as an interim
plan, until the environmental impact statement is pro-
vided. The effect would be the continued applicability of
the original interim plan, a matter of no small monetary
consequence even if the environmental statement were
furnishc'} within a few months. A related question is
whether it is consistent with NEPA to treat an environ-
mental impact statement in the begrudging manner that
admittedly characterizes the FPC’s action in this case.
More specifically, is there an obligation to consider en-
vironmental consequences as a major federal action is
being planned, or is it sufficient to proceed with the de-
velopment of the program, announce it, and only then
turn to a consideration of the environmental conse-
quences?
The second question can be disposed of as not yet ripe
for adjudication. The adequacy of the environmental
impact statement can only be judged once that document
has actually been produced. The Commission’s remand
to the administrative law judge affords him a wide bali-
wick for his authority to consider environmental effects,
and this court cannot say that no amount of post-hoc con-
sideration, study, and alteration of the curtailment plan
could ever satisfy NEPA’s requirements. However, it
is well to repeat the warning this court issued in
ASARCO, that “our ruling today is not a license for per-
manent or prolonged evasion of responsibilities under
NEPA.” ASARCO, supra, 161 U.S.App.D.C. at 30, n.47,
494 F.2d at 949, n.47. In Scientists’ Institute for Pub-
lic Information, Inc. v. AEC, 156 U.S.App.D.C. 395, 408,
481 F.2d 1079, 1092 (1975), we stressed that the pur-
pose of an environmental impact statement is to pro-
A-4]
4)
vide information “before the action is taken” so that al-
ternalives can be considered (emphasis added). Cf.
Kleppe v. Sierra Club, 427 US. 390 (1976). Similarly,
in Louisiana, the Fifth Cireuit, while recognizing that
speculation was unavoidable, interpreted NIGPA as_re-
quiring that the “FPPC, in formaating that plan, take
into consideration as best it can the plan’s probable ef-
fect on the environment.” Lonisiana at 876 (emphasis
added). Those two curtailment plan decisions recog-
nized that the environmental impact statement, to be use-
ful in the way intended hy the statute, must be issued as
part of the formulative process of the plan, rather than
serve merely as a post-hoc catalogue of the environmental
results of a complex plan developed without reference to
those impacts. Reliance on an interim curtailment plan,
and particularly one which the FPC states will in all
likelihood become the permanent plan, could well de-
velop. Once it does, the tardy issuance of an environ-
mental impact statement would unduly influence the
balance of considerations against change, even when
necessary to avoid serious environmental consequences.
Calvert Cliffs’ Coordinating Committee Inc. v. United
States Atomic Energy Commission, 146 U.S.App.D.C. 33,
AAD F.2d 1109 (1971). To all this we add a qualifying
nole. Any reasonable person will recognize that a mean-
ingful and final EIS cannot be prepared on all aspects
of any plan until the full details of that plan are known.
Ilowever, the mandate of the statule requires environ-
mental consequences to be considered throughout the
formulation of the plans to the fullest extent possible.
Some situations call for an interim EIS. The require-
ments of NEPA to any situation can be resolved by a
common sense application of these principles.”
42 U.S.C. § 4322 (Supp. V, 1975) provides:
The Congress authorizes and directs that, to the fullest
extent possible: (1) the policies, regulations, and public
laws of the United States shall be interpreted and ad-
aaa A-43
43
42
premised on the expectation that the Commission will
develop a complete environmental record, considering all
relevant alternatives as fully as though no interim cur-
Ilence, while we refrain from staying the applicability
of the interim plan until the environmental impact state-
ment has issued, we do caution that this forbearance is
ministered in accordance with the policies sct forth in
this chapter, and (2) all agencies of the Federal Govern-
ment shall—
respect to any environmental impact involved.
Gopies of such statement and the comments and
views of the appropriate Federal, State, and local
(A) utilize a systematic, interdisciplinary ap-
proach which will insure the integrated use of the
natural and social sciences and the environmental
design arts in planning and in decisionmaking which
inay have an impact on man’s environment;
(B) identify and develop methods and procedures,
in consultation with the Council on Environmental
Quality established by subchapter I] of this chapter,
which will insure that presently unquantified envir-
onmental amenities and values may be given ap-
propriate consideration in decisionmaking along with
economic and technical considerations;
(C) include in every recommendation or report on
proposals for legislation and other major Federal
actions significantly affecting the quality of the hu-
man environment, a detailed statement by the re-
sponsible official on—-
(i) the environmental impact of the proposed
action,
(ii) any adverse environmental effects which
cannot be avoided should the proposal be imple-
mented,
(iii) alternatives to the proposed action,
(iv) the relationship between local short-term
uses of man’s environment and the maintenance
and enhancement of long-term productivity, and
(v) any irreversible and irretrievable com-
mitments of resources which would be involved
in the proposed action shou'd it be implemented.
Prior to making any detailed statement, the re-
sponsible Federal official shall consult with and ob-
tain the comments of any Federal agency which
has jurisdiction by law or apecial expertise with
ayrencies, which are authorized to develop and en-
force environmental standards, shall be made
available to the President, the Council on FEnviron-
mental Quality and to the public as provided by
section 552 of Title 5, and shall accompany the
proposal through the existing agency review proc-
esses;
(D) Any detailed statement required under sub-
paragraph (C) after January 1, 1970, for any major
Federal action funded under a program of grants to
States shall not be deemed to be legally insufficient
solely by reason of having been prepared by a State
agency or official, if:
(i) the State agency or official has statewide
jurisdiction and has the responsibility for such
action,
(ii) the responsible Federal official furnishes
guidance and participates in such preparation,
(iii) the responsible Federal official independ-
ently evaluates such statement prior to its ap-
proval and adoption, and
(iv) after January 1, 1976, the responsible
Federal official provides early notification to, and
solicits the views of, any other State or any
Federal land management entity of any action
or any alternative thereto which may have sig-
nificant impacts upon such State or affected
Federal land management entity and, if there
is any disagreement on such impacts prepares a
written assessment of such impacts and views
for incorporation into such detailed statement.
The procedures in this subparagraph shall not relieve
the Federal official of his responsibilities for the
scope, objectivity, and content of the entire state-
A-44
44
lailment plan had intervened. Expectancy interests can
be kept alt a minimum by the understanding that since
the Administrative Law Judge under the statute will have
this broad authority to revise the plan, reliance on the
interim plan will not necessarily control his decision.
The issue still remains, however, of whether it was per-
missible to by-pass an environmental impact statement
even construing Order No. 697 as an interim plan. The
language of the National Environmental Policy Act in
its terms would require such a statement even for an
interim curtailment order. But the Natural Gas Act
requires the Commission “to take effective interim cur-
ailment action in the exigencies presented by gas
_-_—_——-—
ment or of any other responsibility under this chap-
ter; and further, this subparagraph does not affect
the legal sufficiency of statements prepared by State
agencies with less than statewide jurisdiction.
(Fr) study, develop, and describe appropriate al-
ternatives to recommended courses of action in any
proposal which involves unresolved conflicts concern-
ing alternative uses of available resources:
(F) recognize the worldwide and long-range char-
acter of environmental problems and, where consis-
tent with the foreign policy of the United States, lend
appropriate support to initiatives, resolutions, and
programs designed to maximize international cooper-
ation in anticipating and preventing a decline in the
quality of mankind's world environment;
‘ .
(G) mitke available to States, counties, munici-
eae institutions, and individuals, advice and in-
ormation use j intaini
a tion us ful in restoring, maintaining, and en-
ancing the quality of the environment;
(II) initiate and utilize ecological information in
the planning and development of resource-oriented
projects; and
( 1) assist the Council on Environmental Quality
established by subchapter I of this chapter.
(89 Stat. 424)
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45
shortages,” Atlantic Gas Light Company v. FPC, 476
F.2d 142, 150 (5th Cir. 1973), and this obligation has
been held, in other circumstances, to override the NEPA
filing requirement.
Calvert Cliffs’ announced that only such a “statutory
conflict” could constitute an impossiblility sufficient to
overcome NEPA’s requirement of compliance “to the
fullest extent possible.”'"* In ASARCO, the impending
1972-1973 heating season created the need for an im-
mediate curtailment plan, without the delay involved in
the preparation of an environmental impact statement.
ASARCO, supra, at 948. In Atlantic Gas, supra, the
court was less specific as to immediacy, finding that
“A detailed evaluation of the environmental impact of a
curtailment order would entail precisely the sort of de-
lay which the Supreme Court noted and disapproved in
the course of a decision which held that the Natural
Gas Act authorizes the Commission to follow summary
procedures in exercising its curtailment power. Louisiana
Power & Light Co. v. Federal Power Commission.” 476
F.2d at 150. Salt River asserts that no case for im-
mediate need has been made out in the present setting.
The Commission responds that there is ample evidence
sustaining the changes made in Order No. 697, and that
it would be contrary to its obligation to the public to
postpone implementing a preferable curtailment plan. No
altempt to argue exigent circumstances is made by the
Commission. If we were to accept the Fifth Circuit’s
view, of course, exigent circumstances would not be re-
quired to uphold the FPC’s right to implement its new
curtailment order.
The choice is between (1) ordering the) reinstatement
of the previous interim curtailment plan under Order
No. 634, while remanding Order No. 697 in its entirety
1 See also Concerned About Trident v. Rumsfeld, ——
U.S. App.D.C. -— : - F.2d , ; No. 75-1515
(D.C. Cir, Oct. 13, 1976) at 10.
A-46
46
for reconsideration of environmental factors and the ul-
timate issuance of a permanent curtailment plan and en-
vironmental impact statement; and (2) approving the
continued applicability of Order No. 697 (subject to the
specific objections sustained elsewhere in this opinion)
with the understanding that the Administrative Law
Judge will have broad revision power to incorporate
changes called for by environmental considerations.
As a matter of common sense, the latter is the less
disruptive course. It should also vindicate NEPA’s con-
cern that major federal agency action be undertaken
only when fully informed of environmental consequences.
The Supreme Court, in an opinion subsequent to ASARCO
and Atlantic Gas, has shed light on the practical approach
that should be taken regarding the filing of environmental
Impact statements. In Aberdeen & Rockfish Railroad
Company v. SCRAP, 422 U.S. 289 (1975), the Court was
presented with a request for an environmental impact
statement in connection with proposed surcharges and
general rate increases approved by the ICC. The Court
held that a statement was not required until ICC ap-
proval of the railroads’ proposals had actually been is-
sued. “|The time at which the agency must prepare the
final ‘statement’ is the time at which it makes a recom-
mendation or report on a proposal for federal action.”
ye — Cf. Kleppe v. Sierra Club, 427 U.S. 390, 402
}.
Still, it might be contended (and Salt River does so
argue) that Opinion No. 697 was exactly what the Su-
preme Court had in mind as the type of agency recom-
mendation on proposed federal action that would require
an environmental impact statement. It is all the more
instructive, therefore, to observe that the Court went
on to say that, if “the ICC erred in failing to prepare
a separate formal environmental impact statement to
accompany its October 4, 1972, report or that the con-
sideration given to environmental factors in that report
A-47
47
was inadequate, the ICC need not have ‘started over
again.’” Jd. at 321 (emphasis in original). Rather, a
later consideration of environmental factors by the Com-
mission before issuing its final order of approval would
adequately accomplish NEPA’s purpose. Id. at 322.
The Supreme Court in Aberdeen had before it a record
demonstrating that full attention was eventually paid to
environmental considerations; whereas in the present case,
the FPC has not yet made such a record. But that dif-
ference is not determinative. What is important is the
approach taken by the Court in reconciling two poten-
tially conflicting Congressional mandates-—(1) that an
agency not postpone those urgent decisions which its
special qualifications require it to make in the public
interest, and (2) that environmental considerations be
taken account of to the fullest extent possible. Because of
the breadth of scope and extent of permissible revision
allotted to the Administrative Law Judge by the FPC on
remand from that Commission, which we here sustain and
emphasize, we believe the better course is to follow the
example set in Aberdeen. The issuance of Order No. 697
(as modified by 697A) should not be held up pending
an énvironmental impact statement.
VII. Contract ABROGATION
Several petitioners object that the permanent curtail-
ment plan, is allocating natural gas solely according to
end-use, has improperly ignored the agreements reached
by the parties themselves. The focus of complaint is that
users are no longer characterized as firm or interruptible,
with the former having priority over available natural
gas supplies, and paying a higher price for that privilege.”*
' Ag pointed out at oral argument, the customers being re-
ferred to are eventual users. Gas distributors are all inter-
ruplible to some degree, but can safely guarantee firm service
to a certain number of eventual customers desiring it.
———
A-48
48
But this argument is not new. It was raised in challeng-
ing the interim curtailment plan before this court. in
ASARCO, which was also an end-use plan. ASARCO,
supra, 161 U.S.App.D.C. at 16, 17, 494 F.2d at 935, 936.
Both the legal permissibility of relying on end-use as an
allocative scheme, and the substantiality of the evidence
underlying the FPC’s choice of the end-use method on the
El Paso system, were upheld. In Louisiana Power and
Light, supra, the Supreme Court held that the Natural
Gas Act “fully authorized” the pipeline’s tariff to impose
a curtailment plan despite contrary terms in existing con-
tracts and in so holding distinguished United Gas Pipe
Line Co. v. Mobil Gas Service Corp., 350 US. 332, 344
(1956). See 406 U.S. at 646-647.
In Opinion No. 697, the Commission relies on the fact
that regulations of the California Public Utilities Com-
mission require natural gas service to be interruptible for
industrial customers over 200 mef per day. As a result,
the informative function of an interruptible, as opposed
to a firm contract, is somewhat distorted. It is not the
free market allocating to the most productive user because
that user can pay the highest price, but a government-
imposed constraint upon the free market whereby at least
some California users who would have paid to be firm-
customers are subject to curtailment before EOC users.
(J.A. 421-421; Tr. 16,595-96).
It is not material, as petitioners urge on this court,
that an actual instance of curtailment of California resi-
dential users in the face of continuing EOC industrial
use has not yet arisen. The Commission acts within the
scope of its discretion when it considers contingencies,
for that is the nature of the emergency curtailment plans
originally required by Order No. 431.
While fully within its authority in establishing cate-
gories of end use, the Commission still paid slight at-
tention to the efficient allocation reflected in firm and
A-49
49
interruptible contracts. The Commission explicitly held
that it was abrogating existing contractual entitlements
only because and to the extent that they were not effec-
tively serving this allocative function. (J.A. 422, Tr.
16596). As the Commission has impliedly adopted the
premise that, in the absence of evidence of distortion, the
distributive scheme worked out by private parties will
accomplish the most efficient allocation of scarce resources,
its declaration of priority categories based on end use
should allow for private contractual arrangements. With-
in end-use priority categories, there is still room for
individual contracts to spring up, with some users re-
questing priority over others, and being willing to pay for
it. Such arrangements would evidence that the parties
themselves have agreed on a common unit. for measuring
their self-perceived needs. Hence, for example, if one
manufacty ing plant is able rather freely to substitute be-
tween natural gas and other fuels, it would not be will-
ing to pay as much for the gas as would a second manu-
facturer whose operations entirely rely on energy from
natural gas. Yet, under Opinion No. 697, both would be
classified in Priority 3.
The Commission’s present order should be read Lo
allow natural gas consumers to contract for firm or inter-
ruptible fuel within priority classifications until the
Commission rules otherwise. That interpretation is not
precluded by any position taken by the FPC in its Opinion
No. 697; rather, it is a necessary consequence of the Com-
mission's statement that “the value of the ‘firm-
interruptible’ contract distinction as a curtailment stand-
ard is thus largely dependent ips = sor gal ‘yom
hich it reflects the intensily of purchasers n
pei sation No. 697, J.A. 422, Tr. 16596). To the
extent that the California regulations require all serv-
ice to be interruptible, the Commission in some areas
may desire to prohibit consumers from contracting for
firm service even within priority categories. But that
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50
would only affect industrial use in excess of 200 mef
daily; and would require an explicit ruling by the Com-
mission, if it so desires, on remand. For the present,
nothing in Opinion No. 697 or 697A should be read to
prohibit such contracting within priority categories.
VII[. COMPENSATION
The permitting of contractual arrangements within
end-use categories could also accomplish part of the
purpose intended by those distributors, like Arizona Elee-
tric Power Company, who advocate that the Commission
order a scheme of compensation from previously inter-
ruptible users who now enjoy a high priority classification
to be paid to users whose needs are now classified in the
lower categories. It is contended that such a system is
obligatory in order to avoid discrimination in the new
curtailment. plan.
A question of jurisdiction is presented. The Commis-
sion holds that its authority to set. rates under section 4
of the Act does not encompass the ability to require com-
pensation payments from one class of users to another.
That position has been squarely rejected by the Fifth
Circuit. Mississippi Public Service Commission v. FPC,
422 F.2d 1345, 1350 (1975), cert. denied, 429 U.S. 870
(1976). The question was also recently before a panel
of this court in the context of the Transcontinental Gas
Pipe Line curtailment. After vacation of our order and
remand of the case from the Supreme Court, FI’C ».
Transcontinental Gas Pipe Line Corp., 423 U.S. 326
(1976), the majority ordered a remand to the Commis-
sion to provide the evidence it felt was needed concerning
the severity of the natural gas shortage before it could
rule on the validity of the suggested compensation pay-
ments. Transcontinental Gas Pipe Line Corporation v.
Federal Power Commission, ———- U.S.App.D.C. .
—— F.2d --——-, No. 74-2036 (D.C. Cir., Nov. 29, 1976).
A-SI
Hl
The suggestion for compensation payments is made in
an entirely general way, with no specific plan proposed
by the petitioners. Without judging the issue as it might
be presented in a particular case of hardship (for which
the Commission alway stands ready to afford individual
relief), the concept of a scheme of compensation cannot be
decided on this record. It is only proposed in a general
manner; and as a general proposal, it would be inconsist-
ent. with the entire purpose behind reallocation of natural
gas to order compensation payments. More narrowly, all
we hold is that nothing in the Natural Gas Act’s instruc-
Lions to the Commission to promulgate nondiscrimnatory
rales requires a compensation scheme.
A freely operating market would allocate natural gas
first. to those paying the most for it. If is the mandate
of the Commission to intrude into that process where the
social valuation on a particular use for natural gas ex-
ceeds the value to any one private person. To then force
the private persons receiving the direct benefits from that
reallocation to pay to the formerly favored users the
difference in price between the favored and disfavored
uses, however, defeats the entire rationale for the real-
location. If the newly favored users could afford to pay
this compensation, they would in most instances have paid
it at the start, and would have outbid the formerly fa-
vored users.
The California users could perhaps present a different
case. There, an interruptible user might actually have
placed a high value on the use of natural gas, but pays
the lower rate in keeping with the interruptible status of
industrial users over 200mef in California. Such a user,
however, could not be in any priority above level 3; so
it is quite unlikely that he would be enjoying a windfall
benefit for which he should be forced to compensate the
FOC users. The FPC was not required to order such
compensation.
We dispose of the compensation issue on this ground:
that it is not required by the Natural Gas Act in order to
avoid discrimination, that as a general matter, it would
contradict the whole purpose for the end-use plan, but
that the Commission will be free to consider compensa-
tion in particular cases subject to court review. We thus
find it unnecessary in this case to reach the question of
whether the Commission has jurisdiction to require com-
pensation.
IX. ISnD-UsE DATA
In making its allocations of natural gas to the dis-
tributors, Fl Paso has determined for each the amount
of gas consumed within priority categories. To accom-
plish these calculations, it was necessary to rely on in-
formation furnished by the ultimate consumers as to the
uses each made of natural gas. Arizona Electric Power
Cooperative and the City of Willcox object to that
method, especially because, “Since these nominations were
made after El Paso’s customers first suffered curtailment,
they may well be tainted by self-serving exaggerations of
requirements in higher priorities.” (Brief for Petitioners
City of Wilcox and Arizona Electric Power Cooperative,
Inc. at 53). The preferable practice, in petitiners’ esti-
mation, would be to require El] Paso to obtain from each
distributor actual data on residential, commercial, and in-
dustrial use of the natural gas furnished that distributor,
and to subject those figures to cross-examination by com-
peting distributors.
As large boiler users with firm contracts under the old
scheme, such petitioners fear being reduced from top pri-
ority Lo near lowest priority in almost all of their natural
gas allocations. It is expectable, accordingly, that they
would like to scrutinize with the utmost care the claimed
needs of distributors serving predominantly superior-
priority users. But the decision of the Commission being
challenged here is of the type to which courts customarily
A-53
53
accord a good deal of respect. It is not as though the
Commission wishes El Paso to proceed without any data
al all. If it had so ordered, that might have been so dis-
ruptive to the effective functioning of the Act as to have
constituted an error of law. At the least, substantial
evidence might well have been found lacking." But the
Commission has here merely chosen a method of obtain-
ing the data necessary to implement its end-use curtail-
ment plan. Absent a strong showing of unworkability,
methodology is best left to an enforcing agency’s own de-
termination.
In the United Gas Pipe Line curtailment plan, re-
viewed in Louisiana, supra, the Commission did suspend
the effective date of the end-use plan in order to obtain
its own measurements of natural gas utilization by pri-
ority category. United Gas and El Paso could be dis-
tinguished on the basis of the high number of complaints
received by the Commission in the former and, a related
point, the relative novelty of the proposed plan com-
pared with the plan that was already in force in United.
Ilowever, on a matter of logistics rather than a rule of
law, or even an agency’s interpretive policy, the need to
enforce consistency is much reduced. [i is sufficient to
hold that the Commission has taken a position that is
not arbitrary, capricious, or an abuse of discretion in
the El Paso curtailment plan. The position is that
distributors’ “nominations” will be presumptively accur-
ale."" Should petitioners single out specific evidence of
substantial abuse, where the “nominations” of natural gas
use were fraudulently or negligently different from the
priority classifications to which the natural gas was Aac-
1015 U.S.C. §717r(b) (1970) provides in part: “The find-
ing of the Commission as to the facts, if supported by sub-
stantial evidence, shall be conclusive.”
The presumption can be overcome in a hearing upon a mo-
tion by any gas distributing company, in accordance with 15
W.S.C. §717d(a) (1970).
5A
tually being put, then the Commission would be required
lo reconsider whether the “nomination” procedure was
reliable." At an earlier part of this opinion, we have
relied (to the benefit of the petitioners) on the presump-
tion the Commission’s orders would not be evaded, and
that it was impermissible for the designation of par-
ticular end use to turn on the unsubstantiated expectation
of fraud.” This same presumption must operate here.
Also, any new program of estimation is likely to in-
volve some inaccuracy. Given the wide range of con-
sumers involved, the extensive geographical areas where
they are located, and the magnitude of the operation,
such result would be inevitable. The Commission, in its
December 24, 1975, order, refused AIPCO's request to
challenge SoCal gas nominations, admitting, “Although
the data supplied with respect to SoCal is deficient, there
is presently neither an allegation nor any evidence of
error or impropriety with regard to its data or the data
of PG & FE.” (Brief for Respondent at Appendix D, p.
Jt). This court agrees with the Commission that “li}n
the absence of such an allegation or evidence, we find no
basis for requiring an investigatory hearing. ...” (Jd.)”°
™ See note 17.
'* See discussion of gas turbines, p. 24, supra.
7° Subsequent to oral argument, petitioners Willcox and
AEPCO submitted a memorandum pointing to what. they con-
sidered to he an erroneous submission of evidence by one
distributor, Arizona Public Service Company. In a special
hearing on ignition and flame stabilization, APS had submitted
an estimate of annual gas use equal to its maximum daily
use multiplied by 365. On direct examination, the Company's
attorney stated that a realistic estimate for annual use was
many times less than that. Although heralding this as evi-
dence of an egregious inconsistency requiring the adoption of
formal actual use surveying, AEPCO has merely located one
example, among many that are inevitable, of a misunderstand-
ing between data requested and data furnished. Had APS
been bent on fraud, it is doubtful that it would have attempted
A-55
55
It is no error to proceed under the assumptions that the
laws against fraud are being obeyed," and that the
possibility of innocent errors may be weighed against the
delays and costs of detailed hearings.
X. CONCLUSION
It is with great reluctance that this court remands the
instant ease for still more deliberation by the Federal
Power Commission. This would not have been necessary,
in large part, had the orders of this court in ASARCO
been fully complied with. The Commission has itself real-
ized, however, that Opinion No. 697 (as modified by
Opinion No. 697A) is not ready for implementation as
a permanent plan because of the need for resolution of
the environmental issues. The Commission will now have
more issues to concern itself with during those delibera-
tions. But that could be advantageous in allowing a
greater freedom, as a practical matter, to structure
a curtailment plan with more concern for environmental
matters from the ground up, rather than as an after-
thought. .
it on so grand a scale as to receive 23 times the amount to
which it was entitled of natural gas in the high priority use.
Perhaps such errors would be noticed more frequently if ad-
verse parties were permitted to challenge data submissions,
but it is for the Commission to weigh that likelihood against
the burden of adversary proceedings on such minute details.
2! Falsification of information required by the Federal Pow-
er Commission to be furnished to El Paso would constitute
a violation of 15 U.S.C. § 717t(b) (1970): “Any person who
willfully and knowingly violates any rule, regulation, restric-
Lion, condition, or order made or imposed by the Commission -
under authority of this chapter, shall, in addition to any other
penalties provided by law, be punished upon conviction there-
of by a fine of not exceeding $500 for each and every day
during which such offense occurs.”
Such conduct might :lso result in wilfully causing El Paso
to make a false statement to the United States Government
in violation of 18 U.S.C. § 1001 (1970).
A-56
56
We have carefully considered the many challenges
raised against the El Paso curtailment plan, but have
not devoted particular attention in this opinion to all
of them. It is our decision that any challenges not spe-
cifically addressed be dimissed as insubstantial. This
case is remanded to the Federal Power Commission with
instructions to implement the holdings of this opinion in
revising Opinion 697 (as modified by Opinion No. 697A).
In brief summary,” those holdings are:
1) fuel devoted to ignition and flame stabilization must
receive Priority 2 status (Part IL);
2) electricily generating turbines must not be classi-
fied with boilers, in Priorities 4 and 5, but are entitled
to a higher priority (Part III);
3) attachments of new users up to December 19, 1974,
must be incorporated in measuring uses by priority clas-
sification during the base period (Part IV);
4) pre-existing shortages of natural gas in California
during the base period must be considered in determin-
ing California’s volumetric entitlement (Part IV); and
5) gas used from storage facililies must be taken
into account (i) to the extent its source has been from
E1 Paso, (ii) in proportion to the actual end use of such
storage gas, (iii) and with safeguards against according
priority to gas both as it is pumped into storage and as
it is withdrawn therefrom (Part V).
So ordered.
7? "To the extent that the following are abbreviations of di-
rections outlined in greater detail above, the more complete
directions shall prevail.
A-57
1
BAZELON, Chief Judge, cow urring in part, dissenting
in part: I agree with the result reached by the majority,
remanding the El Paso final curtailment plan to the
Federal Power Commission, and concur generally with
much of its opinion. I take exception, however, to the
majority’s discussion of three specific elements of the
plan:
1) Utilization of Gas for Electric Turbines
In Opinions No. 697 & 697-A, the Commission has de-
termined that the use of natural gas as boiler fuel should
have a lower priority than other end uses; the Commission
has also determined thal the use of gas to power turbines
which gencrate electricity should be considered boiler-
fuel use, and accorded the same low priority. The ma-
jority affirms the priority given boiler fuel, but rejects
the Commission's conclusion with respect to gas used in
turbines for electric generation. [ would affirm both por-
tions of the Commission’s decision. As the majority
points out, Maj. Op. at 13, the Commission has found
that turbine use is even less efficient than other sorts of
“boiler fuel” use. J.A. 100. Since, as the majority vir-
tually concedes, this finding is supported by substantial
evidence, the Commission’s decision must be affirmed. See
Mobil Oil Co. v. FPC, 417 US. 283 (1974).*
The challenge to the Commission's decision with respect
to turbine use was raised principally by Arizona Electric
Power Cooperative [AEPCO], which, in its brief, re-
peatedly refers to its situation as “unique.” Whatever
injury AFPCO has suffered because of its allegedly
unique situation could be adequately redressed by reclassi-
fication or an increased gas allotment, if appropriate,
by petitioning for extraordinary relief.
'Withoul in any way urging it as a ground for decision,
I note that the proposed national energy policy, 5.1468, 95th
Cong., Ist Sess. (1977), favors conversion from natural gas
to coal by utilities engaged in the generation of electricity.
A-58
2
2) Pre-existing Shortage in California
I agree with the court that remand to adjust base
period data to account for after-acquired attachments of
new (mostly high priorily) users up to December 19,
1974, is proper. However, I disagree with the majority
that the Commission's consideration of pre-existing short-
ages of local and non-E] Paso gas in California was insuf-
ficient, Maj. Op. at 15-16, and I see no need for re
mand for further consideration of that issue.
The record shows that the two California customers of
1 Paso, Pacific Gas & Electric Company and Southern
California Gas Company, were partial requirements cus-
tomers of the pipeline; that is, both had other suppliers
than El Paso during and before the base period for com-
puting volumetric entitlements. As the court acknow-
ledges, Maj. Op. at 21, the Commission in Opinion No.
697 specifically discussed the question of pre-existing
shortages suffered by these partial requirements cus-
tomers due to reduced deliveries by their other suppliers.
J.A. 434-39. However, the court feels that consideration
fell “far short of providing a basis for justifying the
FPC’s failure to provide some relief to the California
users. . .” Maj. Op. at 21.
Unlike the majority, I believe the Commission has com-
plied with the terms of our remand in American Smelt-
ing & Refining Co. v. FPC, 494 F.2d 925, 942 (D.C.
Cir. 1974, cert. denied, 419 U.S. 882 (1974) [ASARCO}.
The ASARCO court required that the Commission “con-
ider the pre-existing shortages in California and .. .
enunciate findings with respect to that situation.” 7d.
The Commission has responded by reviewing the matter
and relying upon two rational policies developed earlier
and consistently applied here.
In Opinion No. 697 the Commission cited its earlier
Opinion No. 647, in which it enunciated an approach of
“allocat|ing| the impact of curtailment equally, insofar
A-S9
3
as may be possible, upon full and partial requirements
customers treating both in the same manner.” J.A. 435,
citing Opinion No. 647, at 14. The Commission therein
noted:
modification of our treatment of partial requirements
customers might be necessary to protect small volume
residential service in the event of extraordinarily
severe shortages requiring curtailment in the highest
priority categories.
Id. Under this exception for severe hardship, some full or
partial requirements customers of a curtailed pipeline
would be more severely curtailed so that a partial re-
quirements customer could offset other shortages. Here,
however, the Commission found:
In reviewing the record in the instant proceeding, we
find no indication that the reduced supplies available
to the California partial requirements customers
from sources other than El Paso, in combination with
a curtailment of entitlements from El Paso prorated
equally . . . will result in a shortage of such severity
as to warrant special treatment for the partial re-
quirements customers.
J.A. 435. Moreover, the Commission has indicated that
its general policy for regulating curtailments’? contem-
plates pipeline-by-pipeline regulation. Therefore, a par-
tial requirement customer impacted by curtailment on
each of its supplier pipelines cannot ordinarily expect any
one of those suppliers to make whole the customer’s short-
fall. Because a partial requirements customer’s expec-
tations from any given supplier may respond elastically to
shortages and oversupply, the Commission has chosen here
to base fulure entitlements upon past volumes taken from
El Paso. It subverts the Commission policies of equal
curtailment of full and partial requirements customers
and pipeline-by-pipeline regulation lo suggest, as the court
? Orders 467 & 467-B, codified as 18 C.F.R. § 2.78.
A-60
4
does, that the two California customers’ historic takes
must now be disregarded in favor of spongy estimates
of the volumes which would have been taken had cus-
tomers been allowed to lean more heavily upon El] Paso
to overcome other supply shortages.
This court recently affirmed a Commission decision not
to permit a municipality to interconnect with an inter-
state pipeline and thereby obtain an allocation of its
gas offsetting curtailments by the municipality’s own in-
terstate pipeline supplier. City of Huntingburg v. FPC,
F.2d (D.C. Cir. No. 75-2152, April 26, 1977).
As applied to a partial requirements customer of several
interstate pipelines, that decision seems to buttress the
Commission policy of pro rata curtailment of all cus-
tomers by pipeline within end-use categories. Because
California customers could use or procure alternative
fuels to make up their deficits, and were not in a worse
position to do so than East-of-California customers, the
Commission refused to permit exception to its policy
against allowing adjustments to the E] Paso entitlements
to take up the slack. This, it seems to me, was reasonable
and comports with the decision in Mobil, supra. I would
affirm the Commission on this issue.
3. Compensation
I find most troubling the majority’s extended discus-
sion of ’compensation schemes”—i.e., plans whereby those
pipeline customers who are relatively less affected by cur-
tailment would be required to provide cash compensation
to those customers relatively more affected. I agree
with the majority’s narrow holding on this subject,
namely, that in the absence of a definite plan offered
(or agreed to) by the parties, the Commission did not
err in refusing sua sponte to fashion a compensation
plan. In my view, however, much of the majority’s dis-
cussion of compensation is irrelevant to this case, and un-
necessary to its holding. In particular, I see no need for
A-61
us to reach the broader issue-——with which we grappled
in Transcontinental Gas Pipe Line Corp. v. FP?'C, ——
F.2d —— (D.C. Cir. No. 74-2036, et al., November 29,
1976) | 7'ransco|—-of whether the Commission has author-
ity under the Natural Gas Act to approve and regulate
compensation among distributor cuslomers of a jurisdic-
tional pipeline. The issue raised in T'ransco was permis-
sive in nalure—z.c., does the’ Natural Gas Act allow com-
pensation which has heen agreed to by the parties, or
does it flatly bar it on jurisdictional grounds? The ma-
jority there held that factual material about the nature
and duration of shortage was necessary to guide the court
in ils inlerpretation of the stautory standards of “just
and reasonable” and “non-discriminatory” rates in the
novel context of alleged extreme shortage and allocation
by end-use priorities. Here, the question posed is a
simpler mandatory one: Does the Act require compensa-
tion in conjunction with end-use curtailment, and does
it therefore preclude the Commission from approving a
final curtailment plan based upon end-use without pro-
viding compensation? I have little difficully answering
this latter question in the negative, and I therefore join
the court’s holding that “nothing in the Natural Gas
Act’s instructions to the Commission to promulgate non-
discriminatory rates requires a compensation scheme,”
where the Commission believes justice can be done with-
out one, and none has been endorsed by the parties.
A-63
APPENDIX B
Notice: This opinion it subject to formal revision before publication
in the Federal Reporter or U.S.App.D.C. Reports. Users are requested
to notify the Clerk of any formal errors in order that corrections may be
made before the bound volumes go to press.
Uuited States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 74-2123
City OF WILLCOX AND ARIZONA ELECTRIC POWER
JOOPERATIVE, INC., PETITIONERS
v.
FEDERAL POWER COMMISSION, RESPONDENT
San Disco Gas & Evectric Co., ET AL., INTERVEiS9RS
No. 75-1019
ARrizZONA Pupiic SERVICE COMPANY, PETITIONER
Vv.
FEDERAL POWER COMMISSION, RESPONDENT
SAN Dieco Gas & ELECTRIC CO., BT AL., INTERVENORS
No. 76-1062
NEVADA POWER COMPANY, PETITIONER
Vv.
FEDERAL POWER COMMISSION, RESPONDENT
AMERICAN SMELTING & REFINING CO., &T AL.,
INTERVENORS
Bills of costs must be filed within 14 days after entry of judgment. Tho
court looks with disfavor upon motions to file bills of costs out of time.
A-64
2
No. 75-1245
Paciric GAS AND ELECTRIC COMPANY, PETITIONER
Ve
FreppraL POWER COMMISSION, RESPONDENT
SouTHERN UNION GAS Co., ET AL., INTERVENORS
No. 75-1246
San Disco Cas & ELectTric COMPANY, PETITIONER
Vv.
FEDERAL POWER COMMISSION, RESPONDENT
SouTnerRN UNION GAS CoO., ET AL., INTERVENORS
No. 75-1247
SOUTHERN CALIFORNIA GAS COMPANY, PETITIONER
V.
FreEDERAL POWFR COMMISSION, RESPONDENT
SAN Dieco GAS, ET AL., INTERVENORS
No. 75-1248
SOUTHERN CALIFORNIA EDISON COMPANY, PETITIONER
Vv.
FEDERAL POWER COMMISSION, RESPONDENT
NEVADA PowER Co., ET AL., INTERVENORS
On Motions for Clarification and/or Stay
and on Petitions for Rehearing
A-65
3
Filed August 18, 1977
Before BAZELON, Chief Judge, and TAMM and Mac-
KINNON, Circuit Judges.
Arnold D. Berkeley was on the motion of Petitioners,
City of Willcox and Arizona Power Cooperative, Inc., for
stay of second interim curtailment plan.
Thomas DPD. Clarke was on the response of Petitioners,
Southern California Gas Co., to motion for stay of sec-
ond interim curtailment plan.
Drexel D. Journey, Allan Abbot Tuttle, and Thomas
M. Walsh were on the response of Respondent, Federal
Power Commission, to motion for stay.
Arnold D. Berkeley was on the reply of Petitioners,
City of Willcox and Arizona Electric Power Cooperative,
Inc., to oppositions to the motion for stay of second
interim curtailment plan.
Thomas D. Clarke was on the answer of Petitioner,
Southern California Gas Company, to reply to Petitioners
(City of Willcox and Arizona Power Cooperative, Inc.)
for stay of second interim curtailment plan.
Joel L. Greene and Richard H. Silverman were on the
motion of Intervenor, Salt River Project Agricultural Im-
provement and Power District, for clarification of court’s
opinion.
Arnold D. Berkeley was on the petition for rehearing of
Petitioners, City of Willeox and Arizona Electric Power
Cooperative, Inc.
Thomas D. Clarke was on the petition for rehearing of
Petitioner, Southern California Gas Company.
A-66
4
Malcolm 11. Furbush and Howard V. Golub were on the
petition for rehearing of Intervenor, Pacific Gas and
Klectrie Company.
C. Frank Reifsnyder and George W. Wise were on the
petitioner for rehearing of Intervenor, E] Paso Natural
Gas Company.
ORDER
Upon consideration of the motion of petitioners in
Appeal No. 74-2123 for stay in the second interim cur-
tailment plan, the responses thereto, said petitioners’ re-
ply, and the answer of petitioner, Southern California
Gas Company to the reply, it is
ORDERED, by the Court that the motion for slay is
denied for the reasons set forth in the opinion for the
court filed this date.
Per Curiam
ORDER
Upon consideration of the motion of Intervenor, Salt
River Project Agricultural Improvement and Power Dis-
trict for clarification of this court’s opinion, it is
ORDERED, by the Court, that the motion is denied
for the reasons set forth in the opinion for the court filed
this date.
Per Curiam
ORDER
Upon consideration of the petitions for rehearing filed
by Petitioners in Appeal No. 74-2123 and by Intervenors,
El Paso Natural Gas Co., and Pacific Gas and Electric
C»., it is
ORDERED by the Court that the aforesaid petitions
are denied.
Per Curiam
A-67
5 ;
Opinion for the Court filed by Circuit Judge Mac-
KINNON.
MACKINNON, Circuit Judge: On June 30, 1977, this
court decided City of Willcox, et al. », Federal lower
Commission, No. 74-2123 et al. In that case, we re-
viewed an interim curtailment plan for deliveries of
natural gas on the El Paso Natural Gas System. This
plan, which was formulated in Federal Power Com-
mission Opinion Nos. 697 and 697A, was found deficient
in five respects. We remanded the case to the Commis-
sion with instructions to implement our holdings re-
garding those deficiencies. Slip Op. at 56.
On June J, 1977, the Commission issued Order Denyy-
ing Rehearing and Accepting Tariff Sheets, which had
the effect of directing the implementation on July 1, 1977
of the interim curtailment plan which was the subject
of our June 30, 1977 opinion. On July 14, 1977, the City
of Willcox (Willeox) and Arizona Electric Power Co-
operative, Inc. (AFPCO) petitioned this court to stay
the FPC’s June 1, 1977 order.
On July 12, 1977, Salt River Project Agricultural
Improvement and Power District (Salt River) presented
a motion for clarification of our June 30, 1977 opinion.
Several other parties have also each petitioned for re-
hearing on certain aspects of our opinion.’
We take judicial notice of the FPC’s Order Denying
Motion for Stay, Granting Rehearing, Modifying Cur-
tailment. Plan, Establishing Further Hearings, Consoti-
dating Ilearings, and Requiring Action to Obtain Re-
mand of Record, issued July 29, 1977. The Commission
ordered the interim curtailment plan developed in Opin-
' These parties are Willcox, AEPCO, Pacific Gas and Elec-
trie Co., and El Paso Natural Gas Co.
A-68
6
ion Nos. 697 and 697A? lo remain in effect, subject to
certain modifications we ordered in City of Willcox. Spe-
cifically, the Commission directed that fuel devoted to
ignition and flame stabilization remain in Priority 2
status" (see Slip Op. at 18-20, 56); that electricity-
generating turbine fuel be placed in Priority 3 rather
than Priorities 4 and 5 (see Slip Op. at 20-25, 56);
and that attachments of new residential and commercial
users up to December 19, 1974 be included in base period
requirements (see Slip Op. at 26-29, 33, 56). The Com-
mission also directed that hearings be held to provide a
record for determining (1) whether electricily-generating
turbine fuel should be reclassified from Priority 3; (2)
whether Arizona Public Service Co. and Tucson Gas and
Electric Co. were dilatory in obtaining state permis-
sion to reject new customers after December, 1974, and
whether an additional base period adjustment should be
permitted these customers for attachments occurring be-
tween December 19, 1974 and the date of state imposi-
tion of a new attachment moratorium (see Slip Op. at
29, 33); (3) how to take into account pre-existing short-
ages of natural gas
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