Petition for Writ of Certiorari — Arkansas Louisiana Gas Co. v. Federal Energy Regulatory Commission

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FILED

No. NOV 5 1904

IN THE

Siygirenw Cnet of the Unite

OCTOBER TERM, 1984

ARKANSAS LOUISIANA GAS COMPANY,

A DIVISION OF ARKLA, INC.,

Petitioner,

FEDERAL ENERGY REGULATORY COMMISSION, bt

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

BRADFORD G. KEITHLEY SHERMAN S. POLAND

Vice President and (Counsel of Record)

General Counsel JACOB GOLDBERG

ARKANSAS LOUISIANA GAS JANE M. OLIVER

COMPANY Ross, MARSH & FOSTER

P.O. Box 21734 888 16th Street, N.W.

Shreveport, Louisiana 71151 Washington, D.C. 20006

GILBERT L. HETHERWICK Tel. (202) 822-8888

BLANCHARD, WALKER, O’QUIN Attorneys for

& ROBERTS Arkansas Louisiana Gas

First National Bank Tower Company, A Division of

P.O. Drawer 1126 Arkla, Inc.

Shreveport, Louisiana 71163

OE TT LE LAN ETN PRIN I ENA AES ON pT

WILSON - EPES PRINTING Co., INC. - 788-QO096 - WASHINGTON, D.C. 20001

ALEXANDER L. STEVAS,

QUESTIONS PRESENTED

1. Whether, in a proceeding under section 4 of the Nat-

ural Gas Act involving a proposed increase in resale

rates of Arkansas Louisiana Gas Company where the

Federal Energy Regulatory Commission denied the pro-

posed increase in its entirety and ordered an additional

rate reduction, the Commission exceeded its statutory

authority in ordering the company te make refunds of

amounts greater than the proposed increase, thereby re-

quiring a retroactive rate reduction below the level found

just and reasonable in the company’s previous rate pro-

ceeding, contrary to Federal Power Commission v. Sun-

ray DX Oil Co., 391 U.S. 9 (1968).

2. Whether the Commission may, through adoption of a

regulation pertaining to the filing of purchased gas ad-

justment rate increases, enlarge the authority delegated

to it under sections 4 and 5 of the Natural Gas Act,

contrary to Ernst & Ernst v. Hochfelder, 425 U.S. 185

(1976).

(i)

LIST OF PARTIES

Public Agencies:

Federal

Federal Energy Regulatory Commission

City

City of Winfield, Kansas

Interstate Natural Gas Pipeline Companies:

Arkansas Louisiana Gas Company, a division of

Arkla, Ince.

Northwest Central Pipeline Corporation,

formerly Cities Service Gas Company.

List of Petitioner’s Parents, Subsidiaries, And Affiliates

Pursuant To Rule 28.1:

Arkansas Louisiana Gas Company is a division of

Arkla, Ince.

All subsidiaries of Arkla, Inc. are wholly owned.

TABLE OF CONTENTS

TT a eneierictanerenmeninniecieinininnnteantanneninins

JURISDICTION

Se RE EW GIRO GED xenecccsseninnsaceeremnsceseoenactusenstonammnnne

STATEMENT OF THE CASE

IAT

2. Proceedings Below

REASONS FOR GRANTING THE WRIT ...... ashidiiaiann

1. The Commission Has No Retroactive Rate Re-

I a actudietsbabnllipeten

2. The Commission Lacks Authority to Grant It-

self Power Withheld by Statute —...............00......

8. The Language of the Commission’s Regulation

Does Not Authorize The Commission’s Action

(iii)

Page

TABLE OF AUTHORITIES

Cases: Page

Arkansas Louisiana Gas Co. v. Halli, 453 U.S. 571

UTETEIEAD scsevesassaasendcheediastcetiibiceetadactiaebuheisiinsihaheatincuededitalaibstacentiniad 15

Distrigas of Massachusetis Corp. v. FERC, 737

oc FU | ey renee 9, 11,17

Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976).. 9,18

Florida Gas Transmission Co. v. FERC, No. 82-

6041 (llth Cir. Sept. 17, 1984) —..................... 12

FPC v. Hope Natural Gas Co., 320 U.S. 591

SETIIIIIEDD iissnsesiniheeeiaiiieetenhehedeheailieh tildes ain 9,11

FPC »v. Sunray DX Oil Co., 391 U.S. 9 (1968) ........ passim

National Assuc. of Regulatory Utility Commission-

ers v. FCC, 533 F.2d 601 (D.C. Cir. 1976) ........... 14

Office of Consumers’ Counsel v. FERC, 655 F.2d

1132 (D.C. Cir. 1980) BE OLLIE Ts TS cht OO 13

Trans-American Freight Lines, Inc. v. Bruda Mil-

ler Freight Systems, Inc., 423 U.S. 28 (1975)...... 1

Administrative Opinions and Orders:

Arkansas Louisiana Gas Co.

Opinion No. 71; Opinion and Order Affirming

in Part and Modifying in Part Initial Deci-

sion, 10 F.E.R.C. (CCH) {] 61,027 (Jan. 11,

I iti adi a a ai, 4,5

Opinion No. 71-A, Opinion and Order on Re-

mand, 19 F.E.R.C. (CCH) {| 61,012 (April

I ei 4,5

East Tennessee Natural Gas Co.. . 2 F.E.R.C.

(CCH) 961,480 (June 29, 1984) ..........000000...... 14

El Paso Natural Gas Co., 26 F.E.R.C. (CCH)

ope Re re eee 14

Florida Gas Co., Order Deciding Reserved Issue,

19 F.E.R.C. (CCH) {61,293 (June 24, 1982)... 12

Midwestern Gas Transmission Co., 27 F.E.R.C.

(CCH) § 61,481 (June 29, 1984) -......0000..... 14

Montana-Dakota Utilities Co., 23 F.E.R.C. {| 61,162

ESSE Ot ee Ca 14

Northwest Pipeline Corp., 26 F.E.R.C. (CCH)

ED IEE IU, BID oerecinrcdincicsiicisaniensicinnicncantt 14

TABLE OF AUTHORITIES—Continued

Statutes: Page

Natural Gas Act, 15 U.S.C. §§ 717, et seq. (1982)

Section 1(b), 15 U.S.C. § 717 (b) ...................-..- 4,14

i Bk Ck), rer passim

LC ee passim

Section 19(b), 15 U.S.C. § 717r(b) -................... 2, 3,8

REE | +) Sree Een 3

Commission Regulations:

18 C.F.R. § 154.88 (d) (4) (1983) .............................. passim

BO CLIPLRR. © RG CID nines ccnecnncesceerenecnsssenenies 5, 16

IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

No.

ARKANSAS LOUISIANA GAS COMPANY,

A DIVISION OF ARKLA, INC.,

- Petitioner,

FEDERAL ENERGY REGULATORY COMMISSION,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Petitioner, Arkansas Louisiana Gas Company a divi-

sion of Arkla, Inc. (“Arkla’”) respectfully prays that a

writ of certiorari issue to review the judgment of the

United States Court of Appeals for the District of Co-

lumbia Circuit entered on June 14, 1984, in Arkansas

Louisiana Gas Company, a Division of Arkla, Inc. v.

Federal Energy Regulatory Commission, No. 83-1548.

OPINIONS BELOW

The opinion of the Court of Appeals is unreported,’

and is reproduced at Appendix 3a-6a.2 An unreported

1 Pursuant to Local Rule 13(c) of the rules of the court below, a

per curiam memorandum was issued which will not be published.

In Transamerican Freight Lines, Inc. v. Brada Miller Freight

Systems, Inc., 423 U.S. 28 (1975), this Court granted certiorari to

review an unpublished opinion of the Seventh Circuit, and then,

after briefing and argument, reversed.

2 Together with this petition, Petitioner is filing a separate Ap-

pendix which contains the opinions in this matter, including the

order, filed August 8, 1984, denying a timely petition for

rehearing is reproduced at App. 7a. The court below af-

firmed an opinion and order of the Federal Energy Regu-

latory Commission (“Commission”) styled Opinion No.

160, issued on February 4, 1983 (22 F.E.R.C. (CCH)

7 61,125) which is reproduced at App. 8a-17a. Opinion

No. 160 summarily affirmed an initial decision of an ad-

ministrative law judge (“ALJ”) issued on April 15, 1982

(19 F.E.R.C. (CCH) { 63,008), pertinent portions of

which are reproduced at App. 20a-25a.* By Opinion No.

160-A, issued April 6, 1983 (23 F.E.R.C. (CCH)

{| 61,030), the Commission denied Arkla’s application for

rehearing. That opinion is reproduced at App. 18a-19a.

JURISDICTION

1. The court of appeals affirmed a Commission order

requiring Arkla to make a retroactive rate reduction be-

low the level of Arkla’s previously determined just and

reasonable rate, contrary to sections 4 and 5 of the Nat-

ural Gas Act (“Act”), 15 U.S.C. §§ 717¢ and 717d, as

defined in FPC v. Sunray DX Oil Co., 391 U.S. 9 (1968).

The Commission had jurisdiction to review Arkla’s rates

pursuant to sections 4 and 5 of the Act. Arkla sought

court review pcrsuant to section 19(b) of the Act, 15

U.S.C. § 717r(b).

2. The court of appeals entered judgment on June 14,

1984. (App. la-2a). The court of appeals denied re-

hearing on August 8, 1984. (App. 7a).

judgment below. The appendix also includes pertinent portions of

the statutes and regulations. The Appendix will be referred to as

“App.”, followed by the appropriate page number.

8 Petitioner is bringing before this Court for review only one

issue out of several arising from a rate increase filing submitted to

the Commission. Accordingly, only the portion of the ALJ’s lengthy

initial decision that deals with this specific issue is reproduced in

the Appendix.

8. The jurisdiction of this Court is invoked under 28

U.S.C. § 1254(1), and section 19(b) of the Natural Gas

Act, 15 U.S.C. § 717r(b).

STATUTES INVOLVED

The pertinent portion of section 4(e) of the Act, 15

U.S.C. § 717e(e) reads as follows:

Where increased rates or charges are thus made ef-

fective, the Commission may, by order, require the

natural-gas company to furnish a bond, to be ap-

proved by the Commission, to refund any amounts

ordered by the Commission, to keep accurate amounts

in detail of all amounts received by reason of such

increase, specifying by whom and in whose behalf

such amounts were paid, and, upon completion of the

hearing and decision, to order such natural-gas com-

pany to refund, with interest, the portion of such

increased rates or charges by its decision found not

justified.*

The pertinent portion of section 5(a) of the Act, 15

U.S.C. § 717d(a) reads as follows:

Whenever the Commission, after a hearing had upon

its own motion or upon complaint of any State, mu-

nicipality, State commission, or gas distributing

company, shall find that any rate, charge, or classifi-

cation demanded, 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 Commission, or that any rule,

regulation, practice, or contract affecting such rate,

charge, or classification is unjust, unreasonable, un-

duly discriminatory, or preferential, the Commission

shall determine the just and reasonable rate, charge,

classification, rule, regulation, practice, or contract

to be thereafter observed and in force, and shall fix

the same by order.*

4 The full text of section 4 is reproduced at App. 26a-28a.

5 The full text of section 5 is reproduced at App. 28a-29a.

STATEMENT OF THE CASE

1. Factual Background

Petitioner, Arkla, is a natural gas company as defined

in the Natural Gas Act by virtue of making sales of nat-

ural gas for resale under two rate schedules on file with

the Commission. Its principal jurisdictional sale* is to

Northwest Central Pipeline Corporation under its Rate

Schedule No. X-26. Arkla also makes four town border

sales for resale in Oklahoma and Kansas under its Rate

Schedule No. G-2.

Pursuant to section 4 of the Act and the Commission’s

regulations thereunder, in April 1980, Arkla tendered

for filing with the Commission changes in its Rate Sched-

ules Nos. X-26 and G-2 proposing an increase in annual

revenues of approximately $4,000,000.7 This rate in-

crease was the first general increase proposed by Arkla

subsequent to November 1, 1977, the date upon which

Arkla’s rates were made effective pursuant to Commis-

sion Opinion Nos. 71 and 71-A, 10 FERC (CCH)

1 61,027 (1980), and 19 FERC (CCH) {61,012 (1982),

respectively. The Commission suspended Arkla’s pro-

posed increases in this case for the statutory period of

five months so that they became effective, subject to re

fund, on November 1, 1980.

Arkla’s underlying rate, i.e., the rate in effect, not sub-

ject to refund, immediately prior to submittal of the

rate increase was made up of two components:

6 “Jurisdictional sale” is a shorthand expression referring to a

sale of natural gas in ‘nterstate commerce for resale subject to the

Commission’s jurisdiction pursuant to section 1(b) of the Act.

7 The rates under the X-26 and G-2 Rate Schedules are basically

the same, the only difference being the measurement pressure base.

Accordingly, for purposes of this case, the rates are assumed to be

identical.

(1) the base tariff rate that had been approved in the

earlier proceedings in Cpinion Nos. 71 and 71-A (here-

after Opinion No. 71), and

(2) the cumulative purchased gas adjustments (PGA)

that had become effective without refund obligation sub-

sequent to November, 1977, through April, 1980.

Section 154.38(d) (4) of the Commission’s regulations,

18 C.F.R. § 154.388(d) (4) (1983),® provides that natural

gas pipeline companies may file purchased gas cost ad-

justments (PGA) every six months. These PGA ad-

justments permit pipelines to pass through to their cus-

tomers the increases in their own purchased gas costs.

In net effect, the PGA adjustments are “wash” transac-

tions permitting the pipelines to pass through changes

in purchased gas costs on a relatively current basis.

Companies having PGA provisions are required to file

new base tariff rates supported by cost of service studies

at least once every three years. As permitted by section

154.38 (d) (4) (vi) (b), Arkla filed the instant rate in-

crease six months prior to the end of the three-year

period following the effective date of the Opinion No. 71

rates. This filing was submitted pursuant to section

154.63 of tl 2 Commission’s regulations dealing with gen-

eral rate increases, but it also satisfied the three-year

requirement of section 154.38(d) (4) (vi) (a).

The following table sets forth Arkla’s base rates under

Opinion No. 71, the cumulative PGA adjustments sub-

sequent to November 1, 1977, and the proposed rates un-

der Arkla’s G-2 Rate Schedule. The last line of the table

shows the effect of the Commission imposed rate in Opin-

ion No. 160. The situation respecting the X-26 Rate

Schedule is comparable.

8 Section 154.88(d) (4) is reproduced at App. 30a-41a.

G-2 Rate Schedule (in cents per Mcf at 14.73 psia)

Pre-existing

(Op. No. 71)® Cumulative Effective

an Base Rate PGA Adj. Underlying Rate

78.11 90.62 168.73

Newly Filed Base Rate

(exclusive of cumulative Cumulative

PGA adjustment) PGA Adj. zy Proposed Rate

87.63 90.62 178.25

Commission Imposed Rate

Revised Base Rate Uncontested New Base Rate

(Exclusive of PGA) PGA (incl. cumulated PGA)

65.47 90.62 156.09

By its filings at issue here, Arkla sought only to in-

crease its existing base rate of 78.11 cents per Mcf to

87.63 cents per Mcf, or an increase of 9.52 cents per

Mcf. The following undisputed facts are significant.

Arkla proposed no change in its cumulative PGA ad-

justment of 90.62 cents per Mcf (R. 129, 147). All the

PGA adjustments had been permitted to go into effect

without any refund obligation. No issue was raised be-

fore the Commission in this proceeding as to the amount

or propriety of the PGA adjustments. (R. 15). Neither

the ALJ nor the Commission made any finding that the

PGA adjustments were excessive, unjust, or unreason-

able. Arkla was passing through the total 90.62 cents

per Mcf of PGA adjustments paid to its suppliers.“

® The figures have not been adjusted to reflect the effect of Opin-

ion No. 71-A, nor the Supreme Court decision in Public Service

Commission of New York v. Mid-Louisiana Gas Co., 108 S. Ct. 3024

(1983). Those adjustment result in a slight increase in the base

rates but do not affect the issue involved here.

10 Initial Decision of the Administrative Law Judge, 19 F.E.R.C.

at 65,064-66; Opinion No. 160, 22 F.E.R.C. at 61,196; Opinion

No. 160-A, 23 F.E.R.C. at 61,074.

11 See section 154.38(d) (4) of the Commission’s regulations, 18

C.F.R. § 154.388(d) (4) (1983).

Thus, prior to its increased rate filing, Arkla was col-

lecting 168.73 cents per Mcf without any refund obliga-

tion. The proposed increase put at issue the cost justifi-

cation for the 9.52-cent increase in the base rate for a

period from November 1, 1980, to June 1, 1982, when a

new rate became effective.** In its Opinion No. 160, the

Commission required Arkla to refund not only the 9.52-

cent increase in the base rate, but also an additional

12.64 cents per Mcef, retroactive to November 1, 1980.

The total refund required by the Commission was ap-

proximately $12,856,239, exclusive of interest, of which

approximately $5,523,077 represents the increase in the

base rates sought by Arkla (the 9.52-cent per Mcf in-

crease), and approximately $7,233,161 represents a retro-

active rate reduction below Arkla’s previously-approved,

or “last firm”, rate (the 12.64-cent per Mcf reduction).

The issue in this proceeding does not relate to the

Commission’s authority to order a rate reduction for the

future pursuant to section 5(a) or to order refunds of

the entire 9.52-cent increase for the period it was col-

lected subject to refund pursuant to section 4(e). The

sole issue relates to the Commission’s lack of statutory

authority to make the 12.64-cent per Mcf rate reduction

retroactively effective to November 1, 1980.

2. Proceedings Below

After hearings, an ALJ issued an initial decision in

which he recommended disallowance of Arkla’s entire in-

crease and a reduction in rate to be made effective retro-

actively to a level below the previously established rate.

12 The period November 1, 1980-June 1, 1982, is considered a

“locked-in” period because Arkla’s rates changed as of June l,

1982, and the rate determination in Opinion No. 160 related only

to the period when Arkla’s 9.52-cent per Mcf rate increase was in

effect subject to refund.

(App. 25a).1* He ordered refunds to effectuate his retro-

active rate reduction. (App. 25a).

By Opinion No. 160, the Commission summarily af-

firmed the ALJ without discussing the retroactive rate

reduction issue, stating: (App. lla)

On the basis of our review, we conclude that the ex-

ceptions raise no issues which are not adequately

discussed and disposed of in the initial decision, ex-

cept as to one matter.**

On Arkla’s timely application for rehearing, the Com-

mission issued Opinion No. 160-A (App. 18a-19a) in

which it denied rehearing and summarily rejected Arkla’s

contention respecting the illegality of the retroactive rate

reduction.

Pursuant to section 19(b) of the Act, 15 U.S.C. § 717r

(b), Arkla filed a timely petition for review with the

Court of Appeals for the District of Columbia Circuit.

There Arkla contended, based upon this Court’s opinion

in FPC v. Sunray DX Oil Co., 391 U.S. 9 (1968), that

the Commission has no statutory authority under sec-

tions 4 and 5 of the Act to order a retroactive rate re-

duction below the underlying, last firm rate. Without

mention of the statutory limitation or the Sunray case,

the court held that the Commission, by establishing its

PGA regulation,” had provided itself with authority to

order a retroactive rate reduction below Arkla’s last

firm rate. (App. 3a-4a). The court denied Arkla’s timely

petition for rehearing without comment. (App. 7a).

18Jn his decision, the ALJ did not quantify the amount of the

retroactive rate reduction.

14 The issue which the Commission did discuss is not relevant

here.

16 18 C.F.R. § 154.38(d) (4).

REASONS FOR GRANTING THE WRIT

This case presents for the first time to this Court the

. issue whether the Commission can, through promulgation

of a regulation governing PGA clauses, enlarge its statu-

tory authority contained in sections 4 and 5 of the Act,

thereby providing itself with power to order a retroac-

tive rate reduction below a pipeline’s previously estab-

lished just and reasonable rate. This issue transcends

this particular case and will have a substantial effect

upon the entire natural gas industry.’* Not only is the

issue novel, but it is of signal importance to the natural-

gas industry, involving, as it does, a fundamental ques-

tion of the Commission’s statutory authority under-sec-

tions 4 and 5 of the Act and its asserted power to en-

large its authority through rulemaking. The issue will

reoccur, for it opens the door to possible retroactive rate

reductions in all pipeline rate proceedings, despite the

well-established principle that the Commission lacks au-

thority to order retroactive rate reductions below the

last firm rate, FPC v. Sunray DX Oil Co., 391 U.S. 9

(1968); FPC v. Hope Natural Gas Co., 320 U.S. 591

(1944) ; Distrigas of Massachusetts Corp. v. FERC, 737

F.2d 1208 (1st Cir. 1984). Moreover, the Commission

lacks authority to assume a power, through adoption of

a regulation, where that power has been withheld by

statute, Ernst & Ernst v. Hochfelder, 425 U.S. 185

(1976). Basically, the decision of the court below con-

flicts with the recent decision of the Court of Appeals

for the First Circuit in Distrigas of Massachusetts Corp.

v. FERC, supra. Further, the express language of the

PGA regulation does not authorize the Commission’s ac-

tion here.

16 Virtually every natural-gas pipeline has a PGA clause in its

tariff. See § 154.38(d) (4) (iv) (a), App. 32a-34a.

1. The Commission Has No Retroactive Rate Reduction

Authority

Although, under section 5 of the Act, the Commission

may order a rate reduction to have prospective effect

from the date of its final order, there can be no dispute

that sections 4 and 5 of the Act give the Commission no

authority to order a retroactive rate reduction below the

last firm rate. Section 5(a) is explicit. It limits Com-

mission power to a determination of the just and reason-

able rate “to be thereafter observed and in force.” (Em-

phasis added). Section 4(e) empowers the Commission

to order refunds only of “the portion of such increased

rates or charges by its decision found not justified.”

There is simply no statutory provision permitting the Com-

mission to order retroactive reductions for past periods.

Consistent with this statutory scheme, in FPC v. Sun-

ray DX Oil Co., 391 U.S. 9 (1968), this Court declared:

It seems incontestable that if a producer consistently

sells gas at the price specified in a final, permanent

certificate, and does not attempt to increase its price,

the Commission may not order it to make refunds

simply because the just and reasonable rate for its

area turns out to be below the in-line price. This

would amount to a reparation order, and this Court

has repeatedly held that the Commission has no rep-

aration power. It would be anomalous to treat an

increased price as a trigger for a refund obligation

which would leave the producer with a smaller net

return than if it had never increased its price at all.

We therefore consider and hold that an initial price

which is authorized in a final, unconditional perma-

nent certificate is a lower limit below which a refund

cannot be ordered under § 4(e). (Footnote omitted).

391 US. at 24.

In the case at hand, the Commission’s retroactive rate

reduction of 12.64 cents per Mcf left Arkla “with a

smaller net return than if it had never increased its price

at all” for the period November 1, 1980, to June 1, 1982.

Early in the administration of the Natural Gas Act,

this Court expressed the limitation of Commission power

in FPC v. Hope Natural Gas Co., 320 U.S. 591 (1944),

where it stated:

It is conceded that under the Act the Commission

has no power to make reparation orders. And its

power to fix rates admittedly is limited to those “to

be thereafter observed and enforced.” § 5(a). (Em-

phasis added).

320 U.S. at 618.

The validity of this limitation on the Commission’s

ratemaking authority under the principles of Sunray has

been recently recognized by the Court of Appeals for the

First Circuit in Distrigas of Massachusetts Corp., et al.

v. FERC, 737 F.2d 1208, 1224 (1st Cir. 1984) (DOMAC).

The First Circuit stated:

The Supreme Court has specifically stated that the

pre-existing lawful rate provides a refund floor in

a Section 4 proceeding. Federal Power Commission

v. Sunray DX Oil Co., 391 U.S. 9, 22-25 (1968). It

derived this conclusion from the language of the

statute and from the fact that, otherwise, a firm

asking for an increase could end up considerably

worse off than if it had not requested one.

The Supreme Court’s language clearly interprets

Section 4’s refund authority as limited to the

“amounts received by reason of such increase.” (Em-

phasis in the original).

DOMAC, like Arkla, had filed for an increase in its

tariff rates exclusive of PGA adjustments. The Commis-

sion held that DOMAC’s rate should be reduced, not in-

creased. But, in contrast to Arkla, the Commission and

the court held that the refund power is limited to the

proposed increase, and the reduction below the underly-

ing rate could be made effective prospectively only.

DOMAC stands for the proposition, consistent with Sun-

ray, that a company may only be required to make re-

funds of the applied-for increase, and no more. DOMAC’s

previously filed and accepted uncontested PGA adjust-

ments did not serve as a basis for refunds where the

Commission determined that the company’s costs, exclu-

sive of PGA adjustments, had been reduced. In contrast,

in the case at hand, the Commission would retroactively

reduce Arkla’s rate by 12.64 cents per Mcf below the un-

derlying rate. In net effect, the reduction would derive

from the uncontested PGA adjustments.

The only mention by the Commission of the retroactive

rate reduction issue in the case below occurs in its order

denying Arkla’s application for rehearing, where the

Commission referred to its decision in Florida Gas Co.,

19 F.E.R.C. (CCH) {61,293 (1982).27 The Commission

noted that the applicable regulations “are designed to in-

corporate a balancing of the pipeline’s total jurisdictional

costs and revenues at the time a 36-month filing is made.”

(App. 19a). But this language is irrelevant to the pre-

cise issue here. Even assuming that the triennial filing

offers the opportunity to match costs and revenues, that

process enables the Commission to determine the justifica-

tion for any proposed increase and to fix rates for the

future, but it has nothing to do with the absence of statu-

17 Affirmed in Florida Gas Transmission Co. v. FERC, No. 82-

6041 (llth Cir., Sept. 17, 1984). The company had submitted a

triennial rate filing under section 154.38(d) (4) restating its resale

rate but suggesting no change in its PGA adjustments or in its

separate transportation rate. Florida Gas and interested parties

reached a settlement as to the resale rate level. The Commission

held that the transportation rate should be reduced. Florida Gas

contended that the transportation rate was not part of the base

tariff rate and was not involved in the proceeding. In affirming the

Commission’s decision that the transportation rate was part of the

base tariff rate, the court did not reach the precise issue involved

here.

tory authority to order a retroactive rate reduction after

the Commission has completed the balancing. As this

Court stated ir Sunray, 391 U.S. at 22, there is a floor

below which the Commission may not order refunds under

section 4(e) of the Act. Yet, the court below echoed the

Commission’s theme stating, “FERC in promulgating the

PGA clause did not give up its authority to review the

entire rate structure of a pipeline every three years.”

(App. 4a). Again, the court below missed the essential

issue for although the Commission has authority to re-

view the rate structure every three years, its authority

to order a retroactive rate reduction below the previously

established rate is nonetheless limited by the restrictions

of sections 4 and 5.

2. The Commission Lacks Authority to Grant Itself

Power Withheld by Statute

Despite the straightforward prohibition of a retroac-

tive rate reduction authority, both the Commission and

the court below, without even mention of Sunray or any

attempted distinction, relied on the PGA regulation **® as

authorizing the Commission to nullify the limitation of

sections 4 and 5 of the Act. There is nothing in the lan-

guage of the PGA regulation expressly authorizing such

action, and even if the language could be so construed,

the Commission may not, through issuance of a regula-

tion, arrogate to itself authority that is forbidden to it

by the statute, Ernst and Ernst v. Hochfelder, 425 U.S.

185 (1976). In that case, this Court stated:

The rulemaking power granted to an administrative

agency charged with the administration of a federal

statute is not the power to make law. Rather, it is

“the power to adopt regulations to carry into effect

the will of Congress as expressed by the statute.” ’®

425 U.S. at 213-214.

1818 C.F.R. § 154.88(d) (4). See App. 30a-41a.

19 To the same effect, see Office of Consumers’ Counsel v. FERC,

655 F.2d 1132, 1148-49 (D.C. Cir. 1980) ; National Assoc. of Regula-

Note, this case does not involve a question where a

company has agreed to forego the exercise of a right pro-

vided under the Act in order to take advantage of a

streamlined filing procedure. The PGA regulation relied

upon by the Commission is of an entirely different char-

acter pursuant to which the Commission claims to be in-

vested with a power not provided by the Act. Even if a

company were to agree to forego the exercise of a right,

it cannot, by agreement or otherwise, invest the Commis-

sion with a power not granted by the Act. A company

might agree to a rate moratorium postponing the date

for a new rate filing, but it cannot agree, for example,

that the Commission can regulate its direct sale rates.

Section 1(b) of the Act simply does not delegate that au-

thority to the Commission. By the same token, sections 4

and 5 do not delegate to the Commission authority to

order retroactive rate reductions. The Commission’s at-

tempt to assert such authority through a regulation is

invalid.

It is in this context that the Commission’s action must

be measured. The facts demonstrate that all of Arkla’s

purchased gas cost increases from November 1977,

through April 1980 had become effective without suspen-

sion or refund obligation and no party raised any issue

respecting Arkla’s PGA adjustments. (R. 15).% The

Commission made no finding that the PGA adjustments

tory Utility Commissioners v. FCC, 588 F.2d 601, 617 (D.C. Cir.-:

1976).

20 When the Commission believes that a PGA adjustment filing

may be unjust and unreasonable, it suspends such filing. When a

suspended filing later becomes effective, it is made subject to refund.

See, e.g., East Tennessee Natural Gas Co., 27 F.E.R.C. (CCH)

61,480 (1984); Midwestern Gas Transmission Co., 27 F.E.R.C.

(CCH) {61,481 (1984); Northwest Pipeline Corp., 26 F.E.R.C.

(CCH) {61,417 (1984); El Paso Natural Gas Co., 26 F.E.R.C.

(CCH) {| 61,423 (1984) ; Montana-Dakota Utilities Co., 23 F.E.R.C.

(CCH) {61,162 (1988).

were unjust, unreasonable, or unlawful.” There is no

dispute that Arkla paid the total of 90.62 cents per Mcf

of PGA adjustments to its suppliers of natural gas, so

that this amount is not available for refunds. Arkla’s

semi-annual PGA adjustments were fully reviewed by

the Commission when they were filed to verify the only

cost involved-—the purchased gas cost increases. Had

there been any question as to these costs the Commission

could have suspended them and allowed them to go into

effect subject to refund as provided in section 4(e) of

the Act. But the Commission did not take that action.

As a consequence, the PGA increases became final filed

rates reflecting the just and reasonable rates by Arkla’s

suppliers. As such, neither the Commission nor a court

may authorize a retroactive reduction. In Arkansas Lou-

isiana Gas Co. v. Hall, 453 U.S. 571, 577-578 (1981),

this Court affirmed the “filed rate doctrine,” stating:

These straightforward principles underlie the “filed

rate doctrine”, which forbids a regulated entity to

charge rates for its services other than those prop-

erly filed with the appropriate federal regulatory

authority.

Not only do the courts lack authority to impose a

different rate than the one approved by the Com-

mission, but the Commission itself has no power to

alter a rate retroactively. When the Commission

finds a rate unreasonable it “shall determine the

just and reasonable rate . . . to be thereafter ob-

served and in force.” ... This rule bars “the Com-

mission’s retroactive substitution of an unreasonably

high or low rate with a just and reasonable rate.”

(Citations omitted). (Emphasis in the original).

Nevertheless, the Commission held that through appli-

cation of section 154.38(d) (4) (vi) of its regulations it

gained a power otherwise denied to it, namely, to order a

21 See Opinion Nos. 160 and 160-A (App. 8a-19a).

retroactive reduction below the previously established rate

level of 168.73 cents per Mcf. In so holding, the Commis-

sion would clothe itself with a power denied it by the

Act.

3. The Language of the Ceommission’s Regulation Does

Not Authorize the Commission’s Action Here

The language of the PGA regulation, section 154.38

(d) (4), confirms the view that the Commission did not,

in fact, give itself the wide-ranging authority that it

asserted in this case. Instead, the language of the regu-

lation restricts the Commission’s authority to the order-

ing of refunds at the termination of the 36-month period

only where a change goes into effect subject to refund

and only of that portion of the change found unjust and

unreasonable. Properly construed, the regulation com-

plies with the statutory standard.

Subsection 154.38(d) (4) (vi) (ec) defines the limit or

the refund floor.“ Applied to this case, there is no ques-

tion that Arkla’s 9.52-cent increase was subject to refund

as of November 1, 1980, and the subsection provides for

nothing more. That subsection is not a source of author-

ity to order a retroactive rate reduction in excess of the

9.52-cent increase. It provides, in pertinent part:

[cost of service] study, that the jurisdictional cost

of service is less than the jurisdictional revenues

collected for the same 12-month period, as adjusted,

the company shall restate its Base Tariff Rate, shall

file with the Commission a revised tariff sheet (s)

reflecting a reduction in its jurisdictional rates by an

amount equal to the excess revenues agreed upon or

22 Subsection 154.388(d) (4) (vi) (a), which states that a triennial

filing shall be subject to refund merely restates the statutory provi-

sion of section 4(e). Further, Arkla made its rate filing pursuant to

section 154.68 as provided for by subsection 154.88(d) (4) (vi) (b).

More importantly, subsection 154.38(d) (4) (vi) (c) is the provision

that prescribes the extent or floor for refunds, the precise issue here.

determined, and shall refund to its jurisdictional cus-

tomers any excess amounts collected subject to re-

fund to the date of billing under the revised tariff

sheets, with interest to that date. This refund ob-

ligation shall be limited to the amount coilected in

excess of the old Base Tariff Rate, and rate reduc-

tions, if any, below the old Base Tariff Rate shall be

prospective from the date of the Commission’s final

order determining a new Base Tariff Rate. (Empha-

sis added).

Applying the language of this subsection to the facts

of this proceeding, the only amount collected subject to

refund was the 9.52 cents per Mcf increase above the

existing base rate. The limitation “This refund obliga-

tion” contained in the last sentence of the subsection must

be read in the context of the previous sentence which pro-

vides that refunds shall be made of “any excess amounts

coliected subject to refund.” (Emphasis added). In short,

the Commission’s PGA regulation, when properly read in

the context of the Commission’s limited power under sec-

tions 4 and 5 of the Act, does not authorize the Commis-

sion to expand its authority in derogation of Sunray.

The Commission’s contrary interpretation is in error.

CONCLUSION

This case presents the clearcut, novel issue whether

the Commission can, through promulgating a PGA regu-

lation, circumvent this Court’s unambiguous holding in

Sunray that sections 4 and 5 of the Natural Gas Act

prohibit retroactive rate reductions below the previously

established rate. Inasmuch as all pipeline companies have

PGA clauses in their tariffs, the issue is important for

the industry as a whole, and certainly will reoccur. The

inconsistent treatment afforded by the decision of the

court below when contrasted with the result in the First

Circuit in Distrigas of Massachusetts Corp. v. FERC,

supra, requires resolution by this Court.

For the foregoing reasons, a writ of certiorari to the