Opposition Brief — Transwestern Pipeline Co. v. Federal Energy Regulatory Commission

Supreme Court, U.S.

FILED

MAR 27 1986

Bs 2 \ a JOSEPH F. SPANIOL, JR.

Va a 4 y, CLERK

Nos. 85-1219, 85-1236, 85-1237, 85-1250 and 85-1252.

In the Supreme Court

OF THE

United States

OCTOBER TERM, 1985

TRANSWESTERN PIPELINE COMPANY, et al.,

Petitioners,

vs.

FEDERAL ENERGY REGULATORY COMMISSION, et al.,

Respondents.

On Petitions for a Writ of Certiorari to

the United States Court of Appea!s

for the District of Columbia Circuit

BRIEF OF RESPONDENT

SOUTHERN CALIFORNIA GAS COMPANY

IN OPPOSITION TO PETITIONERS

THOMAS D. CLARKE

E. R. ISLAND

MICHAEL D. GAayDA*

810 South Flower Street

Los Angeles, CA 90017

(213) 689-4255

Attorneys for Southern

California Gas Company

March 28, 1986 * Counsel of Record

Bowne of Los Angeles, Inc., Law Printers. (213) 742-6600.

i

QUESTIONS PRESENTED

1. Whether the Federal Energy Regulatory Commis-

sion (Commission) has the authority under Section 5 of

the Natural Gas Act to modify tariff provisions when the

Commission finds that those tariff provisions have anti-

competitive effects.

2. Whether the Commission’s notice and comment pro-

cedures in a formal rulemaking proceeding satisfy the

requirements of the Natural Gas Act.

3. Whether the Commission’s finding that minimum

commodity bill and minimum take provisions in tariffs

have anti-competitive effects was supported by substan-

tial evidence.

il

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED FOR REVIEW .... i

TABLE OF AUTHORITIES. ....ccccccccccsess ili

LIST OF PARENT, SUBSIDIARIES AND

Pi git hue) Peete ee ee v

STATEMENT OF THE CASE......ccccesccess 2

REASONS WHY THE WRIT SHOULD BE

SORNUERIEED . vac occuceeeehcdee sues ere senenes 4

I.

The Court’s Decision Below Follows An Unbro-

ken Line Of Authority In Finding That The

Commission Acted Within Its Authority To

Modify Tariffs And Contracts Under Section 5

Of The Natural Gas Act... ....cccccccccces 4

II.

The Court’s Decision Below Does Not Raise

Certain Of The Questions Presented In The

re err Sr 6

III.

As The Court Below Found, The Commission

Utilized The Proper Procedures And There-

fore There Is No Reason For This Court To

Grant The Writ For Certiorari ............-. 8

IV.

The Court’s Decision Below Gave Full Consider-

ation To The Issues And Determined That The

Commission’s Decision Was Based Upon Sub-

stantial Tividdemee ... ccc cc cccsconssascenses 9

CONCLUBION ...... 0s cccccccnaccsensenessseans 11

ill

TABLE OF AUTHORITIES

Court Cases

Page

American Smelting and Refining Co. v. FPC, 494

F.2d 925 (D.C. Cir. 1974), cert. denied, 419 U.S.

EE st en 7

Atlantic Refining Co. v. Public Service Commission

of New York, 360 U.S. 378 (1950) ............ 7

Colorado Interstate Gas Co. v. FPC, 142 F.2d 943

(10th Cir. 1944), aff’d., 324 U.S. 581 (1945),

reh’g denied, 325 U.S. 891 (1945) ............ 10

FPC v. Transcontinental Gas Pipeline Corp., 423

a 8

Pacific Gas Transmission Co. v. FPC, 536 F.2d 393

(D.C. Cir. 1976), cert. denied, 429 U.S. 999

ee Ss A eer eee 7

Pacific Lighting Service Co. v. FPC, 518 F.2d 718

EE 4

Permian Basin Area Rate Cases, 390 U.S. 747

(1968), reh’g denied, 392 U.S. 917 (1969) ..... 5, 6, 10

Phillips Petroleum Co. v. FPC, 475 F.2d 842 (10th

Cir. 1973), cert. denied, 414 U.S. 1146 (1974) 8

Pubiic Service Commission of the State of New York

v. FERC, 642 F.2d 1335 (D.C. Cir. 1980), cert.

dented, 454 U.S. 879 (1981) ................. 9

SEC v. Chenery Corp., 332 U.S. 194 (1974) ..... 8

Umited States v. Florida East Coast Ry. Co., 410

ek eau wes asenaes 8,9

Vermont Yankee Nuclear Power Corp. v. NRDC, 435

EE TS 9

iv

TABLE OF AUTHORITIES

A

Commission Cases

El Paso Natural Gas Co., 26 FERC § 61,423 (1984) +

El Paso Natural Gas Co., 34 FERC § 61,171 (1986) 4

Transwestern Pipeline Co., 26 FERC { 61,424

(| rrr rrr rrr errs re 4

Transwestern Pipeline Co., 34 FERC § 61,201

TRBED ccc ccinccnswstesaveneicineasescsers 4

Statute

Natural Gas Act, 15 U.S.C. §§ 717-717w (1982) . . passim

Vv

LIST OF PARENT, SUBSIDIARIES AND

AFFILIATES

Southern California Gas Company (SoCalGas) is a

wholly-owned subsidiary of Pacifie Lighting Corporation.

The following are the parent, subsidiaries and affiliates of

SoCalGas:

Ankirk

Blackfield Hawaii Corporation

California LNG Company

Carmel Mountain Properties

Central Plants, Ine

Dual Fuel Systems, Inc.

Dunn Properties Corporation

Dunn Properties of Georgia, Inc.

Dunn Properties of Texas, Inc.

Fredericks Sales, Inc.

Fredricks Development Corporation

Fuel Industries New Zealand Limited

Hawaii Management Corporation

Mayflower Realty Associates, Inc.

Modular Products, Ine.

Nellie Gail Ranch Recreation Company

Pacific Alaska LNG Company

Pacific Center Downtown, Inc.

Pacific Energy Resources Incorporated

Pacific Gas Gathering Company

Pacific Geothermal Company

Pacific Hydropower Company

Pacific Indonesia LNG Company

Pacific Interstate Company

Pacific Interstate Mojave Company

Pacific Interstate Offshore Company

Pacific Interstate Transmission Company

Pacific Interstate Transmission Company

(Arctic)

vi

Pacifie Lighting Bio-Energy Company

Pacifie Lighting Capital Company N.V.

Pacific Lighting Commercial Loans, Inc.

Pacifie Lighting Corporation

Pacifie Lighting Energy Systems

Pacifie Lighting Exploration Company

Pacific Lighting Gas Development (Canada)

Ltd.

Pacifie Lighting Gas Development Company

Pacifie Lighting International Finance N.V.

Pacifie Lighting Land Company

Pacific Lighting Leasing Company

Pacific Lighting Marine Company

Pacific Lighting Oil and Gas Company

Pacific Lighting Overseas Finance N.V.

Pacific Lighting Properties, Inc.

Pacific Lighting Real Estate Group

Pacific Lighting Securities Company

Pacific Offshore Pipeline Company

Pacifie Oroville Power, Ine.

Pacific Synthetic Fuel Company

Presley ASW Finance Co., Inc.

Presley Chicago, Inc.

Presley Company East, Inc.

Presley Company of New Mexico

Presley Development Company of Arizona

Presley Financial Corporation

Presley-Home Mace Finance Co., Ine.

Presley of Northern California

Presley of San Diego

Presley of Southern California

Sabagli N.V.

S. M. Dunn, Ine.

SMA Development Corporation

Southern California Conservation Financing

Company

Vii

Southern California Gas International Finance

N.V.

Southern California Solar Financing Company

Terra Resources, Ine.

The Presley Companies

Western LNG Terminal Company

Western Power, Ine.

Nos. 85-1219, 85-1236, 85-1237, 85-1250 and 85-1252

In the Supreme Court

OF THE

United States

OCTOBER TERM, i985

TRANSWESTERN PIPELINE COMPANY, et al.,

Petitioners,

vs.

FEDERAL ENERGY REGULATORY COMMISSION, et al.,

Respondents.

On Petitions for a Writ of Certiorari

to the United States Court of Appeals

for the District of Columbia Circuit

BRIEF OF RESPONDENT

SOUTHERN CALIFORNIA GAS COMPANY

IN OPPOSITION TO PETITIONERS

Respondent, Southern California Gas Company (So-

CalGas),' respectfully requests that this Court deny the

Petitions for Writ of Certiorari, seeking review of the

District of Columbia Cireuit Court of Appeals’ opinion in

this case. App. at 1.” This case involves no conflict be-

tween the Circuits, raises no Constitutional question, and

‘SoCalGas and its affiliate, Pacifie Lighting Gas Supply Company

(PLGS), were parties below. Recently, SoCalGas and PLGS merged

and are operating under the name of SoCalGas.

*The appendix references are to the appendix filed with this Court

by Transwestern Pipeline Company.

2

involves no significant issue concerniug the administra-

tion of the Natural Gas Act. 15 U.S.C. §§ 717-717w

(1982).

STATEMENT OF THE CASE

This case involves the Federal Energy Regulatory Com-

mission’s (Commission) promulgation of a rule which

eliminates non-incurred variable gas costs from the tariffs

of interstate pipelines. Under the rule, the pipelines

continue to collect, unchanged, the fixed costs in their

tariffs. These fixed costs include the non-gas costs of a

pipeline such as wages, operation and maintenance ex-

penses, depreciation and return on rate base. The pipe-

lines also continue to collect the gas costs which they

ineur for the gas they sell. However, pipelines can no

longer bill and collect from their customers for gas costs

which they do not ineur.

The Commission has applied this rule to both minimum

commodity bills and minimum take provisions. Minimum

commodity bills require customers of pipelines to pay for

minimum quantities of gas whether or not it is taken.

Minimum take provisions are even more restrictive, re-

quiring customers of pipelines to actually take a minimum

quantity of gas whether or not they want it. Both of these

minimum bill provisions severely restricted a customer’s

discretion in making purchases.

Six natural gas pipeline companies have filed Petitions

with this Court to seek review of a unanimous decision of

the Court of Appeals for the District of Columbia Circuit

which affirmed the Commission’s Orders in all respects,

except one which is not a subject of these Petitions.”

*Petitions have been filed by Transwestern Pipeline Company

(Transwestern) (No. 85-1219); ANR Pipeline Company (ANR) (No.

§5-1236); Texas Easter: Transmission Corporation (Texas Eastern)

3

Petitions for Rehearing were denied by the Court of

Appeals, with no member requesting the taking of a vote

on the Petitions. App. at 69, 70.

SoCalGas is a natural gas distribution company which

provides natural gas service in southern and central

California. SoCalGas is the largest natural gas distribu-

tion company in the country having more than 4.0 million

customers and providing natural gas service to a popula-

tion of approximately 13.0 million. SoCalGas purchases

natural gas from a number of interstate pipeline compa-

nies including Transwestern Pipeline Company (Trans-

western), one of the Petitioners before this Court.

Under the provisions in Transwestern’s tariff, SoCal-

Gas had the annual obligation to take or pay for 91

percent of a contract quantity of 750,000 Mef of gas per

day. Transwestern’s tariff provisions also required that

SoCalGas actually take from Transwestern, regardless of

its need and regardless of the cost, on a daily basis, 80

percent of the contract quantity of 750,000 Mef or 600,000

Mef of gas. If SoCalGas did not need this volume of gas

on a daily basis it was still required to take such volumes.

The Commission’s Order Nos. 380, 380-A, 380-B, 380-C

and 380-D* relieved SoCalGas of these severe tariff re-

strictions and allowed it to purchase gas based upon

relative cost rather than these tariff provisions.”

(No. 85-1237); Trunkline Gas Company and Panhandle Eastern

Pipeline Company (No. 85-1250); and Arkla Energy Resources

(Arkla) (No. 85-1282).

“These orders are referred to in this brief as “Order No. 380.”

*It should be noted that other provisions in Transwestern’s tariff

relieve Transwestern of the obligation to provide the contracted

quantity of gas during periods when gas is unavailable. These tariff

provisions which were placed in Transwestern’s tariff long after

Transwestern’s contract was signed with SoCalGas were approved by

4

The Commission’s intention of promoting competition

among interstate pipelines in issuing Order No. 380 has

had its desired effect. For example, Transwestern which

at the time of the issuance of Order No. 380 was a higher

priced supplier to SoCalGas, has, in response to competi-

tion generated by Order No. 380, become the low price

leader of the suppliers to southern California.® As the

result of discretionary actions which Transwestern has

taken, it has significantly reduced its commodity rate to

SoCalGas. The ratepayers of SoCalGas are the ultimate

beneficiaries of this reduction.

REASONS WHY THE WRIT SHOULD BE DENIED

I

The Court’s Decision Below Follows An Unbroken Line

Of Authority In Finding That The Commission Acted

Within Its Authority To Modify Tariffs And Contracts

Under Section 5 Of The Natural Gas Act.

Petitioners here launch what the Court below termed a

“barrage of attacks upon the Commission’s authority to

issue Order No. 380.” App. at 25. The Commission’s

authority to act under Section 5 of the Natural Gas Act,

15 U.S.C. § 717d (1982), is so clear, and the arguments by

the Commission and upheld by the Ninth Circuit Court of Appeals in

Pacific Lighting Service Co. v. FPC, 518 F.2d 718 (9th Cir. 1975).

°Prior to the effective date of Order No. 380, Transwestern’s

commodity rate of $3.85/MMBtu was significantly higher than the

$3.57/MMBtu commodity rate of El Paso Natural Gas Company (El

Paso), which is Transwestern’s major competitor in the southern

California market. Compare Transwestern Pipeline Co., 26 FERC

€ 61,424 (1984) with El Paso Natural Gas Co., 26 FERC § 61,423

(1984). Currently Transwestern’s commodity rate is $2.87/MMBtu

eompared to El Paso’s current commodity rate of $2.98/MMBtu.

Compare Transwestern Pipeline Co., 34 FERC § 61,201 (1986) with El

Paso Natural Gas Co., 34 FERC § 61,171 (1986).

5)

the Petitioners are so tenuous, that the Court below found

that the Petitioners’ claims concerning the Commission’s

authority to act were either “frivolous” or “completely

without merit.’ App. at 25.

Simply put, an argument cannot credibly be made that

the Commission exceeded its authority in issuing Order

No. 380. Section 5 of the Natural Gas Act empowers the

Commission upon finding “that any rate, charge, or classi-

fication... or that any rule, regulation, practice, or con-

tract affecting such rate, charge, or classification is

unjust, unreasonable, unduly discriminatory or preferen-

tial” to determine the just and reasonable rate or contract

and to fix that rate or contract by order. 15 U.S.C.

§ 717d(a). The Court below, in citing to this Court’s

decision in Permian Basin Area Rate Cases, 390 U.S. 747,

783-84 (1968), stated, “At any rate, Section 5 gives the

Commission authority to alter terms of any existing

contract found to be ‘unjust’ or ‘unreasonable’’’. App. at

25-26.

In fact, Petitioners acknowledge that the Commission

is authorized under Section 5 of the Act to modify

contracts and tariffs. See Transwestern’s Petition at 9,

Texas Eastern’s Petition at 11. Petitioners cite no case

which challenges the Commission’s authority to modify

tariffs or contracts. Instead, Petitioners argue that the

Commission exceeded its authority because it did not

fully consider the role of contracts under the Natural Gas

Act or that the provisions of Order No. 380 destroy the

mutuality of contracts. In essence, these arguments by

Petitioners, while termed to be challenges to the statutory

authority of the Commission to issue its Order, are in

reality merely disagreements with the Commission’s

weighing of the various factors which were considered in

issuing its decision. The role of this Court is not to weigh

the individual factors in evidence but to defer to the

6

expertise of the administrative agency in considering the

evidence before it. Permian Basin, 390 U.S. 747 (1968).

I

The Court’s Decision Below Does Not Raise Certain Of

The Questions Presented In The Petitions.

Petitioners have raised for review certain issues which

were not the holding in the decision of the Court below.

First, Petitioners question if the Commission is author-

ized to abrogate a settlement agreement which was previ-

ously approved by the Commission. Second, Petitioners

question if the Commission is authorized to modify or

revoke a certificate of public convenience and necessity

issued under Section 7 of the Natural Gas Act, 15 U.S.C.

§ 717f (1982). The District of Columbia Cireuit Court of

Appeals either did not decide these issues or did not base

its decision upon such finding. Moreover the facts below

indicate there was no violation of a settlement or revoca-

tion of a certificate.

A Petitioner, ANR, contends that the Commission has

exceeded its statutory authority by abrogating a settle-

ment agreement to which the Commission was a party.

The District of Columbia Cireuit however did not decide .

this issue. The Court below stated, “We find that Order

No. 380 does not violate any term of either Transco’s or

ANR’s settlement. We therefore do not reach the issue of

whether the Commission has the statutory authority to

abrogate settlement agreements to which it is a party

through a generic section 5 rmnlemaking.” App. at 26.

Moreover, the record in this proceeding does not permit

the formulation of a resolution of this question presented

by the Petitioner. The underlying settlement merely

provides that the minimum bill issue shall be set for

hearing in Docket No. RP82-80. (ANR attachment I at

7

B-1). In discussing this settlement the Court below

found that the Commission was not restricted in dealing

with ANR’s minimum bill in an ongoing rulemaking. The

Court stated, “As it is written, however, the agreement

neither binds the Commission to resolve the issues in

ANR’s ratemaking proceeding nor exempts ANR’s mini-

mum bill provisions from the general rulemaking in pro-

gress. We conclude, therefore, that by issuing Order No.

380 the Commission did not violate the terms of the

settlement agreement.” App. at 29.

Petitioners, Transwestern and Arkla, claim that the

Commission was without authority to revoke or modify

certificates of public convenience and necessity granted

under Section 7 of the Natural Gas Act. 15 U.S.C. § 717f.

Whiie the Court found that the Commission did have the

authority to modify certificates, its holding was not based

upon this finding. The Court below, citing this Court’s

decision in Atlantic Refining Co. v. Public Service Commis-

sion of New York, 360 U.S. 378, 389 (1959), found that

Section 7 of the Natural Gas Act does not guarantee a

recipient of a certificate that the initial terms of the

certificate will never be changed. The Commission has

the authority under Section 5 of the Natural Gas Act, 15

U.S.C. § 717d, to alter and amend terms and conditions of

certificated service. Pacific Gas Transmission Co. v. FPC,

536 F.2d 393 (D.C. Cir. 1976), cert. denied, 429 U.S. 999

(1976). In faet, once the Commission determines a term

or condition is unjust and unreasonable it must remedy

the situation. American Smelting and Refining Co. v. FPC,

494 F.2d 925 (D.C. Cir. 1974), cert. denied, 419 U.S. 882

(1974); Pacific Gas Transmission Co. v. FPC, 536 F.2d 393

(D.C. Cir. 1976).

The decision of the Court below would not change even

if its determination is incorrect since the Court found

that the Commission’s decision did not revoke or modify

8

the Section 7 certificates of Petitioners. The Court

stated:

Even assuming arguendo that the Commission has no

authority to amend or revoke certificated service in a

Section 5 proceeding, the elimination of minimum

bills has no effect on the pipelines authorized service.

The Order merely addresses the rates the pipeline

may charge its customers and therefore was properly

issued pursuant to Section 5.

App. at p. 25, n.9 (emphasis in original). Thus, the issues

which Petitioners have asked this Court to review are

simply not material to the decision of the Court below.

Ill

As The Court Below Found, The Commission Utilized

The Proper Procedures And Therefore There Is No

Reason For This Court To Grant The Writ For

Certiorari.

Petitioners argue that the rulemaking procedures used

by the Commission in this case were insufficient to satisfy

the hearing requirement of Section 5 of the Natural Gas

Act. The statutory requirement for a hearing can be

satisfied through either a rulemaking proceeding or an

adjudicatory proceeding. SEC v. Chenery Corp., 332 U.S.

194 (1947); Phillips Petroleum Co. v. FPC, 475 F.2d 842

(10th Cir. 1973), cert. denied, 414 U.S. 1146 (1974). In

this case, the Commission within its discretion, utilized

its rulemaking procedures. The Court below found that

the Commission’s decision to proceed through rulemak-

ing, “clearly passes muster under our deferential stan-

dard of review.” App. at 51. See, FPC v. Transcontinental

Gas Pipeline Corp., 423 U.S. 326, 333 (1976).

The use of notice and comment procedures by the

Commission was an appropriate method to acquire infor-

mation on an industry-wide problem. See, United States v.

, ale

9

Florida East Coast Ry. Co., 410 U.S. 224, 245 (1973). The

fact that 95 parties submitted over 1,000 pages of com-

ments in response to the Commission’s first notice of

proposed rulemaking indicates that the Commission’s

proposed rulemaking was not a matter that uniquely or

exceptionally affected only a few parties. A review of the

two series of comments and reply comments filed with the

Commission reveals that all sectors of the natural gas

industry took the opportunity to make their views known

and address the arguments raised by other parties.

The repeated notices and comments which characterize

this proceeding demonstrate the thorough procedures

used by the Commission. As this Court has stated, and as

noted by the Court below, App. at 54, nothing permits

“the court to review and overturn the rulemaking pro-

ceeding on the basis of the procedural devices employed

(or not employed) by the Commission so long as the

Commission employed at least the statutory minima.”

Vermont Yankee Nuclear Power Corp. v. NRDC, 435 U.S.

519, 548 (1978). There is no doubt that the Commission

has done so here.

IV

The Court’s Decision Below Gave Full Consideration To

The Issues And Determined That The Commission’s

Decision Was Based Upon Substantial Evidence.

Petitioners raise a wide-range of issues which, in es-

sence, challenge the reasonableness of the Commission’s

Order. Pursuant to Section 19(b) of the Natural Gas

Act, 15 U.S.C. § 717r(b), the standard which is to be used

by a Court in reviewing the Commission’s factual findings

is that of substantial evidence. Public Service Commission

of the State of NewYork v. FERC, 642 F.2d 1335 (D.C. Cir.

1980), cert. denied, 454 U.S. 879 (1981). The factual

findings of the Commission are to be considered conclu-

10

sive if supported by substantial evidence. In this regard

the Court is not to substitute its view of the facts for that

of the Commission. Colorado Interstate Gas Co. v. FPC,

142 F.2d 943 (10th Cir. 1944), aff’d., 324 U.S. 581 (1945),

reh’g denied, 325 U.S. 891 (1945).

The Commission’s examination of all aspects of this

rule ean only be described as overwhelming and conclu-

sive. In fact, the reviewing Court below has so found.

The Court’s conclusion is illustrative in describing the

breadth of the Commission’s review where it states,

In sum, we find that each of the order’s essential

elements is supported by substantial evidence. Since

we have assured ourself “that the Commission has

given reasoned considerstien to each of the pertinent

factors’, it is not our province “to supplant the

Commission’s balance of these interests with one

more merely to [our] liking’, Permian Basin, 390

U.S. at 792.

App. at 42.

Thus, Petitioners’ claims simply do not merit review by

this Court.

11

CONCLUSION

For these reasons, the Petitions for a Writ of Certiorari

should be denied.

Respectfully submitted,

THOMAS D. CLARKE

K. R. ISLAND

MICHAEL D. GAYDA

810 South Flower Street

Los Angeles, California 90017

Attorneys for Respondent

Southern California Gas

Company

March 28, 1986