Opposition Brief — Interstate Natural Gas Ass'n of America v. Federal Energy Regulatory Commission
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Nos. we, 87-977, Ap el and 87.1091
IN THE
Supreme Court of the United
OCTOBER TERM, 1987
INTERSTATE NATURAL GAS ASSOCIATION OF AMERICA,
‘ Petitioner,
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent.
TEXAS EASTERN TRANSMISSION CORPORATION,
- Petitioner,
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent.
CITY OF WILLCOX, ARIZONA AND
ARIZONA ELECTRIC POWER COOPERATIVE, INC.,
° Petitioners,
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent.
SOUTHERN CALIFORNIA GAS COMPANY,
‘ Petitioner,
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent.
On Petition for a Writ of Certiorari to the United States
Court of Appeals for the District of Columbia Circuit
RESPONDENTS’ BRIEF IN OPPOSITION
THOMAS G. JOHNSON *
Attorney for
SHELL OFFSHORE INC.
SHELL WESTERN E&P INc.
One Shell Plaza
P.O. Box 2463
Houston, Texas 77252
(713) 241-4742
(Petitioners Listed on
February, 1988 the Inside Cover) \ y
* Counsel of Record
WILSON - Eres Printine Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001 )
AMOCO PRODUCTION COMPANY MARATHON OIL COMPANY
WILLIAM T. BENHAM GEORGE H. ROTHSCHILD, JR.
P.O. Box 5910-A ROBERT C. MURRAY
Chicago, Illinois 60680 P.O. Box 3128
(312) 856-7941 Houston, Texas 77253
APACHE CORPORATION (713) 629-6600
CHARLES H. BROWNMAN Of Counsel
One United Bank Center JON L. BRUNENKANT *
Suite 1900 GROVE, JASKIEWICZ, GILLIAM
1700 Lincoln Street AND COBERT
Denver, Colorado 80203-4519 1730 M Street
(303) 837-5074 Washington, D.C. 20036
ARCO OIL AND GAS COMPANY (202) 296-2900
A Division of Atlantic MAXUS ENERGY CORPORATION
Richfield Company DIAMOND SHAMROCK OFFSHORE
HARRIS S. WooD * PARTNERS LIMITED
NORMA J. ROSNER PARTNERSHIP
P.O. Box 2819 R. BRENT HARSHMAN *
Dallas, Texas 75221 RONALD J. NELSON
(214) 880-4869 LTV Center—Suite 1400
CHEVRON U.S.A. INC. 2001 Ross Avenue
GERALD P. THURMOND Dallas, Texas 75201-2916
575 Market Street (214) 979-5027
San Francisco, California 91105 MosBIL OIL CORPORATION
(415) 894-1717 MosiL O11 EXPLORATION &
Of Counsel PRODUCING SOUTHEAST INC.
MOBIL PRODUCING TEXAS &
NEW MEXxIco INC.
MOBIL EXPLORATION AND
PRODUCING NORTH AMERICA
INC.
JAY G. MARTIN *
THOMAS GEORGE WAGNER
Nine Greenway Plaza—
——DAVID J. EVANS *
JAMES B. ATKIN
PILLSBURY, MADISON & SUTRO
Suite 1100
1667 K Street, N.W.
Washington, D.C. 20006
(202) 463-2366
CITIES SERVICE OIL AND GAS Suite 2700
CORPORATION Houston, Texas 77046
MICHAEL L. PATE (718) 235-1443
P.O. Box 300
Tulsa, Oklahoma 74102 pele ey Ast
(918) 561-4541 .
KATHLEEN E. MAGRUDER
KERR-MCGEE CORPORATION P.O. Box 2967
JOHNNY J. AKINS Houston, Texas 77252
P.O. Box 25861 (713) 546-8859
Oklahoma City, Oklahoma 73125
(405) 270-2864
* Counsel of Record
Of Counsel
JOHN K. MCDONALD
CHARLES E. SUFFLING
BUTLER & BINION
1747 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
(202) 466-6900
PHILLIPS PETROLEUM COMPANY
PHILLIPS 66 NATURAL GAS
COMPANY
LARRY PAIN *
1258 Adams Building
Bartlesville, Oklahoma 74004
(918) 661-6355
ROSEWOOD RESOURCES, INC.
LESLIE J. BURTON *
JOHN J. WOLFE
200 Crescent Court
Suite 300
Dallas, Texas 75201
(214) 871-5527
SUN EXPLORATION AND
PRODUCTION COMPANY
CHARLES L. SPANN *
P.O. Box 2880
Dallas, Texas 75221-2880
(214) 890-5607
* Counsel of Record
TEXACO INC.
RALPH J. PEARSON, JR.*
JAMES D. HURLEY
P.O. Box 52332
Houston, Texas 77052
(713) 650-4297
UNION OIL COMPANY OF
CALIFORNIA
KENNETH L. RIEDMAN
Union Oil Center—Room 1120
P.O. Box 7600
Los Angeles, California 90051
(213) 977-6282
UNION PACIFIC RESOURCES
COMPANY
KERRY R. BRITTAIN *
ALAN W. TOMME
Mail Station No. 4010
P.O. Box 7
Fort Worth, Texas 76101-0007
(817) 877-7540
UNION TEXAS PETROLEUM
CORPORATION
F. NAN WAGONER
P.O. Box 2120
Houston, Texas 77252-2120
(713) 968-2856
STATEMENT REQUIRED BY RULE 28.1
All of the Respondents joining in this Brief, with the
exception of Pennzoil Company and Chevron U.S.A., Inc.,
joined in the Petition for Certiorari filed in Shell Offshore
Inc., et al. v. Associated Gas Distributors, et al., No. 87-
978, which sought a writ from Associated Gas Distribu-
tion v. FERC, 824 F.2d 981 (D.C. Cir. 1987), the same
decision which Petitioners in the captioned cases seek to
have reviewed by this Court. In Appendix E to that
Petition, these parties submitted a statement as required
by Rule 28.1. The following statement is submitted on
behalf of Chevron U.S.A., Inc. and Pennzoil Company:
CHEVRON U.S.A., INC.
Chevron U.S.A., Ine. is a wholly-owned subsidiary of
Chevron Corporation. The non-wholly-owned subsidiaries
and affiliates of Chevron Corporation are:
AMAX Ince.
Arabian American Oil Company
Atlas Supply Company
C-W Properties Inc.
Caltex Mediterranean Limited
Caltex Petroleum Corporation
Canyon Reef Carriers, Inc.
Chevron Capital N.V.
Chevron Capital U.S.A. Inc.
Chevron Investment Management Company
Chevron Oil Finance Company
Dixie Pipeline Company
Explorer Pipeline Company
Felix Oil Company
Glenwood Properties
Gulf Oil Finance Company
Kenai Pipe Line Company
Long Beach Oil Development Company
Mid-Valley Pipeline Company
(i) -
ii
Paloma Pipe Line Company
Pembroke Capital Company, Inc.
Plantation Pipe Line Company
Platte Pipe Line Company
Refineria Petrolera de Guatemala-California, Inc.
PENNZOIL COMPANY
The non-wholly-owned subsidiaries and affiliates of
Pennzoil Company are:
National Transit Company
10 Minute Service Centres Limited
The Eureka Pipe Line Company
American Sulphur Export Corporation
Pennzoil (U.K.) Limited
P. T. Sungai Kencana
P. T. Indo Muro Kencana
Proven Properties Inc.
TABLE OF CONTENTS
Page
STATEMENT REQUIRED BY RULE 28.1 _............... i
a ee EID ccrvnetececercdnactenvsoninessocntenseseomse Vv
REASONS WHY THE WRITS SHOULD NOT BE
OS | an ie . 2
I. The Commission’s Orders Below Do Not Im-
pose “Common Carrier Status” Upon Inter-
state Pipeline Companies ........................ 2
A. The Commission Has The Power And Duty
Under The Natural Gas Act To Prevent
“Undue Discrimination.” 2
B. The Decision Below Creates No Conflicts
Between The Circuits Or With Decisions Of
This Court Requiring The Granting Of Cer-
BRET rT a SRE SNL Sr NN a a Ce 3
C. FCC v. Midwest Video Corp. And The Other
Television Cases Are Not In Point .................. 6
D. The Orders Below Do Not Force Interstate
Pipelines To Become Common Carriers ....... 9
1. Pipeline Participation In The Order No.
436 Program Is Voluntary ............00.0........ 9
2. Non-Discrimination Is Not Common Car-
I ec ll
E. Order No. 436 Does Not Violate Section
ot Ep Be ie Bt: ee 12
II. The Optional Expedited Certificate Procedure
Established By The Commission’s Orders Rep-
resents A Valid Exercise Of The Commission’s
Authority And Contains Provisions Which Are
I I I BI oii incdinsccictnnedencenancenienateensiens 14
(ili)
iv
TABLE OF CONTENTS—Continued
Page
A. The Optional Expedited Certificate Proce-
cedure’s Substantive Provisions Are Within
The Commission’s Discretionary Authority
And Will Not Interfere With State Jurisdic-
tion .... 14
B. The Optional Expedited Certificate Proce-
dural Provisions Are Not Ripe For Review.. 16
aa ee as te Do Fede ORT aD ae 17
v
TABLE OF AUTHORITIES
CASES: Page
Abbott Laboratories v. Gardner, 387 U.S. 136
gE TR SS AIA, Ca TRI yr ec leay le ae ee aN 17
Atlantic Refining Co. v. Public Service Comm’n,
SI I idl ea 9
Burlington Truck Lines, Inc. v. United States, 371
pS ENT SOE a Re ET 15
Central Iowa Power Coop. v. FERC, 606 F.2d
Ee es re I ahaa tae hi asttinlcce 6,8
Central Power & Light Co. v. FERC, 575 F.2d 937
(D.C. Cir. 1978), cert. denied, 439 U.S. 981
SEE Ae en ROS Oe a = ee eae 8
Columbia Broadcasting System, Inc. v. Democratic
National Committee, 412 U.S. 94 (1973) ............ 7
FCC v. Midwest Video Corp., 440 U.S. 689
a call 6, 7, 12
FCC v. Pottsville Broadcasting Co., 309 U.S. 134
or RCEEE TES Ar be EU IRE 07 aS RIP ec vc 6
FPC v. Conway Corp., 426 U.S. 271 (1976)........ 5
FPC v. East Ohio Gas Co., 338 U.S. 464 (1950)... 16
FPC v. Texaco Inc., 377 U.S. 33 (1984) 20000000... 2
FPC v. Transcontinental Gas Pipe Corp., 365 U.S.
ete jE RE. a: POLED ee 2
Florida Power & Light Co. v. FERC, 660 F.2d 668
(5th Cir. 1981), cert. denied, 459 U.S. 1156
I le eh a 3, 5,6
Gulf States Utilities Co. v. FPC, 411 U.S. 747
ESE Tee celine Doe ee, Sct” 5,8
Market Street Railway v. Railroad Comm’n, 324
re 10
Maryland People’s Counsel v. FERC, 761 F.2d
pe FREES 0 ROMER ke 8,9, 11
Maryland People’s Counsel v. FERC, 761 F.2d
- | A SR rrereer ar see nk ees 5, 8,9, 11
Maryland People’s Counsel v. FERC., 768 F.2d
450 (D.C. Cir. 1985)
Motor Vehicle Manufacturers Ass’n v. State Farm
Mutual Automobile Insurance Co., 463 U.S. 29
(1983)
vi
TABLE OF AUTHORITIES—Continued
Page
National Ass’n of Regulatory Utilities Comm’n v.
FCC, 525 F.2d 630 (D.C. Cir. 1976), cert. de-
SOU, Ges May UE I icc cctcnee 12
National Ass’n of Regulatory Utilities Comm’n v.
FCC, 533 F.2d 601 (D.C. Cir. 1976) .................. 12
Natural Gas Pipeline Company of America v.
FERC, 765 F.2d 1155 (D.C. Cir. 1985) .............. 5-6
New York State Electric & Gas Corp. v. FERC,
638 F.2d 388 (2nd Cir. 1980), cert. denied, 454
RR. ESS RRR eee ee 3, 5, 6
Otter Tail Power Co. v. United States, 410 U.S.
I ah aeeatons 3,4
Panhandle Eastern Pipe Line Co. v. FPC, 232
F.2d 467 (3rd Cir. 1956), cert. denied, 352 U.S.
ge Ee ae ee oan BK chad eRe Sasser 3
Panhandle Eastern Pipe Line Co. v. Michigan
Public Service Commission, 341 U.S. 329
|S Ree a ESM: 2250 «ise SASSER Set Re oe SON 16
Panhandle Eastern Pipe Line Co. v. Public Serv-
ice Commission of Indiana, 332 U.S. 507
| aS oe A DS SIS ES IE Aen RB 16
Public Service Commission of New York v. Mid-
Louisiana Gas Co., 463 U.S. 319 (1983) 0.00000... 8
Red Lion Broadcasting Co. v. FCC, 395 U.S. 367
IIE a sn usiinnk eb cacDcnsciha toca li alta 7
Richmond Power & Light v. FERC, 574 F.2d 610
LN cil + | Sn - 2p a Se 3, 6
Transcontinental Gas Pipe Line Corp. v. State Oil
and Gas Board of Mississippi, 474 U.S. 409
TIE cee ssoinsscniinsiinin tr itensshllabealli ts Sabiosinsahtnonchiinneniainns 8
United States v. Midwest Video Corp., 406 U.S.
RAED ccsssideich tanatanauatatbaietel Imenanosbadacigudnsectiansdtinn 7
United States v. Southwestern Cable Co., 392 U.S.
MUD access aiccpaetlsenscissiclindila dh ilisisnhik aire dtindbsinihastictiaplic' 6, 7
vii
TABLE OF AUTHORITIES—Continued
STATUTES AND REGULATIONS: Page
Federal Communications Act
OE I I costae rcacechtcvchoatssskaccecmnnanaune 7
Federal Power Act, 16 U.S.C. § 791a, et seq......... 4,5
ERE Ra lola A oe 5
I Sc a 5
7k. ROC ee ae ere 5
Natural Gas Act of 1938, 15 U.S.C. § 717, et seq... 2, 3, 6,
15
i in 2
Ia et 2
hE sy, Sa rn ere ee NTs. 2,10, 15
Natural Gas Policy Act of 1978, 15 U.S.C. § 3301,
RS GROG PER ai eal aca Fae ESOT 2, 7,8
15 U.S.C. § 3371(c) (1982) ......... I MN A Seay oe 2
15 U.S.C. § $482(b) (1982) ................................. 12-13
Public Utility Regulatory Policies Act of 1978,
P.L. 95-617, 92 Stat. 3117, § 203, codified as
ek se fg | een eee 5
LEGISLATIVE AUTHORITIES:
H.R. Rep. No. 709, 75th Cong., Ist Sess. 2 (1937)... 16
H. Conf. Rep. No. 95-1752, 95th Cong., 2d Sess.
gE NEA SP A MAR al PIC Sie Sine ee aye 2
IN THE
Supreme Court of the United States
OCTOBER TERM, 1987
No. 87-976
INTERSTATE NATURAL GAS ASSOCIATION OF AMERICA,
‘- Petitioner,
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent.
No. 87-977
TEXAS EASTERN TRANSMISSION CORPORATION,
= Petitioner,
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent.
No. 87-979
CITY OF WILLCOX, ARIZONA AND
ARIZONA ELECTRIC POWER COOPERATIVE, INC.,
St 7 Petitioners,
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent.
No. 87-1091
SOUTHERN CALIFORNIA GAS COMPANY,
‘ Petitioner,
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent.
On Petition for a Writ of Certiorari to the United States
Court of Appeals for the District of Columbia Circuit
RESPONDENTS’ BRIEF IN OPPOSITION
2
REASONS WHY THE WRITS
SHOULD NOT BE GRANTED
I. The Commission’s Orders Below Do Not Impose
“Common Carrier Status” Upon Interstate Pipeline
Companies.
A. The Commission Has The Power And Duty Under
The Natural Gas Act To Prevent “Undue Dis-
crimination.”
—
It is quite clear from Order Nos. 436 and 436-A that
the Federal Energy Regulatory Commission (‘Commis-
sion”) did not set out to impose common carrier status
upon interstate pipeline companies, and affirmatively
found that it had not done so.' Instead, the Commission
established a format for transportation authorizations
using its conditioning power contained in Section 7(e)
of the Natural Gas Act (“NGA”)? and Section 311(c) of
the Natural Gas Policy Act of 1978 (“NGPA’)® for
issuing certificates of public convenience and necessity to
interstate pipelines, thus carrying out the duties imposed
upon it by Sections 4(b) and 5(a) of the NGA* to pre-
vent undue discrimination by such pipelines. The Com-
mission also required intrastate pipelines which trans-
port gas under Section 311 of the NGPA to do so with-
1J.A. 346-364, 1079-1086; Supplemental Appendix (“Supp. App.”’)
[attached to this Brief] at SA-5 to SA-20, SA-21 to SA-27.
215 U.S.C. § 717f(e).
315 U.S.C. § 3371(c) (1982). See also H. Conf. Rep. No. 95-1752,
95th Cong., 2d Sess. 7 (1978).
#15 U.S.C. § 717c(b); 15 U.S.C. § 717d(a). See INGAA App. 34a
(“INGAA App.” refers to the appendix submitted with the petitions
in Nos. 87-976, 87-977, and 87-979). This Court has broadly con-
strued the Commission’s conditioning power under Section 7(c),
FPC v. Texaco Inc., 377 U.S. 33 (1964), even where the Commis-
sion’s only jurisdiction is over transportation by interstate pipelines,
FPC v. Transcontinental Gas Pipe Line Corp., 365 U.S. 1, 25-30
(1961); Panhandle Eastern Pipe Line Co. v. FPC, 232 F.2d 467,
471 (3rd Cir. 1956), cert. denied, 352 U.S. 891 (1956).
3
out discrimination. The Commission found: (i) that
pipelines possess substantial market power;*(ii) that
they have exercised that power to deny their own sales
customers, and others without fuel-switching capability
access to competitively-priced gas;* and (iii) that this
practice had denied consumers access to gas at the lowest
reasonable rates.?. These actions, the court of appeals
found, constituted “extreme factual circumstances” show-
ing discrimination, and that the effect of this discrimina-
tion was to deny gas users, and the economy generally,
the benefits of a competitive wellhead market.®
B. The Decision Below Creates No Conflicts Between
The Circuits Or With Decisions Of This Court Re-
quiring The Granting Of Certiorari.
Petitioners ® assert that the decision below creates a
conflict between the circuits and is contrary to this
Court’s decision in Otter Tail Power Co. v. United
States,” because it mandates the equivalent of “wheeling”
for natural gas. In Otter Tail and several decisions of
the courts of appeals," it was held that the Commission
lacked the authority to order such “wheeling” of elec-
tricity. The Petitioners assert that the decision below is
inconsistent with these prior decisions, because the NGA
5 J.A. 306; Supp. App. at SA-1 to SA-2.
6 J.A. 318, 1087; Supp. App. at SA-2 to SA-3, SA-27 to SA-28.
7 J.A. 318-321, 1087; Supp. App. at SA-2 to SA-5, SA-27 to SA-28.
8 INGAA App. 30a.
® As used herein ‘Petitioners’ means the Petitioners in Nos.
87-976, 87-977, and 87-979.
10 410 U.S. 336 (1973).
11 Florida Power & Light Co. v. FERC, 660 F.2d 668 (5th Cir.
1981), cert. denied, 459 U.S. 1156 (1983); New York State Electric
& Gas Corp. v. FERC, 638 F.2d 338 (2nd Cir. 1980), cert. denied,
454 U.S. 821 (1981); Richmond Power & Light v. FERC, 574 F.2d
610 (D.C. Cir. 1978).
a i
4
and Federal Power Act (“FPA’)* are to be read in
pari materia.” Petitioners contend that, given this limi-
tation on the Commission’s power to order wheeling, the
anti-discrimination provisions of neither act give the
Commission the power to require a pipeline to transport
gas belonging to another against its will.“
This argument ignores a key factor recognized by the
court of appeals below. In Otter Tail, this Court held
that a district court could require wheeling, where not to
require it would permit the electric company to violate
the antitrust laws. This Court affirmed that the enact-
ment of the Federal Power Act did not interpose a de-
fense against an antitrust suit in a district court.
While Otter Tail might prove a precedent against a
general assertion of jurisdiction by the Commission to
impose common carriage, that case does not address the
issue presented here, to-wit: whether the Commission
may order non-discriminatory transportation as a rem-
edy for anti-competitive conduct or undue discrimina-
tion. Here the Commission made a finding that the pipe-
lines were engaged in anti-competitive practices by re-
fusing to transport gas belonging to other shippers which
would displace sales formerly made by the pipelines them-
selves.° In any event, the Commission did not order pipe-
lines to transport gas on behalf of others; on the con-
trary, it made it very clear that the pipelines could choose
not to transport for others.** What the Commission said
12 16 U.S.C. § 791a, et seq.
18 Contrary to the holding of the court of appeals, see INGAA
App. 28a.
14 Texas Eastern Petition (No. 87-977) at 11.
15 J.A. 1086; Supp. App. at SA-26 to SA-27.
16 J.A. 352-357, 1085; Supp. App. at SA-10 to SA-15, SA-26.
5
was, “if you choose to transport gas for others, you must
do so on a non-discriminatory basis.” *”
Under this Court’s decisions in FPC v. Conway Corp.
and Gulf States Utilities Co. v. FPC, the Commission is
required to consider the anti-competitive effects of regu-
lated aspects of interstate utility operations, and should
it find that those aspects are present, it may take reme-
dial steps to foster competition.
The decisions of the courts of appeals cited by Peti-
tioners do not create a conflict among the circuits re-
quiring this Court’s intervention. Indeed, a close reading
of these cases suggests that the Commission’s power to
order wheeling of electricity in the face of a clear show-
ing of anti-competitive conduct has not yet been decided.
In Florida Power, the Fifth Circuit explicitly preter-
mitted a decision on such an argument.” In New York
State Electric & Gas,”' the Second Circuit stated that
were the Commission to require wheeling as a remedy
for an unreasonable contract provision under Section
206 of the FPA, it would be required to use the specific
wheeling authorization added by Congress in 1978.”
17 Such a finding was required by the D.C. Circuit’s opinion in
Maryland People’s Counsel v. FERC, 761 F.2d 780 (D.C. Cir. 1985) ;
J.A. 1086; Supp. App. at SA-26 to SA-27.
18 426 U.S. 271, 278-80 (1976).
19 411 U.S. 747, 758-59 (1973).
20 Florida Power & Light Co. v. FERC, supra, 660 F.2d at 679.
21 New York Electric & Gas Co. v. FERC, 638 F.2d at 403.
22 Section 203 of the Public Utility Regulatory Policies Act of
2216 U.S.C. § 824e. Section 203 of the Public Utility Regulatory
Policies Act of 1978 (“PURPA”), P.L. 95-617, 92 Stat. 3117, 3136-40,
codified as Sections 211 and 212 of the FPA, 16 U.S.C. §§ 824j &
824k. The wheeling provisions of Sections 211 and 212 were added
by PURPA to deal with the perceived need to assist cogenerators
and small power producers. This points out differences between
the electric and natural gas industries, which sometimes call for
different Commission responses to similar statutory language.
(Cf. Natural Gas Pipeline Company of America v. FERC, 765
6
There being no similar specific statutory mechanism in
the NGA, New York State Electric & Gas cannot be read
to preclude the ordering of transportation by interstate
pipelines to prevent discrimination.
In Richmond, as noted by the court of appeals, the
petitioner failed to make a showing of anti-competitive
or discriminatory impact resulting from the refusal of
other utilities to wheel power.“ The Commission and the
District of Columbia Circuit simply rejected a per se rule
equating refusals to wheel with discriminatory or anti-
competitive practices. In this case, the Commission made
express findings of anti-competitive practices. These find-
ings distinguish this case from Florida Power** and
Richmond,”®> where no such findings were made. This
distinction is clearly articulated in the opinion of the
court of appeals.*°
C. FCC v. Midwest Video Corp.*" And The Other Tele-
vision Cases Are Not In Point.
All three Petitioners, particularly City of Willcox, rely
on FCC v. Midwest Video Corp. as controlling authority
requiring reversal of the court of appeals and the Com-
mission. We agree with the court of appeals that these
cases are distinguishable from the case at bar.
FCC v. Midwest Video Corp. is the last in a series of
cases ** which explored the First Amendment right of
F.2d 1155, 1167-68 (D.C. Cir. 1985) (discussing “the complex
policy questions” which justified the Commission treating abandoned
gas projects differently from abandoned electric projects.) )
23 Richmond Power & Light v. FERC, supra, 574 F.2d at 623.
24 660 F.2d at 679.
25 574 F.2d at 623.
26INGAA App. 28a-30a. See also Central Iowa Power Coop. v.
FERC, 606 F.2d 1156 (D.C. Cir. 1979).
27 440 U.S. 689 (1979).
28 FCC v. Pottsville Broadcasting Co., 309 U.S. 134 (1940);
United States v. Southwestern Cable Co., 392 U.S. 157 (1968);
T
freedom of speech in relation to the Federal Communica-
tions Act, and that Act’s purpose to preserve a degree of
editorial control in the broadcaster or cable operator. In
Midwest Video, the Court held that in the face of a di-
rect prohibition in Section 3(h) of the Federal Commun-
ications Act ™ against “treating broadcasters as common
carriers,” the Federal Communications Commission could
not require a cable television operator to maintain spe-
cific channels for the use of the public. No questions of
anti-trust violations or anti-competitive activity by the
broadcasters were presented. Instead the Court gave ef-
fect to the legislative purpose of the Federal Communi-
cations Act which was designed to “safeguard the journ-
alistic freedom of broadcasters.” *° In United States v.
Southwestern Cable Co., supra, this Court had upheld
the power of the Federal Communications Commission to
prohibit certain anti-competitive actions by a television
station, which the Court held did not make the station a
common carrier.** This is similar to the action taken by
the Commission and upheld by the court of appeals below.
While conceding that the accomplishment of the pur-
pose intended by Congress is a key element in interpret-
ing the extent of the Commission’s jurisdiction,” the City
of Willcox makes the astonishing assertion that the
NGPA “was not intended to promote competition in
either the interstate or intrastate pipeline fields.” **
Red Lion Broadcasting Co. v. FCC, 395 U.S. 367 (1969); United
States v. Midwest Video Corp., 406 U.S. 649 (1972); Columbia
Broadcasting System, Inc. v. Democratic National Committee, 412
U.S. 94 (1973).
29 47 U.S.C. § 153(h).
30 FCC v. Midwest Video Corp., supra, 440 U.S. at 700.
31 United States v. Southwestern Cable Co., supra, 392 U.S. at 169
note 29 (1968).
82 City of Willcox Petition (No. 87-979) at 12.
33 Jd. at 13.
8
Contrary to the assertion made by the City of Willcox,
the Commission’s responsibility to consider competitive
factors is clear. This Court’s decision in Transconti-
nental Gas Pipe Line Corp. v. State Oil and Gas Board of
Mississippi,* referred to “Congress’ determination that
the supply, the demand, and the price of high-cost gas
be determined by market forces” in the NGPA.** The
controlling effect of the “market forces” over prices can-
not occur, as the Commission below found, where it is
prevented by the anti-competitive actions of interstate
pipeline companies.**7 Competition at the wellhead is pro-
moted by the NGPA. Competition cannot be effective at
the burner tip unless pipelines are prevented from dis-
criminating in favor of their own gas supplies in deliver-
ing gas to the ultimate consumer.
In the Maryland People’s Counsel cases,** the District
of Columbia Circuit reversed the Commission’s earlier
efforts to insert competition into sales at the market end
of interstate pipelines, on the grounds that it did not go
far enough in ensuring that all pipeline customers could
take advantage of the newly available supplies.* Those
34 Central Iowa Power Coop. v. FERC, 606 F.2d 1156, 1162 (D.C.
Cir. 1979); Central Power & Light Co. v. FERC, 575 F.2d 937, 938
(D.C. Cir. 1978), cert. denied, 439 U.S. 981 (1978); Gulf States
Utilities Co. v. F.P.C., 411 U.S. 747 (1973).
35474 U.S. 409 (1986). See also Gulf States Utilities Co. v.
FPC, 411 U.S. 747 (1973).
36 Transcontinental Gas Pipe Corp. v. State Oil and Gas Board
of Mississippi, supra, 474 U.S. at ——-; 106 S.Ct. at 717, 88 L.Ed.2d
at 744. See also Public Service Commission of New York v. Mid-
Louisiana Gas Co., 463 U.S. 319, 331-32 (1983).
37 J.A. 1087; Supp. App. at SA-27 to SA-28.
38 Maryland People’s Counsel v. FERC, 761 F.2d 768 (D.C. Cir.
1985); Maryland People’s Counsel v, FERC, 761 F.2d 780 (D.C.
Cir. 1985) ; Maryland People’s Counsel vy. FERC, 768 F.2d 450 (D.C.
Cir. 1985).
39 761 F.2d at 788-89.
9
cases specifically directed the Commission to consider
competitive factors, finding that this Court’s instruction
in Atlantic Refining Company v. Public Service Commis-
sion required the Commission to “afford consumers a
complete, permanent and effective bond of protection
from excessive rates and charges,” * and that competi-
tion was one way of achieving this result.‘ Order No.
436 was the Commission’s response to the mandate of
the District of Columbia Circuit in the Maryland Peo-
ple’s Counsel cases.** The court below found the Com-
mission’s response to be reasonable.**
D. The Orders Below Do Not Force Interstate Pipe-
lines To Become Common Carriers.
1. Pipeline Participation In The Order No. 436
Program Is Voluntary.
The Commission repeatedly stated that participation
in the Order No. 436 open-access transportation program
was voluntary on the part of the interstate pipeline, and
if the pipeline chose to continue operations as before, it
could do so. The Petitioners assert that in reality pipe-
lines are forced to participate in the program or lose out
on the competitive market to other pipelines who are
willing to accept the drawbacks of the program in return
for its advantages. Petitioners refer to the statement of
the court of appeals that “inability to provide blanket
certificate transportation for fuel-switchable users may
in current market circumstances cause critical load
loss,” ® forcing the pipelines into a choice between being
#9 360 U.S. 378, 388 (1959).
41 761 F.2d at 777.
#2 J.A. 356-357, 1086; Supp. App. at. SA-13 to SA-15, SA-26 to
SA-27.
48 INGAA App. 31la-34a.
#4 J.A. 355-356, 1082-1086; Supp. App. at SA-12 to SA-14, SA-23
to SA-27.
46 INGAA App. 81a.
10
shot and hanged.** Any adverse consequences to the pipe-
line of continuing to operate as it did before Order No.
436 are the result of market forces, not of Commission
action “forcing” that pipeline to become a common car-
rier. As the court of appeals observed, “nothing bars the
Commission from devising rules that remedy a lack of
competition by exposing pipelines to competition and its
normal consequences.” ** This Court held in Market
Street Railway v. Railroad Commission, that regulation
was not designed to protect regulated companies from
losses brought about by market conditions.“
As the Commission noted in the Orders below, Order
No. 436 “does not direct or ‘mandate’ a pipeline to do
anything.” ** It only requires that when a pipeline does
choose to transport on a self-implementing basis, it must
provide those transportation services in a non-discrim-
inatory manner.” A pipeline remains free to seek au-
thorization for other transportation not covered by the
condition and the Commission will review such requests
on a case-by-case basis.™
The Commission pointed out the “all important distine-
tion” between common carriage and the Order No. 436
open-access transportation program—the fact that the
pipeline continued to have the option to provide trans-
portation services under NGA Section 7 certificates, and
a pipeline could cease transporting under the Order No.
436 program and revert to its former status. Unlike
46 Jd.; See Texas Eastern Petition (No. 87-977) at 8.
47 INGAA App. 32a-33a.
48 324 U.S. 548, 566-67 (1945).
49 J.A. 1082-1083; Supp. App. at SA-23 to SA-24.
50 Jd.
51 Jd.
&2 J.A. 1085; Supp. App. at SA-26.
11
the mandatory common carriage proposals considered by
Congress but not enacted,** the Order No. 436 open-access
program effectively allows the pipeline the discretion to
determine whether or not to become a transporter of gas
belonging to others.™*
The Commission’s open-access program was feund to
be necessary to prevent an interstate pipeline from en-
gaging in the unduly discriminatory practice of refusing
to transport gas for others where to do so would displace
its own sales.® In order to avoid the unlawful discrim-
ination which the District of Columbia Circuit warned
against in the Maryland People’s Counsel cases, supra,
the pipeline was required to choose one of three alterna-
tives:
(i) It could refuse to transport gas belonging to
others at all.
(ii) It could transport gas for others under in-
dividual certificates issued pursuant to Section 7 of
the NGA.
(iii) It could transport gas under the blanket cer-
tificates authorized by Order No. 436 provided it
agreed to do so without discrimination.
Moreover, the pipeline can change its mind and shift
from one role to another. While the pipeline might ob-
tain some commercial advantage out of accepting the
Order No. 436 blanket certificate, it is certainly not re-
quired by the Commission’s Order to do so. By no stretch
of the imagination does this rise to the level of imposing
mandatory common carriage upon the interstate pipe-
lines.
2. Non-Discrimination Is Not Common Carriage.
All three Petitioners make the unwarranted assump-
tion that because the Order No. 436 transportation re-
583 INGAA Petition (No. 87-976) 9-10; City of Willcox Petition
(No. 87-979) at 12-15; Texas Eastern Petition (No. 87-977) at 6-8.
54 J.A. 1085; Supp. App. at SA-26.
55 Id.
12
quires pipelines which elect to transport under blanket
certificates to do so without discrimination on a first-
come, first-served basis, that the Commission has imposed
“common carrier status” upon them.” But the imposi-
tion of one of the attributes of common carriage as a
condition to the non-compulsory participation in a par-
ticular transportation program does not confer “common
carrier status” on interstate pipelines. This distinction
is clearly made in FCC v. Midwest Video Corp., supra.**
The NGA, as distinguished from the Federal Communi-
cations Act, contains no prohibition against imposing
“common carrier obligations” upon interstate pipelines
in limited circumstances where the failure to do so would
result in undue discrimination, which is directly pro-
hibited by the NGA.**
E. Order No. 436 Does Not Violate Section 602(b)(2)
Of The NGPA.”
Petitioners ™ assert that Order No. 436 violates the
provisions of Section 602(b) (2) of the NGPA which pro-
vide in pertinent part:
56 INGAA Petition (No. 87-976) at 7; City of Willcox Petition
(No. 87-979) at 5-6; Texas Eastern Petition (No. 87-977) at 5-6.
57 The NARUC cases (National Ass’n of Regulatory Utilities
Comm’n v. FCC, 525 F.2d 630 (D.C. Cir. 1976), cert. denied, 425
U.S. 992 (1976); National Ass’n of Regulatory Utilities Comm’n
v. FCC, 533 F.2d 601 (D.C. Cir. 1976) ) cited by City of Willcox at 9
are not in point. The District of Columbia Circuit noted in NARUC
II “a carrier will not be a common carrier where its practice is to
make individualized decisions in particular cases whether and on
what terms to serve” (533 F.2d at 608-09). Under Order No. 436,
an interstate pipeline has the option to commence or discontinue
open-access transportation.
58 440 U.S. at 701-02.
59 INGAA App. 26a-27a.
#15 U.S.C. § 3432(b). This Section is entitled “Effect on state
laws” which supports the court of appeals’ conclusion as to its pur-
pose, see INGAA App. 34a-37a.
61 City of Willcox Petition (No. 87-979) at 10; INGAA Petition
(No. 87-976) at 15; Texas Eastern Petition (No. 87-977) at 9.
13
No person shall be subject to regulation as a com-
mon carrier under any provision of Federal or State
law by reason of any transportation—
(2) authorized by the Commission under Section
311(a) of this Act.
The short answer to this argument is that neither
under Order No. 436 nor any other Order has the Com-
mission subjected interstate pipelines “to regulation as a
common carrier.” * Petitioners confuse the limited im-
position of one of the obligations of a common carrier,
only where the pipeline elects to transport under the Or-
der No. 436 program and only where necessary to pre-
vent discrimination and monoplistic practices, with “reg-
ulation as a common carrier.” The discussion of this ar-
gument by the court of appeals defends both its inter-
pretation and that of the Commission: “
The reasonableness [of FERC’s interpretation of
§ 602(b) (2)] is underscored by FERC’s broad du-
ties to assure consumers access to natural gas at
prices such as would prevail in the absence of pipe-
line market power and its conclusion that under the
present circumstances fulfillment of that duty re-
quired such conditioning. Cf. American Trucking
Ass’n, Inc. v. Atchison T. & S.F. Ry. Co., 387 US.
397 (1967)... .™
62 The Commission so found, (J.A. 1084; Supp. App. at SA-25)
and the court of appeals agreed (INGAA App. 35a-39a).
68 INGAA App. 35a-39a.
INGAA App. 37a.
14
II. The Optional Expedited Certificate Procedure Estab-
lished By The Commission’s Orders Represents A Valid
Exercise Of The Commission’s Authority And Contains
Provisions Which Are Not Ripe For Review.
A. The Optional Expedited Certificate Procedure’s
Substantive Provisions Are Within The Commis-
sion’s Discretionary Authority And Will Not Inter-
fere With State Jurisdiction.
Southern California Gas Company (“SoCal’’) seeks re-
view of the Optional Expedited Certificate Procedure
(“OECP”) on grounds that, in adopting the “rebuttable
presumption” comprising the heart of the rule, the Com-
mission abdicated its responsibilities under the NGA,
neglected to consider the risk of duplicative or wasteful
facilities, and failed to adequately consider the potentially
adverse impact which “LDC bypass” “ may inflict on
the local distribution companies’ customers. To the con-
trary, however, both the Commission, in Order Nos. 436
and 436-A, and the court of appeals fully considered all
relevant factors and determined that the provisions of
the OECP minimized any potentially adverse impact
while adequately discharging the Commission’s statutory
responsibilities. Recognizing Congress’ primary objective
in enacting the NGA’s certificate requirement is to avoid
ratepayer subsidization of duplicative or economically
wasteful projects and decisions, the Commission struc-
tured the OECP so as to guard against “risk-shifting”
to pipeline customers and the public. Additionally, the
Commission designed the OECP so that, once an applicant
has initially met prima facie criteria showing that it will
6 “LDC bypass” involves situations where an end-user secures
pipeline transportation of natural gas purchased directly from pro-
ducers and other gas merchants thereby bypassing the local dis-
tribution company servicing the area in which the end-user is
located. SoCal App. at C-108 (“SoCal App.” refers to the appendix
submitted with ‘he petition in No. 87-1091).
66 INGAA App. at 112a.
eo
15
assume the full economic risk of the venture, local dis-
tribution companies, customers and other affected parties
may, through a challenge to the applicant’s factual show-
ing raising relevant offsetting factors, prompt evaluation
of any potential impact on competition.” Finally, through
an economic and regulatory analysis of “LDC bypass”
and its pro-competitive effects, both the Commission and
the court of appeals concluded that any adverse impact
to local distribution companies or their customers is a
function of, and may be minimized by, the policies and
practices of state regulatory agencies.“ The Commis-
sion’s choice of procedures to discharge its responsibilities
under Section 7/c), resting on careful and reasoned
analysis, is within its discretion to make and cannot be
viewed as arbitrary and capricious.”
SoCal’s claims that the OECP creates a “regulatory
gap” and interferes with state jurisdiction likewise have
no merit. SoCal argues that, since the OECP fails to
allow a meaningful review of bypass applications, the
absence or uncertainty surrounding state regulation to
adequately handle bypass means that the OECP must
fail. These arguments, however, fail to discern the in-
terrelationship between federal and state authority and
ignore the fact that the OECP will continue to allow the
Commission and state regulatory agencies to continue to
act within their respective spheres of authority. Regard-
less of whether the Commission discharges NGA jurisdic-
tion through the traditional certificate process or the
OECP, the scope of the Commission’s authority remains
well defined and is intended to supplement state author-
87 SoCal App. at C-111, C-121 and D-77.
®8 SoCal App. at C-108, C-109, D-76, D-77; INGAA App. at
106a-107a.
*® Motor Vehicle Manufacturers Ass'n v. State Farm Mutual Auto-
mobile Insurance Co., 463 U.S. 29, 43 (1983), quoting Burlington
Truck Lines, Inc. v. United States; 371 U.S. 156, 168 (1962).
16
ity.” The court of appeals recognized this bright-line
delineation of authority in stating that the ‘(Commission
fulfills its mission under the [NGA] if it establishes con-
ditions by which gas arrives in the hands of consumers
or LDCs on terms that conform to the Act.” *' Viewed
in these terms, the OECP neither expands nor restricts
the scope of complementing state authority to regulate
the “LDC bypass.”
B. The Optional Expedited Certificate Procedural Pro-
visions Are Not Ripe For Review.
In contrast to issues concerning. the Commission’s
authority to adopt the OECP, the court of appeals cor-
rectly determined that SoCal’s complaints as to the proce-
dural aspects of the rule are not sufficiently ripe for
review.” In addition to directly challenging the Commis-
sion’s authority to streamline the traditional certificate
process, SoCal attempts to raise a number of attacks on
the procedural aspects of the OECP’s presumption provi-
sions which the court of appeals characterized as “highly
abstract and speculative.” Review by this Court at
this time is premature at best and should be deferred
pending a final formulation of the Commission’s optional
certificate regulations.
It is clear that SoCal’s complaints concerning the pro-
cedural provisions of the OECP are only theoretical and
70 FPC v. East Ohio Gas Co., 338 U.S. 464 (1950). See H.R. Rep.
No. 709, 75th Cong., Ist Sess. 2 (1937).
T1INGAA App. at 108a. Whether and the extent to which states
may regulate “LDC bypass” or interstate gas sales to end-users is a
separate question which has no direct bearing on the scope of the
Commission’s NGA-based authority over pipeline transportation.
See, e.g., Panhandle Eastern Pipe Line Co. v. Michigan Public Serv-
ice Commission, 341 U.S. 329 (1951); Panhandle Eastern Pipe Line
Co. v. Public Service Commission of Indiana, 332 U.S. 507 (1947).
72 INGAA App. at 97a-102a.
73 INGAA App. 100a-101a.
17
speculative at this juncture. Thus, review by the Court
would result in a premature adjudication in the nature
of an advisory opinion.“ As the court of appeals ac-
knowledged below, the procedural issues raised by SoCal
has not yet been addressed by the Commission or the
courts in a specific factual context.** Since these issues,
including specifically the effect of the “rebuttable pre-
sumption,” can be contested and reviewed in specific pro-
ceedings before the Commission, the OECP in its present
form does not present issues which are fit for judicial
decision and no hardship to SoCal can result from with-
holding a generic and abstract consideration of the OECP
at this time.
CONCLUSION
The Petitions for Certiorari in Nos. 87-976, 87-977,
87-979 and 87-1091 should be denied.
Respectfully submitted,
THOMAS G. JOHNSON *
Attorney for
SHELL OFFSHORE INC.
SHELL WESTERN E&P INc.
One Shell Plaza
P.O. Box 2463
Houston, Texas 77252
(713) 241-4742
* Counsel of Record
™ Abbott Laboratories v. Gardner, 387 U.S. 136 (1967).
™ INGAA App. at 100a-101a.
AND ON BEHALF OF:
AMOCO PRODUCTION COMPANY
WILLIAM T. BENHAM
P.O. Box 5910-A
Chicago, Illinois 60680
(312) 856-7941
APACHE CORPORATION
CHARLES H. BROWNMAN
One United Bank Center
Suite 1900
1700 Lincoln Street
Denver, Colorado 80203-4519
(303) 837-5074
ARCO OIL AND GAS COMPANY
A Division of Atlantic
Richfield Company
HARRIS S. Woop *
NORMA J. ROSNER
P.O. Box 2819
Dallas, Texas 75221
(214) 880-4869
CHEVRON U.S.A. INC.
GERALD P. THURMOND
575 Market Street
San Francisco, California 94105
(415) 894-1717
Of Counsel
DAVID J. EVANS *
JAMES B. ATKIN
PILLSBURY, MADISON & SUTRO
Suite 1100
1667 K Street, N.W.
Washington, D.C. 20006
(202) 463-2366
CITIES SERVICE OIL AND GAS
CORPORATION
MICHAEL L. PATE
P.O. Box 300
Tulsa, Oklahoma 74102
(918) 561-4541
KERR-MCGEE CORPORATION
JOHNNY J. AKINS
P.O. Box 25861
Oklahoma City, Oklahoma 73125
(405) 270-2864
* Counsel of Record
18
MARATHON Or COMPANY
GEORGE H. ROTHSCHILD, JR.
ROBERT C. MURRAY
P.O. Box 3128
Houston, Texas 77253
(713) 629-6600
Of Counsel
JON L. BRUNENKANT *
GROVE, JASKIEWICZ, GILLIAM
AND COBERT
1730 M Street
Washington, D.C. 20036
(202) 296-2900
MAXUS ENERGY CORPORATION
DIAMOND SHAMROCK OFFSHORE
PARTNERS LIMITED
PARTNERSHIP
R. BRENT HARSHMAN *
RONALD J. NELSON
LTV Center—Suite 1400
2001 Ross Avenue
Dallas, Texas 75201-2916
(214) 979-5027
MOBIL OIL CORPORATION
MosiL Om EXPLORATION &
PRODUCING SOUTHEAST INC.
MOBIL PRODUCING TEXAS &
NEW MEXxico INc.
MOBIL EXPLORATION AND
PRODUCING NORTH AMERICA
INC.
JAY G. MARTIN *
THOMAS GEORGE WAGNER
Nine Greenway Plaza—
Suite 2700
Houston, Texas 77046
(713) 235-1443
PENNZOIL COMPANY
JOHN B. CHAPMAN *
KATHLEEN E. MAGRUDER
P.O. Box 2967
Houston, Texas 77252
(713) 546-8859
Of Counsel
JOHN K. MCDONALD
CHARLES E. SUFFLING
BUTLER & BINION
1747 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
(202) 466-6900
PHILLIPS PETROLEUM COMPANY
PHILLIPS 66 NATURAL GAS
COMPANY
LARRY PAIN *
1258 Adams Building
Bartlesville, Oklahoma 74004
(918) 661-6355
ROSEWOOD RESOURCES, INC.
LESLIE J. BURTON *
JOHN J. WOLFE
200 Crescent Court
Suite 300
Dallas, Texas 75201
(214) 871-5527
SuN EXPLORATION AND
PRODUCTION COMPANY
CHARLES L. SPANN *
P.O. Box 2880
Dallas, Texas 75221-2880
(214) 890-5607
* Counsel uf Record
February, 1988
TEXACO INC.
RALPH J. PEARSON, JR.*
JAMES D. HURLEY
P.O. Box 52332
Houston, Texas 77052
(713) 650-4297
UNION OIL COMPANY OF
CALIFORNIA
KENNETH L.. RIEDMAN
Union Oil Center—Room 1120
P.O. Box 7600
Los Angeles, California 90051
(213) 977-6282
UNION PACIFIC RESOURCES
COMPANY
KERRY R. BRITTAIN *
ALAN W. TOMME
Mail Station No. 4010
P.O. Box 7
Fort Worth, Texas 76101-0007
(817) 877-7540
UNION TEXAS PETROLEUM
CORPORATION
F. NAN WAGONER
P.O. Box 2120
Houston, Texas 77252-2120
(713) 968-2856
SUPPLEMENTAL
APPENDIX
SA-1
SUPPLEMENTAL APPENDIX
EXCERPTS FROM ORDER NO 436
[JA 305]
J * . *
An interstate pipeline, however, seeking to sell gas
from its system supply (a commingled stream of gas that
was at the wellhead both NGA-jurisdictional and NGA-
non-jurisdictional) is subject to the full panoply of statu-
tory regulation governing market entry, market exit and
price. As a result, even for already certificated sales to
existing customers, it may change its rates only upon
30 days advance notice. It must supply extensive docu-
mentation detailing each and every source of natural gas
supply, including an identification of the seller, the loca-
tion, and the price. If it seeks to provide a new service
to an existing customer, it must file for and obtain a
section 7(c) certificate authorizing the new service. Any
party opposing the new market entry has a right to ex-
plore genuine issues of material fact in a contested, trial-
type hearing.
The rationale for maintaining utility-type market
entry, exit, and price regulation over the sales for resale
of interstate pipelines while removing that regulation for
similar sales by other market entities is only implicit in
the NGPA but appears plain enough: While Congress
concluded that gas production was [JA 306] sufficiently
competitive to remove regulation, the control which in-
terstate pipelines exercised over transportation still con-
ferred on them the same kind of market power over
their customers as had existed at the time of enactment
of the NGA.”
If customers had access to transportation for gas which
they purchase directly in the competitive, commodity
market, the pipeline would find itself at a serious competi-
tive disadvantage in marketing gas in competition with
SA-2
producers and other entities because the regulatory rules
as to market entry, exit and price would deprive it of
the flexibility to meet the competition. We have already
seen a good deal of that with the development of the spot
market, the resulting decline in pipeline sales and in-
creased use of transportation. And with the advent of
repeated out-of-cycle PGA filings, we have seen what may
be the beginnings of a virtual “posted price” approach to
gas at the resale end where pipelines compete against
other pipelines.”
Yet a pipeline that accepts the open access condition
tendered in the final rule will have agreed to provide its
customers with that access, thereby accelerating the
process. This would thus require those pipelines that wish
to remain merchants to seek greatly increased pricing
flexibility.
* . * .
[JA 318]
5. The pipelines have generally expressed a reluctance
to provide these transportation services on a non-
discriminatory basis to their existing sales cus-
tomers ** or to customers without immedia‘e fuel-
switching capability, such as residential and com-
mercial consumers.”
a. With respect to incremental volumes (i.e., gas
that would not displace a sale by the pipeline
itself from its own contracted-for supply), pipe-
lines generally do not have adequate incentives
to provide this service as long as the pipeline’s
rate structure requires the crediting to the pipe-
line’s sales customers of essentially all revenues
received from the transportation. The regula-
tions allowed the pipeline to elect an option pur-
suant to which costs would be allocated to the
transportation service (allowing retention of the
revenues), but until fairly recently most major
pipelines had not elected that option.” Moreover,
SA-3
the pipelines have been under no legal obligation
to elect the revenue retention option. Once pipe-
lines began to design their rates to allocate costs
to the transportation service, thereby obtaining
the right to retain revenue, the ratemaking
rationale for declining to transport incrementa!
volumes has diminished.
[JA 319]
b. With regard to volumes of gas that would dis-
place a sale by the pipeline from its own con-
tracted-for supply, the situation has been some-
what more complex.
(i) Where the pipeline’s take-or-pay exposure
was so great that it believed that prepaid
gas would never be able to be “made up,”
the pipeline faced the possibility of forfeit-
ing the entire principal amount of the pre-
payment. Under these economic circum-
stances, even where the pipeline was able to
retain the revenues received from providing
transportation, the pipeline would still lose
money were it to transport gas that would
displace a unit of contracted-for gas. The
more gas it transported, the more money it
would lose. Under these circumstances the
pipeline’s reluctance to transport was at its
height. Accordingly, it is important to pro-
vide flexibility for pipelines and producers
to renegotiate these contracts, to review
“buy-outs,’”” “buy-downs” and to provide for
expedited treatment of limited term and
permanent producer abandonment and certi-
ficate requests.
[JA 320]
(ii) Where the pipeline’s take-or-pay exposure
was not so great as to confront it with the
hen
SA-4
prospect of forfeiting prepayments, the
question was more one of fixed cost alloca-
tion. If the pipeline had to finance the pre-
payments, who should bear the burden of
the carrying charges, the fixed costs asso-
ciated with the prepayment: the sales cus-
tomers, the transportation customers, the
producer (by not being paid in accordance
with the contract), or the pipeline’s share-
hoiders?
6. As a result of the pattern of contractual arrange-
ments developed by the industry during previous
eras of pipeline expansion® and supply curtail-
ment,” such as take-or-pay and minimum bill pro-
visions,** customers of pipelines have been allocated
a large part of the risk that gas supplies deregula-
lated by the NGPA might prove unmarketable over
the life of contracts signed by producers and pipe-
lines.
In turn, the Commission’s administration of its
ratemaking and certificate obligations under the
NGA ™ has impeded the ability of natural gas con-
sumers to secure the rewards of competition in nat-
ural gas markets commensurate with the risks
[JA 321] that have been allocated to them by
pipelines and producers.
In particular, the Commission’s policy of full
rolled-in pricing of price-controlled and deregulated
gas supplies has frustrated the transmission of clear
and accurate price signals between the city-gate
and the wellhead,” and has permitted pipelines to
bid up new gas prices above market-clearing levels.”
The Commission’s policy of discouraging the flex-
ible entry and exit of new pipeline services from
natural gas markets is thwarting the expansion of
the interstate pipeline system in order to provide
SA-5
for changing end-uses of gas*’ and changing loca-
tions of new gas fields.**
7. Asa result, average delivered prices of gas are not
adjusting downwards in line with the decline in
field prices,” and this failure is causing unneces-
sarily high energy costs to consumers and a very
large loss to the American economy in jobs, produc-
tion, and net economic efficiency.’
* . * *
[JA 346]
2. Commission authority to prescribe the non-discrimi-
natory access condition.
a. Authority to impose on interstate transportation
by interstate pipelines.
The proposed rule provided that self-implementing
transportation authorizations under section 311 of the
NGPA and blanket transportation certificates issued un-
der section 7 of the NGA would be subject to an express
non-discriminatory access condition. The express condi-
tion provided that any interstate or intrastate pipeline
that provides any transportation service pursuant to such
authority or certificate shall provide such service for all
shippers willing to pay the applicable tariff rate on file
with the Commission for the service requested, without
discrimination in the quality of service provided, the
categories, prices, or volumes of natural gas transported,
customer classification, or discrimination of any kind.
[JA 347]
Comments
Some commenters misunderstood the non-discriminatory
access condition to require that all self-implementing
transportation requests, including patently unreasonable
requests, be accepted by transporters.®
SA-6
Commission Response
This was not the Commission’s intent. Therefore, the
non-discriminatery access condition has been revised in
the final rule to insert the word “undue” to track the
NGA statutory standard.” The final rule thus is intended
to prohibit undue discrimination, or preference, including
but not limited to undue discrimination or preference in
the quality of service; duration of service; categories,
prices, or volumes of gas transported (including as be-
tween affiliated and non-affiliated producers or shippers) ;
and customer classification (including whether or not
transportation would displace sales to an existing sales
customer of the transporting pipeline).
Moreover, the final rule expressly provides that a pipe-
line may impose reasonable operational conditions on any
request for self-implementing service. See sections 284.8
(ec) and 284.9(c). Such conditions are required to be
made a part of the pipeline’s tariff, however, and thus
will be subject to public scrutiny and Commission review.
Id.
Comments
Most of the commenters who address the non-
discriminatory access conditions support the Commission’s
proposal. Those in [JA 348] favor of the proposal in-
clude a quarter of the major interstate pipelines, nearly
half the intrastate pipelines, a majority of local distribu-
tion companies (LDCs) and virtually all industrial end-
users, producers and public entities. The majority of
interstate and intrastate pipelines oppose the proposal.*
Those in favor of the non-discriminatory access condi-
tion generally state that it is necessary in order to effec-
tuate the consumer protection and competition goals of
the NGA and NGPA. They assert that it is reasonable
in light of the increased demands for transportation of
lower-priced gas in natural gas markets, and that it
should be clearly stated and broadly applied in order to
os
SA-7
avoid evasion by pipelines on a case-by-case basis. They
conclude that the Commission has legal authority to
impose the condition.
The majority of commenters support the application of
the non-discriminatory access condition to pipelines that
choose to participate in the Commission’s self-
implementing transportation programs. They generally
indicate the view that the Commission has sufficient
authority to implement the non-discriminatory access con-
dition under both NGA section 7(e), which grants the
Commission authority to attach reasonable conditions to
certificates, and NGA sections 4(b) and 5(a), which
prohibit undue discrimination or preference in rates,
charges, or practices.®
Amony the cases cited in support of the Commission’s
authority under the NGA to impose the non-discriminatory
access condition [JA 349] are: Gulf Oil Corporation v.
FPC, 563 F.2d 588, 596-97 (3rd Cir. 1977) and Amer-
ican Trucking Association, Inc. v. Atcheson, Topeka, &
Sante Fe Railway Company, 387 U.S. 397 (1967). Proc-
ess Gas Consumers Group (PGC) also cites several cases
in which the courts have read NGA section 7 very
broadly to uphold certificate conditions imposed by the
Commission; Atlantic Refining Company v. PSC, 360 U.S.
378 (1959) ; Transcontinential Gas Pipeline Co. v. FERC,
589 F.2d 186, 190 (5th Cir. 1979), cert. denied, 445, U.S.
915 (1980) (eonditioning of- eertificates-to-ensure appro-
priate allocation of risk); and Alabama-Tennessee Nat-
ural Gas Co. v. FPC, 203 F.2d 494 (8rd Cir. 1953)
(imposition of rate conditions).
The main argument of the commenters that oppose the
non-discriminatory access provision is that the condition
would, in effect, subject interstate and intrastate pipe-
lines to regulation as common carriers.’° According to
these commenters, while participation in the _ self-
implementing program may be. voluntary, participation
SA-8
for all practical purposes is mandatory because pipelines
will be forced by economic and competitive necessity to
participate in the program in order to remain financially
viable. Others argue that the non-discriminatory access
provision could have the effect of imposing increased costs
on customers, such as take-or-pay costs when transporta-
tion displaces sales.™
Furthermore, these commenters argue that the Com-
mission does not have legal authority to apply the condi-
tion to either certificates issued under section 7 of the
NGA or self-implementing transportation authorized
under section 311 of the NGPA.
[JA 350]
Several of the commenters point to the legislative his-
tory of the NGA in support of their view that the Com-
mission is abusing its section 7 conditioning authority in
attempting to do indirectly that which Congress has ex-
pressly declined to give the Commission authority to do
directly, i.e., make pipelines common carriers.’* These
commenters point to the express omission of common car-
rier authority in the legislative history of both the NGA
and NGPA, as well as several legislative proposals to
impose non-discriminatory access or express common car-
rier requirements on natural gas pipelines which have
been introduced in Congress but not enacted since enact-
ment of the NGA.”
For example, Panhandle Eastern Pipe Line notes that
there has been but one exception to what it perceives as
Congress’ long-standing reluctance to legislate common
carriage by natural gas pipelines. That exception is the
requirement in the Outer Continental Shelf Lands Act of
1978, 42 U.S. §§ 13834(e) and (f), that natural gas
pipelines to which the Secretary of the Interior has
granted authority to transport Outer Continental Shelf
(OCS) gas must provide transportation on a _ non-
discriminatory basis. Panhandle reasons that the absence
SA-9
of a similar provision in the NGA and NGPA demon-
strates that Congress concluded that the Commission
should not have the authority to require that pipelines
authorized to transport natural gas under those Acts do
so in a non-discriminatory manner.
“TIA 351]
Intrastate pipelines and their state regulatory bodies
assert that the access condition is an unsupportable at-
tempt to pre-empt state regulation of intrastate activi-
ies."
Commission Response
In considering those comments that suggest the
Commission lacks legal authority to apply the non-
discriminatory access condition to interstate transporta-
tion under the NGA the Commission has reviewed the
requirements of the NGA, including legislative history
and relevant case law.
Section 7(e) of the NGA states, in pertinent part,
that:
The Commission shall have the power to attach to
the issuance of the certificate and to the exercise of
the rights granted thereunder such reasonable terms
and conditions as the public convenience and neces-
sity may require.
According to the Supreme Court:
The Act was so framed as to afford consumers a
complete, permanent and effective bond of protection
from excessive rates and charges...
. . . In view of this framework in which the Com-
mission is authorized and directed to act, the initial
certification of a proposal under §7(e) of the Act as
being required by the public convenience and neces-
sity becomes crucial. This is true because the delay
SA-10
incident to determination in § 5 proceedings through
which initial certificated rates are reviewable ap-
pears nigh interminable.”
Thus, the Commission’s certificate and conditioning
authority is the means by which it effectuates the pur-
pose of the NGA to underwrite just and reasonable rates
to the consumers of natural gas.’® Any attack on a con-
dition in a certificate issued by the Commission must
confront the well-established principle that [JA 352]
generally the Commission has extremely broad au-
thority to condition certificates of public convenience and
necessity.
This broad conditioning authority must be examined
in the context of Congress’ consideration of the NGA it-
self. It is abundantly clear from the history of the Act
and from the events that prompted its adoption that Con-
gress considered the natural gas industry to be heavily
concentrated and that monopolistic forces were deter-
mining the amount of natural gas that could be marketed
by fixing the amount that could be transported."
Thus, section 7(e) of the NGA gives the Commission
the power to attach conditions to certificates where re-
quired by the public convenience and necessity.
Beyond section 7, however, sections 4 and 5 of the
NGA also prohibit unduly discriminatory or preferential
practices by natural gas companies. The Commission has
determined that the practice of restricting access to
transportation is unduly discriminatory and preferential;
and, importantly, has prevented consumers from obtain-
ing the lowest reasonable rates for both transmission
services and gas costs. Therefore, the Commission intends
the final rule to be an exercise of its conditioning au-
thority to effectuate the non-discrimination requirements
of the Act and to ensure that consumers will obtain gas
and transportation at just and reasonable rates.
SA-11
Given the breadth of our section 7 conditioning au-
thority and our obligation under sections 4 and 5, we
must\ask whether the proposed non-discriminatory access
condition is so broad as [JA 353] to impose, either di-
rectly or indirectly, common carrier obligations on pipe-
lines in violation of the NGA.
Notwithstanding the basis of the condition in sections
4, 5 and 7 of the NGA, several commenters have asserted
that Congress failed to enact amendments to the NGA
which would have imposed mandatory transportation re-
quirements on natural gas pipelines, and therefore the
NGA by implication does not authorize the Commission
to impose common carrier status on pipelines."*
Of key interest to the Commission in its review of the
legislative history are sections 303 and 304 of Title III
of H.R. 5423 introduced in 1935 by Representative Sam
Rayburn, Chairman of the House Committee on Inter-
state and Foreign Commerce.”
Sections 303 and 304 of H.R. 5423 provided in perti-
nent part (emphasis added) :
Section 303(a). It shall be the duty of every dis-
tributor to furnish natural gas, to exchange natural
gas with, and transmit natural gas for any person
upon reasonable request therefor; and to furnish and
maintain such services and facilities as shall pro-
mote the safety, comfort and conveniences of all its
customers, employees, and the public, and shall be
in all respects adequate, efficient and reasonable...
Section 304. Whenever the Commission after no-
tice and opportunity for hearing finds such action
necessary or desirable in the public interest, it may
by order direct a distributor to make additions, ex-
tensions, repairs, or improvements to or changes in
its facilities, to establish physical connection with
the facilities of one or more persons, to permit those
SA-12
of its facilities by one or more persons, or utilize the
facilities of, sell natural gas to, purchase natural
gas from, transmit natural gas for, or exchange
natural gas with one or more other persons...
[T]he [JA 354] Commission may prescribe the
terms and conditions of the arrangement to be made
between such persons, including the apportionment
of reimbursement reasonably due to any of them.”
If these sections would have imposed common carrier
obligations on natural gas ;ipelines, and therefore were
rejected by Congress, a principal attribute of common
carrier status must be its mandatory nature. Thus, sec-
tion 303 would have imposed an affirmative “duty” on
pipelines to “transmit” natural gas “for any person.”
Section 304 would have provided the Commission with
the concomitant authority to “by order direct” any pipe-
line to “transmit natural gas for . . . one or more other
persons....”
Sections 303 and 304 must be read in the context of
sections 4(b) and 5(a) of the NGA as enacted. In con-
trast to proposed section 303’s affirmative duty, section
4(b) flatly prohibits “any undue preference or advan-
tage” and “any reasonable difference” in service or as
between classes of service. In contrast to proposed section
304’s discretion to order transportation, section 5(a)
contains no express authority to order transportation.
Instead, section 5 permits the Commission to find that
“any rule, regulation, practice or contract” affecting
transportation rates, charges or classifications is “. .
unduly discriminatory, or preferential” and thereafter
fix prospectively by order the “just and reasonable .. .
rule, regulation, practice or contract” to be observed.
On the one hand, sections 303 and 304 would have im-
posed an affirmative duty on pipelines to transport for
others and backed [JA 355] up that duty with discre-
tionary authority on the part of the Commission to order
such transportation.
SA-13
On the other hand, sections 4, 5, and 7 of the NGA
attach non-discrimination obligations to the “practices”
of pipelines and back up those obligations with broad con-
ditioning authority on the part of the Commission. But
the Natural Gas Act does not expressly require pipelines
to transport for others as an affirmative duty.
We have considered whether the non-discriminatory
access condition in the final rule amounts to a “direction”
or a “mandate” to pipelines to transport for others as an
“affirmative duty.” First, the condition is just that: a
condition on the certification or authorization of certain
self-implementing transportation services which a pipe-
line may voluntarily choose to perform or not, strictly at
its own option. Thus, it does not “direct” or “mandate”
a pipeline to do anything. Second, the condition, even
when accepted by a pipeline as part of its self-
implementing transportation program, does not impose
any “affirmative duty” on a pipeline to transport. It
only requires that when a pipeline does choose to trans-
port on a self-implementing basis, it must provide those
transportation services in a non-discriminatory manner.
Nor does the condition cover all transportation services
and thus operate as mandatory in effect. A pipeline re-
mains free to seek authorization for other transportation
programs not covered by the condition and the Commis-
sion will review them on a case-by-case basis.
[JA 356]
In addition, the condition expressly applies, verbatim,
the statutory prohibitions on unduly discriminatory or
preferential practices, rates or charges imposed by Con-
gress when it enacted sections 4 and 5 of the NGA.”
The Commission need not decide in this rulemaking
whether it may ever order transportation on a manda-
tory basis. The Commission plainly has broad powers to
enforce the congressional directives and these powers are
at their height when the Commission is fashioning a
SA44
remedy for a violation of the statute or an existing
regulation. Niagara Mohawk Power Co. v. FPC, 379
F.2d 153, 159 (D.C. Cir. 1967). But while these powers
may be available in appropriate cases, there is no need
to test their scope here, where the regulatory obligations
are voluntarily assumed.” Further, the conditien only
applies with regard to each of the individual types of
transportation service offered and does not cover trans-
portation under existing individual section 7 certificates
or new individual section 7 certificates filed outside of
the optional expedited certificate procedure.
Judicial recognition of the Commission’s authority to
impose the non-discriminatory access condition has al-
ready been indicated in the companion cases Maryland
Peoples Counsel v. FERC, Nos. 84-1019 and 84-1090
(D.C. Cir. 1985). In those cases, the court vacated Co-
lumbia Transmission Company’s special marketing pro-
gram and the Commission’s rule allowing pipeline trans-
portation for certain industrial end-users. In both in-
stances, the court found the Commission had not justified
the programs to the extent they [JA 357] allowed pipe-
lines to transport gas to some customers without requir-
ing pipelines to furnish the same service to all customers
on non-discriminatory terms.
In its order on the blanket certificate program (No.
84-1090), the court noted, id, at n.19, that MPC’s plea
that blanket transportation certificates be conditioned on
non-discriminatory access accords with the recommenda-
tion of the Department of Energy: “To achieve the bene-
fits of a properly developed spot market for natural gas
. . . FERC should use its authority over natural gas
transportation to require pipeline companies to provide
carriage on a non-discriminatory basis whenever there is
idle pipeline capacity.” DOE Report, supra, p. 3, at 82.
The court further noted that the Commission does not
question that it has such authority, citing Tennessee Gas
Pipeline Co. v. FERC, 689 F.2d 212, 214-15 (D.C. Cir.
= SA-15
1982) ; Transcontinental Gas Pipe Line Corp. v. FERC,
589 F.2d 186, 190 (5th Cir. 1979) (invoking “the well-
established principle that generally the Commission has
extremely broad authority to condition certificates of pub-
lie convenience and necessity”), cert. denied, 445 U.S.
915 (1980).
Finally, we view section 311(c) of the NGPA as con-
ferring sufficient authority to require a comparable con-
dition under transactions authorized under that statute.
The effect of NGPA section 602(b) is discussed below.
[JA 358]
b. Authority to impose on interstate transporta-
tion by intrastate pipelines.
Comments
Intrastate pipelines and state regulatory commissions
cite the NGPA section 602(b) prohibition on common
carrier status for section 311 transporters as an ab-
solute ban on application of the non-discriminatory ac-
cess condition to their operations.“ They also state that
the condition is illegal under NGPA section 601(a) (2)
(A), which exempts transportation by intrastate pipe-
lines under section 311(a) of the NGPA from Commis-
sion jurisdiction for purposes of section 1(b) of the
NGA.*
These intrastate pipelines perceive the access condi-
tions as a back door through which the Commissicn may
intrude on their non-section 311, purely intrastate activi-
ties. They fear that the non-discriminatory access re-
quirements ultimately will result, if they agree on any
section 311 transportation, in more and more of their
capacity being obligated to section 311 transportation.
Consequently, they assert, the capacity available for
intrastate activities would diminish, threatening their
viability in the intrastate market. Further, the rate
charged by a pipeline in each. new section 311 trans-
SA-16
portation arrangement would be subject to regulation by
the Commission under the proposed rule. Therefore,
intrastate pipelines, as well as many state regulatory
agencies, view the non-discriminatory access condition as
an indirect but substantial threat by the Commission to
preempt state [JA 359] authority over intrastate pipe-
line activities. These commenters argue that the non-
discriminatory access provision, therefore, violates NGPA
sections 601(a) (2) (A) and 602(b).
Commission Response
The Commission has absolutely no intention of regulat-
ing intrastate transportaton of natural gas. Rather, the
intent of the proposed rule was simply that the same
non-discriminatory access condition should apply to all
transportation in interstate commerce, whether by an
entity subject to FERC jurisdiction under the NGA or
to other entities allowed by the Commission under the
NGPA to engage in such interstate commerce without
becoming subject to the NGA.
Several changes have been made in the final rule to
clarify this intent. First, there is no requirement that
intrastate pipelines under section 311 provide such trans-
portation service on a firm basis. See section 284.8
(a) (ii). Firm transportation is not prohibited, however.
In the event an intrastate pipeline offers firm transporta-
tion then section 284.8(b) requires that it provide “such”
service on a non-discriminatory basis.
Similarly, if an intrastate pipeline offers interruptible
interstate transportation (under section 284.(a) (ii)),
the only obligation is to provide “such” interruptible
service on a non-discriminatory basis. See section 284.9
(b).
Thus, the final rule completely avoids the situation
whereby an intrastate pipeline is required to offer firm
service for out-of-state shippers, thus, progressively
being turned into [JA 360] an interstate pipeline against
Ne EN ee
SA-17
its will and against the will of the responsible state au-
thorities.
With regard to the rate conditions of section 284.7, the
proposed rule would have required intrastate pipelines to
comply with the same conditions. The final rule makes it
clear that the rate conditions of section 284.7 apply only
to transportation under Subparts B, G and H and nox to
transportation by intrastate pipelines under Subpart C.
The final rule retains the pre-existing rules regarding
rates for Subpart C transportation. See section 284.123.
In essence, there have been no real concerns with trans-
portation by intrastate pipelines and therefore there is no
need to modify the current rules.
With regard to the comment that the non-discriminatory
access condition violates section 602(b), we note that the
NGPA does not define “common carrier.” Section 602(b)
has seant legislative history. The only mention of the
purpose of section 602(b) in the Conference Agreement
merely states that the House bill had provided that “the
intrastate pipeline would not have been subjected to regu-
lation as a common carrier... .”’* The Commission
notes that Congress did not directly authorize section 311
transportation but gave the Commission the discretion to
authorize such transportation under such terms and con-
ditions as the Commission might prescribe under sections
311(c) and 501(a) of the NGPA.”
[JA 361]
All the Commission is doing here is ensuring that where
a new entity enters into the field of offering interstate
transportation services, that it do so on a non-
discriminatory basis. We cannot accept the premise that
section 602(b) is a Congressional license to “intrastate
pipelines” to enter into the field of interstate commerce
on an avowedly discriminatory basis. Whatever else the
prohibition regarding “common carriage” status may do,
it does not sweep so broadly as to license unduly dis-
SA-18
criminatory rates or practices.27 The same conclusion
applies to interstate pipelines operating under section 311.
Further, it appears from the legislative history of the
NGPA that the Commission’s conditioning authority un-
der NGPA sections 31l(c) and 501(a) is coextensive
with the broad discretion granted to the Commission
under section 7(c) of the NGA.* Section 311(c) must
be read in light of the fundamental intention of the
NGPA to facilitate the movement of gas between the
intrastate and interstate markets following a period of
severe curtailment of interstate supplies coincident with
ample intrastate supplies.”
Hence, the Commission has determined that the non-
discriminatory access condition does not violate section
602(b).
The Commission emphasizes that it fully respects the
bounds of its jurisdiction under section 1(b) of the NGA
as reaffirmed by section 601(a)(2)(A) of the NGPA.
The Commission does not intend that any aspect of the
final rule intrude in any way whatsoever on the sound
discretion of the states to regulate strictly [JA 362] in-
trastate transactions in the public interest. Nor does the
Commission intend the final rule in any way whatsoever
to impair the ability of intrastate pipelines to provide
reliable service to their intrastate customers.
3. The reasonableness of the non-discriminatory access
condition.
Comments
Some commenters complain that the non-discriminatory
access condition is unreasonable, and therefore not author-
ized under law or otherwise appropriate, because it would
interfere with pipelines’ ability to make necessary and
appropriate business decisions such as choosing a product/
market mix of transportation and sales services, or declin-
ing to provide transportation services that would impair
SA-19
their ability to meet their obligations to existing sales
customers.” Intrastate pipelines state that the non-
discriminatory access condition could potentially affect
their ability to provide services in the intrastate market.
Several commenters suggest that the harm to the reliabil-
ity of existing services to pipeline customers would out-
weigh the benefits of the non-discriminatory access con-
dition to new transportation customers.*
Some industrial end-users state that the imposition of
the non-discriminatory_access requirement on intrastate
pipelines is unreasonable because most state agencies al-
ready have authority with respect to intrastate pipelines
to accomplish the Commission’s goal in proposing the
condition. These commenters point to New [JA 363]
Mexico and other states that have enacted or are con-
sidering statutes that require non-discriminatory gas
transportation.
One industrial end-user, Air Products, argues that the
Commission’s proposal to apply the non-discriminatory
access provision to intrastate pipelines would diminish the
interstate-intrastate pipeline integration achieved since
enactment of the NGPA. Lack of system integration
would hinder the ability of interstate pipelines and their
customers to gain access to reserves connected to intra-
state pipelines. According to Air Products, the undesir-
able effects would result because intrastate pipelines would
rather forego NGPA section 311 transportation altogether
than expose all of their intrastate operations to possible
Commission jurisdiction.
Other commenters, such as Oklahoma Natural Gas Com-
pany, suggest that the Commission revise the proposals to
specifically limit application of the non-discrimination and
firm transportation requirements to an intrastate pipe-
line’s excess capacity in order to reassure intrastate pipe-
lines and state regulatory agencies that the Commission
will not intrude on local activities beyond its jurisdiction,
SA-20
On the other hand, commenters supporting the non-
discriminatory access condition assert that the condition
is reasonable and absolutely necessary in order to ensure
access, by pipeline customers and other shippers, to com-
petitively priced gas supplies at the wellhead. They point
to the proliferation of individual pipeline transportation
programs and the expanded flexibility of [JA 364] the
program proposed by the rule as direct benefits to pipe-
lines which agree to the non-discriminatory access con-
dition. Finally, they point to the history of pipeline gas
purchasing practices over the last 30 years as justifica-
tion for requiring pipelines who transport for others to
do so on a non-discriminatory basis for all consumers.*”
Commission Response
With regard to- intrastate pipelines, we repeat what
was stated above: intrastate pipelines are under no re-
quirement to offer firm service under Subpart C, and the
non-discriminatory access condition will apply only to the
intrastate pipeline which provides “such” interruptible
or firm service. Thus, where an intrastate pipeline offers
only interruptible services, the access condition can in no
way adversely affect its ability to provide firm service to
intrastate customers.
With regard to interstate pipelines, the condition is
also reasonable. First, the actual condition is voluntary.
There is no requirement under the statutes or the rules
that an interstate pipeline provide transportation under
the self-implementing regulations. Moreover, the condi-
tion imposes, verbatim, the statutory ban against undue
discrimination. The access condition, therefore, must be
included in certificates and self-implementing transporta-
tion agreements in order to assure that gas supplies and
transmission services are provided as broadly as possible
in response to new demands from consumers and new
competition in gas markets.
* * * *
SA-21
EXCERPTS FROM ORDER NO. 436-A
[JA 1079]
The Commission considered most of the arguments
raised by the applicants which suggest that the Commis-
sion lacks legal authority to apply the non-discriminatory
access condition to interstate transportation under the
NGA prior to issuing Order No. 436. Further, the Com-
mission reviewed the requirements of the NGA, the leg-
islative history of the NGA, and relevant case law.
Section 7(e) of the NGA, which was added as an
amendment to the act in 1942, states, in pertinent part,
that:
The Commission shall have the power to attach to
the issuance of the certificate and to the exercise
of the rights granted thereunder such reasonable
terms and conditions as the public convenience and
necessity may require.
According to the Supreme Court:
The Act was so framed as to afford consumers
a complete, permanent and effective bond of protec-
tion from excessive rates and charges...
. .. In view of this framework in which the Com-
mission is authorized and directed to act, the initial
certification of a proposal under § 7(e) of the Act
as being required by the public convenience and
necessity becomes crucial. This is true because the
delay incident to determination in § 5 proceedings
through which initial certificated rates are review-
able appears nigh interminable.”
Thus, as stated by the Commission in Order No. 436
(at Section IV.A.), the Commission’s certificate and con-
30 Atlantic Refining Co. v. Public Service Commission of New
York, 360 U.S. 378, 388-89 (1959) (CATCO).
SA-22
ditioning authority is the means by which it effectuates
the purpose of the [JA 1080] NGA to underwrite just
and reasonable rates to the consumers of natural gas.**
Any attack on a condition in a certificate issued by the
Commission must confront the well-established principle
that generally the Commission has extremely broad au-
thority to condition certificates of public convenience and
necessity.
While determined to use the full breadth of its section
7 conditioning authority to end discriminatory transpor-
tation practices and thereby fulfill its obligation under
sections 4 and 5, the Commission recognized that its ac-
tions could neither directly nor indirectly impose common
carrier obligations on pipelines in violation of the NGA.*
31 Jd. at 389.
32 An important factor in the Commission’s determination that
it does not have the authority to mandate common carriage was the
legislative history of sections 303 and 304 of Title III of H.R. 5423
which was introduced on February 6, 1935, (74th Congress Ist
Session) by Representative Sam Rayburn, Chairman of the House
Committee on Interstate and Foreign Commerce.
Sections 303 and 304 of H.R. 5423 provided in pertinent part
(emphasis added) :
Section 303(a). It shall be the duty of every distributor to
furnish natural gas, to exchange natural gas with, and transmit
natural gas for any person upon reasonable request therefor;
and to furnish and maintain such services and facilities as shall
promote the customers, employees, and the public, and shall be
in all respects adequate, efficient and reasonable . . .
Section 304. Whenever the Commission after notice and op-
portunity for hearing finds such action necessary or desirable
in the public interest, it may by order direct a distributor to
make additions, extensions, repairs, or improvements to or
changes in its facilities, to establish physical connection with
the facilities of one or more persons, to permit use of its facili-
ties by one or more persons, or utilize the facilities of, sell
natural gas to, purchase natural gas from, transmit natural gas
for, or exchange natural gas with one or more other persons ...
... [T]he Commission may prescribe the terms and conditions
SA-23 &
Further, the condition only applies with regard to each
of the individual types of Order No. 436 transportation
service offered. Therefore, for example, an interstate
pipeline may transport under the Part 284, Subpart G
blanket certificate program without becoming subject, by
reason of such blanket certificate transportation, to an
obligation to provide service under Subpart B of Part
284 and [JA 1081] vice versa. Further, the non-discrim-
inatory access provisions of §§ 284.8(b) and 284.9(b)
per se do not cover transportation under existing in-
dividual section 7 certificates or new individual section
7 certificates filed outside of the optional expedited cer-
tificate procedure.
The Commission agrees with those petitioners that state
that the court’s mandate in Maryland People’s Counsel v.
FERC, 761 F.2d 768 and 768 F.2d 780 (D.C. Cir. 1985),
was not intended to require that the Commission adopt
mandatory carriage regulations. In any event, the
Court’s mandate clearly did judicially recognize all that
is necessary for present purposes, that is the Commission
[JA 1082] has the authority to impose non-discrimina-
tory access conditions on pipeline transportation.*
of the arrangement to be made between such persons, includ-
ing the apportionment of reimbursement reasonably due to any
of them.
Section 303 and 304 must be read in the context of sections 4(b)
and 5(a) of the NGA as enacted. In contrast to the affirmative
duty of unenacted section 303 of H.R. 4523, section 4(b) of the
NGA flatly prohibits “any undue preference or advantage” and
“any reasonable difference” in service or as between classes of serv-
ice. In contrast to the discretionary proposed authority in unenacted
section 304 of H.R. 5423 to order transportation, section 5(a) of
the NGA contains no express authority to order transportation.
Instead, section 5 limits the Commission to fixing prospectively by
order the “just and reasonable . . . rule, regulation, practice or
contract” to be observed.
83 Tn its order on the blanket certificate program (No. 84-1090),
the court noted (761 F.2d at 789 n.19) that MPC’s plea that blanket
transportation certificates be conditioned on non-discriminatory
SA-24
The Commission determined that the non-discriminatory
access conditions in Order No. 436 did not amount to a
“direction” or a “mandate” to pipelines to transport for
others as an “affirmative [JA 1083] duty” because the
condition is only a condition. As it stated in the order:
“a condition on the certification or authorization of cer-
tain self-implementing transportation services which a
pipeline may voluntarily choose to perform or not, strictly
at its own option.” Thus, Order No. 436 does not “di-
rect” or ‘mandate” a pineline to do anything. Further,
the non-discriminatory access condition, even when ac-
cepted by a pipeline as part of its self-implementing
transportation program, does not impose any “affirmative
duty” on a pipeline to transport. It only requires that
when a pipeline does choose to transport on a self-imple-
menting basis, it must provide those transportation serv-
ices in a non-discriminatory manner. Nor does the con-
dition cover all transportation services and thus operate
as mandatory in effect. A pipeline remains free to seek
authorization for other transportation not covered by the
condition and the Commission will review them on a
case-by-case basis.**
access accords with the recommendation of the Department of
Energy: “To achieve the benefits of a properly developed spot
market for natural gas . . . FERC should use its authority over
natural gas transportation to require pipeline companies to provide
carriage on a non-discriminatory basis whenever there is idle pipe-
line capacity.” Second DOE Section 123 Report at p. 82. The court
further noted that the Commission does not question that it has such
authority, citing Tennessee Gas Pipeline Co. v. FERC, 680 F.2d
212, 214-15 (D.C. Cir. 1982); Transcontinental Gas Pipeline Corp.
v. FERC, 589 F.2d 186, 190 (5th Cir. 1979) (invoking “the well-
established principle that generally the Corimmission has extremely
broad authority to condition certificates of publie convenience and
necessity”), cert. denied, 445 U.S. 915 (1980).
34 Several petitioners argue that Order No. 436 is similar to
regulatory programs rejected by the courts in Moss v. CAB, 430
F.2d 891 (D.C. Cir. 1970) and Consolidated Edison Company of
New York v. FPC, 511 F.2d 372, 377 (D.C. Cir. 1974). The Com-
SA-25
[JA 1084]
Furthermore, the Commission is not dissuaded by the
comparisons made by several petitioners including, e.g.,
NGPL (at pp. 12, 28) and City of Willcox, Arizona (at
p. 35), between Order No. 436 and the legislative pro-
posals to mandate common-carriage transportation that
have been considered, but not enacted by Congress over
the years. Nor does the Commission believe that Order
No. 436 is inconsistent with section 602(b) (2) of the
NGPA, which provides that no person shall be subject to
regulation as a common carrier by reason of any trans-
portation authorized under section 311(a) of the NGPA.
In the first place, the Commission notes that neither the
NGA nor the NGPA defines “common carrier.” Never-
theless, the provisions of Order No. 436 do not regulate
pipelines as common carriers, as that term is commonly
understood.™
mission does not believe these cases are germane in this instance.
In Moss the Civil Aeronautics Board failed to comply with the
public notice and hearing requirements of the Federal Aviation Act
in prescribing a fare formula for domestic airlines. Moreover, the
court found that the formula actually amounted to a prescription
of rates, because the Board admitted that the pressures on carriers
to file conforming rates was “great if not irresistable.” In a similar
vein, the court held in Consolidated Edison that if end-use curtail-
ment plans were not filed voluntarily by pipelines but were the re-
sult of coercion by the Federal Power Commission the plans would
be invalid, because the Commission could not impose a change on an
existing tariff without complying with section 5 of the Natural Gas
Act.
Neither of these cases applies to the circumstances of Order No.
436. In the first place, Order No. 436 was issued in compliance
with applicable rulemaking procedures, which involved extensive
-ublic participation. Moreover, as the Commission has already
explained, the self-implementing transportation program is volun-
tary and indeed alternative authority is fully available under tra-
ditional Natural Gas Act procedures.
35 Since Order No. 436 does not have the effect of imposing
common carriage status on contract carriers, cases cited for the
SA-26
[JA 1085]
For instance, even though Order No. 436 requires, as
the cited legislative proposals would have required, non-
discriminatory access, the all-important distinction is
that Order No. 436 allows a pipeline the option of ap-
plying to provide transportation services under individ-
ual NGA section 7 certificates. Order No. 436 also gives
a pipeline that has opted for self-implementing transpor-
tation the opportunity to cease such-transportation and
resume its status as a merchant. None of the mandatory
common-carriage proposals considered heretofore by Con-
gress have included any equivalent option. While a
transportation application under the regular NGA sec-
tion 7 procedures is open to challenge on the grounds that
approval of the application would result in undue dis-
crimination, only the individual transportation arrange-
ment covered by the pipeline’s applications is at issue in
a regular NGA section 7 certificate proceeding and,
therefore, denial of a certificate in that proceeding does
not prejudice certificate applications by the same pipeline
in other proceedings. This option, unlike the legislative
proposals for common-carriage, effectively allows a pipe-
line the discretion to determine whether or not to become
a transporter of gas. Further, while allegations of un-
duly discriminatory effects will be considered in regular
NGA section 7 transportation certificate proceedings, a
regular NGA certificate is not conditioned on a pipeline’s
providing transportation to all shippers requesting serv-
ice. For example, if the Commission should determine
that approval of a regular NGA section 7 transportation
certificate application would cause undue [JA 1086]
discrimination to another party, the discrimination could
~be cured by an amendment to the application as it affects
a particular additional shipper.
proposition that only Congress can impose that status (FCC v.
Midwest Video Corp., 440 U.S. 689, 702-09 (1978) and Florida
Power and Light Co. v. FERC, 660 F.2d 668 (5th Cir. 1981) are
not applicable.
:
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}
i
SA-27
The Commission cannot agree with those applicants
that insist that it is not unduly discriminatory for a
pipeline that transports gas to refuse to transport gas
that displaces the pipeline’s sales. This is precisely what
the court found objectionable in Maryland People’s
Counsel v. FERC, 761 F.2d 780 (D.C. Cir., 1985). Pipe-
lines that were willing to transport gas for their fuel-
switchable customers were not required to transport for
their captive sales customers that were incapable of
switching fuels.
2. Effects of Non-Discriminatory Access
a. On Order No. 319 Transactions
Certain of the applications for rehearing request that
the Commission amend the final rule to allow new trans-
actions to provide transportation for local distribution
companies and high-priority end users, previously au-
thorized under NGPA § 311 and Order Nos. 319 and 60,
to continue to be made without requiring interstate pipe-
line companies to provide non-discriminatory access.
Philadelphia (passim), CIG (at pp. 25-28) and BUG
(at pp. 3-8) assert that the access condition is inconsist-
ent with the NGPA and is not required by the Maryland
People’s Counsel decisions of the D.C. Court of Appeals.
Huffco (at pp. 17-18) contends that certificates for the
transportation of gas to high-priority end users are re-
quired to be issued by section 7(c) (2) of the NGA.
[JA 1087]
Existing transportation for high-priority end users
that had been authorized under § 157.209(a) of the regu-
lations has been permitted to continue for the term of
the transportation arrangement, subject to the terms and
conditions existing at the time it was authorized. See
§ 284.223(g). New high-priority end-user transportation,
section 311 transportation for intrastate pipelines and
local distribution companies, transportation for end users
SA-28
under § 157.209(e), and transportation for interstate
pipelines, are subject to the express requirement that the
transporting pipeline provide non-discriminatory access
for all shippers and the various other requirements of
§ 284.7 et seg. The Commission has determined that the
practice of restricting access to transportation is unduly
discriminatory and preferential and has prevented con-
sumers from obtaining the lowest reasonable rates for
both gas and transmission. With that determination, and
in view of the many other reasons expressed in the final
rule for requiring open access for future transportation,
it would be inconsistent with the whole rationale under-
lying the final rule (and, in the Commission’s view, with
the rationale underlying the Maryland People’s Counsel
cases as well) to permit new transactions to be initiated
for service without adherence to the requirements of the
final rule.
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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.