Opposition Brief — Interstate Natural Gas Ass'n of America v. Federal Energy Regulatory Commission

Nos. 87-976, 87-977,87-979

IN THE

Supreme Court of the United States

OCTOBER TERM, 1987

INTERSTATE NATURAL GAS ASSOCIATION OF AMERICA,

Petitioner,

Vv.

FEDERAL ENERGY REGULATORY COMMISSION,

Respondent.

TEXAS EASTERN TRANSMISSION CORPORATION,

Petitwner,

,

V.

FEDERAL ENERGY REGULATORY COMMISSION,

Respondent.

Crry OF WILLCOX, ARIZONA, and

ARIZONA ELECTRIC POWER COOPERATIVE, INC.,

Petitioner,

Vv.

FEDERAL ENERGY REGULATORY COMMISSION,

Respondent.

On Petitions for Writ of Certiorari to the United States

Court of Appeals for the District of Columbia Circuit

BRIEF IN OPPOSITION OF

RESPONDENT MARYLAND PEOPLE’S COUNSEL

THOMAS C. GORAK*

JOHN M. GLYNN

American Building, Ninth Floor

231 East Baltimore Street

Baltimore, Maryland 21202

(301) 333-6046

Counsel for Maryland People’s Counsel

March 16, 1988 * Counsel of Record

i

QUESTION PRESENTED

May the Federal Energy Regulatory Commission condi-

tion natural gas transportation services in order to prevent

undue discrimination and the abuse of monopoly power by

interstate natural gas pipeline companies.

ii

PARTIES TO THE PROCEEDING

The Maryland People’s Counsel adopts by reference the

list of the parties to the proceedings below as set forth at

pages (ii) through (v) of the Petition For Writ Of Certiorari

filed in Case No. 87-977 by Petitioner Texas Eastern Trans-

mission Corporation.

il

TABLE OF CONTENTS

Page

QUESTION PRESENTED .........0..cccceeees i

PARTIES TO THE PROCEEDING .............. ii

pe 8 ge ge 8. gy Vv

OPINIONS AND ORDERS BELOW ............. 3

EE nr 3

Gs 5 3

STATEMENT OF THE CASE .................. 3

SUMMARY OF ARGUMENT ................... 6

REASONS FOR DENYING THE WRIT .......... 8

A. The Commission May Condition Certificates

Authorizing Transportation Services So As To

Prevent Discriminatory And Anticompetitive

ST 8

B. Neither Order No. 436 Nor The Decision Below

Imposes Common Carrier Status On Pipelines . 12

1. Order No. 436 Does Not Compe! Pipelines

To Provide Transportation Services ....... 12

2. Order No. 436 Is Consistent With The

NGA’s Treatment “f The Common Carriage

De oy GR A ie en 13

3. Order No. 436 Is Consistent With The

NGPA’s Treatment Of The Common

SE Nea 15

iv

TABLE OF CONTENTS—Continued

4. Neither The Commission Nor the Court

Below Has Coerced The Choice To Offer

Transportation Services ................

C. There Is No Conflict Between The Decision Of

The Court Below And Decisions Of This Court

Ba CI | 5 ie 0K He ee

RAUU PRM oy cv bv lbvseseeduawices REE

Vv

TABLE OF AUTHORITIES

Page

JUDICIAL DECISIONS:

Atlantic Refining Co. v. Public Service

Commission, 360 U.S. 378 (1951).......... 8, 9, 23

C. Pappas Co. v. E. & J. Gallo Winery, 610

F. Supp. 662 (E.D. Cal. 1985), aff'd 801

eee a 19

Colautti v. Franklin, 489 U.S. 379 (1979) ..... 16

Central West Utility Co. v. Federal Power

_ Commassion, 247 F.2d 306 (8rd Cir. 1957) 21, 24

Ciwil Aeronautics Board v. Delta Air Lines,

Py EE Gr PE Fecha cadens. 8

Federal Communications Commission v.

Midwest Video Corp., 440 U.S. 689 (1979). .. 12

Florida Power & Light Co. v. Federal

Energy Regulatory Commission, 660 F.2d

688 (5th Cir. 1981), cert. denied, 459 U.S.

OE os Os hk a es a koe oo 21, 23

Frost v. Railroad Commission, 271 U.S. 583

hk ISGES Fat St?) RSE GS ae ee 19

Johnson, Drake & Piper, Inc. v. United

States, 531 F.2d 1037 (Ct Cl. 1976) ........ 19

Lyng v. Payne, 476 U.S. 926 (1986).......... 8

Market Street Railway Co. v. Railroad

Commission, 324 U.S. 548 (1945).......... 19

Maryland People’s Counsel v. Federal

Energy Regulatory Commission, 761 F.2d

pT OS eee 5,9, 10, 11

Maryland People’s Counsel v. Federal

Energy Regulatory Commission, 761 F.2d

FR IN on FE KA ce wapacwness: 5, 10, 11, 18

Maryland People’s Counsel v. Federal

Energy Regulatory Commission, 768 F.2d

i ae ee 5,18

vi

TABLE OF AUTHORITIES—Continued

New York State Electric & Gas Co. v. New

York, 638 F.2d 388 (3rd Cir. 1980), cert.

denied, 454 U.S. 821(1981) ..............

Niagara Mohawk Power Corp. v. Federal

Power Commission, 379 F.2d 153 (D.C.

PIS CPSC od ees EN nis < ccc caces

Northern Natural Gas Co. v. Federal Power

Commission, 319 F.2d 953 (D.C. Cir.

eee le ec ct ae we bg 5 cee 0s

Office of Consumers’ Counsel, State Of Ohio

v. Federal Energy Regulatory

Commission, 783 F.2d 206 (D.C. Cir.

ERI iy An Fy

Otter Tail Power Co. v. United States, 410

U.S. 366 (1973), reh’g denied 411 U.S. 910

Dec Cree eee het ets oo ON ce chs eo «

Public Serrnice Commission v.

Mid-Louisiana Gas Co., 463 U.S. 319

DE CLUE SETS Cis cat cece k bc cs cee

Richmond Power & Light v. Federal Energy

Regulatory Commission, 574 F.2d 610

(D.C. Cir. 1978), cert. denied, 439 U.S. 893

DN vii Gis a vb Ged Gale La caw ene ccs ts

Russ v. Wilkins, 624 F.2d 914 (9th Cir.

1980), cert. denied, 451 U.S. 908 (1981)... ..

Sonnleitner v. Commissioner of Internal

Revenue, 598 F.2d 464 (5th Cir. 1979) ......

United States v. American College of

Physicians, 475 U.S. 834 (1986) ...........

United States v. Menasche, 348 U.S. 528

I par a

18

20

21, 22

14

16

Vil

TABLE OF AUTHORITIES—Continued

ADMINISTRATIVE DECISIONS:

Columbia Gas Transmission Corporation,

“Findings And Order After Statutory

Hearing Granting Interventions And

Issuing Certificate Of Public Convenience

And Necessity,” 25 F.E.R.C. (CCH)

J 7 ee 4

Interstate Pipeline Blanket Certificates For

Routine Transactions, ‘Final Rule, Order

No. 234-B,”’ 24 F.E.R.C. (CCH461,099,

FERC Statutes and Regulations, (CCH)

ee es ee occces 4

Sales and Transportation By Interstate

Pipelines and Distributors, ‘‘Final Rule,

Order No. 319,” 24 F.E.R.C.

(CCH461,100, FERC Statutes and

Regulations, (CCH) 430,477 (1983) ........ 4

STATUTES AND REGULATIONS:

Federal Power Act, 16 U S.C. §§791a-824k

is ov aucene ecco 22

Natural Gas Act of 1938, 15 U.S.C.

EE 4,9, 10

Natural Gas Policy Act of 1978, 15 U.S.C.

i as aia pws 4,9, 10,

15, 16, 17

Public Utility Regulatory Policies Act of

1978, 16 U.S.C. §§824a-824k (1982)........ 24

Regulation Of Natural Gas Pipelines After

Partial Wellhead Decontrol, Interim Rule

And Statement Of Policy, Order No. 500,

52 Fed. Reg. 30,334 (August 14, 1987) ..... 6, 21

Vill

TABLE OF AUTHORITIES —Continued

Page

MISCELLANEOUS:

H.R. Rep. No. 543, 95th Cong., Ist Sess. 45 ;

od: EES Bas or ee Oo Gre a 15

H.R. 5423, 74th Cong., 1st Sess. §§303, 304 |

Aer ee ere ee ay 13

FTC Utility Corporation Report, S. Doc. No.

92, Part 84A, 70th Cong., ist Sess. 588

(1935)

IN THE

Supreme Court of the United States

OCTOBER TERM, 1987

No. 87-976

INTERSTATE NATURAL GAS ASSOCIATION OF AMERICA,

Petitioner,

Vv.

FEDERAL ENERGY REGULATORY COMMISSION,

Respondent.

No. 87-977

TEXAS EASTERN TRANSMISSION a vy

,

V.

FEDERAL ENERGY REGULATORY COMMISSION,

Respondent.

No. 87-979

City OF WILLCOX, ARIZONA, and

ARIZONA ELECTRIC POWER COOPERATIVE, INC.,

Petitioner,

V.

FEDERAL ENERGY REGULATORY COMMISSION,

Respondent.

On Petitions for Writ of Certiorari to the United States

Court of Appeals for the District of Columbia Circuit

2

BRIEF IN OPPOSITION TO

PETITIONS FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

The Respondent, the Maryland People’s Counsel

(““MPC’’), files this brief in opposition to the following peti-

tions for writ of certiorari: Interstate Natural Gas Associa-

tion of America v. Federal Energy Regulatory Commission,

No. 87-976; Texas Eastern Transmission Corporation v. Fed-

eral Energy Regulatory Commission, No. 87-977; and, City of

Wilcox, Arizona and Arizona Electric Power Cooperative v.

Federal Energy Regulatory Commission, No. 87-979. Each

petition seeks review and reversal of the same portion of the

decision of the United States Court of Appeals for the District

of Columbia Circuit in Associated Gas Distributors v. Federal

Energy Regulatory Commission, 824 F.2d 981 (D.C. Cir.

1987).

MPC is an agency of the State of Maryland legislatively

mandated to represent the interests of Maryland’s residential

and noncommercial users of natural gas and other regulated

utility services before federal and state agencies and the

courts. Md. Ann. Code, art. 78, §15 (1980). MPC was a

petitioner in the proceedings below. MPC does not agree with

petitioners’ assertion that the opinion below unlawfully im-

poses common carrier status on interstate natural gas pipe-

line companies. The decision below correctly holds that the

Federal Energy Regulatory Commission may condition natu-

ral gas transportation services by interstate pipelines in or-

der to remedy unduly discriminatory and anticompetitive

behavior on the part of the pipelines.

3

OPINIONS AND ORDERS BELOW

MPC adopts the listing of opinions and orders below as

set forth on page 2 of the Petition For Writ Of Certiorari in

Case No. 87-976 by Petitioner Interstate Natural Gas Associ-

ation of America.

JURISDICTION

The judgment of the court below was entered on June 23,

1987. Orders denying petitions for rehearing and suggestions

for rehearing en banc were entered on September 15, 1987.

The petitioners invoke the jurisdiction of this Court pur-

suant to 28 U.S.C. §1254(1).

STATUTES INVOLVED

MPC adopts the listing of statutes set forth on page 3 of

the Petition For Writ Of Certiorari in Case No. 87-976 by

Petitioner Interstate Natural Gas Association of America.

STATEMENT OF THE CASE

In October of 1985, the Federal Energy Regulatory Com-

mission (’’the Commission’’) promulgated Order No. 436.!

Based on an-extensive record, the Commission concluded,

inter alia, that: (1) certain programs authorizing interstate

pipeline companies to provide gas transportation services

were unduly discriminatory; and, (2) these programs allowed

the pipelines to abuse their monopoly power to the detriment

' The Commission’s Order No. 436, reviewed by the court below, is set

forth at 50 Fed. Reg. 42,408 (October 18, 1985). Related orders are: (1)

Order No. 436-A, 50 Fed. Reg. 52,217 (December 23, 1985); (2) Order No.

436-B, 51 Fed. Reg. 6398 (February 24, 1986); (3) Order No. 436-C, 51 Fed.

Reg. 11,566 (April 4, 1986); (4) Order No. 436-D, 51 Fed. Reg. 11,569 (April

4, 1986); and, (5) Order No. 436-E, 51 Fed. Reg. 11,566 (April 4, 1986).

4

of consumers. In order to remedy the past abuses and to

prevent the recurrence of these abuses, the Commission exer-

cised its statutory authority to regulate pipelines by attaching

certain conditions to certificates authorizing the provision of

natural gas transportation services. Thus, Order No. 436

requires that transportation of natural gas pursuant to either

a ‘“‘blanket’’ certificate of public convenience and necessity

issued pursuant to Section 7 of the Natural Gas Act, 15

U.S.C. §717f,? or Section 311 of the Natural Gas Policy Act,

15 U.S.C. §3371,* must be performed on a nondiscriminatory

basis. Simply stated, this ‘‘open access” condition provides

that an interstate pipeline may not discriminate among its

customers in providing gas transportation services.

Historically, pipelines purchased gas from producers,

then resold it to local distribution companies (‘‘LDCs’’) for

further resale to ultimate end-users, including residential,

commercial and industrial consumers. This traditional ‘“‘mer-

chant”’ function combined the sale of the gas with the trans-

portation service necessary to move the gas from the

producer to the pipelines’ customers. Pipelines did not gener-

ally offer their customers transportation services for gas

purchased from third parties.

In 1983, the Commission issued so-called ‘‘blanket’’ cer-

tificates to interstate pipelines authorizing the transportation

of gas to fuel-switchable customers.‘ “‘Blanket”’ authorization

eliminated the requirement that pipelines obtain individual

approval for each proposed transaction, a time-consuming

* The Natural Gas Act of 1938 (““NGA’’), 15 U.S.C..§§717-717z (1982).

3 The Natural Gas Policy Act of 1978 (‘“‘NGPA”’), 15 U.S.C. §§3301-

3432 (1982).

* See Columbia Gas Transmission Corporation, ‘Findings And Order

After Statutory Hearing Granting Interventions And Issuing Certificate

Of Public Convenience And Necessity,’’ 25 F.E.R.C. (CCH) 461,220 (1983);

Interstate Pipeline Blanket Certificates For Routine Transactions, ‘‘Final

Rule, Order No. 234-B,”’ 24 F.E.R.C. (CCH) 461,099, FERC Statutes and

Regulations, (CCH) 430,476 (1983); and, Sales And Transportation By

Interstate Pipelines And Distributors, ‘‘Final Rule, Order No. 319,”’ 24

F.E.R.C. (CCH) 461,100, FERC Statutes And Regulations, (CCH) 430,477

(1983).

5

and often costly process. The ‘‘blanket’’ certificates autho-

rized transportation programs which allowed customers with

the ability to utilize an alternate fuel (usually oil) to negotiate

directly with producers for gas at a price well below that of

the pipelines’ gas supplies, and to have these ‘‘third party”’

gas purchases transported by the pipeline. However, LDCs,

which serve primarily residential and commercial customers,

were barred from participating in these programs. Because

they were unable to utilize either alternate fuels or pipeline

transportation services, these customers, sometimes referred

to as “‘captive’’ customers, were forced to meet their needs

through purchases of the pipelines’ high-priced gas.

MPC challenged these programs, arguing that they un-

lawfully discriminated against captive customers. MPC ar-

gued that the programs fostered the abuse of the pipelines’

monopoly power by allowing the pipelines to segment their

markets, selling gas at above-market prices to captive cus-

tomers while collecting transportation revenues from fuel-

switchable customers. In a series of cases commonly known

as the Maryland People’s Counsel cases,® the United States

Court of Appeals for the District of Columbia Circuit found

these programs to be both “unduly discriminatory”’ and

“anticompetitive.’’ The Court held that transportation pro-

grams giving customers access to market-priced gas could

not be limited to fuel-switchable customers, but must be

offered to LDCs and other captive customers on nondiscrimi-

natory terms. MPC I, 761 F.2d at 774-79; MPC II, 761 F.2d at

789.

In response to the MPC cases, as well as other significant

changes in the natural gas industry, the Commission promul-

gated Order No. 436. That Order required that a pipeline

requesting ‘‘blanket”’ authorization to transport third party,

market-priced gas may do so only on a nondiscriminatory

5 Maryland People’s Counsel v. FERC, 761 F.2d 768 (D.C. Cir. 1985)

(“MPC I’); Maryland People’s Counsel v. FERC, 761 F.2d 780 (D.C. Cir.

1985) (“MPC II’’); Maryland People’s Counsel v. FERC, 768 F.2d 450 (D.C.

Cir. 1985) (“MPC IIT’’); collectively referred to as the “Maryland People’s

Counsel”’ or ‘““MPC’”’ cases.

6

basis. Numerous parties challenged various aspects of Order

No. 436, and on June 23, 1987, the United States Court of

Appeals for the District of Columbia Circuit rendered its

decision in Associated Gas Distributors v. Federal Energy

Regulatory Commission, 824 F.2d 981. This decision upheld

the Commission’s authority to condition gas transportation

services so as to prevent discriminatory and anticompetitive

behavior, but vacated Order No. 436 on other grounds. On

August 7, 1987, the Commission rendered interim Order No.

500, which reimplemented the open access condition, and

responded to other concerns of the court below.*®

SUMMARY OF ARGUMENT

The petitioners seek reversal of those portions of the

decision below which uphold open access conditioning of pipe-

line transportation services, arguing that this portion of Or-

der No. 436 drastically changed the natural gas industry and

unlawfully changed the traditional merchant function of in-

terstate pipelines. With respect to the former, it is true that

dramatic changes are taking place within the natural gas

industry. Order No: 436 may be viewed as both a result and a

cause of these changes. However, to the extent these changes

are the result of lawful actions by the Commission, they

provide no basis for a grant of certiorari.

With respect to the latter, the petitioners allege that the

decision below affirmed an unlawful exercise of the Commis-

® Regulation Of Natural Gas Pipelines After Partial Wellhead Decon-

trol, ‘‘Interim Rule And Statement Of Policy, Order No. 500,” 52 Fed. Reg.

30,334 (August 14, 1987).

7

sion’s authority. They argue that the imposition of an open

access condition on the certificates which authorize pipelines

to provide gas transportation services is tantamount to the

imposition of common carrier status. In addition, the petition-

ers argue that pipelines have no choice but to abandon their

traditional merchant function and become open access trans-

porters. These arguments do not provide a sound basis for

issuance of the writ. Quite simply, neither the Commission’s

Order nor the decision below compels a pipeline to provide

transportation services. Indeed, pipelines may continue to

operate in the more traditional merchant mode, ignoring

Order No. 436 entirely. All that Order No. 436 provides is

that ifa pipeline voluntarily chooses to request blanket autho-

rization to perform transportation services, it must provide

such services on a nondiscriminatory basis.

The decision below, consistent with well-established prin-

ciples of law, holds that the Commission may condition pipe-

lines’ requests to provide gas transportation service so as to

prevent undue discrimination, to remedy past anticompeti-

tive behavior by the pipelines, and to promote competition

within the gas industry. These findings are not only consis-

tent with the express language of the NGA and NGPA, but

with the Congressional intent which underlies the enactment

of those statutes.

The imposition of a condition on transportation authoriza-

tion granted in response to a voluntary request is not tanta-

mount to imposing common carrier status on pipelines. Even

if the Commission may not compel pipelines to provide trans-

portation services (a point which MPC does not concede), the

Commission may withhold requested authorization to trans-

port gas unless the pipeline agrees to provide such service in a

manner which is neither unduly discriminatory nor anticom-

petitive. It is well settled that pipelines do not have an unfet-

tered right to provide transportation and other services on

only such terms and conditions as they may themselves dic-

tate. Rather, the Commission may issue remedial orders and

attach conditions to certificates which further the purposes of

the NGA and NGPA.

8

REASONS FOR DENYING THE WRIT

A. The Commission May Condition Certificates

Authorizing Transportation Services So As To Prevent

Discriminatory And Anticompetitive Practices

The petitioners challenge the Commission’s authority to

condition transportation certificates on open access, arguing

that this condition compels pipelines to serve as common

carriers. The merits of petitioners’ common carrier argu-

ments are discussed infra. However, it is appropriate to first

address the Commission’s authority to act so as to prevent

discriminatory and anticompetitive behavior on the part of

interstate pipelines.

It is true, as petitioners state, that agencies possess only

those powers expressly bestowed on them. See, e.g., Lyng v.

Payne, 476 U.S. 926, 937 (1986); Civil Aeronautics Board v.

Delta Air Lines, Inc., 367 U.S. 316, 322 (1961). However, —

contrary to the petitioners’ assertions, the Commission has

express authority, of both a broad and a specific nature, to

prevent and remedy anticompetitive and unduly discrimina-

tory behavior.

The Commission is granted broad authority by both the

NGA and the NGPA to protect consumers from pipeline

abuses. The Supreme Court has recognized that the NGA

‘“‘was so framed as to afford consumers a complete, perma-

nent and effective bond of protection from excessive rates

and charges.” Atlantic Refining Co. v. Public Service Com-

mission, 360 U.S. 378, 388 (1959). Moreover, as revealed by

the legislative history, a fundamental purpose of the NGA is

to protect interstate gas consumers from the pipelines’ mo-

nopoly power. See, S. Doc. No. 92, part 84A, 70th Cong., Ist

Sess. 588-91 (FTC Utility Corporation Rep. 1935). Similarly,

the Supreme Court has observed that the NGPA preserved

the Commission’s NGA authority to control pipeline practices

so as to prevent the abuse of monopoly power. Public Service

Commission v. Mid-Louisiana Gas Co., 463 U.S. 319, 327-31

(1983).

9

To further its broad mandate to protect consumers, the

Commission was given specific authority to condition pipeline

services which it authorized pursuant to the NGA and NGPA.

Section 7(c) of the NGA imposes an affirmative duty on

pipelines to obtain certificate authorization from the Commis-

sion prior to performing a service such as natural gas trans-

portation. The Commission, however, is not required to

authorize such services under the terms requested by the

pipeline; it may deny or condition the authority requested so

as to prevent even temporary harm to the consuming public.

See. e.g., MPC I, 761 F.2d at 778; Atlantic Refining Co. v.

Public Service Commission, 360 U.S. at 392. The NGPA gives

the Commission similar authority to impose “‘such terms and

conditions as the Commission may prescribe’’ on transporta-

tion performed pursuant to Section 311, 15 U.S.C. §3371.

The power to regulate discriminatory and anticompeti-

tive practices is not derived by implication, but is expressly

set forth in both the NGA and the NGPA. As observed by the

court below, the NGA expressly addresses such behavior:

The Act fairly bristles with concern for undue

discrimination. Section 4 prohibits any ‘‘undue

preference” and any “unreasonable difference in

rates, charges, service, facilities, or in any other

respect,’’ and empowers the Commission to re-

view tariffs filed by pipelines in order to reject

ones violating the prohibition. 15 U.S.C. §717c

(1982). Section 5—the primary authority invoked

by the Commission here—directs the Commission

to adopt corrective measures whenever it finds a

“rate, charge or classification,” or any “rule,

regulation, practice, or contract” affecting the

same, to be “unjust, unreasonable, unduly dis-

criminatory, or preferential.’ Jd. §717d.

10

(J.A. 26a).’ The authority to impose a condition which pro-

hibits undue discrimination and fosters competition is well

within the Commission’s NGA powers. Moreover, where, as

here, the Commission utilizes its NGA Section 5 powers to

remedy past discriminatory and anticompetitive behavior,

the agency’s discretion is, ‘if anything, at zenith.”” Niagara

Mohawk Power Corp. v. FPC, 379 F.2d 153, 159 (D.C. Cir.

1967).

The power to regulate such behavior is also expressly

authorized by Section 311 of the NGPA, 15 U.S.C. §3371.

Section 311(c) provides that any transportation service con-

ducted pursuant to Section 311(a) may be conditioned on such

terms and conditions as the Commission authorizes. As dis-

cussed supra, the NGPA preserved the Commission’s author-

ity to prevent the abuse of monopoly power by pipelines. See

Public Service Commission v. Mid-Louisiana Gas Co., 463

U.S. at 327-331. Section 311 provides the means for the

exercise of this authority.

In the past, the Commission had refused to exercise its

powers to require nondiscriminatory access to transportation

services offered by pipelines. Instead, the Commission

granted pipelines the authority to provide gas transportation

service to customers of their choice, i.e., fuel-switchable cus-

tomers.* The results were predictable: when the price of the

gas sold by the pipelines rose to levels in excess of the cost of

alternate fuels, the pipelines offered to provide gas transpor-

tation services to those customers with alternate fuel capabil-

ity. This enabled the pipelines to avoid the loss of

transmission revenues they would suffer if these customers

switched to other fuels and abandoned the pipelines entirely.

At the same time, the pipelines refused to offer transporta-

tion services to LDCs and other captive customers, assuring

themselves a market for their over-priced gas. MPC I, 761

F.2d at 771-73; MPC IT, 761 F.2d at 783-85.

* Joint Appendix citations are to the “Joint Appendix To Petitions For

Writ of Certiorari To The United States Court Of Appeals For The District

Of Columbia Circuit”’ filed by the petitioners.

* See footnote 4 and accompanying text supra.

11

The decisions in MPC I and MPC IJ held such programs to

be anticompetitive and, therefore, unduly discriminatory un-

der the NGA. In MPC II, the court directed the Commission

to ‘‘fully consider and reasonably analyze the competitive

concerns raised,”’ vacating the programs “to the extent that

they allow transportation of direct-sale gas to fuel-switch-

able, non-‘high-priority’ endusers without requiring pipelines

to furnish the same service to LDCs and captive consumers

on non-discriminatory terms.” 761 F.2d at 789 (footnote

omitted). The court further held that in approving these

programs, the Commission failed to attend to its “‘prime

constituency —the consumers whom the Natural Gas Act...

was designed ‘to protect . . . against exploitation at the hands

of natural gas companies.’ ’’ Jd. at 781 (citations omitted).

Following the MPC cases, the Commission undertook an

extensive review of its transportation .policies. In Order

No.436, the Commission made specific findings, based on an

extensive evidentiary record, that pipelines had exercised

monopoly control over their facilities to either protect or gain

an advantage in the marketing of their own gas. It was

further found that the existing regulatory structure had

failed to assure that the benefits of competition would reach

all segments of the consuming market. Thus, existing trans-

portation programs were found to be unjust, unreasonable,

and unduly discriminatory pursuant to Section 5 of the NGA.

The Commission concluded that permitting transportation

services to be offered on a basis which would have the effect

of granting any pipeline an exclusive franchise to provide self-

implementing or blanket certificate transportation to any

particular class of customers (to the exclusion of others)

would violate the NGA and NGPA. 62 Fed. Reg. at 42,

426-27.

The court below correctly held that the Commission may

lawfully condition pipeline transportation services to prevent

their use as a tool to exploit consumers. See, MPC II, 761 F.2d

at 781. The Commission has the authority to permit pipelines

to transport gas conditioned as necessary to fulfill the Com-

mission’s NGA and NGPA obligations. Indeed, as found in the

12

MPC cases, a failure to so condition transportation services

clearly violates this mandate. Thus, because the Commission

has done no more than exercise its lawful powers, there is no

need for this Court to exercise its discretion to review the

decision below.

B. Neither Order No. 436 Nor The Decision Below

Imposes Common Carrier Status On Pipelines

1. Order No. 436 Does Not Compel Pipelines To

Provide Transportation Services

Citing this Court’s decision in FCC v. Midwest Video

Corp., 440 U.S. 689 (1979), petitioners argue that the imposi-

tion of an open access condition is equivalent to an obligation

to provide service without discretion; an obligation the peti-

tioners describe as the essence of common carriage. This

argument fails at the outset because it does not recognize that

a second condition must also be met for common carrier

status to exist: the party on whom the obligation is imposed

must be compelled to provide service. In Midwest Video, cable

television system operators were divested of all discretion to

determine who could use certain channels. Programming

choices were shifted to the user, and the operator was com-

pletely stripped of the ability to decide how to use its cable

system. Jd. at 700.

In sharp contrast, neither Order No. 436 nor the decision

below divests pipelines of control over their own systems.

Pipelines are not compelled to provide transportation ser-

vices. Order No. 436 fully protects the pipelines’ merchant

function: pipelines may choose to operate in traditional fash-

ion, purchasing gas from producers and reselling it to local

distribution companies and other end users for a “package”

price which includes the commodity price for the gas and a

charge for the transportation service. As an alternative, Or-

der No. 436 allows, but does not require, pipelines to provide

a separate ‘‘unbundled” transportation service, distinct from,

and in addition to, any sales service offered by the pipeline.

(J.A. 17a).

13

Obviously, the exercise of this alternative places the pipe-

lines’ sales gas in competition with gas sold by third parties.

However, it also allows a pipeline to maximize throughput —

and therefore, profit—by both transporting and selling gas. It

cannot be overly stressed that the choice to provide transpor-

tation service is completely within the pipelines’ discretion. If

a pipeline so desires, it may remain as a merchant and the

Commission will not compel it to provide transportation ser-

vices. If it decides to offer both sales and transportation

services, and it seeks “blanket” authorization to offer the

transportation services, the Commission will condition the

transportation authorization to prevent undue discrimina-

tion. Thus, there is no basis for the argument that the decision

below compels pipelines to provide transportation service,

and the decision below is not in conflict with the decision in

Midwest Video.

2. Order No. 436 Is Consistent With The NGA’s

Treatment Of The Common Carriage Issue

The NGA is silent with respect to common carriage.

However, the legislative history supports the conclusion that

the Commission may lawfully impose conditions on a pro-

posed service without running afoul of any alleged or implied

prohibition against the imposition of common carrier status

on pipelines. The petitioners place heavy reliance upon the

fact that Congress did not adopt proposed NGA provisions

requiring natural gas companies to transport gas for any

person upon reasonable request, and authorizing the Commis-

sion to order them to do so. H.R. 5423, 74th Cong., Ist Sess..,

§§303, 304 (1935). Based solely on Congress’ failure to enact

these provisions, petitioners not only conclude that the Com-

mission cannot impose common carrier status on pipelines,

but that it cannot condition a voluntary request to provide

transportation services so as to prevent discriminatory and

anticompetitive behavior. It is unnecessary to address the

former conclusion because the latter conclusion is clearly in

error.

At most, the legislative history indicates that Congress’

concern with the common carriage issue was only to assure

14

that pipelines would not be required to operate as common

carriers. The legislative history does not, however, indicate

that Congress intended to allow pipelines to act in a decidedly

discriminatory fashion with respect to gas transportation

services. The draft provisions simply demonstrate that Con-

gress declined to enact provisions specifically granting the

Commission the authority to require pipelines to become

common carriers. The proposed Section 303(a) made it “‘the

duty of every distributor to transmit natural gas for any

person upon reasonable request therefore,’’ and the proposed

Section 304 gave the Commission authority to ‘direct a dis-

tributor to transmit natural gas for, or exchange gas with,

" (emphasis added). In contrast to these

not impose a duty on pipelines

nor has the Commission directed

others.

Thus, the legislative history demonstrates that Congress

declined to specifically authorize the Commission to compel

pipelines to become common carriers. However, as the court

below correctly concluded, “‘it affords weak—almost invisi-

ble— support for the idea that the Commission could under no

circumstances whatsoever impose obligations encompassing

the core of a common carriage duty,” particularly given the

fact that “in the NGA Congress affirmatively [gave] the

Commission power to stamp out undue discrimination. . . .”’

(J.A. 25a-26a). As discussed supra, this is the power the

Commission exercised in promulgating the open access condi-

tion. (J.A. 26a).

Inconclusive legislative history cannot be utilized to sup-

ply a provision not enacted by Congress. United States v.

American College of Physicians, 475 U.S. 834, 846-47 (1986).

Consistent with this principle, nothing in the legislative his-

tory indicates that it was Congress’ intent to limit the Com-

mission's ability to condition certificated services to remedy

behavior found to be unlawful and contrary to the express

purposes of the NGA.

15

3. Order No. 436 Is Consistent With The NGPA’s

Treatment Of The Common Carriage Issue

One of the purposes of the NGPA was to eliminate the

regulatory barriers between the interstate and intrastate

natural gas markets. Indeed, the legislative history indicates

that Sections 311 and 602(bX2) were designed to “‘facilitate

. development of a national natural gas transportation

network without subjecting intrastate pipelines, already reg-

ulated by State agencies, to FPC regulation over the entirety

of their operations.” H.R. Rep. No. 543, 95th Cong., 1st Sess.

45 (1977). (J.A. 34a). Section 311(a), 15 U.S.C. §3371a, per-

mits Commission authorization of transportation by an inter-

state pipeline on behalf of an intrastate pipeline of LDC, and

by an intrastate pipeline on behalf of an interstate pipeline or

LDC. Section 311(c), 15 U.S.C. §3371(c), specifically provides:

Any authorization granted under this section

shall be under such terms and conditions as the

Commission may prescribe.

Order No. 436 conditions Section 311 transportation ser-

vices on open access. Petitioners argue that such conditioning

runs afoul of Section 602(b) of the NGPA, which provides:

(b) Common carriers. No person shall be subject

to regulation as a common carrier under any

provision of Federal or State Law by reason of

any transportation—

(1) pursuant to any order under Section

3362(c) or Section 3363(b), (c), (d), or (i) of this

title; or

(2) authorized by the Commission under Sec-

tion 337 1(a) of this title.

ne §3432(b) (1982). Petitioners argue for an expansive

of this section, contending it raises an express and

absolute bar against the imposition of any obligations which

are the same or similar to the obligations imposed on common

carriers. This contention is incorrect for several reasons.

16

First, the argument hinges on the mistaken premise that

a lawful exercise of the Commission’s conditioning authority

is tantamount to compelling pipelines to provide transporta-

tion services to all who request it. As demonstrated above,

the nondiscriminatory access condition does not compel

pipelines to provide service; thus, Section 602(b) is simply

irrelevant.

However, on its face, Section 602(b) does not support the

expansive proscription favored by the petitioners. First, Sec-

tion 602(b) must be read together with Section 311(c) which

allows the Commission to condition NGPA Section 311 trans-

portation on such terms as the Commission specifies. The

construction urged by petitioners would read Section 311(c)

out of the statute, in contravention of normal rules of statu-

tory construction. See Colautti v. Franklin, 439 U.S. 379, 392

(1979), United States v. Menasche, 348 U.S. 528, 538-39

(1955). Moreover, the petitioners’ interpretation would bar

the Commission from imposing conditions requiring nondis-

criminatory access on Section 311 transportation even in the

face of express findings of unlawful behavior. As the court

below succinctly and correctly observed:

Congress may have intended §602 to bar FERC

from conditioning §311 transportation upon as-

surances of nondiscrimination. We doubt it. ...

The reasonableness is underscored by FERC’s

broad duties to assure consumers access to natu-

ral gas at prices such as would prevail in the

absence of pipeline market power and its conclu-

sion that under the present circumstances fulfill-

ment of that duty requires such conditioning.

(J.A. 37a) (citations omitted).

Second, Section 602 appears under the heading ‘‘Effect

on State Laws.’’ Where-the meaning of a section of a statute

is unclear, the title or caption of the section provides evidence

of the intended Congressional scheme. Russ v. Wilkins, 624

F.2d 914, 922 (9th Cir. 1980), cert. denied, 451 U.S. 908

(1981). Interpreted together with its title, the clear intention

17

behind Section 602(b) was to protect pipelines choosing to

provide service under Section 311 from being generally classi-

fied as common carriers, most likely by the states. Congress

feared that participation in the Section 311 transportation

program might be discouraged because the pipeline would

find itself subject to burdensome state regulations. (See, e.9.,

Tex. Civ. Stat. Ann. §§882-884 [Vernon 1964 and Supp. 1987]

which subjects a common carrier to common law duties and a

requirement to carry, for anyone, any goods of the type for

which it is suited).

This valid purpose, however, does not support an inter-

pretation which allows pipelines to discriminate at will, as the

court below correctly concluded.

A duty not to discriminate, imposed by the Com-

mission on the basis of findings that the duty is

necessary to assure consumers access to competi-

tively priced gas, is utterly different. The imposi-

tion of the duty here facilitates the

accomplishment of Congress’ purposes.

(J.A. 35a). Thus, the decision below is in harmony with Sec-

tion 602(b), and further review is not required.

4. Neither The Commission Nor The Court Below Has

Coerced The Choice To Offer Transportation

Services

Finally, petitioners argue that the choice to accept the

open access condition is not a truly voluntary one. Petitioners

are quick to embrace the conclusion of the court below that

“when a condemned man is given the choice between the

noose and the firing squad, we do not ordinarily say that he

has ‘voluntarily’ chosen to be hanged.”’ (J.A. 82a). However,

petitioners read far too much into this observation. Contrary

to petitioners’ assertion, Order No. 436 presents the pipelines

with a viable choice. Pipelines may either continue to operate

mainly as merchants (as they have for fifty years under the

Natural Gas Act), or they may become both merchants and

nondiscriminatory transporters.

18

In discussing the Hobson’s choice, the court below made

it clear that either choice may be ‘‘fatal” to the pipelines’

financial viability. Thus, a conclusion that Order No. 436 is

‘“‘coerced”’ has no basis. Whether pipelines do or do not accept

Order No. 436, the MPC cases stripped them of the ability to

abuse their monopoly power in order to retain a market for

their own over-priced gas. MPC II, 768 F.2d at 455; MPC III,

768 F.2d at 455. Thus, with or without Order No. 436, pipe-

lines which fail to become competitive may suffer economic

consequences. However, a plea to retain the power to act in

an unlawful and discriminatory fashion to the detriment of

consumers in order to avoid such consequences is hardly a

recognized basis for the grant of certiorari.

The petitioners argue that operating without Order No.

436 transportation authority (i.e., as merchants only) would

place them at a competitive disadvantage as compared to fuel

oil dealers and pipelines operating pursuant to Order No. 436.

This claim is wholly unsubstantiated. Pipelines which elect

not to provide open access transportation may meet competi-

tion by simply offering sales prices (to all of their customers)

which are competitive with alternate fuels and gas purchased

from independent producers, brokers and marketers.

Federal regulation of pipelines is not designed to insulate

pipelines from competition, but to protect consumers from

the abuse of pipeline monopoly power. Competition, by defini-

tion, forces a company to operate in a different manner than

it would choose to operate were it allowed to function as an

unregulated monopolist. Competition regulates a firm’s be-

havior in a manner which promotes economic efficiency and is

ultimately beneficial to consumers. See Northern Natural Gas

Co. v. FPC, 399 F.2d 953, 959 (D.C. Cir. 1968).

The Supreme Court has clearly held that the due process

clause affords a regulated company no protection from losses

inflicted by market conditions.

All that was held is that a company could not

complain if the return which was allowed made it

possible for the company to operate successfully.

19

There was no suggestion that less might not be

allowed when the amount allowed was all the

Company could earn. . . . The due process clause

... has not and cannot be applied to ensure val-

ues or to restore values that have been lost by the

operation of economic forces.

Market Street Railway Co. v. Railroad Commission, 324 U.S.

548, 566-67 (1945). Thus, the court below correctly concluded:

Similarly, nothing in the NGA protects the pipe-

lines from the market forces to which Order No.

436 subjects their gas marketing business, even

though those forces are derived in part from a

restriction on discrimination in transportation.

(J.A. 38a).

The fact that a pipeline elects to operate under Order No.

436 because it determined that it will be less successful than if

it does not so elect does not mean that the pipeline has no

choice. See C. Pappas Co. v. E&J Gallo Winery, 610 F. Supp.

662, 669 (E.D. Cal. 1985), aff'd 801 F.2d 399 (9th Cir. 1986).

Moreover, a party cannot claim economic coercion if it has

reasonable alternatives available. See Sonnleitner v. Commis-

stoner of Internal Revenue, 598 F.2d 464, 468 (5th Cir. 1979).

The fact that one alternative is less beneficial economically

than another does not mean that alternatives were not, in

fact, available. See, e.g., Johnson, Drake & Piper, Inc. v.

United States, 531 F.2d 1037 (Ct. Cl. 1976). Order No. 436

offers pipelines clear alternatives: they may continue to per-

form as traditional merchants or they may choose to provide

both sales and nondiscriminatory transportation services.

Clearly, there is no need for this Court to review these well-

settled principles.

Frost v. Railroad Commission, 271 U.S. 583 (1926), does

not reflect a different principle. In that case, coercion was

found where the State of California decided that a private

trucking carrier could use the highways only if it subjected

itself to state regulation. The issue was not whether the state

could force the company to make a choice of what service it

20

would provide, but whether the company could conduct any

business unless it subjected itself to state regulation. Pursu-

ant to Order No. 436, pipelines may continue to function

primarily as merchants, and are not required to accept an

open access certificate in order to conduct any business.

While this choice may be influenced by economic consider-

ations, that fact alone does not render the choice involuntary

or coerced. Thus, the F’rost case is inapposite.

Indeed, this argument exposes the true basis of petition-

ers’ claims. Pipelines are opposed to open access because

their own gas supplies are priced well above market prices,

rendering them incapable of competing with gas which is

competitively priced. The pipelines’ problems in this regard

stem from so-called take-or-pay contracts, i.e., contracts

which require pipelines to either “take” a certain amount of

gas from a producer or “pay” for it. These contracts cur-

rently call for gas prices far in excess of current market

levels. (J.A. 75a). As the court below correctly observed, this

price discrepancy represents ‘‘a sunk loss of billions of

dollars” and raises the question of who must bear this loss.

(J.A. 76a). S

The purchasing practices of pipelines which resulted in

take-or-pay liabilities are highly controversial. The pipelines

were not innocent bystanders victimized by increases in gas

prices caused by third parties. Rather, they were both the

responsible contracting parties and the direct beneficiaries of

these soaring prices. See, e.g., Office of Consumers’ Counsel,

State of Ohio v. FERC, 783 F.2d 206 (D.C. Cir. 1986). The

pipelines’ argument is not, therefore, that they are being

coerced to transport gas. Rather, their complaint is that the

Commission will not allow them to provide transportation

services on their own discriminatory terms so as to minimize

the impact of their decisions with respect to take-or-pay

contracts.

The court below was, nevertheless, sympathetic to the

pipelines’ take-or-pay concerns. The court vacated Order No.

436, remanding it to the Commission with instructions to

“more convincingly” address the magnitude of the take-or-

21

pay problem and the adverse consequences likely to result

from the imposition of open access conditions. The Commis-

sion, in response to the court’s concerns, addressed this issue

in its interim Order No. 500, where it implemented a ‘“‘pro-

ducer crediting mechanism”’ specifically designed to prevent

open access transportation from exacerbating the pipelines’

take-or-pay liabilities. 52 Fed. Reg. at 30,337-47. The ade-

quacy and lawfulness of this mechanism may be challenged in

future proceedings, and is not ripe for review at this time.

Indeed, petitioners Texas Eastern Transmission Corporation

and the Interstate Natural Gas Association of America have

requested judicial review of Order No. 500."

C. There Is No Conflict Between The Decision Of The

Court Below And Decisions Of This Court And Other

Circuits

Issuance of the writ is also urged on the basis of an

alleged conflict between certain decisions of the Supreme

Court, various Circuit Courts, and the decision below. The

decision below is alleged to be in conflict with the following

decisions: Otter Tail Power Co. v. United States, 410 U.S. 366

(1973) (“Otter Tail’’); Florida Power & Light Co. v. FERC,

660 F.2d 668 (5th Cir. 1981), cert. denied, 459 U.S. 1156

(1983) (“FP&L’’); Richmond Power & Light v. FERC, 574

F.2d 610 (D.C. Cir. 1978), cert. denied, 439 U.S. 893 (1979)

(‘“Richmond’’); New York State Electric & Gas Co. v. New

York, 638 F.2d 388 (3rd Cir. 1980), cert. denied, 454 U.S. 821

(1981) (“NYSE&GQ’’); and, Central West Utility Co. v. FPC,

247 F.2d 306 (3rd Cir. 1957) (‘‘Central West’’). Each of these

cases is distinguishable from the decision below.

With respect to Otter Tail, it is true, as petitioners claim,

that this Court observed that the Federal Power Commission

(““FPC’’) was given no specific authority to order wheeling

* Texas Eastern Transmission Corporation v. FERC, No. 87-1773, and

Interstate Natural Gas Association of America v. FERC, No. 87-1595,

pending in the United States Court of Appeals for the District of Columbia

Circuit.

22

under the Federal Power Act'® even though the legislation

originally introduced contained common carrier provisions.

The Court therefore held that there was no jurisdictional

conflict between the District Court, which had ordered wheel-

ing as a remedy for antitrust violations, and the FPC.

The decision below is not in conflict with Otter Tail. First,

as discussed supra, neither the decision beiow nor Order

No. 436 imposes common carrier status on pipelines. Second,

Otter Tail did not address the issue presented here, i.e.,

whether the Commission may lawfully condition certificated

services so as to prevent unduly discriminatory and anticom-

petitive behavior. Third, while the Federal Power Act and the

Natural Gas Act are, in most respects, in pari materia, there

is no provision in the FPA similar to Section 7(c) of the NGA.

Finally, Otter Tail dealt specifically with the District Court’s

power to impose remedies for antitrust violations, not with

the Commission’s ability to lawfully condition a grant of

authority so as to prevent unduly discriminatory and anticom-

petitive behavior." Thus, Otter Tail is simply inapposite.

The FP&L case is easily distinguishable from the decision

below. Under the facts in that case, the court held that the

Commission’s order did, in effect, impose common carrier

status on the utility. But there is a critical distinction. The

court in FP&L specifically found that the Commission did not

order wheeling as a remedy for anticompetitive conduct. The

court observed that the question of the Commission’s author-

ity in that respect was an open one, concluding:

© The Federal Power Act (““FPA”’), 16 U.S.C. §§791a-824k (1935).

1 As an interesting aside, Otter Tail Power Company argued that it

would face severe financial problems if compelled to serve. The Supreme

Court recognized the argument as a familiar one in antitrust cases, and

cited its opinion in United States v. Arnold, Schwinn and Co., 388 U.S. 365,

375 (1967): ‘The promotion of self-interest alone does not invoke the rule of

reason to immunize otherwise illegal conduct.”” Compare the argument in

Section B.3 supra.

23

In the instant case, however, we need not resolve

the question as to what power the Commission

may have to remedy antitrust violations, since we

conclude that the Commission did not rely on this

rationale.

FP&L, 660 F.2d at 678. In stark contrast, the decision

below upheld specific Commission findings, based on a mas-

sive record, that pipelines possess substantial market power,

that they have exercised this power to deny captive cus-

tomers access to competitively priced gas, and that this prac-

tice has denied consumers access to gas at the lowest

reasonable rates. (J.A. 30a). Thus, the Commission here did

precisely what it did not do in FP&L: it framed its order as a

remedy for anticompetitive behavior.

Similarly, in Richmond, there was no finding that wheel-

ing on a selective basis would defeat regulatory controls and

the competitive incentives necessary to protect all con-

sumers. Moreover, it was specifically found that the party

alleging discrimination ‘‘spurned the opportunity to demon-

strate that particular activities were unreasonably anticom-

petitive or discriminatory.’’ Thus, the Commission,

consistent with Congressional intent, correctly ruled that a

“decision to wheel for one customer but not for another is not

automatically discriminatory.’’ Richmond, 574 F.2d at 623

(emphasis added). In sharp contrast to Richmond and the

other wheeling cases, the decision below and Order No. 436

contain specific findings concerning the anticompetitive and

unduly discriminatory behavior of pipelines and specifically

invoke the exercise of the Commission’s NGA Section 7 au-

thority to remedy that behavior.”

'? Section 7 of the NGA has been described by the Supreme Court as the

“heart” of the NGA, Atlantic Refining Co., 360 U.S. at 388.

24

The NYSE&G case is also readily distinguishable from

the decision below. The case dealt with the Commission’s

“new” authority to order wheeling under the Public Utility

Regulatory Policies Act.'* The court found that the Commis-

sion had not made the findings required by PURPA and

remanded the order to the Commission for consideration of

the same. NYSE&G, 638 F.2d at 401-02. The decision did not

address the Commission’s authority to compel wheeling in the

face of specific findings of unduly discriminatory and anti-

competitive behavior.

Finally, the Central West case does not advance the peti-

tioners’ argument. There, the court held that an electric

utility could not be compelled to enlarge its facilities so as to

serve additional customers. Central West, 247 F.2d at 312-19.

Nothing in the decision below compels pipelines to build

additional facilities or expand existing ones. Thus, Central

West is simply inapposite.

In conclusion, the allegedly conflicting decisions relied

upon by the petitioners are readily distinguishable upon both

the facts and the law. Accordingly, they present no basis for

the grant of certiorari.

‘8 The Public Utility Regulatory Policies Act of 1978 (“PURPA”’), 16

U.S.C. §§824a-824k (1982).

25

CONCLUSION

The Petitions For Writ Of Certiorari should be denied.

Respectfully submitted,

March 16, 1988 THOMAS C. GORAK*

Assistant People’s Counsel

JOHN M. GLYNN

Maryland People’s Counsel

Office of Maryland People’s

Counsel

American Building, Ninth Floor

231 East Baltimore Street

Baltimore, Maryland 21202 —

(301) 333-6046

* Counsel of Record