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

No. 87-543

In the Supreme Court of the

OCTOBER TERM, 1987

TRANSWESTERN PIPELINE COMPANY, PETITIONER

v. 2

FEDERAL ENERGY REGULATORY COMMISSION, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

BRIEF FOR THE FEDERAL ENERGY REGULATORY

COMMISSION IN OPPOSITION

CHARLES FRIED

Solicitor General

Department of Justice

Washington, D.C. 20530

(202) 633-2217

CATHERINE C, Cook

General Counsel

JEROME M. FEIT

Solicitor

DWIGHT C. ALPERN

Attorney

Federal Energy Regulatory Commission

Washington, D.C. 20426

QUESTION PRESENTED

Whether the Federal Energy Regulatory Commission

properly determined that the fixed-cost minimum bill pro-

visions contained in petitioner’s rate schedules are not

“just and reasonable” and are therefore unlawful (see 15

U.S.C. 717c(a)).

(I)

TABLE OF CONTENTS

Opinions below ...........

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TABLE OF AUTHORITIES

Cases:

Associated Gas Distributors v. FERC, 824 F.2d 981 (D.C.

ee ere

Atlantic Seaboard Corp., 38 F.P.C. 91 (1967), aff'd, 404

DS & Oe £ SS 2S B82 C2 ESA ELK 6-OS Ss. OOS

Co aaah sedan asst eendeees

California v. FPC, 369 U.S. 482 (1962) ................

Consolidated Edison Co. v. FERC, 823 F.2d 630 (D.C.

2: re

ee ek ee ae ee a ee ee ee ee

FPC v. Conway Corp., 426 U.S. 271 (1976) ............

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

FPC v. Sierra Pacific Power Co., 350 U.S. 348

SR ea oo ia aap 0 5

Gulf States Utilities Co.

v. FPC, 411 U.S. 747 (1973) ....

Mississippi Industries v. FERC, 808 F.2d 1525, reh’g

granted, 822 F.2d 1104 (D.C. Cir. 1987), cert. denied,

No. 86-1380 (Dec. 14,

RS res are i

Northern Natural Gas Co. v. FPC, 399 F.2d 953 (D.C.

oe rere

United Gas Pipe Line Co. v. Memphis Light, Gas & Water

Cee 2S SPEDE OE 226 SSS ES BES 6.8 3 OD

Ee Be

United States Pipe Line Co. v. Mobile Gas Service Corp.,

350 U.S. 332 (1956) ..

Wisconsin Gas Co. v. FERC, 770 F.2d 1144 (D.C. Cir.

1985), cert. denied, 476 U.S. 1114 (1986) ........... 2.

Statutes:

Natural Gas Act, 15 U.S.C. 717 ef seq.:

§ 4, 18 U.S.C. 717¢

Ps PEMD soir c kee c es hae nene

§ 7,15 U.S.C. Tiif

“oe he es 2 ee oe we ee ee we ae a oe Oe Oe oe ee ae

10

In the Supreme Court of the Anited States

OCTOBER TERM, 1987

No. 87-543—

TRANSWESTERN PIPELINE COMPANY, PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT.

BRIEF FOR THE FEDERAL ENERGY REGULATORY

COMMISSION IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. Al-A27)

is reported at 820 F.2d 733. The initial opinion of the

Federal Energy Regulatory Commission (Pet. App.

C1-C47) is reported at 32 F.E.R.C. 4 61,009. The Com-

mission’s opinion on rehearing (Pet. App. D1-D63) is

reported at 36 F.E.R.C. 4 61,175. The opinion of the ad-

ministrative law judge (Pet. App. E1-E42) is reported at 29

F.E.R.C. ¢ 63,054.

JURISDICTION

The judgment of the court of appeals (Pet. App. Bl)

was entered on July 7, 1987. The petition for a writ of cer-

tiorari was filed on October 5, 1987. The jurisdiction of

this Court is invoked under 28 U.S.C. 1254(1).

—

STATEMENT

1. a. The rates charged by natural gas pipelines

generally consist of two basic components. A “demand

(1)

2

charge” is imposed upon all customers who are entitled by

contract to receive a specified amount of natural gas from

the pipeline. This charge is a fixed sum, assessed in pro-

portion to the maximum quantity of gas the customer is

entitled to demand under the contract. The demand charge

thus recoups some portion of the fixed costs incurred by

the pipeline in providing facilities of sufficient capacity to

meet the customer’s peak-load entitlement.

The second component of pipelines’ rates is the “com-

modity charge” levied upon each unit of gas sold. It is

through this charge that a pipeline recovers its variable

costs as well as the fixed costs that are not recovered

through the demand charge. Some pipelines include in

their rate schedules a specific type of commodity charge

known as a “minimum commodity bill.” These minimum

bill provisions essentially establish a minimum commodity

charge, requiring the customer to pay for a certain quanti-

ty of gas even if the customer does not take delivery of any

gas during the relevant time period.

Before 1984, minimum bill provisions typically required

pipeline customers to pay the full commodity charge for

the quantity of gas specified in the minime™ bill; they thus

allowed a pipeline to recover its variable costs as well as its

fixed costs. A rule issued by the Commission in 1984

eliminated minimum bills to the extent those provisions

permitted the recovery of variable costs. See Wisconsin

Gas Co. v. FERC, 770 F.2d 1144 (D.C. Cir. 1985), cert.

denied, 476 U.S. 1114 (1986). The Commission did not

there address the question whether pipelines should be per-

mitted to recover fixed costs through minimum bills, leav-

ing that issue for case-by-case adjudication.

b. Petitioner owns and operates an interstate natural

gas pipeline. Virtually all of its gas is sold to two

customers —Southern California Gas Company (SoCal)

and Northwest Central Pipeline Company (NWC), each of

which also purchases gas from other sources. Petitioner’s

rates have typically included a demand charge, which

recovered 50% of petitioner’s fixed transmission costs;

and a commodity charge, which recovered (a) all remain-

ing fixed transmission costs, (b) all fixed production costs,

and (c) all variable costs. The commodity charge included

a minimum bill provision requiring SoCal and NWC to

pay the commodity charge for approximately 90% of the

quantities of gas to which these customers were entitled

under their contracts. Thus, regardless of the amount of

gas that they actually purchased from petitioner, these

customers were obligated to pay for nearly all of the gas

covered by their contracts.

In August 1981, petitioner filed increased rates pursuant

to Section 4 of the Natural Gas Act, 15 U.S.C. 717c. The

reasonableness of the minimum bill provisions was the

subject of a hearing before an administrative law judge.

After the Commission promulgated its rule eliminating

recovery of variable costs through minimum bills, the ad-

ministrative law judge issued a decision allowing petitioner

to include in its rate schedules minimum bills that

recovered the fixed cost portion of petitioner’s commodity

charge for 60% of the quantity of gas required to be sup-

plied under its contracts (see Pet. App. E1-E42).

2. The Commission ordered the elimination of the

minimum bills recovering petitioner’s fixed costs, directing

petitioner to use a new rate methodology to recover its

fixed costs (Pet. App. Cl-C47; see also id. at D1-D63

(order on rehearing)). The Commission reached this con-

clusion on the basis of its determination that petitioner’s

minimum bills were unjust and unreasonable because they

would have the effect of unreasonably restricting competi-

tion (see id. at C25-C27, D21).'

' The Commission also concluded that the minimum bill provisions

impermissibly discriminated between petitioner’s customers (see Pet.

App. C8-C21, D3-D20).

4

The Commission first found that the minimum bills

would “foreclos[e] competition and restrain[] trade” (Pet.

App. C25). It stated that a minimum bill typically has the

effect of foreclosing other suppliers from selling to the

customers bound by the minimum bill and is therefore

economically indistinguishable from a requirements con-

tract; such a contract is an unreasonable restraint of trade

under the antitrust laws if “it is ‘more restrictive than

necessary to meet an objective meriting antitrust recogni-

tion’ ” (id. at C25 n.69 (citation omitted); see also id. at

D23-D24). The Commission concluded that petitioner’s

minimum bills were in fact likely to affect petitioner’s

competitors and customers adversely, stating that “in a

situation where supply exceeds demand [the situation in

the natural gas markets relevant in this case] a re-

quirements contract has competitive significance, for the

effect is to foreclose competitors from the market” (id. at

C26 n.71). The Commission observed that it had forbade

recovery Of variable costs through minimum bills, but

stated that a minimum bill limited to recovering fixed costs

would “still * * * have adverse consequences on competi-

tion. To become competitive [petitioner] will not have to

reduce the price of its gas to the level of its competitor’s

price. Instead, all [petitioner] will have to do is to reduce

the price of its gas so that it equals the price of its com-

petitor’s gas plus the minimum bill payments. This will

result in an inefficient allocation of resources.” Jd. at C27

n.71; see also id. at D25-D29.

The Commission next considered whether the minimum

bill provisions served some permissible purpose and

therefore should be permitted to stand despite their an-

ticompetitive effect. It stated that a minimum bill “may be

justified as a means of protecting the pipeline against the

risk of not recovering the fixed costs in the commodity

component” (Pet. App. C27). The Commission

acknowledged that petitioner’s minimum bills would have

the effect of assuring the recovery of 50% of petitioner’s

fixed transmission costs, but stated that “the point of this

justification [for minimum bills] is not simply to assure the

recovery of fixed costs. If it were, a 100 percent minimum

bill would be justified in all cases” (id. at C28). The Com-

mission stated (id. at C28-C29 (footnote omitied)) that

[iJn light of the justification’s purpose, the most that

can be said about the amount of fixed costs whose

recovery should be assured is that the amount should

be no greater than the costs of depreciation and of

servicing the debt. It must also be said that in light of

the justification’s purpose the amount of fixed costs

whose recovery should be assured should in no way

act to-assure recovery of the return on equity, related

income taxes, and fixed production costs. These ele-

ments of the cust of service should be at risk to give

the pipeline an incentive to minimize its costs.

The Commission found that petitioner’s minimum bills

were not limited in this manner: the provisions permitted

recovery of all fixed costs. The Commission further found

that “a minimum bill is unnecessary to assure recovery of

the amount of fixed costs [petitioner] should recover”

(Pet. App. C29). A “modified fixed-variable [rate] meth-

odology” would allow petitioner to recover “all fixed costs

except return on equity, related income taxes, and,

perhaps, production related costs” by recovering those

costs through the demand charge (ibid.). “Thus, [peti-

tioner] would be assured of recovering all of the fixed

costs it should recover without having to impose a

minimum bill” (ibid. (footnote omitted); see also id. at

D35-D36).?

The Commission also concluded that petitioner’s mini-

mum bills could not be justified on the ground that they

2 The fixed costs not included in the demand charge, together with

all variable costs, would be recovered through the commodity charge.

6

allocated petitioner’s take or pay obligations to the

customers that caused the liabilities to be incurred.? It

stated that there was “no connection between the mini-

mum bill payments the customers would make and the

carrying costs associated with take-or-pay liabilities [peti-

tioner] could legitimately recover from them.” Pet. App.

C31; see also id. at D41-D44.

Finally, the Commission held that the minimum bills

could not be justified on the ground that they placed peti-

tioner on an equal footing with a competitor that, by vir-

tue of the provisions of the settlement of its rate pro-

ceeding, had a similar minimum bill in its rate schedules.

The-Commission stated that “[t]o set just and reasonabie

rates requires a. decision as to what is fair to both the pipe-

line and consumers. To-setthe pipeline’s minimum bill on

the basis of the minimum bills other pipelines have

eliminates consumers as a factor to be considered. This we

decline to do” (Pet. App. C32 (footnote omitted)). The

Commission also noted that petitioner was a financially

strong company that would not be placed in economic

jeopardy by the elimination of its minimum bills. If peti-

tioner were allowed to include a minimum bill in its rates

on the ground that a similar provision was contained in its

competitor’s rate schedule, moreover, the competitor

> “Take or pay” costs can result when the pipeline’s contract with its

supplier provides that the pipeline will take a particular amount of gas

or pay for that amount of gas. If the pipeline’s sales decrease, the

pipeline may not take the required quantity of gas and may be forced

to make “take or pay” payments to its supplier. If the pipeline does in-

cur take or pay costs, these costs generally may be included in the

pipeline’s rate base; the take or pay costs are treated as an investment

upon which the pipeline may earn its prescribed rate of return. The

typical take or pay contract provision then allows a pipeline five years

to take delivery of the gas for which it has prepaid. If the pipeline fails

to take delivery of the gas within the required period, it can recover

prudently incurred take or pay costs.

7

would later be entitled to maintain its minimum bill on the

ground that such a provision was included in petitioner’s

rates. “Thus, as if by transmutation, an uncontested settle-

ment on the minimum bill issue that we accepted to resolve

a case would become the just and reasonable minimum bil!

for [petitioner’s competitor]. We will not allow ourselves

to be so bound” (id. at C35).

The Commission concluded that “the inclusion of

minimum bills in [petitioner’s] rate schedules is not justi-

fied and that none should be included” (Pet. App. C36). It

stated that petitioner’s rates should be redesigned using the

modified fixed-variable method. That approach would

allow petitioner to recover through the demand charge all

of its fixed costs other than return on equity, related in-

come taxes, and production related fixed costs.

3. The court of appeals unanimously upheld the Com-

mission’s determination (Pet. App. Al-A27). It found that

the Commission had correctly concluded that petitioner’s

minimum bill provisions are anticompetitive, stating that

“(t]he evidence was sufficient to support the Commission’s

finding that even fixed-cost minimum bills could coerce

SoCal and Northwest into purchasing higher-cost gas

from [petitioner] instead of alternative, lower-cost sup-

plies” (id. at A22).4

The court also agreed with the Commission’s conclusion

that there was no countervailing justification for peti-

tioner’s minimum bills. It found that the minimum bills

could not be upheld as necessary to recover fixed costs,

because the bills “recovered costs which did not warrant

risk-free recovery” (Pet. App. A1l5). Under the Commis-

sion’s modified fixed-variable rate design, “all fixed costs

which [petitioner] should recover will be recovered

through the demand charge without the imposition of a

* The court rejected petitioner’s contention that there was no

evidence before the Commission regarding the competitive impact of

fixed-cost minimum bills (Pet. App. A21-A22).

8

minimum bill” (id. at Al6). The court found that the

Commission’s decision did not deny petitioner a

reasonable opportunity to earn a profit; “[t]he Commis-

sion has only refused to protect [petitioner’s] profit from

competition and provided [petitioner] what the Commis-

sion determined to be the appropriate incentive to run its

business efficiently” (id. at A17).

The court also upheld the Commission’s conclusion that

the minimum bills were not justified as a means of allo-

cating take or pay liabilities. It observed that the alloca-

tion of these liabilities “is a separate matter which is being

addressed in other proceedings before the Commission

and through other means. Indeed, [petitioner] currently

has a proposal before the Commission to allocate costs of

settling take-or-pay liability directly to the customers who

caused such costs to be incurred. The Commission is not

ignoring the issue” (Pet. App. A20). The court also stated

that petitioner’s minimum bills did not involve “any

proper take-or-pay justification” (ibid.) because the

minimum bills did not equitably allocate take or pay risks.

The court found the take or pay issue to be “hypothetical”

because petitioner had not shown that it has been required

to make any take or pay payments. For all of these

reasons, the court determined that the Commission’s deci-

sion to address this potential problem in other proceedings

was reasonable.

Finally, the court stated that the minimum bills could

not be justified by reference to the rates charged by peti-

tioner’s competitor. On that theory, the court stated, the

competitor would later be able to justify its minimum bill

provision by reference to petitioner’s rates. “This ping-

pong effect could mean that consumers would never be

free of the unwarranted cost” (Pet. App. A21). The court

observed that, pursuant to a settlement, the competitor’s

minimum bills “will be placed at the same level as [peti-

tioner’s], which means they both will be eliminated”

(ibid.).

9

The court stated that “[t]he Commission’s conclusion

that [petitioner’s] minimum bills unreasonably restrained

trade was based on substantial evidence. * * * The Com-

mission’s decision to eliminate [petitioner’s] minimum bills

in their entirety was neither arbitrary nor capricious, but

was a proper exercise of the Commission’s authority to

regulate rates and practices of interstate pipelines under

the Natural Gas Act” (Pet. App. A26-A27).

ARGUMENT

The decision of the court of appeals is correct and does

not conflict with any decision of this Court or another

court of appeals. Review by this Court is not warranted.

1. Petitioner first contends (Pet. 10-14) that the Com-

mission’s decision is inconsistent with this Court’s deci-

sions in United Gas Pipe Line Co. v. Mobile Gas Service

Corp., 350 U.S. 332 (1956), and FPC v. Sierra Pacific

Power Co., 350 U.S. 348 (1956). Petitioner’s claim —that

these decisions limit the Commission’s authority to

eliminate contractual rate provisions found to be unjust

and unreasonable—is simply wrong.

The Mobile-Sierra doctrine holds that when a utility

agrees to sell power at a fixed rate, it is bound by that con-

tract provision even if a rate increase would be permissible

under the applicable statutory standard (see United Gas

Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. at

343-344). On the other hand, where the contract between a

utility and its customer provides for sales “nos at a single

fixed rate * * * but at what in effect amount[s] to [the

utility’s] ‘going’ rate,” the utility remains free to file new

rate schedules pursuant to the statutory scheme (United

Gas Pipe Line Co. v. Memphis Light, Gas & Water Divi-

sion, 358 U.S. 103, 110 (1958) (emphasis in original)).

Petitioner admits that its contracts, like those before the

Court in Memphis, permit petitioner to file new rate

schedules and permit petitioner’s customers to challenge

10

any newly filed rates (see Pet. 12-13). Because the con-

tracts do not limit the rights of either petitioner or its

customers, the Mobile-Sierra doctrine is not implicated in

this case.

Petitioner’s argument is flawed for a second, more

fundamental, reason. The Mobile-Sierra doctrine is a

limitation upon a utility’s authority to initiate a rate in-

crease. It does not limit the Commission’s express statu-

tory authority to eliminate contract provisions that are un-

just and unreasonable. See 15 U.S.C. 717d(a); FPC v.

Sierra Pacific Power Co., 350 U.S. at 355 (the Commis-

sion may abrogate a fixed-rate contract if “the rate is so

low as to adversely affect the public interest”). For all of

these reasons, the Commission properly assessed the

minimum bill provision under the “just and reasonable”

standard set forth in Section 5(a) of the Natural Gas Act,

15 U.S.C. 717d(a). See Mississippi Industries v. FERC,

808 F.2d 1525, 1552-1553, reh’g granted on other grounds,

822 F.2d 1104 (D.C. Cir. 1987), cert. denied, No. 86-1380

(Dec. 14, 1987); Pet. App. C16-C17.°

2. The Commission’s conclusion that petitioner’s

minimum bills are unjust and unreasonable, unanimously

upheld by the court of appeals, is amply supported by the

comprehensive analysis contained in the decisions below.

See Pet. App. A10-A22, C21-C38, D20-D62. Petitioner’s

challenges to the Commission’s determination are

5 Petitioner intimates (Pet. 11-12) that Section 7 of the Natural Gas

Act, 15 U.S.C. 717f, which concerns the issuance of certificates of

public convenience and necessity, is somehow relevant to this issue. As

the court of appeals explained, “Section 7 does not guarantee that the

original conditions upon which the certificate was authorized will

never change. Section 5 of the [Natural Gas Act] expressly empowers

the Commission to change rates or practices, such as the fixed-cost

minimum bills at issue here, if such provisions become unjust and

unreasonable” (Pet. App. A26 (citations omitted)).

1]

meritless. ®

a. Petitioner contends (Pet. 14-15) that the Commis-

sion’s finding that minimum bills are anticompetitive is

not a sufficient basis for holding those rate provisions un-

just and unreasonable under Section S(a).

The Commission does not enforce the antitrust laws and

is not bound by antitrust standards. See California v.

FPC, 369 U.S. 482, 485-486 (1962). But the Commission

must consider the impact of rates upon competition in

determining whether those rates are just and reasonable.

FPC v. Conway Corps, 426 U.S. 271, 279 (1976); Gulf

States Utilities Co. v. FPC, 411 U.S. 747, 757-759 (1973);

Northern Natural Gas Co. v. FPC, 399 F.2d 953, 961

(D.C. Cir. 1968) (Commission must consider antitrust

policies as “important element of the ‘public interest’ ”).

The anticompetitive effect of the minimum bills is there-

fore highly relevant in determining whether those provi-

sions are unjust and unreasonable.

® Petitioner claims (Pet. 18-19) that the Commission failed to ex-

plain its departure from an alleged “longstanding practice” of approv-

ing minimum bills. As the Commission itself observed, “(t]he problem

with this contention is that the Commission has never had a general

policy of accepting minimum bills. Instead, the Commission has

assessed minimum bills in light of the particular facts of the pipeline.

That assessment has often led the Commission to accept minimum

bills. But [it] has also led the Commission to reject proposed minimum

bills, modify existing minimum bills, and reject existing minimum

bills” (Pet. App. DS6-D57 (footnotes omitted)). Petitioner does not

even attempt to show that the Commission’s decision in the present

case is inconsistent with those prior fact-bound determinations. See

id. at DS7-D59. Even if such an inconsistency could be shown, the

reasoning in the Commission’s opinions in the present case, together

with the Commission’s comprehensive reexamination of minimum

bills in connection with the promulgation of the rule eliminating

variable cost recovery through minimum bills (see page 2, supra), pro-

vides all of the necessary analytical support for the Commission’s con-

clusion here.

12

Moreover, the Commission did not find the minimum

bills unjust and unreasonable merely because those provi-

sions restrict customers’ choices in purchasing gas. It ap-

plied a “rule of reason” and balanced the competitive harm

against all potential justifications for the minimum bills.

Only after it concluded that there was no justification for

the minimum bills did the Commission find the provisions

unjust and unreasonable. See Pet. App. A1l3-A14.’

b. Petitioner also argues (Pxt. 19-22) that the Commis-

sion erred by addressing on the present record the com-

petitive effect of the fixed-cost minimum bills. At the time

of the hearing, the minimum bills contained in petitioner’s

rate schedules recovered both fixed and variable costs;

petitioner claims that the Commission therefore had no

basis for determining the probable competitive impact of

minimum bills that recover only fixed costs (id. at 21-22).

As the court of appeals explained, “[f]ixed costs are part

of full-cost minimum bills” and the “question whether full-

cost minimum bills should be entirely eliminated necessari-

ly encompasses the question whether the fixed-cost por-

tion should be eliminated” (Pet. App. A22). The court

observed that some of the parties who participated in the

hearing sought the elimination of minimum bills in their

’? Petitioner asserts (Pet. 16-17) that the Commission erred in look-

ing to Atlantic Seaboard Corp., 38 F.P.C. 91, 95 (1967), aff'd, 404

F.2d 1268 (D.C. Cir. 1968), for the possible justifications for

minimum bills. (The Commission determined in that case that a

minimum bill may be justified as a means of ensuring a pipeline’s

recovery of fixed costs, protecting full-requiremenis customers from

higher rates, and ensuring equitable recovery of take or pay costs (see

Pet. App. A15).) But that claim rests upon petitioner’s mistaken belie!

that the Mobile-Sierra doctrine requires the application of some form

of heightened scrutiny in this case (see Pet. 17). In any event, the

Commission did not confine itself to the three justifications set forth

in Atlantic Seaboard Corp., but instead considered all possible

justifications, including one articulated by the administrative law

judge and supported by petitioner (see Pet. App. A21, D44-D48).

13

entirety, while others only challenged the recovery of

variable costs through minimum bills. Since the permissi-

bility of fixed-cost minimum bills was therefore a separate

issue at the time of the hearing, the court concluded that

petitioner “had a full, fair opportunity to present evidence

on the lawfulness of its fixed cost minimum bills.” /bid.

The Commission concluded that the fixed-cost

minimum bills were anticompetitive based on (a) evidence

that the purpose and effect of the full-cost minimum bills

was to force customers to purchase gas from petitioner

rather than from lower-cost sources, and (b) its prediction

that the fixed-cost minimum bills will have a similar,

though reduced, impact (Pet. App. C26 n.71, D25-D29;

see also id. at A11-A13). Petitioner’s position is that the

Commission should not be permitted to rely upon relevant

past experience to make reasonable predictions about the

future. But administrative agencies obviously are entitled

to base their decisions upon predictions that result from

the application of their expertise to the problem at hand.

See, e.g., Wisconsin Gas Co. v. FERC, 770 F.2d 1144,

1158 (D.C. Cir. 1985), cert. denied, 467 U.S. 1114 (1986).8

c. The Commission considered and rejected four

possible justifications for petitioner’s minimum bills; peti-

tioner challenges the Commission’s analysis in only two

respects.

First, petitioner argues (Pet. 23-25) that the Commis-

sion failed to address the take or pay consequences of

eliminating the minimum bills. But the Commission did

consider the take or pay issue, and concluded that even if

* Petitioner contends (Pet. 21) that the Commission’s reasoning ap-

plies to “every pipeline’s minimum bill.” However, other pipelines may

be able to show that different facts warrant a different result. And the

fact that the same result would obtain in some, or even most, cases

does not indicate that the Commission’s reasoning here was flawed.

14 :

petitioner had proven that it had a take or pay problem,

the minimum bills would be an inappropriate means to ad-

dress the issue because they would not allocate take or pay

costs to the customers who cause the pipeline to incur |

those costs (see Pet. App. C31, D41-D44). Moreover, the )

court of appeals properly found that the take or pay issue

is “hypothetical” here because there is no evidence that

petitioner has ever been required to make a take or pay

payment (Pet. App. A20). Since petitioner’s “potential

take-or-pay problem” would not be equitably resolved by

the minimum bills and the take or pay issue is currently

before the Commission in ongoing cases, the Commis-

sion’s decision to address the problem “through alternative

approaches and in other cases” is not “unreasonable, ar-

bitrary, or capricious” (ibid.; see also Wisconsin Gas Co.

v. FERC, 770 F.2d at 1159-1160).°

® Petitioner asserts (Pet. 25) that the court of appeals’ decision is in

“conceptual conflict” with Associated Gas Distributors v. FERC, 824

F.2d 981 (D.C. Cir. 1987) and Consolidated Edison Co. v. FERC, 823

F.2d 630 (D.C. Cir. 1987). These cases concerned new, industry-wide

regulatory policies adopted by the Commission in part because it

found that the policies would alleviate pipelines’ take or pay problems

(see Consolidated Edison Co., 823 F.2d at 641), or would not exacer-

bate those problems (see Associated Gas Distributors, 824 F.2d at

1023). The courts concluded that the Commission’s findings were not

supported by the record or the Commission’s analysis. Because the ad-

ministrative decisions could not be upheld on the rationale adopted by

ihe Commission, the courts remanded those decisions for reconsidera-

tion. Consolidated Edison Co., 823 F.2d at 641; Associated Gas

Distributors, 824 F.2d at 1030. Here, by contrast, there was no

evidence of any current take or pay problem, and the Commission

found that any potential problem would not equitably be resolved by

minimum bills. For those reasons, the Commission concluded that it

was appropriate to address the take or pay issue in other proceedings.

This case accordingly is completely different from those in which the

Commission based its decision upon a determination regarding the

take or pay issue that the reviewing courts found unsupported by

‘ substantial evidence. See Wisconsin Gas Co. v. FERC, 770 F.2d at

1159-1160 (Commission entitled to defer decision regarding appro-

priate method of addressing pipelines’ potential take or pay liability).

ial aaleaienaidaiiainainuaill

15

Second, petitioner contends (Pet. 17-18) that the Com-

mission erred by rejecting petitioner’s claim that it should

be entitled to include minimum bills in its rates because its

competitor’s rate schedules include minimum bills. The

court of appeals agreed with the Commission that if a

minimum bill is anticompetitive, “it cannot be justified on

the basis that it meets one other competitor” because such

a claim “ignores the consumers” (Pet. App. A21; see also

id. at A23). If a pipeline couid justify its own minimum

bills on the basis of another pipeline’s minimum bills,

“consumers would never be free of the unwarranted cost”

(id. at A21) of anticompetitive minimum bills. Because the

primary purpose of the Natural Gas Act is “to protect con-

sumers against exploitation at the hands of natural gas

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

610 (1944)), the Commission’s rejection of this justifica-

tion was proper.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

CHARLES FRIED

Solicitor General

CATHERINE C, Cook

General Counsel

JEROME M. FEIT

Solicitor

DWIGHT C. ALPERN

Altorney

Federal Energy Regulatory Commission

DECEMBER 1987

ss US. GOVERNMENT PRINTING OFFICE: 1987— 202-037/60186