Appendix — Panhandle Eastern Pipe Line Co. v. Columbia Gas Transmission Corp.
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Supreme Coort, US, |
89-200
FILED
No. JUN 22 1999
SPANIOL, JR.
CLERK
IN THE a
Supreme Court of the United States
OCTOBER TERM, 1989
PANHANDLE EASTERN PIPE LINE COMPANY, et al.,
. Petitioners,
COLUMBIA GAS TRANSMISSION CORPORATION, et al.,
Respondents.
APPENDIX TO
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
MERLIN E. REMMENGA RAYMOND N. SHIBLEY
PANHANDLE EASTERN PIPE Counsel of Record
LINE COMPANY BRUCE W. NEELY
TRUNKLINE GAS COMPANY MARLENE L. STEIN
5400 Westheimer Court Le Boeur, LAMB, LEIBY &
Houston, Texas 77056 MACRAE
(713) 627-5400 1333 New Hampshire Ave., N.W.
Suite 1100
Washington, D.C. 20036
(202) 457-7500
Attorneys for Panhandle Eastern
Pipe Line Company and
Trunkline Gas Company
KIM M. COCKLIN ROBERT W. PERDUE
Senior Vice President and ANDREWS & KURTH
General Counsel 1701 Pennsylvania Ave., N.W.
DOUGLAS FIELD, JR. Washington, D.C. 20006
Assistant General Counsel (202) 662-2700
TEXAS GAS TRANSMISSION Attorneys for Texas Gas
CORPORATION Transmission Corporation
3800 Frederica Street
Owensboro, Kentucky 42301
(502) 926-8686
(Attorneys Continued on Inside Cover)
WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001
JEFFREY A. BRUNER
General Attorney
TRANSCONTINENTAL GAS PIPE
LINE CORPORATION
P.O. Box 1396
Houston, Texas 77251
(718) 439-3156
June 22, 1990
ROBERT G. HARDY
MICHAEL J. FREMUTH
ANDREWS & KURTH
1701 Pennsylvania Ave., N.W.
Washington, D.C. 20006
(202) 662-2700
Attorneys for Transcontinental
Gas Pipe Line Corporation
APPENDIX
TABLE OF CONTENTS
Page
Opinion of the Court of Appeals (Coluwmbia-IT) ............ la
Order of the Court of Appeals Denying Rehearing and
Suggestions for Rehearing Hn Banc (Columbia-II)..... 15a
Order of the Court of Appeals Staying its Mandate
ERIE ERE an Ea eee ee Paarl EO 16a
Order of the FERC on Remand Granting Waivers
| Tia cca cs Stace OPES HU steel eve ESE 17a
Order of the FERC Dewvine Rehearing and Reconsid-
I Ta haenabienenean 27a
Order of the FERC Granting Authority to Implement
Direct Billing Procedure (Panhandle) ...................... 33a
FERC Notice of Denial of Rehearing by Operation of
Sia ln oe PTA ec eaee Be ete 4la
Opinion of the Court of Appeals (Columbia-I) ............ 42a
Opinion of the Court of Appeals on Petitions for Re-
i ccenemetbalaanten 57a
Order of the FERC Granting Petitions to Institute
Direct Billing Procedure for Retroactive Production-
Related Cost Aliowances (Transco) ...................2.02.... 60a
Order of the FERC Granting Petitions to Institute
Direct Billing Procedure for Retroactive Production-
Related Cost Allowances (Texas Eastern) ................ 79a
Order of the FERC Granting Petitions to Institute
Direct Billing Procedure for Retroactive Production-
Related Cost Allowances (Texas Gas) ........................ 87a
Order of the FERC Granting Petitions to ‘astitute
Direct Billing Procedure for Retroactive Production-
Related Cost Allowances (Trunkline) ..............0......... 97a
Order of the FERC Granting Petitions to Institute
Direct Billing Procedure for Retroactive Production-
Related Cost Allowances (Panhandle) .........0000000000..... 110a
Order of the FERC Denying Rehevring and Clarifica-
RE tats nee > ee eR 124a
FERC Notice of Denial of Rehearing (Texas Eastern)... 134a
FERC Notice of Denial of Rehearing (Texas Gas) ........ 135a
ii
APPENDIX
TABLE OF CONTENTS—Continued
Order of the FERC Denying Rehearing (Trunkline)....
Order of the FERC Denying Rehearing (Panhandle) ....
RRR RON Ty -TO VIII occccitticcnssnenensnncimreamenianeae
la
APPENDIX
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Nos. 88-1701, 88-1808, 88-1825, 89-1052,
89-1086, 89-1140, 89-1186 and 89-1200
COLUMBIA GAS TRANSMISSION CORPORATION,
Petitioner,
V.
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent,
GENERAL SERVICE CUSTOMER GROUP, INDIANA GAS COM-
PANY, INC., PANHANDLE EASTERN PIPE LINE COMPANY,
THE KANSAS POWER AND LIGHT COMPANY,
Intervenors.
Petitions for Review of Orders of the
Federal Energy Regulatory Commission
Argued Oct. 12, 1989
Decided Feb. 9, 1990
Stephen J. Small, Boston, Mass., with whom John H.
Pickering, Timothy N. Black, Neal T. Kilminister, Susan
D. McAndrew, and Richard E. Gottlieb (for Columbia
Gas Transmission Corp.), Jeffrey M. Petrash, Washing-
ton, D.C., (for Michigan Consol. Gas Co.), Robert A.
MacDonnell, Philadelphia, Pa., and Kathleen A. Kane
2a
(for Philadelphia Elec. Co.) were on the joint brief, for
listed petitioners in Nos. 88-1701, 88-1808, 89-1052, 89-
1086, and 89-1200.
Philip B. Malter, with whom Charles F. Wheatley, Jr.
was on the brief, for petitioner Municipal Defense Group
in Nos. 88-1825 and 89-1140.
Raymond N. Shibley and Marlene L. Stein, Washing-
ton, D.C., were on the brief for petitioner Panhandle
Eastern Pipe Line Co. in No. 89-1186.
Frederic J. Georg entered an appearance for petitioner
Columbia Gas Transmission Corp., and James H. Holt,
Washington, D.C., entered an appearance for petitioner
Michigan Consol. Gas Co.
Jill Hall, Atty., F.E.R.C. (“FERC”), with whom Cath-
erine C. Cook, Gen. Counsel, and Jerome M. Feit, Solicitor,
FERC, Washington, D.C., were on the brief, for respond-
ent in all cases. Frank Lindh, Washington, D.C., and
Joseph 8. Davies, Attys., FERC, also entered appearances
for respondent.
Raymond N. Shibley, with whom Marlene L. Stein (for
Panhandle Eastern Pipe Line Co.), Robert G. Hardy and
Michael J. Fremuth (for Transcontinental Gas Pipe Line
Corp.), Douglas Field, Jr. and Robert W. Perdue, Wash-
ington, D.C., (for Texas Gas Transmission Corp.) were
on the joint brief, for intervenors in Nos. 88-1701, 88-
1808, 88-1825, 89-1052, 89-1086, 89-1140, and 89-1200.
William H. Penniman (for Process Gas Consumers
Group) and Mary E. Baluss and Marilyn A. Specht,
Washington, D.C., (for UGI Corp.) were on the joint
brief for intervenors in Nos. 89-1052, 89-1086, 89-1140
and 89-1200. Christopher J. Barr, Washington, D.C., also
entered an appearance for UGI Corp.
Martin J. Bregman, Topeka, Kan., and Steven J.
Kalish, Washington, D.C., entered appearances for in-
3a
tervenor Kansas Power and Light Co. in Nos. 88-1701,
88-1808, and 88-1825.
Before BUCKLEY, D.H. GINSBURG,* and SEN-
TELLE, Circuit Judges.
Opinion for the court filed by Circuit Judge BUCK-
LEY.
BUCKLEY, Circuit Judge:
These consolidated cases concern the assertion, by the
Federal Energy Regulatory Commission, of the power to
approve a retroactive rate increase through exercise of
its authority, under section 4(d) of the Natural Gas Act,
to waive the thirty days’ notice required by that section.
As we find that the Commission lacks such power, we
remand seven of the cases for action consistent with this
opinion and dismiss the eighth as moot.
I. BACKGROUND
A. Regulatory Background
In section 110(a) of the Natural Gas Policy Act of
1978, Congress provided that sellers of natural gas could
lawfully recover
any costs of compressing, gathering, processing,
treating, liquefying, or transporting such natural
gas, or other similar costs, borne by the seller and
allowed for, by rule or order, by the Commission.
15 U.S.C. § 3320(a). In July 1980, acting pursuant to
this rulemaking authority, the Federal Energy Regula-
tory Commission (“FERC” or “Commission’”’) informed
gas producers that it intended to allow them, as “first
sellers” of natural gas, to pass certain field compression
and gathering costs through to their pipeline customers
* Judge Ginsburg heard argument in, but did net participate in
the disposition of, this case.
4a
(“first purchasers”). Order No. 94, 45 Fed.Reg. 53,099
(1980) (“Order No. 94”). At the same time, the Com-
mission stated that it would not accept applications for
the recovery of these costs until it had completed further
rulemaking to establish an appropriate generic allowance
for such costs (“deferred costs”). Jd. at 53,107-08. The
Commission assured the producers that the new regula-
tions would provide a retroactive mechanism by which
they could recover the costs that were determined to be
allowable, from the effective date cf Order No. 94 until
the new regulations took effect. Jd. The new rules au-
thorizing their recovery were issued almost three years
later, in March 1983. Order No. 94-A, 48 Fed.Reg. 5,152
(1983) ; Order No. 94-B, 48 Fed.Reg. 5,190 (1983).
Under existing procedures, the first purchaser pipe-
lines could recover these deferred charges from their cur-
rent customers through the purchased gas adjustment
clauses (“PGA clauses”) authorized by Commission regu-
lations. 18 C.F.R. §§ 154.301-.310 (1988). These clauses,
which must be filed with and approved by the Commis-
sion, permit pipelines to recover through prospective sales
the estimated production-related costs they will be re-
quired to reimburse producers. Rather than pursue this
method, however, five pipeline companies petitioned FERC
for permission to “direct bill’ customers who had pur-
chased gas produced during the 1980-83 period (“second
purchasers”) for the deferred costs incurred in its pro-
duction.
The petitioning pipelines noted that buying patterzis in
the industry had changed significantly during the three
years that had elapsed between the issuance of Order No.
94 and Order No. 94-A. As a consequence, it could not be
assumed that the current customers who would have to
absorb the newly authorized charges prospectively through
PGA clauses were in any way representative of those
who, during those three years, had purchased the gas that
was subject to the deferred costs. The pipelines argued
5a
that considerations of equity required that those who had
purchased that gas pay its true cost through a system of
direct billing surcharges based on past purchases.
B. Procedural Background
After the Commission approved each of these peti-
tions,** various second purchasers petitioned for rehear-
ing. When all such requests were denied, Columbia Gas
Transmission Corp., The Municipal Defense Group, and
Transcontinental Gas Pipe Line Corp. petitioned for re-
view in this court, arguing that the allowance of the
direct billing amounted to retroactive ratemaking pro-
hibited by the Natural Gas Act (“NGA” or “Act”). We
agreed, struck the orders authorizing direct billing, and
remanded the case to the Commission for further pro-
ceedings consistent with our opinion. Columbia Gas
Transmission Corp. v. FERC, 831 F.2d 1135, 1142 (D.C.
Cir. 1987) (“Columbia I’).
We based our decision on a finding that the Commis-
sion’s orders had violated the well-established “filed rate
doctrine.” This doctrine, we noted, finds its origins in
sections 4(c) and 5(a) of the Natural Gas Act, 15 U.S.C.
§§ 717c(c), 717d(a), which require that every natural
gas company file rate schedules with the Commission that
will then govern the amounts they can bill their custom-
ers. 831 F.2d at 1140. The purpose of this rule is to
maintain predictability in the rates that will be charged,
and this purpose is accomplished by the guarantee that
rate changes will only be made prospectively. In arriving
** Transcontinental Gas Pipe Line Corp., 32 F.E.R.C. § 61,230,
reh’g and clarification denied, 33 F.E.R.C. {61,213 (1985); Texas
Eastern Transmission Corp., 32 F.E.R.C. { 61,493, reh’g denied,
33 F.E.R.C. § 61,257 (1985); Texas Gas Transmission Corp., 33
F.E.R.C. § 61,032, reh’g dente@, 83 F.E.R.C. § 61,596 (1985); Pan-
handle Eastern Pipe Line Co., 33 F.E.R.C. § 61,218 (1985), reh’g
denied, 34 F.E.R.C. § 61,231 (1986); and Trunkline Gas Co., 33
F.E.R.C. § 61,217 (1985), reh’g denied, 34 F.E.R.C. {] 61,021 (1986).
. 6a
at our decision, we specifically rejected FERC’s conten-
tion that Order No. 94 gave “everyone” notice of an im-
pending increase in rates, finding instead that Order No.
94 was “addressed exclusively to first sales of natural _
gas.”’ Jd. We thus held that in the absence of such notice,
FERC’s allowance of direct billing for surcharges on pre-
viously purchased gas violated the rule against retro-
active ratemaking.
FERC petitioned for rehearing, asserting that not-
withstanding our opinion and although the point had not
been argued on appeal, the Commission had implied au-
thority, under section 4(d) of the Act, to waive the filed
rate doctrine prohibiting retroactive changes in published
rates. Section 4(d) provides:
Unless the Commission otherwise orders, no changes
shall be made by any natural-gas company in any
such rate, charge, classification, or service, or in any
rule, regulation, or contract relating thereto, except
after thirty days’ notice to the Commission and to the
public. .. . The Commission, for good cause shown,
may allow changes to take effect without providing
the thirty days’ notice herein provided for by an
order specifying the changes so to be made and the
time when they shall take effect and the manner in
which they shall be filed and published.
15 U.S.C. § 717e(d) (1982) (emphasis added). The Com-
mission maintained that the waiver issue had “crystal-
lized” only after we had found that the Commission had
given inadequate notice to warrant lawful retroactive
ratemaking. Presumably, FERC was suggesting that be-
cause the filed rate doctrine requires adequate notice of
any rate change and because it has the power, under sec-
tion 4(d), to waive the notice requirement with good
cause shown, the Commission may, by dispensing with
this impediment, lawfully implement a rate retroactively.
As for the good cause required by section 4(d), FERC
found it in the adverse effects that would flow from a
El
—
7a
misallocation of the more than $1.5 billion in deferred
compression and gathering costs that had accumulated
from July 1980 through March 1988. Not only would
passing these costs along to current customers place the
burden on purchasers of entirely unrelated gas, it would
send the wrong market signals by distorting the true cost
of current gas supplies.
We declined to rehear the case; but in light of the mag-
nitude of the costs that were involved, we stated that on
remand,
FERC [would be] free to consider the waiver issue
and determine whether it may issue new orders on
grounds consistent with the principles enunciated in
our earlier opinion in this case.
Columbic Gas Transmission Corp. v. FERC, 844 F.2d
879, 880 (D.C.Cir.1988).
On remand, FERC asserted that it had unquestioned
authority to waive the filed rate doctrine for gcod cause
shown; and given the unique circumstances of this case,
it concluded its previous orders should be reaffirmed and
implemented. Transcontinental Gas Pipe Line Corp., 45
F.E.R.C. § 61,169 (1988). The Commission correctly
noted that in Columbiu I we held the direct billing pro-
cedure in the circumstances of these cases to violate the
prohibition in sections 4(c) and 5(a) of the Act against
retroactive ratemaking. Nonetheless, it concluded that
irrespective of whether Order Nos. 94 and 94-A consti-
tuted notice to downstream purchasers sufficient to over-
come the prohibition against retroactive ratemaking, “the
overriding public interest in the maintenance of orderly
gas markets through the equitable allocation of costs”
made it “necessary and appropriate in these proceedings,
under section 4(d) of the Natural Gas Act, to waive the
filed rate doctrine.” Jd. at 61,488 & n. 26.
Subsequently, in response to a petition by Panhandle
Eastern Pipe Line Co. (“Panhandle”) for permission to
8a
direct bill its customers, the Commission purported to
waive the filed rate doctrine for Panhandle as it had in
the cases on remand from this court. Panhandle Eastern
Gas Pipe Line Co., 44 F.E.R.C. § 61,173 (1988). Various
parties petitioned this court for review. In addition, Pan-
handle petitioned for review of Panhandle Eastern Gas
Pipe Line Co., 45 F.E.R.C. 761,444 (1988) (Letter
Order), in which FERC limited Panhandle to sixty days
of accrued interest in its direct billing. The Commission
then sought and received this court’s order consolidating
all of these petitions because of the common legal issues
presented.
II. DISCUSSION _
A. FERC’s Waiver Authority Under Section 4(d)
The Supreme Court has provided the following sum-
mary of the filed rate doctrine:
[T]he Act bars a regulated seller of natural gas
from collecting a rate other than the one filed with
the Commission and prevents the Commission itself
from imposing a rate increase for gas already sold.
Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571, 578,
101 S.Ct. 2925, 2931, 69 L.Ed.2d 856 (1981) (emphasis
added).
On remand, the Commission correctly identified the is-
sue before it, and now before us, as “whether the Com-
mission can and, in the circumstances of these cases,
should waive the filed rate doctrine.” 45 F.E.R.C. at
61,486. The Commission proceeded to resolve immediately
the question of its authority to waive the doctrine:
The Commission’s authority to waive the filed rate
doctrine and its discretion whether to exercise this
authority in particular circumstances are unques-
tioned. The only limitation imposed upon the Com-
mission by the statute is that the grant of a waiver
must be “‘for good cause shown.”
asl
9a
Id. (citations omitted). It then spent the remainder of its
opinion justifying the exercise of its watnority in this
particular case.
We find the scope of the section 4(d) waiver authority
far less obvious than the Commission does. As we ob-
served just three years ago:
No court has squarely decided whether the Com-
mission’s waiver power may extend backward past
the original filing date absent the parties’ agreement.
Indeed, resolution of the conflict between the waiver
power and the retroactive ratemaking rule presents
difficult questions of statutory interpretation and reg-
ulatory policy. ... [T]he Supreme Court has noted
the potential conflict between the ban on retroactive
ratemaking and the Commission’s waiver power. .
City of Girard v. FERC, 790 F.2d 919, 924 (D.C.Cir.
1986) (citing Arkansas Louisiana Gas Co. v. Hall, 453
US. 571, 578 n.8, 101 S.Ct. 2925, 2930-31 n.8, 69
L,.Ed.2d 856 (1981)). We conclude that while the Com-
mission has considerable latitude to waive the notice re-
quirement under section 4(d), its powers do not encom-
pass what it claims in this case.
We begin by observing that FERC’s reliance on City of
Girard, supra, and United Gas Pipe Line Co. v. FERC,
707 F.2d 1507, 1511 (D.C.Cir.1983), for the proposition
that its power to waive the filed rate doctrine is unques-
tioned, 45 F.E.R.C. at 61,486 and n. 12, is completely mis-
placed. Even a cursory reading of City of Girard will
show that, far from holding that FERC had unquestioned
authority to waive the filed rate doctrine, we took pains
to avoid the question and resolved the issue by affirming
the Commission’s own determination that “good cause”
was lacking. 790 F.2d at 924-25. Indeed, in Girard, the
Commission would arguably have had a stronger case for
retroactive action, as the municipality there was request-
ing only its reclassification into another category, that of
full-requirements user, for which a valid tariff was al-
10a
ready in force, rather than, as here, requesting a retro-
active change in a valid tariff. Nonetheless, we specifi-
cally “decline[d] to address” the issue of whether FERC’s
waiver power may extend backward past the original
filing date. Id. at 924. United Gas Pipe Line Co., for its
part, is irrelevant to the issue before us. That case dealt
with the Commission’s power to waive its own regulation
prohibiting a certain transportation rate adjustment
mechanism, 18 C.F.R. § 154.38(d) (3), see United Gas
Pipe Line Co., 707 F.2d at 1509, and not with the waiver
of the statutorily grounded filed rate doctrine.
Although the question of FERC’s authority to waive the
filed rate doctrine was technically left open by prior de-
cisions, we believe the statutory language of section 4/d)
and the logic of our decisions in City of Piqua v. FERC,
610 F.2d 950 (D.C.Cir.1979), and Columbia I deny the
Commission the authority it claims. It is clear from the
statutory language that section 4/d) is directed at the
situation in which a utility, in this case a natural gas
company, wishes to make a change in a rate that is al-
ready in full legal effect. The section stipulates that “no
change [in filed rates] shall be made” by a company
“except after thirty days’ notice to the Commission and
to the public.” 15 U.S.C. § 717c(d). Further in the same
paragraph, the Commissicn is given authority, with good
cause shown, to “allow changes to take effect without the
thirty days’ notice herein provided for.” Jd.
It is apparent that this statutory notice, which the
Commission may waive on a showing of good cause, is not
the notice of prospective rate adjustments to which we
referred in Columbia I when we stated that the NGA’s
prohibition against retroactive rate increases might have
been overridden if FERC had provided “adequate notice
that [downstream] purchasers would be expected to pay
the deferred charges at a later date.” 831 F.2d at 1140.
That statement was addressed to those circumstances in
which the Commission has authorized increases in prices
lla
previously paid by purchasers who were already on notice
that the prices they were paying were provisional only.
Thus, in City of Piqua v. FERC, 610 F.2d 950, 954-55
(D.C.Cir.1979), this court considered the siuation where
a utility provider and a town had contractually agreed
upon a new, higher rate to take effect, by terms of the
contract, on May 10, 1977. Jd. at 951. Filing with the
Commission was delayed for a few months because of the
need to have the agreement approved by local authorities.
Id. We held in that case that FERC, in approving the
agreement, had not engaged in retroactive ratemaking:
“the negotiated ratechange was not retroactive; it was
prospective from the date of the contract.” Jd. at 954.
As the Commission’s waiver gave only prospective effect
to the rate change, it did not implicate the filed rate
doctrine.
The Fifth Circuit reached the same conclusion in Hall
v. FERC, 691 F.2d 1184 (5th Cir.1982). In that case,
the Commission had denied a request for the waiver of
statutory notice so that a “favored nations clause” in a
filed contract could be given effect. The Commission based
its denial on the prohibition against retroactive rate in-
creases. /d. at 1191. In finding that the Commission had
erred, the court noted that in the circumstances of the
case, “the Commission’s waiver gives prospective appli-
cation to the rates contractually author ed by the parties
at the effective date contemplated by the contract.” Jd. at
1192. The court also made another significant observa-
tion. Referring to an earlier case for comparison, the
court noted that where a company “sought a higher rate
than that ever filed with the Commission or contemplated
by the rate schedule/contract,” then a “purer example of
an action for a retroactive rate increase would be difficult
to imagine;” thus “a waiver of section 4(d) notice filing
requirements was neither involved nor applicable.” Id. at
1191 (emphasis added).
12a
The Commission acknowledges that courts have found
“good cause for granting a waiver” only where the par-
ties had previously agreed to a rate change. 45 F.E.R.C.
at 61,487 n. 20. It then attempts to distinguish City of
Piqua and Hall by arguing that while the courts have
found “good cause” in giving effect to the “intent of the
parties” in those cases, that is not the only basis upon
which it can show good cause for granting a waiver. Id.
at 61,487 & n. 20. As it has found that the public inter-
est and equity require the approval of direct billing in
these cases, the Commission asserts that it has sufficient
cause, under section 4(d), to grant a waiver even with-
out ecnsent of the parties. /d.
But here again, the Commission misinterprets those
cases where a seemingly “retroactive” rate was approved.
City of Piqua and Hall did not authorize the Commission
to impose rate retroactively because giving effect to the
parties’ intent is a policy of the Act and therefore “good
cause’ within the meaning of section 4(d). Rather, those
cases found that because of pre-existing agreements be-
tween the parties and the notice that went automatically
with them, those rates were not in fact retroactive. Jd. at
1192; City of Piqua, 610 F.2d at 954. City of Piqua is
quite emphatic about this:
The retroactive ratemaking rule thus bars ... the
Commission’s retroactive substitution of an unrea-
sonably high or low rate with a just and reasonable
rate. The present situation is immediately distin-
guishable. In this case, two parties agreed on new
rate schedules and on the effective date for the new
contract. The negotiated rate change was not retro-
active; it was prospective from the date of the con-
tract.
Id. at 954.
13a
The same principle obtains when the Commission itself
places parties on notice (as it did the first sellers and first
buyers of natural gas in Order No. 94) that the rates
they will be paying are subject to retroactive adjustment
at a later date. This procedure, moreover, is squarely
analogous to that in section 4(e) of the NGA in which
the published rates, by express terms of the statute, re-
main subject to later modification and are therefore pro-
visional in nature. 15 U.S.C. § 717c(e). Notice does not
relieve the Commission from the prohibition against retro-
active ratemaking. Instead, it changes what would be
purely retroactive ratemaking into a functionally pros-
pective process by placing the relevant audience on notice
at the outset that the rates being promulgated are provi-
sional only and subject to later revision. This in no way
dilutes the general rule that once a rate is in place with
ostensibly full legal effect and is not made provisional, it
can then be changed only prospectively.
In sum, we have found no support for the Commission’s
contention that on a finding of sufficient cause, it has the
authority, under section 4(d), to waive the filed rate
doctrine. Thus, as the Commission had failed to provide
adequate notice to the downstream purchasers that the
price they would be paying for gas during the 1980-83
period would be subject to adjustment, the Commission
was without authority to impose a retroactive surcharge
for whatever cause.
The Commission may well be correct in its assessment
of the equities here involved and of the distortion in mar-
ket signals that may result from the allocation of $1.5
billion in prior production costs to current sales. We are
unaware, however, of any principle in equity or law that
empowers an agency to ignore explicit legislative com-
mands in order to mitigate the damage its errors of judg-
ment or rulemaking delays may have caused.
l4a
B. FERC’s Power to Limit Panhandle’s Carrying Cost
Recovery
Because we find that direct billing for these charges is
unlawful under the Act, it follows that we need not de-
cide the question of the lawfulness of FERC’s denial of
interest in excess of sixty days to Panhandle.
III. CONCLUSION
For the reasons discussed above, we hold that as it has
no authority, under section 4(d), to waive the filed rate
doctrine, the Commission has invalidly reinstated its prior
orders. Accordingly, we dismiss as moot the petition in
No. 89-1186, grant the other petitions for review, again
strike the orders authorizing direct billing, and remand
to the Commission for further proceedings consistent with
this opinion.
So ordered.
15a
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 88-1701
COLUMBIA GAS TRANSMISSION CORPORATION,
Petitioner
Vv.
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent
and Consolidated Cases
BEFORE: Wald, Chief Judge; Mikva, Edwards, Ruth
B. Ginsburg, Silberman, Buckley, Williams,
D.H. Ginsburg, Sentelle and Thomas, Cir-
cuit Judges
ORDER
[Filed April 19, 1990]
The Suggestion For Rehearing En Banc of the inter-
venor pipelines has been circulated to the full Court. No
member of the Court requested the taking of a vote
thereon. Upon consideration of the foregoing it is
ORDERED, by the Court en banc, that the suggestion
is denied.
Per Curiam
FOR THE COURT:
CONSTANCE L. DUPRE
Clerk
By: /s/ Robert A. Bonner
ROBERT A. BONNER
Deputy Clerk
16a
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 88-1701
COLUMBIA GAS TRANSMISSION CORPORATION,
Petitioner
¥~
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent
and Consolidated Cases
BEFORE: Buckley, D.H. Ginsburg and Sentelle, Cir-
cuit Judges
ORDER
[Filed May 30, 1990]
Upon consideration of the motions for stay of mandate
and of the response thereto it is
ORDERED, by the Court, that the Clerk is directed to
withhold issuance of the Court’s mandate through June
22, 1990.
Per Curiam
FOR THE COURT:
CONSTANCE L. DUPRE
Clerk
By: /s/ Robert A. Bonner
ROBERT A. BONNER
Deputy Clerk
17a
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Docket No. RP85-148-007
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
Docket No. RP85-170-004
TEXAS EASTERN TRANSMISSION CORPORATION
Docket No. RP&5-181-002
TEXAS GAS TRANSMISSION CORPORATION
Docket No. RP85-202-002
TRUNKLINE GAS COMPANY
Docket No. RP85-203-003
PANHANDLE EASTERN PIPE LINE COMPANY
ORDER ON REMAND GRANTING WAIVERS
(Issued November 1, 1988)
Before Commissioners: Martha 0. Hesse, Chairman;
Charles G. Stalon, Charles A. Trabandt, Elizabeth Anne
Moler and Jerry J. Langdon.
The five separate proceedings captioned above have
been remanded to the Commission by the United States
Court of Appeals for the District of Columbia Circuit.’
1 See Columbia Gas Transmission Corp. v. FERC, 831 F.2d 1135
(D.C. Cir. 1987), modified on reh’g, 844 F.2d 879 (1988).
18a
History of These Proceedings
The Commission had issued orders in each of these
proceedings * granting the five pipeline companies au-
thority to pass on to their purchasers under direct billing
procedures certain retroactive production-related gather-
ing and compression costs which the pipeline companies
were required to pay their producers and suppliers pur-
suant to Section 110(a)(2) of the Natural Gas Policy
Act of 1978 (NGPA),* and the Commission’s Order No.
94 series implementing that section.*
2 Transcontinental Gas Pipe Line Corp., 32 FERC { 61,230, reh’g
and clarification denied, 33 FERC § 61,213 (1985); Texas Eastern
Transmission Corp., 32 FERC {§ 61,493, reh’g denied, 33 FERC
{| 61,257 (1985); Texas Gas Transmission Corp., 33 FERC {§ 61,032,
reh’g denied, 33 FERC {§ 61,359 (1985); Panhandle Eastern Pipe
Line Co., 33 FERC { 61,218 (1985), reh’g denied, 34 FERC { 61,231
(1986) ; Trunkline Gas Co., 33 FERC § 61,217 (1985), reh’g denied,
34 FERC § 61,021 (1986).
815 U.S.C. § 3320(a)(2). Section 110(a)(2) allows a first seller
of natural gas to charge an amount exceeding the applicable maxi-
mum lawful price “to the extent necessary to recover .. . any costs
of compressing, gathering, processing, treating, liquefying, or trans-
porting such natural gas, or other similar costs, borne by the seller
and allowed for, by rule or order, by the Commission.”
#In July 1980, under Order No. 94, FERC Statutes and Regula-
tions § 30,178. the Commission allowed gas producers and other
NGPA first sellers to recover some production-related costs as add-
ons to NGPA ceiling prices. Cost recovery for compressing or
gathering gas was postponed, however, pending a rulemaking to fix
generic ceilings for these two kinds of production-related costs, and
the Commission stated that, in the interim, no applications for recov-
ery of such costs would be accepted. But the Commission, in Order
No. 94, assured first sellers that “a retroactive collection procedure
will be provided under which the allowance for compression [and
gathering] costs determined under the generic rulemaking will be
applied to costs incurred with respect to gas delivered on or after
the effective date of this Rule if collection of such costs is con-
tractually authorized.” FERC Statutes and Regulations {% 30,178,
at p. 31,218. That retroactive collection procedure was set in mo-
19a
Pursuant to Order Nos. 94 and 94-A, producers in
1983 began charging pipeline customers the compression
and gathering costs that had built up on deliveries made
between July 1980 and March 1983. Pipelines so charged
began passing these costs through to their customers un-
der their PGA clauses.°
The pipelines soon experienced difficulties in attempt-
ing to recover these very substantial retroactive costs
from their purchasers in the volatile natural gas market
of the mid-1980s. As an alternative to recovering these
costs in their PGAs, several pipelines therefore requested
authority from the Commission to “direct bill’ these
costs. Under direct billing a pipeline would calculate
each customer’s share of the retroactive costs accrued
during the years 1980 to 1983 based on that customer’s
actual purchases during each month to which the retroac-
tive allowances applied. Each customer’s total amount
due, plus interest, would then be billed and paid in equal
installments over several months or, at the customer’s
option, in a single lump-sum payment.
tion in March 1983 with the generic allowances of Order No. 94-A
and related orders. See generally FERC Statutes and Regulations
7 30,419 and 18 C.F.R. § 271.1104(e). Order Nos. 94 and 94-A,
including the retroactive collection provisions, were affirmed in
relevant part in Texas Eastern Transmission Corp. v. FERC, 769
F.2d 1053 (5th Cir. 1985), cert. dented, 106 S. Ct. 1967 (1986).
5 Because these costs were part of the pipeline’s cost of purchasing
gas, they could be recovered through PGA clauses. 18 C.F.R.
$§ 154.801-.310. Additionally, as part of the NGPA first sale price,
these costs were guaranteed passthrough under NGPA § 601, which
provides that “[f]or purposes of Sections 4 and 5 of the Natural
Gas Act,” amounts lawfully paid as part of the NGPA first sale
price are “deemed to be just and reasonable” and “the Commission
may not deny any interstate pipeline recovery of any [such] amount
... except to the extent the Commission determines that the amount
paid was excessive due to fraud, abuse, or similar grounds.” 15
U.S.C. § 3431(c) (2).
20a
After the Commission approved such direct billing pro-
cedures in these five proceedings,® Columbia Gas Trans-
mission Corporation (Columbia), which purchased gas
from the five pipeline applicants during the retroactive
period and is a party to each of these proceedings, ap-
pealed the Commission’s five orders approving the direct
billing procedures to the D.C. Circuit
The court held that the pipelines’ direct billing for
retroactive production-related costs in the circumstances
of these cases violated the prohibition in sections 4(c)
and 5(a) of the Natural Gas Act’ against retroactive
ratemaking.* While recognizing that the prohibition
against retroactive ratemaking “might have been over-
ridden through adequate notice that purchasers would be
expected to pay the deferred charges at a later date,” the
court found that no such notice had been given here.
It held that Order Nos. 94 and 94-A provided the re-
i quired notice only “to a highly restricted audience” of
NGPA first sellers and their customers that those sellers
could collect for past costs, and not to anyone else.’ On
rehearing, the Court, while declining to alter its earlier
decision, did authorize the Commission on remand to con-
sider whether it has the authority to waive the filed rate
doctrine *® in the circumstances of these cases and
whether it is appropriate for the Commission to do so.
6 See n. 2, supra, and accompanying text.
715 U.S.C. §717c(c), 717d(a). These provisions form the basis
for what is generally referred to as the “filed rate doctrine,” the
parameters of which the Supreme Court, in Arkansas Louisiana Gas
Co. v. Hall, 453 U.S. 571, 578 (1981), explained to be that “the
{Natural Gas] Act bars a regulated seller of natural gas from col-
lecting a rate other than the one filed with the Commission and
prevents the Commission itself from imposing a rate increase for gas
already sold.”
8831 F.2d at 1142.
®831 F.2d at 1140.
10 See n. 7, supra, and accompanying text. Under section 4(d)
of the Natural Gas Act, 15 U.S.C. § 717c(d), the Commission may
“for good cause shown” waive the advance notice requirement for
the filing of an alteration in a rate.
2la
Issues on Remand
The scope of the Commission’s present analysis has
been circumscribed by the court which instructed “that
FERC is free to consider the waiver issue” but otherwise
reversed the orders issued by the Commission.'' What
must first be considered, therefore, is whether the Com-
mission can and, in the circumstances of these cases,
should waive the filed rate doctrine. If these questions
are answered in the affirmative, the Commission is then
free, consistent with the court’s directions, to leave its
five previous orders intact. If, however, these answers
are negative, a different solution consistent with the
court’s remand must be found.
Discussion
The Commission’s authority to waive the filed rate doc-
trine and its discretion whether to exercise this authority
in particular circumstances are unquestioned.'* The only
limitation imposed upon the Commission by the statute is
that the grant of a waiver must be “for good cause
shown.” *8
Here, while the pipelines’ customers have opposed di-
rect billing for the retroactive production-related gather-
ing and compression costs, there is no question that the
11 See 844 F.2d at 880.
12 City of Girard v. FERC, 790 F.2d 919, 925 (D.C. Cir. 1986);
United Gas Pipe Line Co. v. FERC, 707 F.2d 1507, 1511 (D.C. Cir.
1983). While the City of Girard case dealt with section 205 of the
Federal Power Act, 16 U.S.C. § 824d, it is settled that “the relevant
provisions of [the Natural Gas Act] are in all material respects
substantially identical to the equivalent provisions of the Federal
Power Act.” Appalachian Power Co. v. FPC, 529 F.2d 342, 344
(D.C. Cir. 1976) (quoting FPC v. Sierra Pacific Power Co., 350
U.S. 348, 353 (1956) ).
1315 U.S.C. § 717c(d); Section 4(d) of the Natural Gas Act. See
Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571, 578 n. 8 (1981).
22a
waiver is in the public interest. In each of these five
proceedings, the Commission has previously made find-
ings * that the pipelines’ direct billing procedures are an
equitable and practical method of allocating cost responsi-
bility. Under these procedures, pricing signals are not
distorted by the influx of substantial retroactive Order
No. 94-A costs. Furthermore, these procedures equitably
bill customers for the higher amounts they should have
paid for gas based on actual purchases during the past
billing periods and more accurately allow the true cost of
current gas supplies to be reflected in the pipelines’
PGAs. Thus, in approving these procedures, the Com-
mission was only upholding the usual rule that it can use
its equitable powers to require utility customers to bear
costs incurred for their benefit where the benefits and
costs are not simultaneous.”
In Hall v. FERC, the court stated that “perhaps [the]
most compelling reason” for deciding whether a waiver
of the filed rate doctrine should be granted or denied is
whether a different group of consumers will pay for the
gas than the ones who used it.’* The court there found
no evidence showing that the pipeline’s customer profile
had changed during the relevant period and therefore
could neither affirm nor reverse the Commission’s denial
of the waiver on that basis alone. (The court did reverse
the Commission’s denial of the waiver, however, based
upon lack of substantial evidence to support the four
~ bases for the Commission’s denial, including change in
14 F.9., Transcontinental Gas Pipe Line Corp., 33 FERC { 61,213,
at p. 61,443.
15 F.g., Public Systems v. FERC, 709 F.2d 73, 80, 85-86 (D.C.
Cir. 1983). See also Mid-Tex Electric Cooperative v. FERC, 773
F.2d 327, 349-50 (D.C. Cir. 1985); Interstate Natural Gas Ass’n v.
FERC, 756 F.2d 166, 171 (D.C. Cir. 1985) (recognizing the im-
portance of identifying customers receiving refunds due them).
16691 F.2d 1184, 1192-93 (5th Cir. 1983), cert. denied sub nom.
ARKLA v. Hall, 464 U.S. 822 (1983).
23a
customer profile. See 691 F.2d at 1191, 1198.) There is
no question here that the pipelines’ customer profiles have
changed. As a result, absent waiver, many of those cus-
tomers who used the gas during the 1980 to 1983 period
will not pay these compression and gathering costs. In-
stead, current customers will pay these costs for those
former customers. Equity and the public interest demand
that these costs '* be both recovered by the pipelines and
fairly allocated by the pipelines to those who benefitted
from the activities by which the costs were incurred.
Accordingly, we conclude that the public interest is best
served by granting the section 4(d) waiver.*®
The situation here is not analogous to those cases, in-
cluding City of Girard v. FERC," where the rate change
involved arose out of a private contract and the parties’
consent was considered essential.*° In those cases, the
courts were interpreting private contracts and were op-
erating within the context of the seminal principles that
17 This is not a penny-ante matter. Estimates of these costs for
all producers range up to $1.5 billion.
18Jt is established that the Commission has broad authority to
settle matters fairly. E.g., Columbia Gas Transmission Corp. v.
FERC, 750 F.2d 105, 109 (D.C. Cir. 1984) (“The breath of agency
discretion is, if anything, at [its] zenith” in the “fashioning of
policies, remedies and sanctions ... .”) (payback of natural gas
at contract, not market, price).
19 See 790 F.2d at 925.
20 The courts have consistently approved the “Commission’s long-
standing general policy . .. to find ‘good cause [for granting a
waiver]’ only when the parties to the rate have agreed at some
point in their negotiations on an effective date and the waiver is in
the public interest.” See City of Girard v. FERC, 790 F.2d at 924;
Hall v. FERC, 691 F.2d at 1192; City of Piqua v. FERC, 610 F.2d
950 (D.C. Cir. 1979). In circumstances where the parties have
agreed upon an effective date, the Commissicn waiver is not truly
retroactive but rather gives “prospective application to the rates
contractually authorized by the parties at the effective date con-
templated by the contract.” Hall v. FERC, 691 F.2d at 1192.
24a
both the Federal Power Act and the Natural Gas Act
were drafted to encourage and protect the right of par-
ties to establish rates by individual contracts and that
neither Act “evinces [any] purpose to abrogate private
rate contracts as such.” *! In those cases, then, the Com-
mission and courts were merely implementing the par-
ties’ intentions as expressed in their private contracts
and the public interest was not opposed to such effectua-
tion.”
In these proceedings, however, the circumstances man-
date that the nature of and necessity for the parties’ con-
sent be evaluated in the context of the overriding public
interest in the orderliness of the nation’s natural gas
markets and the ultimate benefit to gas consumers which
will thereby result.
The proceedings at issue here evolved out of the generic
Order No. 94 series which established and implemented
the collection by producers from pipelines of reasonable
gathering and compression costs.» The Commission’s di-
rect billing orders were likewise generic to the extent
that they implemented the passthrough of these costs to
all pipeline customers similarly situated.
It is unreasonable to have expected that pipelines could
have formally agreed with their customers (many of
whom were by then former customers) whereby those
customers would reimburse the pipelines for their Order
No. 94 series costs so long as those customers saw any
possibility of avoiding these very substantial payments.
At the same time, however, those customers, like Colum-
bia, were fully cognizant, from their involvement in the
21 Hall v. FERC, 691 F.2d at 1193 n. 16 (quoting United Gas
Pipe Line Co. v. Mobile Gas Corp., 350 U.S. 332, 338 (1956) ).
22 See City of Girard v. FERC, 790 F.2d at 925; Hall v. FERC,
691 F.2d at 1191-92 n. 13.
28 These orders were expressly authorized in section 110(a) (2)
of the Natural Gas Policy Act, 15 U.S.C. § 3320(a) (2).
me sve We ae ae seheWay
25a
Order No. 94 series proceedings, that during the 1980 to
1983 period between the issuance of Order No. 94, sus-
pending applications for gathering and compression costs,
and the issuance of Order No. 94-A, which effectively
lifted that suspension,“ they were not paying the full
cost of the gas volumes they in turn purchased from the
pipelines.”
In these circumstances, the consent of the pipelines’
customers ** must take a secondary position to the over-
riding public interest in the maintenance of orderly gas
markets through the equitable allocation of costs.
Accordingly, under our equitable powers to fashion
remedies effectuating fair results,77 we conclude that it
is necessary and appropriate in these proceedings, under
setcion 4(d) of the Natural Gas Act, to waive the filed
rate doctrine.
The Commission orders:
(A) For good cause shown, the notice requirement of
section 4(d) of the Natural Gas Act, 15 U.S.C. § 717c(d),
24 See n. 4, supra.
25 Columbia was obviously aware of the implications of the Order
No. 94 series. It participated in those proceedings before the Com-
mission and before the 5th Circuit in the Texas Eastern litigation.
See 769 F.2d at 1057.
26 The court found that Order Nos. 94 and 94-A did not consti-
tute notice to downstream purchasers sufficient to override the pro-
hibition against retroactive ratemaking. 831 F.2d at 1140. We are,
of course, bound by that finding. We do not believe, however, that in
our analysis here of customers’ consent to direct billing in the
context of waiver of the filed rate doctrine we are prohibited thereby
from acknowledging and taking into consideration that these cus-
tomers were fully aware of the implications of the Order No. 94
series, including the 5th Circuit’s upholding of these orders in the
Texas Eastern litigation.
27 Columbia Gas Transmission Corp. v. FERC, 750 F.2d at 109;
quoted in n. 21, supra.
26a
is waived with respect to the five applications for Com-
mission approval of direct billing procedures in these
proceedings.
(B) The orders previously issued by the Commission
in these proceedings, as clarified and supplemented by
this order pursuant to the court’s remand orders, shall
be complied with and implemented.
Commissioner Langdon voted present.
28 See n. 2, supra.
a
27a
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Docket No. RP85-148-008
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
Docket No. RP85-170-005
TEXAS EASTERN TRANSMISSION CORPORATION
Docket No. RP85-181-003
TEXAS GAS TRANSMISSION CORPORATION
Docket No. RP85-202-003
TRUNKLINE GAS COMPANY
Docket No. RP85-203-004
PANHANDLE EASTERN PIPE LINE COMPANY
ORDER DENYING REHEARING
AND RECONSIDERATION
(Issued January 24, 1989)
Before Commissioners: Martha O. Hesse, Chairman;
Charles G. Stalon, Charles A. Trabandt, Elizabeth Anne
Moler and Jerry J. Langdon.
On November 1, 1988, the Commission issued its “Order
on Remand Granting Waivers” in the five above-captioned
proceedings.’ In that order, the Commission, pursuant to
145 FERC {[ 61,169 (1988).
28a
its authority under section 4(d) of the Natural Gas Act,’
granted waivers of the filed rate doctrine to the five pipe-
line companies named above, thereby permitting them to
pass on to their purchasers under direct billing procedures
certain retroactive production-related gathering and com-
pression costs which the pipeline companies were re-
quired to pay their producers and suppliers pursuant to
section 110(a) (2) of the Natural Gas Policy Act of 1978,°
and the Commission’s Order No. 94 series implementing
that section.’ The order describes the history of these pro-
ceedings as well as the Commission’s Order No. 94 series
proceedings.
Timely requests for rehearing of the Commission’s No-
vember 1, 1988 order have been filed by Columbia Gas
Transmission Corporation (Columbia), Michigan Consoli-
dated Gas Company (Mich Con), and, jointly, Philadel-
phia Electric Company and Philadelphia Gas Works
(Philadelphia). For the reasons set forth below, we are
denying these requests for rehearing.°
The common argument raised on rehearing is that the
Commission erred in granting waiver of the filed rate
doctrine to the pipeline companies in the circumstances of
these cases because the pipeline companies’ purchasers
never consented to the direct billing procedures for the
retroactive production related gathering and compression
costs. Absent such consent, assert the applicants for re-
hearing, the Commission is imposing a retroactive rate
increase upon the customers of the pipeline companies in
violation of the ban against retroactive ratemaking.*®
215 U.S.C. § 717e\d) (1982).
315 U.S.C. § 3320(a) (2) (1982).
4 See 45 FERC at p. 61,485 n. 4 (1988).
5On December 29, 1988, the Municipal Defense Group filed a
motion for reconsideration raising the same objections as the
applicants for rehearing. We will also deny that motion.
6 See Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571, 578 n. 8
(1981).
29a
Mich Con asserts, further, that even if the Commission
has the authority here to waive the filed rate doctrine, the
necessary good cause, in the form. of truly extraordinary
circumstances warranting waiver, has not been demon-
strated. In addition, Columbia asserts that since the Com-
mission’s decision to grant waivers here is inconsistent
with its prior practice of permitting waiver only when the
contracting parties agreed to a retroactive date, the Com-
mission must acknowledge the change and substantiate
the reason for the change and it has not done so here.
Finally, Philaaelphia argues that the Commission’s “equi-
table powers to fashion remedies effectuating fair re-
sults” 7 can only be used in a manner consistent with the
Natural Gas Act’s ban on retroactive ratemaking, not to
circumvent that ban.
In the November 1, 1988 order, we discussed the ab-
sence of agreement by the pipeline companies’ customers
and concluded that, in the circumstances of these cases,
the consent of these customers must take a secondary
position to the overriding public interest in the mainte-
nance of orderly natural gas markets through the equita-
ble allocation of costs.* We distinguished those cases ®
cited by the applicants for rehearing where good cause for
waiver of the filed rate doctrine was found “only when
the parties to the rate have agreed at some point in their
negotiations on an effective date.”
In those cases, we stated, the rate changes had arisen
out of private contracts and the Commission and courts
were merely implementing the parties’ mutual intentions
745 FERC at p. 61,488.
8 We indicated that the magnitude of these costs for all producers
approached $1.5 billion. See 45 FERC at p. 61,487 n. 17.
® City of Girard v. FERC, 790 F.2d 919 (D.C. Cir. 1986); Hall v.
FERC, 691 F.2d 1184 (5th Cir. 1982) ; City of Piqua v. FERC, 610
F.2d 950 (D.C. Cir. 1979).
10 City of Girard v. FERC, 790 F.2d at 925.
30a
(or lack thereof) with respect to an effective date as ex-
pressed in their contracts. Furthermore, we indicated that
in those cases not only was the public interest not opposed
to such effectuation, but it was actually served by imple-
menting the parties’ expressed intentions in a manner
consistent with the policies embodied in the Federal Power
Act and the Natural Gas Act encouraging and protecting
parties’ rights to establish rates by individual contracts.
We found, in summary, that in the particular circum-
stances of these cases, the equitable results from granting
the waivers alone satisfied the good cause requirement
under section 4(d) of the Natural Gas Act and so, acting
pursuant to our equitable powers to fashion remedies
effectuating fair results, we granted the waivers." .
While it is certainly true, as we stated in our order of
November 1, 1988,'* and as the applicants for rehearing
have argued, that the Commission in the past has, with
judicial approval, considered the good cause requirement
of section 4(d) of the Natural Gas Act (and the equiva-
lent section 205(d) of the Federal Power Act) to be sat-
isfied in circumstances where the parties to a rate have
agreed at some point in their negotiations on an effective
date and the waiver is in the public interest,’* we believe
that the element of the parties’ agreement was a product
of the particular facts in those cases and does not alter
the underlying principle that the Commission’s satutory
11 While customers’ consent was lacking, we stated in our previous
order that the customers, like Columbia, were fully cognizant, from
their involvement in the Orcer No. 94 series proceedings, that dur-
ing the 1980 to 1983 period between the issuance of Order No. 94,
suspending applications for gathering and compression costs, and
the issuance of Order No. 94-A, which effectively lifted that suspen-
sion, they were not paying the full cost of the gas volumes they in
turn purchased from the pipelines. See 45 FERC at p. 61,488 and
n. 26.
1245 FERC at p. 61,487 n. 20.
18 F.g., City of Girard v. FERC, 790 F.2d at 925.
™ antes ai 6 att SD: LR is 2 Paes Paha.
BBs >
8la
authority to waive the filed rate doctrine for “good cause”
rests upon equitable implementation of what we perceive
to be in the public interest.
In each of the cases relied upon for the proposition
that the parties’ consent is essential to a finding of good
cause, the relevant agreement on an effective date for a
rate was that between the parties in their original con-
tract (or asserted contract) and each case arose, in the
first place, because one of the parties to the original
agreement had breached or otherwise failed to comply
with its terms,” or was asserting that an agreement with
respect to an effective date did in fact exist.** In each
case, therefore, the parties’ consent was a relevant factor
only to the extent a private rate contract was all that
was involved and only because, in such circumstances, the
policies of the Federal Power and Natural Gas Acts en-
couraging and protecting parties rights to establish rates
by individual contracts and the public interest in holding
parties to their contractual agreements were both served
thereby. In short, in these cases consent was a collateral
element of the public interest; it was not, in and of itself,
an essential element of good cause.’’ Consent, to our view,
has never been a sine qua non for granting waivers. It is
merely an incident in our determination of where the
public interest lies.
14 The underlying purpose of the Natural Gas Act is protection
of the consumer. See Atlantic Refining Co. v. Pub. Serv. Comm’n,
360 U.S. 378, 388 (1959).
18 Hall v. FERC, 691 F.2d 1184; City of Piqua v. FERC, 610
F.2d 950.
16 City of Girard v. FERC, 790 F.2d 919.
17 Since, as we indicated in our previous order (45 FERC at
p. 61,488), it was unreasonable to expect agreement among the
pipelines’ many customers to reimburse the pipelines for their
Order No. 94 costs, it clearly would not be in the public interest to
permit just one such customer to refuse to agree and thereby
distort the entire direct billing mechanism and, in the process,
usurp the public interest.
32a
Where, however, as is the case in the instant proceed-
ings, requiring consent in order to grant the waivers
would impede the otherwise overwhelming public interest
in granting them,'® consent is irrelevant.’® Accordingly,
we deny the requests for rehearing and the motion for
reconsideration.
The Commission orders:
(A) The requests for rehearing filed by Columbia Gas
Transmission Corporation, Michigan Consolidated Gas
Company, and, jointly, Philadelphia Electric Company
and Philadelphia Gas Works are denied.
(B) The motion for reconsideration filed by the Mu-
nicipal Defense Group is denied.
18 Jn our initial order here, we described the negative effects to
the industry of not granting waivers in these proceedings. See
45 FERC at pp. 61,487-61,488.
39 We do not, therefore, see this analysis as reflecting a change
in policy as Columbia has asserted.
nak ae *.
38a
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Docket No. RP88-203-00"
PANHANDLE EASTERN PIPE LINE COMPANY
. ORDER GRANTING AUTHORITY TO
IMPLEMENT DIRECT BILLING PROCEDURE
(Issued July 29, 1988)
Before Commissioners: Martha 0. Hesse, Chairman;
Anthony G. Sousa, Charles G. Stalon and Charles A.
Trabandt.
On June 30, 1988, Panhandle Eastern Pipe Line Com-
pany (Panhandle) filed a petition for authority to insti-
tute a direct billing procedure to recover from its custom-
ers production-related costs pursuant to Order No. 473.'
It also requests waivers of the Commission’s regulations
and the provisions of Panhandle’s tariff as may be re-
quired to permit the use of the direct billing procedure.
Panhandle proposes to bill each jurisdictional customer
directly for its pro rata share of specific Order No. 473
costs which have actually been paid by Panhandle to one
of its producer-suppliers, Phillips 66 Natural Gas Com-
pany (Phillips), together with the appropriate interest
calculated in accordance with the Commission’s regula-
1 Compression Allowances and Protest Procedures Under NGPA
Section 110, Order No. 473, FERC Statutes and Regulations § 30,747,
reh’g granted in part, Order No. 473-A, FERC Statutes and Regula-
tions { 30,788 (1987).
84a
tions. Panhandle proposes that the jurisdictional portion
of the payment be allocated among its jurisdictional cus-
tomers based on the proportion of sales to each customer
during the period December 1, 1979 through December 31,
1984, to the total sales during that same period. This
time frame corresponds to the period during which Pan-
handle paid the Order No. 473 amount to its producer-
supplier.
Background
In Order No. 473, the Commission amended 18 C.F.R.
§ 271.1104 to permit first sellers of natural gas to collect
allowances for the cost of fuel or power required to drive
compression facilities upon which construction commenced
yrior to enactment of the NGPA. The Commission per-
mitted producers to collect these amounts retroactively
from August 10, 1987 back to July 25, 1980, or any ear-
lier date on which the producer filed an application with
the Commission to recover NGPA Section 110 production-
related costs. Direct billing of certain compressor costs
has previously been approved by the Commission.’
Description of the Filing
Panhandle proposes to collect by the direct billing pro-
cedure, $15,715,672.68 (including interest) from its juris-
dictional customers. Panhandle states that the above
amount is the jurisdictional portion of the compressor
costs paid to its producer-supplier (Phillips) and pro-
poses that these costs be allocated among its jurisdictional
customers according to the ratio of each customer’s total
jurisdictional sales during the period December 1, 1979
through December 31, 1984, to the total sales during the
same period. Panhandle filed tariff sheets* which set
2 See CNG Transmission Corp., 42 FERC { 61,227 (1988): Na-
tional Fuel Gas Supply Corp., 48 FERC {§ 61,283 (1988).
8 Nineteenth Revised Sheet Nos. 3-C.1, 3-C.2 and 3-C.83 to FERC
Gas Tariff, Original Volume No. 1.
ee ee ree
35a
forth the resulting amount allocated to each of its juris-
dictiona! customers and requests an effective date of
August 1, 1988 to implement the proposal.
In addition, Panhandle has supplied a schedule detailing
how the allocation is to be accomplished and the individual
customer sales data and resulting amounts of Order No.
473 costs. The schedule alsc shows the cost allocation
between Panhandle’s jurisdictional and non-jurisdictional
sales customers of the total Order No. 473 payment.
Panhandle proposes to bill each customer on August 10,
1988, for the amount allocated to each customer, including
interest. Each customer will have the option of paying its
allocated amount in twelve monthly installments pursuant
to the monthly billing procedures contained in Panhandle’s
tariff. Additional interest will be calculated if the cus-
tomer chooses to pay in twelve monthly installments.
Because several of its firm sales contracts will expire
prior to completion of the twelve month installment pe-
riod, Panhandle requests that the Commission require that
its customers’ obligation to pay such amounts be extended
until the amounts are paid in their entirety.
To account for the direct billing procedure, Panhandle
proposes to establish a separate Account No. 191 sub-
account. Panhandle will debit the sub-account with the
Order No. 473 payments and would credit the amounts
received from its customers under the direct billing pro
—eedure.
Panhandle maintains that the direct billing proposal
is the most equitable and appropriate method of allocating
such costs because it matches these costs to each custom-
ers’ respective purchases during the period in which the
costs were incurred. It contends that recovery of these
payments through the normal PCA mechanism would be
inappropriate because a customer could avoid its fair
share of the costs by reducing future purchases.
36a
Public Notice, Motions to Intervene and Protests
Public notice of Panhandle’s filing was issued on July
7, 1988, providing for protests, motions or notices to inter-
vene to be filed on or before July 14, 1988. Timely notices
or motions to intervene were filed by the parties listed in
Appendix A to this order. Pursuant to Rule 214 (18
C.F.R. § 385.214 (1987)) any timely filed motions to in-
tervene are granted unless an answer in opposition is
filed within 15 days of the date such motion is filed. Any
timely filed motions or notices not listed in Appendix A
are also granted in accordance with Rule 214.
Several parties filed petitions contesting Panhandle’s
direct billing proposal. Michigan Gas Storage Company
(MGSC) requests that the proposed effective date of the
proposal be suspended pending further investigation.
MGSC states that it has several questions regarding the
filing that should be resolved before the filing is accepied.
Specifically, MGSC questions Panhandle’s allocation of
$2.02 million of these costs to MGSC, the circumstances
surrounding the incurrence of Order No. 473 costs, and
whether Panhandle has provided sufficient good cause to —
obtain a waiver of the Commission’s regulations and the
filed rate doctrine.
Columbia Gas Transmission Company (Columbia),
Kansas Power and Light Company (KP&L), Michigan
Consolidated Gas Company (MichCon), and Municipal
Defense Group (MDG) oppose the direct billing proposal
as violative of the filed rate doctrine and the prohibition
against retroactive ratemaking.
Discussion
The Commission finds that Panhandle’s direct billing
proposal is an equitable and practical method of allocating
cost responsibility for thse past period Order No. 473
costs. Panhandle’s proposal is similar to other Order No.
ie Be ay
37a
473 proposals which were accepted by the Commission.‘
While the Commission declined to adopt a general rule for
the direct billing of compressor facility costs in Order No.
473, it stated that it would be receptive to filings by pipe-
lines to implement direct billing mechanisms where appro-
priate.®
Appropriate circumstances are present in this case. The
costs which Panhandle seeks to recover are nonrecurring
out-of-period costs. An attempt to recover such costs
through the PGA mechanism would allow customers to
escape cost liability by reducing future purchases from
Panhandle. The direct billing mechanism provides a fair
and accurate method of allocating cost responsibility ac-
cording to the purchases of Panhandle’s customers during
the period in which these costs were incurred.
‘Lae intervenors argue that acceptance of Panhandle’s
proposal will constitute a violation of the filed rate doc-
trine and the prohibition against retroactive ratemaking.
The intervenors argue that it is a well established prin-
ciple of ratemaking that natural gas customers cannot be
retroactively assessed increased charges without prior no-
tice.° In Columbia, the court found that direct billing
mechanisms approved by the Commission under Order
Nos. 94 and 94-A’ could not be lawfully imposed without
4 See supra note 2.
5 Order No. 473 at p. 30,673.
6 Citing Columbia Gas Transmission Corp. v. FERC, 831 F.2d
1135 (D.C. Cir. 1987), aff’d on rehearing, 844 F.2d 879 (D.C. Cir.
1988); see also Arkansas-Louisiana Gas Co, v. Hall, 453 U.S. 571
(1981).
7 Regulations Implementing Section 110 of the Natural Gas Policy
Act of 1978 and Establishing Policy Under the Natural Gas Act,
Order No. 94, FERC Statutes and Regulations, Regulations Pre-
ambles 1977-1981 § 30,178 (1980), reh’g granted in part, Order No.
94-A, FERC Statutes and Regulations, Regulations Preambles 1982-
1985 § 30,419, modified, Order No. 94-B, FERC Statutes and Regu-
lations, Regulations Preambles 1982-1985 { 30,421, reh’g denied,
38a
proper notice. However, on rehearing of Columbia, the
court affirmed that on remand the Commission was free
to consider whether waiver of the filed rate doctrine is
warranted in view of the magnitude of the costs at issue.®
Here, equity demands that Panhandle be granted a
waiver of the notice requirement to permit implementa-
tion of the direct billing procedure which will allow Pan-
handle to collect production-related costs from those cus-
tomers who caused their incurrence. Failure to grant a
waiver under these circumstances would result in Pan-
handle having to absorb costs which its suppliers are
expressly authorized to collect and which it is entitled to
recoup from its customers. Furthermore, a pipeline’s au-
thorization to recover these costs does not restrict the
rights of interested parties to contest the propriety of
individual Order No. 473 payments. Since the protest
procedure gives both pipelines and their customers the
opportunity to challenge the authority of gas suppliers to
collect these costs, the Commission does not believe that a
notice requirement is also necessary to protect customers.
Accordingly, the direct billing proposal submitted by
Panhandle is approved subject to the following conditions:
(A) Panhandle is required to identify the specific con-
tracts with Phillips to which the Order No. 473 costs
pertain.
Order No. 94-C, FERC Statutes and Regulations, Regulations Pre-
ambles 1982-1985 { 30,454, reh’g denied, Order No. 94-D, 23 FERC
{| 61,279, clarified, Order No. 94-E, FERC Statutes and Regulations,
Regulations Preambles 1982-1985 § 30,528 (1983), clarified further,
Order No. 94-F, FERC Statutes and Regulations, Regulations Pre-
ambles 1982-1985 {| 30,654, reh’g denied, Order No. 94-G, 32 FERC
| 61,483 (1985). Order No. 94-A was affirmed in part in Texas
Eastern Transmission Corp. v. FERC, 769 F.2d 1053 (5th Cir.
1985), cert. denied, 106 S.Ct. 1967 (1986). The rulemaking pro-
ceeding that culminated in the issuance of Order No. 473 originated
as a consequence of the court’s remand in the Texas Eastern case.
® Columbia, 844 F.2d at 880; see generally City of Piqua, Ohio v.
FERC, 610 F.2d 950 (D.C. Cir. 1979).
veree
39a
(B) Panhandle is required to provide workpapers de-
tailing its calculation of the amount to be charged its
customers and tite specific cost allocation to each customer.
(C) Panhandle is required to state the date that it
first received a billing for Order No. 473 costs from Phil-
lips, and to explain the reason for Panhandle’s delay in
filing to recover these costs.
In addition, the Commission shall require that any
customer who elects to pay its direct billed costs over a
twelve-month installment period be charged additional
interest calculated in accordance with section 154.102 (c)
of the Commission’s regulations.°
The Commission orders:
(A) Panhandle’s tariff sheets listed in footnote 3 of the
order are accepted for filing subject to the conditions con-
tained in the order.
(B) Waiver of the Commission’s regulations and of
Panhandle’s tariff is granted to the extent necessary to
effectuate the direct billing procedure.
918 C.F.R. § 154.102(c) (1987).
40a
APPENDIX A
Citizens Gas & Coke Utility
Missouri Public Service Division of Utilicorp United, Inc.
Northern Indiana Public Service Company
Illinois Commerce Commission
Illinois Power Company
General Service Customer Group
East Ohio Gas Company _
Indiana Gas Company
Michigan Gas Storage Company*
Michigan Consolidated Gas Company”*
Kansas Power & Light Company*
Municipal Defense Group*
Columbia Gas Transmission Corporation*
* Denotes parties that have also protested filing.
ee ee ne ts tee ee! ny
er rset. 4 ee
Oe mt acta gO eae RIE fs
4la
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Docket No. RP88-203-001
PANHANDLE EASTERN PIPE LINE COMPANY
NOTICE OF DENIAL OF REHEARING
BY OPERATION OF LAW
(Issued September 21, 1988)
Lois D. Cashell, Acting Secretary.
On August 26, 1988, Columbia Gas Transmission Cor-
poration and Michigan Consolidated Gas Company filed
requests for rehearing of the Commission’s order in the
above-captioned docket issued on July 29, 1988.1 On Au-
gust 29, 1988, Municipal Defense Group filed a request
for rehearing of the July 29 order. That order granted
Panhandle Eastern Pipe Line Company waiver of the
Commission’s notice requirement and approved the imple-
mentation of a direct billing procedure to recover from
its customers production related costs pursuant to Order
No. 473.?
Take notice that the Commission determined to take no
action on the requests for rehearing. Accordingly, the
requests for rehearing are denied by operation of law
pursuant to Rule 713(f) of the Commission’s Rules of
Practice and Procedure (18 C.F.R. § 385.713 (f) ).
144 FERC { 61,173 (1988).
2 Compression Allowances and Protest Procedures Under NGPA
Section 110, Order No. 473, FERC Statutes and Regulations § 30,747,
reh’g granted in part, Order No. 473-A, FERC Statutes and Regula-
tions § 30,788 (1987).
42a
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Nos. 85-1846, 85-1847, 86-1021, 86-1074,
86-1082, 86-1164 and 86-1187
COLUMBIA GAS TRANSMISSION CORPORATION,
Petitioner,
Vv.
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent,
PUBLIC SERVICE ELECTRIC AND GAS COMPANY, PHILADEL-
PHIA GAS WORKS, PHILADELPHIA ELECTRIC COMPANY,
BAY STATE GAS COMPANY, et al.,
Intervenors.
Petitions for Review of Orders of the
Federal Energy Regulatory Commission
Argued Dec. 15, 3.'86
Decided Oct. 27, 1987
Richard L. Gottlieb, Charleston, W.Va., for petitioner
Columbia Gas Transmission Corp. in Nos. 85-1846, 85-
1847, 86-1074, 86-1082 and 86-1164. Steve H. Finch,
G.D.H. Snyder, and S.J. Small, Charleston, W.Va., en-
tered appearances for Columbia Gas Transmission Corp.
Philip B. Malter, with whom Charles F. Wheatley, Jr.,
Annapolis, Md., and Paul M. Flynn, Washington, D.C.,
een tek inte: OL Mii
Ne mene int lb ait eae oe
43a
were on the brief, for petitioner Mun. Defense Group in
No. 86-1187.
Michael J. Fremuth, with whom Thomas F. Ryan, Jr.,
and Robert G. Hardy, Washington, D.C., were on the
brief, for Transcontinental Gas Pipe Line Corp., peti-
tioner in No. 86-1021 and intervenor in No. 85-1847; and
on the joint brief for intervenor pipelines, syith Bolivar
C. Andrews, Carl W. Ulrich, Judy M. Johnson, and J.
Stephen Martin, Houston, Tex., for intervenor Texas
Eastern Transmission Corp.; William Douglas Field, Jr.,
‘Owensboro, Ky., and Michael R. Waller, Houston, Tex.,
for intervenor Texas Gas Transmission Corp.; Raymond
N. Shibley, Lawrence G. Acker, and Patrick J. Whittle,
Washington, D.C., for intervenors Trunkline Gas Co. and
Panhandle Eastern Pipe Line Co. Thomas R. Sheets,
Houston, Tex., also entered an appearance for inter-
venor Texas Eastern Transmission Corp.
John H. Conway, Atty., F.E.R.C., for respondent. Bar-
bara J. Weller, Sol., and A. Karen Hill, F.E.R.C., Wash-
ington, D.C., were on the brief, for respondent.
Glenn W. Letham and Joshua L. Menter, Washington,
D.C., were on the brief, for intervenor Memphis Light,
Gas & Water Div. in No. 86-1074.
John Sandor, Washington, D.C., was on the brief for
amicus curiae The Nat. Ass’n of Consumer Owned Gas
Systems, urging reversal.
Frank P. Saponaro, Jr. and Jennifer K. Walter, Wash-
ington, D.C., entered appearances for intervenor Phila-
delphia Gas Work:
James R. Lacey, Newark, N.J., entered an appearance
for intervenor Public Service Elec. and Gas. Co.
Robert A. MacDonnell, Philadelphia, Pa., entered an
appearance for intervenor Philadelphia Elec. Co.
John S. Schmid, Washington, D.C., entered an appear-
ance for intervenors Bay State Gas Co., et al.
44a
John E. Holtzinger, Jr., John T. Stough, Jr., and
Jacolyn A. Simmons, Washington, D.C., entered appear-
ances for intervenor Atlanta Gas Light Co.
Stanley M. Morley, Joel F. Zipp, and Paul W. Diehl,
Washington, D.C., entered appearances for intervenor
South Carolina Pipeline Corp.
Nusha Wyner, Newark, N.J., Stanley W. Balis, and
Susan N. Kelly, Washington, D.C., entered appearances
for intervenor Public Advocate of New Jersey.
Frank H. Strickler and Gordon M. Grant, Washing-
ton, D.C., entered appearances for intervenor Washing-
ton Gas Light Co.
David E. Blabey, Albany, N.Y., Richard A. Solomon,
and David D’Alessandro, Washington, D.C., entered ap-
pearances for intervenor Public Service Com’n of the
State of N.Y.
Jerry W. Amos, Greensboro, N.C., entered an appear-
ance for intervenor Piedmont Natural Gas Co., Inc.
William W. Ross and Daniel L. Koffsky, Washington,
D.C., entered appearances for intervenor Consumers
Power Co.
James H. Holt and Jeffrey M. Petrash, Detroit, Mich.,
entered appearances for intervenor Michigan Consol. Gas.
Co.
John R. Schaefgan, Jr. and Richard M. Merriman,
Washington, D.C., entered appearances for intervenors
General Customer Service Group, et al.
Before BUCKLEY and WILLIAMS, Circuit Judges,
and GERHARD A. GESELL,* U.S. District Judge for
the District of Columbia.
Opinion for the Court filed by Circuit Judge BUCK-
LEY.
* Sitting by designation pursuant to 28 U.S.C. § 292(a).
Aiba Ie abn es» book Nathan
45a
BUCKLEY, Circuit Judge:
Petitioners challenge Federal Energy Regulatory Com-
mission orders permitting five pipelines to recover a sur-
charge from their customers on gas already sold to them.
The amount of the surcharge would, in effect, reimburse
the pipelines for the amounts that the pipelines had sub-
sequently been required to pay to producers for certain
deferred production-associated costs. The principal issue
in these cases is the propriety, under the governing stat-
utes, of such a surcharge.
We conclude that the Commission exceeded its author-
ity when, without proper notice, it approved what in
effect were retroactive increases in the price of natural
gas previously sold by the pipelines to their customers.
I. BACKGROUND
Under the Natural Gas Act (“NGA”), 15 U.S.C.
$§ 717-717w (1982), natural gas companies are required
to keep on file with the Federal Energy Regulatory Com-
mission (“FERC” or “Commission”) “schedules show-
ing all rates and charges for any transportation or sale
[of natural gas] subject to the jurisdiction of the Com-
mission.” 15 U.S.C. § 717c(c) (1982). Under the Nat-
ural Gas Policy Act of 1978 (“NGPA”), 15 U.S.C. §§ 3301-
3432 (1982), Congress established ceiling prices for “first
sales” (typically sales by producers to pipeline companies
(“first purchasers”) ) of various categories of natural
gas. 15 U.S.C. §§ 3312-3319 (1982). In section 110 of the
NGPA, Congress permitted natural gas producers to
charge for certain production-related costs in excess of the
ceiling prices established under the NGPA:
[A] price for the first sale of natural gas shall not
be considered to exceed the maximum lawful price
applicable to the first sale of such natural gas under
this part if such first sale price exceeds the maxi-
46a
mum lawful price to the extent necessary to re-
cover.—
. . 7
(2) any costs of compressing, gathering, process-
ing, treating, liquefying, or transporting such nat-
ural gas, or other similar costs, borne by the seller
and allowed for, by rule or order, by the Commission.
15 U.S.C. § 8320(a) (1982).
Upon enactment of the NGPA, the Commission im-
mediately issued, and at the same time sought public
comment on, interim regulations to implement section
110. Interim Regulations Implementing the Natural Gas
Policy Act of 1978 §§ 271.101-271.1106, 43 Fed.Reg.
56,448, 56,552-77 (1978). The Interim Regulations did
not implement every provision of the NGPA, but merely
proposed guidelines to deal with those areas demanding
the most immediate atyention. Jd. at 56,452. Part 271 of
the Interim Regulations specified the maximum lawful
prices applicable to first sales of natural gas. Id. at 56,-
552. Subpart K prescribed “regulations under which a
price for a first sale of natural gas shall not be consid-
ered to exceed the applicable maximum lawful prices set
forth in Part 271 if such first sale price exceeds the maxi-
mum lawful price to the extent necessary to recover...
production related costs approved by order of the Com-
mission under § 271.1105.” Jd. at 56,574.
In 1980, FERC amended Subpart K to, inter alia, (1)
allow sellers of committed or dedicated natura! gas under
the NGPA to apply for production-related costs in ex-
cess of NGA allowances, (2) permit certain sellers of
natural gas to collect NGA allowances without applica-
tions, and (3) provide for a new category of production-
related costs (“other costs”). Order No. 94: Order
Amending Interim Regulations Under the Natural Gas
Policy Act of 1978 and Establishing Policy Under the
Natural Gas Act, 45 Fed.Reg. 53,099 (1980).
on Se
47a
In the same order, the Commission announced that it
would not accept applications for “compression costs”
until the Commission completed proceedings to determine
an appropriate generic allowance:
Compression is perhaps the single most complex cost
category which we must consider for a production-
related add-on. First, of the activities specifically
listed under section 110, compression, more than any
other, can be undertaken as a production or non-
allocable activity. Second, no standard or prevailing
industry practice now exists for determining the
costs of compression. This means that a seller seek-
ing to add-on compression costs must make a show-
ing as to the costs incurred and the type of com-
pression undertaken. If this must be done case-by-
case for each seller there is a potential for long delay
and inconclusive results. Rather than this approach
(which was the approach of the interim regulations
issued in December 1978), we believe that an appro-
priate allowance for compression can be determined
which would apply for specific kinds of compression.
To this end we will inaugurate a generic proceeding
to determine the appropriate allowance. . .. During
the pendency of the proceeding, in our exercise cf
discretion, we will accept no applications for com-
pression costs.
Id. at 58,107 (footnote omitted). The Commission initi-
ated the same kind of proceeding to establish an appro-
priate generic allowance for “gathering costs.” Jd. at
53,108. The Commission assured first sellers that a “ret-
roactive collection procedure will be provided under which
the allowance for compression [and gathering] costs de-
termined under the generic rulemaking will be ‘applied
to costs incurred with respect to gas delivered on or after
the effective date of this Rule if collection of such costs
is contractually authorized.” Jd. at 53,107 (footnote
omitted).
48a
In the meantime, first purchasers of the gas had re-
course to an existing method for recovering these addi-
tional estimated costs from their customers; namely, a
system of prospective charges called “purchased gas ad-
justment clauses” (“PGA clauses”). 18 C.F.R. § 154.38-
(d) (4) (1987). PGA clauses, like rates, must be filed
with and approved by the Commission before being put
into effect. Proposed PGA clauses must also be accom-
panied by cost studies “based upon actual costs for the 12
months of most recently available actual experience.”
18 C.F.R. § 154.38(d) (4) (i). This mechanism thus per-
mits pipelines to recover through prospective sales, on the
basis of reasonably current calculations, the fluctuating
production-related costs they are required to reimburse
producers.
In 1983, the Commission issued Order Nos, 94-A, 48
Fed.Reg. 5,152 (1983), and 94-B, 48 Fed.Reg. 5,190
(1983), containing its long-promised regulations address-
ing generic compression and gathering cost allowances.
These orders authorized natural gas producers to recover
retroactively from first purchasers the costs incurred by
the producers in the delivery and compression of natural
gas (“deferred costs’) delivered to the pipelines prior to
March 7, 1983 (the effective date of Order Nos. 94-A and
94-B), but after July 25, 1980 (the effective date of
Order No. 94) or the date on which the producer filed
an application with the Commission for reimbursement
of the deferred costs, whichever was earlier. 18 C.F.R.
§ 271.1104(e) (1987).
A number of first purchaser pipeline companies sought
to pass these costs on to their customers (“downstream
purchasers”). To this end, they petitioned FERC for
permission to bill their customers directly for the cus-
tomers’ pro-rata shares of these deferred expenses, such
billing to take the form of a surcharge for gas purchased
by each customer during the three-year period between
the issuance of the interim order (Order No. 94) and the
final orders (Order Nos. 94-A and 94-B). In five cases,
49a
the Commission issued orders * granting pipeline com-
panies permission to do so. The “direct billing” method
for reimbursement is described in the proposal submitted
by Transcontinental Gas Pipeline Corp. (“Transco”) and
approved by the Commission. Under its terms, Transco
undertook
to calculate each customer’s share of the retroactive
allowances based on each customer’s actual pur-
chases during each month to which the retroactive
allowances apply. Each customer’s total amount due,
plus interest, will then be billed and paid in equal
installments over a twelve-month period, or paid in
a single }ump-sum payment at the customer’s option.
32 F.E.R.C. 7 61,230 at 61,545. Thus, in contrast with
the prospective PGA clause mechanism, the direct billing
procedure was designed to provide pipelines with a method
for recovering retroactively, through a system of sur-
charges, the amounts the Commission determined they
were required to reimburse producers for production-as-
sociated costs that had accrued during the three-year
period.
Petitioners have appealed each of the five orders. Co-
lumbia Gas Transmission Corp. and the Municipal De-
fense Group (representing a nuinber of distribution com-
panies that purchase natural gas from pipeline compa-
nies) challenge the legality of direct billing on the ground
that it constitutes retroactive ratemaking prohibited by
the Natural Gas Act. Columbia Gas also asserts that the
direct billing procedure is inconsistent with FERC’s own
* Transcontinental Gas Pipe Line Corp. [“Transeo"), 32 F.E.R.C.
© 61,230, reh’g and clarification denied, 33 F.E R.C. © 61,213 (1985);
Texas Eastern Transmission Corp., 32 F.E.R.C. © 61,493, reh'g de-
nied, 33 F.E.R.C. § 61,257 (1985); Teras Gas Transmission Corp.,
33 F.E.R.C. © 61,032, reh’g denied, 33 F.E.R.C. © 61,359 (1985);
Panhandle Eastern Pipe Line Co., 33 F.E.R.C. © 61,218 (1985),
reh'g denied, 34 F.E.R.C. © 61,231 (1986); and Trunkline Gas Co.,
33 F.E.R.C. © 61,217 (1985), reh’g denied, 34 F.E.R.C. € 61,021
(1986).
50a
precedent, and that the PGA clause mechanism is the only
method (aside from filing for rate increases) that is au-
thorized for recovering such additional expenses.
_The Commission, supported by various intervening
_ pipeline companies, defends its approval of the direct bill-
ing procedure on the basis of its equitable results, as it
would require customers to pay the actual cost of the gas
they have purchased. The Commission also argues that
its orders do not constitute retroactive rulemaking be-
cause the Commission’s 1980 and 1983 ordeis provided
adequate notice that the deferred costs would be passed
along to the pipelines and their customers.
Although Transco supports the concept of direct bill-
ing, it challenges FERC’s decision ‘to apply a different
rate of interest on amounts previously collected under
PGA clauses that Transco must now refund to customers
and the rate it may apply in calculating the total amount
to be recovered from them through direct billing. The
Commission has admitted that its consideration of this
issue was based on error and, on November 24, 1986, it
moved that we remand this one issue for further con-
sideration. :
II. ANALYSIS
A. The Rule Against Retroactive Ratemaking
Both Columbia and the Municipal Defense Group chal-
lenge direct billing as constituting retroactive ratemak-
ing and therefore contrary to law. The Commission de-
fends its decisions to allow pipeline companies to directly
bill their customers for deferred production-related ex-
penses on the basis of an equitable result:
*The Commission . . . determined that allocating
these costs to the pipelines’ customers on the basis
of volumes purchased at the time the costs were in-
curred “will equitably bill customers for the higher
amounts they should have paid based on actual pur-
chases during the past billing periods.” This is a
>
5la
sound reason for adopting the direct billing method;
thus the Commission’s choice of that method is ra-
tionally based.
Brief for Commission at 13 (quoting Transco, reh’g and
clarification denied, 33 F.E.R.C. { 61,213 at 61,443) ; see also,
e.g., Transco, 32 F.E.R.C. 7 61,230 at 61,543 (“[Transco’s
proposal] is administratively effective, equitable, and
meets our concern that pricing signals not be distorted
by the influx of substantial retroactive Order No. 94-A
costs. Above all, it will break up the logjam that has
existed and permit a relatively speedy passthrough of
long overdue cost responsibility.”). The Commission fur-
ther argues that “Order Nos. 94 and 94-A put everyone
on notice that these compression and gathering costs
would be retroactively collected, once the Commission de-
termined the appropriate method and dollar amount.”
Brief for Commission at 14 (citing Transco, 32 F.E.R.C.
7 61,230 at 61,544-45, and 33 F.E.R.C. {| 61,213 at 61,443).
Although the parties have mounted an extensive se-
mantic battle over whether the FERC orders amount to
retroactive ratemaking (or rate authorization), the ef-
fect of the orders is quite clear: downstream purchas-
ers are expected to pay a surcharge, over and above the
rates on file at the time of sale, for gas they had already
purchased. However descrived, this constitutes a retro-
active rate increase that we find to be prohibited by the
NGA. While that prohibition might have been overridden
through adequate notice that purchasers would be expected
to pay the deferred charges at a later date, Order Nos.
94 and 94-A did not constitute such notice. Because they
were addressed exclusively to first sales of natural gas,
they cannot be deemed to have placed downstream pur-
chasers on notice that they in turn would be expected
to absorb those costs through a system of surcharges
collected after the fact. Thus there is no support for
the Commission’s assertion that its orders “‘put everyone
on notice.”
52a
The rule against retroactive ratemaking is derived
from the provisions in the NGA requiring sellers of nat-
ural gas to file their rates with the Commission and de-
fining its authority to modify them. The pertinent statu-
tory language reads as follows:
Under such rules and regulations as the Commis-
sion may prescribe, every natural-gas company shall
file with the Commission, . . . and shall keep open
in convenient form and place for public inspection,
schedules showing all rates and charges for any
transportatioi: or sales subject to the jurisdiction of
the Commission. . . .
15 U.S.C. § 717¢(c).
[T]he Commission shall have no power to order any
increase in any rate contained in the currently ef-
fective schedule of such natural gas company on file
with the Commission, unless such increase is in ac-
cordance with a new schedule filed by such natural
gas company... ._
15 U.S.C. § 717d (a).
These provisions form the basis for the “filed rate
doctrine.” In its discussion of the doctrine in Arkansas
Louisiana Gas Co. v. Hall, 453 U.S. 571, 576-78, 101
S.Ct. 2925, 2929-30, 69 L.Ed.2d 856 (1981), the Supreme
Court notes that
the [Natural Gas] Act bars a regulated seller of
natural gas from collecting a rate other than the one
filed with the Commission and prevents the Commis-
sion itself from imposing a rate increase for gas
already sold.
Id. at 578, 101 S.Ct. at 2931. Moreover, the Court ex-
plicitly states, in a footnote, that “the Commission may
not impose a retroactive rate alteration and, ‘in particu-
lar, may not order reparations... .” Jd. at n. 8 (em-
phasis in original) (citing FPC v. Sunray DX Oil Co.,
”
PO ye eer nee
ne ae ee ee
58a
391 U.S. 9, 24, 88 S.Ct. 1526, 1534, 20 L.Ed.2d 388
(1968) ).
We have recently had occasion to explain, in the case
of electrical utilities, the rationale for prohibiting retro-
active increases in filed ratés: —
The wholesale purchasers of electricity cannot plan
their activities unless they know the cost of what
they are receiving, particularly if they are retailers,
who must calculate their appropriate resale rates,
.. . but also if they are large-scale purchaser-users.
Providing the necessary predictability is the whole
purpose of the well established “filed rate” doctrine,
which “forbids a regulated entity to charge rates for
its services other than those-properly filed with the
appropriate federal regulatory authority.”
Electrical Dist. No. 1 v. FERC, 774 F.2d 490, 493 (D.C.
Cir.1985) (quoting Arkansas Louisiana Gas Co. v. Hall,
453 U.S. 571, 577, 101 S.Ct. 2925, 2930, 69 L.Ed.2d 856
(1981)). Although FERC claims that “Order Nos. 94
and 94-A gave notice that the prices paid for gas during
the pendency of the Commission’s rulemaking were not
final prices,” Brief for Commission at 16, the orders were
explicitly concerned with first sales. Furthermore, even
in that context, the Commission was careful to limit the
application of Order No. 94-A to those cases in which
first purchasers were contractually bound to pay the de-
ferred costs.
As a general matter, the final rules will not operate
to authorize the collection of amounts for production-
related costs incurred prior to today. A basic prin-
ciple of administrative procedure is that rules should
operate prospectively only. We see no reason to de-
part from this principle in implementing these amend-
ments. To the contrary, there is good reason to ad-
here to it. :
54a
48 Fed.Reg. at 5,161. In a footnote to the above-quoted
section, the Commission stated:
An exception is made in the case of delivery or
compression services. However, this exception is
based upon the Commission’s notice in Order No. 94
_that these costs could be recovered. In addition, this
recovery is under. particular safeguards to insure
that amounts collected for these services may only
be collected if contractual authority existed to collect
them at the time they were incurred.
Id. at n. 89 (emphasis added) ; see 18 C.F.R. § 271.1104
(c) (4) (ii). Tt is thus clear that the notice provided by
the two orders was limited to a highly restricted au-
dience.
Furthermore, contrary to what the Commission sug-
gests, Brief for Commission at 16 n. 10, notice may not
be imputed as a result of the “passthrough” provision
in section 601 of the NGPA, 15 U.S.C. § 3431(¢).. While
section 601 permits a pipeline to recover any amount
paid for natural gas that “is deemed to be just and rea-
sonable for purposes of sections 4 and 5 of [the NGA],”
id. § 3431(c) (2) (A), we read nothing in the language
of the section to warrant a resort to retroactive as op-
posed to prospective rate increases.
We need not address’ whether the Commission might
have accomplished the goal of permitting pipelines to pass
these costs on to their customers (in proportion to their
takes in the three-year period following Order No. 94)
through a system of specific PGA clauses for each ac-
count because that issue is not before us. See Brief for
Commission at 20. Such a device, in any event, would
differ significantly from that selected by the Commission,
as it would allow all surcharged customers to plan ac-
cordingly and would enable those with access to more
than one pipeline to respond to the surcharges by reduc-
ing purchases from the pipeline(s) imposing the highest
en ey whey hk: Mihaela dha
3 55a
additional costs. Nor need we determine whether the
Commission, in order to avoid unjust enrichment, might.
“have ordered pipelines to begin collecting production-
related cost surcharges at the time of issuance of Order
No. 94, subject to adjustment when Order No. 94-A speci-
fied the exact production-related cost allowances.” Joint
Brief for Intervenor Pipelines at 22 (citing Kansas
Cities v. FERC, 723 F.2d 82, 93 (D.C.Cir.1983)). As
none of the parties has demonstrated that proper notice
was afforded to pipeline customers that they might be sub-
ject to a surcharge on past purchases, we decline to ad-
dress this hypothetical issue.
B. Prior FERC Precedent
Columbia Gas argues also that the Commission’s de-
cision to permit direct billing for deferred expenses is
inconsistent with prior Commission opinions, orders, and -
regulations, and that the Commission failed to provide an
adequate explanation of why it departed from its: prior
rulings. Because we hold the Commission acted beyond
its authority in approving the direct billing of deferred
costs, we need not decide whether its explanation of its
alleged departure from past practice was sufficiently rea-
sonable.
C. The Interest Decision
Transco argues that it is being penalized in the amount
of almost a million dollars by the FERC order allowing
direct billing because it is required to pay customers a
higher rate of interest on amounts it is required to re-
fund from past PGA clause collections than it is allowed
to charge those same customers on their shares of directly
billed deferred costs. Because we find the FERC orders
allowing direct billing to be ultra vires, the question of
the interest differential is moot. Accordingly, we deny
the Commission’s November 24, 1986 motion to remand
that issue for further consideration.
_
56a
III. CONCLUSION
The five orders on review violate the NGA’s prohibition
against retroactive ratemaking. We therefore strike the
orders authorizing direct billing and remand to the Com-
mission for further proceedings consistent with this opin-
ion.
So ordered.
57a
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Nos. 85-1846, 85-1847, 86-1021, 86-1074,
86-1082, 86-1164 and 86-1187
CoLUMBiA GAS TRANSMISSION CORPORATION,
‘ , Petitioner,
Vv.
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent.
April 22, 1988
Catherine C. Cook, Gen. Counsel, Jerome M. Feit, Sol.,
and John H. Conway, Atty., F.E.R.C. (“FERC”), Wash- .
ington, D.C., were on respondent’s petition for rehearing
and suggestion for rehearing en bane and FERC’s sup-
plemental brief in response to court’s February 23, 1988
order.
Raymond N. Shibley and Marlene L. Stein, Washing-
ton, D.C., were on the petition for rehearing and sug-
gestion for rehearing en banc, for intervenors Panhandle
Eatsern Pipe Line Co. and Trunkline Gas Co. and in-
tervenors’ memorandum brief in response to court’s order.
Thomas F. Ryan, Jr., Robert G. Hardy, and Michael
J. Fremuth, Washington, D.C., for Transcontinental Gas
Pipe Line Corp., and William Douglas Field, Jr., Owens-
boro, Ky., for Texas Gas Transmission Corp., were on
the petition for rehearing and suggestion for rehearing
en banc and the pipelines’ joint supplemental brief in re-
sponse to court’s order.
58a
Richard L. Gottlieb, Giles D.H. Snyder, and S.J. Small,
Charleston, W.Va., were on the supplemental brief, for
petitioner Columbia Gas Transmission Corp.
Charles F. Wheatley, Jr., Annapolis, Md., and Philip
B. Malter, Washington, D.C., were on the brief in re-
sponse to court’s order for Municipal Defense Group.
Before BUCKLEY and WILLIAMS, Circuit Sudges,
and GESELL,* U.S. District Judge for the District of
Columbia,
Opinion PER CURIAM.
ON PETITIONS FOR REHEARING
PER CURIAM:
The Federal Energy Regulatory Commission (“FERC”)
and various intervenor pipelines have petitioned this
court for a rehearing of Columbia Gas Transmission Corp.
v. FERC, 831 F.2d 1135 (D.C.Cir.1987). They assert
that our decision notwithstanding, FERC has the implied
authority under section 4(d) to waive the “filed rate”
doctrine. 15 U.S.C. §717c(d), see generally City of
Piqua, Ohio v. FERC, 610 F.2d 950 (D.C.Cir.1979). Be-
cause the issue had not been argued on appeal, we di-
rected the parties to submit supplemental briefs ad-
dressing the following question:
Can the court properly consider and decide, at this
time, the question of waiver of the “filed rate doc-
trine,” the issue not having been explicitly raised
and fully briefed by the parties previously?
Order of Feb. 23, 1988.
In its supplemental brief, FERC asserts that the sec-
tion 4(d) waiver issue “crystallized’”’ only after this court
concluded that ratepayers had been provided with “inade-
quate notice to warrant lawful retroactive ratemaking.”
* Sitting by designation pursuant to 28 U.S.C. § 292(a).
i A La et AR alah HA: ait
Wahi canst ieecrncnntssr z
59a
Supplemental Brief for Respondent at 6. Accordingly,
the Commission urges that we exercise our authority to
consider the issue on rehearing in light of the impact
of our decision on the public interest, citing Consumers
Union v. FPC, 510 F.2d 656, 661-62 (D.C.Cir.1974).
Supplemental Brief for Respondent at 6-7.
In Consumers Union, we noted our authority to con-
sider arguments on rehearing that were not raised in
the briefs or oral argument. “Our willingness to [en-
tertain new arguments] rests on a balancing of consid-
erations of judicial orderliness and efficiency against the
need for the greatest possible accuracy in judicial de-
cisionmaking. The latter factor is of particular weight
when the decision affects the broad public interest.” Id.
at 662.
In view of the magnitude of the costs at issue in this
case, we are persuaded that we can best serve that in-
terest by leaving our remand order in place and affirm-
ing that FERC is free to consider the waiver issue and
determine whether it may issue new orders on grounds
consistent with the principles enunciated in our earlier
opinion in this case.
So ordered.
60a
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION |
Docket Nos. RP85-148-000,* TA85-3-29-000
and TA85-3-29-002
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
ORDER GRANTING PETITION TO INSTITUTE DI-
RECT BILLING PROCEDURE FOR RETROACTIVE
PRODUCTION-RELATED COST ALLOWANCES
WITH CONDITIONS, REJECTING COMPLIANCE
TARIFF FILING AND RELATED MOTION AS
MOOT, AND GRANTING WAIVERS
(Issued August 15, 1985)
Before Commissioners: Raymond J. O’Connor, Chair-
man; A. G. Sousa and Charles G. Stalon.
By this order, we grant, with certain conditions, a peti-
tion filed on May 22, 1985, by Transcontinental Gas Pipe
Line Corporation (Transco) to institute -a special -pro-
cedure to directly bill its customers for about $127 million
in “retroactive” production-related cost allowances it as-
serts it has paid or will soon pay its natural gas suppliers.
These allowances are authorized under section 110(a) (2)
of the Natural Gas Policy Act of 1978 (NGPA)! and
section 271.1104 * of th. Commission’s NGPA rules. Ac-
* Not consolidated.
115 U.S.C. § 3320(a) (2).
218 C.F.R. § 271.1104 (1984).
at (ei
ae
6la
cording to Transco, they relate to natural gas that Transco
purchased in NGPA first sales during the period July 25,
1980, through August 31, 1984. Transco proposes to allo-
cate these costs to those of its customers who actually
benefitted from the production-related services performed
during that period and then to directly bill these amounts
in twelve roughly equal. monthly installments. The cus-
tomers would also have the option to make a single lump-
sum payment. This procedure would replace Transco’s
present purchased gas adjustment (PGA) method of flow-
ing through retroactive production-related costs in its
rates.
In this order, we also reject as moot certain tariff sheets
Transco filed on May 31, 1985, in purported compliance
with our April 30, 1985 PGA suspension order issued in
Docket No. TA85-3-29-000, et al. The proposed tariff
sheets would have implemented recovery of a portion of
these production-related cost allowances through the exist-
ing PGA provisions of Transco’s tariff. In addition, we
will direct that Transco provide a more detailed explana-
tion of its gas purchasing programs in order to comply
with Ordering Paragraph (C) of our April 30th order.
Interventions and Protests
Public notice of Transco’s petition was issued in Docket
No. RP85-148-000 on May 28, 1985, providing for pro-
tests, motions, or notices to intervene to be filed on or
before June 6, 1985. The persons listed in Appendix A
to this order filed timely motions or notices to intervene
in Docket No. RP85-148-000. In addition, notice of
Transco’s May 30, 1985 compliance filing in Docket No.
3 Transcontinental Gas Pipe Line Corp., 31 FERC § 61,129 (1985).
On May 30, 1985, Transco also filed a motion for clarification of
Ordering Paragraph (C) of our April 30th order and a request
for stay of the effectiveness of its revised tariff sheets filed May 31,
1985 in Docket No. TA85-2-29-002. We will also reject that motion
in this order.
62a
TA85-3-29-002 was issued on June 5, 1985, providing for
protests, motions, or notices to intervene to be filed on or
before June 12, 1985. Appendix B lists persons who filed
timely motions or notices to intervene in Docket No.
TA85-3-29-002. Pursuant to Rule 214* any timely filed
motions to intervene are granted unless an answer in
opposition is filed within 15 days of the date such motion
is filed. Any timely filed motions or notices not listed in
the appendices are also granted in accordance with the
conditions of Rule 214.
Five persons filed motions to intervene out of time in
Docket No. RP85-148-000: Piedmont Natural Gas Com-
pany (Piedmont), Conoco, Inc. (Conoco), Long Island
Lighting Company (Long Island), Elizabethtown Gas
Company (Elizabethtown), and the Pennsylvania Public
Utility Commission (Pennsylvania PUC). Long Island
and Pennsylvania PUC each filed a motion to intervene
out of time in Docket No. TA85-3-29-002.
In determining if good cause has been shown to permi*
a late intervention, the Commission may consider the fol-
lowing factors: whether (1) the movant had good cause
for failing to file the motion within the time prescribed;
(2) any disruption of the proceeding might result from
permitting the intervention; (3) any prejudice to, or
additional burdens upon, the existing parties might result
from permitting the intervention; (4) the motion con-
forms to the requirements of paragraph (b) of Rule 214;
and (5) the movant’s interest is not adequately repre-
sented by other parties in the proceeding.
In their respective motions, each of the late movants
has established an interest in this proceeding. At this
early stage of the proceeding, other parties will not be
prejudiced by granting their requests for intervention.
Accordingly, the Commission finds that good cause exists
to permit the late interventions.
#18 C.F.R. § 385.214 (1984).
e Sten at op linlee aanatnals
Ten persons filed protests or requests for hearing in
Docket No. RP85-148-000: Public Advocate of New Jer-
sey (Public Advocate), Brooklyn Union Gas Company
(Brooklyn Union), South Jersey Gas Company (South
Jersey), Washington Gas Light Company and Frederick
Gas, Ine. (jointly, WGL), Columbia Gas Transmission
Corporation (Columbia), Public Service Electric and Gas
Company (PSE&G), North Carolina Natural Gas Corpo-
ration (NCNG), and Piedmont. Public Advocate, WGL
and PSE&G also filed protests in Docket No. TA85-3-29-
002. Finally, on June 14, 1985, WGL filed an answer in
opposition to Transco’s motion for clarification and stay
filed May 30, 1985 in Docket No. TA85-3-29-000, et al.
Transco’s Direct Billing Proposal
According to Transco, its petition is part of a two-
pronged effort to, first, clean up a large, outstanding lia-
bility for “retroactive” production-related cost allowances
it owes its producer-suppliers and, second, recoup all of
these payments from its customers without being inequi-
table or sending inaccurate price signals in the process.
The first part involves verifying the accuracy of the in-
voiced allowances and then paying producer-suppliers
the verified amounts." The second part is a direct billing
procedure whereby Transco will recoup these payments
from its customers in twelve monthly installments rather
than through the PGA.
Transco refers to the allowances that it intends to
directly bill as “retroactive Order No. 94 payments” in
5 At this juncture, Transco reports that it has verified and already
paid about $90 million in these allowances and that it expects the
total to reach its estimate of $127.7 million. According to Transco,
there may be differences between what is invoiced and what is the
appropriate amount. It will only pay the amount it verifies. We
will discuss this aspect of its proposal later in response to several
of the protests, and only note here that the fact that such differences
may result does not persuade us to reject the proposal.
64a
order to distinguish them from “current” Order No. 94
payments that it has been paying.®
With regard to “current” payments, Transco has been
using its PGA to pass the cost of the allowances it has
actually paid through to its customers.* Now, because of
the large liability still outstanding, and because of what
Transco asserts are the “inequities and undesirable mar-
ket distortions inherent in recovering retroactive Order
No. 94 costs through PGA filings,” it seeks to implement
its proposed direct billing procedure. The company as-
serts that direct billing will be more equitable to its cus-
tomers than PGA passthrough because it will be able to
match the production-related costs incurred in prior pe-
riods with actual purchases of its customers during those
same prior periods.
Transeo notes that numerous customers on its system
are now purchasing at much lower levels than during the
period when the production-related costs were ineurred.
Therefore, according to Transco, those customers would
be assessed substantially less than their equitable portion
of cost responsibility related to those periods. Further,
®Order No. 94, FERC Statutes and Regulations, Regulations
Preambles 1977-1981, § 30,178 (1980); OrderNo. 94-A, FERC
Statutes and Regulations { 30,419 (1983); Interim Rule, Docket
Nos. RM80-73-000 and RM80-74-000, FERC Statutes and Regula-
tions § 30,420 (1983); Order No. 94-B, FERC Statutes and Regula-
tions { 30,421 (1983); Order No. 94-C, FERC Statutes and Regula-
tions { 30,454 (1983); Order No. 94-D, 23 FERC { 61,280 (1983);
Order No. 333, Regulations Implementing Refund Procedures Un-
der Subpart K of Part 271 for Production-Related Costs, Docket
No. RM&3-6-000, FERC Statutes and Regulations § 30,494 (1983);
Order No. 334, FERC Statutes and Regulations § 30,495 (1983);
Order No. 334-A, 25 FERC { 61,445 (1983); Order No. 94-E, 25
FERC {61,458 (1983). Order Nos. 94-A through 94-D are cur-
rently pending on appeal sub nom. Texas Eastern Transmission
Corp. v. F.E.RC., et al., No. 83-4390 (5th Cir.).
7 See, e.g., Transcontinental Gas Pipe Line Corp., 29 FERC
© 61,148 (1984).
65a
Transco asserts that direct billing avoids the distortion in
market signals that would result if it were to pass these
amounts through its PGA and charge increased com-
modity rates to all of its customers.
Turning to the mechanics of its direct billing proposal,
Transco proposes to calculate each customer’s share of the
retroactive allowances based on each customer’s actual
purchases during each month to which the retroactive
allowances apply. Each customer’s total amount due, plus
interest, will then be billed and paid in equal installments
over a twelve-month period, or paid in a single lump-sum
payment at the customer’s option._A portion of the total
billings is still an estimate due to the fact that Transco
is still verifying and paying a substantial portion of the
allowances. The total, now estimated to be about $127.7
million, will be charged to a special subaccount at the time
the direct billing begins. To the extent Transco pays an
amount different than what it previously estimated, it
will debit or credit the special subaccount, thereby modify-
ing the remaining monthly billing amounts. At the end
of the twelve-month veriod, Transco will transfer any re-
maining balances to its Account No. 191 and will reflect
this amount in its next PGA.
Apart from the fact that Transco’s $127.7 million figure
presently includes projections, there are two other com-
ponents of this figure that should be noted. First, this
figure includes about $18.9 million in retroactive allow-
ances Transco previously used to offset Btu refunds pur-
suant to Order No. 399-A.° The offset provision was sub-
sequently vacated in Interstate Natural Gas Association
of America v. F.E.R.C., et al.’
The second component consists of about $32.3 million of
retroactive payments Transco already has recovered from
its customers through its PGA as authorized in Docket
8 FERC Statutes and Regulations § 30,612 (1984).
9756 F.2d 166 (D.C. Cir. 1985).
66a
Nos. TA84-2-29-002 °° and TA85-1-29-000." In order to
treat its -eustomers as if it had not previously passed
through any of these retroactive allowances, Transco pro-
poses to refund this $32.3 million amount plus interest
to its customers and then, after reallocating these pay-
ments in accordance with the matching principle of its
proposal, directly billing these amounts as if they had not
previously been recovered. Transco proposes to refund
this amount within 15 days of the date of Commission
approval of its petition.
Discussion
Based on our review of Transco’s proposal we believe
that it should be approved as conditioned below. It is ad-
ministratively effective, equitable, and meets our concern |
that pricing signals not be distorted by the influx of sub-
stantial retroactive Order No. 94-A costs. Above all, it
will break the logjam that has existed and permit a rela-
tively speedy passthrough of long overdue cost respon-
sibility.
We are mindful of the adverse reaction of the protest-
ers and certain other intervenors who seek rejection or at
least a hearing on the proposal. To the extent appropriate,
we will condition our authorization to meet the various
legitimate concerns of these parties.’* However, the bal-
ance of the objections are without merit and do not per-
suade us that the proposal should not be implemented
immediately.
10 Transcontinental Gas Pipe Line Corp., 27 FERC Jf 61,227
(1984).
11 Transcontinental Gas Pipe Line Corp., 29 FERC { 61,148
(1984).
12 Our conditions relate to clarifying the procedures used, par-
ticularly interest calculations, ensuring clear and timely reporting,
and requiring back-up data if not previously filed.
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—
67a
Several protesters argue that Transco’s proposal is pre-
mature because the amounts to be billed are still uncertain
and subject to change for various reasons. For example,
several assert that Transco’s proposal is premature be-
cause of the pending appeal of Order Nos. 94 through
94-D in the Fifth Circuit Court of Appeals. WGL as-
serts that a decision by the court could render Transco’s
proposed charges uncollectible. Public Advocate urges
that we require Transco to hold in escrow all amounts
collected from its customers by direct billing pending the
outcome of the Court of Appeals litigation.
Despite the fact that these orders have been challenged
in court, section 271.1104 of-our regulations promulgated
“by those orders is effective and authorizes Transco’s
first seller suppliers to charge and collect the subject
production-related cost allowances from Transco.'* We
only address the procedures that Transco proposes to use
to collect from its own customers. As we stated above,
we believe those procedures are equitable.
Certain parties argue that the proposal also is pre-
mature because the accuracy of the allowances that
Transco will directly bill is still at issue. South Jersey
and Public Advocate note that Associated Gas Distributors
(AGD) filed a blanket protest in Docket No. GP85-4-000
to the production-related cost “blanket affidavits” *° filed
138 Texas Eastern Transmission Corp. v. F.E.R.C., No. 83-4390.
Oral argument was held March 8, 1985. —
14 Because of section 271.1104(e)(3) requirements regarding the
time to collect the retroactive allowances, i.e., by December 31, 1984,
there may be cases where a waiver of that provision may be needed.
We note that on September 7, 1984, Transco filed a petition for
waiver of section 271.1104(e)(3) in Docket No. GP84-53-000. We
shall deal with that petition by separate order.
158 See 18 C.F.R. § 154.94(k) (1984). These blanket affidavits are
only required with respect to first sales of gas still subject to the
Natural Gas Act. Accordingly, AGD’s protest does not relate to
many of the production-related cost allowances at issue here.
68a
by every company selling gas to Transco. In that protest,
which is pending before the Commission, AGD requested
a hearing regarding all of the production-related cost al-
lowances covered by the protested blanket affidavits. South
Jersey asserts that, among other things, the AGD protest
raises the question of whether Transco’s suppliers had
contractual authority to collect these allowances. Brook-
lyn Union asserts that there is a material discrepancy
between Transco’s $127.7 million estimates of retroactive
costs and the amounts it has previously identified in its
previous PGA filings. Accordingly, Brooklyn Union re-
quests that we not approve the direct billing proposal at
this time and instead set for hearing the issue of whether
Transco’s payments of the retroactive allowances were
properly computed and contractually authorized. Further,
it urges that any direct billing procedure that we even-
tually adopt should be applicable only to the recovery of
Transco’s actual cash payments and not estimates.
We recognize the concerns of these parties, but we
again emphasize that we are only approving a billing
procedure. Our action here does not constitute a decision
regarding the validity of any production-related cost al-
lowances paid or collected as part of this procedure, and
any amounts so paid and collected are subject to refund."®
Further, we will adopt Brooklyn Union’s suggestion that
Transco only be permitted to directly bill for its actual
cash payments to allay Brooklyn Union’s concerns that
billed amounts may recover estimated but as yet unpaid
liabilities. Because Transco only pays what it believes is
lawful under § 271.1104, this will mean that only those
actual cash payments, on which both the first seller and
16 All of Transco’s first seller suppliers have a continuing obliga-
tion to refund any amounts unlawfully collected in excess of the
applicable allowances authorized by section 271.1104. See 18 C.F.R.
§ 270.101(e) (1984). Further, no amounts that Transco pays in
excess of the applicable NGPA maximum lawful price inclusive of
such allowances are permitted automatic passthrough under section
601(b)(1) of the NGPA, 15 U.S.C. § 3431(b) (1).
ee TN Re ee Nae eR Ce ee ee
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69a
Transco agree, will be collected through direct billing.
That is consistent with the self-implementing feature of
our production-related cost rules.’ Any amounts in dis-
pute between Transco and its suppliers are automatically
excluded from the direct billing procedure. Disputes as
to the amounts that are directly billed can be raised be-
fore the Production-Related Costs Board.'*
Several protesters expressed concern that they may not
be permitted to passthrough the directly billed amounts at
the state level. For example, WGL asserts that Transco’s
customers may experience a lag of up to two years before
recovering these billed costs through their local rates, or,
alternatively, the state regulatory agencies may disallow
the costs as premature. South Jersey seeks a delay in
implementing direct billing until November 1, 1985, to
coincide with its state-approved PGA-type procedures.
Public Advocate argues that the proposal is\grounded on
what may be an incorrect assumption that distributors
will attempt to match these amounts with their own cus-
tomer’s actual purchases just as Transco has done. If that
is not the case, then, it argues, these billed amounts can
be avoided by interruptible customers thereby shifting an
unfair share of these-costs to firm customers. All of these
concerns relate to potential problems at the state and local
level after billings are paid by Transco’s customers and
are more appropriately to be considered and resolved by
the state or loca! regulatory agency.
Public Advocate further argues that since the
production-related cost allowances to be directly billed are
17 We note that our rules contemplate a self-implementing pro-
cedure whereby the purchaser is primarily responsible for policing
the accuracy of production-related cost allowances it is billed by its
first seller suppliers. See Order No. 94-C, FERC Statutes and Reg-
ulations § 30,454, at pp. 30,472-73 (1983). Transco’s ongoing process
of verifying the amounts it is invoiced is in accord with these
self-implementing procedures.
18 See 18 C.F.R. § 271.1105 (1984).
70a
purchased gas costs, they should be included in Transco’s
commodity costs and therefore subject to renegotiation to
make Transco’s gas more marketable. By directly billing
these costs, Public Advocate asserts that the producers and
Transco will continue to collect what Public Advocate
believes is an excessive current cost of gas plus the retro-
active allowances in the form of a demand-type charge.
It argues that this would eliminate the incentive for the
producers to give up on the collection of these allowances.
Public Advocate asserts that the proaucers should be given
the clear signal that the market place will not withstand
the collection of the retroactive payments through any
means and that they should renegotiate their contracts
accordingly. We have reviewed the proposal and deter-
mined that the direct billing approach applied to the costs
at issue here is equitable.. This approach imposes the cost
responsibility on the customers who bought the gas with
which the section 110 payments are associated.
Several protesters argue that the proposal involves
retroactive ratemaking. While Philadelphia Gas Works
(PGW) charges that all collections would be suspect,
PSE&G focuses only on the $32.3 million that Transco
previously collected through its PGA but now intends to
refund and then directly bill. PSE&G argues that the
$32.3 million should not be refunded and then directly
billed. These objections are without merit and, in effect,
constitute a collateral attack on Order No. 94-A, et al.
Order No, 94-A expressly authorized the collection of
retroactively effective allowances which, to the extent di-
rectly billed now, are a cost to those customers. Moreover,
authorizing a refund and subsequent direct billing of the
$32.3 million already charged is not retroactive ratemak-
ing. All amounts Transco previously collected in its PGA
proceedings were collected subject to refund. To the ex-
tent we approve a direct billing of that $32.3 million
amount (which is a prospective action), a refund is appro-
priate and is authorized by our prior PGA suspension
orders to avoid a double-collection.
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Columbia argues that Transco’s direct billing pro-
posal is similar to one that we rejected in Tennessee Gas
Pipeline Co., 29 FERC {1 61,150 (1984). Columbia’s argu-
ment is incorrect. Tennessez proposed a permanent
change to its tariff to allow for direct billing of any
extraordinary item over $1 million. The Commission
found that Tennessee had not shown good cause to waive
the Commission’s PGA rules, particularly section 154.38
(d) (4) (iv) (d). The Commission expressed its concern
over the uncertainty of what Tennessee meant by an
“extroardinary item” and the fact that the $1 million
minimum did not, in and of itself, appear to be an ex-
traordinary amount in comparison to Tennessee’s unre-
covered purchased gas costs.'® Here, Transco’s proposal
relates to a clearly defined, extraordinary out-of-period
cost item appropriate for special treatment. However,
to be consistent with our discussion in Tennessee, we will
condition our approval to require that, should Transco be
obligated to refund any retroactive payments to its cus-
tomers following the close of the direct billing period, it
must directly pay the refunds in lump sum payments.
Miscellaneous Matters
Regarding interest, Transco only states that interest
will be calculated “in all cases in accordance with the
Commission’s PGA regulations.” To allay concerns re-
garding the ambiguity of Transco’s interest computa-
tions, we will direct that, first, as to any production-
related cost allowance payments that Transco paid but
has not previously recouped, interest shall be computed for
purposes of direct- billing in accordance with section
154.38(d) (4) (iv) (ec) of the Commission’s rules. Second,
as to the refund of the $32.3 million in previously col-
lected amounts, interest shall be calculated in accordance
with section 154.67(c) (2), 18 C.F.R. § 154.67(ce) (2)
(1984). This second requirement is to clarify that the
1929 FERC { 61,150, at p. 61,329.
72a
interest Transco will owe on the $32.3 million refund
amount cannot be’reduced by the application of principles
of interperiod tax allocation that would have applied had
we authorized interest to be calculated in accordance with
our PGA regulations as Transco requested.”
Several of the protesters assert that Transco’s proposal
is deficient insofar as it fails to include proposed revised
tariff sheets. Furthermore, and consistent with their
view that tariff sheets are required, these parties assert
that any such filing should be suspended fer the full 5-
month statutory period under section 4(e) of the Natural
Gas Act.”
While we agree that the amounts to be directly billed
do constitute part of Transco’s “rates” to its customers,
this proposal does not require submission of tariff sheets.
Any such sheets would necessarily change each month and
would consist of a listing, company-by-company, of the
actual amounts billed. That is information which we
will obtain by report. As to the technical requirements of
the Natural Gas Act requiring the filing of changes in
tariffs, the original gas costs to which these section 110
payments apply were reflected on tariff sheets. Here, we
are permitting retroactive change in those costs as per-
mitted by the NGA and our regulations.” All billings will
be subject to refund and may be protested at the close of
the twelve-month billing period after each customer’s
final total billing is known. To the extent waivers of our
rules are required to effect this billing procedure in this
manner, they are granted for good cause shown.
20 See 18 C.F.R. § 154.38(d) (4) (iv) (6) (1984).
2115 U.S.C. § 717c(e).
22 We note that we likewise did not require revised tariff sheets
in the case of a similar direct billing proposal by Natural Gas
Pipeline Company that we approved by letter order issued January
29, 1985. See, Natural Gas Pipeline Co., 30 FERC {§ 61,138 (1985).
73a
Finally, we shall require Transco to file a report within
30 days of the end of the 12-month billing period detail-
ing its actual billings and the disposition of remaining
balances. Further, we will require that Transco file a
refund report regarding its dispersal of the $32.3 million
in refunds within 15 days after it makes those dispersals.
We shall also require Transco to submit, within 15 days
of each monthly billing, the information required by sec-
tion 271.1104(f) and contract provisions necessary to
verify the accuracy of its retroactive allowance payments.
Transco’s Compliance Filing in Docket No.
TA85-3-29-000
As we noted at the outset of this order, Transco filed
certain tariff sheets that would have reflected PGA treat-
ment of some of the same retroactive production-related
cost allowance payments we are allowing it to directly bill.
On May 31, 1985, Transco filed proposed revised tariff
sheets in order to comply with Ordering Paragraph (C)
of our PGA suspension order issued in Docket No. TA85-
3-29-000 on April 30, 1985.** In that order, we rejected
Transco’s filed tariff sheets that reflected the elimination
of recovery of retroactive production-related cost allow-
ances and ordered Transco to include sufficient produc-
tion-related costs to balance the amounts passed through
to its winter customers in its last PGA in Docket No.
TA85-1-29-000.** At the time we issued that order,
Transco had yet to file its direct billing proposal. Now
that we have its proposal before us, Transco’s revised
tariff sheets are no longer appropriate, and as such, we
shall reject them as moot. In addition, and for the same
reason, we shall reject as moot a motion Transco filed
May 30, 1985, in Docket No. TA-85-3-29-000 requesting
clarification of Ordering Paragraph (C) of our April 30,
23 Transcontinental Gas Pipe Line Corp., 31 FERC { 61,129
(1985).
24 Jd. at pp. 61,265-65.
74a
1985 order and stay of the effectiveness of the revised
tariff sheets filed on June 5, 1985. Except as provided
below, we therefore will not discuss any of the objections
made to Transco’s compliance filing in the protests and
answers filed in response.
In its June 12, 1985 protest in Docket No. TA85-3-
29-000, et al., Public Advocate asserts that, in its com-
pliance filing of May 31, 1985, Transco failed to provide
the information regarding Transco’s Market Retention
Program and Market Maintenance Program (MRP and
MMP, respectively) as ordered in our April 30th sus-
pension order.* Upon review of Transco’s compliance
filing we find that, for the reasons set forth in Pub-
lic Advocate’s protest, Transco’s response is deficient
and not in compliance with our order. Accordingly, we
shall. order Transco to fully comply with Ordering Para-
graph (C) of our April.30, 1985 order regarding its
MRP and MMP within 30 days of this order. Finally, in
an answer to Transco’s motion for clarification and stay,
WGL argues that Transco failed to provide information
regarding Order 94-A costs it expects to pay during the
current PGA period as directed by that order. In light
of our action today, we will no longer require Transco to
file that information and will modify our April 30th
order accordingly.
The Commission orders:
(A) Transco’s petition for direct billing filed in Docket
No. RP85-148-000 on May 22, 1985, is granted and its
direct billing procedure is made effective as of the date
of issuance of this order subject to the conditions set
forth below.
(B) Waiver of the Commission’s regulations is granted
to the extent necessary to permit Transco to implement
its direct billing proposal as conditioned in this order.
25 Jd. at p. 61,266.
75a
(C) Transco is permitted to implement the direct bill-
ing procedures described more fully in the text above and
in its petition, subject to the following conditions:
(1) While it may initially base its twelve month bill-
ings on the total of .actuai plus estimated payments,
Transco shall include in its monthly billings to its cus-
tomers only amounts it has actually paid prior to the
issuance of each such monthly billing.
(2) Transco shall compute interest on the production-
related cost allowance payments it has made and not pre-
viously recouped in accordance with 18 C.F.R. § 154.38
(d) (4) (iv) (ec) (1984) and section 22.7 of the General
Terms and Conditions of Transco’s FERC Gas Tariff,
Second Revised Volume No. 1.
(3) Within 15 days of. the date of this order,
Transco shall directly refund, by lump-sum payments,
$32,303,982.00 io its customers consistent with the dis-
cussion in the text above, plus interest thereon computed
in accordance with 18 C.F.R. § 154.67(¢c) (2) (1984), and,
within 15 days of the dispersal of such refunds, Transco
shall file a report with the Commission detailing the
amounts refunded to each customer, and showing the
basis for each such amount and the date puri.
(4) Within 30 days of the end of the twelve-month
billing period, Transco shall file a report that details:
(a) Transco’s actual monthly billings identified on a
company-by-company basis and (b) the amount and dis-
position of any remaining balance in its special sub-
account.
(5) Within 15 days of each monthly billing, Transco
shall file: (a) the information required under 18 C.F.R.
§ 271.1104(f), and (b) the relevant contractual provi-
sions supporting the billed costs, to the extent that such
information or contracts have not previously been filed
with the Commission.
76a
(6) Within 30 days of the date of this order, Transco
shall file all information regarding its MRP and MMP
required by Ordering Paragraph (C) of the Commis-
sion’s order issued April 30, 1985 in Docket No. TA85-
3-29-000, et al., including:(a) a detailed explanation of
each such response (b) supporting information and data,
(c) any other information necessary to fully respond to
the deficiencies raised in the protest by Public Advocate
filed on June 12, 1985, in Docket No. TA8&5-3-29-000,
et al.
(D) Transco’s Substitute Thirty-Fifth Revised Sheet
Nos. 12 and 15 and Substitute First Revised Sheet No.
15-A to its FERC Gas Tariff, Second Revised Volume
No. 1, are rejected as moot.
(E) Fransco’s Motion for Clarification and Stay filed
May 30, 1985, in Docket No. TA85-3-29-000, et al. is re-
jected as moot.
(F) Ordering Paragraph (C) of the Commission’s
order issued April 30, 1985, in Docket No. TA85-3-29-000,
et al, 31 FERC { 61,129, is modified to eliminate the
requirement of filing information and revised tariff
sheets regarding Order No. 94-A costs.
(G) The late motions to intervene filed by Piedmont,
Conoco, Long Island, Elizabethtown, and Pennsylvania
PUC are granted subject to the rules and regulations
of the Commission; provided, however, that the participa-
tion of the intervenors shall be limited to matters affect-
ing asserted rights and interests set forth in their mo-
tions to intervene; and provided, further, that the admis-
sion of such intervenors shall not be construed as recog-
nition that they might be aggrieved by any order entered
in this proceeding.
77a
APPENDIX A
Motions to Intervene: Docket No. RP85-148-000
The Public Advocate of New Jersey '
The Brooklyn Union Gas Company *
South Jersey Gas Company ”
Washington Gas Light Company and
Frederick Gas Company, Inc.'
Columbia Gas Transmission Corporation '
Public Service Electric and Gas Company ”
Philadelphia Gas Works
South Carolina Pipeline Corporation
Consolidated Edison Company of New York, Inc.
Allied Corporation
Atlanta Gas Light Corporation
Arco Oil and Gas Corporation
National Fuel Gas Supply Corporation
Consolidated Gas Transmission Corporation
Southern Natural Gas Company
Texas Eastern Transmission Corporation
North Carolina Natural Gas Corporation and
Public Service Company of North
Carolina, Inc.'
Pennsylvania Gas and Water Company
UGI Corporation
Philadelphia Electric Company
Commonwealth Gas Pipeline Corporation
Delmarva Power and Light Company
North Penn Gas Company
Owens-Corning Fiberglas Corporation
The Public Service Commission of the State of
New York
1 Also filed a protest.
2 Requested hearing.
78a
APPENDIX B
Motions to Intervene: Docket No.
TA85-3-29-002
Public Advocate of New Jersey '
Texas Eastern Transmission Corporation
Brooklyn Union Gas Company
Consolidated Edison Company of New York, Inc.
Public Service Electric and Gas Company °
National Fue! Gas Supply Corporation
1 Also filed a protest.
* Request hearing.
79a
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Docket No. RP85-170-000
TEXAS EASTERN TRANSMISSION CORPORATION
ORDER GRANTING PETITION TO INSTITUTE DI-
RECT BILLING PROCEDURE FOR RETROACTIVE
PRODUCTION-RELATED COST ALLOWANCES
WITH CONDITIONS, AND GRANTING WAIVERS
(Issued September 30, 1985)
Before Commissioners: Raymond J. O’Connor, Chair-
man; A. G. Sousa and Charles G. Stalon.
By this order we grant, with certain conditions, a peti-
tion which Texas Eastern Transmission Corporation
(Tetco) filed on July 3, 1985, proposing that it be per-
mitted to bill its customers directly for approximately
$74 million (plus interest) in retroactive production-
related cost allowances it asserts it has paid or will soon
pay its natural gas suppliers.' These allowances are au-
thorized under section 110(a)(2) of the Natural Gas
Policy Act of 1978 (NGPA)? and section 271.1104* of
the Commission’s NGPA rules. According to Tetco, they
relate to natural gas that Tetco purchased during the
period July 25, 1980 through April 30, 1985. Tetco pro-
poses to allocate these costs to those of its customers who
actually benefited from the production-related services
1Tetco will collect interest pursuant to the Commission’s PGA
Regulations, 18 C.F.R. § 154.38(d).
215 U.S.C. § 3320(a)(2)..
818 C.F.R. § 271.1104 (1984).
80a
performed during that period and then to directly bill
these amounts in twelve monthly installments. The cus-
tomers would have the option to make a single lump-sum
payment. Tetco’s direct billing procedure would replace
the purchased gas adjustment (PGA) method of flowing
through retroactive production-related costs in its rates.
This approach will remove market disterting gas costs
attributable to past periods from Tetco’s current and
future PGA filings, and thus avoid distortion of market
signals.
Background
Pursuant to section 110 of the Natural Gas Policy Act
of 1978 (“NGPA”), the Commission has established
“production-related cost” allowances payable to certain
sellers of natural gas in addition to the otherwise ap-
plicable maximum lawful ceiling price for natural gas.
Among the costs listed under section 110 for which an
allowance may be permitted, are costs borne by the seller
for gathering, transporting, compressing and condition-
ing the gas sold. In December of 1978, the Commission
issued interim rules implementing section 110 of the
NGPA of 1978 (Docket No. RM79-3, issued December
1, 1978). [FERC Statutes and Regulations, Regulations
Preambles 1977-1981 { 30,026]. Under those rules, cer-
tain qualified sellers were granted allowances above the
applicable ceiling price for certain costs incurred in
gathering, transporting and compressing natural gas. In
most cases, however, sellers had to apply to the Commis-
sion before such an allowance could be collected.
On July 25, 1980, the Commission issued Order No.
94 [FERC Statutes and Regulations, Regulations Pre-
ambles 1977-1981 § 30,178] whereby the Commission sus-
pended applications for gathering and compression al-
lowances under section 110, but retained the application
procedure for costs incurred to transport gas. The Com-
mission announced in Order No. 94 its intention to es-
tablish in future orders industry-wide generic allowances
8la
for compression and gathering costs which would be ef-
fective as of the date of issuance of Order No. 94.*
Tetco has already paid, and will pay producers a sub-
stantial amount for Order No. 94 costs that were in-
curred during the Commission defined retroactive pe-
riod, as well as retroactive amounts related to the period
March 7, 1983, through April 30, 1985.
Interventions
The Commission issued notice of Tetco’s petition on
July 12, 1985, with motions to intervene or protests due
July 22, 1985. The persons listed in the Appendix to
this order filed motions or notices_to intervene. Four of
the motions to intervene were filed late.
In determining if good cause has been shown to permit
a late intervention, the Commission may consider the fol-
lowing factors: whether (1) the movant had good cause
for failing to file the motion within the time prescribed;
(2) any disruption of the proceeding might result from
permitting the intervention; (3) any prejudice to, or ad-
ditional burdens upon, the existing parties that might re-
sult from permitting the intervention; (4) the motion
*On January 24, 1983, the Commission issued the interim rule
establishing industry-wide delivery and compression allowances in
Docket Nos. RM80-73-000 and RM80-74-000, et al. The Commission
also issued Order Nos. 94-A and 94-B [FERC Statutes and Regula-
tions, Regulations Preambles 1977-1981 { 30,419, 30,421], as final
orders, which defined the eligibility criteria for collection of the
allowances for production-related costs (Docket Nos. RM80-47-002
and RM80-47-003). These rules were effective as of March 7, 1983.
The rules were affirmed in Texas Eastern Transmission Corp. v.
F.E.R.C., No. 83-4390 (5th Cir., Aug. 19, 1985). The allowances
for “production-related” costs are set out in the Commission’s
Rules ard Regulations, section 271.1104. The regulations promul-
gated » ‘er section 110 provide for the retroactive recovery of
costs incuvred in delivering and compressing natural gas for serv-
ices provided prior to March 7, 1983, the effective date of Order
No. 94-A, but after July 25, 1980, the effective date of Order No.
94. 18 C.F.R. 271.1104(e).
82a
conforms to the requirements of paragraph (b) of Rule
214; and (5) the movant’s interest is not adequately
represented by other parties in the proceeding.
In their respective motions, each of the late movants
has established an interest in this proceeding. At this
stage of the proceeding, other parties will not be preju-
diced by granting their requests for intervention. Ac-
cordingly, the Commission finds that good cause exists
to permit the late interventions.
Four interveners protested Tetco’s petition: Columbia
Gas Transmission Corporation, Municipal Defense Group,
Philadelphia Gas Works and the Algonquin Customer
Group. Two interveners requested that the Commission
set this matter for hearing: New Jersey Natural Gas
Company and National Gas and Oil Company. The pro-
testers and New Jersey Natural Gas company raise no
issues which were not previously addressed by the Com-
mission in orders approving direct billing proposals by
Transcontinental Gas Pipe Line Corporation and Ten-
nessee Gas Pipeline Company;* their arguments there-
fore will not be specifically addressed herein.
Protests
National Gas and Oil Company (NGO) asserts that
Tetco’s billing allocation is incorrect. NGO claims that
its bill is partially based on volumes NGO had trans-
ferred to other of Tetco’s DCQ customers and that Tetco’s
proposal would result in an overcharge to NGO of
$606,756.39. The Commission will direct that Tetco file
within 15 days of the issuance Commission’s order either:
(1) a response to the allegations of NGO, or (2) an ap-
propriately revised billing allocation if the concerns raised
by NGO are correct. This compliance filing will provide
NGO with a forum to continue to take issue with Tetco’s
direct billing proposal, if necessary.
5 See 32 FERC { 61,230 mimeo, at 6-11; 31 FERC { 61,308, at
-p. 61,695 (1985).
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83a
_&ssociated Natural Gas Company (ANG) filed com-
ments objecting to Tetco’s proposal. ANG lost a major
segment of its distribution system December 1, 1984 * and
is concerned that Tetco’s proposal will result in a sub-
stantial rate increase to customers other than those who
actually incurred the subject costs. ANG’s estimated to-
tal bill is $506,496.10; the Commission staff estimates
that about $55,000 of this relates to ANG’s lost load.’
While the Commission recognizes ANG’s problem, this is
an issue which is appropriately addressed at the state
level; since it concerns sales not for resale, it is not sub-
ject to Commission determination.
Discussion
Tetco’s proposal is for an equitable and practical
method of allocating cost responsibility, similar to pro-
posals the Commission has approved in two previous in-
stances. The Commission agrees, however, with those
protesters who argue that Tetco should not include esti-
mated amounts in its billing. It is appropriate, nonethe-
less, to use estimates to calculate the total amount upon
which the twelve monthly bills are based in order to avoid
progressively larger bills as payments to producers are
actually made. Limiting Tetco’s collection of retroactive
Order No. 94 amounts to the levels it has actually paid
at the time of the monthly billing will also provide Tetco
with an incentive to process outstanding production-re-
lated cost invoices so they can be included in monthly
bills. We will, therefore, approve TETCO’s proposal,
subject to appropriate conditions, and grant the necessary
* The distribution system was operated by ANG until November
30, 1984, when the City of Kennett, Missouri acquired it. Kennett
now buys gas directly from Tetco. The necessary abandonments and
certificates were issued in Docket Nos. CP83-300 and CP83-°01.
7 Based on ANG’s release to Kennett of 10.811 percent of ANG’s
purchases from Tetco pursuant to the noted dockets. ANG’s opera-
tion of the Kennett distribution system is non-jurisdictional.
® See footnote 5, supra, and accompanying text.
()
84a
waivers. This acceptance does not constitute a decision
regarding the validity of any production-related cost al-
lowances paid or collected as part of this procedure; any
amounts so paid and collected are subject to refund.°
The Commission orders:
(A) Tetco’s petition for direct billing filed in Docket
No. RP85-17-000 on July 3, 1985, is granted, and its
direct billing procedure is made effective as of October
1, 1985, subject to the conditions set forth below:
(1) Production-related cost allowances paid or collected
as part of the direct billing procedure are subject to
refund as provided in this order;
(2). While Tetco may initially base its twelve monthly
» billings to its customers on the total retroactive Order
No. 94 payments (both estimated and actual), it may
include in its “monthly bills to customers only amounts
it has actually paid prior to the issuance of each monthly
billing;
(3) Teteo is directed to file within 15 days a response
to NGO’s allegations concerning its direct billing alloca-
tion, or a revised direct billing principal allocation con-
sistent with NGO’s concerns;
(4) Tetco is required to file a report, within 30 days
of the end of the 12-month billing period, that details
Tetco’s actual monthly billings by ¢ustomer, and the dis-
position of any remaining amounts; and
(5) Teteo is required to file, within 15 days of each
monthly billing, (a) the information required under sec-
® All of Tetco’s first seller suppliers have a continuing obligation
to refund any amounts unlawfuily collected in excess of the ap-
plicable allowances authorized by section 271.1104. See 18 C.F.R.
§ 270.101(e) (1984). Further, no amounts that Tetco pays in
excess of the applicable NGPA maximum lawful price inclusive
of such allowances are permitted automatic passthrough under sec-
tion 601(b)(1) of the NGPA, 15 U.S.C. § 3431(b)(1).
ATR
4 Se eS eee oe
85a
tion 271.1104(f) of the Commission’s regulations, and
(b) the relevant contractual provisions supporting the
billed costs, to the extent that such information has not
been previously filed at the Commission;
(B) Waiver of the Commission’s regulations is granted
to the extent necessary to permit Tetco to implement its
direct billing proposal as conditioned in this order.
(C) The late motions to intervene filed by National
Gas and Oil Company, Long Island Lighting Company,
Texas Gas Transmission Corporation, and Peoples Nat-
ural Gas Company, are granted subject to the rules and
regulations of the Commission; provided, however, that
the participation of the intervenors shall be limited to
matters affecting asserted rights and interests set forth
in their motions to intervene; and provided, further, that
the admission of such intervenors shall not be construed
as recognition that they might be aggrieved by any order
entered in this proceeding.
(D) The petitions for hearing are denied.
re
86a
APPENDIX
Motions to Intervene
1. Columbia Gas Transmission Corporation *
2. Municipal Defense Group '
8. Philadelphia Gas Works’
4. The Algonquin Customer Group’ |
5. New Jersey Natural Gas Company 2
6. Associated Natural Gas Company
7. Consolidated Edison Co. of New York, Inc.
8. Equitable Gas Company
9. Arkla Energy Resources
10. Public Service Electric and Gas Company
11. Union Electric Company
12. Consolidated Gas Transmission Corporation
13. The Process Gas Consumers Group
14. Central Illinois Public Service Company
15. Niagara Mohawk Power Corporation
16. Algonquin Gas Transmission Company
17. Elizabethtown Gas Company
18. Philadelphia Electric Company
19. Brooklyn Union Gas Company
20. Transcontinental Gas Pipe Line Corporation
21. National Gas and Oil Company * *
22. Long Island Lighting Company *
23. Texas Gas Transmission Corporation *
24. The Peoples Natural Gas Company *
1 Also filed protest.
2 Requested hearing.
3 Late-filed motion to intervene.
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UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Docket No. RP85-181-000
TEXAS GAS TRANSMISSION CORPORATION
©
ORDER GRANTING PETITION TO INSTITUTE DI-
RECT BILLING PROCEDURE FOR RETROACTIVE
PRODUCTION-RELATED COST ALLOWANCES
WITH CONDITIONS, AND GRANTING WAIVER
(Issued October 16, 1985)
Before Commissioners: Raymond J. O’Connor, Chair-
man; A. G. Sousa and Charles G. Stalon.
By this order we grant, with certain conditions, a peti-
tion which Texas Gas Transmission Corporation (Texas
Gas) filed on August 7, 1985, proposing that the Com-
mission permit it to bill its customers directly for retro-
active production-related cost allowances it asserts it has
paid or will soon pay its natural gas suppliers. These
allowances are authorized under section 110(a) (2) of
the Natural Gas Policy Act of 1978 (NGPA)? and sec-
tion 271.1104 ? of the Commission’s NGPA rules. Accord-
ing to Texas Gas, they relate to natural gas that Texas
Gas purchased during the period August 1, 1980, through
December 31, 1984 (the “retroactive period’’).
115 U.S.C. § 3320(a) (2).
218 C.F.R. § 271.1104 (1984).
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Texas Gas proposes to allocate these costs to those of
its customers who actually benefitted from the production-
related services performed, and then to bill these amounts
directly to the customers. Texas Gas’ direct billing pro-
cedure would replace the purchased gas adjustment (PGA)
method of flowing through retroactive production-related
costs in its rates. This approach will remove market dis-
torting gas costs attributable to past periods from Texas
Gas’ current and future PGA filings, and thus avoid dis-
tortion of market signals.
Background
Pursuant to section 110 of the NGPA, the Commission
has established “production-related cost” allowances pay-
able to certain sellers of natural gas in addition to the
otherwise applicable maximum lawful ceiling price for
natural gas. Among the costs listed under section 110 for
which an allowance may be permitted, are costs borne by
the seller for gathering, transporting, compressing and
conditioning the gas sold. In December of 1978, the Com-
mission issued interim rules implementing section 110 of
the NGPA (Docket No. RM79-3, issued November 29,
1978) [FERC Statutes and Regulations { 30,026]. Un-
der those rules, certain qualified sellers were granted al-
lowances above the applicable ceiling price for certain
costs incurred in gathering, transporting and compress-
ing natural gas. In most cases, however, sellers had to
apply to the Commission before such an allowance could
be collected.
On July 25, 1980, the Commission issued Order No.
94 [FERC Statutes and Regulations { 30,178] whereby
the Commission suspended applications for gathering and
compression allowances under section 110, but retained
the application procedure for costs incurred to transport
gas. The Commission announced in Order No. 94 its in-
tention to establish in future orders industry-wide generic
allowances for compression and gathering costs which
eee
89a
would be effective as of the date of issuance of Order
No. 94.8
Texas Gas reviewed and verified a significant portion
of the Order No. 94 costs incurred during the retroactive
period and claimed by its producer-suppliers. Texas Gas
offset these amounts (approximately $48.8 million) against
a corresponding amount of Btu refunds owed to Texas
Gas by the corresponding producers pursuant to Order
No. 399-A [FERC Statutes and Regulations {| 30,612).'
Since that time the offset mechanism has been vacated
by the Commission in its Order No. 399-B [FERC Stat-
utes and Regulations {| 30,651]. Additionally, Texas Gas
states that it anticipates that its pipeline suppliers will
soon bill it for retroactive Order No. 94 costs.°
3 On January 24, 1983 [FERC Statutes and Regulations § 30,420),
the Commission issued the interim rule establishing industry-wide
delivery and compression allowances in Docket Nos. RM&0-73-000
and RM80-74-000, et al. The Commission also issued Order Nos.
94-A and 94-B [FERC Statutes and Regulations {30,419 and
{| 30,421], as final orders, which defined the eligibility criteria for
collection of the allowances for production-related costs (Docket
Nos. RM80-47-000 and RM80-74-003). These rules were effective
as of March 7, 1983. The rules were affirmed in Texas Eastern
Transmission Corp. v. F.E.R.C., No. 83-4390 (5th Cir., Aug. 19,
1985). The allowances for production-related costs are set out in
the Commission’s rules and regulations, section 271.1104, supra.
The regulations promulgated under section 110 provide for the
retroactive recovery of costs incurred in delivering and compressing
natural gas for services provided prior to March 7, 1983, the effec-
tive date of Order No. 94-A, but after July 25, 1980, the effective
date of Order No. 94. 18.C.F.R. § 271.1104(e).
* Order No. 399-A was subsequently overturned on appeal. /nter-
state "VWatural Gas Association v. F.E.R.C.,. 756 F.2d 166 (D.C.
Cir. 1985).
5 The Commission has approved the petitions of two of Texas
Gas’ pipeline suppliers to collect retroactive Order No. 94 amounts
by direct billing. See Tennessee Gas Pipeline Co., 31 FERC § 61,308
(1985); Texas Eastern Transmission Corp., 32 FERC { 61,493
(September 30, 1985).
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The Proposed Direct Billing Mechanism
Texas Gas proposes, in order to implement its direct
billing procedure, to calculate each customer’s proportion-
ate share of Order No. 94 costs during the retroactive
period as compared to the total of all purchases by all
customers on the system during the period. Texas Gas
proposes next to compute the Btu refunds owed to each
customer in accordance with the procedures specified in
the Commission’s Order No. 399. 3
Once Texas Gas has established the customer’s Order
No. 94 cost liability and its Btu refund, Texas Gas pro-
poses to submit to the customers an invoice for the Order
No. 94 costs and.a credit memorandum reflecting the cus-
tomer’s Btu refund. The two statements are to be ac-
companied and reconciled by a payment from Texas Gas,
if the customer’s Btu refund exceeds its refund. In the
latter case, to the extent that the customer’s Order No.
94 costs exceed its Btu refund, the customer would have
the option of paying this amount in oze lump-sum pay-
ment, or in twelve monthly instaiiments plus interest,
computed in accordance with the Commission’s PGA reg-
ulations. The twelve-month period would begin on the
first day of the first month following Commission ap-
proval of this petition.
A new subaccount of Texas Gas’ Account No. 191
would be created to include the Order No. 94 costs re-
maining which were not paid in a lump-sum payment.
This new subaccount would be credited with the monthly
payments received from the customers during the twelve-
month period.
Motions to Intervene
Texas Gas’ petition was noticed by the Commission on
August 16, 1985, with comments due by August 23, 1985.
Fourteen companies listed in the appendix filed timely
motions to intervene. The Louisville Gas and Electric
Co., Beckett Paper Company, and Indiana Gas Co. and
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Ohio River Pipeline Corp. jointly, filed requests for leave .
to intervene out of time.
In determining if good cause has been shown to per-
mit a late intervention, the Commission may consider the
following factors: whether (1) the movant had good
cause for failing to file the motion within the time pre-
scribed; (2) any disruption of the proceeding might re-
sult from permitting the intervention; (3) any prejudice
to, or additional burdens upon, the existing parties might
result from permitting the intervention; (4) the motion
conforms to the requirements of paragraph (b) of Rule
214; and (5) the movant’s interest is not adequately
represented by other parties in the proceeding.
In their respective motions, the late movants have es-
tablished an intere*+ in this proceeding. At this early
stage of the proceedi:g, other parties will not be preju-
diced by granting the requests for intervention. Ac-
cordingly, the Commission finds that good cause exists to
permit the late interventions.
Protests
Memphis Light, Gas and Water Division, City of Mem-
phis, Tennessee (Memphis), protests in limited respects
Texas Gas’ petition. Specifically, Memphis’ protest makes
four recommendations: (a) that the Commission should
expressly limit its approval to the billing procedure it-
self, and affirm that the amounts paid are subject to
review and refund; ‘b) Texas Gas should only bill di-
rectly for its actuai cash payments to first sellers; (c)
Texas Gas should calculate interest for purposes of di-
rect billing in accordance with Section 154.38(d) (4) (iv)
(ce) of the Commission’s Regulations (interest provision
of the PGA regulations); (d) Texas Gas should provide
the Commission with schedules showing its calculations of
Order No. 94 costs and individual customers’ direct bill
amounts. Memphis’ recommendations have merit, and
will be incorporated into the Commission’s order.
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Western Kentucky Gas Co. and Louisville Gas and
Electric Co. expressed concern that Texas Gas’ proposal
might be considered as retroactive ratemaking. The Com-
mission has found such concerns unwarranted in accept-
ing an earlier proposal for direct billing.®
Columbia Gas Transmission Corp. (Columbia) states
that its purchases from Texas Gas have declined since the
retroactive period, and argues that as a consequence ac-
ceptance of Texas Gas’ proposal will increase Columbia’s
gas costs by about $6.8 million. Columbia asserts that
this frustrates the Commission’s least-cost purchasing
policy for pipelines, and obscures market signals. We
find no merit in Columbia’s protest. Contrary to Colum-
bia’s position, the direct billing mechanism avoids the dis-
tortion in market signals that would result if Texas Gas
were to pass these Order No. 94 amounts through its
PGA and charge increased commodity rates to all its cus-
tomers. Further, these additional costs relate to prior
period purchases of Columbia, and such costs should be
borne by Columbia. If such costs were to remain in the
PGA surcharge of Texas Gas different customers of
Texas Gas would be required to bear such costs due to
the changed customer purchase profile on Texas Gas’ sys-
tem.
The Public Service Commission of Commonwealth of
Kentucky argues that production-related costs cannot be
charged until the contractual entitlement of the producers
thereto have finally been determined. Section 271.1104 of
the Commission’s regulations, however, authorizes Texas
Gas’ first seller suppliers to charge and collect the sub-
ject production-related cost allowances from Texas Gas.
The Commission herein only addresses the procedures that
Texas Gas proposes to use to collect from its own .cus-
tomers and not the costs themselves. Our acceptance of
6 See Tran
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