# Appendix — Panhandle Eastern Pipe Line Co. v. Columbia Gas Transmission Corp. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_1722%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1990 - **Citation:** 498 U.S. 907 ## Text 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. a a 3 i babbiniio'y 8 2 ti a Aine oo ed TR lan sae! 1 ov am Wena em — 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 eee TS tw 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 Tr [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_1722%3A2. Public record. Not legal advice.