Opposition Brief — Federal Energy Regulatory Commission v. Columbia Gas Transmission Corporation (No. 90-131)

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Supreme Court, US. *

fa (a 1% H i. ey 2)

Nos. 89-2001, 90-131 AUB 31 ES

JOSEPH Fr Sean) x4 JR,

IN THE Fe ada

Supreme Court of the United States

OCTOBER TERM, 1990

PANHANDLE EASTERN PIPE LINE COMPANY, e¢ al.,

” Petitioners,

COLUMBIA GAS TRANSMISSION CORPORATION, et al.

FEDERAL ENERGY REGULATORY COMMISSION,

Petitioner,

COLUMBIA GAS TRANSMISSION CORPORATION, et al.

On Petitions for a Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

BRIEF FOR CERTAIN RESPONDENTS IN OPPOSITION

GILES D. H. SNYDER JOHN H. PICKERING

STEPHEN J. SMALL Counsel of Record

COLUMBIA GAS TRANSMISSION LouIs R. COHEN

CORPORATION TIMOTHY N. BLACK

1700 MacCorkle Ave., S.E. GARY D. WILSON

Charleston, W.Va. 25325-1273 SUSAN D. MCANDREW

(304) 357-2326 WILMER, CUTLER & PICKERING

2445 M Street, N.W.

Washington, D.C. 20037

(202) 663-6000

Attorneys for Columbia Gas

August 31, 1990 Transmission Corporation

(Attorneys Continued on Inside Cover)

DANIEL L. SCHIFFER

MICHIGAN CONSOLIDATED GAS

COMPANY

500 Griswold Street

Detroit, MI 48226

(313) 256-5206

JEFFREY M. PETRASH

DICKINSON, WRIGHT, MOON,

VAN DUSEN & FREEMAN

1901 L Street, N.W.

Washington, D.C. 20036

(202) 457-0160

Attorneys for Michigan

Consolidated Gas Company

KATHLEEN A. KANE

OBERMAYER, REBMANN,

MAXWELL & HIPPEL

14th Floor, Packard Bldg.

15th & Chestnut Streets

Philadelphia, PA 19102

(215) 665-3222

Attorney for Philadelphia

Electric Company

LARITO FARINAS

PHILADELPHIA GAS WORKS

800 West Montgomery Ave.

Philadelphia, PA 19122

(215) 684-6982

Attorney for Philadelphia

Gas Works

EDWARD J. GRENIER, JR.

WILLIAM H. PENNIMAN

GLEN S. HOWARD

STERLING H. SMITH

SUTHERLAND, ASBILL & BRENNAN

1275 Pennsylvania Ave., N.W.

Washington, D.C. 20004-2404

(202) 383-0100

Attorneys for The Process Gas

Consumers Group

Mary E. BALUSS

CHRISTOPHER J. BARR

MorGAN, LEWIS & BOCKIUS

1700 M Street, N.W.

Suite 700

Washington, D.C. 20036

(202) 467-7142

Attorneys for UGI Corporation

QUESTION PRESENTED

Whether the power of the Federal Energy Regulatory

Commission, under section 4(d) of the Natural Gas Act,

15 U.S.C. § 717¢e(d), to “allow changes [in rates] to take

effect without requiring the thirty days’ notice herein

provided for,” includes the power to authorize pipelines to

collect retroactive additional charges for gas sold long

before any filing reflecting the additional charges.

(i)

RULE 29.1 STATEMENT

Respondent Columbia Gas Transmission Corporation is

a wholly-owned subsidiary of The Columbia Gas System,

Ine.

Respondent Michigan Consolidated Gas Company is a

wholly-owned subsidiary of MCN Corporation.

Respondent UGI Corporation has one subsidiary that is

not wholly-owned, A P Propane, Inc.

TABLE OF CONTENTS

PRATER, sninsnsssccacacccnssbenitessetatubesnoueabnuibiemenaumananename

Producers Collectioz. of Section 110 Costs from

BIND. ccsscscideiatensisinsnsenseiaseinsautnceihenscehiiskssuddducdihadaladthialai

Pipelines’ Recovery of Section 110 Costs from

ee GD a.

Commission Approval of Direct Billing ..............

4. Judicial Review and Reversai of Retroactive

IY SII sii cvinskanicticnsiaeagenecianabensicccchtnteaiemaneies

The Commission’s Effort To Sanction Retro-

active Direct Billing by Waiver ..........................

The Decision Below Rejecting the Claimed

Waiver Authority To Impose Retroactive Rate

MII 5 icgthcknskativiccadestannehocounseediaadadahstenabinniabuanedesintes

PI snchictcceerdindtiickeele ie

Certiorari Is Not Warranted in This Case ..............

There Is No Reason to Hold This Case for Disposi-

tion of the Petitions in AGD __........---...0.2220--eee eee...

CONCLUSION ............. jionhehabidsien cha cth thei antiiiateindinelacaiaanmditien

I Oe DED. 0itsincccnncintscntnecasieniinninsaedaileensinmmnimaaiaaime

(iii)

TABLE OF AUTHORITIES

Cases Page

Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571

9 | | Re passim

Associated Gas Distribs. v. FERC, 893 F.2d 349

(D.C. Cir. 1989), reh’g denied, 898 F.2d 809

(D.C. Cir. 1990), petitions for cert. pending,

Bean, Gps OO Wile cccctnsteistaciantenneiieee 22

Atlantic Ref. Co. v. Public Serv. Comm'n, 360 U.S.

a ee 17

City of Piqua v. FERC, 610 F.2d 950 (D.C. Cir.

SOTDD cccscsesssciininninctsnnitintiiasiaaiea 16, 18, 19

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

CRIED iccnintccccenedeene sanilenbiataiemeaemnmdaaadamdutens 15, 18

FPC v. Tennessee Gas Transmission Co., 371 U.S.

7 a ne 16

Hall v. FERC, 691 F.2d 1184 (5th Cir.), cert. de-

nied sub nom. Arkla, Inc. v. Hall, 464 U.S. 822

(SGD D ..cococcccsnssenmansstenteniaasamasinuaiaiana nn 14, 18

Maislin Indus., U.S., Inc. v. Primary Steel, Inc.,

No. 89-624, 110 S. Ct. 2759 (1990) .............0....... 18, 21

Mid-Louisiana Gas Co. v. FERC, 664 F.2d 530

(5th Cir. 1981), aff'd in part and vacated in part

sub nom. Public Serv. Comm'n v. Mid-Louisiana

Gas Co., 468 U.S. 319 (19838) ................................. 10

Montana-Dakota Utils. Co. v. Northwestern Pub.

Serv. Co., 341 U.S. 246 (1961) ............................. 21

Nader v. FCC, 520 F.2d 182 (D.C. Cir. 1975) ........ 16

Panhandle Eastern Pipe Line Co. v. FERC, 777

ye Fs oe: | ee 10

Public Serv. Co. of New Hampshire v. FERC, 600

F.2d 944 (D.C. Cir.), cert. denied, 444 U.S. 990

(1979) .......... snbatioselonhiesitaninasianasiadiamnsiaataane aia 5, 21

Texas Eastern Transmission Corp. v. FERC, 769

F.2d 1053 (5th Cir. 1985), cert. denied, 476 U.S.

BORG COED cnccctceectattentsiennentleniemannaanees 19, 20

Towns of Concord & Wellesley v. FERC, 844 F.2d ~

ey f: Pee tne. 18

Transwestern Pipeline Co. v. FERC, 897 F.2d 570

CEKS. GER: TG aceccckcntcnneninicssnshaneunhcnataniaiedinattdiannaen 5

TABLE OF AUTHORITIES—Continued

Page

United Gas Pipe Line Co. v. Mobile Gas Serv. Co.,

Se A IID. sciccnetincannidcrtecnsocesecpaienibasnitiiin aes 18

Statutes and Regulations

Natural Gas Policy Act of 1978, 15 U.S.C. § 3301

iti ceincinsttanenieneinattiindenansnitessiintnicbbiiiidins 3

15 U.S.C. § 83820(a) (1988) 0... 3

Natural Gas Act, 15 U.S.C. § 717 et seq. (1988) :

Section 4(c), 15 U.S.C. § 717c(c) (1988)... 14

Section 4(d), 15 U.S.C. § 717c(d) (1988) 1, 2, 14

Section 5, 15 U.S.C. § 717d (1988) 0 15, 16

18 C.F.R. §§ 154.301-154.310 (1990) 0 5

18 C.F.R. § 271.1104(d) (1) (1990)... eer aes 4

48 Fed. Reg. 5180 (1983)... sssaatclabanl 4

Administrative Orders and Decisions

Order No. 94, Order Amending Interim Regula-

tions Under the Natural Gas Policy Act of 1978

and Establishing Policy Under the Natural Gas

Act, FERC Stats. & Regs., Regs. Preambles

7 30,178 (July 26, 1900)........................................... 3-4, 19

Order No. 94-A, Regulations Implementing Section

110 of the Natural Gas Policy Act of 1978 and

Establishing Policy Under the Natural Gas Act,

FERC Stats. & Regs., Regs. Preambles { 30,419

Os Mi I 4,6

Order No. 399-A, Refunds Resulting From Btu

Measurement Adjustments, FERC Stats. &

Regs., Regs. Preambles {30,612 (Nov. 20,

I cicsinitneeieniinarinceiebiatiihtatinasdikatientintinsh ciate nian an, 6

Order No. 436, Regulation of Natural Gas Pipe-

lines After Partial Wellhead Decontrol, FERC

Stats. & Regs., Regs. Preambles { 30,665 (Oct.

i I diteiiteeetrnith chelates itt enteric 20

Order No. 452, Purchased Gas Cost Adjustment

Provision in Natural Gas Pipeline Companies’

FPC Gas Tariffs, 47 FPC 1049 (1972) 5

TABLE OF AUTHORITIES—Continued

Order No. 473, Compression Allowances and Pro-

test Procedures Under National Gas Policy Act

Section 110, FERC Stats. & Regs., Regs. Pre-

ambles { 30,747 (June 3, 1987) 00...

Order No. 473-A, Compression Allowances and

Protest Procedures Under National Gas Policy

Act Section 110, FERC Stats. & Regs., Regs.

Preambles { 30,788 (Dec. 29, 1987) ....................

Order No. 500, Regulation of Natural Gas Pipelines

After Partial Wellhead Decontrol, FERC Stats.

& Regs., Regs. Preambles {30,761 (Aug. 7,

Es Ae ee eee oe ee

GIRIED ccsecssnssnsnenstpsensmtesnenennnntstiitisininipnisiiiailinnaatntinayasie

EIT scchtivctescceceninsecectbbuasoutedtslenindeienatnnaiibdinieliedtebisicantss

Texas Eastern Transmission Corp., 28 FERC

0 a er

Transcontinental Gas Pipe Line Corp., 27 FERC

_( ¢ EEEESgereee e ee eee

Transcontinental Gas Pipe Line Corp., 29 FERC

7 61,148 (1984) ........ a Ea

Transcontinental Gas Pipe Line Corp., 31 FERC

|.) |: sestathinatiGhadeedinenetianinen

Page

IN THE

Supreme Coot of the United States

OCTOBER TERM, 1990

No. 89-2001

PANHANDLE EASTERN PIPE LINE COMPANY, et al.,

Petitioners,

COLUMBIA GAS TRANSMISSION CORPORATION, et al.

No. 90-131

FEDERAL ENERGY REGULATORY COMMISSION,

» Petitioner,

COLUMBIA GAS TRANSMISSION CORPORATION, et al.

On Petitions for a Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

BRIEF FOR CERTAIN RESPONDENTS IN OPPOSITION

STATEMENT

This case involves orders of the Federal Energy Reg-

ulatory Commission granting “waivers” of the notice re-

quirement of section 4(d) of the Natural Gas Act, 15

U.S.C. § 717¢e(d), and thereby purportedly allowing the

private petitioners, four interstate pipelines, to collect ad-

ditional charges for gas sold during earlier periods. Re-

spondents are downstream pipelines, local distribution

i cea eeneistmienremineenll

companies, and industrial users that are direct or indirect

customers of the petitioner pipelines.’

The Commission initially authorized the retroactive ad-

ditional charges in orders issued in 1985. In 1987, the

court of appeals struck down these orders because the

additional charges violated the Act’s requirement that a

pipeline charge only the rates on file at the time the gas

is sold. Pet. App. 42a-56a (Columbia I).2 No party

sought review of that decision in this Court.

In 1988, on remand, the Commission issued the order

now under review,® Pet. App. 17a-26a, again authorizing

the retroactive additional charges, but now relying on its

power under section 4(d) to “allow changes to take effect

without requiring the thirty days’ notice herein provided

for.” 15 U.S.C. § 717¢e(d). In 1990, in the decision from

which petitioners now seek review, Pet. App. la-14a (Co-

lumbia II), the court of appeals held that the Commis-

1 The respondents for which this brief is filed are Columbia Gas

Transmission Corporation, Michigan Consolidated Gas Company,

Philadelphia Electric Company, Philadelphia Gas Works, the Process

Gas Consumers Group, and UGI Corporation.

2“Pet App.” refers to the appendix to the petition for writ of

certiorari in Panhandle Eastern Pipe Line Co. v. Columbia Gas

Transmission Corp., No. 89-2001 (filed June 22, 1990).

%In addition to the Commission’s order in the remanded pro-

ceedings, the Commission in 1988 issued an order authorizing one

of the pipeline petitioners, Panhandle Eastern Pipe Line Company

(Panhandle), to direct bill its customers for $17 million in certain

other production-related costs that had been allowed by Orders

Nos. 473 and 473-A (Compression Allowances and Protest Pro-

cedures Under NGPA Section 110, FERC Stats. & Regs., Regs.

Preambles §{ 30,747, 30,788 (1987) ) based on customers’ purchases

from December 1979 to December 1984. Pet. App. 33a-40a. As in

the orders issued on remand after Columbia J, the Commission relied

on its section 4(d) power to waive the thirty days’ notice require-

ment to authorize Panhandle’s direct billing procedure. In the con-

solidated proceedings below, the court of appeals struck down the

Order No. 473 direct billing order as well as the direct billing

orders issued on the remand.

aan een

sion’s power to waive the 30-day notice period of section

4(d) did not authorize it to impose, on unwarned and un-

willing customers, a price increase for sales that oc-

curred as much as eight years prior to the rate filing.

Neither in Columbia I nor in Columbia II did the

court of appeals bar the petitioner pipelines from recover-

ing the production-related costs that gave rise to the

charges at issue. It held only that such recovery must be

done prospectively—for example, by including the costs

in the pipelines’ charges to customers for current and

future service. See id. at 4a, 54a. As described below,

other interstate pipelines recovered the same production-

related costs from their customers in that manner, as did

one of the petitioner pipelines before it sought and ob-

tained authority from the Commission in 1985 to switch

to the retroactive recovery method held unlawful in this

case.

1. Producers Collection of Section 110 Costs from Pipe-

lines

In the Natural Gas Policy Act of 1978 (“NGPA”), 15

U.S.C. § 3301 et seg., Congress established ceiling prices

for “first sales’ * of certain categories of natural gas.

In section 110 of the NGPA, 15 U.S.C. § 3320(a), Con-

gress authorized the Commission to allow recovery by

first sellers (7.e., gas producers) of certain production-

related costs, including compression and gathering costs,

in addition to the maximum prices otherwise permitted

by the statute.

In 1978, the Commission adopted interim regulations

governing producers’ applications for recovery of pro-

duction-related costs pursuant to section 110. In 1980,

however, in Order No. 94, Order "Amending Interim Reg-

ulations Under the Natural Gas Policy Act of 1978 and

Establishing Policy Under the Natural Gas Act, FERC

4 Generally, “first sales” of natural gas are sales by gas pro-

ducers to pipeline companies that in turn resell the gas to other

pipelines, wholesale distributors, and large industrial customers.

Stats. & Regs., Regs. Preambles {| 30,178 (July 25, 1980),

the Commission announced that effective July 25, 1980,

it would no longer accept producers’ applications for re-

covery of compression or gathering costs until it had com-

pleted proceedings to determine appropriate generic al-

lowances for such costs. Jd. at 31,218. The Commission

assured producers, however, that upon adoption of such

allowances ‘“‘a retroactive collection procedure will be pro-

vided under which the [generic allewances] . . . will be

applied to costs incurred with respect to gas delivered on

or after the effective date of this Rule [July 25, 1980]

if collection of such costs is contractually authorized.”

Id. (emphasis added).

In 1983, in Order No. 94-A, Regulations Implementing

Section 110 of the Natural Gas Policy Act of 1978 and

Establishing Policy Under the Natural Gas Act, FERC

Stats. & Regs., Regs. Preambles { 30,419 (Jan. 24, 1983),

and an accompanying interim rule,> the Commission

promulgated its promised regulations authorizing pro-

ducers to collect compression and gathering costs from

their pipeline purchasers. Producers were authorized to

collect production-related costs on a current basis begin-

ning with the March 7, 1983, effective date of the new

regulations. Jd. at 30,355. With respect to costs in-

curred by producers in the period July 25, 1980, through

March 7, 1983, producers were authorized to collect these

costs retroactively in installments between March 1983

and December 1984 if their contracts with pipelines so

provided. Jd. at 30,368.

2. Pipelines’ Recovery of Section 110 Costs from Their

Customers

Order No. 94 and Order No. 94-A and the accompany-

ing regulations dealt with collection of production-related

costs by the producers from their pipeline first-purchas-

548 Fed. Reg. 5180 (1983); see 18 C.F.R. § 271.1104(d) (1)

(1990).

ers. Neither order dealt with how the producer charges

would be recovered by first-purchaser pipelines from their

customers. At the time Orders 94 and 94-A -were is-

sued, however, long established Commission policy pro-

vided for the recovery of such costs by means of the

purchased gas adjustment (“PGA”) clause of a pipe-

line’s tariff. Current production-related costs, which

pipelines pay currently to gas producers, would be re-

flected in the pipelines’ current PGA-adjusted rates. With

regard to a pipeline’s installment payments to producers

for retroactive charges, the Commission’s regulations gov-

erning recovery of costs of gas purchased by pipelines

expressly provided (and still provide) for prospective ad-

justments to a pipeline’s commodity rates in order to

compensate for over- and under-recovery of the costs of

gas purchased in prior periods. See Comm. Pet. 5 n.3;

18 C.F.R. § 154.305 (1990).7 Such prospective rate ad-

justments had long been held by the Commission to be

the proper method of recovery by a pipeline for ‘“de-

ferred costs” paid to a producer in a present period but

attributable to gas delivered in a past period.* Thus, to

6 See Order No. 452, Purchased Gas Cost Adjustment Provision

in Natural Gas Pipeline Companies’ FPC Gas Tariffs, 47 FPC 1049

(1972); see generally, 18 CJF.R. §§ 154.301-154.310 (1990).

7™While the PGA mechani for “truing up” recovery of past

gas costs is a departure from the normal process of setting fixed

rates for the future based pn estimates derived from historical

experience, the court of appeals has held that it does not violate

the filed rate doctrine or the rule against retroactive rate making

since the amounts in question arse included in current gas sales

rates, and customers can take them into account in making their

purchase decisions. See Transwestern Pipeline Co. v. FERC, 897

F.2d 570, 579-80 (D.C. Cir. 1990). Also, the PGA mechanism itself

is on file as part of the pipeline’s tariffs. Cf. Public Serv. Co. of

New Hampshire v. FERC, 600 F.2d 944, 960 (D.C. Cir.), cert.

denied, 444 U.S. 990 (1979).

8 See Tennessee Gas Pipeline Co., 29 FERC {§ 61,150 at 61,327

(1984) (noting use of PGA mechanism to amortize deferred costs

over prospective six-month period as traditional means of recovery

for past period gas costs).

the extent that Order No. 94-A mentioned the pipeline’s

recovery at all, it clearly contemplated that such costs

would be recovered in the traditional manner, i.e., pro-

spectively through the pipeline’s PGA mechanism.°®

Consistent with the Commission’s established policy,

when producers began to bill pipelines for current and

retroactive compression and gathering cost allowances in

1983, some interstate pipelines paid the producers and

collected those costs from their customers by means of

prospective adjustments to their PGA rates. With re-

gard to “amounts relating to past periods,” the Commis-

sion specifically concluded that they were “appropriate

for recovery by way of ... [the] PGA clause through

inclusion in Account No. 191 and a subsequent sur-

charge.” Texas Eastern Transmission Corp., 28 FERC

| 61,182, at 61,344 (1984). In accordance with the nor-

mal PGA procedure, such surcharges were recovered from

pipeline customers in the six-month PGA period immedi-

ately following the payments to producers. See Comm.

Pet. 5 n.3.

Other pipelines, however, delayed paying producers

both the current and the retroactive production-related

costs."° Beginning in 1983, some pipelines were starting

to have difficulty in selling gas at prices that reflected

their high-cost purchases in the late 1970s and early

1980s. By delaying payment of production-related costs,

a pipeline could lower its PGA-adjusted prices relative

to the PGA rates of pipelines that had instituted produc-

® The Commission noted that an interstate pipeline “may re-

ceive compensation for paying... section 110 allowances through

its purchased gas adjustment clause.” Order No. 94-A, FERC

Stats. & Regs. at 30,369 (emphasis added).

10 See Order No. 399-A, Refuncs Resulting From Btu Measure-

ment Adjustments, FERC Stats. & Regs., Regs. Preambles § 30,612

at 31,208 (Nov. 20, 1984).

tion-cost payment and PGA recovery promptly, as the

Commission’s 1983 order had contemplated.

Delay in payment of production costs (and in their

PGA recovery) reduced a pipeline’s rates initially, but

it had the effect of exacerbating the difficulty of eventual

recovery of these costs from the pipeline’s customers by

building up the unpaid costs and increasing the size of

the next PGA rate adjustment when the costs were

eventually paid. To deal with this problem, petitioner

Transcontinental Gas Pipe Line Corporation (Transco)

sought and obtained permission in its September 1984

PGA filing to implement a special 4.5 cent prospective

surcharge during the six months beginning November 1,

1984, for recovery of installments of retroactive produc-

tion-related costs it anticipated paying in the last half of

1984, as well as a regular 5.5 cent prospective surcharge

to recover “‘production related charges, both ‘current’ and

‘retroactive,’ that it had paid in the prior six months.”

Transcontinental Gas Pipe Line Corp., 29 FERC { 61,148,

at 61,319 (1984).

In 1985, however, Transco—which had by then re-

covered over one quarter of the amounts it had paid to

producers for production-related costs—reversed course.

In its May 1985 PGA filing, Transco deleted the PGA

surcharge the Commission had previously authorized and

announced an intent to charge such amounts to its cus-

tomers by a retroactive “direct bill.” See Transcontinen-

tal Gas Pipe Line Corp., 31 FERC 7 61,129 (1985)."

Subsequently, Transco filed its “direct bill” proposal,

which assessed each customer a share of the production

related charges attributable to the gas Transco purchased

from producers between July 1980 and August 1984 in

proportion to that customer’s share of gas purchased

11'To “avoid a double-collection,” Pet. App. 70a, Transco pro-

posed to refund the approximately $32 million that it had already

recovered through its prospective PGA-adjusted rates,

from the pipeline in that period.”* Appendix, infra, 5a.

These charges were to be independent of and unaffected

by the customer’s current level cf contractual entitlement

or purchases from the pipeline. As the court of appeals

held in Columbia I, the proposed charges amounted to a

retroactive surcharge on rates paid by pipeline customers

for gas they had purchased in past periods. Pet. App.

5la. ’

Transco’s petition was not based on any claim that con-

tinued recovery of its production-related costs through its

PGA mechanism would be impossible. Nor did Transco

concede that its objective was to keep its current charges

low by imposing a retroactive surcharge on completed

transactions. Rather, Transco asserted that direct bill-

ing “is the most logical and equitable method of assign-

ing cost responsibility for this extraordinary, out-of-

period item.” Appendix, infra, 15a.

3. Commission Approval of Direct Billing

In August 1985, the Commission granted Transco’s

direct billing proposal, finding it “equitable” because it

“imposes the cost responsibility on the customers who

bought the gas.” Pet. App. 70a.

12 The petitioner pipelines state that the question presented is

whether the Commission may permit recovery of costs that arose

during the 1980-83 “moratorium” period and argue throughout

their petition that the Commission’s “moratorium” on collection

by producers of production-related costs makes the retroactive

recovery by pipelines equitable and lawful. See Pan. Pet. (i), 3,

7, 11, 16, 20; cf. Comm. Pet. 8, 12. It should be noted, however,

that the “moratorium” was lifted as of March 7, 1983. Yet in

each case, the petitioner pipelines sought and were authorized to

recover production-related costs incurred for gas sold in a “retro-

active period” that went well beyond the end of the “moratorium.”

See Pet. App. 6la (Transco: July 25, 1980 to August 31, 1984);

87a (Texas Gas: August 1, 1980 to December 31, 1984); 99a

(Trunkline: July 25, 1980 to February 28, 1985); 110a (Pan-

handle: August 1, 1980 to February 28, 1985).

————_,£<,—__iiv

The Commission rejected contentions by a number of

protesters that the proposal constituted an unlawful retro-

active increase in the rates charged for past gas sales.

The Commission dismissed these contentions as “without

merit” and “in effect . . . a collateral attack on Order No.

94-A” because “Order No. 94-A expressly authorized the

collection of retroactively effective allowances which, to

the extent directly billed now, are a cost to those cus-

tomers.” Jd."

Following Transco’s direct billing proposal, a number

of other pipelines—including Texas Eastern Transmission

Corporation and petitioners Texas Gas Transmission Cor-

poration, Panhandle Eastern Pipe Line Company and

Trunkline Gas Company—also filed direct billing pro-

posals modeled after Transco’s.'* In a series of orders

issued late in 1985, the direct billing proposals of these

four pipelines were approved on the basis of the Transco

precedent. Pet. App. 79a-86a (Texas Eastern); 87a-96a

(Texas Gas); 97a-109a (Trunkline); 110a-123a (Pan-

handle). At about the same time, on rehearing of its

Transco approval, the Commission again rejected conten-

tions that the direct billing scheme constituted an un-

lawful retroactive rate increase, asserting once again

that “Order No. 94-A expressly autl:orized the collection

of retroactively effective allowances.” Jd. at 129a. Re-

sponding to the argument that similar deferred costs had

13 The Commission also waived the provisions of its regulations

requiring that all changes in pipeline rates be reflected in filed

tariff sheets. The Commission found that no purpose would be

served by such filing in view of the retroactive nature of the new

“rates”:

Any such [tariff] sheets would necessarily change each month

and would consist of a listing company-by-company, of the

actual amounts billed. . .. [T]he original gas costs to which

these section 110 payments apply were reflected on tariff

sheets. Here, we are permitting retroactive change in those

CONGD «64%

Pet. App. 72a (emphasis added).

14 See id. at 79a; 87a; 97a; 110a.

always been recovered prospectively through PGA adjust-

ments, the Commission stated that the production-related

cost payments were “different” because “these amounts

[the production-related costs] were authorized by special

rule on a continuing, not a one-time only, basis, and are

so large as to warrant special treatment.” Jd. Subse-

quently, the Commission likewise denied rehearing of its

approval of the four other pipelines’ direct billing pro-

posals. Jd. at 134a (Texas Eastern) ; 135a (Texas Gas) ;

136a-39a (Trunkline) ; 140a-42a (Panhandle).

4. Judicial Review and Reversal of Retroactive Direct

Billing

A number of customers of the five pipelines challenged

these orders in the D.C. Circuit on the ground that they

constituted an unlawful retroactive rate increase. In

Columbia I, the court of appeals overturned the Com-

mission’s approval of the five direct billing proposals.

The court found that the orders violated the rule against

retroactive ratemaking, which it characterized as “de-

rived from the provisions in the NGA requiring sellers

of natural gas to file their rates with the Commission

15Claims that these costs are “extraordinary” are, at the very

least, exaggerated. For example, in May 1984 the Commission

found a Transco proposal for PGA recovery of some $61 million in

deferred costs over a six month period to be “consistent” with

Transco’s history of recovering other deferred costs ranging from

$53 million to $89 million in other recent six-month pericds. Trans-

continental Gas Pipe Line Corp., 27 FERC {§ 61,227 at 61,437 n.6

(1984). Similarly, in 1984 the Commission authorized another

petitioner—Panhandle—to recover through its PGA over a 39-

month period an “enormous” build-up of unrecovered gas costs

attributable to past periods amounting to some $270 million. See

Panhandle Eastern Pipe Line Co. v. FERC, 777 F.2d 739 (D.C.

Cir. 1985). Some pipelines also recovered through PGA adjust-

ments the costs arising from repricing their own production pur-

suant to the decision in Mid-Louisiana Gas Co. v. FERC, 664 F.2d

530 (5th Cir. 1981), aff'd in part and vacated in part sub nom.

Public Serv. Comm’n v. Mid-Louisiana Gas Co., 463 U.S. 319

(1983). See, e.g., Consolidated Gas Supply Corp., 24 FERC § 61,271 °

(1983).

aaa

(section 4] and defining its authority to modify them [sec-

tion 5].” Pet. App. 52a. The court described these stat-

utory provisions as forming the basis for the “filed rate

doctrine” as articulated by this Court in Arkansas Louisi-

ana Gas Co. v. Hall, 453 U.S. 571, 578 (1981) (Arkla):

[T]he [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 al-

ready sold.

The court found that the direct billing orders of the Com-

mission violated the rule against retroactive ratemaking

and the filed rate doctrine because:

the effect of the orders is quite clear: downstream

purchasers 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 described,

this constitutes a retroactive rate increase that we

find to be prohibited by the NGA.

Pet. App. 5ia.

The court rejected the Commission’s argument that

Order No. 94-A in 1983 had established a “retroactive

collection procedure” for pipelines. The court pointed out

that Orders 94 and 94-A were addressed solely to re-

covery of production-related costs by producers from first

purchasers, and the orders did not deal with the pro-

cedures for collection by pipelines from their customers.

Id. The court concluded that there was no reason at all

for pipeline customers in 1980-83 to suppose that they

would be subject to retroactive direct charges, since such

recovery had never been permitted by Commission policy

and the Commission’s regulations expressly required that

such deferred costs be recovered prospectively through the

PGA mechanism.

The Commission petitioned for rehearing, asserting

for the first time that it had authority under section

‘ 4(d) of the Natural Gas Act to “waive” the filed rate

doctrine to allow the direct billing procedures to go into

effect. See Pet. App. 58a-59a. The court denied rehearing

but stated that the Commission could consider on remand

whether the statute permits a waiver of the filed rate

doctrine and, if so, whether such a waiver would be

appropriate in the circumstances of these cases. Jd. at

59a.

5. The Commission’s Effort To Sanction Retroactive

Direct Billing by Waiver

Without any hearing or further proceedings, the Com-

mission on remand again approved the same direct bill-

ing mechanisms that the court had struck down in Co-

lumbia I. Pet. App. 17a-26a. This time, the Commission

relied solely on its authority under section 4(d) of the

Act to “allow changes to take effect without requiring

the thirty days’ notice herein provided for.” The Com-

mission asserted that its “authority to waive the filed

rate doctrine and its discretion whether to exercise this

authority in particular circumstances are unquestioned,”

subject only to the statutory requirement that the waiver

must be based on “good cause shown.” /d. at 2la. FERC

found that good cause existed for waiver of the filed rate

doctrine in each of the remanded proceedings for the

same reasons advanced in its original orders approving

the rate changes. Jd. at 22a-23a.

Several of the present respondents sought rehearing,

arguing that the Commission could not rely on its waiver

authority under section 4(d) to impose a retroactive rate

increase, that the Commission had failed to explain its

departure from its longstanding policy of permitting

waivers only to allow previously contracted-for rates to

take effect prospectively from the date set by the contract,

and that the Commission does not have equitable powers

to take actions that are contrary to the statute. See Pet.

App. 28a-29a. The Commission rejected these arguments

on the basis of an unexplained “overwhelming public in-

terest” that would be “impeded” by normal prospective

ratesetting. Jd. at 32a.

6. The Decision Below Rejecting the Claimed Waiver

Authority To Impose Retroactive Rate Increases

In Columbia II, the court of appeals rejected the Com-

mission’s argument that its waiver authority permits it

to allow a pipeline to impose additional charges for trans-

actions completed before any rate filing containing the

charges. The court noted that the language of section

4(d) only authorizes the Commission to allow rate

changes “to take effect without requiring the thirty days’

notice herein provided for.” Pet. App. 10a. The court

also pointed out that the few decisions that have allowed

rate changes to become effective as of a date prior to

their filing had all been cases in which the customers

had by contract prospectively consented to the pre-filing

effective date. Jd. at 1la-12a. The court concluded, with-

out reaching the question of “good cause,” that the Com-

mission lacked statutory power to do what it did: “[WJe

are unaware of any principle in equity or law that em-

powers an agency to ignore explicit legislative commands

..+. Id. at 13a.

The private petitioners, but not FERC, sought rehear-

ing en banc, which was denied unanimously. /d. at 15a.

ARGUMENT

The court of appeals properly rejected FERC’s asser-

tion, made for the first time in this case, that FERC’s

power under section 4(d) of the Natural Gas Act to

allow rate “changes to take effect without requiring the

thirty days’ notice herein provided for” includes the

power to allew a pipeline to impose a retroactive addi-

tional charge for gas sales that occurred years earlier.

FERC’s reading of the statute would obliterate (but

only in favor of sellers and not for the protection of

customers) the well-established principle that FERC has

“no power to alter a rate retroactively.” Arkla, 453 U.S.

at 578. This case presents no issue worthy of this Court’s

review.

Certiorari Is Not Warranted in This Case

1. Contrary to the Solicitor General’s submission, the

court of appeals’ ruling was based squarely on the stat-

ute. In Columbia I, from which no party sought review

in this Court, the court of appeals first found that “the

effect of |FERC’s] orders is quite clear: downstream

purchasers 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 described, this consti-

tutes a retroactive rate increase.” Pet. App. 5la."*

Decades of authority have established that under the

Natural Gas Act, as under other major federal ratemak-

ing statutes, the Commission may neither authorize a

“rate increase for gas already sold” nor impose a “retro-

active rate alteration.” Arkla, 453 U.S. at 578 and n.8.

This rule against retroactive ratemaking, as the court of

appeals held (Columbia I, Pet. App. 51a-52a), flows di-

rectly from sections 4 and 5 of the Act, which require

that charges for jurisdictional natural gas service be set

forth in publicly filed tariffs and that any changes in

those rates be made prospectively. In Columbia II, the

court’s discussion centered on “the scope of the section

4(d) waiver authority” (id. at 9a), and its ruling was

that “the statutory language of section 4(d) and the

logic of [certain earlier decisions] deny the Commission

the authority its claims.” Jd. at 10a.

Section 4(c), 15 U.S.C. § 717e(¢e), requires that rates

be set forth in tariffs filed with the Commission. Pipe-

line-initiated changes to filed rates are governed by

section 4(d), 15 U.S.C. -§ 717¢e(d). That section first

‘6 Neither the Commission nor the pipeline petitioners challenged

or now challenge the court of appeals’ holding in Columbia ] that

the “direct billing” proposals approved by the Commission impose

on pipeline customers an added charge for gas those customers

had already purchased. As the Fifth Circuit held in Hall v. FERC,

691 F.2d 1184, 1191 (5th Cir.), cert. denied sub nom. Arkla, Inc.

v. Hall, 464 U.S. 822 (1983), a “purer example” of a retroactive

rate increase would be “difficult to imagine.”

provides that no change may be made in any filed rate

“except after thirty days’ notice to the Commission and

to the public.” The notice may be given only “by filing

with the Commission and keeping open for public inspec-

tion new schedules stating plainly the change or changes

. .. and the time when the change or changes will go

into effect.” Jd. (emphasis added). The next sentence

provides that the Commission “for good cause shown, may

allow changes to take effect without requiring 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.” Jd. (emphasis added) ."’

On its face, section 4(d) gives the Commission only

the power to shorten or eliminate the required thirty-

day notice period."* The statute requires 4 pipeline to

make its filing thirty days before the rate changes “will”

go into effect. It permits the Commission to dispense with

this notice, but only by an order specifying when the

changes “shall” go into effect. Nothing in this language

suggests that the Commission may allow an additional

charge to be imposed on gas sales completed before the

change-of-rate filing is made.

Consistent with these basic statutory provisions, this

Court has held that the Commission may not allow a

17 Section 5, 15 U.S.C. § 717d, which is not involved in this case,

provides the only other means by which rates may be changed, and

it too makes clear that changes are to be prospective only. It pro-

vides that if the Commission reaches a determination that existing

rates are unjust or unreasonable, the Commission may then pre-

scribe the just and reasonable rate “to be thereafter observed.”

See FPC v. Sierra Pacific Power Co., 350 U.S. 348, 353 (1956).

(Sierra arose under the corresponding section of the Federal Power

Act. The Court has an “established practice of citing interchange-

ably decisions interpreting the pertinent sections of the two stat-

utes.” Arkla, 453 U.S. at 577 n.7.)

1* The Commission concedes in its petition that section 4(d)

“can be” so read. Comm. Pet. 15.

pipeline to alter rates retroactively, pursuant to new

tariffs filed by the pipeline under section 4. FPC v. Ten-

nessee Gas Transmission Co., 871 U.S. 145, 152-53

(1962). The D.C. Circuit has followed suit, holding that

the Act bars the “Commission’s retroactive substitution

of an unreasonably high cr low rate with a just and

reasonable rate.” City of Piqua v. FERC, 610 F.2d 950,

954 (D.C. Cir. 1979) (quoted with approval in Arkla, 453

U.S. at 578). That court has described this as a “cardinal

principle of ratemaking” that binds both the utility in

initially setting its rates and the Commission in approv-

ing or itnposing changes in those rates. Nader v. FCC,

520 F.2d 182, 202 (D.C. Cir. 1975). Not surprisingly,

neither the Commission nor the petitioner pipelines have

cited any decision of this or any other court permitting

the retroactive impositien of an additional charge on cus-

tomers for gas bought in prior periods.’®

The reading of the statute now urged by the Commis-

sion and the petitioner pipelines would produce a bizarre

result contrary to the clear intent of the Act. Both peti-

tioners are clear that the Commission has no authority to

impose a retroactive rate reduction under section 5, even

after finding (on a customer complaint or its own initia-

tive) that a filed rate is unjust and unreasonably high

(Comm. Pet. 17; Pan. Pet. 18-14): Section 5 permits the

Commission only to prescribe a rate “to be thereafter

observed,” and this Court has squarely held that FERC

is limited by the section to prescribing a reasonable rate

for the future. See note 17, supra. But the Commission

argues it may approve retroactive rate increases sought

19 Petitioner pipelines’ suggestion, Pet. 11, that this case does

not “concern the filed rate doctrine,” since “no party here is seek-

ing to enforce a rate not filed with and accepted by, the Commis-

sion,” is specious. It is directly refuted by this Court’s holding in

Arkla that a “retroactive rate increase” is ‘precisely what the

filed rate doctrine forbids.” 453 U.S. at 578-79. Indeed, on the

remand after Columbia J, the Commission stated that the issue was

whether it should “waive the filed rate doctrine.” Pet. App. 2la.

by a pipeline under section 4 whenever it finds “good

cause.” That asymmetrical outcome would stand on its

head a statutory scheme whose primary purpose was to

provide a “complete, permanent and effective bond of pro-

tection” for consumers. Atlantic Ref. Co. v. Public Serv.

Comm’n, 360 U.S. 378, 388 (1959). It is hardly sur-

prising that no court or (until these cases) agency has 30

read the statute.

2. Petitioners make several further arguments in sup-

port of a grant of the writ in this case. None has merit.”

a. Contrary to tne submissions of the petitioner pipe-

lines, this case does not present the “waiver” question

left unresolved by this Court in Arkla. That case in-

volved a rate that had been contractually agreed to but

not filed. The Court said, 453 U.S. at 578 n.8 (emphasis

by the Court):

Although the Commission may not impose a retro-

active rate alteration... it may ‘for good cause

shown’ . . . waive the usual requirement of timely

filing of an alteration in a rate. Assuming, argu-

endo, that waiver is available for retroactive collec-

tion of a higher rate than the one on file, we note

that [the Commission expressly rejected any waiver

in this case}.

*” The petiticner pipelines imply that this case is important be-

cause what is at issue is “approximately $1.5 billion” in industry-

wide “moratorium” period costs. Pan. Pet. 3. Where the figure

came from is unclear. (The Commission at one point noted esti-

mates of ‘up to” that figure. Pet. App. 29a n.8). But in any event,

most of these costs have long since been paid and recovered through

mechanisms that have not been challenged.

The Commission more accurately estimates the magnitude of the

costs at issue here as the approximately $500 million in production-

related costs that petitioner pipelines and Texas Eastern have

collected under the direct bill mechanisms authorized by FERC’s

orders. Comm. Pet. 7 n.5. A part of that amount, however, plainly

related to recovery of costs arising out of gas sold well after the

end of the “moratorium” period. Sce note 12, supra,

The present case, unlike Arkla, involves an attempt to

“impose” a retroactive rate increase on unwilling cus-

tomers who fully paid the rates that were on file when

the sales in question were completed; nothing in Arkla

suggests that there is any open question about whether

the Commission has power to do that.

b. Petitioners cite cases in which courts of appeals

have permitted the Commission, acting under section 4

(d), to sanction a pre-filing effective date for a rate

change agreed to by the parties before it became effec-

tive.*! The rationale for these rulings was that the change

was not “retroactive” where the parties to the change

had agreed to it in advance by contract. The continuing

validity of these decisions may be in question; in any

event, they have no bearing here: whether the Act per-

mits the Commission to allow a private contract, phrased

prospectively, to take effect, in accordance with the wishes

of the parties, pricr to the date of filing is not the issue

in this case. What the court below declared (consistent

with every other decided case) is that the seller and the

Commission together cannot retroactively impose a rate

change never agreed to by the customer.

21Comm. Pet. 14-15, citing City of Piqua, 610 F.2d 950 (D.C.

Cir. 1979); Hall v. FERC, 691 F.2d 1184 (5th Cir. 1983); Towns

of Concord & Wellesley v. FERC, 844 F.2d 891 (1st Cir. 1988);

Pan. Pet. 14 n.7, citing City of Piqua.

*2 All of the cited decisions were rendered before this Court’s

decision in Maislin Indus., U.S., Inc. v. Primary Steel, Inc., No.

89-624, 110 S. Ct. 2759 (1990), rejecting the authority of the In-

terstate Commerce Commission to allow negotiated rather than

filed rates to be charged. The Court has, in other contexts, recog-

nized that private contracts have an important role under the

Natural Gas Act, which differs in this regard from the Interstate

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

(1956); United Gas Pipe Line Co. v. Mobile Gas Serv. Co., 350

U.S. 332 (1956). Whether this role distinguishes City of Piqua,

Hall, and Concord sufficiently to allow them to survive Maislin is

& question not presented in this case,

ce. The pipeline petitioners stress the fact that in Texas

Eastern Transmission Corp. v. FERC, 769 F.2d 1053,

1066 (5th Cir. 1985), cert. denied, 476 U.S. 1114 (1986),

the court of appeals rejected a challenge to FERC’s Or-

der No. 94-A, which authorized producers to recover ear-

lier production-related costs through retroactive charges

to pipelines. But as the Fifth Circuit stressed, “the pur-

chasers [i.e., the pipelines] were on notice as of 1980

{the beginning of the production-cost period, by virtue of

FERC Order No. 94) that allowances would eventually

be promulgated” (id. at 1066). Moreover, Order No. 94

expressly provided fer such recovery from pipelines only

“if collection of such costs is contractually authorized.”

FERC Stat. & Regs. at 31,218.

There is no conflict between the decision below and the

Fifth Circuit’s decision in Texas Eastern. The Fifth Cir-

cuit’s decision allowed retroactive cost recovery by pro-

ducers pursuant to the explicit advance notice given in

1980 in Order No. 94, and in accordance with express

authority in the existing contracts between producers and

pipelines. Compare City of Piqua, 610 F.2d at 954. In

the present case, respondent pipeline customers neither

received advance notice of the charges in question (by

Commission order or otherwise) nor contractually au-

thorized the pipelines to collect them.~

As noted above, the decision below does not bar pipe-

lines from recovering from their customers the costs

allowed to be charged to them by producers under Texas-

Eastern; * it merely requires that this be done by means

that do not constitute a retroactive rate increase.

23 Petitioners suggest that because one of the respondents, Co-

lumbia, is itself a pipeline, it was effectively on notice of the

charges the Conimission ordered in the present case. Even if the

accidenta] status of one of the respondents were pertinent, there

can be no question that no one was on notice before 1985 that pipe-

line customers would be direct-billed, based on their purchases in

1980-85, for these costs.

* For this reason there is no merit to suggestions that the court

of appeals’ decision violates the “pass through” requirement of the

20°

d. Contrary to FERC’s implication, Comm. Pet. 5-6,

the restructuring of the gas industry in which pipelines

became “open access” transporters has essentially nothing

to do with the issues in this case.* FERC began au-

thorizing retroactive direct billing of production-related

costs before it issued FERC Order No. 436,%° which en-

couraged pipelines to become open access, and all of the

FERC orders that originally authorized such billing by

the pipeline petitioners were issued before such peti-

tioners became open-access pipelines.

NGPA. As the Commission has itself recognized, that Act doea

not require that pipelines be afforded guaranteed recovery of costs,

but merely a fair opportunity to recover legitimate costs. See

Order No. 500. Regulation of Natural Gas Pipelines After Partial

Wellhead Decontrol, FERC Stats. & Regs., Regs. Preambies

30,761 at 30,786 (Aug. 7, 1987). The Commission and the court

of appeals have repeatedly recognized that the PGA mechanism

affords such an opportunity to recover gas costs.

% The Commission incorrectly states that only one producer

began recovery of costs before the 1985 decision of the Fifth Cir-

cuit in Texas Eastern. Comm. Pet. 5. In fact, the Commission

had ordered that all costs for the 1980-83 period be recovered in

installments ending in December 1984, and some pipelines paid

their producers as the Commission envisioned. See p. 6, supra.

It may well be that other pipelines delayed paying production-

related costs pending judicial review of Order No. 94-A in the

hope that it would be reversed on appeal. But there was no stay

of Order No. 94-A in effect, and having failed to process and

recover production-related costs in the time provided for by the

Commission, petitioner pipelines should not be heard to complain

as they now do that “the customer base of the pipelines had

changed to an unprecedented degree between the lifting of the

Commiasion’s moratorium in 1983 and the time of the Fifth Cir-

cuit’s Tecas Eastern decision in 1985” by which time “the pipeline

segment of the industry was in the process of a massive restructur-

ing.” Pan. Pet. 6-7.

26 Regulation of Natural Gas Pipelines After Partial Wellhead

Decontrol, FERC Stats. & Regs., Regs. Preambles { 30,665 (Oct. 9,

1985).

Moreover, the argument that the Commission should

be able to ignore the filed rate doctrine because it needs

“latitude” in order to deal with “the massive restruc-

ting of the natural gas market” (Comm. Pet. 19) was

decisively answered by this Court in Maislin Indus.,

U.S., Inc. v. Primary Steel, Inc., No. 89-624, 110 S. Ct.

2759 (1990). As the Court said there, if “strict ad-

herence” to statutory requirements has become “an

anachronism,” the responsibility for modifying the statu-

tory scheme lies with Congress. Jd. at 2771.*

Indeed, the expansive view of the Commission’s sec-

tion 4(d) waiver powers espoused by petitioners is fun-

damentally inconsistent with the view of the filed rate

doctrine taken by this Court in Maislin. While the role

of the filed rate doctrine under the Natural Gus Act is

not identical to that under the Interstate Commerce Act,

there is no basis for contending that the protective pur-

poses of the doctrine are less fundamental or less grounded

in statute here. To the contrary, in light of the long

history of interpretation of the Natural Gas Act referred

to above, it is clear that what this Court said of the

agency’s effort to rewrite the statute in Muzislin is equally

true here: ‘Although the Commission has both the au-

thority and expertise generally to adopt new policies

when faced with new development in ‘he industry, ...

it does not have the power to adopt a policy that directly

conflicts with its governing statute.” 110 S. Ct. at 2770.

27 There is no substance to petitioners’ suggestion that the hold-

ing below will have untoward effects on the electric power industry.

The traditional view of the filed rate doctrine reflected in the deci-

sion below has already (and for many years) been applied under

the Federal Power Act, with no apparent adverse effects on the

electric power industry. See, e.g., Montana-Dakota Utils. Co. v.

Northwestern Pub. Serv. Co., 341 U.S. 246 (1951); Public Serv.

Co. v. New Hampshire v. FERC, 600 F.2d 944 (D.C. Cir. 1979).

There Is No Reason to Hold This Case for Disposition

of the Petitions in AGD

The Commission does not seek plenary review in this

case but suggests that it be held pending the Court’s

disposition of the petitions in Associated Gas Distribs. v.

FERC, 898 F.2d 849 (D.C. Cir. 1989). reh’g denied, 898

F.2d 809 (D.C. Cir. 1990), petitions jor cert. pending,

Nos. 89-1988, et al. (AGD), in which it has sought

plenary review. That suggestion is unfounded. The Com-

mission’s suggestion assumes that the Court will grant

its petition in AGD—an assumption that may well prove

wrong.* But even if review were warranted in AGD,

—this case presents an essentially different question from

that presented here, and resolution of AGD is highly un-

likely to have any bearing on the outcome here.

The question for which review is sought in AGD is

whether a surcharge imposed to recover certain pipeline

“take-or-pay” costs is, as the court of appeals found,

retroactive and, therefore, prohibited by the statute’s re-

quirement that a pipeline charge only the “filed rate.”

No question of a Commission waiver (under section 4({d)

or otherwise) is involved in any way in that case. In-

stead, the Commission’s rationale in seeking review in

AGD is that the costs at issue there are “present” costs

merely allocated on the basis of past customer purchase

decisions.

In this case, by contrast, no one seriously disputes

that the Commission’s orders impose a retroactive rate

increase otherwise forbidden by the statute; the only

28 Certain of the respondents here are also respondents in AGD

and have filed a Brief in Opposition setting forth the reasons why

certiorari is not warranted in that case. If the Court agrees, the

Commission’s suggestion here would of course be moot.

29 The Commission itself has recognized that its orders authorize

a “retroactive change” in costs charged to pipeline customers. See

note 13, supra.

question presented is whether the Commission’s section

4(d) waiver power enables it to authorize a result it

could not otherwise bring about. In sum, there is noth-

ing in the grounds aeserted for review in AGD that gives

any reason to expect that any foreseeable disposition by

the Court of those petitions would affect the holding of

the court of appeals in this case.

The Commission’s suggestion (Pet. 19) that this case

is related to AGD in that both involved cost allocation by

pipelines in the wake of Order No. 436 and the “mas-

sive restructuring of the natural gas market” toward

open access is simply wrong. As noted above, the FERC

orders that originally authorized retroactive direct bill-

ing by the petitioner pipelines all preceded the times

when the petitioners became open-access pipelines under

Order No. 436. Chief Judge Wald, whose dissent from

the denial of rehearing en banc in AGD was based on

her (erroneous) understanding of the role of Order No.

436 in that case, concurred in the denial of rehearing

here. Pet. App. 15a.

CONCLUSION

For the reasons set forth above, the petitions for writ

of certiorari should be denied.

Respectfully submitted,

Gites D. H. SNYDER JOHN H. PICKERING

STEPHEN J. SMALL Counsel of Record

CoLUMBIA GAS TRANSMISSION Louis R. COHEN

CORPORATION TIMOTHY N. BLack

1700 MacCorkle Ave., S.E. Gary D. WILSON

Charleston, W.Va. 25325-1273 Susan D. MCANDREW

(304) 357-2326 WILMER, CUTLER & PICKERING

2445 M Street, N.W.

Washington, D.C. 20037

(202) 663-6000

Attorneys for Columbia Gas

Transmission Corporation

DANIEL L. SCHIFFER

MICHIGAN CONSOLIDATED GAS

COMPANY

500 Griswold Street

Detroit, MI 48226

(313) 256-5206

August 31, 1990

JErryReY M. PeTRasH

DICKINBON, WRIGHT, MOON,

VAN DUSEN & FREEMAN

1901 L Street, N.W.

Washington, D.C. 20036

(202) 457-0160

Attorneys for Michigan

Consolidated Gas Company

KATHLEEN A. KANE

OBERMAYER, REBMANN,

MAXWELL & HIPPEL

14th Floor, Packard Bldg.

15th & Chestnut Streets

Philadelphia, PA 19102

(215) 665-3222

Attorney for Philadelphia

Electric Company

LARITO FARINAS

PHILADELPHIA GAS WORKS

800 West Montgomery Ave.

Philadelphia, PA 19122

(215) 684-6982

Attorney for Philadelphia

Gas Works

EDWARD J. GRENIER, JR.

WILLIAM H. PENNIMAN

GLEN S. HOWARD

STERLING H. SMITH

SUTHERLAND, ASBILL & BRENNAN

1275 Pennsylvania Ave., N.W.

Washington, D.C. 20004-2404

(202) 383-0100

Attorneys for The Process Gas

Consumers Group

Mary E. BaLuss

CHRISTOPHER J. BARR

MorcGan, Lewis & Bockius

1700 M Street, N.W.

Suite 700

Washington, D.C. 20036

(202) 467-7142

Attorneys for UGI Corporation

APPENDIX

DEPARTMENT OF ENERGY

BEFORE THE

FEDERAL ENERGY REGULATORY COMMISSION

WASHINGTON, D.C.

a Docket No. RP85-148-000

5 IN THE MATTER OF

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

PETITION OF

TRANSCONTINENTAL GAS PIPE LINE

CORPORATION FOR AUTHORITY TO INSTITUTE

DIRECT BILLING PROCEDURE FOR

RETROACTIVE ORDER NO. 94 PAYMENTS

Communications with respect to

this Petition should be addressed

; to:

*R.V. Loftin, Jr., Vice President

and Genera! Counsel

James A. Porter

Transcontinental Gas Pipe Line

Corporation

P.O. Box 1396

Houston, Texas 77251

and

* Designated to receive service in accordance with Rule 2010(c)

of the Rules of Practice and Procedure.

*Thomas F. Ryan, Jr.

Robert G. Hardy

Andrews & Kurth

1730 Pennsylvania Avenue, N.W.

Washington, D.C. 20006

Attorneys for Transcontinenta!

Gas Pipe Line Corporation

Filed: May 22, 1985

DEPARTMENT OF ENERGY

BEFORE THE

sds DERAL ENERGY REGULATORY COMMISSION

WASHINGTON, D.C.

Docket No.

IN THE MATTER OF

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

PETITION OF

TRANSCONTINENTAL GAS PIPE LINE

CORPORATION FOR AUTHORITY TO INSTITUTE

DIRECT BILLING PROCEDURE FOR

RETROACTIVE ORDER NO. 94 PAYMENTS

Transcontinental Gas Pipe Line Corporation (Transco)

hereby petitions, pursuant to Rule 207 of the Commis-

sion’s Rules, 18 C.F.R. § 385.207, for authority to in-

stitute a special, one-time direct billing procedure to re-

cover from its customers retroactive payments made pur-

suant to Order Nos. 94 and 94A, all as more fully ex-

plained hereinbelow.

In support of this Petition, Transco respectfully shows

as follows:

The names, titles and mailing addresses of the persons

to whom correspondence concerning this proceeding are

to be addressed are as follows:

R.V. Loftin, Jr., Vice President

and General Counsel

Transcontinental Gas Pipe

Line Corporation

P.O. Box 1396

Houston, Texas 77251

and

Thomas F. Ryan, Jr.

Andrews & Kurth

1730 Pennsylvania Avenue, N.W.

Washington, D.C. 20006

Il.

Transco is a corporation duly organized and existing

under the laws of the State of Delaware, with its prin-

pal place of business in Houston, Texas.

Transco is a natural gas company engaged in the

transportation and sale of natural gas in interstate com-

merce by means of its natural gas transmission system

extending from its principal sources of natural gas sup-

ply in Texas, Louisiana, Mississippi, and the offshore

Gulf of Mexico area through the States of Alabama,

Georgia, South Carolina, North Carolina, Virginia, Mary-

land, Pennsylvania, and New Jersey to its termini in

the New York City Metropolitan area. To augment its

domestic gas supply sources, Transco also imports natural

gas from Canada.

Il.

SUMMARY OF PROPOSED DIRECT

BILLING PROCEDURE !

Because of the inequities and undesirable market dis-

tortions inherent in recovering retroactive Order No. 94

costs through PGA filings, Transco seeks authorization to

bill customers directly for such costs. As more fully ex-

plained below, Transco proposes to caiculate each cus-

tomer’s share of such costs for the retroactive period

(hereinafter defined as the period July 25, 1980 through

August 31, 1984 unless otherwise indicated) based upon

a matching of the incurrence of Order No. 94 costs, by

month, to the customer’s share of system purchases dur-

ing such months. Sucn amounts will be billed directly, in-

cluding interest, in equal monthly installments over a

succeeding 12-month period commencing July 1, 1985

1 Inasmuch as the instant filing is not a tariff filing, no fee under

Part 381 of the Commission’s Regulations is required. See, 29

FERC © 61,381 (1984).

(or at the customer’s option, in a lump sum”) or at such

later date as may be established in the Commission’s

order approving the direct billing procedure. Transco

also is proposing to refund directly to its customers all

retroactive Order No. 94 amounts coliected, plus interest,

pursuant to Transco’s PGA filings in Docket Nos. TA84-

2-29-000 and TA85-1-29-000, including the special Order

No. 94 surcharge of 4.5 cents per dt contained in Transco’s

Decket No. TA85-1-29-000 filing, such refund (the prin-

cipal amounts of which are detailed on Schedule B hereto)

to be contingent upon approval of the direct billing pro-

cedures proposed in the instant filing. This refund will

be made within fifteen days of the date on which the

Commission approves Transco’s direct billing procedure.

In essence, Transco’s proposal is designed to place cus-

tomers in the position they would have been in if no

retroactive Order No. 94 costs had been collected in

Transco’s rates to date, and then to apportion the total

costs to customers on the basis of their respective pur-

chase levels from Transco during the period such costs

were incurred.

IV.

PERTINENT BACKGROUND

A. Order 94 Costs

Pursuant to Section 110 of the Natural Gas Policy Act

of 1978, the Commission has established “production-

related cost” allowances above the otherwise applicable

maximum lawful ceiling price for nautral gas. These

allowances encompass certain costs (‘other than “produc-

While providing for a lump-sum payment option, Transco an-

ticipates that most, if not all, customers would consider the twelve

monthly installment payments to be in the best interests because,

among other things, such method eases the financial burden and

also could obviate payment, at least in part, if the pending court

proceedings (see page 4, infra) were to overturn Order No. 94

during the interim.

tion costs”) incurred for delivering, compressing, treat-

ing or conditicning nautral gas or other specified serv-

ices. In Order No. 94 (issued July 25, 1980 in Docket

No. RM80-47), the Commission stated that generic al-

lowances for compression and gathering would be de-

veloped in future orders and made effective as of the

date of Order No. 94. On January 24, 1983, the Com-

mission issued Order No. 94-A, titled “Final Rule and

Order on Rehearing of Order No. 94” amending the state-

ment of policy. 22 FERC { 61,055. The aforementioned

generic allowances were first stated in an Interim Rule

also issued January 24, 1983 in Docket Nos. RM8&0-73

and RM80-47 and were made effective March 7, 1983.

The amendments of the Interim Rule were issued as a

Final Rule in Order No. 334, issued September 27, 1983.

Order 334-A, issued December 27, 1983, denied the peti-

tions for rehearing and petitions for stay of Order 94.

The allowances for production-related costs are set out at

Section 271.1104 of the Commission’s Regulations (18

C.F.R. § 271.1104).

Order Nos. 94 ana 94-A have been appealed to the

United States Court of Appeals for the Fifth Circuit by

Transco and others in Texas Eastern Transmission Cor-

poration, et al. v. FERC, No. 83-4390. Briefs have been

filed by the parties and oral argument has been held; the

case is pending a decision by the court.

Subsequently, the Commission issued Order No. 399-A,

29 FERC {61,254 (1984), which authorized producers

to offset refunds due for Btu measurement requirements *

by monies due them under Order No. 94. This ‘‘offset”

procedure was overturned by the court in /nterstate Nat-

ural Gas Association of America v. FERC, D.C. Cir. No.

81-1690, et a/., issued March 5, 1985. Such action was

taken by the court at the behest of Associated Gas Dis-

tributors, a group which includes many of Transco’s

“Interstate Natural Gas Association of America v. FERC, 716

F.2d 1 (D.C. Cir. 1983), cert. denied, 104 S.Ct. 1615 (1983).

larger customers. Therefore, as matters now stand, retro-

active Order No. 94 payments apparently cannot be offset

by refunds for the Btu measurement rules.*

B. Transco’s Treatment Of Order 94 Costs

Transeo has been invoiced for substantial retroactive

Order No. 94 amounts. A _ substantial part of these

amounts has been paid, debited to Account No. 191 and

flowed-through in two Transco PGA filings. All of the

retreactive Order No. 94 amounts that were paid prior

to September 1, 1984 have been reflected in Transco’s

PGA filing in Docket No. TA84-2-29-000 (effective May

1, 1984)° or in Transco’s PGA filing in Docket No. TA85-

1-29-000 (effective November 1, 1984) .°

In its PGA filing in Docket No. TA85-3-29-000 (effec-

tive April 1, 1985), Transco indicated that it would be

seeking Commission authority to direct bill Order No.

94 payments. In that regard, Transco explained that its

filing did not reflect the balance (at February 28, 1985)

in the appropriate subaccount of Account No. 191 associ-

*It is Transco’s understanding that although D.C. Circuit’s man-

date was issued on May 20, 1985, at least one—and perhaps more—

of the interested parties intends to seek a writ of certiorari from

the Supreme Court.

“In Docket No. TA84-2-29-000, Transco included approximately

$2.2 million of retroactive Order No. 94 payments in its PGA de-

ferred account. This amount reflects retroactive payments related

to the period July 25, 1980 through August 31, 1983.

®In Docket No. TA85-1-29-000, Transco included approximately

$22.4 million of retroactive Order No. 94 payments in its PGA

deferred account. This amount reflects retroactive payments re-

lated to the period July 25, 1980 through February 29, 1984. In

addition, Transco requested, and was granted, waiver of the Com-

mission’s regulations to include in the PGA and recover through a

special surcharge of 4.5 cents per dt, approximately $21.6 million

of known installment payments that Transco had not made at the

time the PGA was filed but would make before the end of the

period the rates in Docket No. TA&5-1-29-000 were to be in effect.

ated with the relevant PGA period, $7,074,086, which

amount relates to Order No. 94 payments not reflected

in the surcharge and not previously contained in the

deferred account. This amount remains deferred on

Transco’s books pending the outcome of the direct bill-

ing procedure proposed herein.’ Transco’s filing also ex-

plained that its direct billing procedure would include

provision for crediting to customers the amounts already

paid, including amounts paid through the special 4.5

cents per dt surcharge.

In addition, Transco has paid additional retroactive

Order No. 94 amounts since February, 1985 and also is

now processing a large amount of retroactive Order No.

94 invoices which, due to the time involved in verifying

each such invoice, have not yet been paid. An accurate

estimate of the timing of such payments cannot be made

at this time.

There are other qualifying producers (i.¢., those which

have made a proper notice filing in accordance with Sec-

tion 271.1104 of the Commission’s Regulations) to whom

Transco also owes a substantial amount of retroactive

Order No. 94 costs, but for which Transeo has not re-

ceived invoices. With respect to amounts attributable to

the period after March 6, 1983, Transco may not receive

invoices since such amounts relate to periods subsequent

to the Commission-defined retroactive period and, there-

fore, as is the case for normal gas cost payments, in-

voices are not required for payment to be made. Pro-

7In its April 30, 1985 order in Docket No. TA85-3-29-000, the

Commission, among other things, ordered Transco to furnish addi-

tional information regarding Order No. 94 charges, and to file

revised PGA tariff sheets to recover Order No. 94 payments during

the period covered by the current PGA, without prejudice to

Transco’s direct billing proposal. Transco intends to file revised

tariff sheets but also to seek a stay of their effectiveness pending

action on the instant petition, and to seek clarification ef the

Commission’s April 30 order with respect to the revised PGA filing

required thereby.

10a

ducers will be paid for these amounts once Transco has

verified the amount of the Order No. 94 allowance due,

and these unit amounts are entered into Transco’s gas

purchase payment system.

¥.

DESCRIPTION OF TRANSCO’S PROPOSED DIRECT

BILLING PROCEDURE

A. The “Retroactive” Period Is July 25, 1980 Through

Augqust 31, 1984

Transco proposes to accumulate in a special subaccount

of FERC Account No. 191 on its books al! retroactive

Order No. 94 amounts which it has paid or expects to pay

related to the period July 25, 1980 through August 31,

1984. In that connection, Transco has been invoiced for

substantial retroactive Order No. 94 amounts related to

the period after March 6, 1983 (‘the effective date of

Commission Order No. 94 and the termination date of

the Commission-defined “retroactive” period). In nu-

merous cases, these invoices were received several months

after the period to which the payment applies and many

of these invoices have yet to be verified. Due to the mag-

nitude of these amounts and the time involved in verify-

ing such amounts, these amounts could not be paid within

a reasonable time after the period to which payments

apply. Therefore, Transco is proposing to include pay-

ments related to periods after the Commission-defined

“retroactive” period in the instant direct billing pro-

cedure. In that regard, however, Transco proposes to ex-

clude from the total retroactive Order No. 94 amounts in-

cluded in this special subaccount any such payments made

over the deferral periods in Docket Nos. TA84-2-29 and

TA85-1-29 (Sentember, 1983 through February, 1984,

and March, 1984 through August, 1984, respectively)

which related to production during those deferral periods.

Transco proposes to exclude such amounts from its special

lla

subaccount since it views these amounts as essentially

“current” payments and therefore such amounts are more

appropriately recovered through the normal PGA mech-

anism rather than through the proposed direct billing

procedure.

B. Description of Direct Billing Procedure; Refunds

For Past Collections

The total retroactive Order No. 94 amounts which will

be debited to Transco’s special subaccount will be de-

tailed by the production month to which they apply.

These monthly amounts will be allocated to Transco’s

sales customers based on each such customer’s share of

purchases during each month of the proposed retroactive

period. Allocating these amounts to customers on this

basis results in the most equitable distribution of the cost

responsibility related to these amounts, as discussed more

fully in Part VI below.

As a part of the instant petition, Transco is proposing

to refund directly all amounts, plus interest, Transco

has recovered from the customers as a result of having

included certain of these retroactive Order No. 94 amounts

in Transco’s PGA filings in Docket No. TA84-2-29-000

and Docket No. TA8&5-1-29-000, including amounts re-

covered from Transco’s customers as a result of the 4.5

cents per dt special Order No. 94 surcharge which be-

came effective November 1, 1984 in Docket No. TA85-1-

29-000. Such refunds, detailed by customer and by PGA

filing, are reflected on Schedule B, attached. The refund-

ing of these amounts is contingent upon Transco receiv-

ing Commission authority for its direct billing procedure.

C. Twelve Monthly Installments; Lump Sum Payment

Option

The allocated amounts of retroactive Order No. 94 pay-

ments will be billed customers directly, pius interest com-

puted in accordance with the Commission’s PGA regula-

12a

tions, in equal monthly installments over a 12-month pe-

riod beginning July 1, 1985 or such other date as es-

tablished by the Commission in its order approving this

procedure. Transco is proposing such monthly billing in

order to ease the financial burden which would be caused

by billing customers on a lump sum basis. Moreover. a

court decision in the interim on the legality of Order No.

94 may effectively negate any further need for the pro-

cedure and subsequent payments thereunder. However,

any customer which prefers to pay Transco is allocated

share of these retroactive Order No. 94 amounts on a

lump sum basis may choose to do so and thereby avoid

the additional interest charges due as the result of

Transco’s proposed twelve monthly installment basis of

payment.

D. Showing Estimated Direct Billing By Customer:

Adjustments Will Be Made to Reflect Actual

Amounts

Attached as Schedule A is an estimate of the total

amount, excluding interest, Transco proposes to bill each

of its customers in order to recover all amounts charged

to the special subaccount at the time the direct billing

procedure commences. Transco will credit this special

subaccount monthly to reflect recovery of these amounts

from its customers. As explained earlier, Transco has

included in its direct billed amounts estimates of retro-

active Order No. 94 amounts which it has been invoiced

for but has not yet paid. To the extent Transco pays any

amount which differs from the amount it has estimated,

it will debit or credit the special subaccount by the

amount which the actual payment differs from the esti-

mate. At the end of the 12-month billing period, Transco

will transfer any remaining balance or excess in this

special subaccount to Account No. 191 and reflect this

amount in its next PGA filing. In addition, Transco has

reflected in its direct billing calculations approximately

$18,900,000 of retroactive Order No. 94 amounts which

13a

have been offset, pursuant to Commission Order No. 399-

A, against amounts owed customers under Order No. 93.

As previously noted, such offset procedure has been dis-

allowed by order of the court but the court’s decision may

not be the final word on the subject."

The amounts reflected on Schedule A necessarily are

estimates, but Transco believes they are reasonably ac-

curate. In any event, Transco intends to adjust such

estimates for actual amounts, plus interest, and antici-

pates (a) that the actual amounts will not vary signifi-

cantly from the estimates, and (b) that such actual

amounts should be known prior to the completion of the

twelve-month billing period. By way of further explana-

tion, for retroactive Order No. 94 payments related to

the years 1980, 1981 and 1982 it was necessary, for pur-

poses of allocating these amounts to customers at this

time, to estimate the production month in which these

payments applied since only annual amounts are available

without a detailed review of ali producer invoices. For

purposes of the estimates contained on Schedule A.

Transco allocated each annual amount to the individual

months based on total system purchases. While individual

producer amounts thus estimated will vary | up and

down) from the actual amounts which will be determined

after the detailed review of all invoices, the aggregate

amount and each customer’s share) is not expected to

vary from the estimated amounts to any significant de-

* Should the dispostion of the offset procedure for Btu measure-

ment refunds remain unresolved as of the time Transco’s direct

billing procedure commences, Transco hereby agrees to reduce the

balance in its specia! subaccount by the offset amounts, to reduce

each customer's direct bill sums by each such customer's allocable

share of these amounts, including interest, and to commence its

direct billing procedure using such adjusted amounts. If the off-

set procedure ultimately is determined to be unlawful. Transco will

increase the balance in its special subaccount and increase each

customer’s allocable share, including interest, utilizing the same

procedures set forth herein.

l4a

gree. Such review of invoices is underway; substantial

man-hours are involved in such undertaking.

Likewise, during the Commission-defined retroactive

period July 25, 1980 through March 6, 1983, Transco

paid certain gathering allowances which were in effect

prior to the Commission approval of the generic allow-

ances under Order No. 94. The allowances approved by

the Commission pursuant to Order No. 94 replaced, retro-

active to July 25, 1980, the allowances in existence prior

to Order No. 94. Any payments made by Transco after

March 6, 1983 did not include the full amount of charges

related to the allowances approved under No. 94 in in-

stances where other allowances in effect prior to Order

No. 94 had already been paid by Transco. In these cases,

the amount Transco actually paid retroactively was the

difference between the allowance approved under Order

No. 94 and the allowance in effect prior to Order No. 94.

An analysis of representative months of the retroactive

period reflects that approximately 91 percent of the total

Order No. 94 amounts were actually paid on a retroactive

basis. The remaining 9 percent were paid on a current

basis via the allowances in effect prior to Order No. ‘4.

Transco has utilized such estimated breakdown in calcu-

lating the direct billed amounts shown on Schedule A.

Again, such amounts will be adjusted for actuals, plus

interest, after the detailed review of invoices has been

completed, and the final amounts are not expected to vary

significantly from the estimated amounts.

At the time Transco completes the accounting review

and adjusts its direct billing amounts to reflect actuals,

those customers, if any, which opted for the lump-sum

procedure will have the option to pay additional amounts,

if any, on a lump-sum basis or to switch to a monthly

basis, including interest, over the remaining months of

the twelve-month billing period. Any reductions that may

be due as a result of adjusting for actuals will be dis-

tributed to customers which opted for lump-sum billing

l5a

on a lump-sum basis, and to those customers which opted

for monthly payments by reducing the remaining monthly

billings by equal monthly amounts.

E. Calculation of Interest on Payments and Credits

The amounts which appear on Schedule A represent

principal amounts only and therefore exclude any ap-

plicable interest. Transco will adjust the principal

amounts to reflect interest to the date at which the billing

procedure commences. Such interest on retroactive Order

No. 94 payments will be calculated from the date of pay-

ment by Transco through the date the billing procedure

commences. Inasmuch as Transco is proposing to give

customers the option to pay these amounts over a 12-

month period, additional interest will be calculated on

these net amounts in order to determine each such cus-

tomer’s monthly payment. In addition, interest wil! also

be calculated on amounts shown on Schedule B which wil!

be refunded to each customer. As described earlier, these

refunds result from the fact that certain retroactive Or-

der No. 94 amounts have been included in PGA filings in

Docket Nos. TA84-2-29-000 and TA85-1-29-000. Interest

on these refund amounts will be calculated from the date

when these amounts were paid by the customer through

the date when the direct billing procedure commences.

All such interest shall be calculated in accordance with

the Commission’s PGA regulations at the applicable in-

terest rate in effect from time to time.

VI.

REASONS SUPPORTING DIRECT

BILLING PROCEDURE

The direct billing procedure is the most logical and

equitable method of assigning cost responsibility for this

extraordinary, out-of-period item. These substantial ret-

roactive payments relate to gas purchased by Transco

from producers since mid-1980. Clearly, the matching

16a

of such out-of-period costs to the customers’ respective

purchases, by month, during the period to which the costs

are related is the most equitable method of allocating

such costs. Thus, the proposed procedure will most clearly

approximate the cost assignment that would have oc-

curred had the payments been made at the same time

as the gas purchases to which they relate. By the same

token, collecting retroactive Order No. 94 payments

through the regular PGA procedures would lead to a dis-

tortion of marketing signals because such costs relate to

purchases made during prior periods.

Direct billing 1s supported not only by logic and equity,

but also by precedent. Collecting these large retroactive

Order No. 94 amounts through a pipeline’s regular PGA

mechanism is inconsistent with the Commission’s treat-

ment of other such out-of-period costs. Specifically, in

Order No. 98, the Commission established a direct refund

procedure for Btu measurement adustments wherein the

pipeline’s customers would be refunded these amounts

based on their respective shares of purchases over the

affected period. The Commission determined that flowing

these large refund amounts through a pipeline’s PGA

could result in an inequitable distribution of refunds to

the pipeline’s customers. As the Commission explained in

Order No. 399 issued September 20, 1984, the PGA

mechanism is not appropriate for large out-of-period re-

funds ‘Mimeo, pp. 32-33):

“The Commission believes that the use of he PGA

mechanism to pass through the refunds could result

in inequities. For example, customers which do nct

now purchase gas from an interstate pipeline would

not receive a refund with a PGA pass-through, and

it would be unfair if the customers actually over-

charged did not receive a refund in the same pro-

portion to their overcharges, given the magnitude

and long-term nature of the overcharges.

17a

In contrast, the Commission believes that the lump-

sum mechanism is a fair and equitable procedure.

Specifically, the lump-sum mechanism ensures that

refunds will be made to those customers who over-

paid the pipelines, and this mechanism will return

the refunds to the ultimate consumer more quickly.

Finally, the Commission recognizes that the Btu re-

fund may temporarily disrupt the current gas mar-

ket. But, the Commission believes that a lump-sum

cash payment requirement wiil disrupt the current

natural gas market less than the use of the PGA

mechanism, since a lump-sum gas payment is made

to those over-charged and does not adjust current

prices,”

Transco believes that retroactive Order No. 94 pay-

ments should be treated in a similar fashion, particularly

in light of the fact that Transco has numerous customers

on its system that currently are purchasing at much lower

levels than they did during the period to which the retro-

active Order No. 94 amounts ayply. If Transco continued

to flow these amounts through its PGA, such customers

would be assessed substantially less than their equitable

portion of the cost responsibility related to these amounts.

Not only does direct billing result in the most equitable

treatment of customers, it also effectively forecloses any

and all allegations or concerns regarding potential

manipulation of PGA filings for competitive or other

purposes.

It should also be noted that the Commission has ap-

proved direct billing of Order No. 94 costs in Natural

Gas Pipeline Company of America, Docket No. RP85-18-

000, letter order issued January 29, 1985, and has pending

before it in Docket No. RP83-8-000 a settlement proposal

—supported by Commission Staff—which would establish

direct billing for Tennessee Gas Pipeline Company, a

competitor of Transco.

18a

VI.

MISCELLANEOUS MATTERS

A. Transco wishes to make it abundantly clear that

the instant proposal is not intended to—nor will it—cir-

cumscribe or restrict in any way interested parties’ rights

with respect to questioning the appropriateness of indi-

vidual retroactive Order No. 94 payments. See, letter

order issued January 29, 1985 in Natural Gas Pipeline

Company of America, Docket No. RP85-18-000, mimeo

at 2.

B. Transco is serving the instant petition on its custom-

ers, state commissions and other parties normally served

with Transco’s rate filings, and on those additional parties

whieh hare intervened in-Transeo’s PGA filing in Docket

No. TA85-3-29-000 which relates to the instant filing in

the manner explained hereinabove. Transco submits that

good cause exists for expedited consideration and, to that

end, requests that an abbreviated intervention and com-

ment period be established.

C. Transeo requests that the Commission grant any

waivers of its Regulations as may be required to make

the direct billing procedure effective as proposed.

VIII.

CONCLUSION

For all of the foregoing reasons, Transcontinental Gas

Pipe Line Corporation respectfully submits that the

above-described proposed direct billing procedure is in

the public interest and should be authorized as expedi-

tiously as possible. Respectfully submitted,

TRANSCONTINENTAL GAS PIPE

LINE CORPORATION

By /s/ Robert G. Hardy

Its Attorney

19a

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

SCHEDULE A

TOTAL AMOUNT OF RETROACTIVE ORDER NO. 94

AMOUNTS TO BE INCLUDED IN PROPOSED DIRECT

Rate Schedule

CD-1, PS-1, E-1

CD-2, PS-2, E-2

CD-3, PS-3, E-:

S-2

Customer

BILLING PROCEDURE

Atlanta Gas Light

United Cities, GA

Total

Carolina Pipeline

Clinton-Newberry

Columbia-Dranesville

Commonwealth

Danville

Fort Hill

Greenwood

Laurens

Lexington

Lynchburg

North Carolina Gas

North Carolina Nature]

Piedmont

Public Service of N.C.

Shelby

Washington Gas Light

Total

Brooklyn Union

Columbia-Rockville

Columbia-Downington

Columbia-Muncy

Consolidated Edison

Delmarva

Eastern Shore

Elizabethtown

Long Island Lighting

National Fuel

Pennsylvania Gas & Water

Philadelphia Electric

Philadelphia Gas Works

Public Service E & G

South Jersey

Union Gas Company

Total

Total Retroactive

Amounts

7/80-8/84

$ 3,746,990.63

305,039.27

$ 4,052,029.89

1,148,214.97

244,356.19

576,254.60

5,462,946.37

741,321.05

443,657.85

352,906.52

218,533.72

342,156.18

438,135.18

370,153.65

5,219,044.03

8,628,318.75

5,956,928.22

477,508.30

3,769,022.30

$32,389,437.87

10,467,032.67

360,444.86

511,156.25

570,630.38

17,983,883.88

2,896,159.86

1,056,760.22

3,760,284.07

8,310,738.03

866,463.97

2,014,068.26

5,837,284 .24

5,599,448.42

20,362,432.554

5,242,194 43

538,467.72

$86,377,449.61

Total Retroactive

Amounts

Rate Schedule Customer 7/80-8/84

FI-2 Owens-Corning 240,110.47

G & OG1, PS-1 Alexander City 115,236.47

Bowman, GA 3,064.11

Buford, GA 71,715.15

Butler, AL 7,677.12

Clanton, AL 32,951.62

Commerce, AL 47,967.30

Covington, GA 127,684.38

East Central Alabama 48,751.35

Elberton, GA 61,368.41

Hartwell, GA 49,506.81

Lawrenceville, GA 94,086.44

Liberty, MS 7,011.12

Linden, AL 77,360.33

Madison, GA 15,338.66

Maplesville, AL 6,293.11

Monroe, GA 101,680.07

Roanoke, AL 34,977.63

Rockford, AL 1,977.06

Royston, GA 19,801.31

Social Circle, GA 20,131.85

Sugar Hill, GA 17,454.23

Thomaston, AL 1,693.51

Toccoa, GA 99,044.93

Tri-County Natural Gas 76,672.92

Wadley, AL 3,874.27

Wedowee, AL 5,758.20

Winder 198,435.30

Total $1,346,913.64

G & OG 2, PS-2 Bessemer City, N.C. 52,202.77

Blacksburg, S.C. 27,419.10

Fountain Inn, S.C. 40,537.27

Greer, S.C. 211,678.36

Kings Mountain, N.C. 122,558.36

Southwestern Va. Gas 254,909.73

Union, S.C. 182,884.98

United Cities—S.C. 316,862.13

Total

$1,209,052.79

2la

Total Retroactive

Amounts

Rate Schedule Customer 7/80-8/84

G & OG 3, PS-3 Columbia Gas (New Village) 127,695.48

Fredrick Gas Co. ¥ 158,536.18

U.G.I. Corporation aie 175,992.35

Total $462,224.01

ACQ-3 Consolidated Gas Supply 1,058,111.59

North Penn = 561,051.42

Total ACQ-3 $1,619,163.01

X-20 Industrial Natural Gas 3,152.99

Grand Total

$127,699,534.28

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