Panhandle Eastern Pipe Line Co. v. Federal Energy Regulatory Commission

Citation198 U.S.App.D.C. 387,613 F.2d 1120
Decision Date07 October 1969
Docket NumberU,T-20,No. 452,Docket No. RP,Nos. 78-1356 and 78-1630,T-18,78-1630 and 78-1960,Nos. 78-1356,No. 78-1356,No. 78-1960,No. 191,No. 78-1630,N,s. 78-1356,78-1356,78-1630,78-1960,191,452,s. 78-1356 and 78-1630
PartiesPANHANDLE EASTERN PIPE LINE COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, (three cases). . Argued 23 April 1979. Decided 20 Dec. 1979. Raymond N. Shibley, Washington, D. C., with whom Brian D. O'Neill, Washington, D. C., was on the brief, for petitioner. Kristina Nygaard, Atty., Federal Energy Regulatory Commission, Washington, D. C., for respondent; Howard E. Shapiro, Sol., Federal Energy Regulatory Commission, Steven A. Taube and Barbara J. Weller, Attys., Federal Energy Regulatory Commission, Washington, D. C., were on the brief. Before WRIGHT, Chief Judge, WILKEY, Circuit Judge and LARSON * , United States Senior District Judge for the District of Minnesota. Opinion for the Court filed by Circuit Judge WILKEY. Opinion concurring in part and dissenting in part filed by Chief Judge J. SKELLY WRIGHT. WILKEY, Circuit Judge: In these consolidated petitions, Panhandle Eastern Pipe Line Company (Panhandle) challenges orders issued by the Federal Energy Regulatory Commission (FERC). Two of these petitions 1 challenge FERC orders requiring Panhandle to flow through new transportation revenues to its resale gas customers via its unrecovered purchased gas account (PGA), while prohibiting the flow-through of new transportation costs. The third petition 2 challenges the Commission's selective waiver of its requirement of tracking authority allowing Panhandle to track decreased rates charged it by other pipelines, but not permitting it to pass on increased rates charged Panhandle. For the reasons to be discussed, we set aside the order in, set aside in part and affirm in part the order in, and affirm the order in I. BACKGROUND Commencing around 1971 shortages developed in the supplies of natural gas available to interstate pipelines, resulting in curtailment of deliveries to their customers. As a consequence of the reduction in pipeline gas supplies, natural gas users, including pipelines such as Panhandle, have had to seek more distant supplies of
CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)

Raymond N. Shibley, Washington, D. C., with whom Brian D. O'Neill, Washington, D. C., was on the brief, for petitioner.

Kristina Nygaard, Atty., Federal Energy Regulatory Commission, Washington, D. C., for respondent; Howard E. Shapiro, Sol., Federal Energy Regulatory Commission, Steven A. Taube and Barbara J. Weller, Attys., Federal Energy Regulatory Commission, Washington, D. C., were on the brief.

Before WRIGHT, Chief Judge, WILKEY, Circuit Judge and LARSON *, United States Senior District Judge for the District of Minnesota.

Opinion for the Court filed by Circuit Judge WILKEY.

Opinion concurring in part and dissenting in part filed by Chief Judge J. SKELLY WRIGHT.

WILKEY, Circuit Judge:

In these consolidated petitions, Panhandle Eastern Pipe Line Company (Panhandle) challenges orders issued by the Federal Energy Regulatory Commission (FERC). Two of these petitions 1 challenge FERC orders requiring Panhandle to flow through new transportation revenues to its resale gas customers via its unrecovered purchased gas account (PGA), while prohibiting the flow-through of new transportation costs. The third petition 2 challenges the Commission's selective waiver of its requirement of tracking authority allowing Panhandle to track decreased rates charged it by other pipelines, but not permitting it to pass on increased rates charged Panhandle. For the reasons to be discussed, we set aside the order in No. 78-1356, set aside in part and affirm in part the order in No. 78-1630, and affirm the order in No. 78-1960.

I. BACKGROUND

Commencing around 1971 shortages developed in the supplies of natural gas available to interstate pipelines, resulting in curtailment of deliveries to their customers. As a consequence of the reduction in pipeline gas supplies, natural gas users, including pipelines such as Panhandle, have had to seek more distant supplies of natural gas, which in turn requires special transportation arrangements in order to bring those supplies into their systems. A second consequence of the shortage and resulting curtailment has been that pipelines have substantial excess capacity which could be used, Inter alia, to transport natural gas for other pipeline users. The instant petitions involve attempts by Panhandle and the Commission to grapple with problems arising from these changed conditions.

A. No. 78-1356

On 30 June 1977 Panhandle and its wholly owned subsidiary, Trunkline Gas Company, filed a joint application pursuant to section 7(c) of the Natural Gas Act 3 for a certificate of public convenience and necessity to transport up to 1,800 Mcf of natural gas on a firm basis and 1,200 Mcf on a best efforts basis for eventual redelivery to Libby-Owens-Ford Company (LOF). The term of the transportation agreement was eight years. The rate proposed by Panhandle and Trunkline for the transportation service was $7,650 per month, subject to adjustment.

The Commission issued its order granting the requested certificates of public convenience and necessity for the transportation services on 16 December 1977. The certificates were granted for a two-year period only. 4 The Commission approved Panhandle's and Trunkline's proposed transportation charges, after a minor adjustment.

In the same order, the Commission stated:

The rates in Docket No. RP 75-102 (Panhandle's 1975 rate case) provide for the recovery of all justifiable costs for gas to be sold or transported but do not include the transportation of gas as proposed herein. Since Panhandle will recover its Thus in granting Panhandle's certificate to transport gas for LOF, FERC ordered the pipeline To apply these transportation revenues to reduce the rates of gas resale customers by crediting the revenues to its PGA. 6 This was designed to ensure that revenue gains of the transportation service would "inur(e) to the benefit of all of (Panhandle's) resale customers." 7

costs through normal operations, any revenues from the instant transportation service shall be credited to its unrecovered purchased gas cost account. 5

On 13 January 1978 Panhandle requested a rehearing. It labeled the crediting requirement inappropriate because it was not limited to the excess of revenues over incurred costs. The company also argued that it was error to require crediting of transportation revenues to its purchased gas account because there is no relation between the two and "(t)he purchased gas account is carefully controlled under the Commission's PGA regulations, and should not be mixed up with transportation revenues." Further, there was no assurance the purchased gas adjustment tracking would be permitted throughout the eight-year period of the contract. Panhandle claimed the provision was discriminatory because it was not required of another pipeline, Transco, in the transportation arrangement. Finally the company urged that the requirement was arbitrary because it required automatic crediting of revenues without provision for automatic recovery of transportation costs. 8

The Commission rejected Panhandle's arguments in its order on rehearing issued 22 February 1978. FERC explained that the transportation service was made possible because of unused capacity in Panhandle's system, and that the costs associated with that capacity were already borne by Panhandle's resale customers. Thus, crediting the revenues through Account 191 was designed to benefit the resale gas customers who had paid for the costs associated with the excess pipeline capacity. There was no need to consider whether the PGA clause would continue the eight years of the contract because the certificate was limited to two years only. FERC found no discrimination vis-a-vis Transco, because Transco had previously agreed to credit transportation revenues to its unrecovered purchased gas account, and treatment of the revenues was an issue in certain Transco rate proceedings. The Commission did amend its 16 December 1977 order to allow Panhandle to recover its out-of-pocket costs incurred in performing the transportation services. 9 Finally, the Commission pointed out that "(i)n the event Panhandle's other transportation costs (were) preventing it from earning a reasonable return, it (was) free at any time to submit a general rate change under Section 4(e) of the Natural Gas Act." 10

On 20 April 1978 Panhandle filed its petition for review docketed as No. 78-1356.

B. No. 78-1960

On 25 October 1977 Trunkline applied for a certificate of public convenience and necessity to transport up to 10,000 Mcf of natural gas per day for Panhandle from offshore Louisiana. The gas was previously purchased by Panhandle from its affiliate Pan Eastern Exploration Company. The gas is transported by Trunkline to an existing Because the Commission had previously required Panhandle to credit new transportation revenues to its unrecovered purchased gas account, Panhandle petitioned to intervene in the proceeding and sought to have Trunkline's certificate conditioned so as to permit Panhandle's new transportation costs to be included as purchased gas costs recoverable through its PGA clause. 11

interconnection with Panhandle near Tuscola, Illinois. Two other pipelines, Tarpon Transmission Co. and Tennessee Gas Pipeline Co., were also involved in the transportation arrangement. Panhandle was to pay $81,800 per month for the transportation service plus a proportionate share of Trunkline's payment to Tarpon for offshore transportation. Total cost to Panhandle for the new transportation service is claimed to be from $1.5 to $2 million per year.

On 17 April 1978 the Commission issued its order granting Trunkline's certificate and denying Panhandle's request. 12 The Commission explained that the crediting of transportation revenues was applied to short term transportation arrangements to "assure that the pipelines' customers share in the revenues received from such transportation service, since the rates that the customers pay are based on costs and revenues established in the pipelines' most recent approved rate case." The Commission then reasoned that recovery of transportation costs through the purchased gas adjustment provisions is not permitted unless the pipeline's tariff includes a "tracking" provision. Panhandle's tariff does not include such a provision. Because the Trunkline proceeding concerned a long term transportation service (ten years), the Commission determined that "if the cost to Panhandle for the transportation service performed by Trunkline precludes earning a reasonable return, Panhandle should consider submitting a general rate change filing under Section 4(e) of the Act." The Commission further reasoned that since each Mcf of sales included fixed costs, to the extent Panhandle sold more gas than contemplated when the original rates were filed, the additional fixed costs recovered would offset the additional transportation costs.

Panhandle filed for rehearing on 16 May 1978. 13 In its application Panhandle strenuously objected to the crediting requirement previously imposed upon it in the LOF proceedings. The company argued that disallowing flow-through of costs in the Trunkline proceeding while requiring crediting of revenues in the LOF proceeding was inconsistent, and constituted a double penalty to Panhandle. It argued that the Commission's reliance on Panhandle's most recently approved rate case was misplaced, because it was "several years old and provide(d) no justification for the assumption that Panhandle's customers are paying for the costs presently being incurred." The company then requested a hearing to show that it was not recovering its costs of service and an adequate return. Panhandle...

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