Columbia Gas Transmission Corp. v. Federal Energy Regulatory Commission
| Decision Date | 17 May 1979 |
| Docket Number | 77-1631 and 77-1639,Nos. 77-1627,s. 77-1627 |
| Citation | 628 F.2d 578 |
| Parties | , 33 P.U.R.4th 184 COLUMBIA GAS TRANSMISSION CORPORATION and Consolidated Gas Supply Corporation, Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Public Service Commission of the State of New York, Memphis Light, Gas & WaterDivision, Intervenors. TEXAS GAS TRANSMISSION CORPORATION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Terre Haute Gas Corporation, Columbia Gas Transmission Corporation, Consolidated Gas Supply Corporation, Memphis Light, Gas & Water Division, Intervenors. LOUISVILLE GAS AND ELECTRIC COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Public Service Commission of the State of New York, Indiana Gas Company, Inc., et al., Columbia Gas Transmission Corporation, Consolidated Gas SupplyCorporation, Memphis Light, Gas & Water Division, Intervenors. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Petitions for Review of Orders of the Federal Energy Regulatory commission.
John F. Harrington, Washington, D. C., with whom Christopher T. Boland, Washington, D. C., was on the brief, for petitioner in No. 77-1631. Also presented the argument on behalf of petitioner in No. 77-1639.
Richard A. Solomon, Washington, D. C., for petitioners in No. 77-1627 and intervenor, The Public Service Commission of the State of New York in No. 77-1639.
John D. Daly, Giles D. H. Snyder, Charleston, W. Va., Stephen J. Small, Charles R. Brown and George L. Weber, Washington, D. C., were on the brief, for petitioner in No. 77-1627.
Carl W. Ulrich and William R. Duff, Washington, D. C., were on the brief, for petitioner in No. 77-1639.
Joseph G. Stiles, Atty., Federal Energy Regulatory Commission, Washington, D. C., with whom Howard E. Shapiro, Sol., Federal Energy Regulatory Commission, Washington, D. C., was on the brief, for respondent.
George E. Morrow, Memphis, Tenn., for intervenor, Memphis Light, Gas & Water Division.
Peter H. Schiff, Albany, N. Y., Richard A. Solomon and Sheila S. Hollis, Washington, D. C., were on brief, for intervenor, The Public Service Commission of the State of New York in Nos. 77-1627 and 77-1639.
Albert J. Feigen, Washington, D. C., entered an appearance for intervenor, Terre Haute Gas Corporation in No. 77-1631.
George L. Weber, Washington, D. C., entered an appearance for intervenor, Columbia Gas Transmission Corporation, et al. in Nos. 77-1631 and 77-1639.
Jon D. Noland and H. Kent Howard, Indianapolis, Ind., entered appearances for intervenor, Indiana Gas Company, et al. in No. 77-1639.
Before WRIGHT, Chief Judge, BAZELON and TAMM, Circuit Judges.
Opinion for the Court filed by Circuit Judge BAZELON.
Petitioners seek review of Federal Energy Regulatory Commission orders 1 issued in Opinion Nos. 792 2 and 792-A, 3 which set rates for the Texas Transmission Corporation (Texas Gas), 4 an interstate natural gas transmission company. 5 Petitioners Columbia Gas Transmission Corporation (Columbia), Consolidated Gas Supply Corporation (Consolidated) 6 and intervenor, Public Service Commission of the State of New York (New York), 7 challenge the Commission's method of allocating the pipeline's fixed storage and transmission costs among the pipeline's rate zones as well as the Commission's method of designing rates within each of the rate zones. Petitioners Texas Gas and Louisville Gas and Electric Company (Louisville) 8 challenge only the Commission's method of allocating fixed costs. Intervenor Memphis Light, Gas and Water Division (Memphis) 9 supports the Commission in all respects.
The present dispute arose when the Commission decided to employ the methodology first set out in United Gas Pipeline Co. 10 (the United formula) to classify costs for purposes of both cost allocation and rate design on the Texas Gas pipeline. The Commission thus departed from the Atlantic Seaboard Corporation 11 methodology (the Seaboard formula), which it had used in allocating costs and designing rates on the Texas Gas pipeline system for nearly twenty-five years. 12 At issue is whether the Commission's decision to change from Seaboard to United meets the standards set forth in section 4 of the Natural Gas Act. 13 Because we find that the Commission has failed to provide an adequate explanation for its changed approach, we remand the case to the Commission for further consideration.
On September 30, 1974, Texas Gas filed for a general rate increase, 14 using the Seaboard formula for cost classification and allocation, and the United formula for rate design. 15 The Commission accepted the filing but suspended the proposed increase until April 1, 1975, and ordered a hearing on the justness and reasonableness of the proposed increase. 16 Prior to the hearing, a settlement agreement resolved most of the issues raised by the filing, but several were reserved for hearing before an Administrative Law Judge (ALJ), including the proper methods for cost allocation and rate design. 17 This hearing was held on December 2 and 3, 1975.
Texas Gas, Columbia, Consolidated, and the Commission's own staff argued at the hearing that the Seaboard formula should continue to be used without modification for classification and allocation of costs among the pipeline's four rate zones. In support of the Seaboard formula, the parties presented evidence that they claimed showed significant differences between the United pipeline in the Consolidated decision 18 and the Texas Gas pipeline. These differences included annual and seasonal but not peak-day curtailment on the pipeline, use of a demand charge credit provision, and the absence of significant non-jurisdictional sales by Texas Gas. The parties also presented evidence to show differences in the end use markets served by the United and Texas Gas pipelines and to show that the application of United discriminated against customers that had invested in storage facilities to improve their load factors. 19 Memphis, the sole proponent of United formula for allocation of costs, simply contended that this method would more fairly distribute the costs of the pipeline's unutilized capacity.
The Commission Staff 20 supported adoption of the United formula for rate design. The staff claimed that the United formula would reduce the price discount that the Seaboard formula afforded large volume users, that the United formula more nearly reflects pipeline usage during curtailment, and that it would narrow the gap between the cost of natural gas and alternative fuels. Columbia and Consolidated argued for retention of the Seaboard formula for rate design. They contended that the United formula would unfairly penalize high load factor customers with storage while failing to limit consumption of natural gas. Further, they contended that, as with classification and allocation of costs among rate zones, the factual characteristics of the Texas Gas pipeline render the rationale of our Consolidated decision inapplicable for allocating costs among customers within a rate zone.
The ALJ found that the United decision was inapplicable to the Texas Gas pipeline and that the Seaboard formula was "just and reasonable" both for allocation of costs and for rate design. 21 Use of the United formula for classification and allocation of costs among rate zones, he wrote, would be inconsistent "with general Commission policy" because
the United method in the instant case would not produce the result sought in United, but would simply shift substantial costs from one group of jurisdictional customers to another under circumstances where end use characteristics of both groups are substantially the same. . . . Such a result would not be just and reasonable or in the public interest. 22
Similarly, with regard to rate design, the ALJ stated that
(a) change from the long established Seaboard formula of rate design to the United method is clearly unwarranted on the evidence in this proceeding. The rate design in United was adopted from the facts presented therein, to wit, low priority industrial sales, peak day curtailments, and the absence of demand charge credits for curtailed volumes, which do not obtain in the instant case. 23
The Commission overruled the ALJ, and approved the United formula both for cost allocation and for rate design. "The most critical factor in favor of using the United method," the Commission found, "(was) the degree of curtailment on the Texas Gas system." 24 Adoption of the United formula, the Commission asserted, would result in a distribution of cost responsibility that more closely parallels customer usage of the pipeline's facilities.
In a brief opinion, the Commission subsequently denied the applications for rehearing and reconsideration filed by Texas Gas, Louisville, Columbia, and Consolidated, finding that "(n)o facts or issues (had) been raised . . . which warrant(ed) any modification" of its opinion. 25 The Commission added, in passing, that "possible minor anomalies in (use of the United formula) do not render (it) inappropriate for use on the Texas Gas System." 26
The Natural Gas Act does not specify any specific formula for the Commission to use in arriving at just, reasonable and nondiscriminatory rates. 27 We have recognized that, "(i)n setting rates, the Commission is 'free, within the ambit of (its) statutory authority to make the pragmatic adjustments which may be called for by particular circumstances.' " 28 But where, as here, the Seaboard formula has been used for many years, it is a "starting point" in determining "overall reasonableness" of pipeline rates. 29 Thus, in this case the Commission must not only show that the substitution of United for Seaboard results in rates that meet the standards of § 4 of the Act; 30 the Commission must also...
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