Columbia Gas Transmission Corp. v. F.E.R.C., 83-2193

Decision Date14 December 1984
Docket NumberNo. 83-2193,83-2193
Citation750 F.2d 105
PartiesCOLUMBIA GAS TRANSMISSION CORPORATION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, United Gas Pipe Line Company, Intervenor.
CourtU.S. Court of Appeals — District of Columbia Circuit

Stephen J. Small, Charleston, W. Va., with whom Amos W. Perrine and Giles D.H. Snyder, Charleston, W. Va., were on the brief, for petitioner.

John H. Conway, Atty., F.E.R.C., Washington, D.C., with whom Jerome M. Feit, Sol., and Joshua Z. Rokach, Atty., F.E.R.C., Washington, D.C., were on the brief, for respondent.

Irving Jacob Golub, Houston, Tex., with whom Phillip D. Endom, Houston, Tex., was on the brief, for intervenor, United Gas Pipe Line Co.

Before GINSBURG and STARR, Circuit Judges, and JACKSON, * District Judge.

Opinion for the Court filed by Circuit Judge STARR.

STARR, Circuit Judge:

This case raises questions with respect to the authority of the Federal Energy Regulatory Commission (Commission) to fashion remedies in the setting of "paybacks" of natural gas by one interstate pipeline to another.

I

The history of this case is complex and detailed, going back to 1958 when United Gas Pipe Line Company (United), the intervenor in this proceeding, contracted with two producers-marketers, namely Humble Oil & Refining Company (now Exxon Corporation) and the Cullen family, to purchase natural gas in the Garden City, Louisiana Field. The background is amply set forth in this court's opinion at an earlier stage of these proceedings, Columbia Gas Transmission Corp. v. FPC, 530 F.2d 1056, 1058-59 (D.C.Cir.1976), and will therefore not be described in detail here. Suffice it to say that a dispute arose between United and Columbia Gas Transmission Corporation (Columbia), another interstate natural gas pipeline company subject to the Commission's jurisdiction and the petitioner in this proceeding, over the right to certain gas produced by three gas companies in the Garden City Field. 1 Columbia's position was that the volumes of gas proposed to be sold to United by the three companies should be included in United's contractually specified maximum volume limitation (120,000 Mcf) as set forth in the original 1958 contract, as amended in 1963.

To break their standoff, Columbia and United arrived at an interim agreement which permitted Columbia, to the exclusion of United, to receive all the disputed volumes of gas. Columbia agreed, however, to take the gas subject to a "payback" requirement, namely that it would supply United with equivalent volumes of gas if Columbia were subsequently found not to have been entitled to it in the first instance. The Commission 2 approved this arrangement in a letter order granting a temporary certificate authorizing the sales, but explicitly conditioned the arrangement in language that is important to the resolution of the case as it reaches us:

(5) In the event the controvery [sic] [between United and Columbia] is ultimately resolved in favor of United, Columbia Gas Transmission Corporation shall deliver, or cause to be delivered, to United a volume of gas equal to the total volume of gas purchased by [Columbia] from [the seller] produced from the Garden City Field ... during the interim period. Such pay back shall be on a ratable basis determined by the total volume of deliveries divided by the number of days during the interim period or upon such other terms as are mutually agreeable to United and Columbia or as the Commission may determine....

(6) The issuance of this temporary authorization is without prejudice to the rights and interests of any of the parties in any Commission proceedings or any other legal proceeding in a court of competent jurisdiction involving the rights of United and Columbia to purchase gas produced from the Garden City Field.

Record (R.) at 1392-93, Appendix (App.) at 45-46. Critically, the Commission's letter order certificating the sale did not establish the price of payback gas, if the payback obligation were to mature.

The Commission eventually determined, pursuant to a request by United for a declaratory order interpreting its contractual rights, that United, and not Columbia, was entitled to the gas under the contract: "There is no contractual basis for deducting from United's entitlement under [the 1958 contract between United and Humble-Cullen] the volumes of gas that the applicant companies [Texas, Gulf, and Southern] now seek to furnish directly to United ...." Texas Gas Exploration Corp., 52 F.P.C. 940, 950, reh'g denied, 52 F.P.C. 1807 (1974), aff'd sub nom. Columbia Gas Transmission Corp. v. FPC, 530 F.2d 1056 (D.C.Cir.1976). This court affirmed, stating that "[t]he FPC's interpretation of the contract is in accordance with its literal terms, and is supported by a plausible explanation of the intendment of the parties." 530 F.2d at 1059.

Columbia commenced payback of the gas in 1978. Columbia and United could not, however, agree on the price for the payback gas. The two firms thereupon returned to the Commission, seeking yet another declaratory order. In this phase of the proceedings, Columbia asserted that it should receive the weighted average cost of the gas supplied to United during the payback period. 3 By virtue of the dramatic increase in the price of natural gas between the time Columbia originally took the gas and the time Columbia "paid back" the gas, Columbia's cost for the payback gas had risen substantially above the cost for the gas it had received earlier. United, in contrast, claimed that the appropriate price would be the price United itself would have paid in the earlier years had the gas been delivered as contemplated before Columbia's intervention. 4

The Commission staff recommended to the Commission, in Solomonic fashion, that the parties split the difference. R. 51. Both parties objected to this solution. R. 58-59 (Columbia's opposition); R. 66-68 (United's opposition). With the stage thus set, the Commission eventually handed down its ruling, finding in favor of United. 5

In its opinion, the Commission began by reciting that the parties had asked for a declaratory opinion on the price that United should pay for natural gas "that Columbia illegally took from United and subsequently paid back." R. 93, App. 8 (emphasis added). The Commission stated that it was called upon, in effect, to balance the equities between the parties and concluded that the equities were not even:

Columbia's contractual right to the disputed volumes of gas was not merely inferior to United's; it was nonexistent. Humble breached its contract with United and sold United's gas to Columbia. By agreeing to the conditions built into the temporary certificates ... Columbia, in essence, stepped into Humble's shoes. Columbia assumed the risk of an adverse ruling on the contract question.

R. 105, App. 20. Referring to its broad discretion to fashion equitable remedies, the Commission expressly considered the following factors: (1) Columbia's customers received the gas at a time of deep curtailment; (2) United and its customers were injured by the reduction of United's gas supply during this period, and (3) United was in no wise accountable for the fact that gas prices had risen dramatically by the time the payback obligation was fulfilled. R. 113-14, App. 28-29. Columbia does not dispute the accuracy of these three points; rather it asserts that other factors, such as the Commission's precedents, should have compelled the Commission to decide differently than it did. The Commission, however, concluded that Columbia would be unjustly enriched if it were allowed to receive more than the original contract price for the payback gas, and therefore ruled in favor of United. 6 R. 114-15, App. 29-30. Following the Commission's denial of rehearing, R. 128, Columbia petitioned this court for review. We affirm the Commission's decision.

II

On appeal, Columbia argues that the Commission acted irrationally and in violation of its past precedents. Petitioner contends that this court's decision in Arizona Electric Power Cooperative, Inc. v. FERC, 631 F.2d 802 (D.C.Cir.1980) (per curiam) [hereinafter cited as AEPCO ], controls this case and required the Commission to provide for payback at the cost at the time of payback instead of past prices. Otherwise, Columbia contends, United would be able to take today's expensive gas at yesterday's low prices. Petitioner argues further that the temporary certificate issued by the Commission entitled it to the gas, and therefore the Commission improperly concluded that Columbia "illegally took" the gas. In Columbia's view, the temporary certificate overrides any mere contractual obligation and conclusively establishes the legality of the taking. Inasmuch as the taking was lawful, the argument goes, the Commission improperly applied restitutionary analysis in crafting its remedy. Finally, Columbia maintains that the Commission improperly considered evidence of a settlement offer, in violation of the Commission's Rules of Practice and Procedure.

A

Under settled principles, our standard of review in this case is highly deferential:

[T]he breadth of agency discretion is, if anything, at [its] zenith when the action assailed relates primarily not to the issue of ascertaining whether conduct violates the statute, or regulations, but rather to the fashioning of policies, remedies and sanctions ... in order to arrive at maximum effectuation of Congressional objectives.

Niagara Mohawk Power Corp. v. FPC, 379 F.2d 153, 159 (D.C.Cir.1967) (applying Federal Power Act). See Gulf Oil Corp. v. FPC, 563 F.2d 588, 606 (3d Cir.1977), cert. denied, 434 U.S. 1062 (1978) (applying Niagara Mohawk standard to a case arising under the Natural Gas Act). Congress recognized that the Commission, not the courts, was best suited to make such determinations in light of its detailed knowledge of industry conditions:

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