National Fuel Gas Supply Corp. v. F.E.R.C., 88-1684

Citation909 F.2d 1519
Decision Date07 August 1990
Docket NumberNo. 88-1684,88-1684
PartiesNATIONAL FUEL GAS SUPPLY CORPORATION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Berkshire Gas Company, et al., Intervenors.
CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)

George L. Weber, with whom Kenneth L. Glick, was on the brief for petitioner.

Jo Ann Scott, Attorney, FERC, with whom Joseph S. Davies, Deputy Sol., FERC, was on the brief for respondent. Robert Solomon, Joel M. Cockrell, and Jerome M. Feit, Attorneys, FERC, also entered appearances for respondent.

John S. Schmid, Gearold L. Knowles, Bruce Glendening, and Cheryl L. Jones entered appearances for intervenors.

Before BUCKLEY, D.H. GINSBURG, and SENTELLE, Circuit Judges.

Opinion for the Court filed by Circuit Judge D.H. GINSBURG.

D.H. GINSBURG, Circuit Judge:

National Fuel Gas Supply Corporation filed an application under Sec. 7 of the Natural Gas Act for a certificate of public convenience and necessity authorizing it to offer interruptible sales of natural gas to various "off-system" customers. The Commission made its approval conditional upon (1) National's accepting a blanket transportation certificate, which would require it to provide open access transportation and to allow its customers to exercise certain contract demand (CD) conversion rights; and (2) reopening of the record in a rate case regarding National's sales to on-system customers, in order to take account of the newly-authorized off-system sales. National Fuel Gas Supply Corp., 42 FERC p 61,211, reh'g granted in part, 44 FERC p 61,104 (1988).

We grant the petition to review the Commission's order insofar as it conditions approval of National's proposed off-system sales certificate upon its acceptance of a blanket transportation certificate; that condition exceeds the scope of the Commission's authority under Sec. 7, which was the only provision upon which it relied. In addition, we vacate as moot the Commission's order reopening the rate proceeding concerning National's sales to on-system customers.

I. BACKGROUND

National filed for a certificate of public convenience and necessity authorizing it for one year to sell natural gas, on an interruptible basis, to seventeen off-system customers. The Commission found that National has sufficient supply to meet both its existing and the proposed commitments, and that the off-system sales would lower National's weighted average cost of gas by contributing to its fixed costs, which would benefit its on-system customers. The Commission also found that the rate that National had proposed would be "non-discriminatory, based upon fully allocated costs and compensatory, and is appropriate for the proposed sale." Accordingly, the Commission concluded that the "sales are required by the public convenience and necessity."

The Commission also decided, however, to place two conditions upon its certification of the sales. At the time that it issued its order, the record had recently closed in a proceeding relating to the rates paid by National's current on-system customers. The Commission ordered that the record be reopened in that proceeding in order "to determine the annual level of additional volumes that will be sold under the instant application," and to compute two sets of rates for National's sales: one based upon the assumption that National does, and the other upon the assumption that it does not, make the new, off-system sales.

Second, at the request of a pipeline-producer in competition with National (scilicet Columbia Gas), the Commission also conditioned its approval of the sales certificate upon National's accepting a blanket certificate, pursuant to which it would offer open access transportation and allow customers to convert a portion of their CD for sales to transportation. See 18 C.F.R. Sec. 284.10, 284.221 et seq. The Commission explained that, although National seeks to take advantage of transportation over various open access pipelines in order to sell gas, in some cases to those pipelines' traditional customers, it does not provide open access transportation to others; further, its customers do not have the right to convert their CD to transportation. As a result, they are not assured of the ability to buy gas from other sellers and have it shipped to them over National's system. Accordingly, the Commission observed:

National Fuel can remain relatively secure in maintaining its own traditional customer base while at the same time competing for the traditional sales customers of other pipelines. We agree with Columbia that this situation would be inequitable. Accordingly, we will require National Fuel to accept a blanket certificate ... prior to commencing sales under the certificate issued herein.

On rehearing, the Commission accepted National's contentions that it had not discriminated in its transportation services and was in compliance with all Commission rules and regulations, but considered those points "immaterial to whether a blanket certificate should be required as a condition to this proceeding." The Commission noted that there are differences between the open access non-discriminatory transportation provided under a blanket certificate and non-discriminatory transportation provided under an individual Sec. 7(c) certificate; in particular, "[t]he delay engendered by the certification process may effectively prohibit a customer from searching out other competitive short-term supplies of gas." The Commission also pointed out that a pipeline that has accepted a blanket certificate must, under Sec. 284.10, allow CD conversion; that enables a customer to enter into both short- and long-term purchase commitments, providing the flexibility necessary to the "workably competitive environment" that Order No. 500 is intended to facilitate.

Finally, the Commission rejected National's claim that the blanket certificate condition is precluded by our decisions in Northern Natural Gas Co. v. FERC, 827 F.2d 779 (1987) (en banc), and Panhandle Eastern Pipeline Co. v. FERC, 613 F.2d 1120, 1127-33 (1979). It reasoned that those cases are not relevant because in this case it was "not modifying any rates through a section 7 proceeding. Rather," it said it had "found that National Fuel's proposal is only in the public convenience and necessity if National Fuel obtains a Part 284 blanket certificate."

On review, National argues that the blanket certificate condition exceeds the Commission's authority under Sec. 7(e), is inconsistent with our decision in Northern Natural Gas because it circumvents the procedures of Secs. 4 and 5 of the NGA, and is arbitrary and capricious. It also challenges the Commission's decision to reopen the on-system rate proceeding, but recognizes that that issue might be moot.

II. ANALYSIS

In Northern Natural Gas, we held that the Commission may not condition...

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