Transcontinental Gas Pipe Line Corp. v. F.E.R.C.
| Decision Date | 27 August 1993 |
| Docket Number | No. 92-4066,92-4066 |
| Citation | 998 F.2d 1313 |
| Parties | , Util. L. Rep. P 13,949 TRANSCONTINENTAL GAS PIPE LINE CORPORATION, et al., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. |
| Court | U.S. Court of Appeals — Fifth Circuit |
John T. Miller, Jr., Washington, DC, for Elizabethtown Gas Co.
Morton L. Simons, Washington, DC, for North Carolina Utilities Com'n.
David D'Alessandro, Richard A. Solomon, Kelly A. Daly, Washington, DC, for Public Service Com'n of State of New York.
Harvey L. Reiter, William I. Harkaway, Washington, DC, for Consolidated Edison Co. of New York, Inc.
Elizabeth Taylor Seifert, Daniel C. Kaufman, Frederick H. Ritts, Washington, DC, for City of Danville, Virginia.
Jerry W. Amos, Greensboro, NC, for Piedmont Natural Gas Co., Inc.
Paul W. Diehl, Joel F. Zipp, Washington, DC, for South Carolina Pipeline.
O. Julia Weller, James F. Bowe, Jr., Washington, DC, for Long Island Lighting Co. (also appears as petitioner).
Kenneth T. Maloney, Benga L. Farina, Washington, DC, for Brooklyn Union Gas Co.
Kenneth D. Brown, Newark, NJ, for Public Service Elec. and Gas Co.
Telemac N. Chryssikos, Robert B. Evans, John K. Keane, Jr., Washington, DC, for Washington Gas Light Co.
Michael J. Thompson, Wright & Talisman, Washington, DC, for Public Service Co. of North Carolina, Inc. and North Carolina Natural Gas Corp.
Barbara K. Heffernan, Cheryl L. Jones, Washington, DC, for Delmarva Power & Light Co.
Steven A. Taube, Dilworth, Paxson, Kalish & Kauffman, Washington, DC, for South Jersey Gas Co.
John E. Holtzinger, Jr., Jacolyn A. Simmons, Newman & Holtzinger, P.C., Washington, DC, for Atlanta Gas Light Co.
Rush Moody, Jr., Robert G. Hardy, Kenneth L. Wiseman, Washington, DC, Lynn R. Coleman, John N. Estes, II, Skadden, Arps, Slate, Meagher & Flom, Washington, DC, Randall R. Conklin, David E. Varner, Transcontinental Gas Pipeline Corp., Houston, TX, for Transcontinental Gas Pipeline Corp.
James F. Bowe, Jr., O. Julia Weller, Washington, DC, for Long Island Lighting Co. (also appears as intervenor).
Morton L. Simons, Barbara M. Simons, Simons & Simons, Washington, DC, for North Carolina Utilities Com'n (also appears as intervenor).
Edward S. Geldermann, Jerome M. Feit, Sol. F.E.R.C., Washington, DC, for F.E.R.C.
Petitions for Review of Orders of the Federal Energy Regulatory Commission.
Before REYNALDO GARZA, SMITH, and BARKSDALE, Circuit Judges.
Transcontinental Gas Pipe Line Corporation ("Transco") appeals an order of the Federal Energy Regulatory Commission ("the Commission" or "FERC") finding that Transco violated the Natural Gas Act ("NGA") and refusing to allow Transco to pass through $75 million to some of its customers. Several of Transco's customers have intervened urging us to restructure the remedy the Commission crafted. We decline to do so and affirm the Commission's order in all respects.
This case has at its roots the changes that occurred in the natural gas industry in the 1970's when interstate pipelines started to curtail service upon entering into long-term purchasing agreements. In 1978, Transco signed long-term contracts to buy gas from its producers. The contracts included "take-or-pay" provisions that obligated Transco either to take delivery of an amount of gas or to pay for that amount even if Transco did not take delivery.
In the early 1980's, the price of gas declined. Transco still was bound to take or pay for gas at prices well above the market rate. The Commission's regulations required Transco to charge all customers the same price for gas, computed by averaging the cost of all gas Transco purchased; this is called the weighted average cost of gas purchased for resale ("WACOG"). Partly because of Transco's take-or-pay contracts, its WACOG was higher than the price of alternative fuels or gas available on the spot market. As a result, Transco started to lose customers, called "non-captive" customers, who could shift to alternative fuels or buy on the spot market. Customers without access to lower-priced alternatives, who had to continue to purchase WACOG fuel at a rate filed with the Commission, were called "captive."
In the mid-1980's, the Commission started encouraging pipelines to devise new ways to combat their declining sales. In response, Transco set up a program, called a Special Marketing Program, that the Commission approved--on a temporary, experimental basis--in 1983. Under this program, Transco released gas subject to high take-or-pay requirements for sale on the spot market. Transco then could transport the market-priced gas to non-captive customers. In 1984, the Commission conditioned the extension of the program on Transco's agreeing to grant captive customers some access to cheaper gas, up to ten percent of the maximum volume of gas that the captive customers could demand.
Not completely satisfied with the Commission's conditions, Transco proposed its own Discount Service Program instead. Under this program, all customers could buy up to three percent of their required gas at market prices and then buy an additional seven percent at market prices if they purchased a "threshold level" of Transco's more expensive system supply gas. The Commission approved Transco's Discount Service Program in March 1985, stipulating, however, that the plan not go into effect until the United States Court of Appeals for the District of Columbia Circuit permitted Transco to carry out the program.
When the District of Columbia Circuit had not acted by April 1985, Transco, without the Commission's approval, decided to implement a variation of its Discount Service Program by creating two subsidiaries, Transco Resources, Inc. ("TRI"), and Transco Energy Marketing Co. ("TEMCO"), to sell more of its excess gas to non-captive customers at the market rate instead of at Transco's filed rate of $3.01 per Dth. 1 Transco used TRI to sell gas from April until October 1985, and TEMCO from June until November 1985. 2
Transco arranged for TRI to prepay producers at spot market prices from revenues obtained from TRI's sale of gas from the Transco system supply. In exchange, the producers released gas to TRI that had been contracted for by Transco. TRI later returned some volumes of gas to Transco and bought and sold gas from the spot market to non-captive customers. From April until August 1985, TRI sold gas at an average price of about $2.55 per Dth, $.46 below Transco's filed rate charged to captive customers. 3 From April through July 1985, TRI sold more gas each month than it purchased.
TEMCO operated in a similar fashion. Transco also set up TEMCO to sell gas to non-captive customers at market-responsive prices, a function Transco could not perform under the NGA. TEMCO concurrently sold and prepaid for gas at market rates that Transco released from its pipeline. TEMCO sold this gas before the producers actually produced any gas. From June until November 1985, TEMCO sold gas to non-captive customers at an average price of about $2.23 per Dth. During this time, TEMCO sold more gas than it purchased, creating what Transco termed a "transportation imbalance," the difference between receipts and deliveries under a transportation agreement.
Transco would have faced a large underrecovery had it set up TRI and TEMCO to repay Transco in cash for the gas they sold at the market rate. To avoid such a loss, Transco arranged for its subsidiaries to repay Transco in gas. Transco then sold this gas to its captive customers at the filed rate of $3.01 per Dth, despite the fact that TRI and TEMCO had originally paid market rates of between about $2.23 and $2.55 per Dth for this gas. Transco thus created an inflated differential between its actual and projected costs. This showed up as a projected under-recovery in the spring of 1986 of $81.3 million.
Transco's filed rate of $3.01 per Dth was based upon projected costs calculated in early 1985. It turned up the $81.3 million underrecovery when it figured its actual costs. These figures allegedly revealed that Transco really paid about $3.30 per Dth for the gas it sold in 1985 and 1986. Under the Commission's regulations, Transco was allowed to seek recovery of the difference between the rate it collected and its actual costs by imposing a surcharge on its customers.
In April 1986, Transco requested the Commission to allow it to recoup a $75 million "passthrough." 4 The Commission permitted Transco to collect the refund, on a deferred basis, subject to Transco's refunding whatever it collected upon the outcome of hearings on the propriety of the amount. Transco collected about $48.5 million before the Commission issued its final order.
An administrative law judge ("ALJ") issued an initial decision (called Phase I), addressing only the issue of liability, on August 29, 1988, 5 concluding that Transco and its affiliates, TEMCO and TRI, should be viewed as a single entity. Accordingly, sales by TRI and TEMCO were sales by Transco, below-cost sales in violation of the filed rate requirements of section 4(d) of the NGA, 15 U.S.C. § 717c(d). 6 Because some of these sales were to customers to whom Transco did not have authorization to sell, it violated section 7(c) of the NGA, 15 U.S.C. § 717f. 7
The ALJ based his single entity determination upon the fact that the composition of the corporate hierarchies of the TRI, TEMCO, and Transco were almost identical. All of TRI's officers, and all except for one of TEMCO's officers, also were Transco officers. Six of TEMCO's seven directors were directors at Transco. TRI, TEMCO, and Transco all had the same address. TRI had no employees, and TEMCO had but eighteen employees, all of whom were former Transco employees. Corporate distinctions were ignored in dealings among the three groups, and no legal instruments governed transactions among the three groups.
The ALJ next determined that the transactions at issue were sales, not...
To continue reading
Request your trial
-
Total Gas & Power N. Am., Inc. v. Fed. Energy Regulatory Comm'n
...it believes the court's help would be necessary to achieve its purposes."). 104. See generally, e.g., Transcont'l Gas Pipe Line Corp. v. FERC, 998 F.2d 1313 (5th Cir. 1993); Coastal Oil & Gas Corp. v. FERC, 782 F.2d 1249 (5th Cir. 1986); Cox v. FERC, 581 F.2d 449 (5th Cir. 1978); Mesa Petro......
-
In re Applications of Ameritech Corp., CC 98-141
... ... and local private line services, which are provided to ... business customers. [ 64 ] ... Cir. 1987); Northeast Utilities Service Co. v ... FERC , 993 F.2d 937, 947-48 (1st Cir. 1993) (public ... interest standard ... purposes of regulation"); Transcontinental Gas Pipe ... Line Corp. v. FERC , 998 F.2d 1313, 1320 (5th Cir ... ...
-
Total Gas & Power N. Am., Inc. v. Fed. Energy Regulatory Comm'n
...natural gas company had already sought to recoup its losses via implementation of the pass-through while the hearing was pending. See 998 F.2d at 1317. 48. 998 F.2d 1313, 1320 (5th Cir. 1993). 49. 441 F.2d 182 (5th Cir. 1971) 50. In Mesa Petroleum, the natural gas company abandoned sale of ......
-
Table of Authorities
...594 (1953), 135n49 Topco Assocs., United States v., 405 U.S. 596 (1972), 127n28, 203n37 Transcontinental Gas Pipe Line Corp. v. FERC, 998 F.2d 1313 (5th Cir. 1993), 337n24 Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (D.C. Cir. 2000), aff’d sub nom . New York v. FERC, 535 U.......
-
10 Retroactive Ratemaking: The Prohibition and the Exceptions
...p. 31 (2004). Enron was not the lone example of misbehavior producing disgorgement. See , e.g. , Transcon. Gas Pipe Line Corp. v. FERC, 998 F.2d 1313, 1320 (5th Cir. 1993) (upholding Commission denial of recovery of money lost when illegally selling gas, through afiliates, at unduly discrim......