Algonquin Gas Transmission Co. v. F.E.R.C.
| Decision Date | 01 November 1991 |
| Docket Number | 89-1736,89-1709,89-1744,89-1693,Nos. 89-1634,89-1668,s. 89-1634 |
| Citation | 948 F.2d 1305 |
| Parties | ALGONQUIN GAS TRANSMISSION COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. Central Hudson Gas & Electric Corporation, Boston Gas Company, New Jersey Natural Gas Company, The City of Norwich, Connecticut, et al., Colonial Gas Company, Orange and Rockland Utilities, Inc., Bay State Gas Company, et al., Consolidated Edison Company of New York, Inc., New England Power Company, Intervenors. CENTRAL HUDSON GAS AND ELECTRIC COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, The City of Norwich, Connecticut, et al., Colonial Gas Company, Consolidated Edison Company of New York, Inc., Bay State Gas Company, et al., Algonquin Gas Transmission Company, Boston Gas Company, New England Power Company, New Jersey Natural Gas Company, Orange and Rockland Utilities, Inc., Intervenors. ORANGE AND ROCKLAND UTILITIES, INC., Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, New Jersey Natural Gas Company, Colonial Gas Company, Bay State Gas Company, et al., Boston Gas Company, Central Hudson Gas & Electric Corporation, Consolidated Edison Company of New York, Inc., New England Power Company, Orange and Rockland Utilities, Inc., The City of Norwich, Connecticut, et al., Algonquin Gas Transmission Company, Intervenors. CITY OF NORWICH, CONNECTICUT, DEPARTMENT OF PUBLIC UTILITIES, and The Town of Middleborough, Massachusetts, Municipal Gas and Electric Department, Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Algonquin Gas Transmission Company, New Jersey Natural Gas Company, Colonial Gas Company, Bay State Gas Company, et al., Boston Gas Company, Central Hudson Gas & Electric Corporation, Consolidated Edison Company of New York, Inc., New England Power Company, Orange and Rockland Utilities, Inc., Intervenors. NEW JERSEY NATURAL GAS COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Algonquin Gas Transmission Company, Boston Gas Company, Bay State Gas Company, et al., Central Hudson |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Petitions for Review of Orders of the Federal Energy Regulatory Commission.
Henry S. May, Jr., with whom Gary M. Kotara and Catherine O'Harra for Algonquin Gas Transmission Co., Jennifer L. Miller and Catherine L. Nesser for Boston Gas Co., Joseph M. Oliver, Jr. and M. Lisanne Crowley for New Jersey Natural Gas Co., Stanley W. Balis and Demetrios G. Pulas, Jr., for the City of Norwich, Connecticut, et al., were on the joint brief, for petitioners in Nos. 89-1634, 89-1709, 89-1736 and 89-1744 and intervenors in Nos. 89-1668 and 89-1693. J. Evans Atwell and Judy M. Johnson, for Algonquin Gas Transmission Company, and Nicholas W. Mattis, Jr., for New Jersey Natural Gas Co., also entered appearances.
Frederick J. Killion, with whom Donald K. Dankner for Cent. Hudson Gas and Elec. Corp., Steven J. Kalish and Barbara M. Gunther for Consolidated Edison Co., of New York, Inc., Edward B. Myers and Robert A. Nelson for Orange and Rockland Utilities, Inc. were on the joint brief, for petitioners in Nos. 89-1668 and 89-1693 and intervenors in Nos. 89-1634, 89-1709, 89-1736 and 89-1744. William I. Harkaway and Harvey L. Reiter also entered appearances for Consolidated Edison Co. of New York, Inc.
Jill Hall, Attorney, Federal Energy Regulatory Com'n, with whom Jerome M. Feit, Sol., Federal Energy Regulatory Com'n was on the brief, for respondent in all cases. Robert H. Solomon, Attorney, Federal Energy Regulatory Com'n also entered an appearance for respondent.
William R. Connole with whom Eugene E. Threadgill was on the brief for intervenor, Colonial Gas Co. in all cases.
Mark A. Gallagher, John S. Schmid, Gearold L. Knowles and J. Richard Tiano entered appearances for intervenor, Bay State Gas Co., et al. in all cases.
Stephen A. Herman entered an appearance for intervenor, New England Power Co. in Nos. 89-1709, 89-1736 and 89-1744.
Julia R. Richardson and Lisa J. Gefen entered appearances for intervenor, National Helium Corp. in No. 89-1744.
Before MIKVA, Chief Judge, THOMAS * and HENDERSON, Circuit Judges.
Opinion for the Court filed by Circuit Judge HENDERSON.
Under review in this action are several portions of an order issued by the Federal Energy Regulatory Commission (FERC or the Commission). In accepting and modifying a contested settlement agreement between a natural gas pipeline and its customers, the Commission altered the gas cost and facilities cost recovery method provided in the agreement. The Commission also modified the fuel retention rate and the short-haul transportation rate reflected in the agreement. Under the relevant statute, before altering a settlement agreement, FERC must establish, first, that the agreement, as written, is unjust, unreasonable or unduly discriminatory and, second, that the proposed changes make it just and reasonable. Our review of the record establishes that the Commission failed to carry this statutory burden with respect to its alterations. We therefore grant the petitions for review and remand the proceeding for further action by the Commission.
Algonquin Gas Transmission Co. operates a natural gas transmission pipeline stretching from New Jersey, through New York, Connecticut and Rhode Island, to Massachusetts. Until 1981, Algonquin offered gas for sale to its local distribution customers under two "basic" rate schedules, F-1 and WS-1. 1 Under these rate schedules, Algonquin allocated the cost of the facilities necessary to provide its services on a "rolled-in" basis. That is, the costs of all of the transmission facilities were rolled in together and then recovered from each customer in proportion to the amount of gas each received. See ANR Pipeline Co. v. FERC, 771 F.2d 507, 510-11 (D.C.Cir.1985) (per curiam). Under rolled-in pricing, the amount of facilities costs the pipeline recovers from a particular customer depends on the volume of gas the customer purchases, not the service to which the customer subscribes. 2 On the other hand, Algonquin recovered the cost of the gas it sold under the F-1 and WS-1 schedules on an "incremental" basis. This method passed through to the customer, based on the service to which the customer subscribed, the cost that Algonquin itself incurred in purchasing gas from its supplier for sale under the two rate schedules. 3 The gas for Algonquin's two basic sales services, F-1 and WS-1, came from its supplier under different rate schedules. For this reason, the gas costs associated with Algonquin's two services varied independently of each other and in direct relation to the price under the supplier's applicable rate schedule. 47 FERC at 61,145.
At different times in the 1980s, the pipeline sought and received Commission approval to offer new services. Before 1981 Algonquin had offered a gas storage service under schedule STB but it had contracted with another gas company for the necessary facilities. In 1981, the pipeline spent $45 million on additional facilities that permitted it to offer the STB service relying exclusively on its own plant. 4 Beginning in 1986, Algonquin offered a second storage service under schedule SS-III. The pipeline constructed no new facilities before offering this service; it relied only on the facilities constructed for the STB service. For both of these storage services, Algonquin, with the Commission's approval, allocated the facilities costs on an incremental basis: it recovered the cost of constructing the new facilities only from those customers who subscribed to the services. See ANR Pipeline, 771 F.2d at 511; see generally Battle Creek Gas Co. v. FPC, 281 F.2d 42, 46-47 (D.C.Cir.1960).
In 1984 and 1985, Algonquin also began offering three new firm 5 sales services, F-2, F-3 and F-4. Under these new rate schedules, the subscribing customers purchase gas that Algonquin receives from three suppliers 6 who, under new agreements, supplement the pipeline's previous supply of gas. Algonquin constructed new transmission facilities in order to offer the new services. 7 For the three new services, Algonquin obtained Commission authorization to recover both the facilities costs and the gas costs incrementally rather than rolling the costs into the schedules for its other services.
Also at issue in this proceeding is Algonquin's short haul, T-1 rate schedule. Since 1967, Algonquin has offered a short haul, firm transportation service to customers near the origin of the pipeline. This service covers hauls with an average distance of only 25 miles. The T-1 rate schedule was designed on a mileage-sensitive basis so that customers under this schedule would bear only a portion of the facilities costs borne by other customers farther from the head of the pipeline. The rationale behind the T-1 schedule was that it was unnecessary for the short haul schedule to reflect the cost of all of the pipeline's facilities because the service under this schedule involved only a small portion of those facilities. The T-1 schedule also excluded from the rate base the cost of the facilities constructed for Algonquin's "incremental" sales and...
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