Colorado Interstate Gas Co. v. F.E.R.C.

• Decision Date: 19 May 1986
• Docket Number: 85-1171,Nos. 84-2286,s. 84-2286
• Citation: 791 F.2d 803
• Parties: COLORADO INTERSTATE GAS COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Natural Gas Pipeline Company of America; The Peoples Gas Light and Coke Company, and North Shore Gas Company; Public Service Company of Colorado, Western Gas Supply Company and Cheyenne Light, Fuel and Power Company; The City and County of Denver, Colorado; KN Energy, Inc.; MIGC, Inc.; and the City of Colorado Springs, Colorado, Intervenors.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 803

791 F.2d 803

COLORADO INTERSTATE GAS COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Natural Gas Pipeline Company of America; The Peoples Gas Light and Coke Company, and North Shore Gas Company; Public Service Company of Colorado, Western Gas Supply Company and Cheyenne Light, Fuel and Power Company; The City and County of Denver, Colorado; KN Energy, Inc.; MIGC, Inc.; and the City of Colorado Springs, Colorado, Intervenors.

Nos. 84-2286, 85-1171.

United States Court of Appeals Tenth Circuit.

May 19, 1986.

William M. Lange, Colorado Springs, Colo. (Nancy A. White, also of Colorado Springs, Colo., with him on briefs), for petitioner Colorado Interstate Gas Co.

John Harris Conway (William H. Satterfield, Gen. Counsel, Barbara J. Weller, Deputy Sol., and Joseph S. Davies, Atty., Washington, D.C., on briefs), for respondent F.E.R.C.

Paul W. Mallory, Lombard, Ill. (Paul E. Goldstein and Priscilla Mims, also of Lombard, Ill., and Joseph M. Wells, Lombard, Ill., of counsel, with him on briefs), for intervenor Natural Gas Pipeline Co. of America.

James G. Colvin, II, City Atty., Colorado Springs, Colo., and Gregory L. Johnson and Michael J. Gianunzio, of Horn, Anderson & Johnson, Colorado Springs, Colo., filed briefs for intervenor City of Colorado Springs in Nos. 84-2286 and 85-1171.

Steven H. Kaplan, City Atty., and George J. Cerrone, Jr., Asst. City Atty., Denver, Colo., filed a brief for intervenor City and County of Denver in No. 84-2286.

James R. McCotter, of Kelly, Stansfield & O'Donnell, Denver, Colo., filed a brief for intervenors Public Service Co. of Colorado, Western Gas Supply Co., and Cheyenne Light, Fuel and Power Co. in Nos. 84-2286 and 85-1171.

James Hinchliff, Thomas M. Patrick, and Karen Cargill, Chicago, Ill., filed a joint brief for intervenors The Peoples Gas Light and Coke Co. and North Shore Gas Co. in Nos. 84-2286 and 85-1171.

Before BARRETT, McKAY and TACHA, Circuit Judges.

TACHA, Circuit Judge.

This case consolidates appeals from two orders of the Federal Energy Regulatory Commission (Commission) issued in the course of a rate increase proceeding under Sec. 4 of the Natural Gas Act. This court has jurisdiction to review these orders pursuant to 15 U.S.C. Sec. 717r. The questions presented are whether the Commission acted within its authority in (1) ordering retroactive modification of a contract provision that the company seeking the rate increase did not propose to change, and (2) rejecting the company's compliance filing. We affirm the orders of the Commission.

This case has a long and complicated procedural history which will be outlined briefly. Colorado Interstate Gas Company (CIG) is engaged in the interstate sale of natural gas. Pursuant to a series of service agreements, Natural Gas Pipeline Company of America (Natural) has purchased gas from CIG since 1955. Currently Natural purchases gas from CIG at two different rates, F-1 and H-1. Each rate has two components, a commodity charge and a demand charge. The commodity charge includes all variable costs (mainly the cost of the gas) plus certain fixed costs. The demand charge includes all fixed costs not allocated to the commodity charge. The F-1 rate covers field sales; the H-1 rate covers sales from CIG's mainline facility. The H-1 rate is higher than the F-1 rate because it includes fixed costs of storage and transmission facilities.

The service agreement existing between CIG and Natural at the start of this regulatory action, like the previous service agreements between the companies, contains a minimum commodity bill. This minimum bill provision requires Natural to take or pay for 90% of the volume of gas to which it is contractually entitled. According to the minimum bill, all deficiency charges, whether arising under the F-1 or the H-1 rate schedules, are assessed at the lower F-1 rate. Prior to 1983, the pay provision of the minimum bill had never been triggered.

In March 1982, CIG initiated a general rate increase proceeding under Sec. 4 of the Natural Gas Act, 15 U.S.C. Sec. 717c. The rate increase neither altered nor mentioned the minimum bill provision in the service agreement between Natural and CIG. Natural and several other gas companies intervened in the Sec. 4 proceeding. Pursuant to 15 U.S.C. Sec. 717c, the Commission suspended the rate increase until September 29, 1982, after which CIG's increased rates became effective subject to refund. ¹

CIG filed a proposed stipulation and agreement which the intervenors, with the exception of Natural, accepted. Natural opposed the settlement because it failed to modify the minimum bill, a provision Natural contended was unreasonable and discriminatory. The Administrative Law Judge (ALJ) issued an order severing the minimum bill issue and certifying the remaining portion of CIG's settlement to the Commission. ² The ALJ specifically noted in his order that rates charged Natural under the minimum bill were subject to refund.

The Commission approved the settlement proposal as certified by the ALJ, finding that the settlement reasonably resolved the issues with which it was concerned. ³ The Commission noted that the minimum bill issue remained unresolved.

The minimum bill issue then proceeded to a hearing before the ALJ. The ALJ concluded that the minimum bill as constituted was not just and reasonable because the provision required Natural to pay the variable costs of gas that it did not take. ⁴ He replaced the minimum bill with a demand charge designed to enable CIG to recover all fixed costs allocable to Natural. The ALJ determined that the demand charge should be given prospective effect. The Commission concurred in the ALJ's finding that the minimum bill imposed by CIG was not just and reasonable. ⁵ The Commission, however, permitted CIG to retain the minimum bill but ordered CIG to modify the provision so as to preclude the collection of variable costs. The Commission made this modification retroactive to the effective date of CIG's rate increase. ⁶ CIG sought rehearing which the Commission denied. ⁷

CIG's proposed revision of the minimum bill was rejected by the Commission as not in compliance with the modification order. ⁸ The Commission denied CIG's request for a rehearing. ⁹ This appeal followed.

During the course of the Sec. 4 proceeding, CIG was also involved in a Sec. 7 proceeding. In the Sec. 7 proceeding, CIG sought and was issued a certificate of public convenience and necessity authorizing CIG to increase its sales to Natural. ¹⁰ Upon issuance of the certificate, CIG and Natural entered into a new service agreement which was accepted by the Commission. ¹¹

The questions on appeal are whether the Commission acted within its authority in (1) ordering modification of the minimum commodity bill in the service agreement between CIG and Natural retroactive to the effective date of CIG's 1982 rate increase, and (2) rejecting CIG's revised minimum commodity bill compliance filing.

I.

The first question we address is whether the Commission acted within its authority in giving retroactive effect to the minimum bill revision.

A.

CIG concedes that the minimum bill was unjust and unreasonable and thus subject to prospective modification under Sec. 5 of the Natural Gas Act. The question raised in this case is whether the Commission had the authority to order retroactive modification under Sec. 4. The primary purpose of the Natural Gas Act, 15 U.S.C. Sec. 717 et seq., is to protect consumers from exploitation at the hands of natural gas companies. Federal Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591, 610, 64 S.Ct. 281, 291, 88 L.Ed. 333 (1944). This purpose is achieved through the Commission's plenary review of the contracts and rate schedules established by such companies. Permian Basin Area Rate Cases, 390 U.S. 747, 784, 88 S.Ct. 1344, 1368, 20 L.Ed.2d 312 (1968); United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332, 341, 76 S.Ct. 373, 379, 100 L.Ed. 373 (1956). The Commission conducts this plenary review pursuant to proceedings initiated under Secs. 4 and 5 of the Natural Gas Act. In proceedings under either section, the Commission determines whether the rates fixed by natural gas companies are just and reasonable. United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. at 341, 76 S.Ct. at 379.

Though the ultimate issue is the same under either section, the Commission's power in reviewing a company's rates and the means of initiating Commission review differ under the two sections. A Sec. 5 rate proceeding, in which the Commission reviews previously established rates of a natural gas company, is initiated upon the Commission's own motion or upon the complaint of third parties. The moving or complaining party has the burden of proving the established rates are unjust and unreasonable. If the moving party successfully meets that burden, the Commission sets the rates the natural gas company may charge thereafter. Only prospective relief from unjust rates is available in a Sec. 5 proceeding. 15 U.S.C. Sec. 717d(a); Atlantic Ref. Co. v. Public Serv. Comm'n, 360 U.S. 378, 389, 79 S.Ct. 1246, 1253, 3 L.Ed.2d 1312 (1959).

The filing of new rates by a natural gas company triggers Commission review under Sec. 4. In a Sec. 4 proceeding, the gas company has the burden of justifying its newly filed rates. If the gas company fails to show that its increased rates are just and reasonable, the Commission modifies the rates. This modification may be made retroactive through the Commission's refund power to the date the increased rates became effective. 15 U.S.C. Sec. 717c(e); United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. at 341, 76 S.Ct. at 379.

Section 4 of the Natural Gas Act gives the Commission broad authority to scrutinize new rates filed by a gas company to insure that such rates are just and reasonable. The Commission may review a gas company's rate structure to insure that all...