Columbia Gas Transmission Corp. v. F.E.R.C.

• Decision Date: 13 February 2007
• Docket Number: No. 05-1285.,05-1285.
• Citation: 477 F.3d 739
• Parties: COLUMBIA GAS TRANSMISSION CORPORATION and Columbia Gulf Transmission Company, Petitioners v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Charlottesville, Virginia and Richmond, Virginia, Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

477 F.3d 739

COLUMBIA GAS TRANSMISSION CORPORATION and Columbia Gulf Transmission Company, Petitioners v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent Charlottesville, Virginia and Richmond, Virginia, Intervenors.

No. 05-1285.

United States Court of Appeals, District of Columbia Circuit.

Argued November 6, 2006.

Decided February 13, 2007.

On Petition for Review of Orders of the Federal Energy Regulatory Commission.

Barbara K. Heffernan argued the cause for petitioners. With her on the briefs were Debra Ann Palmer, William S. Lavarco, Stephen R. Melton, Kurt L. Krieger, and David P. Sharo.

Beth G. Pacella, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With her on the brief were John S. Moot, General Counsel, and Robert H. Solomon, Solicitor.

Before: GARLAND and BROWN, Circuit Judges, and WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge WILLIAMS.

WILLIAMS, Senior Circuit Judge.

Columbia Gas and Columbia Gulf ("Columbia"), petitioners here, entered into agreements with several local distribution companies according to which the latter received discounted service on the condition that they waive certain rights under the Natural Gas Act (the "Act"). Columbia filed the discounted rate agreements with the Federal Energy Regulatory Commission, which rejected them and held that Columbia either had to refile them as negotiated rate agreements or remove the waivers. Columbia petitioned for rehearing, and FERC denied the petition.

We deal here with two sets of issues. First, the Commission argues that we do not have jurisdiction to consider arguments that Columbia did not make in its petition for rehearing. We reject this jurisdictional challenge and treat all of Columbia's arguments as properly before us. Second, we review Columbia's assertions that FERC's orders are inconsistent with its precedents and that its determinations are otherwise arbitrary or capricious. We reject these challenges and affirm the Commission's orders.

* * *

Columbia Gas and Columbia Gulf are natural gas companies that provide various services under Commission-approved tariffs, including the transportation and delivery of natural gas. Both companies entered into agreements to serve three large local distribution companies—Mountaineer Gas Company, The Cincinnati Gas & Electric Company, and The Union Light Heat & Power Company—at discounted rates (collectively, the "discount shippers"). In addition to offering the discounts, Columbia waived its right under § 4 of the Act, 15 U.S.C. § 717c, to seek Commission approval for an increase in rates to be charged the discount shippers, and promised that they would receive the benefit of any Commission-approved reduction in the discounted rates. Reciprocally, the discount shippers agreed to waive their right under § 5 of the Act, 15 U.S.C. § 717d, to challenge any of Columbia's rates as unjust or unreasonable. Importantly, the § 5 waivers covered not only the discounted rates but also precluded the discount shippers from challenging the rates for any of Columbia's services.

FERC initially rejected the agreements, Columbia Gulf Transmission Corp., 109 F.E.R.C. ¶ 61,152 (2004) ("Initial Order"), on two grounds. First, it said that § 5 waivers were not appropriate in discount agreements but could be included only in negotiated rate agreements. (Columbia customers who intervened before the Commission argued that the distinction between discount agreements and negotiated rate agreements was substantive and not semantic. If they were discount agreements, the intervenors argued, Columbia could have sought a "discount adjustment" in its next tariff filing and thereby possibly recovered the discount's cost from Columbia's other customers. If they were negotiated rate agreements, this cost-recovery opportunity would have been unavailable. Our disposition doesn't require us to sort this out.) Independently, FERC objected to the scope of the agreements' § 5 waivers. FERC noted that it had previously approved such waivers when they applied only to the discounted rates and services, not, as in these agreements, to both discounted and non-discounted rates. In accordance with the Commission's order, Columbia removed the § 5 waivers from the agreements, but petitioned for rehearing, attacking both of the Commission's reasons.

FERC denied the petition for rehearing, but marshaled slightly different reasons. Columbia Gulf Transmission Corp., 111 F.E.R.C. ¶ 61,338 (2005) ("Rehearing Order"). The Commission continued to maintain that the discount shippers' § 5 waivers were impermissibly broad; it reasoned that a pipeline should not be permitted "to condition the offering of a discount for one service for which a shipper may have competitive alternatives on limiting the shipper's section 5 rights to challenge the pipeline rates for other services over which the pipeline does have market power." Id. at 62,507 P 14. It also argued that Columbia behaved discriminatorily by offering discounts to (and extracting waivers from) only its largest customers. This would disadvantage the small fry, which, according to the Commission, might lack the resources to bring § 5 challenges on their own but would be denied the benefit of challenges by the large discount shippers (who would not be bringing challenges at all). Id. at 62,507 PP 15-16. Columbia filed a timely petition for review.

* * *

FERC argues that we lack jurisdiction to consider Columbia's arguments addressed to Commission justifications that emerged for the first time in the Rehearing Order. Section 19(a) of the Act, 15 U.S.C. § 717r(a), requires that a party petition FERC for rehearing before it challenges a Commission order in court. Section 19(b) goes on to say that "[n]o objection to the order of the Commission shall be considered by the court unless such objection shall have been urged before the Commission in the application for rehearing unless there is reasonable ground for failure so to do." 15 U.S.C. § 717r(b). We have frequently remarked on the strictness of the jurisdictional provisions in the Act. See, e.g., ASARCO, Inc. v. FERC, 777 F.2d 764, 774 (D.C.Cir.1985). The Commission argues that Columbia's petition for rehearing did not address FERC's concerns about market power and undue discrimination and that, consequently, we may not consider any such arguments now. Of course the reason Columbia hadn't attacked those arguments in its petition for rehearing is plain: FERC hadn't yet revealed them. FERC argues, however, that § 19 conditions Columbia's ability to attack those justifications in court on its having advanced its critiques in a second petition for rehearing.

Our cases support the Commission's claim only up to a point. Where the Commission on rehearing changes its actual order adversely to the petitioner—not merely the reasoning—it is commonly treated as having issued a new order. While a party may challenge the new order in court without a new petition for rehearing, such a challenge can attack only the original adverse provisions, not the new sources of complaint. See Canadian Ass'n of Petroleum Producers v. FERC, 254 F.3d 289, 296-97 (D.C.Cir.2001); Town of Norwood v. FERC, 906 F.2d 772, 774-75 (D.C.Cir.1990). Here FERC reached exactly the same result in the Rehearing Order; it simply marshaled new arguments to support the old outcome. In such a case, we have held, FERC "does not thereby transform its order denying rehearing into a new `order' requiring a new petition for rehearing before a party may obtain judicial review." Southern Natural Gas Co. v. FERC, 877 F.2d 1066, 1073 (D.C.Cir.1989). Thus, when a party proceeds to court in such situations, it may have a "reasonable ground" for not having earlier raised its objections to the rationale underpinning the rehearing order. Id. at 1072.

We adopted this approach in Southern Natural because "[o]therwise, we would `permit an endless cycle of applications for rehearing and denials,' limited only by FERC's ability to think up new rationales." Id. at 1073 (quoting Boston Gas Co. v. FERC, 575 F.2d 975, 978 (1st Cir. 1978)). We applied the same reading of § 19 in Washington Water Power Co. v. FERC, 201 F.3d 497, 501 (D.C.Cir.2000).

The principle of Southern Natural and Washington Water is that when a party filing a petition for rehearing was not on notice of the rationale that FERC would adopt in the rehearing order, the party has a "reasonable ground" for not having addressed that rationale in its petition and accordingly may do so for the first time in court. And a party is on notice only of ideas that FERC has addressed in the initial order with reasonable specificity, but not of ones to which the Commission has only alluded vaguely. See Southern Natural, 877 F.2d at 1072.

We note that the exhaustion requirement in § 19(b) of the Act is, on its face, similar to provisions in other statutes. See Washington Ass'n for Television and Children v. FCC, 712 F.2d 677, 682 & n. 6 (D.C.Cir.1983) (noting that some statutes, such as the National Labor Relations Act ("NLRA"), explicitly permit exceptions based on "extraordinary circumstances" and inferring such an exception in the Communications Act's exhaustion requirement, 47 U.S.C. § 405). Yet cases under the Natural Gas Act and the Federal Power Act, such as Southern Natural and Washington Water, find a "reasonable ground" for failure to exhaust more readily than decisions under the NLRA, the Communications Act or kindred provisions, where we regularly reject the excuse that the agency came up with the justification under attack only in its ultimate decision; the challenger's remedy, we say, is to seek rehearing. See, e.g., Washington Ass'n, 712 F.2d at 683; Epilepsy Foundation of Northeast Ohio v. NLRB, 268 F.3d 1095, 1101-02 (D.C.Cir.2001). A possible explanation for the apparent anomaly is that the Natural Gas Act and the Federal Power Act require a petition for...