Complex Consol. Edison Co. of New York, Inc. v. F.E.R.C.
| Decision Date | 12 February 1999 |
| Docket Number | 97-1560,97-1580 and 97-1590,Nos. 97-1554,s. 97-1554 |
| Citation | 165 F.3d 992 |
| Parties | , Util. L. Rep. P 14,258 "COMPLEX" CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., et al., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. Northern Illinois Gas Company, et al., Intervenors. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
On Petition for Review of Orders of the Federal Energy Regulatory Commission.
Lee A. Alexander argued the cause for petitioners JMC Power Projects and New England Power Company. With him on the briefs were Stefan M. Krantz and Mitchell F. Hertz. Yoav K. Gery entered an appearance.
Gary E. Guy argued the cause and filed the briefs for petitioner Equitable Gas Company.
Harvey L. Reiter argued the cause for petitioners Consolidated Edison Company of New York, Inc., et al. With him on the briefs was Kenneth T. Maloney. Marc Richter entered an appearance.
Timm L. Abendroth, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With him on the brief were Jay L. Witkin, Solicitor, and Susan J. Court, Special Counsel.
Jonathan D. Schneider argued the cause for intervenor New York State Electric and Gas Corporation. Kevin J. McKeon argued the cause for intervenor Connecticut Natural Gas Corporation. With them on the brief were Richard M. Lorenzo, Gary E. Guy, David I. Bloom, Scott P. Klurfeld, David D'Alessandro, Tom Rattray, Barbara K. Heffernan, Roy R. Robertson, Jr., Nancy A. White, Elizabeth Ward Whittle and Kevin M. Sweeney. Lillian S. Harris and Bruce A. Connell entered appearances.
Jeffrey D. Komarow argued the cause for intervenors Tennessee Gas Pipeline Company and Bay State Gas Company, et al. With him on the brief were Robert H. Benna, Barbara K. Heffernan and Tom Rattray. Michael J. Fremuth entered an appearance.
Before: WALD, RANDOLPH and ROGERS, Circuit Judges.
Opinion for the Court filed PER CURIAM.
Tennessee Gas Pipeline Company ("Tennessee") owns and operates a "long-line" interstate natural gas pipeline system running from the Texas gulf coast to New Hampshire. In 1991, Tennessee made a general rate filing pursuant to section 4 of the Natural Gas Act. 15 U.S.C. § 717c (1994). A number of Tennessee's customers brought challenges. Most issues were resolved at various points in the ensuing rate proceedings, with the exception of those raised by the petitioners here. Petitioners now seek review of several rulings issued by the Federal Energy Regulatory Commission ("FERC" or the "Commission"). See Tennessee Gas Pipeline Co., 76 F.E.R.C. p 61,022 (1996) ("Opinion 406") ("Tennessee II"), reh'g denied, Tennessee Gas Pipeline Co., 80 F.E.R.C. p 61,389 (1997) ("Opinion 406-A") ("Tennessee III"). For the reasons set forth in Parts I, II, and III, we deny each of the petitions for review. 1
JMC Power Projects and the New England Power Company (jointly "JMC Power") petition for review of several FERC rulings, in the relevant portions of which the Commission approved a Tennessee proposal to continue recovering the costs of a series of facility expansions, collectively referred to as the NET/T-180 facilities, on an incremental basis. 2 Petitioners claim that, in accepting the proposed incremental rate treatment, FERC unjustifiably departed from both its own precedent and prior decisions of this court, and unlawfully utilized quantitative measures in assessing the potential costs and benefits of the expansion facilities to preexisting customers. We conclude that Opinions 406 and 406-A clearly clarified the Commission's historic test for determining the propriety of rolled-in versus incremental pricing of expansion facilities' costs, and that FERC provided a reasoned explanation for a modest shift from its strictly two-tiered Battle Creek test 3 towards a standard that examines additional relevant factors. Because FERC supplied a sufficient explication for this clarification which, as intended, brought FERC policy into accord with this court's Natural Gas Act jurisprudence, we deny JMC Power's petition for review.
Between 1988 and 1992, FERC approved the construction of seven separate projects (collectively the "NET/T-180 facilities") 4 by Tennessee, whose costs were initially to be recovered through incremental pricing. 5 In its 1991 general rate filing pursuant to section 4 of the Natural Gas Act ("NGA"), 15 U.S.C. § 717c, 6 Tennessee proposed to continue the existing incremental pricing of the NET/T-180 facilities. 7 FERC accepted the rate filing subject to refund, and set the matter for evidentiary hearing before an Administrative Law Judge ("ALJ"). Tennessee and its customers later reached an agreement settling most of the contested issues, which FERC then approved on October 29, 1993. See Tennessee Gas Pipeline Co., 65 F.E.R.C. p 61,142. The remaining issues were assigned to the ALJ.
In the ensuing series of evidentiary hearings, JMC Power sought rolled-in treatment for the NET/T-180 facilities by arguing that the facilities were fully integrated into the Tennessee pipeline system and provided various operational and financial benefits to Tennessee and its pre-expansion customers. In particular, its primary witness testified that, in his estimation, the NET/T-180 facilities produced between $28.85 and $79.45 million in total levelized annual benefits 8 to pre-existing Tennessee customers, with a mid-case value of $46.53 million. He also asserted that the annual levelized costs of rolled-in treatment would amount to $22.73 million. See Tennessee Gas Pipeline Co., 72 F.E.R.C. p 63,005, at 65,077 (1995) ("Tennessee I"). A number of Tennessee's preexisting customers challenged these claims, questioning the existence of each alleged benefit, as well as the statistical models upon which JMC Power had assessed their value. According to the ALJ's initial decision, the weight of the evidence favored the conclusion that the NET/T-180 facilities provided neither operational benefits nor additional reliability to Tennessee's system customers. In addition, the ALJ found that rolling-in the costs of the NET/T-180 facilities to Tennessee's general rate base would cause a rate increase for pre-expansion customers in excess of 5%. See id. at 65,084-86. On the basis of these findings, he concluded that both the Battle Creek test and FERC's Pricing Policy Statement 9 mandated incremental pricing. Accordingly, he approved the Tennessee proposal to continue the existing incremental treatment. See id. at 65,086.
JMC Power filed exceptions to the ALJ's initial decision with the Commission, alleging that the judge had misinterpreted both FERC and D.C. Circuit precedent, and had misapplied the Battle Creek test in assessing the proper pricing scheme for the NET/T-180 facilities. JMC Power further contended that the ALJ had misconstrued the evidence before him, as the testimony presented (in JMC Power's view) fully established that the NET/T-180 facilities were both integrated into the Tennessee pipeline and provided significant benefits to pre-existing customers. These alleged benefits included: increased interruptible service; increased peak capacity due to both nonsynchronous demand and the fuel switching capabilities of the primary NET/T-180 customers; avoided facilities costs for future expansions; the encouragement of price competition through increased access to Canadian gas suppliers; fuel savings stemming from the greater efficiency of the new compressors; contribution to Tennessee's take-or-pay costs through the payment of the volumetric surcharge established by the Cosmic Settlement; 10 potential contributions to stranded investment and new facilities costs; potential contributions to gas supply realignment ("GSR") costs; and general environmental and national security benefits. Finally, JMC Power claimed that the ALJ had miscalculated the rate impact of rolling-in the contested facilities; according to JMC Power's calculations, rolled-in treatment would only result in a 4.9% rate increase, below the 5% presumption established in the Pricing Policy Statement. The parties who had presented contrary evidence before the ALJ filed briefs opposing JMC Power's exceptions.
In Opinion 406, the Commission agreed with the ALJ's decision to order incremental pricing for the NET/T-180 facilities. The Commission found the alleged system benefits postulated by JMC Power to be insubstantial; in each case, the purported benefits flowed almost entirely to the shippers for whom the NET/T-180 facilities were constructed. Because of the high load factor 11 of these shippers--roughly 85-90%--FERC concluded that they likely made substantial purchases of Canadian gas, thereby leaving little capacity available for other pre-existing shippers and limiting the availability of interruptible transportation. 12 See Tennessee II, 76 F.E.R.C. at 61,112. Moreover, FERC reasoned, a capacity bottleneck at Station 219 prevented upstream shippers from utilizing the NET/T-180 facilities, calling into question any additional access to Canadian gas supplies. See id. at 61,112-13. The alleged benefits of cheaper future expansions and declining fuel costs were deemed purely speculative, as were the payment of GSR costs in the event of future conversions to open-access transportation, and the alleged environmental and national security benefits. 13 See id. at 61,113-14. Finally, the Commission noted that JMC Power had manipulated its estimation of the rate increase that would accompany rolled-in treatment by illegitimately adding the costs of the FSST, Niagara Spur, and the Boundary facilities into the figure it used for the pre-expansion rate base. See id. at 61,114 n. 144.
Departing from the ALJ's reasoning to some extent, FERC based its final determination on the grounds that JMC Power had failed to provide sufficient evidence for the Commission to find, under...
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