Laclede Gas Co. v. F.E.R.C.
| Decision Date | 09 July 1993 |
| Docket Number | No. 92-1002,92-1002 |
| Citation | 997 F.2d 936,302 U.S.App.D.C. 246 |
| Parties | , Util. L. Rep. P 13,955 LACLEDE GAS COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. Entex, a Division of Arkla, Inc., et al., Intervenors. District of Columbia Circuit |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Kenneth J. Neises, Washington, DC, argued the cause for petitioner. With him on the brief was Jennifer N. Waters, Washington, DC.
Katherine Waldbauer, Atty., Federal Energy Regulatory Com'n ("FERC"), Washington, DC, argued the cause for respondent. With her on the brief were William S. Scherman, Gen. Counsel, FERC, Jerome M. Feit, Sol., FERC and Joseph S. Davies, Deputy Sol., FERC, Washington, DC.
William J. Grealis and Robin M. Nuschler, Washington, DC, were on the joint brief for intervenors City of New Orleans and United Gas Pipe Line Co. Michael W. Tifft, New Orleans, LA, also entered an appearance for intervenor City of New Orleans.
Michael J. Manning and James P. White, Washington, DC, entered appearances for intervenors Louisiana Gas Service Co., Div. of Citizens Utility Co., and Entex, Div. of Arkla, Inc.
Joseph J. DiMona, Peyton G. Bowman, III, Washington, DC, J. Wayne Anderson, and Terrence G. O'Brien, New Orleans, LA, entered appearances for intervenor New Orleans Public Service, Inc.
James H. Byrd and Susan N. Kelly, Washington, DC, entered appearances for intervenor United Mun. Distributors Group.
Fredric J. George, Giles D.H. Snyder, and Stephen J. Small, Charleston, WV, entered appearances for intervenor Columbia Gas Transmission Corp.
F. Nan Wagoner, Judy M. Johnson, and D. Virginia Smith, Houston, TX, entered appearances for intervenor Texas Eastern Transmission Corp.
Before BUCKLEY, SENTELLE, and RANDOLPH, * Circuit Judges.
Opinion for the court filed by Circuit Judge BUCKLEY.
Laclede Gas Company petitions for review of an order of the Federal Energy Regulatory Commission approving a contested settlement of the remedy phase of an enforcement proceeding against the United Gas Pipe Line Company. Under the settlement, United would refund $19 million to its natural gas customers to compensate them for amounts they were overcharged from 1972 through 1986. We conclude that, although the Commission employed the proper legal standard in evaluating the settlement offer, it failed to provide a reasoned explanation for its decision to approve the settlement.
Laclede Gas Company is a local distribution company ("LDC") serving the St. Louis metropolitan area. Laclede receives substantially all of its natural gas supplies from Mississippi River Transmission Corporation ("MRT"). From at least 1970 through the mid-1980s, MRT purchased the majority of its gas from United Gas Pipe Line Company ("United"). Accordingly, throughout that period, Laclede was an indirect customer of United.
In 1972, the Federal Power Commission ("FPC"), the predecessor of the Federal Energy Regulatory Commission ("FERC"), established the Purchased Gas Adjustment ("PGA") procedure to reduce the administrative burdens of dealing with rapid fluctuations in the prices that natural gas producers were charging pipelines. See Purchased Gas Cost Adjustment Provision in Natural Gas Pipeline Companies' FPC Gas Tariffs, 47 F.P.C. 1049 (1972). If a PGA clause is incorporated into a pipeline's tariff, the pipeline must make periodic filings with the Commission documenting changes in its purchased gas costs. The pipeline may then pass these changes on to its customers in the form of higher or lower rates without the need for a full-blown rate proceeding under section 4 of the Natural Gas Act ("NGA"), 15 U.S.C. § 717c (1988).
At the time of the events at issue in the present case, pipelines that adopted the PGA procedure were required to make filings on a semiannual basis. Each PGA filing had two components: a "current adjustment" and a "surcharge adjustment." The current adjustment was a forward-looking projection of what a pipeline's purchased gas costs would be during the next six months. To the extent that actual costs exceeded the projection in the current adjustment, the pipeline would undercharge its customers. Conversely, the pipeline would overcharge its customers if purchased gas costs were lower than projected.
The surcharge adjustment compared what a pipeline actually paid for gas with what it collected from its customers during the previous six-month period. Its purpose was to ensure that a pipeline would recover or pay back, as appropriate, gas costs that were either underrecovered or overrecovered due to inaccuracies in its most recent current adjustment. Thus, if the pipeline overcharged its customers because the prior period's projected costs exceeded actual costs, the difference was deducted from the cost projection for the next six months. Similarly, if the pipeline undercharged its customers because the prior projection failed to cover actual costs, the shortfall was added to the next period's projection. Cf. Revisions to the Purchased Gas Adjustment Regulations, 52 Fed.Reg. 43,854, 43,858-59 (1987) (); 18 C.F.R. §§ 154.304-06, 154.308 (1992) ().
United, an intervenor here, filed new tariff sheets in 1972 to adopt the PGA mechanism. In the tariff sheets, United proposed to include in its current adjustment the "rates claimed" by its suppliers, as opposed to the rates actually in effect as of the date of the filing of the tariffs ("rates in effect"). To ensure that this approach would not conflict with the FPC's PGA regulations, United sought a waiver of the regulations to the extent that they might preclude passing through the claimed rates. The FPC, however, denied United's request, ruling that the rates used in computing the current adjustment must be the rates "in effect prior to the effective date of United's PGA rate increase." See United Gas Pipe Line Co., 42 F.E.R.C. p 61,353, at 62,015 (1988); see also United Gas Pipe Line Co., 26 F.E.R.C. p 61,083, at 61,210 (1984).
United then filed a revised PGA tariff, changing the rates claimed language to "suppliers' rates booked by [United] for the month," which United described as those it "believed to be its eventual liability for the gas." United Gas Pipe Line Co., 26 F.E.R.C. p 61,083, at 61,210. The FPC effectively approved this language by accepting United's PGA clause with minor modifications not relevant here. See United Gas Pipe Line Co., 48 F.P.C. 413, 415 (1972). Laclede, however, was not convinced that the new language would effect any substantial change in United's billings and therefore filed a petition for rehearing. See United Gas Pipe Line Co., 26 F.E.R.C. p 61,083, at 61,210. In response to Laclede's petition, the FPC ordered United to amend its tariff sheets to provide that it would compute the amount of its current adjustments "on the basis of the actual rates which are payable to [United's] suppliers as of the effective date of the Current Adjustments." United Gas Pipe Line Co., 48 F.P.C. 749, 750 (1972).
Notwithstanding the FPC's command that only rates in effect could be included in the current adjustment, United included in its PGA filings from June 1972 through March 1986 two types of "unpaid accruals": "accrue-but-don't-pay" amounts and "suspended payables." The former represented United's estimate of what its suppliers might charge it, but which United was not at the time legally required to pay. For example, when United was renegotiating its gas supply contracts at the time it made its PGA filing, it would include in its current adjustment the difference between the price in its current contract and the price it expected to pay under the contract being negotiated. Suspended payables were amounts that United was legally obligated to pay its suppliers for gas it had already received, but which United was temporarily excused from paying as a result of some legal or other impediment. By including suspended payable amounts in its PGA filings, United was able to collect those amounts from its customers before it paid its suppliers.
Under the surcharge adjustment component of its PGA filings, United eventually refunded to its customers unpaid accruals that were not actually incurred. Nevertheless, United was able to appropriate the time value of money for any overcollections it made, as it did not pay interest for the period it retained the funds. Moreover, beginning in 1979, United assessed its customers carrying charges for unpaid accrual amounts that they failed to pay during the period they were held on United's books.
Ultimately, FERC became aware that several pipelines, including United and El Paso Natural Gas Company ("El Paso"), were systematically overcharging their customers. Accordingly, in 1980, FERC ordered these pipelines to strike all accrued but unpaid gas purchases from their PGA accounts. Both United and El Paso appealed these orders to the Fifth Circuit. The court granted El Paso's petition for review on the grounds that (1) El Paso had agreed to forego collection of interest on unpaid accruals, and (2) FERC had not proved the existence of any overcollections by El Paso. El Paso Natural Gas Co. v. FERC, 677 F.2d 22, 24 (5th Cir.1982). The court noted, however, that the decision was "not binding as to any future disputes concerning the inclusion of unpaid accruals ... in which these same factors are not present." Id. In the wake of the El Paso decision, FERC requested that United's case be remanded for reconsideration, and the Fifth Circuit granted the request.
On January 23, 1984, FERC issued a show cause order and set for a...
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