Louisiana Intrastate Gas Corp. v. F.E.R.C.
| Decision Date | 24 April 1992 |
| Docket Number | Nos. 89-1479,90-1050,90-1476,s. 89-1479 |
| Citation | 962 F.2d 37 |
| Parties | LOUISIANA INTRASTATE GAS CORPORATION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Prairie Producing Company, et al., Intervenors. LOUISIANA INTRASTATE GAS CORPORATION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Prairie Producing Company, et al., Intervenors. LOUISIANA INTRASTATE GAS CORPORATION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Petitions for Review of Orders of the Federal Energy Regulatory Commission.
Byron A. Thomas, Alexandria, La., for petitioner in all cases.
Thomas J. Lane, Attorney, F.E.R.C., with whom William S. Scherman, General Counsel, and Jerome M. Feit, Solicitor, F.E.R.C., Washington, D.C., were on the brief, for respondent in all cases.
C. Peck Hayne Jr., with whom Alan C. Wolf, New Orleans, La., was on the brief, for intervenors in Nos. 89-1479 and 90-1050.
Before: EDWARDS, SENTELLE and RANDOLPH, Circuit Judges.
Opinion for the Court filed by Circuit Judge EDWARDS.
The Louisiana Intrastate Gas Corporation ("LIG") petitions for review of ratemaking orders that were issued by the Federal Energy Regulatory Commission ("FERC" or the "Commission") pursuant to the Natural Gas Policy Act of 1978 ("NGPA"), 15 U.S.C. §§ 3301-3432 (1988). These orders fixed a rate for natural gas transportation through the Eloi Bay line, a stand-alone facility owned by LIG, and a separate rate for the rest of LIG's pipeline system. The Commission calculated the Eloi Bay rate by dividing the facility's costs into a "rate design volume."
Petitioner advances two valid arguments concerning the Eloi Bay rate. First, the Commission has failed to explain why Eloi Bay is not exempt from the NGPA as a "gathering" facility. Second, the Commission has failed to justify the "rate design volume," which was set at 90% of the line's capacity. Thus, we vacate the Eloi Bay rate and remand for the Commission to reconsider these two issues. Petitioner also challenges FERC's decision to award a full refund to non-Eloi Bay customers, but this challenge lacks merit.
For many years, the Natural Gas Act ("NGA"), 15 U.S.C. §§ 717-717z (1988), has governed the interstate transportation of natural gas. FERC now administers this statute. Pursuant to the NGA, an interstate pipeline must obtain a "certificate of public convenience and necessity" from FERC, id. § 717f, and transportation rates must be "just and reasonable," id. § 717c.
In promulgating the NGPA, Congress sought to facilitate the entry of intra state pipelines into the interstate market. Section 311(a)(2) of the NGPA permits the Commission to "authorize any intrastate pipeline to transport natural gas on behalf of--(i) any interstate pipeline; and (ii) any local distribution company served by any interstate pipeline." 15 U.S.C. § 3371(a)(2)(A) (1988). An "intrastate pipeline" is defined as "any person engaged in natural gas transportation (not including gathering) which is not subject to the jurisdiction of the Commission under the Natural Gas Act." Id. § 3301(16). Crucially, the intrastate pipeline need not obtain a NGA certificate for § 311(a)(2) transportation. Moreover, § 311(a)(2) rates must be "fair and equitable" instead of "just and reasonable":
The rates and charges of any intrastate pipeline with respect to any transportation authorized under [§ 311(a)(2) ] ... shall be fair and equitable and may not exceed an amount which is reasonably comparable to the rates and charges which interstate pipelines would be permitted to charge for providing similar transportation service.
Id. § 3371(a)(2)(B)(i). 1
The instant case concerns the Louisiana Intrastate Gas Corporation, a pipeline company accurately described by its name. All of LIG's lines are inside Louisiana, and most are joined together to form an onshore grid. LIG also has a stand-alone facility that connects offshore gas fields to pipelines owned by other companies. The stand-alone, or so-called "Eloi Bay," facility was built in 1984; it consists of a large-diameter line that is 22 miles long, as well as a short spur linked to this line.
LIG has been engaged in § 311(a)(2) transportation through its onshore grid since the early 1980s. In 1986, FERC approved a rate of 22.4 cents per MMBtu 2 for § 311(a)(2) transportation anywhere in the LIG system, 3 and required the company to refile for rate approval no later than March 1988. LIG did so, and then, in December 1988, reached an agreement with its § 311(a)(2) customers (the "Settlement"), which fixed a new rate of 21 cents per MMBtu. The Settlement did not specify LIG's refund obligation for the period between March and December 1988, during which time LIG had collected a higher rate.
Prior to these events, LIG had only provided intrastate transportation on its Eloi Bay facility, not § 311(a)(2) transportation. However, shortly after the Settlement was filed with FERC, the Prairie Producing Company ("Prairie") and several other Eloi Bay customers requested § 311(a)(2) transportation. At the same time, Prairie protested to FERC that the Settlement rate of 21 cents per MMBtu should not apply to the Eloi Bay line, which was segregated from the rest of the LIG system. Meanwhile, LIG petitioned FERC to approve a § 311(a)(2) rate for Prairie and other Eloi Bay customers, and commenced § 311(a)(2) transportation for them.
FERC agreed with Prairie that an incremental rate was appropriate for the Eloi Bay facility. The Commission approved the Settlement for purposes of non-Eloi Bay transportation; directed LIG to refund its non-Eloi Bay customers the full difference between the collected rate and the Settlement rate; and instituted a ratemaking proceeding for Eloi Bay. See Louisiana Intrastate Gas Corp., 47 FERC p 61,042 (Apr. 10, 1989) ("First Order"). In justifying a full refund, FERC stated that "LIG's prior settlement [in 1986] required LIG to refile for a general system-wide rate on or before March 1, 1988 and specifically stated that all rates collected on or after the date of such application and pending final Commission approval shall be subject to refund (emphasis added)." Id. at 61,119.
LIG requested rehearing on various grounds, inter alia that Eloi Bay might be a "gathering" line exempt from FERC's jurisdiction under the NGPA. The request for rehearing was denied. See Louisiana Intrastate Gas Corp., 47 FERC p 61,336 (June 7, 1989) ("First Rehearing Denial"). FERC responded to the "gathering" claim, but in a brief and cryptic fashion: "The issue of whether a pipeline is a gathering system is not relevant to this section 311 proceeding since the service is being performed by LIG as an intrastate pipeline under NGPA section 311." Id. at 62,157. 4 LIG raised the "gathering" claim again in a further rehearing request, and the Commission gave a different reply. See Louisiana Intrastate Gas Corp., 50 FERC p 61,011 (Jan. 10, 1990) ("Second Order"). FERC no longer asserted that "gathering" was an irrelevant issue, but, rather, that Eloi Bay was not in fact a "gathering" line, because "LIG has consistently treated [the Eloi Bay] facility as a transmission facility." Id. at 61,026.
We note that an order of the Louisiana Office of Conservation granted LIG the authority to construct and operate the Eloi Pipeline as requested in its application for "the transportation of natural gas." Additionally, the 1985 transportation agreement between LIG and Prairie under which LIG initiated service for Prairie on the Eloi Pipeline states that the rate for the intrastate transportation service shall be the rate charged by LIG for transportation service under section 311. Finally, the fact that LIG filed petitions for rate approval in the referenced dockets to perform section 311 transportation for Prairie indicates that LIG itself has acknowledged that the Eloi system is used to perform transportation services.
Id. (footnotes omitted).
The Second Order set a rate of 2.85 cents per MMBtu for § 311(a)(2) transportation on the Eloi Bay line. This rate, which putatively reflected LIG's "cost of service," was much lower than what the company proposed. FERC had calculated the yearly Eloi Bay costs, including operating expenses, depreciation, debt service and return on equity, and had then divided this figure by a "rate design volume." The rate design volume was set at 90% of the line's capacity, even though the actual throughput was almost five times lower. 5 The Commission's justification for this figure was as follows:
[T]ransportation rates for facilities built after 1978 should place the risk of underutilization on the intrastate pipeline, rather than the interstate customers.... Our concern is that an intrastate pipeline might unwisely expand its facilities based on overly optimistic expectations of future throughput, since it knows that even if the facility is not fully utilized it can pass on all the costs to interstate customers.
Id. at 61,025 (internal quotation omitted).
LIG requested rehearing. The company contended that the rate design volume should use actual throughput instead of capacity, and, in the alternative, cited Commission precedent for a capacity percentage lower than 90%. However, FERC refused to change the rate design volume. See Louisiana Intrastate Gas Corp., 52 FERC p 61,297 (Sept. 19, 1990) ("Second Rehearing Denial"). The Commission again articulated at length its justification for a capacity-based rate design volume, see id. at 62,190-94, and purported to rely on Lear Petroleum Corporation, 42 FERC p 61,015 (1988), as authority for the 90% figure. The final Eloi Bay rate was set at 3.37 cents per MMBtu. 6
In these petitions for review of the ratemaking orders, 7 LIG presents numerous challenges to the Eloi Bay rate. Only two of...
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