Midcoast Interstate Transmission v. Fed. Energy Comm'n.

• Decision Date: 18 January 2000
• Docket Number: No. 98-1603,98-1603
• Citation: 198 F.3d 960
• Parties: (D.C. Cir. 2000) Midcoast Interstate Transmission, Inc.,Petitioner v. Federal Energy Regulatory Commission, Respondent Huntsville Utilities Gas System, City of Huntsville, Alabama, et al., Intervenors Consolidated with98-1604, 99-1047, 99-1090
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 960

198 F.3d 960 (D.C. Cir. 2000)

Midcoast Interstate Transmission, Inc.,Petitioner v. Federal Energy Regulatory Commission, Respondent

Huntsville Utilities Gas System, City of Huntsville, Alabama, et al., Intervenors

No. 98-1603 Consolidated with98-1604, 99-1047, 99-1090

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 24, 1999

Decided January 18, 2000

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

Petitions for Review of Orders of the Federal Energy Regulatory Commission

Bernard A. Foster III, with whom Marvin T. Griff was on the briefs, argued the cause for petitioner Midcoast Interstate Transmission, Inc.

Marvin T. Griff argued the cause and filed the briefs for petitioners GASP Coalition and Citizens Opposing North Alabama Pipeline Project.

Monique Penn-Jenkins, Attorney, Federal Energy Regulatory Commission, with whom Jay L. Witkin, Solicitor, and Susan J. Court, Special Counsel, FERC, were on the briefs, argued the cause for respondent.

Knox Bemis, with whom R. David Hendrickson, James J. Cleary, Glenn W. Letham, James R. Choukas-Bradley, Joshua Menter, Edward J. Grenier, and Gregory K. Lawrence were on the briefs, argued the cause for intervenors. Wendell B. Hunt, Channing D. Strother, Jr., Jeffrey D. Komarow, John T. Stough, Jr., Kevin M. Downey, and Joseph M. Marcoux entered appearances.

Before Ginsburg and Randolph, Circuit Judges, and Buckley, Senior Circuit Judge.

Opinion filed by Senior Judge Buckley.

Buckley, Senior Judge:

Midcoast Interstate Transmission, Inc., and two unincorporated associations have filed petitions for review of Federal Energy Regulatory Commission orders granting Southern Natural Gas Company's application to construct a natural gas pipeline and denying Midcoast's alternative proposals for serving the same markets. Petitioners claim that the Commission failed to make a reasoned evaluation of the competing environmental and economic factors and that its approval of "rolled-in" rates for Southern's project ignored the agency's own policy and precedent. Because we conclude that the Commission neither abused its discretion nor acted contrary to law, we deny the petitions.

I. Background

A. Statutory and Regulatory Framework

Under section 7 of the Natural Gas Act ("NGA"), 15 U.S.C. §§ 717-717z (1997), a company seeking to construct and operate any portion of an interstate gas pipeline must apply to the Federal Energy Regulatory Commission ("FERC") for a certificate of public convenience and necessity. 15 U.S.C. 717f(c)(1)(A). Such a certificate

shall be issued to any qualified applicant therefor ... if it is found that the applicant is able and willing properly to do the acts and to perform the service proposed ... and that the proposed service ... is or will be required by the present or future public convenience and necessity .

Id. 717f(e). In evaluating certificate applications, FERC employs "a flexible balancing process, in the course of which all the factors are weighed prior to final determination."FPC v. Transcontinental Gas Pipe Line Corp., 365 U.S. 1, 23 (1961). Congress and the Commission have both stated that the promotion of competition in the natural gas industry is one of the Commission's regulatory goals. See General Motors Corp. v. Tracy, 519 U.S. 278, 283-84 (1997).

Section 4 of the NGA provides that "[a]ll rates and charges" of a natural gas pipeline must be "just and reasonable." 15 U.S.C. 717c(a). A pipeline may not change its rates "except after thirty days' notice to the Commission and to the public." Id. 717c(d). When a pipeline files a new rate, FERC may, upon receiving a complaint or on its own initiative, "enter upon a hearing concerning the lawfulness of such rate ...; and, pending such hearing and the decision thereon, the Commission ... may ... defer the use of such rate" for up to five months. Id. 717c(e).

When an interstate pipeline proposes to expand its business through the construction of new facilities ("expansion facilities"), FERC has the authority to establish the initial rates that will be charged customers who will be served by those facilities. See United Gas Improvement Co. v. Callery Properties, Inc., 382 U.S. 223, 227 (1965) (holding that Commission may establish initial rates as condition to issuing certificate "pending determination of a just and reasonable rate" through a section 4 proceeding). In May 1995, the Commission issued a policy statement governing how the cost of new pipeline construction should be "priced," i.e., reflected in the pipeline's rate structure. See generally Pricing Policy For New and Existing Facilities Constructed By Interstate Natural Gas Pipelines, 71 FERC p 61,241 (1995) ("Pricing Policy"). The cost of construction may be recovered in either of two ways: through "incremental" pricing, which imposes an additional charge payable solely by customers who are directly served by the expansion facilities ("expansion customers");or "rolled-in" pricing, in which the cost of the new facilities are added to the pipeline's total rate base and reflected in rates charged to all customers system-wide. See Trans Canada Pipelines Ltd. v. FERC, 24 F.3d 305, 307 n.1 (D.C. Cir. 1994).

Under the Pricing Policy, when FERC grants a certificate of public convenience and necessity, it either sets an incremental rate to be paid by consumers served by the new facilities or establishes a presumption that the facilities will be of sufficient benefit to existing customers to permit the pipeline to roll their cost into its system-wide rates. See Pricing Policy, 71 FERC at 61,915. If the Commission issues a certificate with a presumption of rolled-in pricing, the expansion customers will initially pay the pipeline's existing system-wide rates. Otherwise, they will be required to pay an incremental rate fixed by the Commission at the time the certificate issues. Id. at 61,918 n.12. Those rates will remain in place until superceded by new ones established in accordance with section 4 of the NGA.

To determine whether a pipeline qualifies for rolled-in pricing, FERC "look[s] to the extent to which the new facilities are integrated with the existing facilities and to the specific system benefits produced by the project." Id. at 61,915-16. Where the pipeline can establish that the new facilities will provide system-wide benefits and that the rolledin rate would constitute an increase of five percent or less to existing customers, a rebuttable presumption is created in favor of rolled-in rates. Id. at 61,916-17. In such instances, the Pricing Policy requires the Commission to approve rolledin rates in the next section 4 proceeding absent evidence of a "significant change in circumstance." Id. at 61,918.

While this case was pending, FERC issued a new policy statement on the certification of pipeline projects that arguably would have required incremental pricing for the expansion facilities that are the subject of this case. See generally Certification of New Interstate Natural Gas Pipeline Facilities, 88 FERC p 61,227 (1999). The new policy, however, has no bearing on these proceedings because it does not apply retroactively. See id. at 61,750; Southeastern Michigan Gas Co. v. FERC, 133 F.3d 34, 37 n. 1 (D.C. Cir. 1998) ("Because FERC issued its [new pricing] rule after this case had begun and did not rely on it in this proceeding, we do not consider what effect its application would have had.").

B.Facts

On January 11, 1996, the municipalities of Huntsville and Decatur, Alabama, (collectively, "the Cities") entered into twenty-year gas supply contracts with Southern Natural Gas Company ("Southern") to become effective following completion of a proposed North Alabama Pipeline and ancillary facilities ("North Alabama Pipeline Project"). At the time, the Cities were being served by Midcoast Interstate Transmission's predecessor, Alabama-Tennessee Natural Gas Company (collectively, "Midcoast"). Shortly thereafter, Southern filed an application with FERC, under section 7 of the NGA, for a certificate of public convenience and necessity to construct and operate these facilities. Southern's proposed pipeline would extend northward 118 miles from Southern's existing west-to-east natural gas pipeline to the Cities. To reach those markets, the new pipeline would have to cross the Tennessee River and Wheeler National Wildlife Refuge.

In July 1996, FERC made a preliminary determination, contingent on the outcome of an ongoing environmental review, that Southern's proposed pipeline was required by the public convenience and necessity. Southern Natural Gas Co., 76 FERC p 61,122, 61,628, 61,647-48 (1996) ("Preliminary Determination"). In it, FERC found that "absent significant changes, [Southern would be allowed] to roll-in the costs of the facilities in its next rate case." Id. at 61,637.

During the course of the environmental review of Southern's proposal, FERC considered various system and route options, including the Alabama-Tennessee System Alternative ("Alabama-Tennessee Alternative") for which Midcoast had filed a certificate application. Southern Natural Gas Co., 79 FERC p 61,280, 62,200, 62,205 (1997) ("Certificate Order");Alabama-Tennessee Natural Gas Co., 79 FERC p 61,283, 62,237 (1997) ("Order on Application"). This alternative consisted, essentially, of improving the capacity and efficiency of Midcoast's existing system through the addition of two compressors and related facilities. These would enable Midcoast to increase delivery pressures, lower rates, and meet the Cities' increasing demands for gas. Approval of the Alabama-Tennessee Alternative would render the Southern project superfluous.

The Final Environmental Impact Statement ("FEIS") for Southern's proposal was released on May 23, 1997. Although it noted that FERC, the Environmental Protection Agency, and the Department of the Interior all agreed that the Alabama-Tennessee Alternative was...