Mississippi Valley Gas Co. v. Federal Energy Regulatory Commission

• Decision Date: 15 October 1981
• Docket Number: 80-3489,Nos. 79-1598,s. 79-1598
• Citation: 659 F.2d 488
• Parties: MISSISSIPPI VALLEY GAS COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. . *
• Court: U.S. Court of Appeals — Fifth Circuit

Page 488

659 F.2d 488

MISSISSIPPI VALLEY GAS COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.

Nos. 79-1598, 80-3489.

United States Court of Appeals, Fifth Circuit. ^*

Oct. 15, 1981.

John M. Kuykendall, Jr., Overstreet, Kuykendall, Sumners, Hughes & Howorth, Jackson, Miss., J. Michel Marcoux, Bruder & Gentile, Washington, D. C., for Mississippi Valley Gas Co.

John E. Holtzinger, Jr., Paul H. Keck, John T. Stough, Jr., Morgan, Lewis & Bockius, Washington, D. C., Albert G. Norman, Jr., Hansell, Post, Brandon & Dorsey, Atlanta, Ga., for Atlanta Gas Light Co.

William A. Major, Jr., Associate Gen. Counsel, Birmingham, Ala., James J. Flood, Jr., Farmer, Wells, McGuinn, Flood & Sibal, Washington, D. C., for Southern Natural Gas Co.

Reuben Goldberg, Channing D. Strother, Jr., Goldberg, Fieldman & Letham, P. C., Washington, D. C., for intervenor, Chattanooga Gas Co.

Peyton G. Bowman, III, Reid & Priest, Washington, D. C., Randolph R. Mahan, George Fischer, III, Columbia, S. C., for South Carolina Elec. & Gas Co.

Andrew M. Zack, Jerome Nelson, Sol., George H. Williams, Jr., Barbara J. Weller, Robert R. Nordhaus, Gen. Counsel, FERC, Washington, D. C., for respondent.

Robert G. Simon, Stanley M. Morley, Joel F. Zipp, Washington, D. C., for Carolina Pipeline Co.

Harold L. Talisman, James T. McManus, Michael J. McDanold, Washington, D. C., for Alabama Gas Corp. Edward J. Greiner, Jr., Richard P. Noland, Richard A. Oliver, Washington, D. C., for Georgia Indus. Group.

Petitions for Review of an Order of the Federal Energy Regulatory Commission.

Before HENDERSON, ANDERSON and SAM D. JOHNSON, Circuit Judges.

R. LANIER ANDERSON, III, Circuit Judge:

This case involves two consolidated petitions for review brought by Mississippi Valley Gas Company ("Mississippi Valley"), arising from two separate, but related, proceedings before the Federal Energy Regulatory Commission ("Commission"), dealing with the elimination of the mileage-based zonal system historically utilized by Southern Natural Gas Company ("Southern") to allocate transportation charges. It pits Mississippi Valley not only against the Commission, but also against several intervenors as well, all of whom support the Commission. ¹ In the petition bearing this court's docket number 79-1598, Mississippi Valley attacks the Commission's order of November 30, 1978, ² accepting Southern's rate increase filing which also provided for the phased elimination of the mileage-based zones. Mississippi Valley maintains that the filing was patently invalid not complying with the Commission's filing requirements and contravening the terms of a stipulation. In the petition bearing this court's docket number 80-3489, Mississippi Valley attacks the Commission's opinion ³ approving a settlement providing for the phased elimination of Southern's mileage-based allocation of transportation cost among its customers and authorizing the use of a volumetric method of determining such costs. Mississippi Valley raises various objections to the Commission's opinions, among them that a volumetric method of allocation is unjust and unreasonable, and that the Commission failed to carry the burden of proving that the historical mileage-based method of allocation was unjust or unreasonable. Finding no merit in these arguments, we affirm the Commission's decisions in both petitions.

I. FACTS

The facts regarding the characteristics of Southern's transmission system are in large part not in dispute. Southern operates an interstate transmission pipeline system which extends approximately 1,000 miles from producer fields at its western terminus through Louisiana, Mississippi, Alabama, Georgia and South Carolina. Within Georgia, three major laterals serve markets in the north as far as the Tennessee border and in the southeast to the cities of Savannah and Brunswick, Georgia, on the Atlantic coast. In 1963, the Commission approved a mileage-based allocation of Southern's transmission costs on the basis of rate zones. ⁴ At that time, the gas flowed in a uniform easterly direction from Southern's western extremity. The Commission concluded that, in those circumstances, mileage was the "compelling factor to be considered in the allocation of transmission costs on Southern's system." ⁵ Three zones were established: Zone 1 includes Louisiana and Mississippi; Zone 2 includes Alabama and western Georgia; and Zone 3 includes the rest of Georgia, parts of Florida, Tennessee and South Carolina. Under this zone rate structure, Southern's rates to its Zone 1 customers have been lower than those charged to Zone 2 customers, which in turn are lower than those charged to Zone 3 customers. ⁶ Petitioner Mississippi Valley, a gas distribution company operating wholly within the State of Mississippi, received the lowest transportation charge possible. The customer intervenors, Chattanooga, Atlanta and South Carolina, are all Zone 3 customers.

In July, 1978, Southern began receiving liquified natural gas ("LNG") imported from Algeria in significant amounts. ⁷ The gas is received and stored by Southern Energy Company in Savannah, Georgia. Southern Energy regasifies the LNG, at which time the gas is sold to Southern and enters its pipeline. The LNG gas flows up the Savannah lateral to Southern's main line, where it flows both eastward and westward to delivery points. In the winter months, the LNG will be used primarily to serve the Savannah line and eastward customers, but in the summer months, part of the gas will backflow down the main line where at some point it will be blended with domestic gas from the west. Accordingly, some delivery points will be served with 100 percent regasified LNG, and some with only domestic gas. The volumes and flows of the gas will vary according to requirements, interruptions in supply, curtailment and season. Occasionally, some LNG may reach Zone 2, but at no time will the regasified LNG reach Zone 1.

II. PROCEEDINGS BEFORE THE COMMISSION

A. No. 80-3489 in this Court (No. RP78-36 in the Commission).

Although the petition in No. 80-3489 was filed second in this court, it arises from the first proceeding initiated before the Commission, i. e., Docket No. RP78-36 in the Commission, filed on January 30, 1978. In anticipation of receipt of LNG, Southern filed a proposed rate increase pursuant to § 4 of the Natural Gas Act ("NGA"), 15 U.S.C.A. § 717c (West 1976), to reflect costs associated with the introduction of the LNG. The Commission accepted the filing on February 27, 1978, suspended the increase until August 1, 1978, and initiated a hearing. In its rate proposal, Southern proposed to maintain its historical mileage-based allocation of transmission costs with modifications to take account of the introduction of LNG. ⁸ Mississippi Valley and Southern's other customers in Zone 1 supported this proposed modification of the mileage-based allocation method. Southern's eastern customers, including Atlanta, Chattanooga and South Carolina, as well as the Commission's staff, contended that zoned rates had long been outmoded on Southern's system and that the introduction of LNG now even more forcefully compelled their elimination. The parties were able to settle all issues except those relating to zoning and transmission cost rate design and to the treatment of certain administrative and general costs assigned to transmission and certain costs for transmission and compression of gas purchased from other companies. The settlement was embodied in a unanimous stipulation dated November 3, 1978, ("Stipulation I"), which the Commission approved on February 23, 1979, specifying the procedure to be used in resolving the rate design problem. Article II of that stipulation provided in part that "all issues and aspects of the cost classification, cost allocation (including zoning) and rate design" would be resolved in public hearings beginning on November 28, 1978. ⁹

On the first day of the November 28, 1978, hearing, most of the parties requested permission to defer presentation of their case in light of continuing negotiations on the rate zoning issue. Mississippi Valley and one other party not before this court chose to present their evidence. On the following day, November 29, 1978, all parties except Mississippi Valley, the Mississippi Commission, and Vicksburg Water and Gas Administration entered another stipulation ("Stipulation III"), resolving the zoning issue by phasing out the old rate-zone allocation system and beginning a volumetric system. ¹⁰ (J.A. pp. 231-238) Although Southern had proposed in its initial rate filing to maintain a modified zoning allocation of costs, it joined in Stipulation III. Because of the compromise, several parties, including Southern, chose not to put in evidence the testimony they had prefiled with the Commission. Instead, Southern, the Commission's staff, and Atlanta adopted the compromise as their direct case and supported it with testimony of several witnesses. (J.A. pp. 146-154; 239-248; 262-271; 296-305). Mississippi Valley, thereupon, cross-examined several of these witnesses, but declined the Administrative Law Judge's ("ALJ") invitation to introduce additional evidence bearing on the adoption of a volumetric system. (J.A. pp. 158-224). The ALJ on March 9, 1979, issued his initial decision approving Stipulation III in toto.

Stipulation III eliminated Southern's three zone rate differentials on a phased basis in order to reduce the sudden monetary impact which would otherwise occur to Southern's customers by an immediate elimination of rate zones. During the first phase (August, 1978, through April, 1979), the status quo would be continued; during the second phase (May, 1979, through April, 1980), two-thirds of Southern's transmission costs would be allocated on the zoned-rate basis and one-third on a volumetric basis; during the third phase (May, 1980, through April, 1981), one-third of Southern's transmission costs would...