Moraine Pipeline Co. v. F.E.R.C., 88-1849
| Decision Date | 22 June 1990 |
| Docket Number | No. 88-1849,88-1849 |
| Citation | 906 F.2d 5 |
| Parties | MORAINE PIPELINE COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Wyoming-California Pipeline Company, Wisconsin Natural Gas Company, Intervenors. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Philip R. Telleen, with whom Paul E. Goldstein and Paul Korman, were on the brief, for petitioner.
Katherine Waldbauer, Atty., F.E.R.C., with whom Catherine C. Cook, Gen. Counsel, and Joseph S. Davies, Deputy Solicitor, F.E.R.C., were on the brief, for respondent.
Bruce F. Kiely and Jane G. Adams were on the brief, for intervenor Wisconsin Natural Gas Co.
Bernard A. Foster III, G. William Stafford, Daniel F. Collins, and G. Mark Cook entered appearances, for intervenor Wyoming-California Pipeline Co.
Before SILBERMAN, BUCKLEY, and SENTELLE, Circuit Judges.
Opinion for the court filed by Circuit Judge BUCKLEY.
Moraine Pipeline Company petitions for review of Federal Energy Regulatory Commission orders granting Moraine an optional expedited certificate to construct and operate a natural gas pipeline. The sole issue presented is whether FERC properly conditioned the certificate on the requirement that Moraine base its rates on an annual throughput of 54.7 billion cubic feet ("bcf"). We conclude that even under the expedited procedures elected by Moraine, the Commission failed adequately to address Moraine's argument that its effective capacity is in fact significantly less than 54.7 bcf per year.
Under section 7 of the Natural Gas Act ("NGA"), 15 U.S.C. Sec. 717f (1982), natural gas companies seeking to construct new facilities or offer new transportation or sales service must obtain certificates of public convenience and necessity authorizing such acts. As we have previously observed, standard section 7 certification proceedings can be time consuming, cumbersome, and costly; moreover, they may "stifle[ ] the sort of quick responsiveness to demand that is associated with competition." Associated Gas Distribs. v. FERC, 824 F.2d 981, 1030-31 (D.C.Cir.1987), cert. denied, 485 U.S. 1006, 108 S.Ct. 1468, 99 L.Ed.2d 698 (1988).
In Order No. 436, 50 Fed.Reg. 42,408 (1985) (), vacated and remanded in part, Associated Gas Distribs., 824 F.2d 981, the Commission created an optional expedited certificate ("OEC") procedure, an expedited method of obtaining certificates of public convenience and necessity for pipelines seeking to provide new services. See 18 C.F.R. Secs. 157.100-.106 (1989). The availability of this streamlined certification alternative was expected to stimulate competition and enhance consumers' access to alternative sources of gas. See Associated Gas Distribs., 824 F.2d at 1030; Regulation of Natural Gas Pipelines After Partial Wellhead Decontrol, Order No. 436, [Reg.Preambles 1982-1985] F.E.R.C. Stats. & Regs. (CCH) p 30,665, at 31,569-70 (1985) ("Regulations Preambles").
To qualify for an OEC, a pipeline must meet certain requirements designed by the Commission to ensure that the applicant assumes the entire economic risk of the proposed service. See Regulations Preambles at 31,569, 31,576-78; 18 C.F.R. Sec. 157.103(d); Associated Gas Distribs., 824 F.2d at 1030. As the Commission explained in adopting the OEC procedures Regulations Preambles at 31,576.
Specifically, the regulations adopt four rate principles which ensure that applicants bear the full risk of their ventures; they are summarized by the Commission in its Regulations Preambles as follows:
First, rates for new services are required to be volumetric [with one exception]. Secondly, only properly allocated costs may be included in the rates for new service. Third, applicants may not reduce projected volumes in future rate cases. Finally, pipelines may not recover past losses in future rate cases.
Regulations Preambles at 31,576; see 18 C.F.R. Sec. 157.103(d). The risks entailed by an OEC "provide a pipeline with a strong incentive not to include excess capacity in new facilities constructed under an expedited certificate." Regulations Preambles at 31,578.
An applicant who complies with the OEC requirements is entitled to a rebuttable presumption that it satisfies the statutory prerequisites for certification, and the application, if not contested by a protest raising a genuine issue of material fact, may receive expedited consideration. See 18 C.F.R. Sec. 157.104(b), (c).
In May 1986, pursuant to section 7 of the NGA and the OEC regulations, Moraine filed an application for authority to construct and operate a 17.8-mile natural gas pipeline connecting the facilities of the Natural Gas Pipeline Company of America ("Natural") near Grayslake, Lake County, Illinois, with those of Wisconsin Natural Gas Company ("Wisconsin Natural") in Kenosha County, Wisconsin. Moraine also proposed to provide interruptible transportation of up to 90 billion Btus per day, which (depending on the heat content of the gas) is roughly equivalent to 90 million cubic feet of natural gas per day. At the same time, Moraine applied for a blanket certificate to operate as an "open-access transporter" of gas pursuant to Order No. 436. Moraine has no other delivery points, no storage or compression capabilities, and it makes no sales.
In February 1988, the Commission issued an order granting Moraine an OEC to construct the pipeline and a blanket transportation certificate. 42 F.E.R.C. p 61,144 (1988) ("Initial Order"). The Commission conditioned the OEC on a requirement that Moraine base its rates on a throughput of 54.7 billion cubic feet ("bcf") per annum, an average of 150,000 thousand cubic feet ("mcf") per day. Id. at 61,543. The Commission's concern was that Moraine's proposed rates, which were based on a projected annual volume of only 15 bcf, would enable Moraine to substantially overrecover its costs and to shift the risk of underutilization of its facilities to its customers in violation of the optional certificate regulations. Initial Order at 61,542. The Commission therefore required Moraine to base its rates on what it considered to be Moraine's full pipeline capacity of 54.7 bcf per year. Id. at 61,543.
To explain the issue more clearly, under an OEC a pipeline must recover its costs based on its projected volume. The higher the pipeline's projected volume, the lower its per unit charge must be. Thus if, as the Commission feared, Moraine were in fact able to transport more gas than its projected volume, it could recover more than its costs, at the expense of its customers. If, on the other hand, Moraine in fact had a lower capacity than that projected by FERC, it would be unable to recoup its costs even if its system were fully utilized.
Moraine applied for rehearing, challenging the Commission's throughput assumptions and submitting evidence in support of its claim that its effective capacity was 90,000 mcf per day rather than the 150,000 mcf average assumed by FERC. In response, the Commission convened a technical conference to consider Moraine's capacity, instructed its staff to prepare a report, and requested additional information from the parties. 43 F.E.R.C. p 61,118 (1988).
On October 3, 1988, the Commission denied rehearing on the capacity issue. 45 F.E.R.C. p 61,005 (1988) ("Order Denying Rehearing"). The Commission first concluded that Moraine had failed to demonstrate that its rates should be designed to reflect an annual throughput of less than 54.7 bcf because "[i]t seems indisputable that Moraine has the physical ability to receive and transport this amount." Order Denying Rehearing at 61,023. On the assumption that 54.7 bcf was an attainable throughput, the Commission refused to modify that condition because
[i]f Moraine's rates are based on capacity or throughput projections that are too low, the potential exists that Moraine's customers will pay more than the properly allocated costs of service. This would reduce Moraine's incentive to seek additional load if its system is underutilized, and create the potential for overrecovery if the system is fully utilized. The cost allocation and volumetric rate conditions are intended to create an incentive for optional certificate applicants to propose optimally sized facilities that will not be underutilized.
Id. This petition followed.
We begin by emphasizing, as the Commission does, that the requirements for an expedited certificate are in both substance and procedure different from those of a regular certificate. At the risk of belaboring the obvious, we also emphasize that the expedited procedures are optional. As the Commission explained at the time of their adoption,
[t]o qualify [for an OEC], the applicant must agree to comply with the specific terms and conditions under which the certificate is offered. Most important, the applicant must accept the full risk of the proposed venture. These procedures are completely voluntary. The alternative of...
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