Natural Gas Clearinghouse v. F.E.R.C.
| Decision Date | 22 May 1992 |
| Docket Number | 90-1554,Nos. 90-1367,90-1583,90-1489,90-1419,90-1585,s. 90-1367 |
| Citation | 296 U.S.App. D.C. 104,965 F.2d 1066 |
| Parties | NATURAL GAS CLEARINGHOUSE, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Anadarko Petroleum Corporation, Chevron U.S.A. Inc., Panhandle Trading Company, Tarpon Transmission Company, Tejas Power Corporation, Trunkline Gas Company, Texican Natural Gas Company, Intervenors. TRUNKLINE GAS COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Tarpon Transmission Company, Anadarko Petroleum Corporation, Chevron U.S.A. Inc., Natural Gas Clearinghouse, Tejas Power Corporation, Intervenors. TEXICAN NATURAL GAS COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Tarpon Transmission Company, Trunkline Gas Company, Panhandle Trading Company, Tejas Power Corporation, Natural Gas Clearinghouse, Intervenors. TRUNKLINE GAS COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. NATURAL GAS CLEARINGHOUSE, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. TRUNKLINE GAS COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
On Petitions for Review of Orders of the Federal Energy Regulatory Commission.
Brian D. O'Neill, with whom Bruce W. Neely, Washington, D.C., Frank R. Lindh, San Francisco, Cal., Merlin E. Remmenga and John C. Tweed, Houston, Tex., were on the brief for petitioner Trunkline Gas Co. in Nos. 90-1419, 90-1554 and 90-1585, and intervenors in Nos. 90-1367, 90-1489 and 90-1583. Keith T. Sampson, Washington, D.C., and Paul Biancardi, Houston, Tex., also entered appearances for petitioner.
Peter G. Esposito, with whom John Wyeth Griggs and Thomas L. Albert, Washington, D.C., were on the joint brief for petitioners Natural Gas Clearinghouse, Texican Natural Gas Co. and Tejas Power Corp. in Nos. 90-1367, 90-1489 and 90-1583, and intervenors in Nos. 90-1419, 90-1489, 90-1554, 90-1583 and 90-1585.
Joel M. Cockrell, Attorney, F.E.R.C., with whom William S. Scherman, General Counsel, Jerome M. Feit, Sol., and Joseph S. Davies, Deputy Sol., Washington, D.C., were on the brief for respondent in all cases.
Eugene R. Elrod, with whom Ronald S. Flagg, Richard E. Young and Nancy Y. Gorman, Washington, D.C., were on the brief for intervenor Tarpon Transmission Co. in Nos. 90-1367, 90-1419, 90-1489, 90-1554, 90-1583 and 90-1585. Gene C. Schaerr, Washington, D.C., also entered an appearance for intervenor.
Mark R. Haskell, Gordon Gooch, Washington, D.C., J. Stephen Martin and Gerald P. Thurmond, Houston, Tex., entered appearances for intervenors Anadarko Petroleum Corp. and Chevron U.S.A. Inc. in Nos. 90-1367 and 90-1419.
Brian D. O'Neill, Bruce W. Neely and Keith T. Sampson, Washington, D.C., entered appearances for intervenor Panhandle Trading Co. in Nos. 90-1367, 90-1489 and 90-1583.
Before WALD, HARRY T. EDWARDS and STEPHEN F. WILLIAMS, Circuit Judges.
Opinion for the Court PER CURIAM. *
We review two separate orders of the Federal Energy Regulatory Commission ("FERC" or "the Commission") arising out of a protracted ratemaking dispute. The first involves Tarpon Transmission Company, a natural gas pipeline company, and Trunkline Gas Company, Tarpon's primary shipper. In a previous decision, this court found that a FERC order interpreting in Trunkline's favor a crucial "Rate Adjustment" provision of the contract between Tarpon and Trunkline, did not qualify as "reasoned decisionmaking." See Tarpon Transmission Co. v. FERC, 860 F.2d 439 (D.C.Cir.1988). On remand, the Commission reconsidered the issue and this time arrived at a different conclusion endorsing the interpretation advanced by Tarpon. Trunkline challenges this FERC decision on the ground that yet again the FERC has failed to employ "reasoned decisionmaking."
The second order involves a dispute between Tarpon and parties who were not involved in the prior litigation. Several of Tarpon's open-access customers, natural gas marketeers, purchased transport service from Tarpon during the period when the FERC's original order governed Tarpon's open-access rate. The Commission's decision on remand to adopt Tarpon's interpretation of the rate adjustment provision results in a significantly higher rate for those customers. In order to rectify its error, the FERC has imposed a retroactive surcharge upon these open-access users, ordering them to make a lump sum payment to Tarpon, based upon the volume of gas they shipped on Tarpon's pipeline between 1988 and 1990. These petitioners argue that (1) the FERC has no authority to impose a retroactive surcharge based on past use, and (2) the FERC's order applying the surcharge in any case violates the filed rate doctrine because Tarpon and the FERC failed to provide adequate notice of the provisional nature of the approved lower rate at which they bought service from Tarpon.
Finding no merit in petitioners' claims, we deny both petitions for review. We discuss the two orders separately below.
Tarpon owns 40.4 miles of pipeline located off the Louisiana shore in the Outer Continental Shelf. Tarpon's pipeline connects natural gas reserves owned by Trunkline with Trunkline's own offshore pipeline. Trunkline has been Tarpon's principal customer since Tarpon began transporting natural gas in June 1978. 1
A Transportation Agreement ("Agreement"), effective February 15, 1977 to July 1, 1991, specified the terms of the relationship between Tarpon and Trunkline and, as subsequently amended, served as Tarpon's Tariff with the Commission. In 1984 Tarpon filed a notice of proposed rate change under § 4 of the Natural Gas Act ("NGA"), 15 U.S.C. § 717c, lowering its then-effective rate for transportation from 18.10 cents per Mcf, a rate established by settlement of an earlier rate case, to 16.88 cents per Mcf. The FERC accepted Tarpon's rate filing, subject to refund if Tarpon could not prove the rate was just and reasonable in a later rate proceeding, and set the matter for hearing. See Tarpon Transmission Co., 28 F.E.R.C. p 61,027 (1984).
At the hearing before an Administrative Law Judge ("ALJ"), Trunkline disputed the appropriate interpretation of § 10.5 of the Agreement, which provides for adjustments to Tarpon's rates at certain stated intervals. 2 Section 10.5 provides that "rate determinations shall be based upon a cost of service for the entire life of the reserves transported and to be transported ..., taking into consideration actual revenues collected to date." Under Tarpon's proposed interpretation, as supported by witness Frank S. McGee, Tarpon's Executive Vice- President and a participant in the negotiation leading to the Agreement, 3 all costs of service, including the depreciation rate applied to its capital investments, are periodically recalculated so as to approximate the agreement that the parties would have reached at the outset with perfect information about the future. This retrospective recalculation of the rate of depreciation over the entire life of reserves takes into account the extended life of the reserves--at the time of the recalculation an estimated 21 years--rather than the initial estimate of 8 years. The new (and slower) rate of depreciation derived from the longer lifetime is then applied to the reserves yet to be delivered, with the result being an increase in the aggregate dollars to be collected as a return on underpreciated rate base. 4
Trunkline countered with a contrary view of the meaning of § 10.5. According to Trunkline, the proper interpretation of § 10.5 required that the parties first determine the amount of depreciation already "booked" by Tarpon under its previous rates of depreciation; that amount then must be subtracted from the total allowable depreciation so that only depreciation not yet taken by Tarpon would be calculated according to the new reserve estimate.
The ALJ noted that Tarpon's method of determining depreciation expense was a novel departure from traditional ratemaking methodology, but he nonetheless accepted that interpretation as representing the parties' intent, and found that Tarpon should be authorized to recalculate retrospectively its depreciation expense in adjusting its future rate. Tarpon Transmission Co., 32 F.E.R.C. p 63,020 at 65,060 (1985). The Commission, however, disagreed with the ALJ's decision. Tarpon Transmission Co., 41 F.E.R.C. p 61,044 (1987). The Commission found that the appropriate interpretation of § 10.5 required the parties to recalculate only some expenses, such as fuel and labor costs, that had been initially estimated incorrectly, and that it was not intended to apply to depreciation expense. Id. at 61,136.
On review of the FERC's order, this court found that none of the explanations offered by the Commission for its rejection of the ALJ's interpretation of § 10.5 reached the level of "reasoned decisionmaking." Tarpon Transmission Co., 860 F.2d at 444. While not mandating a particular result on remand, we stated that at that juncture Tarpon's view, which had been accepted by the ALJ, represented the only "reasoned interpretation" of § 10.5. Id. at 445-46.
Following remand, the parties filed rounds of motions and briefs. As before, the dispute between the parties focused upon the proper depreciation methodology envisioned by § 10.5. This time, however, the FERC adopted Tarpon's interpretation of the rate adjustment provision. Tarpon Transmission Co., 51 F.E.R.C. p 61,042 (1990). 5 The FERC also held that Tarpon's rate adjusted under its new interpretation of § 10.5 (16.88 cents per Mcf) was "just and reasonable as filed." Tarpon Transmission Co., 51 F.E.R.C. p 61,310 (1990).
"Congress explicitly delegated to FERC broad powers over ratemaking, including the power to analyze relevant contracts." See Tarpon...
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