Northwest Pipeline Corp. v. F.E.R.C., s. 94-9558

• Decision Date: 01 August 1995
• Docket Number: 94-9560,Nos. 94-9558,s. 94-9558
• Citation: 61 F.3d 1479
• Parties: Util. L. Rep. P 14,056 NORTHWEST PIPELINE CORPORATION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Cascade Natural Gas Corporation, Northwest Natural Gas Company, Intervenors. NORTHWEST PIPELINE CORPORATION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1479

61 F.3d 1479

Util. L. Rep. P 14,056

NORTHWEST PIPELINE CORPORATION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent,

Cascade Natural Gas Corporation, Northwest Natural Gas

Company, Intervenors.

NORTHWEST PIPELINE CORPORATION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.

Nos. 94-9558, 94-9560.

United States Court of Appeals Tenth Circuit.

Aug. 1, 1995.

Toni M. Sutliff (Steven W. Snarr and Helen J. Edwards, with her on the brief), Northwest Pipeline Corp., Salt Lake City, UT, for petitioner.

Joel M. Cockrell (Susan Tomasky, Jerome M. Feit and Joseph S. Davies, with him on the brief), F.E.R.C., Washington, DC, for respondent.

Before ANDERSON and McKAY, Circuit Judges, and COOK, ^* District Judge.

STEPHEN H. ANDERSON, Circuit Judge.

In this case, we must decide whether an order of the Federal Energy Regulatory Commission ("Commission") directing Northwest Pipeline Corporation ("Northwest") to refund to certain of its customers amounts by which they were overcharged violated the proscription against retroactive ratemaking. We hold that it did not. Accordingly, exercising jurisdiction pursuant to 15 U.S.C. Sec. 717r(b), we affirm the Commission's order directing Northwest to refund overcharges to the affected customers.

BACKGROUND

Northwest operates an interstate natural gas transportation system which extends approximately 1500 miles, from New Mexico to the Canadian border. Like other interstate pipelines, Northwest historically operated its system by purchasing gas from producers, transporting these volumes from production fields through its transmission system, and selling the gas to distributors and end users. In 1985, however, consistent with Congressional intent expressed in the Natural Gas Policy Act, see 15 U.S.C. Secs. 3311-3432, the Commission issued Order No. 436, 50 Fed.Reg. 42,408 (1985) (codified at scattered sections of 18 C.F.R.), which launched a new era of "open access" transportation. ¹ Under this new regime, the Commission hoped to foster competition in the industry by initiating the "unbundling" of the pipelines' transportation and merchant roles, thus allowing pipelines to provide transportation service for customers who bought gas elsewhere and had it shipped through the pipelines' transportation system.

This case involves two categories of Northwest customers: "bundled customers," those who are charged a unitary rate for their transportation and storage costs; and "unbundled customers," those who are charged separately for each component of service (such as transportation) which that customer utilizes. Approximately ninety-eight percent of Northwest's transportation service is unbundled; approximately two percent is bundled. Respondent's Br. at 3.

During the time period applicable to this proceeding, ² rate schedules SGS-1 and LS-1 were part of Northwest's Tariff, 2d. Rev.Vol. No. 1 (Volume No. 1), and applicable to Northwest's bundled customers. Pursuant to this tariff, these bundled customers were not assessed any separate system fuel charges. ³

In 1985, as part of its program to adapt the principles underlying Order No. 436, and to offer firm and uninterruptible open-access transportation, Northwest filed with the Commission a general transportation service tariff (Volume No. 1-A) which was applicable to its unbundled customers. Section 14.8 of this tariff required each shipper to pay, in addition to its transportation costs, a fuel reimbursement percentage (FRP) rate to compensate Northwest for the shipper's pro rata share of the system fuel. Section 14.8 of the tariff states:

14.8 Fuel Gas Reimbursement. In addition to the payments for transportation, Shipper shall reimburse Transporter for Shipper's pro rata share of fuel, including lost and unaccounted-for gas, required for transportation.... Fuel use requirements shall be determined using a factor calculated by dividing the total annual fuel and lost and unaccounted-for gas for Transporter's total transmission system, by the total annual volumes, including gas used for fuel and lost and unaccounted-for gas, transported through Transporter's transmission system, including volumes transported for Shipper. The fuel use requirements factor shall be determined for each year effective April 1 of each year based on the prior calender year's experience. The fuel use requirements factor shall be set forth on Sheet No. 202 of this Volume No. 1-A Tariff.

The fuel use requirements factor shall be applied to the volumes received from Shipper for transportation to determine Shipper's fuel gas volume reimbursement. Except when Shipper chooses to furnish such fuel gas volume in-kind, the charge to Shipper for fuel reimbursement for such fuel gas volume shall be determined using Transporter's average cost of purchased gas for the month of service.

65 FERC p 61,046, at 61,428 n. 2. R. at 154-55 n. 4. Under the terms of Section 14.8, Northwest could adjust the FRP charge annually in order to recover the actual system fuel use for the prior year.

The Commission approved the tariff and Northwest has, consistent with the terms of Section 14.8, submitted annual tariff sheets for filing setting forth its calculation of the FRP, based upon the prior year's fuel use experience. Under the terms of Section 14.8 the filed rate becomes effective April 1 of each year.

A. Northwest's 1991 Filing

On February 28, 1991, pursuant to Section 14.8 of tariff Volume No. 1-A, Northwest submitted its 1991 FRP tariff sheets for filing, and requested an effective date of April 1, 1991. R. at 1-2. Northwest calculated the FRP for the unbundled customers, as it had since 1985, ⁴ by dividing the total amount of system fuel by the unbundled customers' total annual transportation volumes.

Pursuant to 18 C.F.R. Secs. 385.211, 385.214 (1994), one of Northwest's unbundled customers, Northwest Natural Gas Company ("Northwest Natural"), filed a protest to the proposed rate and moved to intervene in the proceeding. Northwest Natural asserted, inter alia, that Northwest had incorrectly calculated the FRP. Northwest Natural claimed that Northwest had been calculating the FRP by dividing the total system fuel by the total annual transportation volumes of the unbundled customers only, rather than using the "total annual volumes ... transported through Transporter's transmission system," which would have included both bundled and unbundled volumes. ⁵ Thus, according to Northwest Natural's protest, Northwest had been improperly excluding from the FRP calculation volumes transported for its bundled customers, resulting in a higher FRP charge to the unbundled customers.

B. The Commission's Orders

On March 29, 1991, the Commission issued a Letter Order accepting and suspending Northwest's filing, pending final disposition, and directing Northwest to file an answer to Northwest Natural's protest. The Commission permitted the FRP filing to become effective April 1, 1991, but made the filing subject to refund and its acceptance conditional upon any action subsequently taken by the Commission. See Northwest Pipeline Corp., 54 FERC p 61,371 (1991); see also 15 U.S.C. Sec. 717c(e) (providing that Commission may suspend rate pending review); 18 C.F.R. Sec. 154.23 (1994) (acceptance for filing does not constitute Commission approval).

Thereafter, Northwest filed an answer to Northwest Natural's protest. Northwest Natural filed a response to Northwest's answer and on December 7, 1992, the Commission issued another Letter Order. The Commission ruled that Northwest had computed its FRP pursuant to its tariff provisions and that it had properly excluded from the calculation bundled storage volumes. Northwest Pipeline Corp., 61 FERC p 61,314 (1992). ⁶

C. The Commission's Order on Rehearing

Northwest Natural sought a rehearing. On October 8, 1993, the Commission granted Northwest Natural's request in part and issued an order addressing those claims upon which rehearing had been granted. The Commission first rejected Northwest Natural's claim that Northwest's failure to assess FRP charges against its bundled customers was violative of Section 14.8 of its tariff. The Commission concluded that Section 14.8 applied to all transportation services identified in Volume No. 1-A of Northwest's tariff, which covered unbundled transportation service, but that Section 14.8 did not apply to the rate schedules SGS-1 and LS-1 which are contained in Volume No. 1 of Northwest's tariff, and which cover bundled storage and transportation services. The Commission further stated that the rate schedules LS-1 and SGS-1 do not provide for an FRP to be paid for those services. Northwest Pipeline Corp., 65 FERC p 61,046, at 61,429 (1993). In short, the Commission ruled that the tariff provision applicable to unbundled customers required them to pay for system fuel, but that the tariff provision applicable to bundled customers did not contain such a requirement.

However, the Commission also ruled that Northwest's exclusion of the bundled SGS-1 and LS-1 volumes from the denominator of the FRP calculation had violated Section 14.8 of the tariff, Volume No. 1-A. According to the Commission, Section 14.8 "states clearly that in calculating the FRP the 'total annual volumes' should be included. There is no language excluding volumes transported pursuant to sales or storage services." Id. at 61,430. The Commission also observed, as a matter of contract construction, that had the phrase "total annual volumes" been intended to exclude those volumes transported pursuant to sales and storage services, then the language "including volumes transported for Shipper" contained in the antecedent clause would be superfluous. Id. The Commission concluded that "it must be the intent of this provision to include in the calculation of the FRP volumes other than those transported by shipper customers--and there is no language suggesting that storage volumes are to be excluded from those...