Ohio Ass'n of Community Action Agencies v. Federal Energy Regulatory Commission
| Decision Date | 15 June 1981 |
| Docket Number | No. 80-1208,80-1208 |
| Citation | 654 F.2d 811 |
| Parties | OHIO ASSOCIATION OF COMMUNITY ACTION AGENCIES, et al., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, et al., Respondents, Northern Natural Gas Company, Southern Natural Gas Company, Associated Gas Distributors, Interstate Natural Gas Association of America, Mississippi River Transmission Corporation, Southern California Gas Company, Public Service Commission of Wisconsin, Entex, Inc., American Gas Association, Process Gas Consumers Group, et al., Kennecott Minerals Company, United Gas Pipe Line Company, United Distribution Companies, Intervenors. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Edward L. Petrini with whom Charles E. Hill, Washington, D. C. , was on the brief for petitioners. Alan S. Davis, Washington, D. C., also entered an appearance for petitioners.
Stephen R. Melton, Federal Energy Regulatory Commission, Washington, D. C., with whom Robert R. Nordhaus, Gen. Counsel, Federal Energy Regulatory Commission, Washington, D. C., was on the brief for respondents.
James J. Flood, Jr., Washington, D. C., with whom Charles J. McClees, Jr., Houston, Tex., was on the brief for intervenor Southern Natural Gas Company presented argument on behalf of all intervenors.
C. William Cooper, Falmouth, Mass., J. Richard Tiano and John R. Schaefgen, Jr., Washington, D. C., was on the brief for intervenor, United Distributors Company.
John A. Myler, Washington, D. C., and Kevin B. Belford, Arlington, Va., were on the brief for intervenor, American Gas Association.
Lawrence V. Robertson, Jr., and John H. Cheatham, III, Washington, D. C., were on the brief for intervenor, Interstate Natural Gas Association of America.
Before MacKINNON and WALD, Circuit Judges and AUBREY E. ROBINSON, Jr. *, United States District Judge for the District of Columbia.
Opinion for the Court filed by Circuit Judge WALD.
INTRODUCTION
This case concerns the surcharge to be paid by industrial users of natural gas under the incremental pricing system administered by the Federal Energy Regulatory Commission ("the Commission"). The incremental pricing system is provided for in Title II of the Natural Gas Policy Act of 1978 ("the Act" or "NGPA"), Pub.L.No.95-621, 92 Stat. 3350 (1978), 15 U.S.C. § 3301, et seq. In general, under Title II, interstate pipeline companies are required to pass through portions of their acquisition costs for natural gas to certain industrial users in the form of a surcharge set by the Commission. 15 U.S.C. §§ 3341-48. Title II, however, provides for a ceiling on such surcharges by requiring that the cost of the gas to incrementally priced facilities must not exceed the cost of the designated fuel oil which the industrial user could use as an alternative to natural gas. 15 U.S.C. § 3344.
In an unchallenged order the Commission established a three-tier system of surcharges and ruled that the alternative fuel price ceiling for any large industrial facility would be the lowest priced of three designated fuel oils (No. 2 fuel oil, low sulfur No. 6 fuel oil, and high sulfur No. 6 fuel oil) which the facility was legally permitted and technically capable of using. 1 However, in a companion order issued the same day pursuant to section 206(d) of the Act, 15 U.S.C.Sec. 3346(d), the Commission exempted industrial facilities that were legally and technically capable of burning No. 2 oil and low sulfur No. 6 oil from incremental pricing above the level of the price of high sulfur No. 6 oil until November 1, 1980. 2 The impact of the exemption was to delay the effective date of the three-tier pricing system and to set the maximum surcharge at the price of high sulfur No. 6 oil for all industrial users subject to incremental pricing. 3
Petitioners Ohio Association of Community Action Agencies, et al. ("Petitioners") contend that the Commission's exemption order is unauthorized by the Act and that the Commission's action in granting the exemption is arbitrary and capricious and an abuse of discretion. For the reasons stated below we hold that section 206(d) authorizes the Commission to exempt industrial users from the upper two surcharge levels of the Commission's three-tier incremental pricing system and we affirm the order granting the exemption.
Title I of NGPA provides for a system of "wellhead" pricing which can be expected to lead to increased natural gas costs for consumers. 15 U.S.C. Sec.s 3311 et seq. Primarily in order to cushion the impact of these increases on residential, small commercial, and other "high priority" consumers of natural gas, Title II of NGPA provides for an "incremental pricing" program. 15 U.S.C. Sec.s 3341 et seq. Sections 201-204 of the Act require that the gas used in certain industrial boiler fuel facilities shall be subject to incremental pricing by means of surcharges as follows: a portion of the acquisition costs of new gas supplies purchased by each interstate pipeline is accounted for separately from all other costs and recovered from industrial users served directly or indirectly (through local distribution companies) by the pipeline. The portion of the acquisition costs "passed through" to industrial users is called "incremental gas costs," and the pass through is accomplished by means of a surcharge on the bills of industrial users subject to incremental pricing. Id.
The surcharge on natural gas is limited to the price of the appropriate alternative fuel (oil) as determined by section 204 of the Act. 15 U.S.C. § 3344. If the natural gas surcharge to an industrial facility reaches the level of the applicable ceiling, then the excess incremental gas costs are borne by other industrial facilities to the extent that these facilities are paying less than their alternative fuel costs. 15 U.S.C. § 3344. When the surcharges to all industrial facilities served by the pipeline reach the cost of their alternative fuels, the surcharge operates to maintain the industrial facilities at their alternative fuel costs. Any excess incremental gas costs then may be allocated in whatever manner the pipeline (or local distribution company) is permitted to recover normal costs. Id. Consequently, the alternative fuel cost places a ceiling on the burden that industrial users bear and on the corresponding benefit that high-priority consumers obtain as a result of the incremental pricing surcharge.
Three specific provisions of the Act determine the result in this case:
(1) Section 204(e)(1) provides, that, in general, the ceiling for incremental pricing in any region is to be the price of No. 2 fuel oil paid in such region by industrial users of the No. 2 fuel oil. 15 U.S.C. § 3344(e)(1).
(2) Section 204(e)(2) further provides that the Commission is authorized to reduce, either by rule or order, the alternative fuel ceiling price, regionally by category of user, on a pipeline-by-pipeline basis, or on a case-by-case basis, to an amount no lower than the price of No. 6 fuel oil:
if and to the extent the Commission determines ... that such reduction is necessary to prevent increases in the rates and charges of residential, small commercial, and other high-priority users of natural gas which would result from a conversion of such industrial facility or facilities from natural gas to other fuels, which conversion is likely to occur if the level of the appropriate alternative fuel cost were not so reduced.
(3) Section 206 authorizes the Commission to exempt facilities from the incremental pricing surcharge. Sections 206(a)-(c) exempt specific facilities from the incremental pricing system: "small existing boiler fuel users," "agricultural users," "schools, hospitals (and similar institutions), and certain other facilities (including electric utilities)." 15 U.S.C. § 3346(a)-(c). In addition, section 206(d)(1) authorizes the Commission to "provide for the exemption, in whole or in part, of any other incrementally priced industrial facility or category thereof." 15 U.S.C. § 3346(d)(1). Section 206(d)(2) provides that when the Commission promulgates an exemption under section 206, the exemption becomes effective thirty days after the exemption is presented to Congress unless either House adopts a resolution of disapproval. 15 U.S.C. § 3346(d)(1).
In order to implement the incremental pricing program mandated by the NGPA the Commission issued a notice of proposed rulemaking, 4 held hearings, 5 and received over 50 written comments. 6 On September 28, 1979 the Commission issued Order No 50. 7 In the preamble to Order No. 50, the Commission described the "principal issue" as:
whether the ceiling on incremental pricing should be set at the price of No. 2 (distillate) fuel oil, or whether statutorily specified conditions are met so that the Commission may exercise its statutory discretion to reduce the ceiling to some level not lower than the price of No. 6 (residual oil).
44 Fed.Reg. at 57755 (Order No. 50, at 8).
The Commission interpreted section 204(e), which specified the conditions for reduction of the surcharge, to indicate Congressional intent that the alternative fuel price ceiling should be kept at the level of No. 2 fuel oil unless "it is likely that a No. 2 ceiling will result in fuel switching and a shifting of capital costs that would increase residential and commercial rates." 44 Fed.Reg. at 57756 (Order No. 50, at 11). The Commission also believed that Congress did not intend that the ceiling be reduced to the price of No. 6 oil if the lower ceiling would be likely to result in high priority users' rates being higher than they would be with a No. 2 ceiling. 44 Fed.Reg. at 57756 (Order No. 50, at 12).
The Commission concluded that the evidence submitted during the course of the rulemaking supported neither a...
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