Pennsylvania Public Utility Com'n v. F.E.R.C., 88-1446

• Citation: 881 F.2d 1123
• Decision Date: 11 August 1989
• Docket Number: No. 88-1446,88-1446
• Parties: PENNSYLVANIA PUBLIC UTILITY COMMISSION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Equitable Gas Co., Equitrans, Inc., Pennsylvania Office of Consumer Advocate, Public Service Commission of West Virginia, Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1123

881 F.2d 1123

279 U.S.App.D.C. 408

PENNSYLVANIA PUBLIC UTILITY COMMISSION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent,

Equitable Gas Co., Equitrans, Inc., Pennsylvania Office of

Consumer Advocate, Public Service Commission of

West Virginia, Intervenors.

No. 88-1446.

United States Court of Appeals, District of Columbia Circuit.

Argued May 25, 1989.

Decided Aug. 11, 1989.

As Amended Aug. 11, 1989.

Veronica A. Smith with whom John F. Povilaitis, Harrisburg, Pa., were on the brief, for petitioner.

Daniel P. Delaney also entered an appearance, for petitioner.

Timm L. Abendroth, Atty., F.E.R.C., Washington, D.C., with whom Catherine C. Cook, General Counsel, and Joseph S. Davies, Deputy Sol., F.E.R.C., were on the brief, for respondent.

Stephen E. McGregor with whom Jennifer K. Walter, John S.L. Katz, Washington, D.C., John N. Estes, and Daniel J. Kortum were on the brief, for intervenors Equitable Gas Co. and Equitrans, Inc.

Kent D. Murphy, Harrisburg, Pa., with whom Philip F. McClelland, Westfield, N.Y., was on the brief, for intervenor Pennsylvania Office of Consumer Advocate.

Richard E. Hitt entered an appearance, for intervenor Public Service Com'n of West Virginia.

Before ROBINSON, D.H. GINSBURG, and SENTELLE, Circuit Judges.

Opinion for the Court filed by Circuit Judge SENTELLE.

SENTELLE, Circuit Judge:

Pennsylvania Public Utility Commission ("PPUC"), joined by intervenor, the Pennsylvania Office of Consumer Advocate ("POCA"), petitions for review of three orders of the Federal Energy Regulatory Commission ("FERC" or "the Commission") that permit intervenor Equitable Gas Company ("Equitable"), a local distributor and retailer of natural gas in Pennsylvania, West Virginia, and Kentucky, to transfer certain services and facilities to Equitrans, Inc., an interstate natural gas pipeline, as part of a corporate reorganization. Finding no error, we deny the petition for review and uphold the orders.

I. BACKGROUND

Prior to the corporate reorganization that gave rise to the present controversy, Equitable provided service subject to both federal jurisdiction (i.e., gas transportation and sales for resale in interstate commerce) and state jurisdiction (i.e., distribution and sales to end users). On August 15, 1986, Equitable and Equitrans, a newly created subsidiary of Equitable's parent company, Equitable Resources, Inc., jointly filed application with FERC seeking authority for the reorganization. Equitable sought authority under section 7(b) of the Natural Gas Act ("NGA"), 15 U.S.C. Sec. 717f(b) (1982), to abandon its interstate service and associated facilities, proposing to transfer these facilities to Equitrans. Equitrans sought a certificate under section 7(c) of the NGA, 15 U.S.C. Sec. 717f(c), to operate the facilities and provide the jurisdictional services.

As required by FERC regulations, 18 C.F.R. Sec. 15,714(a)(6) (1988), the lengthy filing contained a full listing of the facilities to be transferred, including maps showing their locations. The maps labeled Equitable's transportation facilities, compressor stations, interconnections with state regulated distribution facilities, storage fields, and production wells in Pennsylvania and other states. The application also asserted that Equitable had followed the "functional classification" previously used in its FERC accounting records for segregation of interstate facilities from distribution facilities for purposes of calculating pro forma rates for Equitrans.

Finally, the application explained the applicants' rationale for the proposed corporate reorganization. The companies argued that Equitable, then subject to duplicative and possibly conflicting cost allocations under federal and state regulatory regimes, faced increased regulatory expenses and potentially inconsistent cost allocation, resulting not only in confusion but also potential deprivation of reasonable opportunity to recover legitimate costs. The companies next argued that the reorganization would permit Equitrans to operate the interstate facilities more competitively than could Equitable and at lower costs. In support of this contention, the companies argued that few of their competitors still operated as both interstate pipelines and local distribution companies, citing several examples of other companies already reorganized into separate transportation and distribution entities with FERC approval. See Williston Basin Interstate Pipeline Co., 30 F.E.R.C. p 61,143 (1985); Mountain Fuel Supply Co., 27 F.E.R.C. p 61,316 (1984); Consolidated Gas Supply Corp., 25 F.E.R.C. p 61,397 (1983); Iroquois Gas Corp., 51 F.P.C. 1507 (1974).

In September 1986, PPUC and POCA separately filed protests, opposing the Equitable/Equitrans application, contending, inter alia, that a hearing was necessary to determine which services and facilities were interstate and which were intrastate, and that the proposed transfer was anti-competitive, particularly because Equitable would likely become a captive customer of Equitrans and the Equitable Resources corporate family. POCA contended that the reorganization constituted "a brazen attempt to avoid effective retail regulation of its gas costs." Joint Appendix ("J.A.") at 36.

After a public hearing, FERC approved the joint application on January 20, 1988, and issued a certificate of public convenience and necessity authorizing Equitrans to acquire and operate Equitable's natural gas facilities. Order Issuing Certificate and Approving Abandonment, Equitable Gas Co., a Division of Equitable Resources, Inc. and Equitable Transmission Co., 42 F.E.R.C. p 61,023, 61,143 (1988). FERC noted that this type of corporate reorganization, resulting from the breakup of a local distributor serving both as a distributor and interstate transporter, was "a situation with which [it had] dealt several times in the past." Id. at 61,140. In approving the certificate, the Commission concluded that

[s]eparating distribution and transmission into separate companies will result in a more efficient operation and delivery of services, to the benefit of ... customers ... as well as the shareholders.... Furthermore, conflicting or duplicative determinations as to cost allocations [by FERC and state regulatory agencies] will be eliminated.

Id. at 61,141 (footnotes omitted). FERC conditioned its issuance of a certificate on, inter alia, the maintenance of specific rate factors, cost classifications, and tariff terms, and required Equitrans to "continu[e] to perform the currently existing interstate sales and services of Equitable Gas, and charging the same demand and commodity rates and charges." Id. at 61,143. Additionally, FERC concluded that because Equitrans elected to be an open-access transporter under FERC's Orders No. 436 ¹ and No. 500, ² Equitable would be "able to deal directly with producers, marketers, brokers, and others to purchase all or a portion of its gas at the lowest available price." Id. at 61,141.

Finally, the Commission noted that an evidentiary hearing was unnecessary because "the protests [of PPUC and POCA] ... raise[d] no issues of fact material to the decision ..., nor ... alleged any facts which, if true, would require denial of the applicants' request for authorization to implement [the corporate] restructuring." Id. at 61,143. Instead, the Commission found that "the issues raised by [PPUC and POCA] involve[d] determinations of policy, not facts." Id.

On February 19, 1988, PPUC moved for a stay of the FERC order and requested rehearing. Application for a Stay and Request for Rehearing of the Pennsylvania Public Utility Commission, Docket No. CP86-676-000 (Feb. 19, 1988). PPUC reiterated its arguments and asserted that by the certification "the Commonwealth of Pennsylvania has been harmed in that an area of state jurisdiction has been summarily preempted by FERC without a hearing." Id. at 5, J.A. at 67. While FERC denied the stay, it granted rehearing "solely for the purpose of affording the Commission additional time to consider the request for rehearing." Order Granting Rehearing for Further Consideration and Denying Request for Stay, Equitable Gas Co., a Division of Equitable Resources, Inc., and Equitable Transmission Co., 42 F.E.R.C. p 61,342, at 61,971 (1988).

On April 20, 1988, FERC denied rehearing, rejecting PPUC's contention that PPUC's state jurisdiction was preempted. Order Denying Rehearing, Equitable Gas Co., a Division of Equitable Resources, Inc., and Equitable Transmission Co., 43 F.E.R.C. p 61,085 (1988). Quoting from its decision denying the stay, the Commission stated that the certificate authorized Equitable " 'to abandon only its interstate transmission facilities and operations, and to transfer those assets to [Equitrans].' " Id. at 61,263 (emphasis in original) (quoting 42 F.E.R.C. at 61,971). Because the certificate applied only to interstate facilities and operations, no state jurisdiction was preempted. FERC stated that "[t]he only relevant concern" was whether regulated activities will escape review, not whether a change will occur "in the respective responsibilities of the regulating agencies." Id. In this instance, FERC concluded, the reorganization would not free any division or subsidiary of the Equitable Resources family from regulation. FERC also dismissed PPUC's reassertion that an evidentiary hearing was necessary, holding that "no material factual issues were raised in the protests, nor ... in the request for rehearing. Rather, the PPUC merely assert[ed] its own conclusions" as to the effects of the reorganization. Id.

PPUC then filed the present petition for review. POCA has intervened on behalf of PPUC, and Equitable and Equitrans have intervened on behalf of FERC.

II. ANALYSIS

Petitioner contends (A) that, by denying an evidentiary hearing, FERC violated petitioner's statutory due process rights under the NGA; and (B) that FERC's decision that the reorganization was...