Public Utilities Com'n of State of Cal. v. F.E.R.C., s. 91-1372
| Decision Date | 19 March 1993 |
| Docket Number | 91-1422,Nos. 91-1372,s. 91-1372 |
| Citation | 988 F.2d 154 |
| Parties | , 140 P.U.R.4th 528, Util. L. Rep. P 13,929 PUBLIC UTILITIES COMMISSION OF the STATE OF CALIFORNIA, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, The Kansas Power and Light Company; Pacific Gas and Electric Company; Transwestern Pipeline Company; Southern California Gas Company; Texaco Inc., Texas Gas Marketing Inc., and Texaco Exploration and Production, Inc.; Williams Natural Gas Company, Intervenors. SOUTHERN CALIFORNIA GAS COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, The Kansas Power and Light Company; Pacific Gas and Electric Company; the Public Utilities Commission of the State of California; Transwestern Pipeline Company; Williams Natural Gas Company, Intervenors. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Petition for Review of an Order of the Federal Energy Regulatory Commission.
Arocles Aguilar and Michael A. Cartelli, Los Angeles, CA, with whom Edward W. O'Neill, Harvey Y. Morris, San Francisco, CA, and Woodrow D. Smith, Los Angeles, CA, were on the brief, for petitioners.
Joel M. Cockrell, Atty., F.E.R.C., with whom William S. Scherman, Gen. Counsel, Jerome M. Feit, Washington, DC, Sol., and Joseph S. Davies, Bethesda, MD, Deputy Sol., F.E.R.C., were on the brief, for respondent.
William J. Grealis, Washington, DC, for intervenor Transwestern Pipeline Company.
Merek E. Lipson, Patrick G. Golden, and David W. Anderson, San Francisco, CA, were on the brief for intervenor Pacific Gas and Elec. Co.
John P. Beall, Houston, TX, entered an appearance for intervenors Texaco, Inc., Texaco Gas Marketing Inc., and Texaco Exploration and Production Inc.
Douglas O. Waikart, Washington, DC, entered an appearance for intervenor Williams Natural Gas Co.
Michael A. Cartelli and Woodrow D. Smith, Los Angeles, CA, entered an appearance for intervenor Southern California Gas Co.
Before: WALD, RUTH BADER GINSBURG and SILBERMAN, Circuit Judges.
Opinion for the Court filed by Circuit Judge WALD.
As the Federal Energy Regulatory Commission ("FERC" or "Commission") attempts to make take-or-pay problems a thing of the past, the transition to other systems has presented its own genre of problems. This case illustrates one such problem. In simple terms, FERC issued an order providing two basic ways in which pipelines could (1) recover outstanding take-or-pay costs and (2) bill their sales customers for the cost of maintaining a future inventory of natural gas for those customers. Order No. 500, Regulation of Natural Gas Pipelines After Partial Wellhead Decontrol, 52 Fed.Reg. 30,334 (1987) ("Order No. 500"). Significantly, Order No. 500 imposed an early sunset date on one of its recovery mechanisms, giving the pipelines only a narrow window of opportunity in which to file tariffs implementing this mechanism, commonly referred to as the "equitable sharing" or "alternative recovery mechanism." Equally significantly, Transwestern Pipeline Company ("Transwestern") filed its Order No. 500 tariff sheets after this sunset date had passed; accordingly, it sought recovery only under the other, still available method of recovery, called a "gas inventory charge" or "GIC". Under the GIC, it could impose take-or-pay charges on its sales customers, but not on its transportation customers. FERC accepted Transwestern's GIC proposal, subject to two conditions discussed below. Transwestern Gas Pipeline Co., 43 F.E.R.C. p 61,240 (1988) ("GIC Order") aff'd in part and remanded in part, Transwestern Pipeline Co. v. FERC, 897 F.2d 570 (D.C.Cir.), cert. denied sub nom. Transwestern Pipeline Co. v. Kansas Power & Light Co., 498 U.S. 952, 111 S.Ct. 373, 112 L.Ed.2d 335 (1990) ("Transwestern"); 42 F.E.R.C. p 61,164 (1988).
Almost immediately, Transwestern lost its last sales customers, including petitioner Southern California Gas Company ("SoCal"), a natural gas distributor. SoCal, in reliance on Transwestern's decision to recover take-or-pay costs from its sales customers decided to use Transwestern only for transportation and contracted to buy its gas elsewhere. Shortly thereafter, this court ruled that the sunset date of Order No. 500 was unlawful, and that FERC should reopen the filing period for the alternative recovery mechanism. American Gas Ass'n v. FERC, 888 F.2d 136 (D.C.Cir.1989) (AGA I ). Transwestern then filed tariffs implementing this mechanism, which also would impose accumulated take-or-pay charges on its transportation customers, including SoCal. FERC permitted Transwestern to abandon its GIC certificate and recover take-or-pay charges under the alternative recovery mechanism. Transwestern Pipeline Co., 55 F.E.R.C. p 61,157 (Apr. 30, 1991) ("Order Abandoning GIC"). Petitioners SoCal and the Public Utilities Commission of California ("CPUC"), which represents the interests of SoCal's ratepayers, sought rehearing of this order, which FERC denied. Transwestern Pipeline Co., 56 F.E.R.C. p 61,203 (Aug. 2, 1991) ("Order Denying Rehearing"). Petitioners seek review of this decision.
Both Transwestern and petitioners present compelling claims. Transwestern argues that it should not bear the burden of FERC's error in attaching an unlawful sunset date to one method of recovery. Petitioners argue that Transwestern's initial decision to impose charges on sales customers was not compelled by FERC but was simply a bad business decision for which Transwestern, and not its customers or the ratepayers, should bear the risk. CPUC further argues that the charges that FERC now seeks to impose on it violate the rule against retroactive ratemaking and the filed rate doctrine. FERC considered and weighed these arguments, then decided that, on balance, the better course would be to allow Transwestern to change its method of recovery. Because we find that this decision was within the agency's discretion, and did not violate either the rule against retroactive ratemaking or the filed rate doctrine, we affirm FERC's order.
This dispute is the outgrowth of FERC's recent efforts to encourage increased competition in natural gas. A cornerstone of this effort has been the "unbundling" of the sale of gas from its transportation, which permits customers the choice of buying gas from the pipeline or buying it in the field and transporting it on interstate pipelines. See Order No. 436, Regulation of Natural Gas Pipelines after Partial Wellhead Decontrol, 50 Fed.Reg. 42,408 (1985). Many pipelines, including Transwestern, have accordingly converted to "open access" pipelines serving both sales and transportation customers, and accepting for shipment gas sold in competition with their own.
While ultimately beneficial for consumers, the transition to open access has created problems for the pipelines, not the least of which is recovery of take-or-pay costs. Take-or-pay costs are incurred when a pipeline, in order to maintain inventories for its sales customers, enters into a contract with the producer in which it promises either to take or to pay for the gas it has contracted to buy. Pipelines that have built up such inventories find them hard to sell once they have granted access to the pipeline to carry the gas of their competitors; as a result, they are hit with billions of dollars of costs. When Order No. 436 came before this court for review, we found most aspects of it proper, but held that the Commission had failed to engage in reasoned decisionmaking as to the order's impact on pipelines' take-or-pay liability. Because this aspect of the order was inseparable from the rest of the open access scheme, we vacated and remanded with instructions to address the take-or-pay problems. Associated Gas Distribs. v. FERC, 824 F.2d 981 (D.C.Cir.1987) ("AGD I "), cert. denied sub nom. Interstate Natural Gas Ass'n v. FERC, 485 U.S. 1006, 108 S.Ct. 1468, 99 L.Ed.2d 698 (1988). In response to our mandate in AGD I, the Commission implemented an interim order, Order No. 500, which provided means by which the pipelines could both shift some of their accrued take-or-pay costs onto producers and consumers and avoid the recurrence of such problems in the future.
This case involves two such methods. The first is the "acceptable passthrough mechanism" established in Order No. 500 and Order No. 528, 53 F.E.R.C. p 61,163 (1990). 1 This mechanism was designed to permit a pipeline to resolve its accumulated take-or-pay liability before becoming an open-access pipeline. Under Order No. 500, a pipeline had two choices. First, it could recover, as before, all of its prudently incurred costs through the traditional sales commodity provision of its tariff. Second, it could institute an "equitable sharing mechanism," which permitted it to recover 25% to 50% of its take-or-pay "buyout or buydown" costs through a fixed charge on its sales customers if it agreed to "absorb" an equal percentage. After this court struck down certain aspects 2 of this "equitable sharing mechanism" as violating the filed rate doctrine, Associated Gas Distribs. v. FERC, 893 F.2d 349, 354-57 (D.C.Cir.1989), cert. denied sub nom. Berkshire Gas Co. v. Associated Gas Distribs., 498 U.S. 907, 111 S.Ct. 277, 112 L.Ed.2d 232 (1990) ("AGD II "), FERC issued Order No. 528. Order No. 528 also permits an "alternative" recovery under which pipelines absorb part of the outstanding take-or-pay liability, but one whereby the remainder is recovered through forward-looking volumetric surcharges on sales and transportation, or total throughput. Charges imposed under this "alternative mechanism" continue to be known as Order No. 500 charges.
The second method at issue here, the "gas inventory charge" or GIC, complements the first. While Order No. 500 recovery is aimed at wiping out existing take-or-pay liability for converting pipelines, the GIC is forward-looking, aimed at preventing the...
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