Public Utilities Comm'n v. Fed. Energy Reg. Comm'n
| Decision Date | 12 January 2001 |
| Docket Number | Nos. 99-1390,99-1399 and 99-1444,s. 99-1390 |
| Parties | (D.C. Cir. 2001) Public Utilities Commission of the State of California, et al., Petitioners v. Federal Energy Regulatory Commission, Respondent El Paso Municipal Customer Group, et al., Intervenors |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
On Petitions for Review of Orders of the Federal Energy Regulatory Commission
Harvey Y. Morris and David G. Leitch argued the causes for petitioners Public Utilities Commission of the State of California, et al. With them on the briefs were Mary Anne Mason, Douglas Kent Porter, Frederick T. Kolb and Katherine Bourke Edwards. Arocles Aguilar entered an appearance.
Laura J. Vallance, Attorney, Federal Energy Regulatory Commission, argued the cause for respondent. With her on the brief were John H. Conway, Acting Solicitor, and Susan J. Court, Acting Deputy Solicitor.
Kenneth M. Minesinger argued the cause for intervenors El Paso Natural Gas Company and Dynegy Marketing and Trade. With him on the brief were Richard C. Green, Judy A. Johnson and Peter G. Esposito.
Before: Ginsburg, Randolph and Rogers, Circuit Judges.
Opinion for the Court filed by Circuit Judge Rogers.
Petitioners1 seek review of four orders of the Federal Energy Regulatory Commission ("FERC") relating to three pipeline capacity sale contracts between El Paso Natural Gas Company ("El Paso") and Dynegy Marketing and Trade ("Dynegy") (formerly National Gas Clearinghouse). Petitioners contend that in approving the contracts, FERC abused its discretion and acted arbitrarily and capriciously by (1) not adhering more closely to antitrust principles, as instructed by the court in Southern California Edison v. FERC, 172 F.3d 74 (D.C. Cir. 1999) ("SoCal II"), and as manifested by the pro-competitive purposes of FERC Order No. 636,2 and (2) finding that a certain portion of the sold pipeline capacity, designated as "Block II" capacity, was not recallable if unused by Dynegy. Because the contracts expired in December 1999, we hold that the issues underlying the petitions are moot, and accordingly, we dismiss the petitions.
El Paso is one of four interstate pipelines delivering natural gas to California. In 1995, one of El Paso's major firm gas transportation customers, Pacific Gas and Electric Company ("PG&E"), notified El Paso that it would terminate its entire contract of mainline capacity effective December 1997. PG&E's "turnback," along with other smaller capacity relinquishments, would leave more than thirty-five percent of El Paso's firm capacity unsubscribed. Shortly thereafter, in 1996, El Paso negotiated a ten-year rate settlement with all of its direct customers concerning the impending excess capacity ("1996 Settlement"). The 1996 Settlement reduced El Paso's reservation charges and established a ten-year moratorium on general rate increases. The Settlement also divided PG&E's "turnback" capacity into three "blocks," designated as Blocks I, II, and III; these blocks had system-wide receipt points and primary delivery points to Topock, California. According to the 1996 Settlement, Block II capacity was subject to certain recall rights, upon notice, in favor of shippers located in PG&E's service territory in Northern California. FERC approved the 1996 Settlement on April 16, 1997. See El Paso Natural Gas Co., 79 F.E.R.C. p 61,028 (1997), reh'g order, 80 F.E.R.C. p 61,084 (1997).
Although El Paso continued to seek buyers for the excess capacity, as of August 1997 more than 1200 MMcf per day of firm capacity remained unsubscribed. El Paso held an open season during August and September 1997 to sell the excess Block II and Block III capacity. In October 1997, El Paso entered into a transaction contract with Dynegy that committed most of the unsubscribed Block I, II, and III capacity to Dynegy for a two-year period, commencing January 1, 1998 and ending December 31, 1999. The transaction was divided into three separate contracts to reflect the different characteristics of the three blocks of capacity created by the 1996 Settlement. Each contract included a revenue reduction mechanism ("RRM"), under which Dynegy's minimum pay obligation would be reduced if El Paso sold interruptible capacity above certain volume levels in competition with Dynegy's resale of the firm capacity it had purchased from El Paso.
On December 24, 1997, El Paso filed for approval of a revised tariff to include the terms of the El Paso-Dynegy transaction contract. See Natural Gas Act S 4, 15 U.S.C. S 717c(d) (1997) ("NGA").3 On January 5, 1998, petitioners filed a protest, objecting, among other things, to the fact that the contracts, and particularly the RRM, were anticompetitive and inconsistent with the 1996 Settlement. In the first challenged order, dated January 23, 1998, FERC authorized the contracts to become effective January 1, 1998, subject to refund and the outcome of a technical conference, which was held on March 3, 1998. See El Paso Natural Gas Co., 82 F.E.R.C. p 61,052 (1998) ("El Paso I").
Petitioners filed a request for rehearing of the January 23, 1998 order. As relevant here, petitioners Argued that FERC must apply antitrust principles in examining issues of competition and discrimination raised by the El Paso-Dynegy transaction. Petitioners asserted that in light of established antitrust principles, the RRM was per se unlawful because it tended to restrain competition in the secondary transportation market, and that the El Paso-Dynegy contracts were anti-competitive in granting Dynegy excessive market power upon El Paso's transfer of the purchased capacity. See El Paso Natural Gas Co., 83 F.E.R.C. p 61,286, at 62,193 (1998) ("El Paso II"). In addition, petitioners asserted that El Paso's Block II contract with Dynegy contravened the 1996 Settlement by effectively denying Block II shippers access to the Northern California market. See id. at 62,199-200.
In its second challenged order, El Paso II, dated June 11, 1998, FERC denied the rehearing request. See El Paso II, 83 F.E.R.C. at 62,187-205. In El Paso II, FERC held that, "[w]hile [it] may apply anti-trust concepts in analyzing competitive issues ... [, it] is not charged with administering or enforcing the antitrust laws." Id. at 62,194. Rather, its obligation was to examine each transaction "in the context of [FERC's] current regulatory paradigm under the Natural Gas Act." Id. The relevant regulatory structure, FERC stated, was set forth largely in its Order No. 636 and subsequent rehearing orders, which provide, among other things, that interstate gas pipelines are not required to discount below the maximum lawful rate contained in their tariffs. See id. (citing Order No. 636-B, 57 Fed. Reg. 57,911 (Nov. 27, 1992); Order No. 636-A, 57 Fed. Reg. 36,128 (Aug. 3, 1992)). Further, FERC stated, Order No. 636 "specifically rejected assertions that anti-trust style regulation should play a central role in developing [its] regulatory paradigm." Id. Thus, FERC stated, the relevant analysis was whether, in light of the regulatory structure set forth in Order No. 636, the contracts at issue were unduly discriminatory. See id.
Applying this analytical structure, FERC concluded that, while the RRM reduced El Paso's incentive to compete and was therefore anti-competitive, it did not result in an unduly discriminatory situation in the gas transportation market to California. See id. at 62,196. First, the rate established by the contracts was far below the maximum transportation rate authorized by El Paso's tariff. See id. at 62,197. Second, the anti-competitive effect of the transaction was diminished by the "large amount of unutilized capacity that [was] available on pipelines serving California, the fact that this [was] a two year transaction, that gas demand [was] not expected to increase in California in the next two years, and [that] capacity release rates remain[ed] well below the maximum ceiling." Id. at 62,198. In rejecting petitioners' anti-competitiveness arguments, FERC also cited Southern California Edison Company v. Southern California Gas Company, 79 F.E.R.C. p 61,157, reh'g denied, 80 F.E.R.C. p 61,390 (1997) ("SoCal I"), where FERC dismissed a complaint alleging abuse of market power by the Southern California Gas Company in the secondary release market for pipeline capacity on the ground that because the company had complied with the maximum tariff rate established by Order No. 636, there was "no need to engage in a further inquiry into market power." 80 F.E.R.C. at 62,302. Finally, FERC concluded that the contracts' provisions concerning the recall of Block II capacity were not unduly discriminatory, holding that shippers located in Northern California could not "recall Block II capacity simply because the capacity [was] not actually used by [Dynegy]." El Paso II, 83 F.E.R.C. at 62,200.
After El Paso II, the parties submitted two compliance filings, protests to those filings, and two additional requests for rehearing. In their second and third rehearing requests, petitioners again raised two principal issues: FERC's obligation to address the allegedly anti-competitive nature of the transaction, and the right of certain shippers under the 1996 Settlement to recall Dynegy's unused capacity to serve the Northern California market. See El Paso Natural Gas Co., 88 F.E.R.C. p 61,139 (1999) ("El Paso III"). In the meantime, the court reversed FERC's decision in SoCal I and remanded the case to the agency, holding that FERC's decision not to examine the market power issues raised by the petitioner was arbitrary and capricious. See SoCal II, 172 F.3d at 76.
In the third challenged order, El Paso III, dated July 29, 1999, FERC generally denied rehearing on the anticompetitiveness and Block II capacity issues. See El Paso III, 88 F.E.R.C. p 61,139. FERC interpreted the recent SoCal II decision as...
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