Sea Robin Pipeline Co. v. F.E.R.C., s. 85-1446
| Decision Date | 15 July 1986 |
| Docket Number | 85-1551 and 85-1693,Nos. 85-1446,s. 85-1446 |
| Citation | 795 F.2d 182 |
| Parties | SEA ROBIN PIPELINE COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Gulf Oil Corporation, Southern Natural Gas Company, Intervenors. SEA ROBIN PIPELINE COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Southern Natural Gas Company, Chevron U.S.A. Inc., Intervenors. SEA ROBIN PIPELINE COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Southern Natural Gas Company, Intervenor. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Joel M. Cockrell, Atty., F.E.R.C., with whom William H. Satterfield, Gen. Counsel, Jerome Feit, Sol., and Joshua Z. Rokach, Atty. F.E.R.C., were on brief for respondent in Nos. 85-1446, 85-1551 and 85-1693. A. Karen Hill, Atty., F.E.R.C., also entered an appearance, for respondent.
David R. Stevenson entered an appearance, for intervenors, Gulf Oil Corp., et al., in Nos. 85-1446 and 85-1551.
Donna J. Bailey and James J. Flood, Jr. entered appearances, for intervenor, Southern Nat. Gas Co., in Nos. 85-1446, 85-1551 and 85-1693.
Before GINSBURG, STARR and SILBERMAN, Circuit Judges.
Opinion for the Court filed by Circuit Judge GINSBURG.
In this case, we review two sets of Federal Energy Regulatory Commission (FERC or Commission) orders. In the first, and principal order on review, FERC required Sea Robin Pipeline Co. (Sea Robin) to change its method of calculating the rate attributable to the transportation service it provided to Gulf Oil Co. The change in methodology yielded lower rates for Sea Robin's other customers and FERC ordered the pipeline to refund the difference between the lower rates mandated by the Commission's opinion and the rates those customers had paid since June 1, 1980. See Opinion No. 227-A, 31 F.E.R.C. p 61,188 (May 21, 1985). In a later order, FERC directed the pipeline to modify a subsequent rate filing to reflect the Gulf rate treatment instructed by the Commission in its principal order. See Order Accepting for Filing and Suspending Tariff Sheets, 32 F.E.R.C. p 61,119 (July 24, 1985). We conclude that the record does not contain substantial evidence supporting FERC's initial direction of a change in the Gulf rate treatment. We therefore reverse the orders challenged by petitioner.
The Natural Gas Act, 15 U.S.C. Sec. 717 et seq. (1982) (NGA or Act), both empowers FERC to regulate the rates charged by interstate natural gas pipelines, and prescribes how FERC may exercise that power. Sections 4 and 5 of the Act govern Commission superintendence of rates. Each section deals with a different character of agency action; each is responsive to different circumstances, and is subject to different restrictions. The Commission is not free to blend, or pick and choose at will between, its section 4 and 5 authority; FERC must use the appropriate authorization in the appropriate way in order to remain with the bounds Congress has set for the agency.
Under section 4 of the NGA, 15 U.S.C. Sec. 717c, pipelines must file with the Commission all rates and any change they propose in their rates. If the Commission enters upon a hearing concerning the lawfulness of a proposed rate increase, the pipeline bears the burden of proving that the rate sought is just and reasonable. See id. at Sec. 717c(e). Section 4 limits the Commission's authority to acceptance (in whole or in part) or rejection of the pipeline's proposed rates; the section does not authorize FERC to substitute rates of its own design for the rates proposed by the pipeline. See Public Service Commission of New York v. FERC, 642 F.2d 1335, 1344 (D.C.Cir.1980) (Transco ). This restriction guarantees that rates generally will be set, in the first instance, by the pipelines themselves. The Commission, however, has broad remedial powers under section 4. FERC may suspend the proposed rate for up to five months and if, after a hearing, the Commission decides that the rate was unjust, it may order the pipeline to refund to its customers the excessive portion of the charges collected under the rate. See 15 U.S.C. Sec. 717c(e).
Section 5 of the Act, 15 U.S.C. Sec. 717d, empowers the Commission, in certain circumstances The Commission's authority under sections 4 and 5 need not be exercised in separate proceedings. If, in the course of a section 4 proceeding, FERC decides to take action authorized by section 5, the Commission may do so without initiating an independent proceeding. See Initial Decision, 26 F.E.R.C. p 63,072, at 65,289 (Feb. 24, 1984) (ALJ Decision). But section 5 authority, regardless of the context in which it is exercised, may be pursued only in accordance with the requirements and constraints imposed by section 5.
to take the initiative in setting rates. The Commission may order a pipeline to change to a specified new rate, either pursuant to a staff proposal or at the request of a third party, if FERC finds that the existing rate is unjust or unreasonable and the proposed new rate is both just and reasonable. See id. at Sec. 717d(a). The proponent of the change--whether the Commission staff or a third party--bears the burden of proof under section 5. See, e.g., ANR Pipeline Co. v. FERC, 771 F.2d 507, 514 (D.C.Cir.1985). FERC's remedial power under section 5 is limited to prospective relief: the Commission cannot order a refund of past payments made under the revoked rate. See FPC v. Louisiana Power & Light Co., 406 U.S. 621, 643-44, 92 S.Ct. 1827, 1839-40, 32 L.Ed.2d 369 (1972). 1 This limitation allows the pipeline to rely on a filed rate, once the Commission has permitted it to become effective, until such time as the rate is proved to be unlawful
Since 1971, Sea Robin Pipeline has had a contract with Gulf Oil which obligates Sea Robin to transport Gulf's gas at a fixed price 2 of 3.98 cents per Mcf. This rate is not cost-based. Most of Sea Robin's customers 3 pay rates derived from a division of the pipeline's total costs by the total volume transported for those customers. These rates are subject to change--after filing with FERC--as the costs of service change. Under Sea Robin's longstanding methodology, the revenues received from the arrangement with Gulf were credited against the costs of operation; by lowering those costs, Gulf's payments reduced the rates that the other customers paid.
In 1979 and 1980, Sea Robin filed with FERC proposals to increase most of its rates. The proposals did not alter in any way Gulf's fixed rate treatment. The Commission suspended the rates for five months, then let them go into effect subject to refund pending a full hearing.
At the hearing, the Commission staff, although concentrating on issues of greater consequence, raised questions concerning the rate treatment for Gulf. The staff presented the testimony of one witness: Robert Machuga, a staff expert on rate design and cost allocation. Machuga expressed concern that if the rate charged Gulf was not high enough to cover the cost of the service, then Sea Robin's methodology would result in the other customers subsidizing Gulf: their rates would be based on a formula that included the costs of service that Gulf, and not they, received. Using Sea Robin's contracts with other customers for apparently similar service as his guide, Machuga estimated that the cost-based rate Gulf would pay if it were treated like the other customers was 10.01 cents per Mcf, more than twice its present rate. See Joint Appendix (J.A.) at 8, 11. The The parties to the proceeding, including the FERC staff, subsequently settled most of the issues in the case. The settlement specified how Sea Robin was to determine its regular, cost-based rates and the refunds that it was to pay to its customers. The settlement also stated: Stipulation and Agreement at 5, reprinted in Brief for Respondent FERC at 4.
witness concluded that Sea Robin should be ordered to change its methodology and derive its rates from a formula in which Gulf was treated the same way as the other customers. 4
The Gulf transportation issue was thereafter presented to an Administrative Law Judge (ALJ). The ALJ believed that the question posed by the settlement agreement was whether or not to change the rate paid by Gulf. Because the change had been proposed by the FERC staff rather than the pipeline, the ALJ held that this was an invocation of section 5 power, therefore the Commission staff bore the burden of proving both that the existing rate was unjust or unreasonable and that the proposed new rate was just and reasonable. The ALJ concluded that the meager evidence then in the record on this issue was insufficient to meet the staff's burden. Accordingly, he upheld the existing rate. See ALJ Decision, 26 F.E.R.C. at 65,289-90.
The Commission, in reviewing this decision, declared that the ALJ had misstated the issue. FERC believed the question was whether the pipeline's practice of charging a cost-based rate to its other customers but not to Gulf was unjust or unreasonable, particularly in light of the pipeline's request to raise the rates for these other customers. The Commission considered the existing record inadequate to resolve this issue and remanded to the ALJ for further fact finding. See Opinion No. 227, 29 F.E.R.C. p 61,283, at 61,581 (Dec. 17,...
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