Texas Eastern Transmission Corp. v. F.E.R.C.

• Decision Date: 30 December 1996
• Docket Number: Nos. 95-60553,95-60636,s. 95-60553
• Citation: 102 F.3d 174
• Parties: Util. L. Rep. P 14,143 TEXAS EASTERN TRANSMISSION CORPORATION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 174

102 F.3d 174

Util. L. Rep. P 14,143

TEXAS EASTERN TRANSMISSION CORPORATION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.

Nos. 95-60553, 95-60636.

United States Court of Appeals Fifth Circuit.

Dec. 30, 1996.

Henry S. May, Jr., Judy M. Johnson, Catherine O'Harra, Vinson & Elkins, Houston, TX, Richard J. Kruse, Cynthia A. Corcoran, Texas Eastern Transmission Corporation, Houston, TX, for petitioner.

Timm Larkin Abendroth, Washington, D.C., for Federal Energy Regulatory Commission, respondent.

M. Lisanne Crowley, Joseph McDonald Oliver, Jr., Crowell & Moring, Washington, D.C., Mark Christopher Darrell, Wall, NJ, for N.J. Natural Gas Co., intervenor.

Robin M. Nuschler, Akin, Gump, Strauss, Hauer & Feld, Washington, D.C., for The Southern Conn. Gas Co., intervenor.

Richard Parke Bonnifield, Newark, NJ, for Public Service Electric and Gas Company, intervenor.

Petition for Review of Orders of the Federal Energy Regulatory Commission.

Before HIGGINBOTHAM, BARKSDALE and EMILIO M. GARZA, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

Petitioner Texas Eastern Transmission Corporation ("TETCO") appeals a decision by respondent Federal Energy Regulatory Commission ("FERC") to apply the filed-rate doctrine to preclude TETCO from retroactively assessing certain customers (the "customers") rates based on a different rate methodology than it previously imposed. ¹ Some of these customers have intervened in this lawsuit to support FERC on appeal. ² We affirm.

I

Given the complexity of this case and the nature of the legal issues it raises, we must set forth its tangled factual and procedural history at length.

In October 1988, TETCO applied for a certificate of public convenience and necessity under § 7 of the Natural Gas Act ("the NGA"). TETCO sought authority to construct facilities and provide services dealing with the Associated PennEast Customer Group ("APEC") I and III projects, including facilities to provide service under Rate Schedules FTS-4 and FTS-5. At the same time, three other companies, including Transcontinental Gas Pipe Line Corp. ("Transco"), sought similar authority.

TETCO had previously entered into various service agreements with its customers. These agreements require the customers to pay TETCO "applicable prices established under [TETCO's] Rate Schedule FTS-4 [and FTS-5] as filed with [FERC], and as same may hereafter be legally amended or superseded." Apparently, Transco had also entered into similar agreements with certain of its customers.

In their respective applications for a certificate, TETCO and Transco requested, among other things, permission to use a "straight fixed variable" ("SFV") rate design method. Under SFV, a pipeline typically recovers all of its fixed costs through a demand charge and all of its variable costs through a commodity charge. Pipeline customers pay the demand charge each month for the right to receive service and the commodity charge for their actual use of the service. ³ In contrast, TETCO and Transco had previously been using a modified fixed variable ("MFV") rate design for their services and facilities. Under MFV, a pipeline can recover its fixed and variable costs only through commodity charges. In other words, MFV (unlike SFV) only permits a pipeline to recover its fixed costs if its customers actually use the service.

On June 7, 1989, the Commission granted TETCO's application in part. The Commission accorded it certificate authority to provide the FTS-4 and FTS-5 service, however it refused to allow TETCO to use the SFV method. Rather, it only authorized TETCO to use MFV. The Commission, though, was careful to state that it did not necessarily believe that MFV "should or must apply" to TETCO's application for authority to provide "additional services and facilities for any extended period of time." 47 F.E.R.C. p 61,341 (1989). Instead, its decision to opt for MFV "reflects our conclusion that it is appropriate as an initial matter to have consistency between the current rate design utilized on those pipelines and that adopted here for the additional services and facilities...." Id.

TETCO did not seek rehearing of this decision. However, Transco, which received a similar ruling to TETCO in the proceeding, did. ⁴ On June 21, 1991, the Commission granted Transco's request for a rehearing in part. The Commission stated that its decision to grant the request was "based upon our determination that agreements among the pipelines and their customers regarding rate design should be given significant weight." 55 F.E.R.C. p 61,477 (1991). It further noted that there was no evidence that Transco's customers had agreed to SFV "for other than legitimate commercial reasons." Id. While the Commission's order did not specify an effective date for SFV, Transco filed tariff sheets to make the design retroactively effective as of the date of initial service for its new facilities and services. The Commission accepted the sheets.

After the Commission's decision in favor of Transco, TETCO requested a rehearing of the June 1991 order, arguing that the Commission should have permitted TETCO to use the SFV method, just as it did Transco. ⁵

On March 5, 1992, the Commission concluded that not granting TETCO relief in its June 1991 order was perfectly proper, but that it would nevertheless reconsider its June 1989 certificate order and authorize TETCO to use SFV. The Commission noted that, just like Transco, TETCO and its customers had agreed to SFV, and there was no evidence to suggest that the customers had consented to it for other than legitimate commercial reasons. Again, the order did not specify an effective date. In April 1992, TETCO filed tariff sheets, requesting that SFV be retroactively effective as of November 15, 1989, the date of TETCO's initial APEC I service.

Several weeks later, the customers filed a request for "clarification" of the March 1992 order and a protest of the April tariff-sheet filing. The customers asked that the Commission clarify that the March 1992 order was not retroactive--which they claimed would be violation of the filed-rate doctrine--and that it only permit TETCO's filed tariff sheets to be effective prospectively.

In an order issued June 24, 1993, the Commission rejected the customers' argument that a retroactive change of rates in this matter would violate the filed-rate doctrine. This is because, the Commission explained, "TETCO proposed the use of the SFV rate design methodology in its original certificate application, reflecting the APEC customers' consent to the use of the SFV method." 63 F.E.R.C. p 61,327 (1993). Still, the Commission accepted the customers' contention that TETCO's tariff sheets should not be retroactively effective on three grounds. First, the Commission found that "to accept the SFV rates retroactively in the instant filing effective November 15, 1989 would be inconsistent with the Commission's decisions in the Transco Southern Expansion proceeding, in which the Commission found that it would be inequitable to the Southern Expansion customers to place the revised SFV rates into effect retroactively, as of the date of initial service." Id. ⁶ Second, the Commission accepted the customers' statement that they had made purchasing decisions in reliance on the "filed, approved and uncontested" MFV-based initial rates. Id. Third, the Commission held that the equities of the case weighed in favor of the customers because they were not aware that TETCO would seek a change in rate design until about twenty months after the initial rates took effect.

TETCO then requested a rehearing. In an August 3, 1995, order, the Commission conceded that "mistakes were made" in both the March 1992 and June 1993 orders. 72 F.E.R.C. p 61,152 (1995). The Commission reiterated its previous determination that TETCO may not impose SFV rates retroactively, however it arrived at this conclusion through a different analysis than before. The Commission noted that, unlike Transco, TETCO had failed to seek timely rehearing of the June 1989 certificate order. Hence, that order became final and nonappealable as applied to TETCO. "Under the filed rate doctrine," the Commission ruled, "final rates approved by the Commission cannot be changed retroactively. Thus, the mere fact that TETCO did not seek rehearing of the original certificate order dictated that a modification in the rate design for TETCO's initial rates would have to be implemented prospectively." Id. Citing Transco, 54 F.3d 893, as authority, the Commission stated that "where no timely request for rehearing is filed, and thus no notice of a retroactive change is provided, as in this case, the Commission cannot modify the rate design retroactively without violating the filed rate doctrine." 72 F.E.R.C. p 61,152.

TETCO then petitioned for a rehearing of the August 3 order. The Commission summarily denied the request. 73 F.E.R.C. p 61,039 (1995). Now, TETCO seeks review of the last three orders issued by the Commission in this matter: (1) the June 24, 1993 order, published at 63 F.E.R.C. p 61,327; (2) the August 3, 1995 order, published at 72 F.E.R.C. p 61,152; and (3) the October 5, 1995 order, published at 73 F.E.R.C. p 61,039. ⁷

II

We have jurisdiction over this case under 15 U.S.C. § 717r(b). ⁸ While we may affirm, modify, or set aside in whole or part any Commission order upon which an aggrieved party has sought review, id., we must uphold FERC's orders unless they are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). "The finding of the Commission as to the facts, if supported by substantial evidence, shall be conclusive." ⁹ 15 U.S.C. § 717r(b); see also 5 U.S.C. § 706(2)(E) (stating that a court shall set aside agency findings found to be unsupported by substantial evidence). Moreover, when "Congress has directly spoken to the precise question at issue," a reviewing court must...