Williams Natural Gas Co. v. F.E.R.C., 95-1472

• Decision Date: 02 August 1996
• Docket Number: No. 95-1472,95-1472
• Citation: 90 F.3d 531
• Parties: , Util. L. Rep. P 14,116 WILLIAMS NATURAL GAS COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Missouri Public Service Commission, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 531

90 F.3d 531

319 U.S.App.D.C. 308, Util. L. Rep. P 14,116

WILLIAMS NATURAL GAS COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Missouri Public Service Commission, Intervenor.

No. 95-1472.

United States Court of Appeals, District of Columbia Circuit.

Argued May 7, 1996.

Decided August 2, 1996.

Shawna L. Barnard, Tulsa, OK, with whom Gary W. Boyle was on the briefs, argued the cause, for petitioner.

Jill L. Hall, Attorney, Federal Energy Regulatory Commission, Washington, DC, with whom Jerome M. Feit, Solicitor, was on the brief, argued the cause, for respondent.

Kelly A. Daly, with whom David W. D'Alessandro, Washington, DC and Penny G. Baker, Jefferson City, MO, were on the brief, argued the cause for intervenor.

Before: GINSBURG, SENTELLE and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge:

A gas pipeline petitions for review of a Federal Energy Regulatory Commission order requiring it to refund interest collected from its customers for the period between the Commission's approval of the tariff and the date the pipeline eventually billed its customers. Finding that the Commission reasonably concluded that the pipeline's tariff did not authorize interest collection in cases of delayed billing and that the pipeline lacked adequate justification for delaying billing, we deny the petition for review.

I.

Williams Natural Gas, a gas pipeline, sought to recover from its local distribution company customers a portion of its long-term "take-or-pay" liabilities. As we explained in Baltimore Gas & Electric Company v. FERC, " 'to maintain inventories for [their] sales customers,' " pipelines like Williams entered into contracts requiring them " 'either to take or to pay for the gas [they] ha[ve] contracted to buy' " from natural gas producers. 26 F.3d 1129, 1132 (D.C.Cir.1994) (quoting Public Util. Comm'n v. FERC, 988 F.2d 154, 157 (D.C.Cir.1993)). Pipelines entered into these contracts in the 1970s when demand for gas was high. When demand fell in the 1980s, many pipelines found themselves obligated to purchase more gas than they could re-sell. Id. To address this problem, the Commission issued Order No. 500, allowing pipelines to shift some of their liability under these contracts to producers, consumers, and downstream pipelines. See Order No. 500, Regulation of Natural Gas Pipelines after Partial Wellhead Decontrol, 52 Fed.Reg. 30,334, at 30,342-43 (1987). The order allowed pipelines to recover twenty-five to fifty percent of their take-or-pay costs through a fixed charge if they agreed to absorb an equal amount themselves. Id. Pipelines choosing to recover a portion of their costs through a fixed charge could recover the remaining amount through a volumetric surcharge on each unit of gas sold. Id. at 30,343.

This case arises from a series of Williams filings and Commission orders over the 10-month period from March 1989 to January 1990. In the first filing, on March 31, 1989, Williams proposed absorbing twenty-five percent of its $41.7 million in take-or-pay settlement costs, billing twenty-five percent to its customers through a fixed charge, and recovering the remaining fifty percent through a volumetric surcharge. On April 28, the Commission accepted Williams's tariff effective May 1 subject to certain refunds and conditions. Williams Natural Gas Co., 47 F.E.R.C. p 61,155, reh'g granted in part and denied in part, 48 F.E.R.C.p 61,079 (1989). To comply with the conditions of the April 28 order and to recover an additional $4.38 million in take-or-pay settlement costs, Williams filed its second tariff on June 14. The Commission accepted this second tariff effective July 1, again subject to certain refunds and conditions. Williams Natural Gas Co., 48 F.E.R.C. p 61,046 (1989). After Williams revised its tariff several more times to comply with the Commission's conditions, the Commission accepted the tariff in a letter order issued in January 1990. To recover an additional $4.1 million in take-or-pay settlement costs, Williams filed its third tariff on August 31, 1989. The Commission accepted this filing effective September 1, again subject to refunds. Williams Natural Gas Co., 48 F.E.R.C. p 61,395, reh'g denied by operation of law, 49 F.E.R.C.p 61,273 (1989).

Following the first tariff's effective date--May 1, 1989--Williams immediately began billing its customers for the volumetric surcharge portion of its take-or-pay costs. But it did not begin billing the fixed charge portion of the settlement costs until thirteen months later, June 1, 1990. Williams included in those bills interest on the settlement costs for the entire thirteen months, totaling $1,088,254.

Following a routine audit of Williams's books and records, the Commission's accounting office recommended that Williams refund the $1,088,254 in interest to its customers. When Williams objected, the Commission set the matter for a hearing before an administrative law judge. Relying primarily on several Commission decisions forbidding pipelines from collecting interest when they voluntarily delay billing, the ALJ ordered Williams to refund the interest. Williams Natural Gas Co., 62 F.E.R.C. p 63,027, at 65,133-35 (1993) (initial decision). The ALJ rejected Williams's argument that the tariff authorized collection of interest in the case of delayed billing, finding the tariff silent on this matter. Id. at 65,136. The ALJ was equally unpersuaded by Williams's argument that because it lacked a final Commission order and had internal administrative difficulties, it could not issue bills when the tariffs became effective. According to the ALJ, "subsequent Commission actions modif[ying] Williams' initial proposals" should not have operated as a "bar to billing": Williams could have issued initial bills on May 1st, and then made refunds or adjustments later to comply with subsequent Commission orders. Id. at 65,135-36.

The Commission adopted the ALJ's reasoning and affirmed. Williams Natural Gas Co., 69 F.E.R.C. p 61,049 (1994) (order affirming initial decision). Denying Williams's petition for rehearing, the Commission emphasized that the pipeline's tariff did not provide for the "specific circumstances of this case." 72 F.E.R.C. p 61,135, at 61,703 (1995). In response to Williams's argument that it lacked a final order, the Commission pointed out that the pipeline had billed the volumetric portion of the surcharge even though subject to adjustment and that, as Williams concedes, it had a final order in January 1990 yet did not bill until five months later. Id. at 61,704. Williams now petitions for review.

II.

We uphold the Commission's order if it "is supported by substantial evidence and reached by reasoned decisionmaking--that is, a process demonstrating the connection between the facts found and the choice made." ANR Pipeline Co. v. FERC, 771 F.2d 507, 516 (D.C.Cir.1985) (per curiam). Recognizing that " 'Congress explicitly delegated to FERC broad powers over ratemaking, including the power to analyze relevant contracts,' " we give "substantial deference" to the Commission's interpretation of filed tariffs. Natural Gas Clearinghouse v. FERC, 965 F.2d 1066, 1070 (D.C.Cir.1992) (quoting Tarpon Transmission Co. v. FERC, 860 F.2d 439, 441-42 (D.C.Cir.1988)). At the same time, we do not accept the Commission's interpretation of a tariff unless it is " 'amply supported both factually and legally.' " Tarpon, 860 F.2d at 442 (quoting Vermont Dep't of Pub. Serv. v. FERC, 817 F.2d 127, 134 (D.C.Cir.1987)).

Williams first argues that the General Terms and Conditions of the tariff governing recovery of settlement costs from its customers allow it to collect interest in the case of delayed billing. Williams points to Article 29.2 of the tariff which defines the recoverable take-or-pay costs as follows:

[Take-Or-Pay] Settlement Costs shall include all payments or other consideration which, as of March 31, 1989, Company has actually paid or given, or has incurred a written or verbal obligation to pay or give (and for which Company shall commence to pay or give no later than December 31, 1989), to producer-suppliers for buy-outs or buy-downs involving the Company's gas purchase contracts, including payments or other consideration to reform provisions in such contracts as to quantity, price, volume, contract term or other provisions, and carrying charges from the later of the effective date of this Article 29 or the date of [Williams's] payment [to the producer].

J.A. 124 (emphasis added). According to Williams, this provision requires customers to pay carrying charges, i.e. interest, on settlement costs until they pay in full, even in the case of delayed billing. Williams argues that the Commission, by forbidding the collection of interest in this case, is engaging in retroactive ratemaking in violation of the "filed rate doctrine." See Consolidated Edison Co. v. FERC, 958 F.2d 429, 434 (D.C.Cir.1992) (Commission, as well as utility, prohibited from retroactively altering a utility's filed rates).

According to the Commission, Article 29.2 does not address the issue of delayed billings, but merely clarifies when Williams may collect interest on take-or-pay costs that it had not actually paid as of the date of its filing. See Williams, 72 F.E.R.C. at 61,703 (order denying rehearing). The Commission points out that pipelines often make agreements with producers to pay settlement costs but delay making actual payments. Article 29.2, the Commission claims, prevents Williams from collecting interest on these unpaid settlement costs.

We think the Commission's reading of the tariff is reasonable. Article 29.2 does not give Williams authority to defer billing take-or-pay costs already paid or to collect interest...