Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-94-09558/USCOURTS-ca10-94-09558-0/pdf.json

Parties Involved:
Cascade Natural Gas Corporation
Intervenor
Federal Energy Regulatory Commission
Respondent
Northwest Natural Gas Company
Intervenor
Northwest Pipeline Corporation
Petitioner

Document Text:

UNITED STATES COURT OF APPEALS 

Office of the Clerk 

Byron White United States Courthouse 

1823 Stout Street 

Denver, CO 80257 

Patrick Fisher 

Clerk 

Elisabeth Shumaker 

Chief Deputy Clerk 

September 27, 1995 

TO: ALL RECIPIENTS OF THE CAPTIONED OPINION 

RE: 94-9558, 95-9560, Northwest Pipeline Corp. v. FERC 

Please be advised of the following correction to 

the captioned decision: 

Attached is a new page 17, to correct the second 

line in the first full paragraph changing "unbundled" 

transportation volumes, to "bundled" transportation volumes. 

Very truly yours, 

Patrick Fisher, Clerk 

Shannon Sullivan 

for Barbara Schermerhorn 

Deputy Clerk 

---

Appellate Case: 94-9558 Document: 01019279076 Date Filed: 08/01/1995 Page: 1 
II. The Refund Order 

Having determined that the Commission reasonably interpreted 

Section 14.8 to require the inclusion of bundled transportation 

volumes in the FRP calculation, we now must consider whether the 

Commission properly ordered Northwest to refund the overcharges to 

its unbundled customers, or whether the order violated the 

proscription against retroactive ratemaking. 

A. The Statutory Framework 

The primary_purpose of the Natural Gas Act, 15 U.S.C. §§ 717-

717w ("NGA"), is "to protect consumers from exploitation at the 

hands of natural gas companies." Colorado Interstate Gas Co. v. 

F.E.R.C., 791 F.2d 803, 806 (lOth Cir. 1986) ("CIG") (citing 

Federal Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591, 610 

(1944)), cert. denied, 479 U.S. 1043 (1987). In furtherance of 

this policy, Congress has declared that rates subject to 

regulation pursuant to the NGA are unlawful unless they are "just 

and reasonable." 15 u.s.c. § 717c(a); see Office of Consumers' 

Counsel v. F.E.R.C., 783 F.2d 206, 213 (D.C. Cir. 1986). 

The NGA empowers the Federal Energy Regulatory Commission to 

regulate the rates charged by interstate natural gas pipelines. 

However, the NGA also prescribes how the Commission may exercise 

that power. Sea Robin Pipeline Co. v. F.E.R.C., 795 F.2d 182, 183 

(D.C. Cir. 1986). The Commission's power is set forth in two 

sections of the NGA relevant to this case--Section 4(e), which 

deals with ratemaking, and Section S(a), which deals with 

Commission-ordered rate adjustment. 15 U.S.C. §§ 717c(e), 

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Appellate Case: 94-9558 Document: 01019279076 Date Filed: 08/01/1995 Page: 2 
PUBLISH FILED 

UDited States Court of Appcs.ls 

UNITED Te .. th Circuit STATES COURT OF APPEALS u 

TENTH CIRCUIT 

NORTHWEST PIPELINE CORPORATION, 

Petitioner, 

v. 

FEDERAL ENERGY REGULATORY 

COMMISSION, 

Respondent, 

CASCADE NATURAL GAS CORPORATION, 

NORTHWEST NATURAL GAS COMPANY, 

Intervenors. 

NORTHWEST PIPELINE CORPORATION, 

Petitioner, 

v. 

FEDERAL ENERGY REGULATORY 

COMMISSION, 

Respondent. 

AUG 01 1995 

PATRICK FISHER Cl~r:; 

No. 94-9558 

No. 94-9560 

APPEAL FROM THE FEDERAL ENERGY REGULATORY COMMISSION 

(FERC NO. TM92-7-37-000) 

Toni M. Sutliff (Steven W. Snarr and Helen J. Edwards with her on 

the brief), Northwest Pipeline Corporation, Salt Lake City, Utah, 

for Petitioner. 

Joel M. Cockrell (Susan Tomasky, Jerome M. Feit and Joseph S. 

Davies with him on the brief) , Federal Energy Regulatory 

Commission, Washington, D.C., for Respondent. 

Appellate Case: 94-9558 Document: 01019279076 Date Filed: 08/01/1995 Page: 3 
Before ANDERSON and McKAY, Circuit Judges, and COOK,* District 

Judge. 

ANDERSON, Circuit Judge. 

In this case, we must decide whether an order of the Federal 

Energy Regulatory Commission ("Commission") directing Northwest 

Pipeline Corporation ("Northwest") to refund to certain of its 

customers amounts by which they were overcharged violated the 

proscription against retroactive ratemaking. We hold that it did 

not. Accordingly, exercising jurisdiction pursuant to 15 U.S.C. 

§ 717r(b), we affirm the Commission's order directing Northwest to 

refund overcharges to the affected customers. 

BACKGROUND 

Northwest operates an interstate natural gas transportation 

system which extends approximately 1500 miles, from New Mexico to 

the Canadian border. Like other interstate pipelines, Northwest 

historically operated its system by purchasing gas from producers, 

transporting these volumes from production fields through its 

transmission system, and selling the gas to distributors and end 

users. In 1985, however, consistent with Congressional intent 

expressed in the Natural Gas Policy Act, see 15 U.S.C. §§ 3311-

3432, the Commission issued Order No. 436, 50 Fed. Reg. 42,408 

(1985) (codified at scattered sections of 18 C.F.R.), which 

* Honorable H. Dale Cook, Senior District Judge, United States 

District Court for the Northern District of Oklahoma, sitting by 

designation. 

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Appellate Case: 94-9558 Document: 01019279076 Date Filed: 08/01/1995 Page: 4 
launched a new era of "open access" transportation.1 Under this 

new regime, the Commission hoped to foster competition in the 

industry by initiating the "unbundling" of the pipelines' 

transportation and merchant roles, thus allowing pipelines to 

provide transportation service for customers who bought gas 

elsewhere and had it shipped through the pipelines' transportation 

system. 

This case involves two categories of Northwest customers: 

"bundled customers," those who are charged a unitary rate for 

their transportation and storage costs; and "unbundled customers," 

those who are charged separately for each component of service 

(such as transportation) which that customer utilizes. 

Approximately ninety-eight percent of Northwest's transportation 

service is unbundled; approximately two percent is bundled. 

Respondent's Br. at 3. 

During the time period applicable to this proceeding,2 rate 

schedules SGS-1 and LS-1 were part of Northwest's Tariff, 2d. Rev. 

Vol. No. 1 (Volume No. 1), and applicable to Northwest's bundled 

customers. Pursuant to this tariff, these bundled customers were 

not assessed any separate system fuel charges.3 

1 Implementation of the open access policy was initiated with 

the issuance of Order Nos. 500 and 636. See 52 Fed. Reg. 30,334 

(1987); see also American Gas Ass'n v. F.E.R.C., 912 F.2d 1496 

(D.C. Cir.), cert. denied, 498 U.S. 952 (1990). 

2 The bundled service that Northwest provided eventually was 

unbundled as part of the company's restructuring efforts. 

Appellant's Br. at 5. 

3 As natural gas is transported through a pipeline, a fraction 

is lost due to system leakage. This is known as lost and 

unaccounted-for fuel ("LUF"). Additionally, a fraction of the gas 

(cont'd. on next page) 

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Appellate Case: 94-9558 Document: 01019279076 Date Filed: 08/01/1995 Page: 5 
In 1985, as part of its program to adapt the principles 

underlying Order No. 436, and to offer firm and uninterruptible 

open-access transportation, Northwest filed with the Commission a 

general transportation service tariff (Volume No. 1-A) which was 

applicable to its unbundled customers. Section 14.8 of this 

tariff required each shipper to pay, in addition to its 

transportation costs, a fuel reimbursement percentage (FRP) rate 

to compensate Northwest for the shipper's pro rata share of the 

system fuel. Section 14.8 of the tariff states: 

14.8 Fuel Gas Reimbursement. In addition to the 

payments for transportation, Shipper shall reimburse 

Transporter for Shipper's pro rata share of fuel, 

including lost and unaccounted-for gas, required for 

transportation. . . . Fuel use requirements shall be 

determined using a factor calculated by dividing the 

total annual fuel and lost and unaccounted-for gas for 

Transporter's total transmission system, by the total 

annual volumes, including gas used for fuel and lost and 

unaccounted-for gas, transported through Transporter's 

transmission system, including volumes transported for 

Shipper. The fuel use requirements factor shall be 

determined for each year effective April 1 of each year 

based on the prior calender year's experience. The fuel 

use requirements factor shall be set forth on Sheet No. 

202 of this Volume No. 1-A Tariff. 

The fuel use requirements factor shall be applied to the 

volumes received from Shipper for transportation to 

determine Shipper's fuel gas volume reimbursement. 

Except when Shipper chooses to furnish such fuel gas 

volume in-kind, the charge to Shipper for fuel 

reimbursement for such fuel gas volume shall be 

determined using Transporter's average cost of purchased 

gas for the month of service. 

(cont'd from previous page) 

passing through the system is diverted and used to run system 

equipment. This is known as transportation fuel. Throughout this 

opinion, we refer to the LUF and transportation fuel collectively 

as "system fuel." 

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Appellate Case: 94-9558 Document: 01019279076 Date Filed: 08/01/1995 Page: 6 
65 FERC ,, 61,046, at 61,428 n.2. R. at 154-55 n.4. Under the 

terms of Section 14.8, Northwest could adjust the FRP charge 

annually in order to recover the actual system fuel use for the 

prior year. 

The Commission approved the tariff and Northwest has, 

consistent with the terms of Section 14.8, submitted annual tariff 

sheets for filing setting forth its calculation of the FRP, based 

upon the prior year's fuel use experience. Under the terms of 

Section 14.8 the filed rate becomes effective April 1 of each 

year. 

A. Northwest's 1991 Filing 

On February 28, 1991, pursuant to Section 14.8 of tariff 

Volume No. 1-A, Northwest submitted its 1991 FRP tariff sheets for 

filing, and requested an effective date of April 1, 1991. R. at 

1-2. Northwest calculated the FRP for the unbundled customers, as 

it had since 1985,4 by dividing the total amount of system fuel by 

the unbundled customers' total annual transportation volumes. 

Pursuant to 18 C.F.R. §§ 385.211, 385.214 (1994), one of 

Northwest's unbundled customers, Northwest Natural Gas Company 

("Northwest Natural"), filed a protest to the proposed rate and 

moved to intervene in the proceeding. Northwest Natural asserted, 

inter alia, that Northwest had incorrectly calculated the FRP. 

4 In its 1991 filing, Northwest represented that it had 

"followed the same fuel reimbursement percentage calculation 

procedures used in its prior annual fuel reimbursement filings 

since the Commission' ... found Northwest's filings were 

consistent with its filed tariff ... ' and 'any changes to the 

mechanism can be raised in Northwest's next Section 4 rate 

proceeding.' (Slip. Op. at p.4) ." R. at 1. 

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Appellate Case: 94-9558 Document: 01019279076 Date Filed: 08/01/1995 Page: 7 
Northwest Natural claimed that Northwest had been calculating the 

FRP by dividing the total system fuel by the total annual 

transportation volumes of the unbundled customers only, rather 

than using the "total annual volumes . . . transported through 

Transporter's transmission system," which would have included both 

bundled and unbundled volumes.S Thus, according to Northwest 

Natural's protest, Northwest had been improperly excluding from 

the FRP calculation volumes transported for its bundled customers, 

resulting in a higher FRP charge to the unbundled customers. 

B. The Commission's Orders 

On March 29, 1991, the Commission issued a Letter Order 

accepting and suspending Northwest's filing, pending final 

disposition, and directing Northwest to file an answer to 

Northwest Natural's protest. The Commission permitted the FRP 

filing to become effective April 1, 1991, but made the filing 

subject to refund and its acceptance conditional upon any action 

subsequently taken by the Commission. See Northwest Pipeline 

Corp., 54 FERC ,, 61,371 (1991); see also 15 U.S.C. § 717c(e) 

(providing that Commission may suspend rate pending review); 18 

C.F.R. § 154.23 (1994) (acceptance for filing does not constitute 

Commission approval). 

Thereafter, Northwest filed an answer to Northwest Natural's 

protest. Northwest Natural filed a response to Northwest's answer 

5 Northwest does not dispute that it calculated the FRP by 

"dividing the total annual fuel and unaccounted-for gas for the 

pipeline's system by the total annual volumes transported under 

various Volume No. 1-A transportation rate schedules during the 

prior calender year." Appellant's Br. at 6. 

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Appellate Case: 94-9558 Document: 01019279076 Date Filed: 08/01/1995 Page: 8 
and on December 7, 1992, the Commission issued another Letter 

Order. The Commission ruled that Northwest had computed its FRP 

pursuant to its tariff provisions and that it had properly 

excluded from the calculation bundled storage volumes. Northwest 

Pipeline Corp., 61 FERC ,r 61,314 (1992) .6 

C. The Commission's Order on Rehearing 

Northwest Natural sought a rehearing. On October 8, 1993, 

the Commission granted Northwest Natural's request in part and 

issued an order addressing those claims upon which rehearing had 

been granted. The Commission first rejected Northwest Natural's 

claim that Northwest's failure to assess FRP charges against its 

bundled customers was violative of Section 14.8 of its tariff. 

The Commission concluded that Section 14.8 applied to all 

transportation services identified in Volume No. 1-A of 

Northwest's tariff, which covered unbundled transportation 

service, but that Section 14.8 did not apply to the rate schedules 

SGS-1 and LS-1 which are contained in Volume No. 1 of Northwest's 

tariff, and which cover bundled storage and transportation 

services. The Commission further stated that the rate schedules 

LS-1 and SGS-1 do not provide for an FRP to be paid for those 

services. Northwest Pipeline Corp., 65 FERC ,r 61,046, at 61,429 

(1993). In short, the Commission ruled that the tariff provision 

6 Northwest Natural raised the same protest in Northwest's 1992 

FRP filing made in Docket No. TM92-7-37-000. On March 30, 1992, 

the Commission issued a Letter Order accepting and suspending 

Northwest's filing making it subject to refund and the final 

disposition of the 1991 filing under Docket No. TM91-6-37-001. 

See Northwest Pipeline Corp., 65 FERC ,r 61,046, at 61,429 n.6 

(1993). This order consolidated the two cases. 

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Appellate Case: 94-9558 Document: 01019279076 Date Filed: 08/01/1995 Page: 9 
applicable to unbundled customers required them to pay for system 

fuel, but that the tariff provision applicable to bundled 

customers did not contain such a requirement. 

However, the Commission also ruled that Northwest's exclusion 

of the bundled SGS-1 and LS-1 volumes from the denominator of the 

FRP calculation had violated Section 14.8 of the tariff, Volume 

No. 1-A. According to the Commission, Section 14.8 "states 

clearly that in calculating the FRP the 'total annual volumes' 

should be included. There is no language excluding volumes 

transported pursuant to sales or storage services." Id. at 

61,430. The Commission also observed, as a matter of contract 

construction, that had the phrase "total annual volumes" been 

intended to exclude those volumes transported pursuant to sales 

and storage services, then the language "including volumes 

transported for Shipper" contained in the antecedent clause would 

be superfluous. Id. The Commission concluded that "it must be 

the intent of this provision to include in the calculation of the 

FRP volumes other than those transported by shipper customers--and 

there is no language suggesting that storage volumes are to be 

excluded from those other volumes that must be included." Id. 

Based upon the Commission's conclusion that the FRP had been 

erroneously calculated, it ordered Northwest to file a revised FRP 

which included the bundled transportation volumes in the 

calculation.? It further ordered Northwest to refund the 

7 The Commission declined to address in this docket the issue 

raised by Northwest Natural as to the unfair, unreasonable, or 

discriminatory nature of the treatment between shippers of 

different rate schedules. The Commission held that the 

(cont'd. on next page) 

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Appellate Case: 94-9558 Document: 01019279076 Date Filed: 08/01/1995 Page: 10 
overcharges back to the affected unbundled customers who had paid 

more than their pro rata share.8 

Northwest's request for rehearing was denied by the 

Commission on July 21, 1994. Northwest Pipeline Corp., 68 FERC 

11 61,106 (1994). The Commission stated in its order denying 

rehearing that when bundled SGS-1 and LS-1 volumes are transported 

through the system, they "are no different than any other volumes 

moving in the transportation facilities--system fuel (including 

LUF) had to be expended to move the volumes. The FRP would not 

accurately reflect the percentage of gas used for fuel if any 

transportation volumes were excluded from the calculation for 

whatever reason." Id. at 61,585. 

The Commission also rejected Northwest's argument that, by 

having to refund monies to its unbundled customers, while not 

recovering those costs from its bundled customers, it would 

(cont'd from previous page) 

discrimination issues would more appropriately be addressed in 

Northwest's Order No. 636 restructuring proceeding. Northwest 

Pipeline Corp., 62 FERC 11 61,284 (1993). 

On December 23, 1993, a settlement agreement was approved in 

Docket No. RP93-5-011 which unbundled the transportation 

components of rate schedules SGS-1 and LS-1. This settlement 

resolved the discrimination issues raised by Northwest Natural 

and, therefore, the allegations of discrimination at issue in this 

matter became moot. See Northwest Pipeline Corp., 68 FERC 

' 61,106 at 61,584 (1994). 

8 The Commission ordered the refund from April 1, 1991, the 

effective date that Northwest's FRP filing had been accepted and 

suspended, to the effective date of the revised FRP. Northwest 

Pipeline Corp., 65 FERC 11 61,046, at 61,430 (1993). Both parties 

agree that the Commission could not have ordered the refund of any 

overcharges prior to April 1, 1991, without violating the 

proscription against retroactive ratemaking. 

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Appellate Case: 94-9558 Document: 01019279076 Date Filed: 08/01/1995 Page: 11 
undercollect its costs.9 The Commission first noted that such a 

claim was premised upon the presumption that Northwest had not 

recovered "a proportionate share of fuel costs from customers of 

the SGS-1 and LS-1 rate schedules in the bundled rates charged 

under those schedules." Id.10 The Commission went on to observe, 

however, that in any event Northwest had not been constrained from 

filing to recover fuel costs from its SGS-1 and LS-1 customers in 

a Section 4 (Natural Gas Act) general rate case. The Commission 

concluded that Northwest's failure to recover system fuel costs 

from its bundled customers was its own error, deeming it 

unacceptable "for Northwest to have violated the clear terms of 

its own tariff and overcharged some other customers (those using 

unbundled storage services) to make itself whole." Id. 

Additional rehearing was requested by Northwest and, on 

September 16, 1994, the Commission issued its order granting 

rehearing in part and denying rehearing in part. Northwest 

9 The net effect of the Commission's order was that Northwest 

could recover only 98% of its system fuel costs from its unbundled 

customers (who, as noted, make up 98% of Northwest's transmission 

service). Undeniably, absent some other mechanism by which 

Northwest could recover the additional 2% from its bundled 

customers, Northwest stood to incur a loss on its system fuel 

costs. 

10 At oral argument, counsel for Northwest stated that in fact 

there was a system fuel recovery mechanism built in to the bundled 

rate structure, but that the record was incomplete on that issue. 

Assuming the accuracy of this representation, we find Northwest's 

position problematic. It seeks to recover 100% of its system fuel 

costs from the unbundled customers in this proceeding, claiming 

that it will underrecover its fuel costs and incur substantial 

loss if it is unable to do so because it cannot recover the 

additional 2% from its bundled customers. Yet, at the same time, 

in order to deflect a claim that it discriminates, Northwest 

maintains that it does recover system fuel costs from its bundled 

customers. 

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Appellate Case: 94-9558 Document: 01019279076 Date Filed: 08/01/1995 Page: 12 
Pipeline CokP., 68 FERC ,I 61,305 (1994). The Commission agreed 

that Northwest had changed Section 14.8, effective April 1, 1993, 

to remove the tariff language at issue in this case. Accordingly, 

the refund order was modified and limited to the period April 1, 

1991, to March 31, 1992. The Commission also denied Northwest's 

claim that it should be allowed to recover the deficiencies from 

its bundled SGS-1 and LS-1 customers. The Commission observed 

that "Northwest's [Volume No. 1] tariff did not include a 

provision for billing its unbundled SGS-1 and LS-1 storage 

customers for fuel use. Northwest's proposal, therefore, would 

not be a mere billing adjustment since there was to be no billing 

of fuel charges at all to those customers." Id. at 62,259. This 

appeal followed. 

DISCUSSION 

I. The Commission's Interpretation of Section 14.8 

The threshold issue that we must address is the Commission's 

interpretation of the language at issue in this case. The 

Commission ruled that Section 14.8 clearly states that "in 

calculating the FRP the 'total annual volumes' should be included. 

There is no language excluding volumes transported pursuant to 

sales or storage services." Northwest Pipeline Corp., 65 FERC 

,I 61,046, at 61,430 (1993). Northwest argues that this reading is 

erroneous because the terms of Section 14.8 apply only to Volume 

No. 1-A of the tariff. Thus, according to Northwest, "the words 

'total annual volumes' can mean only the total annual volumes of 

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Appellate Case: 94-9558 Document: 01019279076 Date Filed: 08/01/1995 Page: 13 
the transportation customers who are served pursuant to Volume No. 

1-A." Appellant's Br. at 20. 

We review the Commission's order pursuant to 15 U.S.C. 

§ 717r(b), which provides that the Commission's factual findings, 

if supported by substantial evidence, are conclusive. Moreover, 

under the Administrative Procedure Act, we may set aside agency 

action only if it is determined to be "arbitrary, capricious, an 

abuse of discretion, or otherwise not in accordance with the law." 

5 U.S.C. § 706(2) (A); Woods Petroleum Corp. v. Department of 

Interior, 47 F.3d 1032, 1037 (lOth Cir.), petition for cert. 

filed, 63 U.S.L.W. 3834 (U.S. May 10, 1995) (No. 94-1858). The 

"substantial evidence" test has been equated to the "arbitrary and 

capricious" standard of review. Colorado Interstate Gas Co. v. 

F.E.R.C., 904 F.2d 1456, 1459 (lOth Cir. 1990), cert. denied, 499 

U.S. 936 (1991); East Tenn. Natural Gas Co. v. F.E.R.C., 863 F.2d 

932, 937 (D.C. Cir. 1988). An agency decision may be arbitrary 

and capricious if it fails to consider important relevant factors 

or if there is no "'rational connection between the facts found 

and the choice made.'" Woods Petroleum, 47 F.3d at 1037 (quoting 

Bowman Transp .. Inc. v. Arkansas-Best Freight Sys .. Inc., 419 U.S. 

281, 285 (1974)). In reviewing the agency's decision, a court is 

not free to substitute its own judgment for that of the agency, 

but must instead uphold the agency decision if there is a rational 

basis for that decision. Mount Evans Co. v. Madigan, 14 F.3d 

1444, 1453 (lOth Cir. 1994); see also Thomas Brooks Chartered v. 

Burnett, 920 F.2d 634, 644 (lOth Cir. 1990). 

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At the heart of the dispute in this case is the proper 

interpretation of the phrase "total annual volumes" contained in 

the FRP provision of Section 14.8 of Northwest's tariff Volume No. 

1-A. Northwest claims one meaning--"total" applies to Volume 1-A 

volumes only; the Commission claims another--"total" applies to 

all volumes transported through the entire transmission system. 

Northwest argues that the Commission's interpretation of Section 

14.8 is entitled to no deference because "FERC's language 

interpretation did not require any special expertise; and, in 

fact, its interpretation had no reasonable basis in fact and 

resulted in an error of law." Appellant's Br. at 18. We 

disagree. 

In Williams Natural Gas Co. v. F.E.R.C., 3 F.3d 1544 (D.C. 

Cir. 1993), the District of Columbia Circuit held that, under the 

principles pronounced in Chevron U.S.A. Inc. v. Natural Resources 

Defense Council, Inc., 467 U.S. 837 (1984), the Commission's 

interpretation of contractual language is entitled to deference. 

Williams, 3 F.3d at 1549. Relying on its prior holding in 

National Fuel Gas Supply Co. v. F.E.R.C., 811 F.2d 1563 (D.C. 

Cir.), cert. denied, 484 U.S. 869 (1987), the court reasoned that 

Congress had explicitly delegated to FERC "'a broad range of 

adjudicative powers over natural gas rates,' and that Chevron's 

emphasis on deference to an agency's 'special competence' when 

there has been such a delegation 'implicitly modified earlier 

cases that adhered to the traditional rule of withholding 

deference on questions of contract interpretation.'" Williams, 3 

F.3d at 1549 (quoting National Fuel, 811 F.2d at 1569-70) 

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Appellate Case: 94-9558 Document: 01019279076 Date Filed: 08/01/1995 Page: 15 
(internal citations omitted) . Deference, of course, does not mean 

abdication of careful judicial review. A reviewing court will not 

"accept FERC's interpretation of a contract unless it is 'amply 

supported, both factually and legally." Baltimore Gas & Elec. Co. 

v. F.E.R.C., 26 F.3d 1129, 1135 (D.C. Cir. 1994) (quoting Tarpon 

Transmission Co. v. F.E.R.C., 860 F.2d 439, 442 (D.C. Cir. 1988)). 

Nevertheless, so long as the agency's interpretation is 

reasonable, the District of Columbia Circuit has held, a reviewing 

court must defer to that interpretation. Long Island Lighting Co. 

v. F.E.R.C., 20 F.3d 494, 497 (D.C. Cir. 1994). 

In this case, we adopt the reasoning of the District of 

Columbia Circuit as applied in Williams and the cases which have 

followed. Obviously, the Commission has vast experience in the 

interpretation of the language contained in natural gas tariffs--

it reviews thousands of such filings annually.11 The principles 

underlying Chevron--that a reviewing court should defer to agency 

expertise on questions within the scope of the agency's 

Congressionally delegated powers--clearly dictate that we defer to 

the Commission's interpretation of such language. See Natural Gas 

Clearinghouse v. F.E.R.C., 965 F.2d 1066, 1070 (D.C. Cir. 1992). 

Applying these principles to the present case, we believe the 

Commission's interpretation of the language at issue is entitled 

to our deference. As a general matter, the Commission applies the 

same canons of contract construction as would a reviewing court: 

11 Counsel for the Commission noted at oral argument that 

Northwest's analysis of Sections 4 and 5 "would overturn the way 

the Commission acts a thousand times a year for the last fifty 

years." 

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In construing what a tariff means, certain general 

principles apply. One looks first to the four corners 

of the entire tariff, considers the entire instrument as 

a whole, giving effect as far as possible to every word, 

clause and sentence, and attributes to the words the 

meaning which is generally used, understood, and 

accepted. 

Columbia Gas Transmission Corp., 27 FERC ,! 61, 089, at 61,166 

(1984) . In the present case, the Commission clearly has 

interpreted the language of Section 14.8 in accordance with these 

fundamental cannons. 

First, the Commission quite correctly notes that to give 

effect to Northwest's interpretation would require us to read the 

word "total," used three times in Section 14.8, as having two 

different meanings. In one case, "total" would refer to the total 

volume of system gas used for the entire transmission system; in 

the other case, "total" would be restricted to the total volume of 

gas transported under Volume No. 1-A of the tariff. The 

Commission's reading, on the other hand, ascribes to the word its 

ordinary meaning, and applies that meaning consistently throughout 

the provision in question. See Omnibank Parker Road, N.A. v. 

Employers Ins., 961 F.2d 1521, 1523 (lOth Cir. 1992). 

Second, the Commission's reading gives effect and meaning to 

each provision of Section 14.8. See Tennessee Gas Pipeline Co. v. 

F.E.R.C., 17 F.3d 98, 104 (5th Cir. 1994). Section 14.8 provides 

that "[i]n addition to the payments for transportation, Shipper 

shall reimburse Transporter for Shipper's pro rata share of fuel, 

including lost and unaccounted for gas, required for 

transportation." Under the Commission's reading, each unbundled 

customer does in fact pay its pro rata share of the system fuel, 

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Appellate Case: 94-9558 Document: 01019279076 Date Filed: 08/01/1995 Page: 17 
but no more. Under Northwest's proposed reading, however, each 

unbundled customer would pay more than its pro rata share of the 

system fuel costs because each would also be paying for some 

percentage of the system fuel expended on transporting volumes of 

gas for the bundled customers. Thus, Northwest's reading of 

Section 14.8 leads to a disfavored construction of the contract, 

rendering the term "pro rata" mere surplusage. See. e.g., United 

States Fidelity & Guar. Co. v. Morrison Grain Co., 999 F.2d 489, 

493 (lOth Cir. 1993) (applying Kansas law); Hartford Accident & 

Indem. Co. v. United States Fidelity & Guar. Co., 962 F.2d 1484, 

1489-90 (lOth Cir.) (applying Utah law), cert. denied, 113 S. Ct. 

411 (1992). 

Finally, we agree with the Commission that Northwest's 

reading of Section 14.8 renders superfluous the clause "including 

volumes transported for Shipper" which is antecedent to "total 

annual volumes." The Commission's interpretation, on the other 

hand, gives meaning to this clause. 

We note that the Commission's interpretation of Section 14.8 

is not the only possible construction, nor necessarily even one 

that a court may have adopted had the issue arisen in the first 

instance in a judicial proceeding. See Salt Lake City v. Western 

Area Power Admin., 926 F.2d 974, 978 (lOth Cir. 1991). It is, 

however, a rationally based, reasonable construction, and is, 

therefore, entitled to our deference. 

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II. The Refund Order 

Having determined that the Commission reasonably interpreted 

Section 14.8 to require the inclusion of unbundled transportation 

volumes in the FRP calculation, we now must consider whether the 

Commission properly ordered Northwest to refund the overcharges to 

its unbundled customers, or whether the order violated the 

proscription against retroactive ratemaking. 

A. The Statutory Framework 

The primary purpose of the Natural Gas Act, 15 U.S.C. §§ 717-

717w ("NGA"), is "to protect consumers from exploitation at the 

hands of natural gas companies." Colorado Interstate Gas Co. v. 

F.E.R.C., 791 F.2d 803, 806 (lOth Cir. 1986) ("CIG") (citing 

Federal Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591, 610 

(1944)), cert. denied, 479 U.S. 1043 (1987). In furtherance of 

this policy, Congress has declared that rates subject to 

regulation pursuant to the NGA are unlawful unless they are "just 

and reasonable." 15 U.S.C. § 717c(a); see Office of Consumers' 

Counsel v. F.E.R.C., 783 F.2d 206, 213 (D.C. Cir. 1986). 

The NGA empowers the Federal Energy Regulatory Commission to 

regulate the rates charged by interstate natural gas pipelines. 

However, the NGA also prescribes how the Commission may exercise 

that power. Sea Robin Pipeline Co. v. F.E.R.C., 795 F.2d 182, 183 

(D.C. Cir. 1986). The Commission's power is set forth in two 

sections of the NGA relevant to this case--Section 4(e), which 

deals with ratemaking, and Section 5(a), which deals with 

Commission-ordered rate adjustment. 15 U.S.C. §§ 717c(e), 

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717d(a); see United Gas Pipe Line Co. v. Mobile Gas Serv. Corp., 

350 u.s. 332, 341 (1956). 

As a general rule, pipelines may only change their rates in 

the context of a formal rate case. Pursuant to Section 4 of the 

NGA, pipelines are required to file their rates and rate changes 

with the Commission in tariffs supported by detailed cost 

information. 15 U.S.C. § 717c(c); 18 C.F.R. § 154.63 (1994); see 

Consolidated Edison Co. v. F.E.R.C., 958 F.2d 429, 431 (D.C. Cir. 

1992). In so doing, the pipeline opens up its entire rate 

structure to scrutiny, see Federal Power Comm'n v. Tennessee Gas 

Transmission Co., 371 U.S. 145, 152 (1962); CIG, 791 F.2d at 807, 

and, if challenged, it bears the burden of proving that its rate 

structure is just and reasonable. 15 U.S.C. § 717c(e); see Sea 

Robin, 795 F.2d at 183. 

Commission authority under Section 4 is limited to acceptance 

(in whole or in part) or rejection of the pipeline's proposed 

rate; the Commission is not empowered to substitute its own design 

for the rates proposed by the pipeline. Id.; see Public Serv. 

Comm'n v. F.E.R.C., 642 F.2d 1335, 1344 (D.C. Cir. 1980), cert. 

denied, 454 U.S. 879 (1981). This restriction ensures that rates 

will be set in the first instance by the pipelines themselves. 

However, the Commission retains broad remedial authority under 

Section 4. It may accept the proposed rate conditionally, and 

suspend the rate for up to five months pending Commission 

investigation. 15 u.s.c. § 717c{e). If the Commission 

determines, following such an investigation, that the filed rate 

is unjust and unreasonable, it may order refunds effective as of 

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the date the proposed rate change became effective. 15 U.S.C. 

§ 717c(e); ~Natural Gas Pipeline Co. of Am. v. F.E.R.C., 904 

F.2d 1469, 1471 (lOth Cir. 1990). The D.C. Circuit has termed 

this refund procedure the "only statutory exception to [the NGA's 

general rule] prohibiting retroactive rate changes." East Tenn. 

Natural Gas Co. v. F.E.R.C., 863 F.2d 932, 941-42 (D.C. Cir. 1988) 

(Wald, C.J.). This exception, according to the court, "arises in 

order to accommodate the realities of administrative delay." Id. 

at 942; see Natural Gas Pipeline Co., 904 F.2d at 1471. Thus, the 

refund procedure allows the pipeline to charge the proposed rate 

while Commission proceedings on the rate change are in progress, 

while at the same time providing notice to the pipeline that its 

rate ultimately may be subject to a refund order. 

In contrast to Section 4 proceedings, proceedings under 

Section 5 are not initiated by the regulated entity, but instead 

are initiated by the Commission, upon its own motion, or upon the 

complaint of a third party. Under this section, the Commission 

examines rates already in effect and it may set aside and modify 

any rate which is determined, after hearing, to be "unjust, 

unreasonable, unduly discriminatory, or preferential." 15 U.S.C. 

§ 717d(a). Under Section 5(a), the moving or complaining party 

bears the burden of proving that the previously established rate 

is unjust and unreasonable, see CIG, 791 F.2d at 806, and any 

relief from an unjust rate ordered by the Commission is 

prospective only; it may not have retroactive effect. See 15 

u.s.c. § 717d(a) (when Commission finds rate unreasonable, it 

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"shall determine the just and reasonable rate . . . to be 

thereafter observed and in force"); CIG, 791 F.2d at 806. 

The relationship between Sections 4 and 5 of the NGA was 

described by the Supreme Court in United Gas Pipe Line Co. v. 

Mobile Gas Serv. Corp., 350 U.S. 332 (1956): 

The powers of the Commission are defined by§§ 4(e) 

and 5(a). The basic power of the Commission is that 

given it by§ 5(a) to set aside and modify any rate or 

contract it determines, after hearing, to be "unjust, 

unreasonable, unduly discriminatory, or preferential." 

This is neither a "rate-making" nor a "rate-changing" 

procedure. It is simply the power to review rates and 

contracts made in the first instance by the natural gas 

companies and, if they are determined to be unlawful, to 

remedy them. Section 5(a) would of its own force apply 

to all the rates of a natural gas company, whether longestablished or newly changed, but in the latter case the 

power is further implemented by§ 4(e). All that § 4(e) 

does, however, is to add to this basic power, in the 

case of a newly changed rate or contract (except 

"industrial" rates), the further powers (1) to preserve 

the status quo pending review of the new rate by 

suspending its operation for a limited period, and (2) 

thereafter to make its order retroactive, by means of 

the refund procedure, to the date the change became 

effective. The scope and purpose of the Commission's 

review remains the same--to determine whether the rate 

fixed by the natural gas company is lawful. 

Id. at 341. While the underlying goal of both sections is the 

same--to protect the customer against unjust and unreasonable 

rates--each provision 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." Sea Robin, 795 F.2d at 183. "While§ 4's 

refund provision protects the customers from a rate that is 

unreasonably high when filed (examined as of the filing), § 5's 

requirement that relief be prospective only assures the utility 

that rates passing scrutiny under§ 4 will not be undone." 

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Associated Gas Distribs. v. F.E.R.C., 898 F.2d 809, 810 (D.C. Cir. 

1990) (Williams, J.) (concurring in denial of rehearing and 

rehearing in bane), cert. denied, 498 U.S. 907 (1990). 

B. The Present Case 

The controversy in this case centers around whether the 

Commission's order was issued pursuant to Section 4 or Section 5. 

Northwest filed its general tariff in 1985 in the context of a 

full Section 4 rate case. Included in the general filing was the 

fuel reimbursement clause contained in Section 14.8. Northwest 

takes the position that once the Commission accepted the general 

filing, then the rates contained therein became established and 

could only be challenged subsequently in the context of a Section 

5 proceeding. The annual filing of FRP tariff sheets, Northwest 

argues, is merely ministerial; an annual adjustment to the already 

approved FRP mechanism. Therefore, according to Northwest, 

Northwest Natural's 1991 challenge to the FRP calculation (and the 

Commission's subsequent action) could only have arisen in the 

context of a challenge to an already existing rate; a challenge 

which could only have been initiated pursuant to Section 5(a). 

Thus, Northwest concludes, even if the Commission determined that 

the FRP had been calculated erroneously, it could only order 

prospective relief, and its order that Northwest refund 

overcharges back to April 1, 1991 amounts to retroactive 

ratemaking, in direct violation of the NGA. See Arkansas 

Louisiana Gas Co. v. Hall, 453 U.S. 571, 578 (1981) (rule against 

retroactive ratemaking "bars 'the Commission's retroactive 

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substitution of an unreasonably high or low rate with a just and 

reasonable rate.'" (quoting City of Piqua v. F.E.R.C., 610 F.2d 

950, 954 (D.C. Cir. 1979))); Natural Gas Pipeline Co., 904 F.2d at 

1473-74; Office of Consumers' Counsel v. F.E.R.C., 826 F.2d 1136, 

1138-39 (D.C. Cir. 1987). 

The Commission, on the other hand, argues that the annual 

updates to Northwest's FRP, while not formal Section 4 general 

rate case filings, nevertheless were filed pursuant to Section 

4.12 As such, and in light of the fact that the 1991 and 1992 FRP 

filings at issue were "accepted and suspended" by the Commission 

and explicitly made subject to refund, the Commission argues that 

the refund order is clearly within the agency's Section 4 

authority. 

C. Analysis 

Neither the NGA nor Commission regulations specifically 

address FRP adjustments. Thus, we must determine whether the 

annual FRP adjustments filed by Northwest constitute a proposed 

rate change, thus triggering Commission review under Section 4(e), 

or whether "the Commission seeks to impose a rate change not 

12 The Commission claims that this court is without jurisdiction 

to decide this issue because Northwest failed to raise it in a 

timely application for rehearing to the Commission. See Malta 

Irrigation Dist. v. F.E.R.C., 955 F.2d 59, 65 (D.C. Cir. 1992). 

We disagree. 

Northwest filed two requests for rehearing. See R. at 132, 

166; see also Northwest Pipeline Corp., 68 FERC ,I 61,305 (1994); 

Northwest Pipeline Corp. , 68 FERC ,I 61, 106 ( 1994) . In both 

requests, Northwest raised the issue that the Commission's order 

amounted to retroactive ratemaking. SeeR. at 167 ("[T]he 

Commission incorrectly invoked the doctrine of retroactive 

ratemaking .... "); see also R. at 139-40. 

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proposed by the company," in which case Section 5(a) is 

applicable. ANR Pipeline Co. v. F.E.R.C., 771 F.2d 507, 513 (D.C. 

Cir. 1985). 

As an initial matter, we note that the form of Northwest's 

annual FRP filings comply with filing requirements set forth in 

Commission regulations implementing Section 4.13 Furthermore, the 

Commission's response to the filing--accepting and suspending the 

new rate--is consistent with Commission action which may be taken 

pursuant to Section 4. See 15 U.S.C. § 717c(e). Thus, we believe 

that both Northwest and the Commission viewed the annual FRP 

adjustments as rate changes filed pursuant to Section 4. 

The phrase "FERC gas tariff," as used in Northwest's form 

notice, filed pursuant to 18 C.F.R. § 154.28 (1994), is defined as 

"a compilation, either in book form or on electronic media, of all 

the effective rate schedules of a particular natural gas company." 

18 C.F.R. § 154.14 (1994). Thus, in its annual FRP filings 

Northwest sought a change to its effective rate schedule. By the 

clear language of the NGA, any such change must be filed pursuant 

to Section 4. See 15 U.S.C. § 717c(d). 

13 For example, Northwest's filings were submitted pursuant to 

18 C.F.R. Part 154, that section of the Commission's regulations 

governing the filing of rate tariffs and schedules; Northwest 

specifically stated in its annual tariff sheets that the purpose 

of the filing was to "file a new Fuel Reimbursement Percentage 

(FRP) ," R. at 1 (emphasis added); seeR. at 200; Northwest 

submitted a filing fee, in accordance with 18 C.F.R. Part 3a5; 

Northwest submitted a form "Notice of Proposed Change in FERC Gas 

Tariff" and computer disk, as required by 18 C.F.R. § 154.28; 

Northwest submitted its annual filing thirty days prior to the 

requested effective date, in compliance with the notice 

requirements of 18 C.F.R. § 154.22 (1994) and 15 U.S.C. § 717c(d); 

and in compliance with 18 C.F.R. § 154.28 (1994), Northwest's form 

notice directed parties interested in protesting the filing to 

file a motion to intervene and protest with the Commission. 

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Notwithstanding this prior course of conduct, Northwest now 

claims that the annual FRP filings were not made pursuant to 

Section 4. Northwest argues that Corrunission approval of a 11 rate 11 

is not always confined to the approval of a specific numeric 

value, but may instead extend to the approval of a calculational 

formula or 11 rate rule 11 which, once approved, is established for 

purposes of the NGA. While specific numeric input data to such a 

formula may vary from year to year, Northwest's position is that 

the formula itself does not change and therefore may be attacked 

only in the context of a Section 5 proceeding. To be sure, there 

is some support for such a position. See Transwestern Pipeline 

Co. v. F.E.R.C., 897 F.2d 570, 578-79 (D.C. Cir.), cert. denied, 

498 U.S. 952 (1990). But see Public Serv. Co. v. F.E.R.C., 832 

F.2d 1201, 1225 (lOth Cir. 1987); Electrical Dist. No. 1 v. 

F.E.R.C., 774 F.2d 490, 492 (D.C. Cir. 1985) (holding that rate is 

11 fixed 11 within the meaning of the Federal Power Act once the rate 

itself is specified) . 

However, we believe that in the context of this case, 

Northwest's argument misses the point. The Commission's order did 

not effect a change in the mechanism by which the FRP is 

calculated. Rather, it simply directed Northwest to calculate the 

FRP correctly, in compliance with Section 14.8. And, as we have 

just held, we defer to the Corrunission's interpretation of what 

constitutes a 11 correct 11 FRP calculation. Thus, the Corrunission's 

order did not direct Northwest to calculate the FRP differently, 

it simply ordered Northwest to calculate the FRP correctly. 

Section 5, therefore, simply finds no application in this case. 

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Nor do we accept Northwest's argument that the Commission's 

refund order violates the filed rate doctrine.14 "The filed rate 

doctrine simply does not extend to cases in which buyers are on 

adequate notice that resolution of some specific issue may cause a 

later adjustment to the rate being collected at the time of 

service." Natural Gas Clearinghouse v. F.E.R.C., 965 F.2d 1066, 

1075 (D.C. Cir. 1992); see Columbia Gas Transmission Corp. v. 

F.E.R.C., 895 F.2d 791, 797 (D.C. Cir.), cert. denied, 498 U.S. 

907 (1990). Certainly, this same reasoning is especially 

applicable where, as here, it is the pipeline, rather than the 

natural gas customer, who is put on notice that its requested rate 

increase may be subject to refund. In this case, Northwest was on 

notice when the Commission accepted and suspended the 1991 FRP 

filing that a refund may be ordered. Thus, the Commission's order 

was not in violation of the filed rate doctrine. 

Having determined that the Commission's order was not issued 

pursuant to Section 5, and that the order did not violate the 

filed rate doctrine, we now must consider whether the Commission 

properly exercised its refund authority pursuant to Section 4. We 

conclude that it did. 

Although neither Commission regulations nor the NGA 

specifically address FRPs, the Commission has adopted an analogous 

adjustment mechanism for purchase gas adjustments ("PGA"). The 

PGA proceeding allows a pipeline to facilitate recovery of costs 

14 As the Supreme Court has explained, the "filed rate doctrine" 

forbids a regulated entity from charging "rates for its services 

other than those properly filed with the appropriate federal 

regulatory authority." Arkansas Louisiana Gas Co., 453 U.S. at 

577. 

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by including a purchase gas adjustment clause in the rates it 

files with the Commission. See 18 C.F.R. §§ 154.301-154.310 

(1994) . Qualified companies may then adjust their rates to 

reflect changes in costs by submitting PGA filings quarterly.15 

In exchange, the companies must agree to submit all costs and 

revenues to the Commission for a full scale Section 4 review at 

least every three years. Significantly, rate changes ordered by 

the Commission pursuant to a Section 4 review are retroactive. 

See South Carolina Pipeline Corp. v. F.E.R.C., 868 F.2d 650, 651 

(3d Cir. 1989); Associated Gas, 706 F.2d at 345-46; Laclede Gas 

Co. v. F.E.R.C., 670 F.2d 38, 41-42 (5th Cir. Unit A 1982). 

The PGA adjustment mechanism allows a pipeline to adjust its 

rates on a quarterly basis without the necessity for a full scale 

Section 4 rate case. This allows for more streamlined, less 

cumbersome, routine adjustments to recoverable costs. However, a 

pipeline employing the PGA adjustment mechanism must nevertheless 

justify its periodic adjustments, and the pipeline is on notice 

that a refund may be ordered if it fails to carry its burden. See 

Associated Gas, 706 F.2d at 346 ("Because the PGA procedure is 

conducted pursuant to the Commission's power under section 4, the 

customers of a pipeline are entitled to file a complaint 

concerning the lawfulness of a pipeline's PGA rate increase."). 

15 The filings must include detailed costing information 

including each pipeline purchase by contract, contract date, 

projected volume, rates to be paid, and the total cost of the 

purchased gas under the contract for the period encompassed by the 

filing. See Associated Gas Distribs. v. F.E.R.C., 706 F.2d 344, 

346-47 (D.C. Cir. 1983). 

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In like fashion, the FRP mechanism allows for annual 

adjustment to a pipeline's system fuel costs. The expedited 

nature of this proceeding, however, does not mean that the 

adjustment should escape close scrutiny by the Commission pursuant 

to Section 4. We are unable to discern any relevant distinction 

between quarterly PGAs and annual FRP adjustments which would 

warrant subjecting one to Section 4 scrutiny, while treating the 

other simply as a ministerial filing. Thus, we believe the 

reasoning of the District of Columbia Circuit--that the filing of 

a PGA is a filing made pursuant to Section 4--is equally 

appropriate as applied to an annual FRP filing. Both mechanisms 

effect a change in the rate a customer pays, and therefore, by the 

clear terms of the NGA, both are appropriately subject to review 

under Section 4(e). 

Practical considerations further support our holding. In 

this case, Northwest was put on notice, once the Commission 

accepted and suspended the 1991 tariff sheets, that its proposed 

change to the FRP ultimately might be deemed unjust and 

unreasonable and made subject to refund.16 This is precisely the 

goal of Section 4--to put the pipeline on notice that the rate may 

be subject to refund, while allowing the rate to become effective 

pending completion of the Commission's review. Such an approach 

recognizes the inherent delay in administrative review, while 

granting the pipeline some leeway; that is, while the pipeline 

16 We note here that the Commission's orders do not refer to the 

incorrectly calculated FRP as unjust and unreasonable. However, a 

charge which is erroneously calculated, in violation of the tariff 

provision, and which results in a higher charge to the natural gas 

customer, is inherently unjust and unreasonable. 

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bears the ultimate burden of justifying the rate increase as being 

just and reasonable, the "accept and suspend" provision of Section 

4(e) embodies an implicit presumption that, in most cases, the 

pipeline will in the end be able to satisfy that burden. 

Northwest's position, on the other hand, would likely lead to 

administrative paralysis. Because any Commission order directing 

a pipeline to comply with the terms of its tariff could only have 

prospective effect, there would be no suspension of rates. 

Rather, the Commission would be forced to examine the FRP 

adjustment, hold hearings, and conduct its investigation prior to 

acceptance or rejection of the FRP adjustment. Such a cumbersome 

process would invariably lead to the same type of "pancaking" of 

FRP adjustments that the PGA mechanism was intended to remedy in 

the context of purchase gas adjustments. See Associated Gas, 706 

F.2d at 34s.17 

Finally, we believe that Northwest's position runs completely 

counter to the policy of the Natural Gas Act. The "rate" in 

question in this case is Northwest's annual adjustment to the FRP. 

There is no question that the charge to a given unbundled customer 

changes from year to year, based on the total fuel used to operate 

the system, the amount of lost and unaccounted for gas, and the 

total volume of gas transported through the pipeline. There also 

can be no question that input data for the FRP calculation lies 

within the exclusive control of Northwest Pipeline; that is, 

Northwest controls how much system gas is lost or otherwise 

17 The court in Associated Gas defined pancaking as the piling 

up of rate increase filings such that new ones were filed before 

old ones became effective. Associated Gas, 706 F.2d at 345. 

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unaccounted for, and Northwest controls how much fuel is used in 

system operations. The pipeline is permitted to recover these 

costs from its customers, but it is always under the obligation in 

the first instance to ensure that its costs are prudently incurred 

and that its rates are just and reasonable. If Northwest 

mismanages its operation and loses an inordinate amount of fuel 

one year or incurs unusually high transmission costs, should the 

burden fall to the customer to show that such costs are unjust and 

unreasonable, or should the burden rest with the pipeline to 

explain its higher-than-usual costs and justify why it is 

nonetheless entitled to recover these costs? We believe that the 

latter approach more faithfully embodies the policy of the NGA "to 

protect consumers from exploitation at the hands of natural gas 

companies." CIG, 791 F.2d at 806 (citing Federal Power Comm'n v. 

Hope Natural Gas Co., 320 U.S. 591, 610 (1944)). 

We simply are unable to subscribe to Northwest's proposal 

that a customer challenging the annual FRP filing bears the burden 

of establishing that the rate is unjust and unreasonable, a burden 

that the customer would bear under Section S(a). Rather, we 

conclude that the policy underlying the NGA, as reflected in the 

plain language of the statute, requires the natural gas pipeline 

to justify its rate change in the context of a Section 4 

proceeding--whether the rate change is part of an adjustment to 

the overall rate structure, or whether the rate change merely is 

part of an annual FRP adjustment. 

In sum, therefore, when Northwest filed its tariff sheets 

requesting a change in its FRP on February 28, 1991, it did so 

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pursuant to Section 4 of the NGA. The filing was accepted and 

suspended by the Commission pursuant to Section 4(e), given an 

effective date of April 1, and explicitly made subject to refund. 

Consequently, the Commission's order that Northwest refund 

overcharges from the effective date was properly issued pursuant 

to the Commission's refund authority under Section 4(e). Further, 

because the Commission's refund order did not effect a 

modification to Northwest's rate, or the FRP calculational 

mechanism, the Commission's order cannot be considered as having 

issued pursuant to Section 5. And finally, because Northwest was 

on notice that its filed FRP adjustment may be subject to refund, 

the Commission's ordering of a refund did not violate the rule 

against retroactive raternaking. 

For the foregoing reasons, we AFFIRM the order of the 

Commission. 

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