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Parties Involved:
Charlottesville, Virginia
Intervenor
Columbia Gas Transmission Corporation
Petitioner
Columbia Gulf Transmission Company
Petitioner
Federal Energy Regulatory Commission
Respondent
Richmond, Virginia
Intervenor

Document Text:

United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 6, 2006 Decided February 13, 2007 

No. 05-1285 

COLUMBIA GAS TRANSMISSION CORPORATION AND

COLUMBIA GULF TRANSMISSION COMPANY,

PETITIONERS

V. 

FEDERAL ENERGY REGULATORY COMMISSION, 

RESPONDENT

CHARLOTTESVILLE, VIRGINIA AND

RICHMOND, VIRGINIA, 

INTERVENORS

On Petition for Review of Orders of the 

Federal Energy Regulatory Commission 

Barbara K. Heffernan argued the cause for petitioners. 

With her on the briefs were Debra Ann Palmer, William S. 

Lavarco, Stephen R. Melton, Kurt L. Krieger, and David P. 

Sharo. 

Beth G. Pacella, Attorney, Federal Energy Regulatory 

Commission, argued the cause for respondent. With her on 

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the brief were John S. Moot, General Counsel, and Robert H. 

Solomon, Solicitor. 

Before: GARLAND and BROWN, Circuit Judges, and 

WILLIAMS, Senior Circuit Judge. 

Opinion for the Court filed by Senior Circuit Judge

WILLIAMS. 

WILLIAMS, Senior Circuit Judge: Columbia Gas and 

Columbia Gulf (“Columbia”), petitioners here, entered into 

agreements with several local distribution companies 

according to which the latter received discounted service on 

the condition that they waive certain rights under the Natural 

Gas Act (the “Act”). Columbia filed the discounted rate 

agreements with the Federal Energy Regulatory Commission, 

which rejected them and held that Columbia either had to 

refile them as negotiated rate agreements or remove the 

waivers. Columbia petitioned for rehearing, and FERC 

denied the petition. 

We deal here with two sets of issues. First, the 

Commission argues that we do not have jurisdiction to 

consider arguments that Columbia did not make in its petition 

for rehearing. We reject this jurisdictional challenge and treat 

all of Columbia’s arguments as properly before us. Second, 

we review Columbia’s assertions that FERC’s orders are 

inconsistent with its precedents and that its determinations are 

otherwise arbitrary or capricious. We reject these challenges 

and affirm the Commission’s orders. 

* * * 

Columbia Gas and Columbia Gulf are natural gas 

companies that provide various services under Commissionapproved tariffs, including the transportation and delivery of 

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natural gas. Both companies entered into agreements to serve 

three large local distribution companies—Mountaineer Gas 

Company, The Cincinnati Gas & Electric Company, and The 

Union Light Heat & Power Company—at discounted rates 

(collectively, the “discount shippers”). In addition to offering 

the discounts, Columbia waived its right under § 4 of the Act, 

15 U.S.C. § 717c, to seek Commission approval for an 

increase in rates to be charged the discount shippers, and 

promised that they would receive the benefit of any 

Commission-approved reduction in the discounted rates. 

Reciprocally, the discount shippers agreed to waive their right 

under § 5 of the Act, 15 U.S.C. § 717d, to challenge any of 

Columbia’s rates as unjust or unreasonable. Importantly, the 

§ 5 waivers covered not only the discounted rates but also 

precluded the discount shippers from challenging the rates for 

any of Columbia’s services. 

FERC initially rejected the agreements, Columbia Gulf 

Transmission Corp., 109 F.E.R.C. ¶ 61,152 (2004) (“Initial 

Order”), on two grounds. First, it said that § 5 waivers were 

not appropriate in discount agreements but could be included 

only in negotiated rate agreements. (Columbia customers who 

intervened before the Commission argued that the distinction 

between discount agreements and negotiated rate agreements 

was substantive and not semantic. If they were discount 

agreements, the intervenors argued, Columbia could have 

sought a “discount adjustment” in its next tariff filing and 

thereby possibly recovered the discount’s cost from 

Columbia’s other customers. If they were negotiated rate 

agreements, this cost-recovery opportunity would have been 

unavailable. Our disposition doesn’t require us to sort this 

out.) Independently, FERC objected to the scope of the 

agreements’ § 5 waivers. FERC noted that it had previously 

approved such waivers when they applied only to the 

discounted rates and services, not, as in these agreements, to 

both discounted and non-discounted rates. In accordance with 

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the Commission’s order, Columbia removed the § 5 waivers 

from the agreements, but petitioned for rehearing, attacking 

both of the Commission’s reasons. 

FERC denied the petition for rehearing, but marshaled 

slightly different reasons. Columbia Gulf Transmission 

Corp., 111 F.E.R.C. ¶ 61,338 (2005) (“Rehearing Order”). 

The Commission continued to maintain that the discount 

shippers’ § 5 waivers were impermissibly broad; it reasoned 

that a pipeline should not be permitted “to condition the 

offering of a discount for one service for which a shipper may 

have competitive alternatives on limiting the shipper’s section 

5 rights to challenge the pipeline rates for other services over 

which the pipeline does have market power.” Id. at 62,507 

P 14. It also argued that Columbia behaved discriminatorily 

by offering discounts to (and extracting waivers from) only its 

largest customers. This would disadvantage the small fry, 

which, according to the Commission, might lack the resources 

to bring § 5 challenges on their own but would be denied the 

benefit of challenges by the large discount shippers (who 

would not be bringing challenges at all). Id. at 62,507 PP 15–

16. Columbia filed a timely petition for review. 

* * * 

FERC argues that we lack jurisdiction to consider 

Columbia’s arguments addressed to Commission justifications 

that emerged for the first time in the Rehearing Order. 

Section 19(a) of the Act, 15 U.S.C. § 717r(a), requires that a 

party petition FERC for rehearing before it challenges a 

Commission order in court. Section 19(b) goes on to say that 

“[n]o objection to the order of the Commission shall be 

considered by the court unless such objection shall have been 

urged before the Commission in the application for rehearing 

unless there is reasonable ground for failure so to do.” 15 

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U.S.C. § 717r(b). We have frequently remarked on the 

strictness of the jurisdictional provisions in the Act. See, e.g., 

ASARCO, Inc. v. FERC, 777 F.2d 764, 774 (D.C. Cir. 1985). 

The Commission argues that Columbia’s petition for 

rehearing did not address FERC’s concerns about market 

power and undue discrimination and that, consequently, we 

may not consider any such arguments now. Of course the 

reason Columbia hadn’t attacked those arguments in its 

petition for rehearing is plain: FERC hadn’t yet revealed 

them. FERC argues, however, that § 19 conditions 

Columbia’s ability to attack those justifications in court on its 

having advanced its critiques in a second petition for 

rehearing. 

Our cases support the Commission’s claim only up to a 

point. Where the Commission on rehearing changes its actual 

order adversely to the petitioner—not merely the reasoning—

it is commonly treated as having issued a new order. While a 

party may challenge the new order in court without a new 

petition for rehearing, such a challenge can attack only the 

original adverse provisions, not the new sources of complaint. 

See Canadian Ass’n of Petroleum Producers v. FERC, 254 

F.3d 289, 296–97 (D.C. Cir. 2001); Town of Norwood v. 

FERC, 906 F.2d 772, 774–75 (D.C. Cir. 1990). Here FERC 

reached exactly the same result in the Rehearing Order; it 

simply marshaled new arguments to support the old outcome. 

In such a case, we have held, FERC “does not thereby 

transform its order denying rehearing into a new ‘order’ 

requiring a new petition for rehearing before a party may 

obtain judicial review.” Southern Natural Gas Co. v. FERC, 

877 F.2d 1066, 1073 (D.C. Cir. 1989). Thus, when a party 

proceeds to court in such situations, it may have a “reasonable 

ground” for not having earlier raised its objections to the 

rationale underpinning the rehearing order. Id. at 1072. 

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We adopted this approach in Southern Natural because 

“[o]therwise, we would ‘permit an endless cycle of 

applications for rehearing and denials,’ limited only by 

FERC’s ability to think up new rationales.” Id. at 1073 

(quoting Boston Gas Co. v. FERC, 575 F.2d 975, 978 (1st Cir. 

1978)). We applied the same reading of § 19 in Washington 

Water Power Co. v. FERC, 201 F.3d 497, 501 (D.C. Cir. 

2000). 

The principle of Southern Natural and Washington Water 

is that when a party filing a petition for rehearing was not on 

notice of the rationale that FERC would adopt in the rehearing 

order, the party has a “reasonable ground” for not having 

addressed that rationale in its petition and accordingly may do 

so for the first time in court. And a party is on notice only of 

ideas that FERC has addressed in the initial order with 

reasonable specificity, but not of ones to which the 

Commission has only alluded vaguely. See Southern Natural, 

877 F.2d at 1072. 

We note that the exhaustion requirement in § 19(b) of the 

Act is, on its face, similar to provisions in other statutes. See 

Washington Ass’n for Television and Children v. FCC, 712 

F.2d 677, 682 & n.6 (D.C. Cir. 1983) (noting that some 

statutes, such as the National Labor Relations Act (“NLRA”), 

explicitly permit exceptions based on “extraordinary 

circumstances” and inferring such an exception in the 

Communications Act’s exhaustion requirement, 47 U.S.C. 

§ 405). Yet cases under the Natural Gas Act and the Federal 

Power Act, such as Southern Natural and Washington Water, 

find a “reasonable ground” for failure to exhaust more readily 

than decisions under the NLRA, the Communications Act or 

kindred provisions, where we regularly reject the excuse that 

the agency came up with the justification under attack only in 

its ultimate decision; the challenger’s remedy, we say, is to 

seek rehearing. See, e.g., Washington Ass’n, 712 F.2d at 683; 

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Epilepsy Foundation of Northeast Ohio v. NLRB , 268 F.3d 

1095, 1101–02 (D.C. Cir. 2001). A possible explanation for 

the apparent anomaly is that the Natural Gas Act and the 

Federal Power Act require a petition for rehearing before any 

judicial relief, so that the petitioner has by definition already 

been through two rounds of agency process. This gives some 

force to Southern Natural’s concern about an “endless cycle.” 

Exhaustion indeed! We have found no cases addressing the 

application of conventional exhaustion requirements to an 

agency explanation that emerged only on rehearing. 

For each of Columbia’s arguments, we will consider 

whether FERC’s Initial Order placed Columbia on notice of 

the rationales that the Commission eventually adopted in the 

Rehearing Order.

* * * 

Columbia claims that FERC contravened its own 

precedents when it decided that the § 5 waivers were overly 

broad. Since Columbia raised the objection in its petition for 

rehearing, we clearly have jurisdiction. We review under the 

arbitrary or capricious standard of the Administrative 

Procedure Act, 5 U.S.C. § 706(2)(A). See ANR Pipeline Co. 

v. FERC, 71 F.3d 897, 901 (D.C. Cir. 1995). Importantly, we 

also defer to the Commission’s interpretations of its own 

precedents. See Cassell v. FCC, 154 F.3d 478, 483 (D.C. Cir. 

1998). 

In the Rehearing Order, FERC explained “the 

Commission’s general policy of restricting the use of [§ 5 

waiver] clauses to relatively narrow situations.” Rehearing 

Order at 62,508 P 20. FERC has made similar statements 

before. See Algonquin Gas Transmission, LLC, 111 F.E.R.C. 

¶ 61,003 at 61,006 P 9 (2005) (“[T]he Commission has been 

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particularly reluctant to sanction a NGA section 5 waiver 

provision in a particular transaction, where the customer 

waives its NGA section 5 rights not only as to the rate for its 

particular transaction at issue, but as to the pipeline’s rates for 

all services.”). The Commission acknowledged that it had 

approved broader § 5 waivers in other cases, including 

Algonquin, but it distinguished those cases. As to two cases 

that Columbia says involved broad § 5 waivers—Vector 

Pipeline, 85 F.E.R.C. ¶ 61,083 (1998), reh’g denied, 87 

F.E.R.C. ¶ 61,225 (1999), and Alliance Pipeline, 80 F.E.R.C. 

¶ 61,149 (1997), modified in part, 84 F.E.R.C. ¶ 61,239, reh’g 

denied, 85 F.E.R.C. ¶ 61,331 (1998)—FERC noted that in 

those cases there was no significant discussion of the waiver 

issue and that in any event the rates in question were 

“available to all shippers desiring the rates during the 

subscription phase of the project,”1

 so that the cases didn’t 

involve the market power or discrimination issues posed by 

Columbia’s agreements. Rehearing Order at 62,508 n.25. 

As to Algonquin itself, the Commission pointed to 

features of that case sharply reducing the risk of 

discrimination: Algonquin had offered to execute such 

agreements with all similarly situated customers, and it had 

balanced the § 5 waivers by the customers with a pipeline 

agreement not to seek any generally applicable rate increases 

under § 4. Rehearing Order at 62,507 P 17. Columbia has not 

 

1

 We infer that FERC emphasizes the subscription phase, when 

a pipeline firm is seeking commitments from potential customers 

for a new pipeline, on the ground that then a pipeline’s market 

power is relatively low: potential shippers will have either the 

alternative of continuing to use their then-current carriers, or, if they 

have no current carrier because they haven’t yet constructed 

facilities to use the proposed service, of choosing to locate their 

facilities elsewhere if they decline the proposed new service. 

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undercut these alleged distinctions, so we have no reason to 

find that the Commission has diverged from its precedents. 

Columbia’s second objection pertains to FERC’s 

economic rationale justifying a restriction on the scope of § 5 

waivers. FERC essentially argued that companies like 

Columbia should not be allowed to exploit market power and 

demand § 5 waivers with respect to rates that are not the 

subject of discounts. Rehearing Order at 62,506–07 P 14. In 

response, Columbia maintains that all of the rates—

discounted and non-discounted—are interrelated, so that relief 

under § 5 for one rate entails changes in all others. Because 

Columbia didn’t object to the market power rationale in its 

petition for rehearing, we must consider whether the Initial 

Order adequately placed Columbia on notice of the rationale it 

now attacks. At a high level of abstraction, the Initial Order 

did discuss FERC’s concern about discount agreements and 

the breadth of the § 5 waivers. But the Rehearing Order 

introduced a new basis for concern—the fear that in markets 

where shippers had alternatives (i.e., competitive markets) 

pipelines would bargain for advantages aimed at defeating 

shippers’ regulatory protections in non-competitive markets. 

See id. Because FERC first advanced the market power 

argument in the Rehearing Order, Columbia is not 

jurisdictionally barred from urging an objection here. 

Although the objection is properly before us, it is 

unavailing. As a preliminary matter, we note that Columbia 

first articulated its objection in a footnote in its opening brief, 

a dubious practice. United States v. Whren, 111 F.3d 956, 958 

(D.C. Cir. 1997). Furthermore, the argument in the opening 

brief acquires a completely contradictory form by the time it 

arrives at the reply brief. Initially Columbia argued that the 

rates for various services rise and fall together. Petitioners’ 

Br. at 28 n.30 (arguing that if a petitioner were to prevail on a 

§ 5 complaint with respect to the rate for one service, the rates 

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for all other services would correspondingly fall). By 

contrast, the reply brief styles ratemaking as a “zero sum” 

game, so that if “the costs allocated to one service are reduced 

. . . the costs allocated to other services necessarily increase.” 

Reply Br. at 15–16. But it is not “the court’s duty to identify, 

articulate, and substantiate a claim for the petitioner,” 

National Exchange Carrier Ass’n v. FCC, 253 F.3d 1, 4 (D.C. 

Cir. 2001), and we decline to do so here. FERC has 

articulated a market power rationale that isn’t transparently 

defective, and Columbia hasn’t marshaled a coherent critique 

(it never developed either of the two contradictory theories). 

So we cannot find the Commission’s conclusion arbitrary or 

capricious. See 5 U.S.C. § 706(2)(A). 

Finally, Columbia argues that FERC erroneously decided 

that Columbia’s agreements with large shippers are unduly 

discriminatory against small shippers. In exchange for 

discounts on certain rates, the large shippers waived their right 

to challenge the rate structure or the “recourse rates.” 

Rehearing Order at 62,507 P 15. (The latter are the traditional 

cost-of-service rates in the pipeline’s tariff, for which a 

shipper may always opt in default of an attractive negotiated 

rate. Northern Natural Gas Co., 105 F.E.R.C. ¶ 61,299 at 

62,442 P 3 (2003)). FERC reasoned that because small 

shippers often don’t have the resources to mount § 5 

challenges, Columbia’s agreements with large shippers 

significantly insulated its rate structure from challenges. 

Because the Commission didn’t advance this rationale about 

small shippers until the Rehearing Order at 62,508 P 20, 

Columbia is not jurisdictionally barred from objecting here. 

On the merits of the claim, Columbia fares less well. It 

attacked FERC’s logic by noting that even if § 5 waivers are 

narrow in scope, large shippers will not challenge other rates 

unless the expected benefit of the challenge outweighs the 

discount. Furthermore, Columbia observed that the interests 

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of large and small shippers often are not parallel, meaning that 

small shippers do not necessarily benefit from large shippers’ 

§ 5 challenges. But to say that FERC’s preservation of the 

large shippers’ right to bring challenges is an imperfect 

protection for small shippers’ interests is a far cry from 

establishing that the benefits of FERC’s policy are 

outweighed by its drawbacks. Columbia does not challenge 

FERC’s basic theory that the broad § 5 waivers impede the 

readiness of large shippers to bring challenges that might also 

benefit small shippers. To the extent that the agreements at 

issue here likely operate to the detriment of small shippers at 

the margin, the Commission’s logic is sound. We see no basis 

for concluding that FERC’s rationale is arbitrary or 

capricious. 

* * * 

For the foregoing reasons, we uphold the Initial and 

Rehearing Orders against all challenges by Columbia. 

So ordered. 

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