United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 18, 2011 Decided January 17, 2012 

No. 08-1349 

FREEPORT-MCMORAN CORPORATION, ET AL. 

PETITIONERS

v. 

FEDERAL ENERGY REGULATORY COMMISSION, 

RESPONDENT

EL PASO ELECTRIC COMPANY, ET AL., 

INTERVENORS

Consolidated with 10-1277, 10-1325 

On Petitions for Review of Orders of 

 the Federal Energy Regulatory Commission 

Barbara S. Jost argued the cause for petitioner FreeportMcMoRan Corporation. With her on the briefs was Adam S. 

Caldwell. 

Kenneth M. Minesinger argued the cause for petitioner El 

Paso Natural Gas Company. With him on the briefs were 

Howard L. Nelson, Richard C. Green, Francesca E. Ciliberti, 

Craig V. Richardson, and David Cain. 
2 

Jonathan J. Newlander, John R. Ellis, Keith T. Sampson, 

Stuart A. Caplan, Frank R. Lindh, Harvey Y. Morris, James 

H. McGrew, and Steven A. Weiler were on the joint briefs of 

intervenors in support of petitioner El Paso Natural Gas 

Company. Jerry F. Coffey and Mary F. McKenzie entered 

appearances. 

Lona T. Perry, Senior Attorney, Federal Energy 

Regulatory Commission, argued the cause for respondent. 

With her on the briefs were Michael A. Bardee, General 

Counsel, Robert H. Solomon, Solicitor, and Beth G. Pacella, 

Senior Attorney. 

John P. Gregg, David W. D'Alessandro, Douglas M. 

Canter, Lisa S. Novins, Keith A. Layton, James F. Moriarty, 

Thomas E. Knight, Barbara S. Jost, Adam S. Caldwell, 

Douglas O. Waikart, Wendy B. Warren, David S. Shaffer, Joel 

L. Greene, and Elizabeth B. Teuwen were on the joint briefs 

of intervenors in support of respondent. Jennifer L. Brough, 

Marie D. Zosa, and Kelly A. Daly entered appearances. 

Kenneth M. Minesinger, Howard L. Nelson, Richard C. 

Green, Francesca E. Ciliberti, Craig V. Richardson, David 

Cain, John R. Ellis, Jonathan J. Newlander, and Steven A. 

Weiler were on the briefs for intervenors in support of 

respondent. 

Before: ROGERS, GARLAND, and BROWN, Circuit Judges. 

 Opinion for the Court filed by Circuit Judge BROWN. 

BROWN, Circuit Judge: El Paso Natural Gas Company 

(“El Paso”) operates an interstate pipeline that transports 

natural gas to California and other western states, and 

Freeport-McMoRan Corporation (“Freeport”) ships gas on El 
3 

Paso’s pipeline to power its various mining, smelting, and 

refining facilities. They mount separate challenges to several 

orders the Federal Energy Regulatory Commission (the 

“Commission” or “FERC”) issued in connection with El 

Paso’s 2005 rate filing and subsequent settlement. We deny 

the petitions for review. 

I 

 When it converted from bundled sales services to 

transportation services in 1990, El Paso agreed to sell pipeline 

capacity through full requirements (“FR”) contracts and 

contract demand (“CD”) contracts. In an FR contract, El Paso 

agreed to provide a shipper with as much capacity as it 

needed, and in return, the shipper agreed to purchase all of its 

capacity from El Paso. In a CD contract, El Paso agreed to 

provide a shipper with a certain amount of capacity, and the 

shipper was free to purchase additional capacity elsewhere. 

The roots of this particular dispute stretch back a decadeand-a-half. In 1996, as a result of California’s efforts to 

deregulate the electricity industry, El Paso’s California-based 

shippers relinquished, or “turned back,” their capacity rights, 

leaving roughly 35% of El Paso’s total capacity unsubscribed. 

The unsubscribed capacity—known as “turnback capacity”—

threatened to dramatically increase El Paso’s costs and its 

shippers’ rates. 

To spread the risk that El Paso would be unable to re-sell, 

or “remarket,” the turnback capacity, the Commission 

approved a settlement between El Paso and its remaining 

shippers (the “1996 Settlement”), which established El Paso’s 

terms and conditions of service through December 31, 2005. 

For the first eight years of the Settlement term, the shippers 

would bear 35% of the fixed costs relating to the turnback 
4 

capacity, while El Paso would credit back to its shippers 35% 

of the revenue it generated from remarketing that capacity. 

For the last two years of the Settlement term, El Paso would 

bear all of the costs relating to turnback capacity, but would 

keep all of the revenue it generated from remarketing. 

 In addition to its risk-sharing provisions, the 1996 

Settlement limited the rates El Paso could charge its 

remaining shippers. Article 3 of the Settlement capped the 

rates El Paso could charge during the ten-year Settlement 

term. And—critically, for the purposes of this case—Article 

11.2 capped the rates El Paso could charge after the 

Settlement term ended to any shipper “with a [contract] that 

was in effect on December 31, 1995, and that remain[ed] in 

effect, in its present form or as amended, on January 1, 2006.” 

El Paso Natural Gas Co., 132 FERC ¶ 61,155, para. 5 n.4 

(2010). 

 Four years after entering into the 1996 Settlement, El 

Paso’s capacity surplus became a shortfall. Energy demand 

grew rapidly and El Paso had no difficulty remarketing the 

turnback capacity. Simultaneously, El Paso’s FR shippers 

began demanding much more capacity. Unable to satisfy the 

demands of all of its shippers with its available capacity, El 

Paso invoked a provision in its operative tariff that permitted 

pro rata curtailments. The routine use of those curtailments 

disrupted service and prompted shippers to file complaints 

against El Paso. 

 The Commission responded by instituting a Capacity 

Allocation Proceeding and issuing a series of orders between 

2002 and 2004 (the “CAP Orders”). Without faulting El Paso 

or the FR shippers for the predicament, the Commission 

determined that El Paso’s regular use of pro rata curtailments 

was not just and reasonable, and invoked its authority under 
5 

the Mobile-Sierra doctrine “to proscribe contractual 

arrangements that contravene the relevant public interests.” 

United Distrib. Cos. v. FERC, 88 F.3d 1105, 1131 (D.C. Cir. 

1996). It directed El Paso to reserve the capacity it needed to 

satisfy its existing CD contracts, and allocate all remaining 

capacity—including turnback capacity not under CD 

contract—to the former FR shippers whose contracts were 

converted to CD contracts with specific contract demand 

limits. The Commission found that eliminating the 

unpredictability of the FR contracts would “resolve the 

current uncertainty on El Paso’s system and assure that firm 

shippers receive[d] the firm service to which they [were] 

entitled.” El Paso Natural Gas Co., 99 FERC ¶ 61,244, 

61,997 (2002). 

 The Commission revised portions of the 1996 Settlement 

to implement the CAP Orders, rejected calls from some 

shippers to abrogate the Settlement entirely, and chose to 

leave the Settlement’s rate caps intact. Shippers unhappy 

with the conversion of their FR contracts filed petitions for 

review of the CAP Orders, which we denied, finding 

“substantial evidence of capacity curtailments on El Paso’s 

mainline severe enough to render firm service unreliable and 

thus justify Commission action.” Arizona Corp. Comm’n v. 

FERC, 397 F.3d 952, 954 (D.C. Cir. 2005) (“ACC v. FERC 

I”). 

 In June 2005, El Paso filed a general, system-wide rate 

case (the “2005 Rate Case”), proposing rates that would go 

into effect after the 1996 Settlement term ended on December 

31, 2005. As part of its filing, El Paso sought to charge rates 

above the Article 11.2 rate cap to shippers protected by that 

provision on the ground that the provision had been abrogated 

by the CAP Orders. The Commission suspended the 

proposed rate increase and stated Freeport’s claim that El 
6 

Paso had previously withheld capacity would not be part of its 

analysis of El Paso’s rates. El Paso Natural Gas Co., 112 

FERC ¶ 61,150, para. 31 n.26 (2005) (the “2005 Order”). 

Then, after holding two technical conferences, the 

Commission issued an order on March 20, 2006, concluding 

the CAP Orders had not abrogated Article 11.2. El Paso 

Natural Gas Co., 114 FERC ¶ 61,290 (2006) (the “March 

2006 Order”). In addition, the Commission determined 

Article 11.2 limited the rates El Paso could charge former FR 

shippers that had converted to CD shippers under the CAP 

Orders, but did not limit the rates El Paso could charge for 

capacity it had added to its system after the 1996 Settlement. 

 With rehearing requests for the March 2006 Order 

pending, El Paso and its shippers filed a proposed settlement 

on December 6, 2006 (the “2006 Settlement”). The 

Settlement proposed “black box” rates—rates not based on El 

Paso’s actual costs—that were lower than the proposed rates 

in the 2005 Rate Case, and that would remain in effect 

through December 31, 2008. The Settlement did not resolve 

the outstanding questions relating to Article 11.2. Instead, it 

provided that the Commission would rule on those issues in 

its rehearing of the March 2006 Order, and would implement 

its rulings after the 2006 Settlement term expired at the end of 

2008. The Commission approved the Settlement over 

Freeport’s objections in August 2007. El Paso Natural Gas 

Co., 120 FERC ¶ 61,208, para. 1 (2007). 

 In September 2008, the Commission issued its order on 

rehearing of the March 2006 Order. El Paso Natural Gas 

Co., 124 FERC ¶ 61,227 (2008) (the “September 2008 

Order”). It affirmed that Article 11.2 remained in effect and 

limited the rates El Paso could charge its former FR shippers. 

And it clarified that Article 11.2 capped the rates El Paso 

could charge for turnback capacity it had allocated to its 
7 

former FR shippers under the CAP Orders. After the 

Commission denied requests to rehear the September 2008 

Order, El Paso Natural Gas Co., 132 FERC ¶ 61,155 (2010) 

(the “August 2010 Order”), and denied Freeport’s request to 

rehear the approval of the 2006 Settlement, El Paso Natural 

Gas Co., 132 FERC ¶ 61,139 (2010), both El Paso and 

Freeport petitioned for review of the March 2006, September 

2008, and August 2010 Orders, and Freeport alone petitioned 

for review of the 2005 Order and denial of rehearing, see El 

Paso Natural Gas Co., 116 FERC ¶ 61,016 (2007), as well as 

the Commission’s orders relating to the 2006 Settlement. 

II 

 Predictably, El Paso and Freeport challenge FERC’s 

orders from opposing perspectives. El Paso contends the 

Commission erred by finding the CAP Orders had not 

abrogated Article 11.2, and by applying Article 11.2 too 

broadly. Freeport is one of several intervenors opposing those 

arguments. Freeport, for its part, claims the Commission 

erred by applying Article 11.2 too narrowly and by approving 

the 2006 Settlement. El Paso is one of many intervenors 

opposing those arguments. 

We review the challenged orders “under the arbitrary and 

capricious standard and uphold [the Commission]’s factual 

findings if supported by substantial evidence.” Sacramento 

Mun. Util. Dist. v. FERC, 616 F.3d 520, 528 (D.C. Cir. 2010). 

We afford a “high degree of deference” to the Commission’s 

interpretation of settlement provisions, Transcontinental Gas 

Pipe Line Corp. v. FERC, 485 F.3d 1172, 1178 (D.C. Cir. 

2007), and “substantial deference to the Commission’s 

interpretations of its own regulations,” Bluestone Energy 

Design, Inc. v. FERC, 74 F.3d 1288, 1292 (D.C. Cir. 1996). 
8 

With those liberal standards in mind, we turn to the 

petitioners’ claims. 

A 

 In the 2005 Rate Case, El Paso argued the CAP Orders 

abrogated Article 11.2 by fundamentally altering the bargain 

underlying the 1996 Settlement. The Orders required El Paso 

to allocate all capacity not under CD contract to its former FR 

shippers, effectively preventing the remarketing of certain 

turnback capacity. Because the opportunity to profit from 

remarketing was the central benefit of the 1996 Settlement, El 

Paso claimed it should not be constrained by the central 

burden of the Settlement—the Article 11.2 cap. The 

Commission’s rejection of that argument was reasonable. 

 Initially, the Commission urges us to find El Paso’s 

argument untimely because El Paso only raised it during the 

2005 Rate Case, not during the Capacity Allocation 

Proceeding. The Commission asserts “‘the entire 1996 

Settlement, including Article 11.2, was under Commission 

review in the Capacity Allocation Proceeding,’” and El Paso 

“‘should have known or realized the Commission’s decision 

to modify the 1996 Settlement in a limited manner and to 

keep the remaining provisions, including Article 11.2, would 

impact El Paso in future rate proceedings.’” FERC Br. 17–18 

(quoting August 2010 Order, 132 FERC ¶ 61,155, at paras. 

85–86). 

 But the Commission sang a different tune during the 

Capacity Allocation Proceeding itself. When certain parties 

asked it to abrogate the 1996 Settlement because the 

Settlement terms would produce rates that were not just and 

reasonable, El Paso Natural Gas Co., 104 FERC ¶ 61,045, 

paras. 91–92 (2003), it rejected those requests as beyond the 
9 

scope of the Proceeding. As it explained in the March 2006 

Order, the Proceeding “was narrowly focused on restoring 

reliability to El Paso’s system,” so the “continued 

applicability of Article 11.2 after the expiration of the 

remaining terms and conditions of the Settlement was not at 

issue in that case.” March 2006 Order, 114 FERC ¶ 61,290, 

at para. 15. The Commission even assured the parties during 

the Proceeding that El Paso’s next rate filing (i.e., the 2005 

Rate Case) would “provide the opportunity to review the 

justness and reasonableness of the rates and practices on El 

Paso’s system.” El Paso Natural Gas Co., 104 FERC ¶ 

61,045, at para. 93. Now that El Paso has accepted that 

invitation to contest the applicability of the Article 11.2 rate 

cap in the 2005 Rate Case, the Commission can hardly claim 

the argument is untimely. 

 On the merits of El Paso’s argument, the Commission 

found the CAP Orders had neither changed the bargain 

underlying the 1996 Settlement nor abrogated Article 11.2. 

Although the Orders may have prevented El Paso from 

generating revenue through remarketing turnback capacity, 

“El Paso’s ability to remarket . . . was always subject to its 

contractual obligation under the FR customers’ [contracts] to 

use the [turnback] [c]apacity to serve the FR customers.” 

September 2008 Order, 124 FERC ¶ 61,227, at para. 33. In 

the Commission’s telling, by allocating turnback capacity to 

the FR shippers in the CAP Orders, it merely enforced the 

obligations El Paso already had when it entered into the 1996 

Settlement. Id.

 That reasoning is sound. As we observed in our earlier 

review of the CAP Orders, following the 1996 Settlement, 

“the FR shippers remained free, as the name ‘full 

requirements’ suggests, to insist that El Paso meet their full 

requirements.” ACC v. FERC I, 397 F.3d at 954. And 
10 

nothing in the 1996 Settlement allowed El Paso to prioritize 

remarketing turnback capacity above using that capacity to 

satisfy its obligations to the FR shippers. Although El Paso 

may have entered into the 1996 Settlement with the hopes of 

profiting from remarketing, the Settlement did not guarantee 

El Paso that outcome. 

 El Paso disputes its contractual obligation to allocate 

turnback capacity to its FR shippers. If such an obligation 

existed, why didn’t the Commission simply enforce it, rather 

than “chang[ing] the risk sharing provisions and terminat[ing] 

FR service” in the Capacity Allocation Proceeding? El Paso 

Br. 17. But the Commission could not have simply ordered 

El Paso to satisfy its existing obligations—El Paso did not 

have enough capacity. The very purpose of the Capacity 

Allocation Proceeding (as its name suggests) was to 

determine how best to allocate the available capacity on El 

Paso’s system between the competing demands of its 

shippers, while preserving as much of the 1996 Settlement as 

possible. See September 2008 Order, 124 FERC ¶ 61,227, at 

para. 35. 

 A provision in effect during the 1996 Settlement required 

expansion of the El Paso system only if it was “economically 

justified.” El Paso Natural Gas Co., 104 FERC ¶ 61,045, at 

para. 100. El Paso contends the Commission negated that 

provision. In El Paso’s view, “[i]f the FR shippers could 

simply ‘grow into’ . . . existing capacity for free, the provision 

effectively requiring them to pay for expansions to serve their 

growth would have been practically meaningless.” El Paso 

Br. 18. El Paso’s argument misconstrues the “economically 

justified” phrase. That language did not require FR shippers 

to pay for expansions to serve any growth in their demand 

following the 1996 Settlement; it only prevented the FR 

shippers from insisting that El Paso engage in economically 
11 

infeasible expansions to increase the amount of available 

capacity. Thus, once the FR shippers had demanded all of the 

available capacity on El Paso’s system, they had a choice 

between paying to make expansion economically feasible for 

El Paso, and not paying El Paso and shipping less than their 

full requirements. They chose the second option, see El Paso 

Natural Gas Co., 104 FERC ¶ 61,045, at para. 103 n.103, but 

that choice did not compel El Paso to pursue an economically 

unjustified expansion of its system. 

 Finally, El Paso maintains the Commission’s reasoning 

contravenes the “central purpose” of the 1996 Settlement, 

which was to “give [El Paso] the maximum incentive to 

remarket” turnback capacity, not reserve that capacity for the 

future use of the FR shippers. El Paso Br. 19. That may well 

have been the parties’ motivation in 1996, when energy 

demand was relatively low and the FR shippers feared they 

would be stuck shouldering a large bill for El Paso’s unsold 

turnback capacity. But energy demand grew rapidly in the 

following years, and while the FR shippers were partially 

insulated from the costs of unsold turnback capacity, they 

were fully entitled under their contracts to demand that 

turnback capacity for themselves. El Paso’s quarrel is with 

the vicissitudes of the energy market and the nature of its FR 

contracts, not with the Commission’s refusal to abrogate 

Article 11.2. 

B 

 Having upheld the Commission’s determination that 

Article 11.2 remains in effect, we now turn to the petitioners’ 

arguments about the Commission’s application of that 

provision. There are five such arguments: three from El Paso 

that the Commission applied Article 11.2 too broadly, and 

two from Freeport that the Commission applied Article 11.2 
12 

too narrowly. None of these arguments overcome the “high 

degree of deference” we afford to the Commission’s 

interpretation of settlement provisions. Transcontinental Gas, 

485 F.3d at 1178. 

 1. The Commission reasonably determined the converted 

FR contracts were “amended” within the meaning of that 

term in Article 11.2. The Article 11.2 rate cap applies “to any 

firm Shipper with a [contract] that was in effect on December 

31, 1995, and that remains in effect, in its present form or as 

amended, on January 1, 2006, but only for the period that 

such Shipper has not terminated such [contract].” August 

2010 Order, 132 FERC ¶ 61,155, at para. 5 n.4 (emphasis 

added). In the March 2006 Order, the Commission 

determined the CAP Orders “amended” the FR contracts in 

effect on December 31, 1995, by converting to them to CD 

contracts. 114 FERC ¶ 61,290, at para. 39. Accordingly, the 

Commission found Article 11.2 limited the rates El Paso 

could charge the former FR shippers. Id. 

 El Paso protests that the Commission’s ruling stretches 

the meaning of “amended” too far. An amendment, El Paso 

submits, is generally understood to require the consent of both 

parties to a contract, and it never agreed to convert the FR 

contracts to CD contracts. But this was not a typical situation. 

While both parties to an agreement traditionally must agree to 

amend it, the Commission can unilaterally modify contracts 

between private parties under the Mobile-Sierra public 

interest doctrine. See Atlantic City Elec. Co. v. FERC, 295 

F.3d 1, 14 (D.C. Cir. 2002). In this context, the Commission 

reasonably could interpret “amended” in Article 11.2 to 

include modifications it imposed without the parties’ 

agreement. 
13 

 El Paso also contends the CAP Orders could not possibly 

have “amended” the FR contracts because the Orders 

dramatically altered the contractual relationship between El 

Paso and its shippers. El Paso’s premise is that an 

“amendment” can only be a minor revision to a contract, but it 

cites no authority for that view. Although amendments may 

often be minor, we perceive no reason they must be. 

Moreover, “minor” is in the eye of the beholder: the 

Commission argues the CAP Orders merely effectuated 

contractual terms El Paso could no longer meet. 

 El Paso’s strongest point is that the Commission itself 

labeled the converted contracts as “new CD contracts” in the 

CAP Orders. See, e.g., El Paso Natural Gas Co., 104 FERC ¶ 

61,045, paras. 17, 31, 53, 165; El Paso Natural Gas Co., 100 

FERC ¶ 61,285, paras. 1–2, 5–6 (2002). That gives us pause. 

But the Commission also frequently referred to “converting,” 

El Paso Natural Gas Co., 99 FERC ¶ 61,244, at 62,003, 

62,007, 62,008–09 (2002), or “modifying,” El Paso Natural 

Gas Co., 104 FERC ¶ 61,045, at paras. 1, 42–43, 98, 105 

(2003), the FR contracts in the CAP Orders, so its ruling that 

the CAP Orders “amended” the FR contracts is consistent 

with many of its prior characterizations. More importantly, 

the Commission’s ruling is a reasonable interpretation of the 

Settlement language. That is enough to sustain the ruling 

given the substantial deference we afford the Commission’s 

“reading of a settlement agreement even where the issue 

simply involves the proper construction of language.” 

Transcontinental Gas Pipe Line Corp. v. FERC, 922 F.2d 

865, 869 (D.C. Cir. 1991). 

 2. The Commission reasonably determined Article 11.2 

applied to turnback capacity. Article 11.2 “applies to any 

firm Shipper with a [contract] that was in effect on December 

31, 1995 . . .,” and prohibits El Paso from “charg[ing] a rate 
14 

applicable to service under such [contract]” that exceeds a 

certain level. August 2010 Order, 132 FERC ¶ 61,155, at 

para. 5 n.4. The Commission found that “the focus of [Article 

11.2] is the service obligation under the eligible [contract], 

not the capacity used to meet that obligation.” September 

2008 Order, 124 FERC ¶ 61,227, at para. 53. As a result, it 

concluded that the Article 11.2 rate cap applied to any 

demands for service under contracts that were in effect on 

December 31, 1995, even if El Paso used turnback capacity to 

satisfy those demands. Id.

 El Paso takes issue with that ruling, but we are not 

persuaded by its concerns. It claims the 1996 Settlement 

permitted it to “charge rates for the turnback capacity with no 

restriction on its right to seek FERC approval of rate increases 

for such capacity after 2005.” El Paso Br. 28. But the 

Settlement did not guarantee El Paso the right to charge 

higher rates for turnback capacity. Instead, the 1996 

Settlement allowed El Paso to charge higher rates for 

turnback capacity if it remarketed that capacity. When El 

Paso had to use turnback capacity to satisfy the demands of its 

FR shippers under contracts covered by Article 11.2, its right 

to charge more for that capacity gave way to its contractual 

obligations. 

 3. The Commission reasonably found the applicable rate 

cap for turnback capacity was determined by the shipper’s 

delivery point. The 1996 Settlement established different rate 

caps for different geographic zones. El Paso argued before 

the Commission that the California rate cap (the highest cap) 

should apply to the turnback capacity allocated to former FR 

shippers because that capacity had been turned back by 

California shippers. The Commission rejected that argument, 

holding that the delivery point of the shipper now using the 
15 

capacity should determine the rate cap. September 2008 

Order, 124 FERC ¶ 61,227, at para. 62. 

Nothing in the 1996 Settlement labels the turnback 

capacity as “California capacity” forevermore. Hence, the 

Commission, in accord with its normal practice, could 

reasonably base rates on the “rate applicable to the new 

shipper’s receipt points, not the rate that the former shipper 

paid.” Id. Although El Paso seizes on the Commission’s 

reference to “rates” instead of rate caps, El Paso fails to 

explain why that distinction renders the Commission’s ruling 

arbitrary. From the record before us, we see no reason why 

the Commission’s standard approach for determining rates 

should not apply to determining rate caps. 

 4. The Commission reasonably found Article 11.2 did not 

apply to capacity created by the Line 2000 project. The 

Commission found Article 11.2 did not limit the rates El Paso 

could charge for capacity it had added after the 1996 

Settlement through the Line 2000 and Power Up projects. 

March 2006 Order, 114 FERC ¶ 61,290, at para. 69. The 

Commission reasoned that because El Paso had no obligation 

under the 1996 Settlement to expand its system unless it was 

“economically justifiable,” it should be able to recover the full 

cost of its expansion projects. Id. at para. 68. 

 Freeport concedes Article 11.2 does not apply to 

expansion capacity, and admits the Power Up project added 

capacity to the El Paso system. But the company claims the 

Line 2000 project was a “replacement and reliability project,” 

not an expansion project. Freeport Br. 42. As such, Freeport 

argues the Commission should have applied the Article 11.2 

rate cap to the Line 2000 capacity. 
16 

 Freeport’s characterization of Line 2000 as a 

“replacement project” relies on two documents: El Paso’s 

Line 2000 project application and the Commission’s approval 

order. Read in their entirety, however, these documents 

support the Commission’s position. In its application, El Paso 

stated that when it first proposed the project in 2000, it 

intended to use the new capacity to replace capacity on one of 

its older pipelines, but after the energy crisis worsened in late 

2000, it chose to convert the project from a replacement 

project to an expansion project. El Paso then explained 

repeatedly, and in great detail, how the project would add 230 

million cubic feet per day (MMcf/d) of capacity to its system. 

As for the approval order, the Commission’s observation that 

the project was “not intended to serve new market 

requirements above customers’ existing contractual 

requirements” was consistent with its later ruling that the 

project expanded capacity. El Paso Natural Gas Co., 95 

FERC ¶ 61,176, 61,575 (2001). When the approval order was 

issued, El Paso lacked sufficient capacity to accommodate the 

demands of its FR shippers. Thus, the Line 2000 project 

could expand capacity with the goal of satisfying “existing 

contractual requirements.” See id. at 61,574–75 (“[B]y 

providing more capacity to the system, the project will serve 

to benefit El Paso’s existing customers”). 

 

 Alternatively, Freeport argues the Line 2000 project only 

replaced capacity that the Commission permitted El Paso to 

reserve to manage “transients”—unpredictable increases in 

pipeline usage. That claim overlooks the Commission’s 

determination in the CAP Orders that “El Paso, like all 

pipelines, must reserve capacity to manage transients,” and 

the capacity El Paso reserves is not “available system 

capacity.” El Paso Natural Gas Co., 104 FERC ¶ 61,045, at 

paras. 78, 80. Because the Line 2000 project increased the 

amount of available capacity on El Paso’s system, the 
17 

Commission reasonably characterized it as providing 

“expansion capacity” not subject to the Article 11.2 rate cap. 

 5. The Commission reasonably adopted the presumption 

that the capacity of El Paso’s system on December 31, 1995

was 4000 MMcf/d. Apart from the rate cap it imposes, Article 

11.2 prohibits El Paso from including in its rates “any cost, 

charge, surcharge, component, or add-on in any way related to 

the capacity of its system on December 31, 1995, to deliver 

gas on a forward haul basis to [eligible] [s]hippers . . . that 

becomes unsubscribed or is subscribed at less than” the 

applicable Article 11.2 cap rate. August 2010 Order, 132 

FERC ¶ 61,155, at para. 5 n.4. In the March 2006 Order, the 

Commission adopted the presumption that “the first 4000 

MMcf/d of firm subscribed capacity on El Paso’s system is 

1995 capacity” for the purposes of Article 11.2. 114 FERC ¶ 

61,290, at para. 60. That presumption “ensure[d] that El Paso 

must have [4000 MMcf/d of] subscribed capacity at 

maximum rates . . . before it can propose to include the cost of 

unsubscribed or discounted capacity in the rates of eligible 

shippers.” September 2008 Order, 124 FERC ¶ 61,227, at 

para. 98. 

Freeport contends the Commission should have engaged 

in fact-finding instead of adopting a presumption. In its 

request for rehearing of the March 2006 Order, Freeport 

argued the Commission’s presumption skewed the intended 

effect of Article 11.2 by conflating the amount of capacity on 

El Paso’s system in 1995 with the actual capacity on the 

system at that time. An example may help illustrate the 

distinction. Assume that El Paso had 4500 MMcf/d of 

capacity on its system in 2005, and that all of that capacity 

was fully subscribed at maximum rates. Then, assume a 

shipper with a contract in effect in 1995 relinquished 350 

MMcf/d of capacity. Applying the Commission’s 
18 

presumption, El Paso could include the costs of all 350 

MMcf/d of that unsubscribed capacity in its rates without 

running afoul of Article 11.2, because it still had more than 

4000 MMcf/d of capacity subscribed at maximum rates. But 

if Article 11.2 prevented El Paso from charging for 

unsubscribed capacity that was actually on the system in 

1995, then it could not include any of the costs of the 350 

MMcf/d in its rates. To address that issue, Freeport requested 

a hearing in which the Commission would develop a way to 

differentiate between pre-1995 and post-1995 capacity. 

The Commission rejected that request because El Paso 

“operates its system as an integrated whole,” and thus 

“market[s] undifferentiated capacity which cannot be 

physically attributed to pre-1995 or post-1995 capacity.” 

September 2008 Order, 124 FERC ¶ 61,227, at para. 98. In 

light of that limitation, the Commission found it reasonable to 

adopt the 4000 MMcf/d presumption because El Paso “only 

had that much capacity on its system” at the time of the 1996 

Settlement. Id.

Freeport has not challenged the Commission’s ruling that 

it was impossible to distinguish between pre- and post-1995 

capacity, and the Commission could reasonably decline to 

conduct a fact-finding hearing in the absence of a genuine 

disputed issued. And while Freeport claims the 

Commission’s adoption of a 4000 MMcf/d presumption was 

arbitrary because it underestimated the amount of capacity on 

El Paso’s system in 1995, the Commission’s decision in that 

regard was reasonable as well. The Commission adopted the 

4000 MMcf/d presumption based on the parties’ joint 

representation—in the “Offer of Settlement” for the 1996 

Settlement—that the capacity of El Paso’s system at that time 

was “slightly more than 4000 MMcf/d.” March 2006 Order, 

114 FERC ¶ 61,290, at para. 60. Because the Commission 
19 

intended for the presumption to reflect the parties’ 

expectations when they entered into the 1996 Settlement, it 

reasonably chose to derive the presumption from the parties’ 

joint statement on the Settlement, rather than from El Paso’s 

independent representations in other unrelated filings. 

 

C 

 We come at last to the 2006 Settlement between El Paso 

and its shippers. Freeport was the only shipper to contest the 

Settlement, and it claims the Commission’s approval of the 

Settlement over its objections was procedurally and 

substantively infirm. We disagree. 

As a procedural matter, the Commission may only 

address the merits of a contested offer of settlement “if the 

record contains substantial evidence upon which to base a 

reasoned decision or . . . there is no genuine issue of material 

fact.” 18 C.F.R. § 385.602(h)(1)(i). Freeport submits the 

Commission did not satisfy this requirement because it 

improperly excluded evidence relating to a disputed issue—El 

Paso’s culpability for withholding capacity during the energy 

crisis of 2000 and 2001. 

 This is the latest round in a long bout over the “capacity 

withholding evidence.” In 2000, the California Public 

Utilities Commission (“CPUC”) filed a complaint with the 

Commission alleging El Paso had driven up the price of 

natural gas by withholding available capacity on its pipeline. 

In 2002, an administrative law judge found in the CPUC’s 

favor. See Pub. Utils. Comm’n of Cal. v. El Paso Natural 

Gas Co., 100 FERC ¶ 63,041 (2004). But in a subsequent 

order approving a settlement between El Paso and its shippers 

on market power issues, the Commission vacated the ALJ’s 

finding because the settlement and the CAP Orders had 
20 

absolved El Paso of any capacity withholding liability. Pub. 

Utils. Comm’n of Cal. v. El Paso Natural Gas Co., 105 FERC 

¶ 61,201, at para. 60 (2003). The Commission affirmed that 

ruling on rehearing, stating it had addressed El Paso’s 

capacity withholding liability “in the Capacity Allocation 

Proceeding [by] declining to find fault for the capacity 

problems on El Paso Pipeline’s system.” Pub. Utils. Comm’n 

of Cal. v. El Paso Natural Gas Co., 106 FERC ¶ 61,315, at 

para. 51 (2003). 

 Various parties petitioned for review. Their “chief 

concern” was that failing to challenge the Commission’s 

ruling that it had addressed El Paso’s capacity withholding 

liability in the CAP Orders would mean they were “estopped 

from arguing in the subsequent rate proceeding that El Paso 

acted to withhold capacity on its pipeline.” Arizona Corp. 

Comm’n v. FERC, 168 F. App’x 447, 448 (D.C. Cir. 2005) 

(“ACC v. FERC II”). In a brief judgment, we held petitioners’ 

claim was not ripe unless and until they raised the capacity 

withholding argument in the 2005 Rate Case. Accordingly, 

we dismissed the petition “without prejudice to the ability of 

the petitioners to argue in [the 2005 Rate Case] that neither 

the Commission’s orders in the Capacity Allocation 

Proceeding, nor the decision of this court in [ACC v. FERC I], 

precludes the argument that El Paso caused the capacity 

shortfall in 2000–01 by . . . withhold[ing] capacity.” Id. And 

we assured the petitioners that if “the Commission later 

preclude[d] [them] from raising arguments they have raised in 

the proceeding under review, they may seek redress in this 

court at that time.” Id.

 Which brings us back to the present case. Freeport 

sought to introduce evidence relating to the capacity 

withholding argument during the 2005 Rate Case, and the 

Commission initially excluded that evidence because it was 
21 

“irrelevant” to the rate-setting issues currently before it. El 

Paso Natural Gas Co., 120 FERC ¶ 61,208, at para. 22. The 

Commission later clarified that it had excluded the evidence 

not only because it was irrelevant, but also because Freeport 

was collaterally estopped from raising El Paso’s capacity 

withholding liability by the CAP Orders. El Paso Natural 

Gas Co., 132 FERC ¶ 61,139, at paras. 49–61. 

Freeport now contends the Commission’s collateral 

estoppel determination violates ACC v. FERC II. That is not 

so. Our limited ruling there was that our dismissal of 

Freeport’s petition could not be used by the Commission in 

the subsequent rate case as new evidence of preclusion. By 

dismissing the petition “without prejudice,” we took no 

position on whether Freeport should be allowed to make its 

argument in the next rate case. ACC v. FERC II, 168 F. 

App’x at 448. Indeed, we stated that the question of 

Freeport’s ability to make the capacity withholding argument 

“should not be resolved” unless it arose in the next rate case, 

and that if the question did arise, we could then review the 

Commission’s determination. Id. That scenario has come to 

pass, and our review of the Commission’s collateral estoppel 

finding—a finding Freeport does not meaningfully dispute on 

the merits—reveals no error. 

 As for Freeport’s substantive challenge, we find the 

Commission’s approval of the Settlement appropriate under 

the so-called second Trailblazer approach. That approach 

permits the Commission to approve a contested settlement if 

“the contesting party would be in no worse position under the 

terms of the settlement than if the case were litigated,” and 

“the overall result is just and reasonable, even if some of the 

aspects of the settlement are problematic and might not 

warrant approval outside the context of the settlement.” 

Trailblazer Pipeline Co., 87 FERC ¶ 61,110, 61,439 (1999). 
22 

Here, the Commission examined the proposed settlement at 

length and concluded it met both requirements: it provided 

Freeport with a host of “real and substantial benefits” that 

outweighed any potential gains from litigation, particularly 

because Freeport’s litigation strategy relied heavily on the 

capacity withholding evidence the Commission already had 

excluded; and it produced an overall result that was just and 

reasonable for El Paso and all of its shippers. El Paso 

Natural Gas Co., 132 FERC ¶ 61,139, at paras. 87–102. The 

Commission’s approval of the 2006 Settlement thus fell 

within the substantial “breadth of discretion” it enjoys in this 

area. Arctic Slope Reg’l Corp. v. FERC, 832 F.2d 158, 164 

(D.C. Cir. 1987). 

III 

 Because the Commission’s orders are not arbitrary or 

capricious, the petitions for review are 

Denied.