Source: http://openjurist.org/649/f2d/1110/united-gas-pipe-line-company-v-federal-energy-regulatory-commission
Timestamp: 2017-08-21 23:51:56
Document Index: 679595784

Matched Legal Cases: ['§ 1', '§ 717', '§ 154', '§ 2', '§ 157', '§ 157', '§ 157', '§ 157', '§ 3341', '§ 1', '§ 717']

649 F2d 1110 United Gas Pipe Line Company v. Federal Energy Regulatory Commission | OpenJurist
649 F. 2d 1110 - United Gas Pipe Line Company v. Federal Energy Regulatory Commission
649 F2d 1110 United Gas Pipe Line Company v. Federal Energy Regulatory Commission
649 F.2d 1110
UNITED GAS PIPE LINE COMPANY, et al., Petitioners,
No. 79-3209.
It is the Commission's statutory duty to insure that the rates, charges and practices of natural gas companies are just and reasonable. Natural Gas Act (NGA) §§ 1(b), 4, 5, 15 U.S.C.A. §§ 717(b), 717c, 717d. As this case demonstrates, review of rates and practices is quite complicated and oftentimes appears interminable. The Commission has developed numerous time saving mechanisms in a laudable effort to ease the regulatory burden. Since 1972 it has permitted pipelines to include purchased gas cost adjustment clauses (hereinafter referred to as "PGA clauses") in their Commission-filed tariffs in order to facilitate recovery of gas costs, which are a major and volatile component of the cost of service of most pipelines. 18 C.F.R. § 154.38(d)(4); see Order No. 452, 47 F.P.C. 1049, modified and rehearing denied, 47 F.P.C. 1510 (1972), amended, 49 F.P.C. 84 (1973).
When it became clear that shortages might require pipelines to curtail deliveries, the Commission issued regulations permitting pipelines to make short-term emergency purchases without prior Commission approval. 18 C.F.R. §§ 2.68, 157.29; see 18 C.F.R. §§ 157.45-.52. The regulations permit pipelines to buy emergency gas for system-wide supply, 18 C.F.R. § 157.48(d)(1), or to make purchases at the request of particular customers and assign the associated costs directly to individual requesting customers, 18 C.F.R. § 157.48(d)(2)(i), or to all requesting customers on a weighted average cost basis, 18 C.F.R. § 157.48(d)(2)(ii). The Commission accepted United's PGA clause after issuance of the emergency-gas regulations, and specifically provided that United could recover the costs of its emergency purchases through PGA adjustments. 48 F.P.C. at 414.
unless there is a direct benefit to all classes of customers This benefit exists with respect to emergency gas that United purchases to meet its customers (sic) high priority requirements. United may continue to allocate costs on a rolled-in basis for that purpose. However, if United's emergency purchases are not being used to meet its storage injection schedule or to relieve curtailment in priority 1, United may allocate the costs only in accordance with section 157.48(d)(2) of our regulations.
When a curtailment plan groups customers according to their ability and willingness to find substitute fuel, the goal of encouraging efficient utilization of gas will be further served by allocating high cost gas to low priority customers. Although the Commission was not free to uncritically impose high cost gas on low priority customers, cf. Elizabethtown Gas Co. v. FERC, 575 F.2d 885 (D.C.Cir.1978); Fort Pierce Util. Auth. v. FPC, 526 F.2d 993 (5th Cir. 1976); Mississippi Pub. Serv. Comm'n v. FPC, 522 F.2d 1345 (5th Cir. 1975), cert. denied, 429 U.S. 870, 97 S.Ct. 181, 50 L.Ed.2d 149 (1976) (Commission has jurisdiction to order high priority customers to compensate curtailed low priority customers for their off-line purchases, and must develop its record on the issue), here the Commission specifically found that allocating high cost emergency gas to United's low priority customers will encourage them to find substitute fuels and make more efficient use of the gas they do receive. Order at 8.
The Commission can and should change its policies if experience indicates an unwise course, and modify them to deal with unexpected events. However, although "the Agency has broad powers to regulate, and in so doing to choose between rulemaking and individual decisional processes, it also has a duty to define and apply its policies in a minimally responsible and evenhanded way." Distrigas of Massachusetts Corp. v. FPC, 517 F.2d 761, 765 (1st Cir. 1975); cf Mesa Petroleum Co. v. FPC, 441 F.2d 182, 191-92 (5th Cir. 1971) (Commission must give "cogent explanation" of different treatment of those who seem to be "on an equal footing"). In other words, "The variety of problems dealt with make absolute consistency, perfect symmetry, impossible. And the law reflects its good sense by not exacting it. But law does not permit an agency to grant to one person the right that which it denies to another similarly situated." Mary Carter Paint Co. v. FTC, 333 F.2d 654, 660 (5th Cir. 1964) (J. Brown concurring), rev'd, 382 U.S. 46, 86 S.Ct. 219, 15 L.Ed.2d 128 (1965).11
United would have us characterize the order as the Commission's first departure from a long established practice of allocating pipeline costs to consumers on a rolled-in basis. To be sure, the order itself noted that as a general matter "The Commission has historically favored the rolled-in approach for cost allocation (citations omitted)." Order at 10. However, as the Commission also noted, where a pipeline's compensable services have benefitted particular customers to the exclusion of the rest, the associated costs have been placed directly on the served customers. Order at 11; Order of August 11, 1977, at 3. The Commission's point is well taken. Its reported opinions show that it has not hesitated to require direct cost allocation rather than "blindly adhere to a principle (of rolled-in pricing that would) lead to unfair and inequitable results." Colorado Interstate Gas Co., 19 F.P.C. 1012, 1021 (1958); accord, United Gas Pipe Line Co., 31 F.P.C. 1180, 1197 (1964) (rolled-in pricing too disruptive although usually favored); Natural Gas Pipeline Co. of America, 12 F.P.C. 708, 720-21 (1953) (new customers pay for new gas); see Battle Creek Gas Co. v. FPC, 281 F.2d 42, 47 (D.C.Cir.1960); Panhandle Eastern Pipe Line Co., 13 F.P.C. 53 (1954) (segregated facilities). It is true that these cases did not govern allocation of the cost of emergency gas, but they do evidence Commission recognition that the administrative convenience of rolled-in pricing cannot justify unfair results.12
The Commission was also motivated by its desire to encourage efficient use of natural gas. If the Commission's analysis is correct, the efficient use of scarce resources will always be encouraged by charging higher prices to those users who can cut consumption or find less expensive alternatives. Cf. Subchapter II of the Natural Gas Policy Act, 15 U.S.C.A. §§ 3341-3348 (1980 Supp.) (pipelines to pass through cost of some deregulated gas to boiler fuel users). It does not follow that those customers assigned to a curtailment plan's lowest priority will always have a highly elastic demand for gas. Some users are placed in a particular curtailment class not because of their ability to secure alternative sources of energy, but because of the perceived contribution of their activities to the public good. Thus, a fertilizer producer with no alternative feedstock may find itself in line behind a hospital which could locate alternative sources of heat, albeit at a substantial cost. Compare FPC v. Louisiana Power & Light Co., 406 U.S. 621, 92 S.Ct. 1827, 32 L.Ed.2d 369 (1972), with Southern Natural Gas Co. (boiler fuel used to produce electricity). As pricing priority should follow curtailment priority only to the extent that curtailment priority was developed with reference to elasticity of demand, a detailed examination of a pipeline's entire operations is appropriate before the Commission precludes rolled-in pricing.15 Cf. Elizabethtown; Fort Pierce; Mississippi Pub. Serv. Comm'n.
United and the State of Louisiana do not direct their arguments to the pricing mechanisms approved by FERC; they simply insist that United should be allowed to continue to use rolled-in pricing. (At oral argument before us, the other intervenors defended the order.) The petitioners do not contend that FERC has exceeded its jurisdiction by requiring United to allocate emergency gas to non-jurisdictional customers, see NGA § 1(b), 15 U.S.C.A. § 717(b); FPC v. Louisiana Power & Light Co., 406 U.S. 621, 636-38, 92 S.Ct. 1827, 1836-37, 32 L.Ed.2d 369, 383 (1972). The order did not set rates for non-jurisdictional sales, but only precluded the imposition of certain costs viz those associated with emergency gas purchases upon some of United's jurisdictional customers. Cf. Mississippi Pub. Serv. Comm'n v. FPC, 522 F.2d 1345, 1350 (5th Cir. 1975), cert. denied, 429 U.S. 870, 97 S.Ct. 181, 50 L.Ed.2d 149 (1976) (transportation jurisdiction allows Commission to require high priority customers to compensate curtailed low priority customers)
The consistent-treatment requirement is related to, but distinct from, the scope of an agency's discretion to choose between rulemaking and adjudication. The structure of the Natural Gas Act contemplates case-by-case decision making, cf. NAACP v. FPC, 425 U.S. 662, 96 S.Ct. 1806, 48 L.Ed.2d 284 (1976), and the Commission has broad discretion in choosing its procedure, NLRB v. Bell Aerospace Co., 416 U.S. 267, 94 S.Ct. 1757, 40 L.Ed.2d 134 (1974). The petitioners do not specifically attack the Commission's use of a rate proceeding to announce what they take to be a novel restriction on the use of rolled-in pricing, although they note that the Commission had previously declined to promulgate regulations on the matter. The analysis that follows would, with a shift of focus, also apply to a challenge to the Commission's decision to act in a rate proceeding
The reasonableness of emergency purchases is also subject to agency review. The Commission has held that a pipeline may purchase emergency gas at a price "which a reasonably prudent pipeline purchaser would pay for gas under the same or similar circumstances." 52 F.P.C. 700 (1974), aff'd sub nom. Shell Oil Co. v. FPC, 520 F.2d 1061, 1068 (5th Cir. 1975), cert. denied, 426 U.S. 941, 96 S.Ct. 2661, 49 L.Ed.2d 394 (1976). In reviewing the reasonableness of an emergency purchase the Commission considers all factors, but concentrates on the pipeline's supply situation, the price of alternative sources of gas and the relationship between the seller and the pipeline. Transcontinental Gas Pipe Line Corp., 54 FPC 2120, 2121 (1975). The Commission was reviewing the business judgment of United's emergency purchases when it issued this order. Order of July 18, 1979, at 2-3