Opinion ID: 721438
Heading Depth: 1
Heading Rank: 2

Heading: Open-Access Firm Transportation

Text: 27 The petitioners challenge four aspects of the Commission's unbundling remedy: the rule that customers must retain contractual firm-transportation capacity for which the pipeline receives no other offer; the Commission's policy on pipelines' ability to modify existing storage contracts without abandonment proceedings; the rule that transportation-only pipelines may not acquire capacity on other pipelines; and the eligibility date for no-notice transportation service. 28
29 When the Commission concluded that the pipelines' bundled firm-sales service violated §§ 4(b) and 5(a) of the NGA, Order No. 636, p 30,939, at 30,405, the Commission found also that the continued enforcement of a pipeline sales customer's purchase obligations, agreed to before implementation of unbundling under this rule, is unjust and unreasonable, and unduly discriminatory. Id. at 30,453. Accordingly, all existing bundled firm-sales customers were given the option to reduce or terminate their contractual purchase obligations during the pipeline's restructuring proceedings. 18 C.F.R. § 284.14(d)(1). By contrast, those customers were not relieved of their contractual transportation obligations unless either an alternative, creditworthy shipper offered to assume the capacity at the same or a higher rate (up to the maximum approved rate), or the pipeline agreed to reduce or terminate the transportation obligation. Id. § 284.14(e)(2). If a customer wished to reduce or terminate its transportation obligation, and either a replacement shipper assumed the capacity or the pipeline agreed, then the pipeline was authorized to abandon the service under the prior contract. Id. § 284.14(e)(3). In effect, existing bundled firm-sales customers remained contractually bound to receive firm-transportation service on the pipeline. 30 On rehearing, Northern Indiana Public Service Company (NIPSCO) maintained that the Commission's actions entirely abrogated the existing pipeline-customer bundled firm-sales contracts, and that the Commission could not require the LDCs to enter into new transportation contracts. The Commission denied that it had abrogated the contracts: the pipelines remained contractually obligated to provide separate sales and transportation services. [T]he fact that LDCs have an opportunity to revise their sales entitlements under existing contracts with their pipeline suppliers does not mean they should also have an unqualified right to terminate their obligations for the costs of transportation capacity under those contracts. Order No. 636-A, p 30,950, at 30,638. The Commission also explained that if it released former bundled-sales customers from transportation obligations, these capacity costs could be shifted from the customer who has contracted for the capacity to the pipeline or other customers that have no need for the capacity. Id. at 30,637. 31 NIPSCO, joined by other LDC petitioners, 28 contends that, by holding pipeline [319 U.S.App.D.C. 68] customers to the transportation component of bundled firm-sales contracts, the Commission essentially imposed a new contract upon the customers, which is beyond the Commission's § 5 authority. Section 5(a) provides that, whenever the Commission has found that an existing contract is unjust, unreasonable, unduly discriminatory, or preferential, it shall determine the just and reasonable contract to be thereafter observed and in force, and shall fix the same by order. 15 U.S.C. § 717d(a). NIPSCO contests not the Commission's underlying finding that the bundled firm-sales contracts violated §§ 4(b) and 5(a), but only the remedy imposed under § 5. Our review is limited to whether the Commission's reading of § 5 to authorize it to hold LDCs to the remaining terms of a modified pipeline-customer contract is a reasonable construction of its statutory authority. See AGD I, 824 F.2d at 1001. 32 The bundled firm-sales contracts between pipelines and LDCs were subject to the Commission's § 5 authority. The regulatory structure of the Natural Gas Act is contract-based: it permits the relations between the parties to be established initially by contract, the protection of the public interest being afforded by supervision of the individual contracts. United Gas Pipe Line Co. v. Mobile Gas Serv. Corp., 350 U.S. 332, 339, 76 S.Ct. 373, 378, 100 L.Ed. 373 (1956). Under § 5, the Commission has plenary authority to limit or to proscribe contractual arrangements that contravene the relevant public interests. Permian Basin Area Rate Cases, 390 U.S. 747, 784, 88 S.Ct. 1344, 1369, 20 L.Ed.2d 312 (1968). For example, in Wisconsin Gas Co. v. FERC, 770 F.2d 1144 (D.C.Cir.1985), cert. denied, 476 U.S. 1114, 106 S.Ct. 1968, 1969, 90 L.Ed.2d 653 (1986), the court affirmed the Commission's decision in Order No. 380 that minimum bill provisions in existing contracts were unjust and unreasonable under § 5. 29 The court upheld the Commission's remedy, eliminating the minimum bill from the contracts, against the claim that such a remedy unlawfully alter[ed] the terms of existing contracts, on the ground that section 5 gives the Commission authority to alter terms of any existing contract found to be 'unjust' or 'unreasonable.'  Id. at 1153 n. 9. 33 NIPSCO also maintains that the Commission has construed its § 5 authority to extend beyond the limits in § 1(b) on the Commission's jurisdiction. Regardless of the Commission's authority to impose modified contractual obligations on pipelines, NIPSCO contends that the Commission lacks such authority over LDCs because LDCs are non-jurisdictional entities. Under § 1(b), the Commission's jurisdiction over the transportation of natural gas in interstate commerce does not apply to the local distribution of natural gas or to the facilities used for such distribution. 15 U.S.C. § 717(b). But the local-distribution exception applies only to the movement of gas within an LDC's local mains and not to the movement of gas in high-pressure interstate pipelines. FPC v. East Ohio Gas Co., 338 U.S. 464, 470-71, 70 S.Ct. 266, 269-70, 94 L.Ed. 268 (1950); see also Louisiana Power & Light, 406 U.S. at 636 & n. 13, 92 S.Ct. at 1836 & n. 13. Thus, for the same reasons that the Commission has jurisdiction over the re-sale of interstate capacity rights by LDCs to local end-users, see infra Part III.B.2, it also has jurisdiction over an LDC's ability to reduce or terminate its contractual interstate-transportation obligation. The pipeline-LDC contracts for transportation through interstate pipelines [319 U.S.App.D.C. 69] do not fall within the local-distribution exception to the Commission's jurisdiction. 34 The Commission cannot use the pipeline-LDC contracts as a jurisdictional hook for non-jurisdictional measures that do not relate to the Commission's § 5 remedial authority over the contracts. 30 As the court has held in a different context, the Commission may not assert its jurisdiction over a party merely because it is involved in a contractual relationship with a jurisdictional pipeline. ARCO Oil & Gas Co. v. FERC, 932 F.2d 1501, 1503 (D.C.Cir.1991). NIPSCO maintains that the Commission has done just that by replacing the agreed-upon contractual terms with entirely new terms of the Commission's own devising, when it would otherwise be without jurisdiction to compel the LDC to receive service in the first instance. But we do not agree that the Commission has overstepped the bounds of its § 5 authority in the first place. First, an LDC may maintain its original bargain by choosing not to exercise its unilateral right to terminate the purchase obligation. The resulting combination of sales service and no-notice firm-transportation service replicates its prior contractual entitlement. Thus, it is somewhat difficult to see the purported compulsion against LDCs in the Commission's decision not to grant them the right to terminate their transportation obligations. Second, the Commission's remedy was appropriately confined to the underlying violation. Because the Commission found the sales component of the bundled contracts to be unjust and unreasonable, Order No. 636, p 30,939, at 30,453, it interfered with existing contracts only to the extent necessary to remedy the effects of pipelines' market power. The Commission has the authority under § 5 to adopt a remedy proportionate to the problem being addressed. AGD I, 824 F.2d at 1019. Finally, § 5 instructs that the Commission shall determine the just and reasonable ... contract to be thereafter observedand in force, and shall fix the same by order. 15 U.S.C. § 717d(a). The limits of the Commission's authority to modify pipeline-LDC contracts under § 5 lie in the requirement that, given the original contract and the Commission's findings of unlawfulness, the resulting contract be just and reasonable. NIPSCO does not contend that the result of unbundling the firm-sales contracts was unjust or unreasonable. We therefore uphold the Commission's § 5 authority to hold LDCs to the transportation component of the modified bundled firm-sales contracts. 35 NIPSCO contends in the alternative that, even if the Commission's action was within its § 5 authority, the Commission acted arbitrarily and capriciously. In NIPSCO's view, the limited nature of the remedy allows pipelines to continue to exercise market power over customers in the transportation contracts, in contravention of the overall goals of Order No. 636. We reject this challenge as well because the Commission has provided a reasonable basis for its decision not to allow customers unilaterally to reduce their contractual transportation obligations. Cf. ARCO, 932 F.2d at 1502. 36 The Commission found in Order No. 636 that the amount of capacity reserved for pipeline firm sales still far exceeds the pipelines' actual sales so that capacity is not available for firm transportation and, as a result, interruptible transportation maintains a significant share of peak period transportation. Order No. 636, p 30,939, at 30,406. In other words, because many firm-sales customers decided to purchase third-party gas and transport it using interruptible service, those customers ended up holding excess reserved capacity. NIPSCO asserts that the effect of the Commission's decision not to allow LDCs unilaterally to reduce their contractual transportation obligations is to perpetuate customers' excessive capacity holdings. NIPSCO is correct insofar as the effect of any contract is to lock in current conditions, and the existence of a long-term contract necessarily slows the transition of a market to a new equilibrium when some underlying condition changes. Moreover, the capacity-release mechanism is an imperfect solution for the LDCs because the existing pipeline customer is unlikely to receive full compensation for released capacity in an excess-capacity [319 U.S.App.D.C. 70] market situation. Yet the problem of capacity excess that the Commission identified was that customers held more capacity in bundled-sales contracts than they purchased gas from the pipeline, not that customers held more firm-transportation capacity than needed for their peak demand. Contrary to NIPSCO's contention, there is no contradiction between the general goal in Order No. 636 of encouraging more efficient use of reserved capacity and the challenged rule that customers may not unilaterally release contractual transportation obligations: the Commission never found that the natural gas industry after mandatory unbundling would be characterized by excess reserved capacity. 37 Moreover, the Commission provided in Order No. 636-A a coherent rationale for its decision. Because a pipeline's rate structure is predicated upon levels of reserved capacity, providing customers with the unilateral option to reduce those levels would either reduce the pipeline's cost recovery or force the pipeline to increase rates for the remaining customers. 31 Order No. 636-A, p 30,950, at 30,637. Because someone has to bear the costs of unfavorable contractual capacity obligations, the Commission reasoned that the customer who voluntarily assumed those obligations by entering into the contract should bear those costs rather than spreading them over all of the pipeline's customers. 38 The Commission decided to modify the set of contracts that forms the structure of the natural gas industry only as much as necessary to alleviate the anti-competitive sales component of the bundled contracts. The Commission is not required to exercise its § 5 authority beyond the limits of the problem it has identified, see AGD I, 824 F.2d at 1019, and its cost-shifting rationale was a well-reasoned justification for its decision not to go further. We therefore uphold this portion of the rules. 39
40 Because the Commission found that pipelines' superior rights with respect to access and control provide them with several advantages over other gas merchants with no access to storage for their gas, it required pipelines to offer access to their storage capacity on an open-access basis. Order No. 636, p 30,939, at 30,425-26. By defining transportation to include storage, 18 C.F.R. § 284.1(a), the Commission made storage subject to the same non-discrimination requirements as capacity rights. Id. §§ 284.8(b), 284.9(b). Although pipelines were allowed to retain storage capacity for system management and in order to ensure the delivery of no-notice service, they were required to offer remaining storage capacity on an open-access contractual basis for customer-owned gas. Order No. 636, p 30,939, at 30,426-27. The Commission granted former bundled firm-sales customers a priority right to that storage capacity. Order No. 636-A, p 30,950, at 30,578. 41 In its request for rehearing of Order No. 636, CNG Transmission Corporation, a pipeline company, explained that the changes involving open-access storage would create difficulties for it in providing the contractual levels of service to its existing contract-storage customers. Because current contract storage injection and withdrawal schedules, and other related operational protocols, are based upon current levels of contract storage service, CNG requested the ability to modify existing storage customers' contractual rights to inject or withdraw gas. The Commission responded that its 42 intent was that current contract storage customers retain their full right to capacity as specified in their contracts. The Commission did not mean to infer [sic] that the terms and conditions associated with their rights could not be changed if they proved unreasonable in light of Order No. 636's requirements of no-notice transportation and open access contract storage. This, of [319 U.S.App.D.C. 71] course, is a pipeline specific matter and must be addressed in the restructuring proceeding. 43 Order No. 636-A, p 30,950, at 30,579. Upon further rehearing, however, the Commission went further, stating that, 44 while it has authorized pipelines to propose to change existing storage arrangements, if necessary, to provide no-notice transportation service, the pipeline must still show that the changes are necessary and reasonable. This includes an impact of a change on current contract storage customers. The Commission has not authorized any reduction in contract storage capacity. The Commission views changes to injection and withdrawal schedules as changes to terms and conditions, rather than to the level of certificated service. Hence, the Commission concludes that changes to existing contract storage terms and conditions will not need action under NGA section 7(b). 45 Order No. 636-B, p 61,272, at 62,011. 46 A group of LDC petitioners 32 challenges the Commission's statement that changes to contract-storage withdrawal and injection schedules do not require a § 7(b) abandonment proceeding. We agree with the petitioners that it is difficult to discern exactly what the Commission's position is on this issue, and we grant the petitioners relief insofar as the Commission stated in Order No. 636-B that any change to injection and withdrawal schedules can be effected without a § 7(b) abandonment proceeding. 47 If the Commission has permitted the pipelines to abandon a service rendered by means of ... facilities certificated by the Commission, then it has failed to comply with § 7(b), which requires a due hearing and a Commission finding that the present or future public convenience or necessity permit such abandonment. 15 U.S.C. § 717f(b). In general, the test for § 7 abandonment is whether the certificate-holder permanently reduces a significant portion of a particular service. Reynolds Metals Co. v. FPC, 534 F.2d 379, 384 (D.C.Cir.1976); see also Kansas Power & Light Co. v. FERC, 851 F.2d 1479, 1481 (D.C.Cir.1988). By comparison, the withholding of gas delivery to an interruptible-transportation customer is not an abandonment, because the customer has no right to guaranteed delivery under its contract or the certificate of service. Cerro Wire & Cable Co. v. FERC, 677 F.2d 124, 129-30 (D.C.Cir.1982). Although the court has reserved the issue whether a § 7(b) abandonment occurs when only the identity of the customer changes, an abandonment does take place when there is a reduction or alteration in overall service. Tennessee Gas Pipeline Co. v. FERC, 972 F.2d 376, 384 (D.C.Cir.1992). 48 According to the submissions by the Associated Gas Distributors in the administrative record, a customer who contracts for storage is concerned with two elements: capacity (how much gas can be stored) and deliverability (how much gas can be withdrawn on a given day). 33 The AGD attached affidavits from six member LDCs who stated that changes to injection and withdrawal schedules could reduce deliverability, with adverse consequences on their ability to meet residential customers' demands. Elizabethtown Gas Company, in its opposition to CNG's compliance filing in its restructuring proceeding, objected to CNG's specific proposals to reduce withdrawal amounts when contract-storage customers had low gas inventories in storage, to maintain elevated minimum inventory levels during the early winter months, to limit monthly withdrawal amounts to less than the total of the daily amounts, to [319 U.S.App.D.C. 72] reduce firm withdrawal rights to best-efforts rights, and to impose minimum inventory turnovers. 49 It is impossible, on the current record, to determine on a generic basis what changes to injection and withdrawal schedules would permanently reduce[ ] a significant portion of contract-storage service. Reynolds Metals, 534 F.2d at 384. Because contractual deliverability entitlements are an integral part of the customer's contract-storage rights, modifications that affect those rights could in some instances constitute a § 7 abandonment. On the other hand, under other circumstances an adjustment to an injection or withdrawal schedule could be sufficiently minor or temporary that no abandonment would occur. Whether an abandonment proceeding is necessary depends on the individual customer's storage contract and on the pipeline's proposed modifications, none of which are before us now. 50 To the extent that the Commission issued in Order No. 636-B a sweeping statement that no modifications to injection and withdrawal schedules for a contract-storage customer require an abandonment proceeding, such a statement is inconsistent with § 7. In its brief, however, the Commission denies that it has taken any such steps to degrade contract-storage rights. Instead, the Commission maintains that it has merely allowed pipelines to propose necessary and reasonable changes in the restructuring proceedings, Order No. 636-B, p 61,272, at 62,011, for which the Commission has authority under § 5. In the restructuring proceedings, the Commission has followed this approach, approving proposed modifications to withdrawal and injection schedules if the pipeline can prove that the changes are necessary and reasonable. 34 51 The Commission's theory that it has the authority to proceed in the restructuring proceedings under § 5 rather than in abandonment proceedings under § 7(b) is explained nowhere in the Order No. 636 series. See Order No. 636-A, p 30,950, at 30,579; Order No. 636-B, p 61,272, at 62,011. Under § 7(b), the Commission must hold a due hearing and must make a finding that the present or future public convenience or necessity permit such abandonment. 15 U.S.C. § 717f(b). By contrast, under § 5 the Commission need hold only a hearing and must find that an existing contract is unjust, unreasonable, unduly discriminatory, or preferential. Id. § 717d(a). We need not decide whether compliance with the procedures in § 5 could in certain circumstances satisfy the applicable statutory requirement in § 7(b). The Commission has assured us in its brief that its approach under § 5 will be consistent with the § 7 requirements. But without any explanation in the Order No. 636 decisions for why the Commission's procedures satisfy § 7(b), we cannot accept the Commission's suggestion that its exercise of its § 5 authority in the restructuring proceeding would obviate the need for abandonment hearings. 52 On the other hand, any claim that a particular pipeline's modification to contract-storage withdrawal and injection schedules requires a § 7(b) abandonment proceeding is premature and should be raised, if at all, in the review of individual restructuring proceedings. 35 53
54 A central part of the Commission's unbundling program is the requirement [319 U.S.App.D.C. 73] that all pipelines assign to their firm-transportation customers the firm-transportation capacity that the pipelines held on upstream pipelines. 18 C.F.R. § 284.242. Now that customers can buy gas directly from the producers, they may bear the responsibility of reserving capacity both on upstream and downstream pipelines. 36 If the downstream pipeline were allowed to retain the capacity on the upstream pipeline, the Commission reasoned, it would inhibit the formation of a competitive gas-sales market by preventing downstream customers from gaining access to the new opportunity to purchase gas directly from the producers. Order No. 636, p 30,939, at 30,417-18. 55 Two pipeline petitioners, ANR Pipeline Company and Colorado Interstate Pipeline Company, urge the Commission to carve out an exception for transportation-only pipelines--pipelines that do not offer any gas sales. For example, a downstream pipeline may wish to offer a customer a package of firm-transportation capacity on its pipeline as well as on a connecting upstream pipeline; the customer may well prefer not to have to contract separately with the upstream pipeline. 56 This petition for review has been rendered moot by an intervening declaratory order. In Texas Eastern Transmission Corp., 74 F.E.R.C. p 61,074, at 61,220 (1996), reh'g pending, Docket No. CP 95-218, the Commission declared that the successful completion of unbundling under Order No. 636, with the separation of pipelines' merchant and transportation functions, had alleviated the Commission's former concerns that pipelines would obstruct access to production areas to favor their merchant functions. Accordingly, the Commission announced that it would decide whether to allow pipelines to acquire upstream or downstream capacity on a case-by-case basis. Id. The Commission's intervening action appears to have provided the pipeline petitioners with the relief that they had sought; any further relief is available in review of the declaratory-order proceeding. 57
58 In its new regulation, the Commission requires interstate pipelines that provided a firm sales service on May 18, 1992 to offer no-notice transportation service. 18 C.F.R. § 284.8(a)(4). In Order No. 636-A, the Commission clarified that [t]he pipelines are required to offer no-notice transportation service only to customers that were entitled to receive a no-notice firm, city-gate, sales service on May 18, 1992. Order No. 636-A, p 30,950, at 30,573. Although several commentators requested the Commission to require pipelines to extend no-notice transportation service to customers who had already converted from bundled firm-sales service under Order No. 436 and consequently no longer received such service on May 18, 1992, the Commission denied rehearing. The Commission offered three reasons: first, that it was prudent to begin the experiment with no-notice transportation on a limited basis; second, that customers who were not receiving bundled firm-sales service on May 18, 1992, were not relying on that service; and third, that such customers could not reasonably expect to receive no-notice transportation in the future because neither Order No. 436 nor the Notice of Proposed Rulemaking for Order No. 636 had contemplated it. Order No. 636-B, p 61,272, at 62,007. 59 The National Association of Gas Consumers (NAGC) contends that the ineligibility of former bundled firm-sales customers who converted to open-access transportation under Order No. 436 to receive no-notice transportation is unduly discriminatory. 37 NAGC relies on the Commission's own regulation, [319 U.S.App.D.C. 74] promulgated by Order No. 436, which requires an open-access pipeline to offer service without undue discrimination. 18 C.F.R. § 284.8(b)(1). And as NAGC points out, the Commission found in Order No. 636 that the pipelines' open-access firm-transportation service under Order No. 436 was unlawfully discriminatory because it did not provide the same quality of transportation service as was available with bundled firm-sales service. Order No. 636, p 30,939, at 30,402. Now, customers who converted under Order No. 436 remain limited to stand-alone firm-transportation service subject to scheduling and balancing requirements and other penalties. Thus, NAGC maintains that the Commission must extend eligibility for no-notice transportation service to customers who converted before Order No. 636 in reliance on the non-discrimination provisions. 60 We find the Commission's justifications in Order No. 636-B unconvincing. The Commission's desire to proceed cautiously with no-notice transportation, rather than require pipelines to offer it to all customers, cannot explain the disadvantaging of former bundled firm-sales customers who converted under Order No. 436. Although those customers had no right to expect to receive no-notice transportation service under Order No. 636, neither did customers who did receive bundled firm-sales service on May 18, 1992. Finally, the Commission has not provided substantial evidence to support its assumption that bundled firm-sales customers who retained bundled service relied more heavily on reliability of transportation service than did customers who switched to open-access transportation. We therefore remand this issue to the Commission for further explanation of which customers should be eligible for no-notice transportation service.
61 Section 7(b) of the Natural Gas Act prohibits pipelines from abandoning certificated firm-transportation service until the Commission makes a finding that the present or future public convenience or necessity permit such abandonment. 15 U.S.C. § 717f(b). In its original adoption of open-access transportation in Order No. 436, the Commission provided automatic pre-granted abandonment 38 for all firm-transportation service provided under a Part 284 blanket certificate. 18 C.F.R. § 284.221(d) (1989). After the order was twice vacated on other grounds, 39 the Commission re-promulgated the automatic pre-granted abandonment rule in Order No. 500-H, p 30,867, at 31,583-85. In its review of Order No. 500-H, the court remanded automatic pre-granted abandonment because the Commission has not yet adequately explained how pregranted abandonment trumps another basic precept of natural gas regulation--protection of gas customers from pipeline exercise of monopoly power through refusal of service at the end of a contract period. AGA II, 912 F.2d at 1518. In AGA II, the court concluded that the Commission's reliance on various market alternatives available to LDCs--namely interruptible transportation, stand-by gas service and gas from alternative suppliers--provided inadequate protection for LDCs. Id. at 1517. The court similarly rejected the Commission's contention that it was furthering purposes other than the protection of existing customers because the Commission's response seems to entail an enormous qualification of its basic purpose. Id. On remand from AGA II, the Commission decided to hold the issue of pre-granted abandonment in abeyance until Order No. 636. See Order No. 500-J, [Current] F.E.R.C. Stats. & Regs. (CCH) p 30,915 (1991). 62 In Order No. 636, the Commission responded to AGA II by amending its regulations to provide that an existing customer of long-term firm-transportation service could avoid pre-granted abandonment if it abided by a new right-of-first-refusal (ROFR) mechanism. 18 C.F.R. § 284.221(d). No petitioner challenges the Commission's rule [319 U.S.App.D.C. 75] that interruptible transportation, and firm transportation with a contract term of less than one year, are subject to automatic pre-granted abandonment even without the right of first refusal. Order No. 636, p 30,939, at 30,446; Order No. 636-A, p 30,950, at 30,625-26. But the petitioners do challenge pre-granted abandonment for long-term firm transportation. In essence, the issue is whether the right-of-first-refusal mechanism provides the protection for pipeline customers that AGA II requires. 63 The right-of-first-refusal mechanism consists principally of two matching requirements: rate and contract term. See 18 C.F.R. § 284.221(d)(2)(ii). Near the end of a long-term firm-transportation contract, the existing customer may notify the pipeline that it intends to exercise its right of first refusal. The pipeline must post the availability of that capacity on its electronic bulletin board and, in accordance with the criteria set forth in its tariff, identify the best bid offered by any competing shippers. Order No. 636, p 30,939, at 30,451; Order No. 636-A, p 30,950, at 30,634. The customer then has the right to match the competing bid's rate, up to the maximum just and reasonable rate that the Commission has approved for that service, and the competing bid's contract term. Competing shippers may choose to bid for only a portion of the capacity in the expiring contract. Order No. 636, p 30,939, at 30,451-52; Order No. 636-A, p 30,950, at 30,634-35. The Commission promised that it would scrutinize competing bids from pipelines' marketing affiliates to ensure that they did not collude to increase the bidding level. 40 Order No. 636, p 30,939, at 30,451; Order No. 636-A, p 30,950, at 30,634. 64 Originally, the Commission contemplated that competing bids could be for any contract length. According to the Commission, [o]ther things being equal, the satisfaction of long-term transportation needs should have priority over the satisfaction of shorter-term needs. Order No. 636, p 30,939, at 30,450. In Order No. 636-A, the Commission reconsidered that decision and found 65 that capping the contract term that must be matched by a customer exercising its right of first refusal at a period of 20 years strikes an appropriate balance between the pipeline's need for stability, the customer's need for flexibility, and the Commission's overall goal in Order No. 636 to foster long-term, market driven arrangements in the gas industry. This cap, in the Commission's judgement, ensures that the customer obtaining the service values the service sufficiently to commit to using it for a reasonable period and provides the pipeline with a reasonable level of stability. Twenty years has been the traditional length of long-term contracts in the natural gas industry and a number of recent contracts for new capacity are for a twenty year term. 66 Order No. 636-A, p 30,950, at 30,631. Commissioner Moler, dissenting in part, characterized the twenty-year period as a blatantly anti-LDC rule, given that LDCs typically have existing contractual relationships jeopardized by pre-granted abandonment, and urged the adoption of a shorter contract-term cap. Id. at 30,678-79.
67 Many of the petitioners 41 contend that the Commission's pre-granted abandonment of firm-transportation service violates § 7. The petitioners maintain that the right-of-first-refusal mechanism provides inadequate protection to existing pipeline customers from the pipelines' market power. 68 [319 U.S.App.D.C. 76] The Commission may satisfy its § 7 obligations by making generic findings of public convenience and necessity. In Mobil Oil Exploration & Producing Southeast Inc. v. United Distribution Cos., 498 U.S. 211, 227, 111 S.Ct. 615, 625, 112 L.Ed.2d 636 (1991), the Supreme Court upheld a pre-granted abandonment scheme under the Commission's Order No. 451, even though the Commission's approval is not specific to any single abandonment but is instead general, prospective, and conditional. See also FPC v. Moss, 424 U.S. 494, 499-502, 96 S.Ct. 1003, 1007-08, 47 L.Ed.2d 186 (1976). The Court approved the Commission's findings that, under its good-faith negotiation procedures for the pre-granted abandonment of producers' sale of old gas under the NGPA to pipelines, pipelines would be protected by allowing them to buy at market rates elsewhere if contracting producers insisted on the new ceiling price. Mobil Oil, 498 U.S. at 227, 111 S.Ct. at 626. In AGA II, by contrast, the court held that the Commission had not adequately explained why pre-granted abandonment of firm-transportation in Order No. 500-H would not allow pipelines indirectly to extract monopoly profits from their customers. 912 F.2d at 1516. Most important, the Commission's proposed alternatives to existing firm-transportation service, such as interruptible transportation and stand-by service, failed to provide the existing customer with an adequate level of protection. Id. at 1517. From Mobil Oil and AGA II, we conclude that, for a finding of public convenience and necessity for pre-granted abandonment under § 7, the Commission must make appropriate findings that existing market conditions and regulatory structures protect customers from pipeline market power. 69 The Commission's initial protective measures--contractual evergreen or roll-over clauses--are by themselves inadequate. The Commission allows the pipeline and the customer to negotiate such a contractual provision allowing the parties to extend the contract before termination and thereby avoid the abandonment issue. Moreover, the Commission requires pipelines that offer evergreen or roll-over clauses to do so on a non-discriminatory basis. Order No. 636-A, p 30,950, at 30,628. Yet the Commission declined to mandate the inclusion of contract-extension clauses. Id. As the petitioners note, the voluntary nature of evergreen and roll-over clauses means that those pipelines that do enjoy market power will likely refuse to offer such clauses to their customers. Thus, voluntary contract-extension clauses alone do not provide sufficient protection to existing pipeline customers. 70 The mandatory right-of-first-refusal mechanism, however, provides substantially more protection to existing customers. 42 First, shippers bid against one another for capacity, which in the Commission's view will prevent the pipeline from using the right-of-first-refusal mechanism to push the rate above the competitive market price. 43 Second, under the right-of-first-refusal mechanism the competing bid is capped at the maximum just and reasonable rate, which protects the existing shipper from having to match a bid higher than the Commission-approved rate. [319 U.S.App.D.C. 77] If the existing customer is willing to pay the maximum approved rate, then the right-of-first-refusal mechanism ensures that the pipeline may not abandon the certificated service. In this way, even a captive customer served by a single pipeline can exercise its right of first refusal and retain its long-term firm-transportation service against rival bidders. Hence, the basic structure of the right-of-first-refusal mechanism provides the protections from pipeline market power required for pre-granted abandonment under § 7.
71 The petitioners also contend that the contract term-matching condition allows pipelines to exercise market power inconsonant with pre-granted abandonment. Thus, oncapacity-constrained pipelines existing customers may be forced to match competing bids for twenty years' duration, which would not be the outcome in a competitive market without pipelines' natural monopoly. Competing bidders who come up against the rate ceiling for this scarce resource--capacity on constrained pipelines--may bid up the length of the contract term to try to win the auction. In effect, bidding for a longer contract term becomes a surrogate for bidding beyond the maximum rate level. Especially with the new capacity-release mechanism, a competing bidder could bid for a longer contract term than it would contract for in a competitive market, release the excess capacity at a discount, and absorb the loss just as though it had bid an above-maximum rate for a shorter term. 72 The Commission acknowledged the reality that contract duration is a measure of value when it declared that its policy was for the capacity to go to the person who values it the most, as evidenced by its willingness to bid the highest price for the longest reasonable time. Order No. 636-A, p 30,950, at 30,630. As a general matter, in a perfectly competitive market, a long-term contract incorporates a premium for stability, and a pipeline naturally values a longer-term transportation contract more highly, ceteris paribus. Order No. 636, p 30,939, at 30,450. Thus, the contract term-matching condition is a rational means of emulating a competitive market for allocating firm-transportation capacity. There are obvious drawbacks--the industrial petitioners provide the example of a factory owner with a productive asset that has only a short useful life. Order No. 636-A, p 30,950, at 30,629-30. But industrial end-users are also far more likely to have ready access to alternative fuels than do the residential consumers served by LDCs. See AGD I, 824 F.2d at 995. 73 For purposes of pre-granted abandonment, however, the issue is whether the Commission has shown that its choice of a twenty-year term-matching cap protects consumers against the exercise of pipeline market power. The petitioners note that longer-term contracts lock in customers and serve as a barrier to entry into the pipeline market by potential competitors. Rival pipelines will not build extensions to their system if the market for additional capacity has been foreclosed by long-term contracts with the existing pipeline. The Commission responds only that the pipeline plays no role in the competitive bidding process and thus cannot exercise market power. In the Commission's view, its choice of a twenty-year period reflects a reasonable weighing of the relative interests in preventing market constraint and encouraging market stability. None of these explanations, however, supports a finding that the twenty-year term-matching cap adequately protects against pipelines' pre-existing market power, which they enjoy by virtue of natural-monopoly conditions. The Commission has not explained why the twenty-year cap will prevent bidders on capacity-constrained pipelines from using long contract duration as a price surrogate to bid beyond the maximum approved rate, to the detriment of captive customers. If the maximum approved rate artificially limits a rival shipper's ability to outbid the existing shipper, the rival shipper may offer a higher-value contract by bidding up the contract duration instead. 44 74 [319 U.S.App.D.C. 78] A further concern with the Commission's choice of a twenty-year cap is the Commission's reasoning in selecting twenty years. Most of the commentators before the agency had proposed much shorter contract-term caps, such as five years. 45 The Commission relied on the fact that twenty-year contracts have been traditional in the natural-gas industry. Order No. 636-A, p 30,950, at 30,631 n.437. However, numerous commentators on rehearing of Order No. 636-A, as well as Commissioner Moler, id. at 30,679, pointed out that twenty-year contracts have been traditional only for contracts involving the construction of new facilities, where the pipeline requires a long-term contract to secure financing for the project, but not for contracts for the continuation of service after contract expiration. Indeed, both of the decisions that the Commission cited for the proposition that twenty-year contracts are customary were for new facilities. 46 Also, renewal contracts appear more similar to the situation in the right-of-first-refusal mechanism. The Commission in its brief responds that the term-matching cap was designed not to determine the length of typical gas contracts, but to establish a reasonable outer boundary for contract length, within which the ROFR might reasonably function. The petitioners' claim, however, is that because the Commission looked to the wrong type of contract to determine the typical contract length it may have selected an outer boundary that is longer than it would have been if the Commission had examined the duration of renewal contracts. The Commission failed to respond to this objection in the Order No. 636 series. 75 Both of these reasons--the Commission's failure to explain why the twenty-year cap will protect against pipelines' market power, and the failure to explain why it looked at new-construction contracts in arriving at the twenty-year figure--persuade us to remand the length of the contract term-matching condition to the Commission for further consideration. 47 The right-of-first-refusal mechanism, incorporating the twin matching conditions of rate and contract term, is sufficiently justified. We remand only as to the Commission's reasons for adopting a twenty-year cap.
76 Petitioner Meridian Oil Inc., joined by the American Public Gas Association, challenges a different aspect of the right-of-first-refusal mechanism. The Commission declared that a pipeline need not accept a competing bid for a rate less than the maximum approved rate; in other words, pipelines are not required to discount under the rule. Order No. 636-A, p 30,950, at 30,629. The result is that a pipeline can choose between providing service to the highest bidder at a discounted rate and not providing service at all unless a shipper is willing to pay the maximum approved rate. In its comments to the Commission, [319 U.S.App.D.C. 79] Meridian urged that pipelines be required to accept the best bid, which on pipelines on which capacity was not constrained would likely be less than the maximum approved rate. The Commission responded that it would 77 not require pipelines to discount transportation rates. However, if a pipeline fails to attempt to maximize throughput, there is no guarantee that it will be able to recover all the costs of its underutilized capacity from its firm customers when it files its next rate case. Evidence that a pipeline refused to accept the highest valued bid for capacity below the maximum rate will be given significant weight during its next rate case. 78 Order No. 636-B, p 61,272, at 62,028 (footnote omitted). 79 Meridian contends first that the Commission violated § 7(b) by authorizing pre-granted abandonment without requiring the pipeline to discount. In Meridian's view, by forcing the existing customer to pay the maximum approved rate to ensure continuity of service, even if the competitive outcome as determined by the bidding process is a below-maximum rate, the Commission has failed to protect customers against pipelines' market power. See Mobil Oil, 498 U.S. at 227, 111 S.Ct. at 625; AGA II, 912 F.2d at 1517. However, as we held above, the Commission has already protected against pipelines' market power by removing the pipeline's ability to influence the bidding and by limiting the maximum rate that the pipeline may charge. See supra at 76. The Commission first authorized selective discounting by pipelines providing transportation under a Part 284 blanket certificate in Order No. 436, p 30,665, at 31,540-48. See 18 C.F.R. § 284.7(d)(5); AGD I, 824 F.2d at 1007-13; see also Mississippi Valley Gas Co., 68 F.3d at 507. Given that the purpose of selective discounting is to increase throughput by allowing pipelines to engage in price discrimination in favor of demand-elastic customers, AGD I, 824 F.2d at 1011, Meridian's proposal that pipelines be required to discount in favor of demand-inelastic, captive customers would render meaningless pipelines' ability to charge up to the maximum approved rate. The § 7(b) abandonment provisions protect customers against loss of service only if the customer is willing to pay the maximum rate approved in a rate proceeding. 80 Meridian's second contention is that the Commission acted in an arbitrary and capricious manner by not responding to Meridian's comments that the lack of a requirement to discount would prevent the right-of-first-refusal mechanism from reflecting competitive market forces on pipelines with excess capacity. The Commission responded to Meridian's objection by assuring that a pipeline is not entitled to full cost recovery in its next rate proceeding when it forgoes the opportunity to recover some of its fixed costs from a bid rate between the minimum and maximum filed rates. 48 Order No. 636-B, p 61,272, at 62,028. Meridian has offered no reason why the Commission's rate scrutiny will not provide sufficient incentives for pipelines to discount in appropriate circumstances. Accordingly, we affirm the Commission's decision not to require pipelines to discount in the right-of-first-refusal process.
81 When supply shortages arose in the natural gas industry during the 1970s, the Commission adopted end-use curtailment plans to protect high-priority customers from an interruption of supply. See generally Consolidated Edison Co. v. FERC, 676 F.2d 763, 765-67 (D.C.Cir.1982); North Carolina v. FERC, 584 F.2d 1003, 1006-08 (D.C.Cir.1978). In 1973, the Commission found itself  'impelled to direct curtailment on the basis of end use rather than on the basis of contract simply because contracts do not necessarily serve the public interest requirement of efficient allocation of this wasting resource.'  Order No. 467, 49 F.P.C. 85, 86 (quoting Arkansas Louisiana Gas Co., 49 F.P.C. 53, 66 (1973)), order on reh'g, 49 [319 U.S.App.D.C. 80] F.P.C. 217, order on reh'g, 49 F.P.C. 583 (1973), petitions for review dismissed sub nom. Pacific Gas & Elec. Co. v. FPC, 506 F.2d 33 (D.C.Cir.1974). The Commission's end-use curtailment schemes were essentially enacted into law by title IV of the Natural Gas Policy Act of 1978 (NGPA), 49 which establishes the following priority system: 82 Whenever there is an insufficient supply, under the Act first in line to receive gas are schools, small business, residences, hospitals, and all others for whom a curtailment of natural gas could endanger life, health, or the maintenance of physical property. After these high-priority users have been satisfied, next in line are those who will put the gas to essential agricultural uses, followed by those who will use the gas for essential industrial process or feedstock uses, followed by everyone else. 83 Process Gas Consumers Group v. United States Dep't of Agric., 657 F.2d 459, 460 (D.C.Cir.1981) (Process Gas I); see also 18 C.F.R. §§ 281.201-281.215 (the Commission's regulations implementing NGPA § 401). 84 With the introduction of stand-alone firm-transportation service in Order No. 436, the Commission distinguished for the first time between supply curtailment and capacity curtailment. Transportation service can suffer from a capacity interruption (such as a force majeure loss of capacity due to pipeline system failure or a pipeline's overbooking of capacity), whereas sales service can suffer from a shortage in the supply of gas. See Order No. 436, p 30,665, at 31,515; Order No. 436-A, p 30,675, at 31,652. The Commission's subsequent approach was to allow pipelines to adopt pro rata capacity curtailment (allocation proportional to the amount reserved, without regard to end use), see, e.g., Texas Eastern Transmission Corp., 37 F.E.R.C. p 61,260, at 61,692-93, 1986 WL 215099 (1986), order on reh'g, 41 F.E.R.C. p 61,015 (1987), aff'd sub nom. Texaco, Inc. v. FERC, 886 F.2d 749 (5th Cir.1989), unless the parties agreed to end-use capacity curtailment on a particular pipeline, see, e.g., Florida Gas Transmission Co., 51 F.E.R.C. p 61,309, at 62,010-11, order on reh'g, 53 F.E.R.C. p 61,396 (1990). 85 In City of Mesa v. FERC, 993 F.2d 888 (D.C.Cir.1993), the court reviewed a proceeding in which the Commission had approved end-use curtailment for supply shortages but pro rata curtailment for capacity interruption. El Paso Natural Gas Co., 54 F.E.R.C. p 61,316, at 61,928-29, order on reh'g, 56 F.E.R.C. p 61,290, at 62,153-54 (1991). First, the court upheld the Commission's interpretation of the word deliveries in § 401(a) of the NGPA to refer only to pipelines' sale of gas, so that the statutory end-use curtailment scheme in title IV applied only to supply curtailment. 993 F.2d at 892-94; see also Atlanta Gas Light Co. v. FERC, 756 F.2d 191, 196-97 (D.C.Cir.1985). The court found that different treatment of supply and capacity curtailment was reasonable because high-priority users can generally 'fend for themselves'  to protect against capacity interruption: 86 Supply shortages usually lead to prolonged periods in which there is simply too little gas to serve the needs of all users. In contrast, capacity constraints occur when there is enough gas in the market but an unexpected event has caused a brief interruption in the movement of the gas to consumers. Additionally, capacity constraints, unlike supply shortages, may only affect the movement of gas on part of a pipeline, thereby allowing customers to receive their quota of gas by using alternate routes that skirt the pipeline bottleneck. These differences mean that pipeline customers can more easily adopt self-help measures to protect their high-priority end-users against the harmful effects of [319 U.S.App.D.C. 81] capacity curtailments than supply shortages. 87 City of Mesa, 993 F.2d at 894-95. 88 Although City of Mesa upheld the limitation of title IV of the NGPA to supply shortages, the court acknowledged that the NGA provided protections for capacity shortages. The court stated that implicit in th[e] consumer protection mandate [of NGA §§ 4 and 7(e) ] is a duty to assure that consumers, especially high-priority consumers, have continuous access to needed supplies of natural gas. 993 F.2d at 895. This duty arises because  '[n]o single factor in the Commission's duty to protect the public can be more important to the public than the continuity of service provided.'  Id. (quoting Sunray Mid-Continent Oil Co. v. FPC, 239 F.2d 97, 101 (10th Cir.1956), rev'd on other grounds, 353 U.S. 944, 77 S.Ct. 792, 1 L.Ed.2d 794 (1957)). The court emphasized that since the NGA gives the FERC no specific guidance as to how to apply its broad mandates in a particular case, our review of the FERC's actions here is, again, quite limited. Id. In City of Mesa, the court concluded that the Commission had failed to engage in reasoned decision making when it approved a curtailment plan that protected most high-priority users rather than all such users. Id. at 896-97. The court noted that in Order No. 636-A the Commission had held that self-help strategies were generally sufficient to assure protection of end-users and thus to meet NGA mandates but did not further examine whether self-help measures were adequate to protect against capacity curtailment. Id. at 897. 89 In Order No. 636, which was issued before the court's decision in City of Mesa, the Commission continued without change its curtailment policies since Order No. 436. First, the Commission acknowledged that, as a policy matter, it chafed at the title IV end-use curtailment scheme for supply shortages but stated that it was bound by the statute. Order No. 636, p 30,939, at 30,430; see also Transcontinental Gas Pipe Line Corp., 57 F.E.R.C. p 61,345, at 62,117 (1991). The Commission reiterated its reading of § 401(a) that limited its scope to pipelines' sale of gas. Order No. 636-A, p 30,950, at 30,586-89. Second, the Commission maintained that self-help measures would allow the consumer-protection mandate of the NGA to be satisfied by pro rata capacity curtailment: 90 The Commission believes that with deregulated wellhead sales and a growing menu of options for unbundled pipeline service, customers should rely on prudent planning, private contracts, and the marketplace to the maximum extent practicable to secure both their capacity and supply needs. In today's environment, LDC's [sic] and end-users no longer need to rely exclusively on their traditional pipeline supplier. Rather, to an ever-increasing degree they rely on private contracts with gas sellers, storage providers, and others; a more diverse portfolio of pipeline suppliers, where possible; local self-help measures (e.g., local production, peak shaving and storage); and their own gas supply planning through choosing between an increasing array of unbundled service options. 91 Id. at 30,590. 92 The Commission's curtailment policies are challenged from both sides. Elizabethtown Gas Company contends that the Commission should have adopted pro rata curtailment for shortages in the supply of pipeline gas, and a group of small distributors contends that the Commission should have adopted end-use curtailment for capacity interruption and for shortages in the supply of third-party gas.
93 Elizabethtown contends that because § 402(a) of the NGPA requires end-use curtailment only to the maximum extent practicable, 15 U.S.C. § 3392(a), the declining role of pipelines as gas merchants renders end-use curtailment for shortages of pipeline gas no longer practicable. The court recently rejected this argument, made by the same petitioner, in Elizabethtown Gas Co. v. FERC, 10 F.3d 866 (D.C.Cir.1993) (Elizabethtown III): 94 This argument makes no sense to us. Even if [the pipeline] supplies a smaller share of the gas bought by each of the LDCs, the gas it does deliver to them could still in times of shortage go first to [319 U.S.App.D.C. 82] high-priority users. Accordingly, it seems entirely practicable to increase the level of protection for high priority users above that provided by the pro rata plan. 95 Id. at 874; see also Process Gas Consumers Group v. United States, 694 F.2d 778, 787-92 (D.C.Cir.1982) (en banc) (Process Gas II) (holding that the phrase to the maximum extent practicable gives the Commission broad powers). Although Elizabethtown contends that the near-elimination of pipelines as gas merchants following Order No. 636 requires us to reconsider our holding in Elizabethtown III, this change in the industry does not affect our reasoning that end-use curtailment remains practicable no matter how small the pipelines' share of the gas-sales market. The Commission recognized that the limitation of title IV of the NGPA to pipelines' sale of gas means that pipelines are disadvantaged vis-a-vis other gas merchants, but explained that it remained bound by the statute. Order No. 636, p 30,929, at 30,430. Because we have already decided this question in Elizabethtown III, we affirm the Commission's decision that title IV of the NGPA mandates end-use curtailment for shortages in the supply of pipeline gas. 96 Elizabethtown also maintains that the Commission acted arbitrarily in not requiring high-priority users to compensate pipeline customers who lose gas supply under end-use curtailment. In Elizabethtown III, the court held that a compensation provision is not necessarily inconsistent with § 401(a). 10 F.3d at 875. Indeed, this court has long held that the Commission retains the authority under title IV of the NGPA to adopt a compensation scheme. See Consolidated Edison Co. v. FERC, 676 F.2d 763, 767 (D.C.Cir.1982); cf. Elizabethtown Gas Co. v. FERC, 575 F.2d 885, 887-89 (D.C.Cir.1978) (Elizabethtown I) (holding that the Commission has authority under the NGA to adopt a curtailment compensation plan). In Elizabethtown III, the court remanded with instructions for the Commission to consider Elizabethtown's request for a curtailment compensation scheme. Id. In the Order No. 636 series, decided before the court's decision in Elizabethtown III, the Commission stated that its 97 position on curtailment compensation plans is that the parties in the individual restructuring proceedings must explore the development of such schemes ... in the context of developing their individual curtailment plans and in the development of voluntary emergency contractual arrangements between shippers. However, the Commission believes that it would be contrary to the concept of the restructuring proceeding process and the negotiation and development of individually tailored curtailment allocation procedures and emergency mechanisms for it to mandate a generic compensation scheme. 98 Order No. 636-A, p 30,950, at 30,592; see also Order No. 636, p 30,929, at 30,430. The comments by the Commission in the Order No. 636 series continue the Commission's pattern of avoiding the question of curtailment compensation and do not exhibit the reasoned consideration of curtailment compensation that the court subsequently requested in Elizabethtown III. 99 The Commission has reconsidered the issue of curtailment compensation, however, on remand from Elizabethtown III. See Transcontinental Pipe Line Corp., 72 F.E.R.C. p 61,037, reh'g denied, 73 F.E.R.C. p 61,357 (1995). In those proceedings, the Commission 100 conclude[d] that compensation is needed to render Transco's gas supply curtailment plan just and reasonable. The priority curtailment plan affects the contractual rights of Transco's customers by altering the pro rata allocation of curtailed supplies so that higher priority customers can obtain gas that would otherwise go to lower priority customers. 101 72 F.E.R.C. p The Commission rejected Elizabethtown's proposed compensation scheme, however, in favor of requiring the higher-priority customer to pay: (1) 150% of the spot market price for gas if the lower-priority customer was unable to cover (locate replacement gas on the spot market), or (2) the difference between the cover price and the original contract price if [319 U.S.App.D.C. 83] the lower-priority customer was able to cover. Id. at 61,237-38. 102 In light of the Commission's Transcontinental decision, the issue of curtailment compensation is not ripe for review. The Commission enjoys broad discretion whether to adopt a compensation scheme on a generic basis or in pipeline-specific proceedings. See Mobil Oil, 498 U.S. at 230, 111 S.Ct. at 627. If Elizabethtown remains aggrieved by the Commission's decision to accept its general argument but fashion a different compensation mechanism, then it may seek relief in review of the Transcontinental decision. We therefore express no opinion on the appropriateness of any particular curtailment compensation plan.
103 The small distributor petitioner group, on the other hand, contends that pro rata capacity curtailment violates the consumer-protection mandate of the NGA. We review the Commission's policy on pro rata curtailment to determine whether it is just and reasonable under § 4 and whether it serves the present or future public convenience and necessity under § 7(e). See City of Mesa, 993 F.2d at 895. The Commission decided that the consumer-protection mandate of the NGA did not require it to adopt end-use capacity curtailment across the board and promised to address the issue in each pipeline restructuring proceeding. Order No. 636-A, p 30,950, at 30,591-92. Indeed, the Commission has broad latitude on whether to effectuate its policies in generic rulemakings or in individual-pipeline adjudications. Mobil Oil, 498 U.S. at 230, 111 S.Ct. at 627. The issue presented to us, then, is whether the Commission's decision that the NGA does not require end-use curtailment in all circumstances is  'reasoned, principled, and based upon the record.'  Great Lakes Gas Transmission Ltd. Partnership v. FERC, 984 F.2d 426, 432 (D.C.Cir.1993) (quoting Columbia Gas Transmission Corp. v. FERC, 628 F.2d 578, 593 (D.C.Cir.1979)). 104 The Commission explained that Order No. 636 had allowed the development of market structures that would enable customers to take independent, market-based steps to avoid the need for Commission-mandated end-use curtailment. Order No. 636-A, p 30,950, at 30,590. Moreover, the Commission found that since the enactment of the NGPA in 1978 the industry has not experienced shortages beyond isolated, short-lived dislocation, id. at 30,591, and gas has always flowed according to the dictate of the market, i.e., to the heat sensitive users who need it most and who are thus willing to pay the prevailing market price for it. Id. at 30,592. This experience with the industry provides substantial evidence for the Commission's conclusion that end-use curtailment is not required in all circumstances. 105 We are unpersuaded, particularly in light of the Commission's own actions in the restructuring proceedings, that pro rata capacity curtailment would adequately protect all high-priority customers on all pipelines. Cf. City of Mesa, 993 F.2d at 896-97. The Commission's market-based alternatives for customers to avoid curtailment fall into the following categories: (1) arrangements with other pipelines; (2) arrangements with other gas sellers; (3) arrangements for gas storage; (4) arrangements with other customers (including the capacity-release mechanism); and (5) peak shaving. 50 First, arrangements with other pipelines are more widely available after Order No. 636, such as by using different pipelines that connect to one market center, but a capacity constraint on a pipeline will still cut off delivery to any captive customers, no matter how many transportation options some other customers may have. Second, arrangements with other gas sellers are by definition relevant only to supply curtailment, not to capacity curtailment. Third, arrangements for gas storage are unhelpful if the capacity interruption occurs at a point between the contract-storage area and the customer's receipt point. Fourth, obtaining gas from other customers, whether through the capacity-release mechanism or otherwise, depends upon the willingness of lower-priority customers to forgo deliveries. Fifth, practices such as peak [319 U.S.App.D.C. 84] shaving (letting a little gas go a longer way) can temporarily help to alleviate curtailment problems but cannot ensure continuous service if the interruption lasts too long. None of these market-based solutions, therefore, can guarantee continuous service to all high-priority customers in cases of capacity interruptions. Many of the market-based solutions fail to acknowledge that many customers have far less control over access to pipeline capacity than they do over gas supply. In addition, some of the self-help mechanisms will be more readily available to larger pipeline customers. City of Mesa, 993 F.2d at 897 n. 7. 106 Yet the Commission has not applied Order No. 636 in the restructuring proceedings to preclude the development of curtailment plans that provide more protection to higher-priority users. For example, on remand from City of Mesa, the Commission reiterated its general policy that customers can, and should, avail themselves of self-help methods to obtain their needed supplies but, in light of the decision in City of Mesa, ordered El Paso to includ[e] provisions giving relief to any high priority shipper when that shipper has exercised all other self-help remedies in times of bona fide emergencies. El Paso Natural Gas Co., 69 F.E.R.C.p 61,164, at 61,624 (1994), order on reh'g, 72 F.E.R.C.p 61,042, reh'g denied, 73 F.E.R.C. p 61,074 (1995). In another restructuring proceeding, the Commission approved a settlement and found its curtailment plan consistent with City of Mesa because it provides an exemption from pro rata curtailment whenever necessary to avoid irreparable injury to life or property. Florida Gas Transmission Co., 70 F.E.R.C. p 61,017, at 61,061 (1995). On occasions, the Commission has suggested that there may be extraordinary circumstances when reasonable self-help efforts are insufficient, even for large customers, such that some emergency protections may always be required for certain force majeure capacity interruptions. El Paso, 69 F.E.R.C. p 61,164, at 61,624; see also United Gas Pipe Line Co., 65 F.E.R.C. p 61,006, at 61,092, reh'g denied sub nom. Koch Gateway Pipeline Co., 65 F.E.R.C. p 61,338, at 62,630-31 (1993). 107 We need not reach the issue whether the adoption of a pure pro rata capacity-curtailment scheme on a generic basis would comply with the Commission's duty under the NGA to ensure that high-priority consumers[ ] have continuous access to needed supplies of natural gas. City of Mesa, 993 F.2d at 895. All the Commission did in Order No. 636 was to decide not to require end-use capacity curtailment for all pipelines. Because the Commission expressly declared that it would re-examine the suitability of pure pro rata capacity curtailment for customers on each pipeline, Order No. 636-A, p 30,950, at 30,591-92, we construe any indications that pro rata curtailment will be the default as unreviewable policy statements under § 4(b)(A) of the Administrative Procedure Act, 5 U.S.C. § 553(b)(A). See Pacific Gas & Elec. Co. v. FPC, 506 F.2d 33, 39 (D.C.Cir.1974). The manner in which the Commission has applied its curtailment policy in the restructuring proceedings supports our conclusion that any preference for pro rata schemes is not suitable for review. See Public Citizen, Inc. v. NRC, 940 F.2d 679, 682-83 (D.C.Cir.1991). Accordingly, the compliance of specific curtailment plans with the NGA's consumer-protection mandate remains open on review of the restructuring proceedings. 108 We uphold the Commission's decision not to require end-use curtailment on a generic basis for capacity curtailment but to proceed instead on a case-by-case basis.
109 Finally, the small distributor petitioners contend that the consumer-protection mandate of the NGA requires the Commission to adopt end-use curtailment for shortages in the supply of third-party gas. The petitioners concede that title IV of the NGPA applies only to pipelines' sale of gas, but urge that §§ 4 and 7(e) of the NGA require some form of end-use curtailment for the sale of gas by producers and other third parties. The Commission declined to impos[e] ... the industry-wide, end-use supply curtailment scheme envisioned by the petitioners because the best protection against, and remedy for, supply shortages [i]s to allow the [319 U.S.App.D.C. 85] market to establish the price for gas. Order No. 636-A, p 30,950, at 30,591. 110 As an initial matter, a group of intervenors in support of the Commission maintains that the Commission lacks jurisdiction under § 1(b) to enact a curtailment plan for third-party gas. But the Supreme Court has held expressly that curtailment plans are aspects of [the Commission's] 'transportation' and not its 'sales' jurisdiction. Louisiana Power & Light, 406 U.S. at 641, 92 S.Ct. at 1839 (citing Panhandle Eastern Pipe Line Co. v. Public Serv. Comm'n, 332 U.S. 507, 523, 68 S.Ct. 190, 198, 92 L.Ed. 128 (1947)). The intervenors rely on a Fifth Circuit case, Sebring Utilities Commission v. FERC, 591 F.2d 1003 (5th Cir.), cert. denied, 444 U.S. 879, 100 S.Ct. 167, 62 L.Ed.2d 109 (1979), in which the court indicated that the Commission would not have jurisdiction to order curtailment of gas not owned by a statutory natural-gas company. Id. at 1016-19. However, the ownership of the gas is not relevant to the Commission's transportation jurisdiction because in adopting a curtailment scheme the Commission exercises its jurisdiction over the pipeline, which incorporates any curtailment plan into its tariff. 51 If we were to follow Sebring, then the Commission would also lack jurisdiction to regulate capacity curtailment of third-party gas--a proposition implicitly rejected by the City of Mesa court, which in remanding on the capacity-curtailment issue assumed that the Commission had jurisdiction over curtailment plans for third-party gas. 993 F.2d at 895-98. Moreover, Sebring was decided before the unbundling of sales from transportation, at a time when virtually all gas was pipeline-owned. 52 Under the principles of Louisiana Power & Light, the Commission's transportation jurisdiction extends to supply curtailment of third-party gas. 111 The Commission decided that an end-use supply curtailment plan for third-party gas was not required to ensure high-priority customers continuous access to needed supplies of natural gas. City of Mesa, 993 F.2d at 895. As discussed with respect to capacity curtailment, see supra at 83-84, the Commission provided a list of market-based alternatives to secure the continuous supply of gas that is convincing in the context of supply curtailment. Although the petitioners posit a force majeure supply shortage that the market-based protections would not cover, namely a freeze-off  of wells that would prevent all producers from producing sufficient quantities of gas during cold weather, the petitioners have provided no evidence that such an event has ever occurred or is likely to occur in the future. The Commission's decision that such an occurrence is unlikely given foreseeable supply conditions is reasonable. Order No. 636-A, p 30,950, at 30,591. In addition, the Commission noted that title III of the NGPA, 15 U.S.C. §§ 3361-3364, authorizes the President to declare a natural gas supply emergency in the event of a severe natural gas shortage, endangering the supply of natural gas for high-priority uses. Id. § 3361(a); see Order No. 636-A, p 30,950, at 30,591. 112 Thus, the Commission has complied with the continuity-of-service guarantee of the NGA, as articulated in City of Mesa, with respect to supply shortages of third-party gas.