Opinion ID: 457816
Heading Depth: 2
Heading Rank: 1

Heading: The Minimum Bill Provision

Text: 9 Petitioners 1 Consolidated System LNG Company (Consolidated LNG) and Columbia LNG Corporation (Columbia LNG) jointly own a regasification terminal for LNG at Cove Point, Maryland and a pipeline from the terminal to Loudoun County, Virginia. In 1972, the Federal Power Commission (FPC or Commission) authorized each of the companies to import LNG from Algeria and to revaporize it at Cove Point for transportation and sale to its pipeline affiliate, Columbia Gas Transmission Corporation (Columbia Transmission) and Consolidated Gas Transmission Corporation (Consolidated Transmission), respectively. Columbia LNG Corp., 47 F.P.C. 1624 [hereinafter cited as Op. 622], modified, 48 F.P.C. 723 (1972) [hereinafter cited as Op. 622-A]. 2 The facility began operating in 1978 with Columbia LNG as the operator. 10 The Commission certificated the Cove Point facilities pursuant to Sec. 7 of the Natural Gas Act, 15 U.S.C. Sec. 717f (1982), largely in response to a shortage of natural gas in the United States and on the systems involved. Op. 622 at 1636-37. The import and certificate authorizations provided that El Paso Algeria Corporation would deliver the equivalent of 650,000 Mcf per day of LNG at Cove Point, 300,000 Mcf for Columbia LNG and 350,000 Mcf for Consolidated LNG. Id. at 1637. 3 The regasified LNG would provide base load supplies of gas to the transmission companies estimated at 9.1% of Columbia's and 14.3% of Consolidated's 1977 gas supplies. Initial Decision, 47 F.P.C. 1656, 1696-97 (1972) [hereinafter cited as Initial Dec.]. The Commission authorized the imports of LNG pursuant to Sec. 3 of the Natural Gas Act, 15 U.S.C. Sec. 717b (1982), finding the LNG supplies from Algeria to be adequately reliable but recognizing that there can be no absolute guarantee that there will be no interruption of supply. Op. 622 at 1633. 11 While the Commission was convinced that the LNG was badly needed by the companies, it warned that it is [not] in the best interest of gas consumers in the United States that any project which promises new supplies of gas be approved regardless of the associated price and other conditions. Op. 622-A at 727. The Commission acted instead to balance the need to make the project economically viable with its duty to protect gas consumers. Id. at 726. It chose the minimum bill as the tariff mechanism by which to create an equitable apportionment of the risk between customers and stockholders and ... to assure the financing of the project on reasonable terms to the consumer. Id. at 730. 12 A minimum bill provision similar to that adopted by the FPC to apportion the project's risk had initially been proposed by Consolidated LNG. Consolidated LNG's proposed tariff provided that the company would not pass on to customers return on equity costs in the event of a service interruption in excess of one day. In return for this assumption of some of the risk of interruption, Consolidated LNG sought a greater return on equity than that granted its pipeline affiliate. Initial Dec. at 1694-95. Columbia LNG, on the other hand, had proposed a tariff providing for the payment of all costs, including a return on equity,  'regardless of: (i) the amount of gas delivered, and (ii) the non-delivery of gas for any reason, including force majeure,'  and was willing to accept the same return on equity as its pipeline affiliate in return for being allowed to pass the entire risk of interruption on to its customers. Id. at 1694. The Commission approved the certificates and most of the proposed tariffs for sales by the LNG companies to their affiliated pipelines but rejected the portions of both tariffs requiring payment whether or not LNG was delivered, finding the provisions contrary to the public interest. Op. 622 at 1639. On rehearing, however, the Commission found that although full 'cost-of-service' tariffs are not in the public interest, the type of minimum bill proposed by Consolidated LNG is acceptable for this project, and that, in the event of non-delivery, certain fixed costs should be recovered by the LNG companies. Op. 622-A at 730. The Commission therefore ordered that the tariffs filed by both LNG companies include a minimum bill provision specifying the expenses to be paid [i]n the event that Seller is unable to deliver gas to Buyer during any period exceeding one day. Id. at 731. 4 B. The Algerian Cut-Off And the FERC Proceedings 13 Deliveries of imported LNG to the Cove Point terminal began in 1978. Sonatrach, the Algerian company exporting the LNG, suspended deliveries effective March 31, 1980, after it was unable to secure the Algerian government's approval of an amendment increasing the price paid by El Paso Algeria to Sonatrach. The last shipment of LNG from Algeria was unloaded at Cove Point on April 11, 1980, leaving the storage tanks nearly full with over 5 million dt of gas. Negotiations between representatives of the U.S. and Algerian governments were held in an attempt to resolve the pricing dispute; the negotiations began on April 21, 1980 and continued into 1982, but to no avail. 14 The LNG companies decided to husband the remaining LNG supplies in the Cove Point facility in order to keep the facility in a cryogenic condition, which would allow the terminal to receive new LNG deliveries without the expense and delay of recooling the facility. 5 The companies also wanted to avoid sending signals that would adversely affect the ongoing negotiations. Average daily send-out volumes were reduced from the pre-embargo level of 435,000 dekatherms per day (dt/day) in March, 1980 to 86,000 dt/day in April. Deliveries fell to 166,000 dt on April 1, 62% below the March, 1980 daily average. In May, send-out volumes were further reduced to boil-off levels and remained at those levels, with two exceptions, into December. 6 By December 4, 1980, the LNG stored at Cove Point had risen in Btu content to the point where it could not be blended with the pipelines' other gas. The LNG companies therefore began the process of revaporizing the LNG remaining in storage, a process which took from December 5 to December 10 to complete. On December 11, 1980, Columbia LNG and Consolidated LNG began billing under their minimum bill provisions. 15 On May 23, 1980, meanwhile, Columbia Transmission had filed a rate reduction in its purchased gas adjustment in order to flow through to customers its savings from purchasing gas at lower prices than those for the LNG it had been receiving from Cove Point. The Maryland People's Counsel and Public Service Commission of the State of New York sought to intervene in the proceeding, arguing that the filing reflected excessive rates due to Columbia Transmission's continuing payments to Columbia LNG under the cost-of-service tariff, rather than under the minimum bill provision. FERC granted the requests to intervene and, on its own motion, ordered an investigation which also encompassed the similar minimum bill provisions in the tariffs of Consolidated LNG and Southern Natural Gas. J.A. at 269-71; see also supra note 2. 16 The Administrative Law Judge (ALJ) issued an initial decision finding that each LNG company had complied with its minimum bill provision. Columbia Gas Transmission Corp., 18 F.E.R.C. p 63,060 (1982) [hereinafter cited as ALJ Op.]. The ALJ, conceding that it may be simplistic to conclude that 'unable to deliver gas' means precisely what it states, ALJ Op. at 65,190, found the phrase to be clear and unambiguous, id. at 65,191. Because the triggering condition in the minimum bill was the Seller's inability to deliver gas, and because each LNG company had the ability to deliver gas in significant quantities up to December, 1980, the ALJ upheld the LNG companies' actions. Id. at 65,190-91. 7 17 In its first opinion, the Commission concurred with the ALJ's plain meaning interpretation of the phrase unable to deliver gas. FERC found that the phrase is so simple that it defines ambiguity ... and that to construe [unable] in a way other than consistent with its plain meaning would be inconsistent with both standard usage of the English language and the canons of document construction. Op. 202 at 62,005. The Commission, however, found that the pipeline companies had acted imprudently by failing to demand deliveries at the usual levels from the LNG companies. Id. at 62,008-09. The pipeline companies were therefore ordered to refund the difference between the amounts paid under the cost-of-service tariff and the amounts that would have been paid under the minimum bill for the period from April 24 to December 10, 1980. Id. at 62,009. The April 24 date was based on stipulations by the parties that if shipments had continued at the level of average daily deliveries during March, 1980, all of the LNG would have been delivered to the transmission companies as of April 23, 1980. Id. at 62,009; J.A. at 61, 189. 18 FERC granted rehearing of Opinion 202 in response to several petitions, and vacated substantially all of the opinion. Op. 202-A at 61,166. In Opinion 202-A, the Commission found a substantial basis for the existence of ambiguity in the minimum bill provision and consequently considered extrinsic evidence in interpreting the phrase unable to deliver gas. FERC concluded that the language was intended to require gas deliveries to the pipelines at approximately the certificated levels ... to forestall invocation of the minimum bill. Id. at 61,168. The Commission rejected the ALJ's interpretation focusing solely on the LNG companies' ability to deliver because it allowed them to decide in their own self-interest that the customers and ratepayers would continue to pay the full cost-of-service for the Cove Point LNG terminal even though they were not receiving the benefit of the base load supply of gas they were supposed to receive. Id. 19 FERC then held that the minimum bill should have been invoked on June 30, 1980, basing its conclusion on three findings. The Commission first found that it become evident in early May 1980 that the embargo would continue indefinitely and that there was therefore no valid reason to keep the Cove Point terminal in its cryogenic condition any longer. Id. at 61,169 (footnote omitted). Early May was also found to be a valid starting point for the analysis because base load deliveries within the broad parameters of historical deliveries were being made into early May. Id. Finally, FERC found that the LNG companies would have needed a period of 6 to 7 weeks to accomplish the technical procedures required to empty the LNG from the terminal. Id. Counting this period from early May, the Commission arrived at a refund date of June 30. 20 Again, various parties and intervenors petitioned for rehearing and again FERC issued an opinion, this time modifying only its findings as to the refund date. The Commission reaffirmed its finding that the companies should be allowed eight weeks 8 to develop procedures for plant shutdown, Op. 202-B at 61,096, but held that the eight weeks were to be counted from the striking drop in deliveries that occurred on April 1, id. at 61,098. The Commission concluded that its finding in Opinion 202-A as to the validity of the husbanding program was the wrong premise on which to base the decision. Id. at 61,097. Focusing solely on delivery levels, FERC first distinguished diminished daily delivery levels prior to the Algerian embargo from those that followed it, concluding that the only five brief periods of lowered deliveries prior to the embargo differed from the post cut-off period because there was no question but that LNG was coming and would continue to come into the facility for the immediate future and that gas produced therefrom would be sent to system customers at normal levels in fairly short order. Id. at 61,098. In looking at the delivery levels after the embargo, the Commission reversed its finding that base load deliveries had continued into early May, id. at 61,097, and instead concluded that the dramatic drop in deliveries which occurred on April 1 was the first change which signifies the decision to husband the LNG and, as such, is the most appropriate for constructuring the refund date, id. at 61,099. These petitions for review followed. 9 21