Opinion ID: 531196
Heading Depth: 2
Heading Rank: 2

Heading: The Crediting Mechanism.

Text: 118 We now turn to assertions by various petitioners that the Commission lacks authority to promulgate the crediting mechanism of Order No. 500, and that the mechanism is not only arbitrary and capricious, but ineffective to boot. 119
120 The Commission has clearly failed to support its authority to apply the crediting mechanism to contracts governed by the NGA. Order No. 500 does not even reveal the basis upon which it asserts this power. Only in its brief does FERC rely upon Sec. 7 of the NGA, which gives the Commission the power to attach to the issuance of the certificate and to the exercise of the rights granted thereunder such reasonable terms and conditions as the public convenience and necessity may require. 15 U.S.C. Sec. 717f(e). 121 As we have seen, the Producers contend the Commission cannot lawfully base the crediting mechanism upon Sec. 7 because the take-or-pay contracts are not before the Commission when it grants a blanket certificate to a pipeline under Order No. 500. See Northern Natural Gas Co., above; Panhandle Eastern Pipe Line Co. v. FERC, 613 F.2d 1120, 1133 (D.C.Cir.1979) (FERC may not compel flow-through of revenues to customers of services not under consideration in that proceeding for certification.). FERC and the LDCs suggest that the access condition differs from the conditions at issue in the cases just cited because they involved an attempt by the Commission to reduce rates that it had already approved. In contrast, they assert, this case does not involve the agency modifying any rates; instead, the Commission is authorizing pipelines to place a condition upon the transportation service under consideration in the proceeding before it. In addition, the LDCs assert that there is a causal nexus between the certificate sought and the condition imposed because open access exacerbates the take-or-pay problem. 122 We decline to resolve this issue now because the Commission has not expressed its reasoning in support of invoking Sec. 7. Counsel for FERC may point to distinctions between this case and others, but the Commission has not explained why, in its view, if indeed that is its view, these differences justify the result in the service of which they are now marshaled. On remand, the Commission must do so if it would rely upon Sec. 7. If the Commission rests the conditioning mechanism upon authority other than Sec. 7, of course, it must give us its basis for doing that. 123
124 The Commission need not engage in further explanation specifically to support its reliance upon Sec. 311 of the Natural Gas Policy Act with respect to contracts governed by that statute. Section 311(c) states: Any authorization granted under this section shall be under such terms and conditions as the Commission may prescribe. 15 U.S.C. Sec. 3371(c). As we noted in AGD, the premises of the Panhandle doctrine are absent here. 824 F.2d at 1015. 125 Nevertheless, the Producers claim that the Commission may not invoke Sec. 311 because conditioning access does not promote the NGPA goal of fostering reliance upon the forces of competition. If conditioning access is a necessary part of a scheme that is procompetitive overall, however, then it does not violate the NGPA even if it may seem to be anticompetitive when viewed in isolation. 126
127 The Commission also fails adequately to support its authority to require credits for gas transported on the OCS. In Order No. 509, the Commission interpreted Secs. 5(e) and 5(f) of the OCSLA, 43 U.S.C. Sec. 1334(e)-(f), to require open access on that portion of any pipeline lying on the OCS. FERC Stats. & Regs., Regs. Preambles (1982-1987) (CCH) p 30,842 (1988), reh'g denied, 46 FERC (CCH) p 61,177 (1989). FERC's only response to the Producers' argument that the Commission cannot make conditional the access that the statute guarantees them is that [t]here is no basis for interpreting this requirement to bar a regulatory provision (i.e., crediting) that ... is consistent with essentially the same nondiscriminatory requirement in the Commission's open-access regulations. FERC Brief at 36 n. 26. 128 The Commission's point seems to be that if crediting is consistent with open access as established by regulation, then it is equally consistent with open access as established by statute. This implicit reliance upon the principle of transitivity works only if it is also true that the two sources of open access can be equated; the whole of the Producers' point, however, is that their right of access exists by virtue of a higher, not an equal, authority; thus, it arguably cannot be qualified by the Commission. If, on remand, the Commission determines that the crediting requirements should apply to OCS pipelines, then in order to justify its assertion of power, it must set out a legal theory that is responsive to the Producers' argument. 129
130 We conclude that the exception to the crediting mechanism for casinghead gas is not the product of reasoned decisionmaking. In Order No. 500-C, the Commission's sole justification for the exemption is that a pipeline's failure to take casinghead gas would likely require the producer either to shut in the oil production or flare the casinghead gas, resulting either in increased dependence upon foreign oil or in the waste of natural gas. In their applications to rehear Order No. 500-C, the Natural Gas Association, El Paso Natural Gas Co., and Natural Gas Pipeline Co. of America argued that applying credit to a pipeline's obligation to take casinghead gas will have neither of the effects that the Commission fears because the producer can simply sell into the market whatever gas is not purchased by the pipeline. Although this point, if true, would seem to be compelling, the Commission did not even address it in its Order Denying Rehearing, No. 500-E. On remand, the Commission must either justify the exemption in light of this reasoning or, if it cannot, then withdraw it. 131
132 The petitioners' objections to the other exceptions to the crediting mechanism are adequately met in the Commission's orders; we need not elaborate here upon the points and counterpoints in order to accept the Commission's reasoning. We do not decide, however, whether the mechanism as a whole, given its exceptions and limitations, adequately responds to the mandate of AGD. As in that case, the parts of the Order under review are interdependent, and the gaps in the Commission's reasoning taint[ ] the package. 824 F.2d at 1044. Thus, we are unable to say at this time whether the crediting mechanism, in conjunction with the rest of Order No. 500, effectively deals with the concerns we raised in AGD. 133