Opinion ID: 351699
Heading Depth: 1
Heading Rank: 4

Heading: the base period

Text: 50 The curtailment plan envisions a maximum limit on the amount of natural gas going to each of El Paso's customers. These base volumes become applicable whenever El Paso's supply of natural gas falls short of the current demand. They prescribe the total amounts of natural gas by priority classification available for the various users. 51 Three problems have arisen from the time periods in the past which were used in establishing the base volumes. Opinion No. 634, issued on October 31, 1972, established the twelve month period immediately preceding that date as the appropriate measuring time. The first objection raised to that procedure was that, by measuring actual historical use of El Paso gas over that twelve month period, the plan paid no attention to the then-developing shortage of non-El Paso natural gas. That shortage was allegedly critical to the California customers who, as explained before, did not rely exclusively on El Paso. The two California users maintained that setting the El Paso gas supplied during the last twelve months as the maximum volumetric entitlement in time of curtailment unfairly assumed that all users were otherwise identically situated. Because of the developing scarcity of non-El Paso natural gas, it was likely that the California users would have to increase their reliance on El Paso natural gas in the near future; but that contingency had not been envisioned in the El Paso curtailment plan. 52 When this complaint was before this court in the context of the interim plan, we decided that, because of the emergency, short-term nature of Opinion Nos. 634 and 634-A, it was not fatal to ignore the developing pre-existing curtailment of non-El Paso sources felt by the California customers. ASARCO, 161 U.S.App.D.C. at 23, 494 F.2d at 942. Our decision there was explicitly premised on an expectation that the Commission would consider the local California natural gas shortage in promulgating a final, permanent plan, and would enunciate findings with respect to that situation as well. Now that the permanent plan has come before us, we again consider whether the Commission's decision to ignore the pre-existing shortage of local gas in California was unduly discriminatory to the California users. 53 Two related issues have also become involved in our review of the time period established for calculating base volumes. First, no explicit prohibition against adding new users to the various distributors' systems within the general El Paso system was contained in the interim curtailment order. Several of the EOC distributors, subsequent to the date of Opinion No. 634, did add new customers, including customers in the top priority levels. 10 Opinion No. 697A took account of this by establishing a moratorium on adding new customers, for purposes of receiving curtailment allotments of natural gas. As for those new users added during the twenty-five and one half month interval between the interim and final plan, Opinion No. 697A provided that the base period for volumetric calculation would be actual historical takes for the 12 month period ending October 31, 1972, adjusted to also reflect the annualized effect of attached Priority 1 and 2 loads existing as of October 31, 1974. (J.A. 489, Tr. 17,085). In addition, penalties were imposed for all natural gas withdrawn in excess of the volumetric limits, except where necessary to protect a Priority I or II use. The date of Opinion No. 697A was December 19, 1974. 54 Tucson Gas & Electric and Arizona Public Service Company (APS) raise the objection that the gap between October 31, 1974, and December 19, 1974, places them in a predicament. These companies during this period were adding high priority users in reliance on the interim order's absence of any limitation on attachments, only to be told later that those users could not be included in the curtailment allocation. The argument is carried even further that, since these utility companies are required under state law to receive permission before they can refuse a requested extension of service to a user in what has come to be a high priority classification, it was unreasonable to impose a moratorium on attachments even as of the date of the issuance of Order No. 697A. Instead, it is contended, the curtailment plan should have taken cognizance of all new attachments until such time as Tucson and APS could receive authority from the State of Arizona to refuse such new requests for service. 55 The last problem arising out of the base period determination stems from the meteorology of the period: the winter of 1973 and pre-November 1974 were unusually warm. Hence, the Arizona users allege, their reliance on El Paso natural gas was abnormally low and a more expectable average of natural-gas use should have been employed. 56 The second of these three problems is most usefully discussed first. It is arguable how justified was the reliance of those natural gas distributors who added customers subsequent to the interim curtailment order. There was never any doubt that the conditions of the eventual curtailment plan would require some calculation of a maximum amount of natural gas, and that for each distributor, such a calculation would necessitate a ceiling on the number of customers to be served. On a fuller record, it might be concluded that those exceptions should be afforded only to those distributors who, having sought refusal powers from their state regulatory bodies immediately upon the issuance of the interim plan, were nevertheless denied. However that may be, the Commission has stated quite a different position, which bears upon all three problems here addressed. In Opinion No. 697A, the FPC stated, we recognize . . . that growth in the higher priorities would be in fact have occurred in the normal course of load upgrading, since no express prohibition was contained in the interim plan and in view of our decision not to impose overrun penalties for the interim plan. . . . (W)e find that the only reasonable alternative is to require El Paso to adjust the Opinion No. 697 base period to reflect that growth. (J.A. 488, Tr. 17084). 57 The Commission's own judgment is that it is entirely appropriate for the natural gas distributors to have added customers up until the time they were explicitly told not to do so. The logic of that position extending their entitlement must be consistently applied. Accordingly, it was arbitrary for the Commission to refuse to order the inclusion of those users added up until the date that Opinion No. 697A was actually promulgated, and the explicit prohibition on attachment of further high priority users was declared. However, because the December 19, 1974, order by the Federal Power Commission was preemptive it was reasonable to exclude from the base used for the curtailment plans those users added after that date, even if that was before the time distributors obtained state permission to exclude them. The FPC argues that APS and Tucson were dilatory in requesting authority to refuse new, high priority users on their respective systems. If that were so, that would be an additional ground for excluding post-December 19, 1974, customers. Both APS and Tucson delayed until late February. Whether the additional two-month interval was excusable and reasonable or whether APS and Tucson should be held to be bound from the date they received notice of the Commission order providing for the exclusion from the base period of new customers added thereafter we leave to be settled at a hearing before the Commission on remand. Nothing prevents the FPC as a matter of discretion from granting special relief to suppliers in this predicament, but that is not required. 58 The Commission's decision in Opinion No. 697A to depart from the six-month time period ending on October 31, 1972, was motivated by a desire to accommodate certain EOC customers of El Paso, who otherwise would have had more actual demand on their system for natural gas than had been recognized in the curtailment plan. That disposition must be applied equally to the California customers as well. Their position also involves more demand on their system for natural gas (because of a scarcity of non-El Paso gas) than had been recognized in the curtailment plan. To alter the curtailment plan for EOC customers might not have been necessary; but, having done so, the FPC assumed an equivalent obligation for the California customers as well. 59 The Commission relies on four pages of Opinion No. 697, and two attached exhibits, to satisfy our mandate in ASARCO to consider the pre-existing shortages in California and to enunciate findings with respect to that situation. ASARCO, supra, 161 U.S.App.D.C. at 23, 494 F.2d at 942. The evidence recited in those pages of the opinion (J.A. 434-39, Tr. 16608-16611) refer to the non-El Paso sources of natural gas for the California customers. The Commission admitted that deliveries to interruptible customers (by non-El Paso sources) have been declining since 1970, and concluded that this decline in service can be attributed to two factors only. One, that the California source supplies are declining, which is a fact of record, and (2) that the gross industrial market for natural gas in Southern California has been growing, which is also a fact of record. (Ex. 105). Solutions to both of these causal factors are clearly outside the scope of the Commission's jurisdiction. (J.A. 436; Tr. 16609-16610). 60 These references do establish that the Commission paid attention to the shortage of natural gas in California, but they fall far short of providing a basis for justifying the FPC's failure to provide some relief to the California users because of that shortage. To say that scarcity is due to high demand and low supply is simply to state a tautology of economics. It is well within the scope of the Commission's jurisdiction to consider the need for natural gas in the area even though the need has become more critical because of a developing scarcity of local gas, and to increase the supply by a more lenient curtailment plan that did not treat as equivalents two sets of customers in vastly different situations regarding their supply of natural gas. It was precisely the factor of growing demand (between the time of the interim and final curtailment orders) that the Commission found to be fully expectable and deserving of consideration for the Arizona customers. California customers are entitled to have their needs similarly considered. 61 The Commission parries by stating that, even if true that the California users will have more occasion to rely on El Paso, as their alternate fuel sources dry up: 62 One significant and highly variable factor controls the ability of industrial consumers exposed to natural gas curtailment to continue their operations, to wit, their ability to use and secure alternate fuels. There is no evidence in this record that industrial consumers in California are in a worse position with respect to their ability to use or to secure alternate fuels than consumers located in E-O-C. (J.A. 437, Tr. 16610) 63 The simple refutation is that California consumers will be forced more often to resort to alternate fuels because of their heightened scarcity of natural gas. That disparate scarcity, if such be the fact, between California and EOC users, raises a prima facie inference that FPC treatment of both classes of consumers identically, in terms of historical reliance on El Paso, is discriminatory in the most important sense of the Act, the need for natural gas. The Commission would have to establish that California consumers were singularly more able to employ alternate fuels than EOC consumers before it could rebut that prima facie case. The Commission has not done so. 64 The Commission is required to give more consideration to the peculiar shortages in California in order to comply with our ASARCO opinion, and, also, as a matter of affording equal treatment to California and EOC customers. This does not mean that El Paso must supply the full amount of the shortfall experienced in California because of local conditions. Other factors such as the difference in priorities of use, and a proven greater ability to use alternate fuels, might, in the end, support a decision requiring less than full contribution. But the precise result cannot be foreseen, cannot be dispensed with by the conclusory statement offered by the Commission on this record, and must be made the subject of explicit findings following a full hearing. 11 65 The final objection raised concerning the base volumetric curtailment period does not necessitate intervention by this Court, but may be amended by the Commission in its reconsideration of the matters that are to be remanded. It was not mandatory for the Commission to consider whether the periods of measurement used in establishing the base volumes covered an unusually warm period in Arizona. If the Arizona distributors claim they have a right to additional volumetric entitlement because the base period covered an unusually warm winter they are free to petition the FPC for a variance, but they will be required to show that the weather in their area operated to discriminate against them relative to consumers in other areas on the pipeline. If the effect of the weather during the base period was reasonably uniform throughout the entire system all distributors would be affected in the same way and none would be entitled to special consideration. 66 In sum, a remand to the FPC is necessary regarding the base used for volumetric entitlements and the claims of the Arizona distributors. Volumetric entitlements to El Paso customers must reflect consideration of total natural gas needs and the possibility of satisfying said needs, at least to some extent, from El Paso gas, rather than rigidly reapportioning entitlements solely on the basis of historical use of El Paso gas. This is what is required by the Natural Gas Act's prohibition against discrimination, 15 U.S.C. §§ 717c, d (1970). It may be that the Commission in its judgment will decide that the increasing California shortages cannot, in fairness to other users of higher priority on the system, be met by additional entitlements of El Paso gas, or can only partially be met from that source, but this does not mean that the Commission can avoid its statutory obligation by a conclusory finding that it lacked jurisdiction. It has jurisdiction, even though the volume of available El Paso gas, the higher priorities of other distributors, and the ability to use alternate fuels may seriously restrict the ability or need for the Commission to exercise its jurisdiction to increase California entitlements. 67 The Commission must also turn its attention on remand to the post-Opinion No. 634 additional users on the Arizona systems. Unless the FPC holds new hearings and sustains a change in its position on including those users in the volumetric entitlement calculations, it must extend consideration to all new users added up to the time of Opinion No. 697A's promulgation, December 19, 1974, not just to October 31, 1974. 68 No change is presently mandated concerning weather conditions over the base period.