Opinion ID: 525206
Heading Depth: 1
Heading Rank: 3

Heading: the alagasco transportation tariff

Text: 36 Southern next challenges FERC's rejection of its transportation tariff for Alagasco. FERC defends this aspect of its decision on the merits, but also raises a jurisdictional argument, to which we turn first. 37 In Decision I, FERC rejected the Alagasco tariff, apparently on the ground that Southern did not have a Sec. 7 certificate for the service. We say apparently because this reason for the rejection appeared only in an ordering paragraph at the end of the decision; nowhere in the Discussion portion of the decision did FERC advert to the lack of a certificate or even mention Alagasco specifically. In the Discussion section, on the other hand, FERC did make the following observation: 38 Southern has proposed to develop a seasonally differentiated transportation rate by simply backing out the purchased gas cost component of its proposed seasonally differentiated sales rate. Southern has not shown that this rate is cost based as required by the Commission's regulations. 39 This criticism refers to Southern's generally applicable method of computing transportation rates; thus, it would apply to each of the eighteen customers, including Alagasco, with respect to which Southern submitted tariffs. FERC unconditionally accepted for filing the tariffs for the other seventeen customers, however, in the ordering paragraphs of its decision. 40 Southern petitioned for rehearing with respect to FERC's rejection of the Alagasco tariff solely and straightforwardly on the ground that it had in fact obtained the requisite Sec. 7 certificate for that service. Southern's petition nowhere took issue with FERC's observation that the method used in calculating the proposed transportation rates did not comply with FERC regulations. In Decision II, FERC acknowledged its error with respect to the certificate requirement, but clung to its result on the basis of its critique of Southern's transportation rates in the Discussion section of Decision I. FERC characterized its decision there to reject the Alagasco rate as having rested on both grounds, although it had there accepted seventeen of the eighteen rates subject to the same objection. 41 Against this background, we think that Southern's challenge to FERC's cost rationale is properly before us. Section 19(b) of the NGA requires a person aggrieved by a FERC order to petition the Commission for rehearing before petitioning the Court of Appeals for review. 15 U.S.C. Sec. 717r(b). In order to put teeth into that requirement, it also provides that [n]o objection to the order of the Commission shall be considered by the court unless such objection shall have been urged before the Commission in the application for rehearing unless there is reasonable ground for failure to do so. Id. 42 Southern's failure before the agency to object to the claimed cost rationale for FERC's decision raises two questions going to this court's jurisdiction. First, was there reasonable ground for Southern's failure to raise the objection in its petition for rehearing of Decision I? Second, did FERC's treatment of the Alagasco tariff in Decision II make the order denying rehearing an order apart from the order in Decision I, such that Alagasco should have filed a further petition for rehearing before seeking judicial review? See Tennessee Gas Pipeline Co. v. FERC, 871 F.2d 1099, 1109-10 (D.C.Cir.1989). 43 As to the first question, we disagree with FERC's argument that Decision I put Southern on notice of its cost rationale for rejecting the Alagasco tariff so that Southern should have raised an objection to that rationale in its petition for rehearing. Given that the sole reference to Alagasco in Decision I was that in which FERC rejected the tariff for want of a Sec. 7 certificate, and given that its earlier mention of the cost basis for Southern's transportation rates in general neither specifically referred to Alagasco nor caused FERC to reject the other tariffs equally liable to that objection, Southern had reasonable ground to believe that FERC's rejection of the Alagasco rate rested solely upon its erroneous want-of-certificate ground, and thus to limit its objection accordingly. 44 As to the second question, counsel for FERC suggested at oral argument that, even if FERC did not properly set forth the cost rationale for its rejection of the Alagasco tariff until Decision II, the consequence is only that Southern, before seeking judicial review, should have filed with the agency a further petition for rehearing, this time with respect to Decision II, objecting to the new rationale. 45 This court has previously held that an order denying rehearing does not necessarily constitute a new order as to which a new petition for rehearing is required. Public Service Commission v. FPC, 543 F.2d 757, 775 n. 116 (D.C.Cir.1974). As the Court of Appeals for the First Circuit has observed, [t]o interpret the statute otherwise would be to permit an endless cycle of applications for rehearing and denials. Boston Gas Co. v. FERC, 575 F.2d 975, 978 (1st Cir.1978). On the other hand, an order on rehearing that modifies the result reached in the original order may be significant enough to trigger a new rehearing requirement. Tennessee Gas, 871 F.2d at 1109-10. 46 The only order at issue with respect to Alagasco was FERC's rejection, in the ordering paragraphs at the end of Decision I, of the Alagasco tariff. As we noted in Tennessee Gas, [i]t is of course a fine point to determine whether a subsequent modification amounts to a new order [as to which a new petition for rehearing is required] or is merely a technical change in an existing order. Id. at 1110. Regardless of where that line may be drawn with respect to a modification in the result reached in the original order, when FERC makes no change in the result, but merely supplies a new improved rationale upon realizing that its first one won't wash, it does not thereby transform its order denying rehearing into a new order requiring a new petition for rehearing before a party may obtain judicial review. Otherwise, we would permit an endless cycle of applications for rehearing and denials, limited only by FERC's ability to think up new rationales--which, since none of them would be put to a test in court, would not be much of a limitation. Congress could not have intended that the agency have such complete control over access to judicial review by a party aggrieved. 47 Turning to the merits, the circumstances that lead us to reject FERC's jurisdictional argument also raise serious questions as to the rationality of its decision with respect to the Alagasco tariff. FERC does not defend its initial rationale for rejecting that tariff; it is common ground that Southern has obtained the requisite certificate for its transportation arrangement with Alagasco. Rather, as in Decision II, FERC relies solely on its statement, in Decision I, to the effect that Southern's transportation rates were not cost-based. The difficulty with this rationale, as noted above, is that it appears to apply to each of the eighteen transportation tariffs submitted by Southern. At no point has FERC explained, however, why it rejected the Alagasco tariff but accepted the seventeen others, a result that is, on its face, arbitrary. Accordingly, we grant Southern's petition for review as it pertains to the Alagasco tariff, vacate the relevant portions of Decisions I and II, and remand the matter for FERC to proceed anew.