Opinion ID: 322192
Heading Depth: 1
Heading Rank: 3

Heading: changes in texas eastern's rate tariffs

Text: 37 The rate change to which petitioners object relieves Texas Eastern of the obligation to refund demand charges when it is unable to meet contractual commitments because of a shortage of its supply. Many, although not all, Texas Eastern customers pay a two-part rate, consisting of a 'demand charge' and a 'commodity charge.' The customer pays a demand charge for the right to demand a specified volume of gas daily; once fixed by the customer's maximum daily entitlement, the charge does not vary with the amount of gas consumed. The separate commodity charge is assessed for each unit of gas delivered to the customer. Prior to the modification here at issue, Texas Eastern's tariff provided for refunding at least a portion of the demand charge when a customer's demand for his entire daily entitlement could not be met. 13 The tariff change approved by the Commission relieves Texas Eastern of this obligation if its failure to deliver is attributable to a supply shortage. 14 38 Petitioners contend that relieving Texas Eastern of the refund obligation while at the same time permitting it to make deliveries below contractual entitlements is patently unreasonable and contrary to the Natural Gas Act. The reasonableness of the Commission's action must be assessed in light of its economic effects. See Permian Basin Area Rate Cases, 390 U.S. 747, 790-792, 88 S.Ct. 1344, 20 L.Ed.2d 312 (1968). We turn to an assessment of these. 39 The tariff change permits a de facto increase in the average price of gas to any customer paying a demand charge, the amount of the increase dependent upon the amount of gas received and the amount by which gas delivered falls short of a quantity demanded pursuant to the contract. The Commission found that Texas Eastern would not recover its fixed costs at the rates then prevailing so long as a shortage reduced the amount of gas available for sale, and accordingly concluded that the price increase effected by the tariff change was justified in order to mitigate the pipeline's revenue loss. Petitioners do not dispute that the price increase is cost-based, 15 but contend that loss of revenue resulting from supply shortage should be borne by pipeline investors. Petitioners support this contention by referring to decisions of the Commission in past years which identified the risk of a shortfall in supply of gas as a factor justifying increments to the rate of return. 40 Whether a price adjustment ought to be allowed to protect investors involves a 'balancing of the investor and the consumer interests' that is entrusted to the Commission. FPC v. Hope Natural Gas Co., 320 U.S. 591, 603, 64 S.Ct. 281, 288, 88 LEd. 333 (1944). Here the Commission was engaged in an exercise of discretion when it held that the emergency and severity of the shortfall warranted a price increase, a position it maintained with the comment that investors still bore losses of fixed costs ordinarily recovered through a component of the commodity charge, which it was leaving undisturbed. Considerations like these are peculiarly a matter for appraisal by the administrative agency and we do not discern the kind of unreasonableness that would warrant judicial intervention. 41 Petitioners object in broad terms to a 'breach of contract,' but there has been here no unilateral attempt by the pipeline to modify a fixed-price contract with a customer, as was the case in United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332, 76 S.Ct. 373, 100 L.Ed. 373 (1956). In its order denying rehearing the Commission characterized the arrangements between Texas Eastern and its customers as contracts like those considered in United Gas Pipe Line Co. v. Memphis Light, Gas & Water Div., 358 U.S. 103, 79 S.Ct. 194, 3 L.Ed.2d 153 (1958), agreements to provide service at whatever rates are lawfully in effect under the Natural Gas Act. This characterization has not been contested. 42 The conclusion that the price increase is cost-based does not necessarily dispose of all questions of validity of rates under the Act. To avoid any inference that the court is approving all aspects of the rate schedule, we identify a problem raised by the court at oral argument, whether the Commission's order is not subject to challenge because it distributes the burden of the increase unevenly among Texas Eastern's customers: There is relative advantage (a) for those customers which pay no demand charge, and (b) among the purchasers paying the demand charge, for those who receive substantially their entire contract demands. 43 To determine whether such discriminatory effects of a broadside cancellation of a demand charge refund obligation would be justified is a question we do not reach, because of the petitioners' failure to present it in their objections to the Commission. Section 19(b) of the Natural Gas Act,15 U.S.C. 717r(b), provides, in pertinent part, that 44 no 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 so to do. 45 The purpose of this provision is to insure that the Commission has an opportunity to deal with any difficulties presented by its action before the reviewing court intervenes. FPC v. Colorado Interstate Gas Co., 348 U.S. 492, 75 S.Ct. 467, 99 L.Ed. 583 (1955). This exhaustion requirement comports with the general function of judicial review to insure that an agency has 'taken a 'hard look' at the salient problems.' Greater Boston Television Corp. v. FCC, 143 U.S.App.D.C. 383, 393, 444 F.2d 841, 851 (1970), cert. denied, 403 U.S. 923, 91 S.Ct. 2229, 2233, 29 L.Ed.2d 701 (1971). The agency cannot reasonably be expected to take a hard look unless the parties participate in the task of identifying the hard problems, and of bringing to light pertinent information and analysis bearing on their resolution. The agency's obligation presupposes a burden on the part of interested parties to draw attention to the consequences of proposed action that adversely affects their interests. 46 The objections to the demand charge that were submitted to the Commission, which parallel those presented to this court on appeal, failed to meet this burden. On appeal, MDG's objections appear in its Brief (p. 48 ff) under the caption: 'It is unlawful to permit Texas Eastern to collect a demand charge for gas it is not delivering.' 16 MDG asserts that the FPC has unlawfully ignored the interests of consumers, an argument highlighted by reference to the circumstance that purchasers must not only bear the higher price of gas to Texas Eastern, but also expend substantial sums for substitute fuel when deliveries are curtailed. 17 Objections like these have a ring of eloquence, but they are, in effect, a contention that the monetary consequences of a shortfall of gas must be borne by the investors. These objections simply do not focus on discriminatory impact of the Commission's action as between different purchasers. 18 It would be contrary to the purpose of 19(b), and the concept of exhaustion of administrative remedies, to accept such a broadside objection as sufficient to alert the Commission to particular and possibly remediable problems. We are precluded by 19(b) from pursuing the discriminatory problem we have identified. 47 For the reasons stated in Part II, supra, we decline to reach the merits as to the allocation provisions of the Commission's order. As to the demand charge provisions, the objections raised by petitioners on the record are rejected 19 and the order is affirmed. 48 So ordered.