Opinion ID: 146475
Heading Depth: 2
Heading Rank: 3

Heading: Mitigation Costs

Text: In the proceeding below, electric generators and local distribution companies asked the Commission to establish a mechanism through which they could recover expenses incurred when they modified and upgraded their equipment to handle gas delivered under the new standards. The Commission gave two rationales for refusing to establish any such cost-recovery mechanism. First, it asserted that it lacked jurisdiction to require nonjurisdictional parties (LNG suppliers and shippers) to reimburse mitigation costs incurred by other nonjurisdictional parties (electric generators and local distribution companies). Second, it maintained that it had already considered end-user mitigation costs in developing the new standards and consequently adopted standards that would not impose excessive mitigation costs. The primary reason the Commission gave for refusing to adopt a cost-recovery mechanism was that it lacked jurisdiction to do so. Initial Order ¶¶ 267-73. It asserted that it only had jurisdiction to ensure that the rates, terms, and conditions of Florida Gas's transportation service are just and reasonable. Id. ¶ 270; see also Order on Rehearing ¶ 105. The Commission argued that it has no jurisdiction over first sales made by LNG suppliers, the importation of LNG (which is considered a first sale), or end users. Initial Order ¶¶ 268-69. Thus its jurisdiction in this proceeding was limited to ensuring that the Florida Power tariff contained just and reasonable gas quality and interchangeability standards. Id. ¶ 270. According to the Commission, it had no jurisdiction to require nonjurisdictional parties to reimburse electric generators and local distribution companies for their mitigation costs. Id. ¶¶ 272-73. In particular, it stressed that the cost-recovery mechanism Florida Power and others sought involved shifting costs incurred by one group of nonjurisdictional entities (end users like Florida Power) to another group of nonjurisdictional entities (LNG suppliers and shippers). Id. ¶ 269. The Commission also rejected the contention that it could establish a cost-recovery mechanism under § 7 or § 16 of the NGA. Section 7 gives the Commission authority to issue or withhold certificates of public convenience for the construction, extension, or abandonment of natural gas transportation facilities. 15 U.S.C. § 717f. It also provides that the Commission may attach to those certificates such reasonable terms and conditions as the public convenience and necessity may require. § 717f(e). Section 16 provides that the Commission shall have power to perform any and all acts, and to prescribe, issue, make, amend, and rescind such orders, rules, and regulations as it may find necessary or appropriate to carry out the provisions of this chapter. § 717o(a). The parties who sought reimbursement below argued that the Commission must have the authority to allocate costs among nonjurisdictional parties because it has done so in previous proceedings. In response, the Commission distinguished those precedents and argued that § 7 does not provide independent jurisdiction to do what is otherwise outside its jurisdiction. In particular, it relied on our statement in American Gas Ass'n v. FERC, 912 F.2d 1496 (D.C.Cir.1990), that the Commission may not use its § 7 conditioning power to do indirectly (1) things that it can do only by satisfying specific safeguards not contained in § 7(e) ... or (2), a fortiori, things that it cannot do at all, id. at 1510. See Initial Order ¶ 291. Although the Commission relied heavily on this jurisdictional rationale, it also explained that even if it had jurisdiction, it would not implement the type of cost-recovery mechanism Florida Power and other end users sought because it had already taken mitigation costs into account when it developed the new standards: [W]e have addressed impacts on Florida Gas's customers through the approval of interchangeability standards governing the gas that can be accepted onto Florida Gas's system, and have found that the approved standards should ensure that downstream entities do not incur excessive mitigation costs. Id. ¶ 292. In particular, the Commission balanced the need to maximize the availability of natural gas, which militated toward less restrictive standards, with the need to avoid imposing excessive costs on end users, which militated toward more restrictive standards. Order on Rehearing ¶¶ 101, 107. Weighing these different interests, the Commission arrived at a compromise standard of plus or minus 2 percent. In doing so, it departed from the Wobbe Index range recommended in the NGC + Interim Guidelines, adopting a more restrictive range that fell within the acceptable range identified in the DLN turbine manufacturers' specifications. Initial Order ¶¶ 271, 292; Order on Rehearing ¶¶ 80, 101. The Commission noted that while end users would incur some costs under the new standards, LNG suppliers might also incur costs refining their product to meet those standards. Order on Rehearing ¶ 102. Having balanced these costs in selecting the appropriate standards, the Commission was unwilling to upset that balance by imposing a separate cost-recovery mechanism. In its petition, Florida Power again contends that the Commission had jurisdiction to establish a cost-recovery mechanism under § 7 and § 16 of the NGA. On the contrary, we find the Commission's jurisdictional rationale convincing. The Commission has no direct jurisdiction over the parties from which Florida Power seeks compensation. And the Commission cannot use its § 7 conditioning power to exercise direct control over nonjurisdictional parties. See Am. Gas Ass'n, 912 F.2d at 1510. Likewise, while § 16 gives the Commission ancillary jurisdiction to carry out the statute's other provisions, it does not confer additional jurisdiction over parties otherwise outside the Commission's jurisdiction. Pub. Serv. Comm'n of N.Y. v. FERC, 866 F.2d 487, 491-92 (D.C.Cir. 1989). The cost-recovery mechanism advanced by Florida Power falls outside the Commission's jurisdiction because it would impermissibly require nonjurisdictional parties to reimburse end-user mitigation costs. Even assuming the Commission had jurisdiction to establish a cost-recovery mechanism, as Florida Power contends, it provided an adequate alternate rationale for refusing to establish any cost-recovery mechanism. In short, the Commission explained that it already addressed the mitigation cost issue by adopting new interchangeability standards that would not impose excessive costs on electric generators. This explanation provides an independent justification for the Commission's decision to eschew any cost-recovery mechanism. Thus the Commission has adequately explained its reasons for refusing to establish a cost-recovery mechanism for end-user mitigation costs.