Opinion ID: 185456
Heading Depth: 1
Heading Rank: 2

Heading: analysis

Text: 9 Pan-Alberta argues that the Commission based its determination of the public convenience and necessity upon a misunderstanding of how much capacity Duke controlled on Northwest's pipeline. According to Pan-Alberta, the Commission lacked substantial evidence to support its conclusion that Duke had effective control over only 50,000 Dth/d of capacity, making the Commission's answer to the fundamental question of the extent of Duke's holdings inherently arbitrary and capricious. See Wisconsin Valley Improvement Co. v. FERC, 236 F.3d 738, 745 (D.C. Cir. 2001) (agency decision is arbitrary and capricious if factual determinations lack substantial evidence). In the alternative, Pan-Alberta argues that the orders under review violate both Northwest's tariff and the Commission's policy regarding release and replacement. 10 The Orders are indeed less than pellucid about how much capacity Duke controls, and the parties' briefs do nothing to clarify the situation. Particularly confusing is the Commission's failure in the Orders, and all the parties' failure in their briefs, unequivocally to state whether Duke's 19 contracts for 50,000 Dth/d of capacity are the sole progeny of the original 40,000 Dth/d contract between Northwest and Duke or whether they are but a subset of the contracts resulting from the daisy chain of transactions based upon the original agreement. This confusion is exacerbated by the Commission's statement in the Rehearing Order (at 61,523) that Duke 11 has effectively transferred its contractual obligation for 40,000 Dth a day of capacity to the northern segment of Northwest's system [i.e., from Oregon to Washington]. This frees up 40,000 Dth a day of capacity on the southern segment [i.e., in Colorado]. 12 In fact, the transfer frees up 50,000 Dth/d, not 40,000 Dth/d, of capacity on the southern segment. Pan-Alberta suggests this shows that the Commission mistakenly believed itself to be approving a transfer of the original 40,000 Dth/d of capacity at the root of the daisy chain rather than the 50,000 Dth/d that blossomed from it, or at least that the Commission was confused regarding the amount of capacity at issue. The Commission insists that it fully understood the transaction, but concedes in its brief that some confusion could have been avoided had it described the transfer in terms of the larger quantity. 13 We agree with the Commission that, notwithstanding their expository shortcomings, the Orders do enable one accurately to understand the transaction and do not show that the Commission misunderstood any material fact. The Orders make clear that Duke began with a single contract for 40,000 Dth/d of firm capacity, that it parlayed that contract into multiple contracts for a total of 50,000 Dth/d of capacity, and that it sought in the subject transaction to amend the service path for that 50,000 Dth/d from one in Colorado to a route between Oregon and Washington, along a segment of the pipeline that Northwest had agreed to expand. See Order at 61,914 & n.5. As the Commission points out, its above-quoted description of the transfer, although confusing, is entirely consistent with this understanding and in no way inaccurate: Duke has in fact effectively transferred its original 40,000 Dth/d contract to give it control over 50,000 Dth/d of capacity on the northern segment of Northwest's system. Rehearing Order at 61,523. 14 Pan-Alberta suggested before the Commission that Duke's capacity will increase [as a result of the Order] from the original 40,000 Dth a day under its original primary contracts to as much as 90,000 Dth a day (50,000 Dth a day of new capacity on the expansion facilities plus the original 40,000 Dth a day in Colorado). Id. As Northwest explains, however, the 90,000 Dth/d figure is an artifact of the arrangement whereby the contract of a releasing shipper continues in force even as that shipper cedes effective control of its capacity to the replacement shipper. See above at 3. Duke, which is both the releasing and the replacement shipper in the disputed transaction, thus emerges from the Order with contracts for 90,000 Dth/d of capacity: as the replacement shipper it controls 50,000 Dth/d of capacity in the north, while as the releasing shipper it nominally maintains its original contract for 40,000 Dth/d of capacity in the south. Of course, by releasing its capacity Duke has ceded any right actually to ship gas along the Colorado service path; its 90,000 Dth/d of contracts notwithstanding, it effectively controls only 50,000 Dth/d of capacity. This account is again fully consistent with the Orders. 15 Indeed, because any release of capacity generates a new contract between the pipeline and the replacement shipper while leaving the releasing shipper's contract in force, a daisy chain of transactions necessarily creates a corresponding daisy chain of contracts. Depending upon the number of links in the chain, Duke may well be party to contracts that formally give it the rights to even more than 90,000 Dth/d of capacity, over much of which it has no effective control. 16 We also reject Pan-Alberta's claim that the total amount of capacity that Duke controls is a fact fundamental to whether the transaction at issue serves the public interest and necessity. As the Commission points out, the orders under review do not address let alone ratify the transactions by which Duke parlayed its 40,000 Dth/d of capacity into 50,000 Dth/d; they address only whether Duke and Northwest may change the primary service path[ ] for the 50,000 Dth/d of capacity that Duke had secured previously. Order at 61,914. Even if the daisy chain in fact yielded contracts that in the aggregate gave Duke effective (not just formal) control over more than 50,000 Dth/d of capacity, such additional capacity would be immaterial to the transaction now in suit. For the same reason, we do not consider Pan-Alberta's claim that the daisy chain of transactions by which Duke parlayed its 40,000 Dth/d into 50,000 Dth/d is inconsistent with the Commission's policy that releasing and replacement shippers do not have a right to obtain more capacity than that which the releasing shipper initially held. Transcontinental Gas Pipe Line Corp. (Transco), 89 F.E.R.C. p 61,167 at 61,503 (1999) (citing Tennessee Gas Pipeline Co., 85 F.E.R.C. p 61,052 at 61,163 (1998)). Because the daisy chain transactions were not at issue when the Orders were before the Commission, Pan Alberta may not challenge their validity in this case. Cf. Southwest Gas Corp. v. FERC, 145 F.3d 365, 370 (D.C. Cir. 1998) (The Commission need not revisit the reasoning of a general order every time it applies it to a specific circumstance). 17 Finally, Pan-Alberta claims that the arrangement under which Duke pays usage charges only on its original 40,000 Dth/d of capacity rather than on the 50,000 Dth/d violates the requirement of Northwest's tariff that the shipper pay a reservation charge for each Dth/d of capacity it controls. As the Commission notes, however, this requirement is satisfied because Duke makes payments on each of its two distinct contracts with Northwest -one as a releasing shipper with respect to 40,000 Dth/d, and one as a replacement shipper with respect to 50,000 Dth/d. See Order at 61,918. The tariff is not violated merely because the payments Duke makes on its replacement contract for 50,000 Dth/d are credited to its account in its role as releasing shipper. See id.