Opinion ID: 492011
Heading Depth: 3
Heading Rank: 1

Heading: Violation of Panhandle doctrine.

Text: 181 Several pipelines contend that the Commission's creation of the CD conversion/reduction options violates the principle established by this court in Panhandle, supra. Panhandle had applied for certification under Sec. 7(c) of new transportation service to an industrial gas user. Exercising its Sec. 7(e) authority to attach such reasonable terms and conditions as the public convenience and necessity may require, the Commission approved the certification subject to a condition requiring Panhandle to flow the resulting revenues through to its wholesale gas customers. The condition effectively gave the latter a rate reduction equal to the new revenues. The Commission's theory was that the wholesale gas customers had already paid for the capacity used to provide the service to the industrial user (or had obligated themselves to do so under existing rates). 613 F.2d at 1123. This court held, however, that such a use of the Commission's Sec. 7 conditioning authority was an illegal circumvention of Sec. 5. The latter authorizes the Commission to modify pipeline rates and charges when it finds them unjust, unreasonable, unduly discriminatory, or preferential, but only after notice and hearing in which, it is well established, the Commission bears the burden of proof. See, e.g., Sea Robin Pipeline Co. v. FERC, 795 F.2d 182, 184 (D.C.Cir.1986). 182 In the present case, the Commission's creation of the CD conversion/reduction option similarly modifies previously approved arrangements that are separate from the transportation authority that a pipeline would seek under Order No. 436. On its face, it appears to challenge Panhandle's strictures against extensions of the Sec. 7(e) conditioning power that would erode substantive or procedural limits on the Commission's power. 183 The Commission has taken high ground, which we think quite untenable. It argues that since application for a blanket certificate under Sec. 7 is entirely voluntary, there is no need for it to point to any express congressional grant of power. It asserts that in the CD modification conditions it was not requiring the adjustment of previously-certificated service.... FERC Brief at 107 n. 1 (emphasis added). Obviously the suggestion that Panhandle presents no problem because the application for certification is voluntary is unacceptable. As all Sec. 7 applications are voluntary in a legal sense, the Commission's theory would extirpate the Panhandle doctrine. 184 Apart from the voluntariness theory, the Commission notes that it has invoked Sec. 7(b), authorizing it to permit natural gas companies to abandon certificated service. In 18 C.F.R. Sec. 284.10(f)(3) it expressly finds that pipeline abandonments of service, pursuant to customer elections under the Order, are permitted by the present or future public convenience and necessity. But this finding looks only to the pipeline's obligation, as is fitting under Sec. 7(b). Neither that section nor the finding thereunder supports the Commission's relieving customers of their contract obligations. 185 For that, it appears one must turn to Sec. 5 of the NGA, which allows the Commission to set aside any unjust, unreasonable or unduly discriminatory contract affecting rates and charges. Much of the Commission's reasoning suggests a belief that under present circumstances inflexible CDs in fact qualify as unjust, unreasonable, [or] unduly discriminatory terms. But the Commission has expressly declined to rely on Sec. 5, and has not explained why not. J.A. 1059. 186 The voluntariness theory and the invocation of Sec. 7(b) appearing inadequate, and the Commission having disclaimed reliance on any other provision (notably Sec. 5), the CD modifications are without basis in law insofar as they condition blanket certificate transportation under the NGA on release of customers from contract obligations. (Immediately below we address the issue of transportation under Sec. 311.) On remand, the Commission can proceed under such grants of power as it believes are relevant, undistracted by the notion that its power under Sec. 7(e) entitles it to sweep aside the substantive and procedural constraints of the NGA. In so doing, of course it may employ rulemaking. Cf. Wisconsin Gas Co. v. FERC, 770 F.2d 1144 (D.C.Cir.1985), cert. denied, --- U.S. ----, 106 S.Ct. 1969, 90 L.Ed.2d 653 (1986). 187 CP National and other LDCs contend that the Commission is without authority to impose the CD conversion/reduction option as a condition of authority to transport under Sec. 311 of the NGPA. No analysis is offered in support of the claim. The premises of the Panhandle doctrine are absent here. Perhaps because of its expectation that Sec. 311 would operate simply to forge interstitial links between the hitherto separate interstate and intrastate markets, see Public Service Comm'n of the State of New York v. Mid-Louisiana Gas Co., 463 U.S. 319, 342, 103 S.Ct. 3024, 3037, 77 L.Ed.2d 668 (1983); Process Gas Consumers Group v. United States Dep't of Agric., 694 F.2d 728, 764 (D.C.Cir.1981) (other portions vacated and reconsidered en banc, 694 F.2d 778 (D.C.Cir.1982)), cert. denied, 461 U.S. 905, 103 S.Ct. 1874, 76 L.Ed.2d 807 (1983), Congress never created for Sec. 311 transportation any elaborate structure paralleling that of the NGA. This claim fails. 188 In summary, the Commission has failed to ground the CD adjustment provisions in any adequate section of the NGA. Because the conditions can legally apply to Sec. 311 transportation, however, and because we have no reason to expect that the Commission's interest in attaching the options to Sec. 7 transportation has waned, we proceed to address a number of other attacks. 189