Opinion ID: 721438
Heading Depth: 3
Heading Rank: 2

Heading: Pipeline modification of contract-storage rights

Text: 40 Because the Commission found that pipelines' superior rights with respect to access and control provide them with several advantages over other gas merchants with no access to storage for their gas, it required pipelines to offer access to their storage capacity on an open-access basis. Order No. 636, p 30,939, at 30,425-26. By defining transportation to include storage, 18 C.F.R. § 284.1(a), the Commission made storage subject to the same non-discrimination requirements as capacity rights. Id. §§ 284.8(b), 284.9(b). Although pipelines were allowed to retain storage capacity for system management and in order to ensure the delivery of no-notice service, they were required to offer remaining storage capacity on an open-access contractual basis for customer-owned gas. Order No. 636, p 30,939, at 30,426-27. The Commission granted former bundled firm-sales customers a priority right to that storage capacity. Order No. 636-A, p 30,950, at 30,578. 41 In its request for rehearing of Order No. 636, CNG Transmission Corporation, a pipeline company, explained that the changes involving open-access storage would create difficulties for it in providing the contractual levels of service to its existing contract-storage customers. Because current contract storage injection and withdrawal schedules, and other related operational protocols, are based upon current levels of contract storage service, CNG requested the ability to modify existing storage customers' contractual rights to inject or withdraw gas. The Commission responded that its 42 intent was that current contract storage customers retain their full right to capacity as specified in their contracts. The Commission did not mean to infer [sic] that the terms and conditions associated with their rights could not be changed if they proved unreasonable in light of Order No. 636's requirements of no-notice transportation and open access contract storage. This, of [319 U.S.App.D.C. 71] course, is a pipeline specific matter and must be addressed in the restructuring proceeding. 43 Order No. 636-A, p 30,950, at 30,579. Upon further rehearing, however, the Commission went further, stating that, 44 while it has authorized pipelines to propose to change existing storage arrangements, if necessary, to provide no-notice transportation service, the pipeline must still show that the changes are necessary and reasonable. This includes an impact of a change on current contract storage customers. The Commission has not authorized any reduction in contract storage capacity. The Commission views changes to injection and withdrawal schedules as changes to terms and conditions, rather than to the level of certificated service. Hence, the Commission concludes that changes to existing contract storage terms and conditions will not need action under NGA section 7(b). 45 Order No. 636-B, p 61,272, at 62,011. 46 A group of LDC petitioners 32 challenges the Commission's statement that changes to contract-storage withdrawal and injection schedules do not require a § 7(b) abandonment proceeding. We agree with the petitioners that it is difficult to discern exactly what the Commission's position is on this issue, and we grant the petitioners relief insofar as the Commission stated in Order No. 636-B that any change to injection and withdrawal schedules can be effected without a § 7(b) abandonment proceeding. 47 If the Commission has permitted the pipelines to abandon a service rendered by means of ... facilities certificated by the Commission, then it has failed to comply with § 7(b), which requires a due hearing and a Commission finding that the present or future public convenience or necessity permit such abandonment. 15 U.S.C. § 717f(b). In general, the test for § 7 abandonment is whether the certificate-holder permanently reduces a significant portion of a particular service. Reynolds Metals Co. v. FPC, 534 F.2d 379, 384 (D.C.Cir.1976); see also Kansas Power & Light Co. v. FERC, 851 F.2d 1479, 1481 (D.C.Cir.1988). By comparison, the withholding of gas delivery to an interruptible-transportation customer is not an abandonment, because the customer has no right to guaranteed delivery under its contract or the certificate of service. Cerro Wire & Cable Co. v. FERC, 677 F.2d 124, 129-30 (D.C.Cir.1982). Although the court has reserved the issue whether a § 7(b) abandonment occurs when only the identity of the customer changes, an abandonment does take place when there is a reduction or alteration in overall service. Tennessee Gas Pipeline Co. v. FERC, 972 F.2d 376, 384 (D.C.Cir.1992). 48 According to the submissions by the Associated Gas Distributors in the administrative record, a customer who contracts for storage is concerned with two elements: capacity (how much gas can be stored) and deliverability (how much gas can be withdrawn on a given day). 33 The AGD attached affidavits from six member LDCs who stated that changes to injection and withdrawal schedules could reduce deliverability, with adverse consequences on their ability to meet residential customers' demands. Elizabethtown Gas Company, in its opposition to CNG's compliance filing in its restructuring proceeding, objected to CNG's specific proposals to reduce withdrawal amounts when contract-storage customers had low gas inventories in storage, to maintain elevated minimum inventory levels during the early winter months, to limit monthly withdrawal amounts to less than the total of the daily amounts, to [319 U.S.App.D.C. 72] reduce firm withdrawal rights to best-efforts rights, and to impose minimum inventory turnovers. 49 It is impossible, on the current record, to determine on a generic basis what changes to injection and withdrawal schedules would permanently reduce[ ] a significant portion of contract-storage service. Reynolds Metals, 534 F.2d at 384. Because contractual deliverability entitlements are an integral part of the customer's contract-storage rights, modifications that affect those rights could in some instances constitute a § 7 abandonment. On the other hand, under other circumstances an adjustment to an injection or withdrawal schedule could be sufficiently minor or temporary that no abandonment would occur. Whether an abandonment proceeding is necessary depends on the individual customer's storage contract and on the pipeline's proposed modifications, none of which are before us now. 50 To the extent that the Commission issued in Order No. 636-B a sweeping statement that no modifications to injection and withdrawal schedules for a contract-storage customer require an abandonment proceeding, such a statement is inconsistent with § 7. In its brief, however, the Commission denies that it has taken any such steps to degrade contract-storage rights. Instead, the Commission maintains that it has merely allowed pipelines to propose necessary and reasonable changes in the restructuring proceedings, Order No. 636-B, p 61,272, at 62,011, for which the Commission has authority under § 5. In the restructuring proceedings, the Commission has followed this approach, approving proposed modifications to withdrawal and injection schedules if the pipeline can prove that the changes are necessary and reasonable. 34 51 The Commission's theory that it has the authority to proceed in the restructuring proceedings under § 5 rather than in abandonment proceedings under § 7(b) is explained nowhere in the Order No. 636 series. See Order No. 636-A, p 30,950, at 30,579; Order No. 636-B, p 61,272, at 62,011. Under § 7(b), the Commission must hold a due hearing and must make a finding that the present or future public convenience or necessity permit such abandonment. 15 U.S.C. § 717f(b). By contrast, under § 5 the Commission need hold only a hearing and must find that an existing contract is unjust, unreasonable, unduly discriminatory, or preferential. Id. § 717d(a). We need not decide whether compliance with the procedures in § 5 could in certain circumstances satisfy the applicable statutory requirement in § 7(b). The Commission has assured us in its brief that its approach under § 5 will be consistent with the § 7 requirements. But without any explanation in the Order No. 636 decisions for why the Commission's procedures satisfy § 7(b), we cannot accept the Commission's suggestion that its exercise of its § 5 authority in the restructuring proceeding would obviate the need for abandonment hearings. 52 On the other hand, any claim that a particular pipeline's modification to contract-storage withdrawal and injection schedules requires a § 7(b) abandonment proceeding is premature and should be raised, if at all, in the review of individual restructuring proceedings. 35 53