Opinion ID: 411637
Heading Depth: 1
Heading Rank: 1

Heading: defining the curtailment plans' coverage

Text: 71 The final rule promulgated by FERC applies only to curtailments caused by shortages in supply; it excludes curtailments caused by a pipeline's lack of capacity to deliver the gas it has agreed to deliver. 18 C.F.R. Sec. 281.203(a)(6), Joint Appendix (J.A.) at 344. 72 The Agricultural Petitioners argue that FERC's rules should implement the priorities established by the NGPA for capacity curtailments as well as supply curtailments. 3 They contend that the NGPA does not distinguish between supply curtailments and capacity curtailments, noting that the statute provides that no curtailment plan of an interstate pipeline may provide for curtailment except in accord with the priorities it establishes. NGPA Secs. 401, 402, 15 U.S.C. Secs. 3391, 3392. Petitioners point out the effects of curtailment upon users of gas are the same, regardless of whether the curtailment is caused by inadequate supply or inadequate capacity. 73 United Gas Pipe Line Company argues in its intervenor's brief that capacity curtailments are unique and are unsuited to resolution by imposition of end-use priorities. It argues that this is a strong indication that Congress did not intend the NGPA to apply to capacity curtailments. 74 The Commission, while arguing that [i]t was supply, not capacity, curtailments which provided the impetuous [sic] for introduction of legislation which became the NGPA, Br. at 55 (citing H.R.Rep.No.95-543, Vol. II at 383-92, 537 (1977); S.Rep.No.95-436 at 8, 15-16, 17-19, 25 (1977) U.S.Code Cong. & Admin.News 1978, p. 7659), does not contend that the NGPA is inapplicable to capacity curtailments. Its decision on rehearing noted that curtailments in recent years have largely been caused by supply shortages and that capacity curtailments have been relatively rare. It therefore declined to prescribe a general rule applicable to capacity curtailments, stating that persons faced with capacity curtailments who believe that the NGPA should be applicable to them may avail themselves of their Natural Gas Act remedies. J.A. 405. These remedies include the filing of a complaint pursuant to section 5 of the Natural Gas Act, 15 U.S.C. Sec. 717d, alleging that a pipeline's existing curtailment plan is unjust, unreasonable, unduly discriminatory, or preferential, because it does not apply to capacity curtailments. They may also seek an adjustment requiring that FERC's rules on curtailment as applied to a particular pipeline be modified to include capacity curtailments. See 18 C.F.R. Sec. 1.41 (1980). In short, FERC's refusal to prescribe a general rule for capacity curtailments reflects the agency's desire to deal with such curtailments by order on a case-by-case basis as they arise. 75 We cannot say that the Commission erred in approaching capacity curtailments in this manner, in view of the relative rarity of capacity curtailments in recent years and the substantial discretion afforded to agencies in choosing whether to approach a particular problem by general rulemaking or order. See NAACP v. FPC, 425 U.S. 662, 668, 96 S.Ct. 1806, 1810, 48 L.Ed.2d 284 (1976); NLRB v. Bell Aerospace Co., 416 U.S. 267, 291-295, 94 S.Ct. 1757, 1770-1772, 40 L.Ed.2d 134 (1974); SEC v. Chenery Corp., 332 U.S. 194, 202-203, 67 S.Ct. 1575, 1580, 91 L.Ed. 1995 (1947); Office of Communications of the United Church of Christ v. FCC, 191 U.S.App.D.C. 360, 368, 590 F.2d 1062, 1070 (1978); British Caledonian Airways, Ltd. v. CAB, 190 U.S.App.D.C. 1, 11-12, 584 F.2d 982, 992-993 (1978). 76 We do not view the agency's action as deciding that the NGPA's curtailment priorities are not applicable to capacity curtailments. Rather, it has decided to await a specific case before dealing with that issue. 4 Accordingly, we express no opinion on this question.
77 The final rule adopted by FERC delineates the methods by which interstate pipelines are to calculate the volume of high priority and essential agricultural gas each should deliver to local distributors. The rule does not require local distributors to follow the same scheme of priorities when delivering the gas to end users. The Agricultural Petitioners 5 argue that the Commission has run afoul of section 401 of the NGPA and section 4(b) of the Natural Gas Act, 15 U.S.C. Sec. 717 et seq., by not extending the priority rules to the local distributors. 78 Petitioners' NGPA argument is based on the language of section 401(a), which provides that: 79 [t]he Secretary of Energy shall prescribe and make effective a rule ... which provides that, notwithstanding any other provision of law ... and to the maximum extent practicable, no curtailment plan of an interstate pipeline may provide for curtailment of deliveries of natural gas for any essential agricultural use, unless such curtailment-- 80 (1) does not reduce the quantity of natural gas delivered for such use below the use requirement [certified by the Secretary of Agriculture pursuant to section 401(c)]; or 81 (2) is necessary in order to meet the requirements of high-priority users. 82 15 U.S.C. Sec. 3391(a). By this Act Congress instructed the Secretary of Energy to prohibit curtailment plans which cut down the amount of gas available for essential agricultural use for any reason other than making such gas available for high-priority users. 83 Petitioners argue that any interstate pipeline curtailment plan that does not contain provisions requiring local distributors receiving gas from the pipeline to deliver gas according to the priorities of the pipeline's curtailment plan violates section 401(a). According to petitioners, curtailment plans that do not require the interstate pipelines to police the compliance of local distributors will allow the local gas companies to take delivery of high-priority gas or essential agricultural gas and deliver it to any and all customers. Petitioners want the Commission to require the interstate pipelines to condition delivery of priority gas on the local distributors' promise to follow the priority scheme. According to the petitioners the lack of such provisions in the curtailment plan of an interstate pipeline renders the plan one that provide[s] for the curtailment of deliveries of natural gas for any essential agricultural use. 84 We think section 401(a) was not intended to reach the activities of local distributors. The statutory language refers to the curtailment plans of interstate pipelines. During the progress of the NGPA through the Congress the House adopted language which did reach the activities of local gas companies. Section 411(a) of H.R. 8444 provided that: 85 Notwithstanding any other provision of law, no pipeline company and no local distribution company may curtail deliveries to any person who uses natural gas for any agricultural use identified as an essential agricultural use by the Secretary of Agriculture ... 86 H.R. 8444, 95th Cong., 2d Sess. Sec. 411(a) (1978); 123 Cong.Rec. 26169-70 (1978). This language did not survive the action of the Conference Committee. H.R.Rep.No.95-1752 at 111-113, 95th Cong., 2d Sess. (1978). U.S.Code Cong. & Admin.News 1978, p. 7659. The language of section 401(a) does not mention the practices of local distributors. The fair inference from the exclusion of the language of the House Bill is that local distributors are not covered. 87 The Agricultural Petitioners respond to this legislative history by arguing that the Commission will not be required to regulate the local distributors if the Commission can require the interstate pipelines to do so. The Petitioners contend that the interstate pipeline should be required to police the priority scheme of the Act through restrictions on delivery of priority gas to nonpriority customers. 88 We think that if Congress had desired to mandate such a system for regulating the thousands of local gas companies in the United States it would have used language similar to that found in section 411(a) of H.R. 8444. While the language that was adopted prohibits interstate pipeline curtailment plans which would divert gas from priority users, it does not prohibit interstate curtailment plans which may result in such diversion by local distributors. 89 The Agricultural Petitioners also assert that the Commission's final rule will allow the interstate pipelines to file curtailment plans which promote discrimination between local distributors and between end users of natural gas. They argue that the Commission's rule does not comply with section 4(b) of the Natural Gas Act, which provides that: 90 No natural-gas company shall, with respect to any transportation or sale of natural gas subject to the jurisdiction of the Commission, 91 (1) make or grant any undue preference or advantage to any person or subject any person to any undue prejudice or disadvantage, or 92 (2) maintain any unreasonable difference in rates, charges, service, facilities or in any other respect, either as between localities or as between classes of service. 93 15 U.S.C. Sec. 717c(b). 94 This court held in North Carolina v. FERC, 584 F.2d 1003 (D.C.Cir.1978) that under section 4(b) discrimination resulting from an end-use plan can be justified only to the extent that the plan actually does protect high-priority uses from curtailment ahead of low priority uses. Id. at 1012 (emphasis in original). Under the North Carolina rule the Commission must scrutinize a curtailment plan to see if its provisions would effectuate the delivery of priority gas to priority customers. 95 The Agricultural Petitioners assert that, because the interstate pipelines will curtail delivery of gas to the distributors without requiring all local distributors to pass on the gas, undue discrimination will result. Local distributors that do pass through in accordance with the priorities will be disadvantaged as compared with those distributors that ignore the priority scheme. 96 There is undoubtedly discrimination present when an interstate pipeline delivers more gas to one local distributor than another based on the priority of the local customers. The delivery of differing volumes of gas to local distributors is discrimination that is essential to the protection of high priority and essential agricultural gas users. That plans filed under the Commission's rule will not force the distributors to pass through the priority gas, however, does not render such discrimination undue under section 4(b). The discrimination would be present either with such provisions or without. Nothing in the North Carolina case requires the Commission to regulate local distributors because some of them may frustrate the priority scheme contained in an interstate pipeline curtailment plan. 97 The Agricultural Petitioners also assert that the curtailment plans filed under the Commission's rule will impermissibly discriminate between direct customers of the pipelines and those customers who receive their gas through a local distribution company (indirect customers of the pipeline). The Petitioners cite Sebring Utility Comm'n v. FERC, 591 F.2d 1003 (5th Cir.), cert. denied, 444 U.S. 879, 100 S.Ct. 167, 62 L.Ed.2d 109 (1979) as their authority. The Sebring case involved a pipeline that curtailed service to all direct customers before curtailing service to indirect customers, regardless of priority. Petitioners cannot say that the Commission's final rule allows the interstate pipelines to ignore the priority scheme of the NGPA; instead they contend that a local distributor might deliver priority gas to a non-priority customer. They argue that such action should be attributed to the interstate pipeline that failed to prevent such action. We think, however, that absent some action on the part of the interstate pipeline to cause such a diversion of priority gas the decisions of the local distributors are not attributable to the interstate pipelines; the pipelines would not violate section 4(b) by delivering gas according to the priority scheme of the Commission's final rule.
98 In Order Nos. 29 6 and 29-C, 7 FERC promulgated a rule establishing a mechanism for determining what percentage of a high-priority customer's needs must be filled by a gas pipeline that had been one of several suppliers to the customer. The rule provides that each pipeline is responsible for supplying a proportion of the customer's high-priority gas needs equal to the pipeline's percentage contribution to the customer's total needs during the base period. 8 99 The state of Louisiana and several intervenors 9 (petitioners) challenge the rule's allocation formula, arguing that it violates the non-discrimination 10 and procedural requirements 11 of the Natural Gas Act (NGA), 15 U.S.C. Sec. 717 et seq., and fails to implement the curtailment priorities 12 of the NGPA. We find that the challenged orders fall within FERC's regulatory powers, and that petitioners' other arguments are premature given the acknowledged availability of an adjustment procedure. We thus affirm the facial validity of the regulation. 100 The interim rule 13 promulgated by FERC did not require a specific allocation mechanism. Rather, it directed pipelines to amend their tariffs to provide special relief from curtailment where such relief would be needed to assure delivery of gas to agricultural and high-priority users who would otherwise be curtailed. The gist of petitioners' argument is that only such an ad hoc approach is capable of fulfilling the non-discrimination requirement of the NGA as well as effectuating the curtailment priorities established in the NGPA, and thus that the final rule is unlawful on its face. Specifically, petitioners point out that utilization of FERC's allocation formula generates results consistent with the statutory demands only when all pipeline suppliers of a given customer are suffering from the same percentage curtailment in each priority category; in the absence of such identity in curtailment conditions, as was often the case during the gas shortage, 14 high-priority customers of a pipeline could be curtailed while lower-priority needs of customers of the same pipeline were still being serviced. 15 101 Petitioners rely on our decision in North Carolina v. FERC, supra, for support of their contention that the specification of an allocation mechanism is inherently violative of the statutory commands of the NGA. 16 In that case, the court held that FERC could not impose a curtailment plan with a similar allocation mechanism on a pipeline without considering the actual end-use impact of the plan. The court held that such plans were inherently discriminatory; 17 the only question was thus whether the discrimination was unreasonable within the meaning of section 4(b) of the NGA. 18 Acknowledging that discrimination necessary to assure parity of treatment for equivalent end uses could be reasonable, 19 the court remanded the case for consideration of whether the plan at issue would in fact assure parity in that particular case. 102 In short, petitioners rely on a case holding enforcement of a curtailment plan in a particular situation arbitrary and capricious on the record of that proceeding for the proposition that the regulation adopting portions of that plan as a model is per se unlawful, a logical leap specifically disclaimed by the panel in the earlier case. 20 As FERC has pointed out, see Supplemental Br. for Respondent FERC at 7, different standards guide our review of the Commission's promulgation of a rule, and its implementation in a given case. In promulgating general rules, the Commission is not required to determine, and take into account, the actual impact of the rule on each person subject to the rules. See United States v. Florida East Coast Ry., 410 U.S. 224, 246, 93 S.Ct. 810, 821, 35 L.Ed.2d 223 (1973); United States v. Allegheny-Ludlum Steel Corp., 406 U.S. 742, 749, 92 S.Ct. 1941, 1946, 32 L.Ed.2d 453 (1972); Permian Basin Area Rate Cases, 390 U.S. 747, 768-774, 88 S.Ct. 1344, 1360-1363, 20 L.Ed.2d 312 (1968). Rather, it is free to reason from the particular to the general, Assigned Car Cases, 274 U.S. 564, 583, 47 S.Ct. 727, 733, 71 L.Ed. 1204 (1927), and to correct any resultant inequities and hardships by providing exemption procedures. United States v. Allegheny-Ludlum Steel Corp., supra, 406 U.S. at 755, 92 S.Ct. at 1949 (citing Permian Area Rate Cases, supra, 390 U.S. at 784-786, 88 S.Ct. at 1368-1369). 103 In the instant case, the Commission recognized that the allocation formula promulgated in Order Nos. 29 and 29-C might not be the most appropriate rule in all circumstances. Indeed, in Order No. 29-C, the Commission noted: 104 In applying Order No. 29, the Commission has not been inflexible. Where the rule was obviously unsuited to the system of a particular pipeline, it has not been applied. The Commission has also evinced flexibility in molding curtailment plans in the settlement context. 105 If petitioners believe the rule unsuited to individual pipeline curtailment plans, the appropriate avenue for relief is a 502(c) adjustment or offer of settlement, not rehearing of the rule. 21 106 Some of the petitioners seem to have already successfully utilized this adjustment process. 22 107 Petitioners nonetheless claim the adjustment process is inadequate to solve the problems generated by the challenged rule. First, they contend that the adjustment procedure lacks necessary safeguards. However, we neither find nor were given any support for the proposition that the missing safeguards 23 are necessary. 24 Second, petitioners argue the adjustment procedures are likely to be useless, when viewed in the context of the Commission's stated views and actions on related subjects. 25 This fear has not been borne out by actual experience; 26 more importantly, we are not inclined to strike down a rule merely because of a petitioner's fear that the implementing agency may not conduct exemption proceedings in good faith. If the agency actually abuses its authority by refusing in an arbitrary, capricious or unreasonable manner to grant exemptions, petitioners will have every opportunity to attack those refusals at that time. 108 Finally, petitioners argue that the rule is defective because it implement[s] and chang[es] curtailment programs without utilizing the procedural mechanisms established in sections 4 and 5 of the NGA. Petitioners' argument that pipelines must be free to file tariffs without regulatory restraint, however, is contradicted by the words of the applicable statutes 27 and judicial precedent. 28 The Commission is free to announce constraints on tariff filings in the form of rules, though it must accept or reject rates on their individual merits. 29 109 FERC acted within its authority in promulgating the challenged portions of Order Nos. 29 and 29-C. As yet, petitioners have presented no evidence of any abuses in their implementation. The action of the Commission is therefore upheld.