Opinion ID: 392942
Heading Depth: 2
Heading Rank: 4

Heading: FERC's Action as it Relates to the Emerging Legislative Framework Regarding Synfuels

Text: 76 We believe our holding that the Natural Gas Act does not vest FERC with authority to promote commercial coal gasification plants is consistent with recent Congressional activity in the natural and synthetic gas fields. Furthermore, viewing Opinion No. 69 in conjunction with this recent legislative activity, we are convinced that FERC improperly ignored recent Congressional action directly affecting the financing of the Great Plains project. 77 1. A review of the legislative history in the energy area subsequent to enactment of the Natural Gas Act shows that Congress repeatedly has declined to extend FERC's jurisdiction to include synthetic gas. In 1973-74 two bills were introduced in Congress which would have extended Commission jurisdiction to unmixed synthetic gas. S. 3861, 93d Cong., 2d Sess., 120 Cong.Rec., 25925 (1974); see also S. 2506, § 105, 93d Cong., 1st Sess., 119 Cong.Rec. 32163 (1973). Neither bill was passed. Additionally, during Congressional consideration of various bills which ultimately became the Natural Gas Policy Act of 1978, Congress specifically disclaimed any intention to include unmixed synthetic gas in its definition of natural gas over which FERC would have jurisdiction. The definition of natural gas is identical to the definition of natural gas provided in the Natural Gas Act. It is not intended to extend the provisions of the Act to facilities for the production of synthetic natural gas.... S.Rep.No.95-1126, 95th Cong., 2d Sess. at 69 (1978) (Conference Report). 78 2. Congress has specifically authorized a different governmental entity the Synthetic Fuels Corporation to provide governmental support for risky synfuel projects, including coal gasification plants. By comparison, FERC's certification and rate setting tools seem inappropriate and inadequate for that task. The Synthetic Fuels Corporation has been given explicit authority to provide various types of financial assistance to private synthetic fuel projects. ESA 33 at § 131. Under the first phase of its mandate, through June 30, 1984, the Corporation is authorized to commit up to $20 billion, subject to specific appropriations. ESA at §§ 151(a), 152(a), 195(a). After June 30, 1984, an additional $68 billion may be appropriated upon Congressional approval of the Corporation's overall strategy to achieve the established production goals. ESA at § 126(b), (c). In addition, the Act provides interim authority to provide financial assistance of up to $3 billion for immediate commitment to synthetic fuel projects. ESA at § 105(a), amending the Defense Production Act of 1950, § 711(a)(2), 50 U.S.C.App. § 2161(a). 34 The Act also specifically authorizes the Department of Energy to make a solicitation, thirty days after enactment, for commercial scale high-Btu coal gasification plants. ESA at § 127(e). 79 However, whether coal gasification will eventually prove to be the most advantageous synfuel option from among the variety of those now on the horizon is acknowledged to be unclear. See generally S.Rep. 96-387, supra, at 134-35 (varying estimates on likely projected output from coal gasification plants); Synthetic Fuels from Coal, supra note 6, passim. Despite many sanguine assessments as to its potential, there are those who urge either slow, selective development of demonstration coal gasification plants, or none at all. See, e. g., Ford Foundation, Energy: The Next Twenty Years 53, 546, 559, 579 (1979) ((T)here is no economic justification for pushing ahead with large-scale commercial coal-to-pipeline gas projects at this time. Id. at 53. Little urgency attaches to deploying a high-Btu gasification plant. Id. at 579.); Allain, Environmental Implications of a Synthetic Fuel Industry, 4 Harv.Environ.L.Rev. 391, 402, 412 (1980). 80 In light of the many uncertainties and options in this area, Congress wisely delegated responsibility to the Synthetic Fuels Corporation to develop a comprehensive strategy to achieve the nation's synthetic fuel production goals. ESA at § 126(b). As part of the comprehensive strategy, Congress directed the corporation to consider all practicable means for the commercial production of synthetic fuel, employing the widest diversity of feasible technologies. In awarding financial assistance, the corporation must consider 81 the diversity of technologies (including differing processes, methods, and techniques); ... the potential cost per barrel or unit production of synthetic fuel from the proposed synthetic fuel project; ... the overall production potential of the technology, considering the potential for replication, the extent of the resource and its geographic distribution, and the potential end use; and ... the potential of the technology for complying with applicable regulatory requirements. 82 Id. at § 131(b)(3). Congress provided the corporation with a variety of financing tools, including price guarantees, purchase agreements, loan guarantees, loans, and joint ventures, and delineated both an order of preference for using the tools as well as factors to be considered in applying them to particular projects. Id. at § 131(b)(2). 83 Thus, Congress carefully crafted a special means for providing federal financial assistance for synfuel development. The Congressional plan for developing the nation's synfuel capability is an integrated, comprehensive one, delegating specific authority to the Synthetic Fuels Corporation to take into account both the various synfuel options as well as the various financial tools available for synfuel promotion, and to accommodate both within a national synfuel production policy. 84 By way of contrast, however, FERC was never given the job of developing a comprehensive strategy for developing the nation's synfuel industry. It possesses no expertise in making determinations regarding the relative merits of different synfuel processes, methods or technologies. Nor can it fairly and freely evaluate the various financing strategies available in theory for particular synfuel plants and select those best suited for each project. Its statutory authority in this area is limited to certification and rate setting on the basis of applications presented to it. In rejecting loan guarantees as an alternative financing option in this case, for example, FERC stated that it was an academic matter because we do not have before us a proposal involving all taxpayers ... and that option is not in our power to order. Opinion No. 69, at 45. 35 85 Quite possibly because its options were thus limited, FERC approved financing arrangements which, whether or not they violated the public convenience and necessity standard as the Administrative Law Judge found, 36 were certainly not ordered with the interests of ratepayers foremost in mind, 37 but rather with an eye toward keeping the Great Plains project on track. The construction surcharge and the treatment of applicants' investment tax credit stand out as particularly questionable provisions of the approved scheme in terms of ratepayers' interests. By utilizing its statutory tools for a non-statutory purpose, FERC very likely was distracted from its primary statutory duty to protect the interests of ratepayers. See Atlantic Refining Co. v. Public Service Commission, 360 U.S. 378, 388, 79 S.Ct. 1246, 1253, 3 L.Ed.2d 1312 (1959); FPC v. Hope Natural Gas Co., 320 U.S. 591, 610, 64 S.Ct. 281, 291, 88 L.Ed. 333 (1944) (The primary aim of (the Natural Gas Act) was to protect consumers against exploitation at the hands of natural gas companies.); Henry v. FPC, supra, 513 F.2d at 403. 86 3. Opinion No. 69 and its companion Opinion No. 69-A improperly ignored contemporaneous Congressional action directly affecting the financing of the Great Plains facility. FERC's action, when viewed in light of this Congressional activity, seems to have been prompted at least in part by an attitude that because it felt Congress had not acted speedily, it would take up the slack. See Opinion No. 69, Holden, Commissioner, concurring in part and dissenting in part, at 6 (The constitutional regime does not permit us to say 'Congress hasn't done it. We're going to do it.' ). Cf. Opinion No. 69, at 43, 45 (majority acknowledges that it may be correct ... that ... the costs would best be shared by (the taxpayers), but finds evidence indicating that it might take two years to obtain such financing from Congress). It is not for an administrative agency, however, to preempt Congressional action or to fill in where it believes some federal action is needed. It goes without saying that appropriate respect for legislative authority requires regulatory agencies to refrain from the temptation to stretch their jurisdiction to decide questions of competing public priorities whose resolution properly lies with Congress. Cf. American Ship Building Co. v. NLRB, 380 U.S. 300, 317-18, 85 S.Ct. 955, 966-967, 13 L.Ed.2d 855 (1965) (Court rejected the role assumed by the Board to assess the relative economic power of adversaries in the collective bargaining process, warning against the unauthorized assumption by an agency of major policy decisions properly made by Congress.) 87 Before, during, and after the Commission's issuance of Opinion No. 69, Congressional attention was specifically focused on the degree and nature of federal financial support for synfuels. Just three weeks before Opinion No. 69 was handed down, the House of Representatives held hearings on the Great Plains gasification project, and was told by Deputy Undersecretary of Energy Robert Hanfling that (w)e intend, hopefully through the Energy Security Corporation, which would be the proper vehicle in the future, for loan guarantees ... to be provided to the project. Oversight: Great Plains Gasification, Hearing Before the Subcommittee on Energy Development and Applications of the Committee on Science and Technology, 96th Cong., 1st Sess. 23 (Nov. 2, 1979). Another witness, Mr. Arthur R. Seder, Jr., Chairman and President of American Natural Resources Company, told the Committee that each of the bills (currently under consideration) could be applied to the Great Plains Project because they carry one concept in common. Each offers financial support through two devices: price supports and loan guarantees. Id. at 64. In fact, the Committee was informed by Mr. Seder that although FERC was then considering approval of consumer backstopping for the project, the Commission's draft conclusions (not yet issued) would provide for shifting the risk of backstopping the debt to the public at large in the event Congress makes loan guarantees available. Id. at 85. Thus Congress was clearly aware of the role which loan guarantees might play in the financing of Great Plains, and was actively considering such financing for the project immediately prior to FERC's action. 88 One week after the above testimony was heard, Congress, on November 9, 1979, enacted and sent to the President for signature the first appropriations under FERDA, 38 P.L. 96-126, 93 Stat. 954, at 970-71 (1979). The President signed the bill into law on November 27, 1979. Title 2 of the statute permitted the Department of Energy to make loan guarantees of up to $1.5 billion under FERDA without any requirement for prior Congressional approval for facilities costing in excess of $50 million as otherwise would have been required by the FERDA statute. In addition, the conference report specifically directed that $22 million in additional funds should be made available to the Great Plains project for preliminary work on a commercial coal gasification facility. H.Rep.No.96-604, 96th Cong., 1st Sess. 28-29 (1979). Although the appropriations bill was passed two weeks prior to the issuance of Opinion No. 69 by FERC on November 21, the Commission failed even to mention it. And while the appropriations Act was signed by the President on November 27, almost two months before the Commission issued its January 21, 1980 decision on rehearing, Opinion No. 69-A, the Commission again made no reference to it. This sequence of events convinces us that FERC made no effort to accommodate its action regarding Great Plains with what it knew was imminent if not actual Congressional action regarding the financing of synfuels generally, and Great Plains specifically. 89 In sum, a review of recent Congressional activity concerning synfuels supports our conclusion that the Commission acted without proper authority in ordering Opinion No. 69. Congress has repeatedly declined to permit any extension of FERC authority into the synthetic gas area; on the other hand, it has specifically authorized a different governmental unit to undertake the tasks which FERC sought to perform through questionable use of its regulatory tools. In addition, FERC improperly ignored contemporaneous Congressional activity in its attempt to fill in where it believed some federal financial help was needed.