Opinion ID: 411637
Heading Depth: 2
Heading Rank: 2

Heading: The Pass-Through or Tracing Issue

Text: 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.