Opinion ID: 394102
Heading Depth: 1
Heading Rank: 4

Heading: stipulation iii

Text: 58 We now turn to Mississippi Valley's request that we vacate the Commission's approval of Stipulation III, providing for the phased elimination of rate zones to allocate transmission costs. This is the substantive issue on which Mississippi Valley must prevail if Southern is to retain rate zone allocation of transportation costs. Mississippi Valley primarily argues that the Commission did not make the necessary findings under § 5(a) of the NGA and that the evidence does not support a conclusion that the old system was unjust. Mississippi Valley also raises several contentions that the Commission's decision is arbitrary and unreasonable in various aspects, that it creates an illegal preference in one particular, and that it is procedurally defective. 59 In reviewing a rate order, this court examines only the end result reached and the reasoning expressed by the Commission. Cities Service Gas Co. v. FERC, 623 F.2d 1002 (5th Cir. 1980). The expertise of the Commission dictates that a presumption of validity attaches to the Commission's rate orders. The Supreme Court has stated: 60 Congress has entrusted the regulation of the natural gas industry to the informed judgment of the Commission, and not to the preferences of reviewing courts. A presumption of validity therefore attaches to each exercise of the Commission's expertise.... 61 Permian Basin Area Rate Cases, 390 U.S. 747, 767, 88 S.Ct. 1344, 1360, 20 L.Ed.2d 312 (1968). When the issue before the court is whether costs have been properly allocated, the Supreme Court has warned: 62 Allocation of costs is not a matter for the slide-rule. It involves judgment on a myriad of facts. It has no claim to an exact science. 63 Colorado Interstate Gas Co. v. FPC, 324 U.S. 581, 589, 65 S.Ct. 829, 833, 89 L.Ed. 1206 (1945). 64
65 Mississippi Valley argues that the Commission had the burden of proof to find the existing rate zone allocation method to be unjust, unreasonable, unduly discriminatory, or preferential, pursuant to the requirements of § 5(a) of the NGA, before it could order a change in allocation of transmission costs. The validity of Mississippi Valley's claim depends upon whether the Commission's decision was the result of a § 5(a) proceeding or a §§ 4(d) and (e) proceeding. Sections 4(d) and (e) specify the procedure to be followed when a pipeline proposes a change in its rate filing and seeks Commission approval of such proposed rate. Section 5(a) specifies the procedure and burdens to be followed when the Commission finds a rate charged to be unjust and imposes its own rate upon the pipeline. 66 The procedures and burdens imposed on a pipeline proposing a change in its filing are different from those the Commission shoulders when it imposes a rate upon a pipeline. Southern Natural Gas Co. v. FPC, 547 F.2d 826 (5th Cir. 1977). Courts have recognized that § 4(d) allows greater celerity and flexibility in establishing rates than that found in § 5. Ibid at 832; Sebring Utilities Commission v. FERC, 591 F.2d 1003 (5th Cir.), cert. denied, 444 U.S. 879, 100 S.Ct. 167, 62 L.Ed.2d 109 (1979). 67 Under § 4(d) of the NGA, the party proposing the change need make no showing at all with respect to the new rate if the Commission does not suspend the proposed change and order a hearing. If the Commission does choose to investigate the proposed change, it determines only whether the proposed change is just and reasonable. Section 4(e) places the burden of justifying a rate increase on the proponent thereof. However, the party proposing the change need not justify those parts of its petitions which make no change in the status quo. 24 Public Service Commission v. FERC, 642 F.2d 1335 (D.C.Cir.1980), U.S. appeal pending. 68 Under § 5(a) of the NGA, the Commission has the authority to impose its own rates or terms upon a service under its jurisdiction either on its own motion or on complaint from a third party. To do this, however, the Commission must make a finding that the filed rate or term is unjust, unreasonable, unduly discriminatory, or preferential, a determination with respect to which the Commission bears the burden of proof. Public Service Commission v. FERC, supra; Sebring Utilities Commission v. FERC, supra; Northern Natural Gas Co., 14 F.P.C. 11 (1955), aff'd sub nom. Interstate Power Co. v. FPC, 236 F.2d 372 (8th Cir. 1956), cert. denied, 352 U.S. 967, 77 S.Ct. 352, 1 L.Ed.2d 321 (1957). Thus, it is more difficult to effect a change under the § 5(a) procedure. The combined effect of § 4(d) and § 5(a) is to give the regulated utility more flexibility in the design and control of the rates under which it must operate. 25 69 In Public Service Commission v. FERC, supra, relied upon by Mississippi Valley, a pipeline proposed a rate increase. Although the pipeline had proposed no change in zone rate differentials for transportation costs, several parties pressed for an abolition of zones and the institution of an Mcf-mile method. 26 Without finding the old allocation method unlawful, the Commission ordered the Mcf-mileage method established. The District of Columbia Circuit vacated the Commission's decision, rejecting the Commission's argument that because the pipeline initiated the rate increase under § 4(d), the Commission did not have to follow § 5(a) procedures with respect to changes not requested. 642 F.2d at 1345-6. Because the pipeline had not requested a change in the method of allocating transportation costs, the District of Columbia Circuit held the Commission was required to find the old method unlawful before it could impose a new method. 27 That court noted, though, that had the pipeline proposed the changes, the Commission could have approved such changes under § 4(e) in whole or in part. 642 F.2d at 1345. 70 In the petition on review, Southern in its initial filing proposed to retain rate zones modified to take account of the receipt of LNG. However, the proposal to eliminate zones in a phased-out process was also initiated by Southern. The fact that this proposal was the result of a settlement does not mean it was coerced. It remains a change requested by Southern pursuant to § 4(d) of the NGA. The Commission did not force the settlement, imposed no change of method on the settling parties, and the § 5(a) findings and burdens can in no way be imposed on the Commission. Accordingly, we reject Mississippi Valley's argument that the Commission had to first make a finding that Southern's existing zone system of allocating transmission costs was unlawful and had to bear the burden of demonstrating such a finding. 28
71 In passing on Southern's proposed change, the Commission relied significantly on its finding that rate zones had become unfair, impractical, and unreasonable in approving Southern's proposal. In determining whether a proposed change is just and reasonable, a relevant consideration may be whether the existing rate is still just and reasonable. Mississippi Valley maintains there is no substantial evidence to support the Commission's conclusion that the rate zones were no longer fair, practical or reasonable. In making this argument, Mississippi Valley does not maintain that there is no evidence supporting the Commission's finding. Instead, it argues that the facts supporting the retention of zones is so overwhelming as to render the finding unsupported by substantial evidence. 72 Mississippi Valley is correct that in applying the substantial evidence test the reviewing court must look to the entire record and must take into account whatever in the record fairly detracts from the finding. Universal Camera Corp. v. NLRB, 340 U.S. 474, 488, 71 S.Ct. 456, 464, 95 L.Ed. 456 (1951); Abilene Sheet Metal, Inc. v. NLRB, 619 F.2d 332 (5th Cir. 1980). However, the substantial evidence test states that an agency's decision need not be supported by the weight of the evidence; the possibility of drawing two inconsistent conclusions from the evidence does not prevent an administrative agency's finding from being supported by substantial evidence. Consolo v. Federal Maritime Commission, 383 U.S. 607, 620, 86 S.Ct. 1018, 1026, 16 L.Ed.2d 131 (1966). (Substantial evidence is) such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. Refrigerated Transport Co. v. I.C.C., 616 F.2d 748, 751 (5th Cir. 1980) (citations omitted). 73 Mississippi Valley relies primarily on two factors in detracting from the Commission's conclusion. First, there was a greater percentage differential in miles of haul between Zone 1 and a combination of Zones 2 and 3 and after introduction of LNG, than existed between Zone 1 and 2 or between Zones 2 and 3 before introduction of LNG. 29 Second, Zone 1's load factor 30 is 65.74%, which is higher than both Zone 2's load factor of 57.73% and the load factor of the pipeline as a whole which is 64.17%. Moreover, Zone 1's load density from 1963 when zoned rates were first approved for Southern's system to the present has increased, while the load densities for Zones 2 and 3 have decreased from 1963 to the present. 74 We do not deny that these are facts supporting the retention of zones. Nor, from what we can tell from the record, does the Commission. Instead, the Commission balanced the facts for and against rate zones, and found those against to prevail. We believe there are sufficient relevant facts in the record such that a reasonable mind would accept as adequate the Commission's conclusion. Refrigerated Transport Co. v. I.C.C., supra. 75 Because Mississippi Valley will benefit from the introduction of LNG in that the system will become more reliable and flexible, it is fair to make it and Zone 1 customers, along with the customers in Zones 2 and 3, shoulder the burdens of a practicable and reasonable allocation of transportation costs necessitated by the introduction of LNG. 31 Had the LNG been shipped to the western end of Southern's line so that the retention of rate zones would have been practicable, the LNG purchase costs would have been higher and the system would not have been as flexible or reliable as it is with a source on the eastern terminus. (J.A. pp. 239-241). Moreover, the Commission reasonably concluded that the introduction of LNG and the resulting underutilization of Southern's mainline, decreased the importance of the distance factor and increased that of the volume factor. The conclusion that it is impractical to maintain zones is supported by the difficulty of determining which gas some Zone 3 customers are receiving with the reverse flow and the changing locations where western gas and LNG are blended. As a reviewing court, we are particularly ill-equipped to determine what difficulties may be encountered in the several determinations e. g., which gas is received by a customer, or what percentage of blends of gas are received by a customer necessary to implement the modified method of allocation of transportation costs favored by Mississippi Valley. Finally, the conclusion that zones are no longer reasonable is supported by the fact that Zone 1 receives only approximately 10% of Southern's volume of gas. Zones 2 and 3, between which the mileage of haul differentials are negligible after LNG, receive 90%. The reduction in the percentage of customers for whom zone differentials are relevant is significant. Moreover, some Zone 3 customers, served almost exclusively by LNG, are located closer to the LNG station in Savannah than Mississippi is to the supply fields to the west. To charge these customers the Zone 3 rate, the highest on the system, is manifestly unfair when they are closer to their source of gas than Mississippi Valley is to its source of gas. Mississippi Valley suggested in its presentation that this problem could be remedied with the creation of a fourth zone. The Commission found this suggestion unreasonable. The conclusion that a fourth zone is unreasonable is supported by the fact that the Zone 3 customers served almost exclusively by LNG, nevertheless, will receive western gas on peak demand days. Mississippi Valley does not believe these are sufficient reasons to eliminate zones or to refuse to create a zone. Within any zone, some customers will subsidize the transmission costs of other customers within the same zone. Mississippi Valley argues that this inevitable subsidy means the Commission's concerns are irrational. This contention only illustrates the difficulty in establishing appropriate zones for allocation of costs. No zone system will perfectly allocate costs to each customer. This is one reason courts defer to the expertise of the Commission in establishing rates. On this matter, we also defer to the Commission. 76 Viewing the evidence as a whole, we conclude the Commission's findings are supported by substantial evidence, despite the fact that Mississippi Valley does point to evidence in the record supporting the retention of zones. 77
78 An agency must either conform to its prior norms and decisions or explain the reason for its departure from such precedent. Secretary of Agriculture v. United States, 347 U.S. 645, 74 S.Ct. 826, 98 L.Ed. 1015 (1954); Central Power & Light Co. v. United States, 634 F.2d 137 (5th Cir. 1980), U. S. appeal pending; Columbia Gas Transmission Corp. v. FERC, 628 F.2d 578 (D.C.Cir.1979). Mississippi Valley complains that the Commission has departed from its own precedent without making adequate explanation. Mississippi Valley believes that the Commission has deviated from its holdings in Northern Natural Gas Co., supra, Tennessee Gas Transmission Co., 27 F.P.C. 202 (1962), and Southern Natural Gas Co., supra, the opinion initially establishing Southern's rate zones. 79 In these three prior Commission decisions, Mississippi Valley perceives a rule that transportation costs should be allocated according to distance when load factors and load densities between zones are approximately equal. Mississippi Valley is correct in asserting that these cases have language indicating that distance is of prime importance when load density and load factor between zones are approximately equal. 32 However, all these cases involved pipelines receiving gas at one terminus. 33 In approving Stipulation III, the Commission emphasized that a significant change in Southern's system was the introduction of gas at the eastern terminus of its line. This was a factor not present in the three prior Commission decisions relied upon by Southern. The Commission explained in detail why the introduction of LNG on the eastern terminus made a rate zone allocation unfair, impractical, and unreasonable. Rather than an unreasoned departure from prior precedent, the Commission's decision was a reasoned explanation as to why a new factor made reasonable a new systemwide allocation of transportation costs. 80
81 The Commission found that after introduction of LNG, Southern's system resembled Michigan-Wisconsin Pipe Line Company's system. In reviewing that company's system in Michigan-Wisconsin Pipe Line Co., 34 F.P.C. 621 (1965), the Commission found that the systemwide method of allocating transmission costs was not unreasonable or discriminatory. 34 The pipeline in Michigan-Wisconsin is shaped like a Y with one arm of the Y extending into Michigan and the other arm of the Y into Wisconsin. The similarities noted by the Commission were that on both pipelines, gas from the primary supply source flowed through the entire system and was physically received by all customers. Gas received from the downstream end in both systems, however, does not physically reach all upstream customers. Nevertheless, on both systems, all customers benefit from the additional volumes of gas introduced downstream because of the increased flexibility and reliability of the system. 82 Mississippi Valley points to differences between the two systems which it claims makes the Commission's comparison arbitrary and unreasonable. 35 We find none of these differences compelling. We defer to the expertise of the Commission. The Commission's finding of similarity falls well within the scope of those judgments presumed valid. 83
84 Mississippi Valley also maintains the decision to permit the institution of a systemwide allocation method is unreasonable in light of the unreliability of LNG. Between the Commission's opinion No. 83, and its opinion on rehearing, Algeria cut off LNG deliveries to Southern on April 1, 1980. The Commission concluded that this cutoff did not require abandonment of the systemwide method of cost allocation since at that time sufficient volumes of LNG remained available to Southern in storage to continue deliveries through the 1980-81 winter. The Commission expressly stated this issue could be reconsidered in the future if Southern Energy had to abandon its LNG facilities. This was a fair and just resolution of this problem, and Mississippi Valley's argument on this point is rejected. 36 85
86 Florida Gas is a customer located in Southern's Zone 1. Florida Gas also purchases from Southern transportation of its own gas. The Commission's order provided that Southern could charge for transportation of Florida Gas' own gas by mileage. The Commission adopted the ALJ's reasoning that there was no reason to require Florida Gas to pay for transportation by volume since with this service, it did not receive the benefits of LNG. Charging for transportation only by mileage was found to be reasonably related to the service rendered. Mississippi Valley argues that the differential in rates between Florida Gas and Zone 1 customers is an undue preference under § 4(b) of the NGA. The rate differential between transportation only and transportation of purchased gas, however, is not undue and is reasonably related to differences in services rendered. 87
88 Mississippi Valley claims that its due process rights were violated by the terms of the Stipulation III, providing that should the Commission not adopt the settlement or adopt it with modifications unacceptable to the parties, the parties would be entitled to introduce evidence in support of their original positions. Mississippi Valley argues that this was a ploy by one group of litigants aligned against its interests, attempting to force the Commission to adopt Stipulation III to avoid future hearings. The Commission on rehearing indicated it was not thus influenced and we have no reason to question the Commission's statement on the matter. Also, because the Commission adopted Stipulation III in whole, Mississippi Valley has suffered no harm. 89 Mississippi Valley also maintains that Stipulation III violates the Commission's Regulation 1.18(e), 18 C.F.R. § 1.18(e) (1980), in that stipulation III could not have been accepted without a waiver of rights to future, additional hearings. Mississippi Valley misreads this regulation. It does not contain a provision requiring waiver of rights to introduce evidence in the future should a settlement be rejected. It also is not applicable to stipulation III since it applies only to offers of settlement filed on or after June 15, 1979. 90
91 In Southern Natural Gas Co., supra, the Commission provided that administrative and general costs connected with transmitting gas and money paid by Southern to others for transmitting and compressing gas should be allocated on a mileage basis. 51 F.P.C. at 345-349. The Commission did not single out the administrative and general costs for special treatment. The Commission did provide that the costs for transmitting and compressing gas purchased from others should be correlated with Southern's mileage method of allocation by imputing a mileage factor to the gas purchased from others at the point Southern took delivery. 51 F.P.C. at 346-347. Mississippi Valley maintains that these costs should continue to be allocated on a mileage factor. The only reason offered by Mississippi Valley's witness to support this conclusion was his perception that the introduction of LNG had wrought no substantial change in Southern's system. (J.A., p. 32). Insofar as the Commission concluded sufficient change had occurred to justify the elimination of the mileage factor, the rationale for allocating these particular costs has disappeared. The Commission acted reasonably in allowing the termination of mileage allocation of these costs.