Opinion ID: 492011
Heading Depth: 3
Heading Rank: 2

Heading: Policy considerations militating against any intervention.

Text: 259 In refusing to modify producer/pipeline contracts, FERC noted that such action would raise extremely serious questions regarding the ability of private parties in the gas production industry to rely on private contracts as a tool for structuring basic economic relationships. J.A. 332. In its brief, moreover, FERC invokes the need to be sensitive to the congressional policy decision, inherent in the NGPA, to move toward a deregulated gas commodity market. FERC Brief at 130-31. As the Supreme Court has recently stated, To the extent that Congress denied FERC the power to regulate affirmatively particular aspects of the first sale of gas, it did so because it wanted to leave determination of supply and first-sale price to the market. Transcontinental Gas Pipe Line Corp. v. State Oil & Gas Board, 474 U.S. 409, 106 S.Ct. 709, 717, 88 L.Ed.2d 732 (1986). 260 The Commission also invoked the closely related policy of holding pipelines accountable for their decisions in order to induce them to act more in the manner of firms in a competitive industry. J.A. 44-48. Although the context was a discussion of risk allocation as between pipelines and their customers, FERC's reliance on it in that context underscores FERC's commitment to the policy of nurturing a competitive wellhead market. 261 In essence FERC argues that the pipelines' subjection to regulation is hardly, in itself, a reason why they should be able to escape contractual liability more readily than unregulated firms. Like those firms, pipelines are able to invoke the doctrines of impossibility and impracticability and to assert defenses under force majeure clauses. 29 They may also be able to persuade their suppliers to accept contract adjustments by appealing to the latters' long-term business interests. These steps would be the only recourse open to an ordinary middleman in a competitive market who had entered into unlucky or improvident contracts. FERC suggests that pipelines should not enjoy an extra means of escape. 262 FERC invokes the same principle in distinguishing producer-pipeline contracts from those between pipelines and LDCs, which it proposes forcibly to adjust pursuant to the CD conversion and reduction options. First, FERC notes that, unlike a provision granting pipelines relief from uneconomical supply contracts, the CD conversion/reductionption is essential if Order No. 436 is to carry out its fundamental purpose of providing all parties meaningful access to low-cost gas. See J.A. 414-25, 1119-21. See also Maryland People's Counsel v. FERC, 761 F.2d 768 (D.C.Cir.1985) (MPC I ); Maryland People's Counsel v. FERC, 761 F.2d 780 (D.C.Cir.1985) (MPC II ); Maryland People's Counsel v. FERC, 768 F.2d 450 (D.C.Cir.1985) (MPC III ). Second, FERC highlights the fact that the troublesome pipeline-producer contracts are largely straightforward commercial agreements while pipeline-consumer contracts are heavily regulated utility-type 'service agreements.'  J.A. 1120. 263 FERC's policy arguments in favor of subjecting pipelines to the pressures of a competitive market seem powerful and well grounded in the statutes it is authorized to enforce. Lest the Commission on remand place undue weight upon them, however, we must note some limits. Most important, producers' access to transportation under Order No. 436 is itself dependent on government intervention. To condition that access on some producer cooperation in disposing of outstanding contracts is hardly identical to raw governmental abrogation of the contracts. Second, while the middleman buying and selling in competitive markets will bear the risk associated with his bad luck or improvidence, the pipeline's market power allows it to pass some of that burden forward. As noted above, some portion of that ability will remain despite open access under Order No. 436 and despite FERC's view that passthrough of buy-out costs is permissible only where they have been prudently incurred. Third, the pipelines have been caught in an unusual transition. They entered into the now uneconomic contracts in an era when government officials berated pipeline management for failures of supply and constantly predicted continuing energy price escalations. Moreover, as sales and transportation were then wholly bundled, and unregulated pipeline gas trading affiliates were unknown, there was no way that a pipeline could generate direct profits on the gas-trading component of its business. Thus, their being abruptly and retroactively subjected to the downside risk is at least jarring. See Carpenter, Jacoby & Wright, Adapting to Change in Natural Gas Markets, in Energy, Markets & Regulation: Essays in Honor of M.A. Adelman 1 (1986) (tracing evolution of natural gas pipelines' exposure to risk). For the reasons already noted, see supra part IV.B., the resulting equities are not enough to block necessary pro-competitive reforms. But they are not weightless. 264