Opinion ID: 721438
Heading Depth: 3
Heading Rank: 1

Heading: Pre-granted abandonment generally

Text: 67 Many of the petitioners 41 contend that the Commission's pre-granted abandonment of firm-transportation service violates § 7. The petitioners maintain that the right-of-first-refusal mechanism provides inadequate protection to existing pipeline customers from the pipelines' market power. 68 [319 U.S.App.D.C. 76] The Commission may satisfy its § 7 obligations by making generic findings of public convenience and necessity. In Mobil Oil Exploration & Producing Southeast Inc. v. United Distribution Cos., 498 U.S. 211, 227, 111 S.Ct. 615, 625, 112 L.Ed.2d 636 (1991), the Supreme Court upheld a pre-granted abandonment scheme under the Commission's Order No. 451, even though the Commission's approval is not specific to any single abandonment but is instead general, prospective, and conditional. See also FPC v. Moss, 424 U.S. 494, 499-502, 96 S.Ct. 1003, 1007-08, 47 L.Ed.2d 186 (1976). The Court approved the Commission's findings that, under its good-faith negotiation procedures for the pre-granted abandonment of producers' sale of old gas under the NGPA to pipelines, pipelines would be protected by allowing them to buy at market rates elsewhere if contracting producers insisted on the new ceiling price. Mobil Oil, 498 U.S. at 227, 111 S.Ct. at 626. In AGA II, by contrast, the court held that the Commission had not adequately explained why pre-granted abandonment of firm-transportation in Order No. 500-H would not allow pipelines indirectly to extract monopoly profits from their customers. 912 F.2d at 1516. Most important, the Commission's proposed alternatives to existing firm-transportation service, such as interruptible transportation and stand-by service, failed to provide the existing customer with an adequate level of protection. Id. at 1517. From Mobil Oil and AGA II, we conclude that, for a finding of public convenience and necessity for pre-granted abandonment under § 7, the Commission must make appropriate findings that existing market conditions and regulatory structures protect customers from pipeline market power. 69 The Commission's initial protective measures--contractual evergreen or roll-over clauses--are by themselves inadequate. The Commission allows the pipeline and the customer to negotiate such a contractual provision allowing the parties to extend the contract before termination and thereby avoid the abandonment issue. Moreover, the Commission requires pipelines that offer evergreen or roll-over clauses to do so on a non-discriminatory basis. Order No. 636-A, p 30,950, at 30,628. Yet the Commission declined to mandate the inclusion of contract-extension clauses. Id. As the petitioners note, the voluntary nature of evergreen and roll-over clauses means that those pipelines that do enjoy market power will likely refuse to offer such clauses to their customers. Thus, voluntary contract-extension clauses alone do not provide sufficient protection to existing pipeline customers. 70 The mandatory right-of-first-refusal mechanism, however, provides substantially more protection to existing customers. 42 First, shippers bid against one another for capacity, which in the Commission's view will prevent the pipeline from using the right-of-first-refusal mechanism to push the rate above the competitive market price. 43 Second, under the right-of-first-refusal mechanism the competing bid is capped at the maximum just and reasonable rate, which protects the existing shipper from having to match a bid higher than the Commission-approved rate. [319 U.S.App.D.C. 77] If the existing customer is willing to pay the maximum approved rate, then the right-of-first-refusal mechanism ensures that the pipeline may not abandon the certificated service. In this way, even a captive customer served by a single pipeline can exercise its right of first refusal and retain its long-term firm-transportation service against rival bidders. Hence, the basic structure of the right-of-first-refusal mechanism provides the protections from pipeline market power required for pre-granted abandonment under § 7.