Opinion ID: 496582
Heading Depth: 1
Heading Rank: 4

Heading: analysis

Text: A. The Rule Against Retroactive Ratemaking 39 Both Columbia and the Municipal Defense Group challenge direct billing as constituting retroactive ratemaking and therefore contrary to law. The Commission defends its decisions to allow pipeline companies to directly bill their customers for deferred production-related expenses on the basis of an equitable result: 40 The Commission ... determined that allocating these costs to the pipelines' customers on the basis of volumes purchased at the time the costs were incurred will equitably bill customers for the higher amounts they should have paid based on actual purchases during the past billing periods. This is a sound reason for adopting the direct billing method; thus the Commission's choice of that method is rationally based. 41 Brief for Commission at 13 (quoting Transco, reh'g and clarification denied, 33 F.E.R.C. p 61,213 at 61,443); see also, e.g., Transco, 32 F.E.R.C. p 61,230 at 61,543 ([Transco's proposal] is administratively effective, equitable, and meets our concern that pricing signals not be distorted by the influx of substantial retroactive Order No. 94-A costs. Above all, it will break up the logjam that has existed and permit a relatively speedy passthrough of long overdue cost responsibility.). The Commission further argues that Order Nos. 94 and 94-A put everyone on notice that these compression and gathering costs would be retroactively collected, once the Commission determined the appropriate method and dollar amount. Brief for Commission at 14 (citing Transco, 32 F.E.R.C. p 61,230 at 61,544-45, and 33 F.E.R.C. p 61,213 at 61,443). 42 Although the parties have mounted an extensive semantic battle over whether the FERC orders amount to retroactive ratemaking (or rate authorization), the effect of the orders is quite clear: downstream purchasers are expected to pay a surcharge, over and above the rates on file at the time of sale, for gas they had already purchased. However described, this constitutes a retroactive rate increase that we find to be prohibited by the NGA. While that prohibition might have been overridden through adequate notice that purchasers would be expected to pay the deferred charges at a later date, Order Nos. 94 and 94-A did not constitute such notice. Because they were addressed exclusively to first sales of natural gas, they cannot be deemed to have placed downstream purchasers on notice that they in turn would be expected to absorb those costs through a system of surcharges collected after the fact. Thus there is no support for the Commission's assertion that its orders put everyone on notice. 43 The rule against retroactive ratemaking is derived from the provisions in the NGA requiring sellers of natural gas to file their rates with the Commission and defining its authority to modify them. The pertinent statutory language reads as follows: 44 Under such rules and regulations as the Commission may prescribe, every natural-gas company shall file with the Commission, ... and shall keep open in convenient form and place for public inspection, schedules showing all rates and charges for any transportation or sales subject to the jurisdiction of the Commission.... 45 15 U.S.C. Sec. 717c(c). 46 [T]he Commission shall have no power to order any increase in any rate contained in the currently effective schedule of such natural gas company on file with the Commission, unless such increase is in accordance with a new schedule filed by such natural gas company.... 47 15 U.S.C. Sec. 717d(a). 48 These provisions form the basis for the filed rate doctrine. In its discussion of the doctrine in Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571, 576-78, 101 S.Ct. 2925, 2929-30, 69 L.Ed.2d 856 (1981), the Supreme Court notes that 49 the [Natural Gas] Act bars a regulated seller of natural gas from collecting a rate other than the one filed with the Commission and prevents the Commission itself from imposing a rate increase for gas already sold. 50 Id. at 578, 101 S.Ct. at 2931. Moreover, the Court explicitly states, in a footnote, that the Commission may not impose a retroactive rate alteration and, in particular, may not order reparations.... Id. at n. 8 (emphasis in original) (citing FPC v. Sunray DX Oil Co., 391 U.S. 9, 24, 88 S.Ct. 1526, 1534, 20 L.Ed.2d 388 (1968)). 51 We have recently had occasion to explain, in the case of electrical utilities, the rationale for prohibiting retroactive increases in filed rates: 52 The wholesale purchasers of electricity cannot plan their activities unless they know the cost of what they are receiving, particularly if they are retailers, who must calculate their appropriate resale rates, ... but also if they are large-scale purchaser-users. Providing the necessary predictability is the whole purpose of the well established filed rate doctrine, which forbids a regulated entity to charge rates for its services other than those properly filed with the appropriate federal regulatory authority. 53 Electrical Dist. No. 1 v. FERC, 774 F.2d 490, 493 (D.C.Cir.1985) (quoting Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571, 577, 101 S.Ct. 2925, 2930, 69 L.Ed.2d 856 (1981)). Although FERC claims that Order Nos. 94 and 94-A gave notice that the prices paid for gas during the pendency of the Commission's rulemaking were not final prices, Brief for Commission at 16, the orders were explicitly concerned with first sales. Furthermore, even in that context, the Commission was careful to limit the application of Order No. 94-A to those cases in which first purchasers were contractually bound to pay the deferred costs. 54 As a general matter, the final rules will not operate to authorize the collection of amounts for production-related costs incurred prior to today. A basic principle of administrative procedure is that rules should operate prospectively only. We see no reason to depart from this principle in implementing these amendments. To the contrary, there is good reason to adhere to it. 55 48 Fed.Reg. at 5,161. In a footnote to the above-quoted section, the Commission stated: 56 An exception is made in the case of delivery or compression services. However, this exception is based upon the Commission's notice in Order No. 94 that these costs could be recovered. In addition, this recovery is under particular safeguards to insure that amounts collected for these services may only be collected if contractual authority existed to collect them at the time they were incurred. 57 Id. at n. 89 (emphasis added); see 18 C.F.R. Sec. 271.1104(c)(4)(ii). It is thus clear that the notice provided by the two orders was limited to a highly restricted audience. 58 Furthermore, contrary to what the Commission suggests, Brief for Commission at 16 n. 10, notice may not be imputed as a result of the passthrough provision in section 601 of the NGPA, 15 U.S.C. Sec. 3431(c). While section 601 permits a pipeline to recover any amount paid for natural gas that is deemed to be just and reasonable for purposes of sections 4 and 5 of [the NGA], id. Sec. 3431(c)(2)(A), we read nothing in the language of the section to warrant a resort to retroactive as opposed to prospective rate increases. 59 We need not address whether the Commission might have accomplished the goal of permitting pipelines to pass these costs on to their customers (in proportion to their takes in the three-year period following Order No. 94) through a system of specific PGA clauses for each account because that issue is not before us. See Brief for Commission at 20. Such a device, in any event, would differ significantly from that selected by the Commission, as it would allow all surcharged customers to plan accordingly and would enable those with access to more than one pipeline to respond to the surcharges by reducing purchases from the pipeline(s) imposing the highest additional costs. Nor need we determine whether the Commission, in order to avoid unjust enrichment, might have ordered pipelines to begin collecting production-related cost surcharges at the time of issuance of Order No. 94, subject to adjustment when Order No. 94-A specified the exact production-related cost allowances. Joint Brief for Intervenor Pipelines at 22 (citing Kansas Cities v. FERC, 723 F.2d 82, 93 (D.C.Cir.1983)). As none of the parties has demonstrated that proper notice was afforded to pipeline customers that they might be subject to a surcharge on past purchases, we decline to address this hypothetical issue. B. Prior FERC Precedent 60 Columbia Gas argues also that the Commission's decision to permit direct billing for deferred expenses is inconsistent with prior Commission opinions, orders, and regulations, and that the Commission failed to provide an adequate explanation of why it departed from its prior rulings. Because we hold the Commission acted beyond its authority in approving the direct billing of deferred costs, we need not decide whether its explanation of its alleged departure from past practice was sufficiently reasonable. C. The Interest Decision 61 Transco argues that it is being penalized in the amount of almost a million dollars by the FERC order allowing direct billing because it is required to pay customers a higher rate of interest on amounts it is required to refund from past PGA clause collections than it is allowed to charge those same customers on their shares of directly billed deferred costs. Because we find the FERC orders allowing direct billing to be ultra vires, the question of the interest differential is moot. Accordingly, we deny the Commission's November 24, 1986 motion to remand that issue for further consideration.