Opinion ID: 493601
Heading Depth: 1
Heading Rank: 4

Heading: SHOULD Panhandle APPLY IN THIS CASE?

Text: 61 Having reaffirmed Panhandle, we must now decide whether the principle announced in that case bars the revenue-crediting condition imposed upon Northern's certificate for the discount resale service. The Commission offers three reasons why this condition should not be disapproved; two of them are interrelated and we take them up together. 62 A. Rate Stability and Unduly Discriminatory Rates 63 First, the Commission argues that, in creating the discount service, Northern itself altered previously approved rates (i.e., by discounting the resale service for utility purchasers with fuel-switchable customers), and the Commission in imposing the revenue-crediting condition simply restored rate stability. In support of this proposition, the Commission cites CATCO and argues that, absent the condition restoring stability, it could not have certificated the discount service as being in the public convenience and necessity under section 7. 53 64 Second, the Commission argues along similar lines under section 5 that the rate for the discount service would have been unduly discriminatory, absent the condition, when compared to the non-discount service rate. Relying upon language from this court's opinion in Public Service Commission of New York v. FERC, 680 F.2d 252, 254 n. 1 (D.C.Cir.1982) (FERC may not grant a certificate of convenience and necessity without determining that the rates proposed are just and reasonable), which cited CATCO as support, the Commission concludes that it therefore would have been compelled to disapprove the discount service as not in the public convenience and necessity. 54 65 In sum, the Commission contends that the proposed discount service would not be in the public convenience and necessity without the revenue-crediting condition, either because rate stability would be upset or else because the resulting rates would be unduly discriminatory. The Commission relies upon CATCO to support both contentions, but in so doing it suffers under the misapprehension we have already addressed above. With respect to rate stability, as we have seen, the Court in CATCO permitted in-line price conditioning to ensure that, pending eventual review for justness and reasonableness, prices for newly certificated services would not be out of line with rates already approved as just and reasonable for comparable services. This in-line practice does not justify the Commission in overturning rates previously determined to be just and reasonable when the Commisison perceives a disparity between those rates and the proposed rates for the new service. Instead, the Commission may preserve stability through use of its authority under sections 4 and 5 to permit only a just and reasonable rate for the discount service and to adjust the rate for the non-discount service if it is no longer just and reasonable. The reasons relied upon in Panhandle apply with equal force in this context--to permit the Commission to evade the requirements of sections 4 and 5 through use of its section 7 authority would effectively emasculate those provisions. 66 The Commission's second argument--that the revenue-crediting condition is justified because otherwise the discount rate would be unduly discrmiminatory--is similar but even less persuasive. CATCO does not support such an exercise of the Commission's conditioning power, and this court has held on numerous occasions that the Commission must comply with the procedural dictates of section 5 in attempting to reallocate differential cost burdens that it believes result in rates that are no longer just and reasonable. 55 For the Commission to achieve this end through use of its section 7 conditioning authority would have the same impermissible result of effectively emasculating section 5. 56 Panhandle therefore cannot be distinguished on this ground. 67 B. Was the Non-Discount Service Before the Commission? 68 The Commission's third argument for distinguishing Panhandle is that in this case the existing non-discount service was properly before the Commission. 57 Distinguishing Panhandle on the ground that the existing resale service and the proposed transportation service there were unrelated, the Commission argues here that there is a direct nexus 58 between Northern's existing non-discount resale service and its proposed discount resale service, viz. that the discount service will be offered to those current customers of the non-discount service who resell the natural gas to purchasers that have the capacity to switch to oil. Utilities that purchase gas from Northern and resell it to customers who are not fuel-switchable will be eligible to receive only the existing non-discount service. Accordingly, the Commission argues that in order to evaluate whether the discount service serves the public convenience and necessity, it is necessary to analyze the two similar services 59 together: Thus, in the Commission's view, the rate impact on all of Northern's resale customers was before the Commission in the certificate proceeding. 60 69 In other words, the Commission has before it any rates it may evaluate in order to resolve the status of a proposed service under the public convenience and necessity standard of section 7. The Commission's argument, while ingenious, places far too much emphasis on the phrase before [it] in the certificate proceeding in order to give a particular meaning to Panhandle. This becomes obvious when the referenced statement is read in context: 70 [W]e hold that the Commission does not have authority under section 7 to compel flow-through of revenues to customers of services not under consideration in that proceeding for certification. 71 In so doing, we do not mean to intimate the FERC may not take a company's overall rate structure into consideration in issuing certificate orders. It may evaluate that and myriad other factors as they bear on the public convenience and necessity. The Commission may not, however, order adjustments in previously approved rates for services not before it in the certificate proceeding. 61 72 If the Panhandle court meant what the Commission now suggests, then a natural gas company's every rate is before the Commission if the Commission considers the company's overall rate structure in the proceeding; under this interpretation of Panhandle, all these rates would be vulnerable to rate adjustment in a section 7 condition. Of course, such an interpretation reduces the rule of Panhandle to a nullity; indeed, it would render the result in that very case inconsistent with the rule, because Panhandle's resale service was before the Commission, in this sense, when the Commission evaluated whether the transportation service was in the public convenience and necessity. 73 We think that the only reasonable reading of the Panhandle court's statement that the Commission may not ... order adjustments in previously approved rates for services not before it in the certificate proceeding is that the Commission may condition only the rate of the particular service for which certification is sought, as occurs for example when the Commission establishes an in-line price. This is the clear import of the first sentence in the indented quotation above, which states the holding in Panhandle, and of which the before sentence is but a mere restatement. Accordingly, to borrow upon yet another restatement of the holding in Panhandle, FERC may not as a condition on a section 7 certificate require a pipeline to adjust rates previously approved by the Commission for customers not receiving the services to be certificated. 62 In the section 7 proceeding before us, the Commission used the revenue-crediting condition to adjust the previously approved rate for the already certificated non-discount service. Under the clear dictate of Panhandle, this condition must be vacated.