Court Opinion

ID: 767362
Source: CourtListenerOpinion
Date Created: 2012-04-18 08:32:33+00
Date Added: 2024-06-11T09:52:25.366327
License: Public Domain

201 F.3d 497 (D.C. Cir. 2000)
Washington Water Power Company, et al.,Petitionersv.Federal Energy Regulatory Commission ,RespondentGreat Lakes Gas Transmission Limited Partnership, et al.,Intervenors
Nos. 98-1245,98-1249, 98-1251 and 98-1274
United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 23, 1999Decided February 1, 2000

[Copyrighted Material Omitted]
On Petitions for Review of Orders of the Federal Energy Regulatory Commission
Joshua L. Menter argued the cause for petitioners Sierra  Pacific Power Company, et al.  With him on the briefs were  John P. Gregg and Channing D. Strother, Jr.
Thomas W. Wilcox argued the cause and was on the briefs  for petitioner Washington Water Power Company.
MaryJane Reynolds argued the cause and filed the briefs  for petitioners Apache Corporation and DEK Energy Corporation.
Timm L. Abendroth, Attorney, Federal Energy Regulatory  Commission, argued the cause for respondent. With him on  the brief were Jay L. Witkin, Solicitor, and John Conway,  Deputy Solicitor.
Elias G. Farrah argued the cause for intervenors. With  him on the brief were Joseph H. Fagan, Paula E. Pyron and  Harvey Y. Morris.
Bruce W. Neely, Michael C. Dotten, James C. Moffatt,  Theresa I. Zolet, John R. Staffier, David W. Anderson,  Patrick G. Golden, David L. Huard, G. William Stafford,  James D. McKinney, Jr., John J. Wallbillich, James H. Holt,  Sandra E. Rizzo, James F. Walsh, III, Nicholas W. Fels, Lee  A. Alexander, Stefan M. Krantz, Rebecca A. Blackmer and  Peter G. Esposito entered appearances.
Before:  Silberman, Ginsburg and Tatel, Circuit Judges.
Opinion for the Court filed by Circuit Judge Tatel.
Tatel, Circuit Judge:

1
These consolidated petitions seek  review of the Federal Energy Regulatory Commission's approval of a settlement resolving a rate case filed by a natural  gas pipeline serving parts of Oregon, Washington, and California.  Finding petitioners' various challenges without merit,  we deny the petitions.

2
* Intervenor  PG&E Gas Transmission-Northwest Corporation ("the pipeline") has owned a natural gas pipeline running  from near British Columbia down through Oregon since the 1960s.  For many years, its parent company, Pacific Gas &  Electric ("PG&E"), was the main shipper on the line.  In  1980, and again in 1991, FERC granted certificates to expand  the pipeline's capacity.  The 1991 expansion, which increased  the pipeline's mainline capacity by approximately 75 percent,  went into service in 1993.

3
Historically, the pipeline used a rate system in which  shippers who entered into contracts for capacity after expansion ("expansion shippers") bore the entire cost of the expansion;  shippers who held capacity on the pipeline prior to  expansion ("original shippers") paid only for the costs associated with the original pipeline, including any unrecovered  costs of building the originalpipeline, depreciation, and associated tariffs.  According to FERC, this so-called "incremental" or "vintaged" rate structure is justified because it allows  original shippers to "fully benefit from their earlier long-term  agreements with the pipeline....  [S]hippers pay[ ] higher  rates in the early years which are offset by lower rates in the  later years."  Great Lakes Transmission Ltd. Partnership,  62 FERC p 61,101 at 61,718 (1993).

4
Not surprisingly, the expansion shippers preferred a different rate structure:  a "rolled-in" rate system in which the  costs of the expansion and any unrecovered costs associated  with the original pipeline are rolled together and divided  equally so that all shippers pay the same rate regardless of  when they obtain their capacity.  In late 1992 and early 1993,  when the pipeline filed its tariff sheets addressing other rate  issues, some of the expansion shippers filed comments arguing that the pipeline should adopt a rolled-in rate structure. FERC, agreeing with the pipeline that the incremental rate  structure should be temporarily maintained, deferred resolution of the issue raised by the expansion shippers until the  pipeline's next general rate filing.  Less than fourteen  months later, the pipeline submitted a rate filing pursuant to  section 4 of the Natural Gas Act, 15 U.S.C. § 717c, in which it  proposed the rolled-in rate structure the expansion shippers  had requested.  When PG&E, the primary original shipper,  and its customer, Intervenor the California Public Utilities

5
Commission ("CPUC"), opposed the proposed rolled-in rate  structure, the issue was set for litigation before FERC.

6
As the "rolled-in" versus "incremental" rate debate raged,  PG&E permanently transferred or "released" part of its  excess capacity to other shippers pursuant to 18 C.F.R.  § 284.243.  Section 284.243 provides the mechanism by which  a shipper that has contracted for capacity that it no longer  needs (the "releasing shipper") can reallocate that capacity to  another shipper (the "replacement shipper"):  "The pipeline  must allocate released capacity to the person offering the  highest rate (not over the maximum rate) and offering to  meet any other terms and conditions of the release."  18  C.F.R. § 284.243(e).  Although "maximum rate" is not defined in the text of the regulation, Order No. 636, the  preamble to section 284.243, explains that "[t]he regulations  require the pipeline to allocate released capacity to the person offering the highest rate not over the maximum tariff  rate the pipeline can charge to the releasing shipper."  Pipeline Service Obligations and Revisions to Regulations Governing Self-Implementing Transportation Under Part 284 of  the Commission's Regulations, and Regulation of Natural  Gas Pipelines After Partial Wellhead Decontrol, 57 Fed. Reg.  13267, 13285 (1992) (emphasis added).  Under the capacity  release regulation, replacement shippers in this case obtained  capacity at the rate that PG&E had been paying.  As a  result, replacement shippers on the incrementally priced pipeline paid significantly lower rates than expansion shippers  even though those replacement shippers had obtained their  capacity at a later date.  This result conformed to FERC's  then-existing policy as set forth in Great Lakes Transmission  Ltd. Partnership, 64 FERC p 61,017 at 61,155, 61,157 (1993)  ("Great Lakes I").  In that case, the Commission, rejecting  complaints from expansion shippers that it was unfair to allow  replacement shippers to pay less, held that the maximum rate  for released capacity was "the applicable maximum tariff rate  for the service being released" and that "[t]he expansion  shippers are assessed an incremental rate because their  service request caused facilities to be constructed for their  benefit."  Id.

7
In 1996, the parties to the still-pending rate proceeding  reached a settlement agreement under which the pipeline  would phase in a rolled-in rate system.  During the first (and  uncontested) phase lasting until November 1, 1996, the existing incremental rate structure was maintained.  During the  second period, running fromthe later of November 1, 1996 or  the date the Commission approves the settlement until the  pipeline's next rate filing, expansion costs are rolled in so that  all shippers end up paying the same base rate--26.28 cents  per Decatherm ("cents/Dth").  Because that base rate represents a steep increase for PG&E and other original shippers  who had not previously been paying for the pipeline's expansion, the settlement provides for mitigation during the interim  period:  until November 1, 2002, PG&E pays only 75 percent  of the base rate, or 19.91 cents/Dth.  The settlement also  provides for mitigation of replacement shippers' rates, although less so:  they pay approximately 92 percent of the  base rate, or 24.28 cents/Dth.  Expansion shippers pay the  base rate plus a 6.5 cent surcharge to offset the rate mitigation provided to PG&E and replacement shippers, or a total  of 32.74 cents/Dth.  The settlement gives PG&E several  other benefits, including rebates on certain surcharges that it  had paid and an entitlement to obtain refunds when it permanently or temporarily releases capacity.

8
Most of the parties, including PG&E, CPUC and most  expansion shippers, either supported the settlement or did  not oppose it.  Over the objections of several replacement  shippers and petitioner Washington Water Power, FERC  approved the settlement.  Pacific Gas Transmission Co., 76  FERC p 61,246 (1996).  Replacement shippers filed a petition  for rehearing, arguing that under FERC's existing case law,  primarily Great Lakes I, 64 FERC p 61,017 (1993), they could  not be charged rates higher than PG&E, the shipper from  whom they obtained their capacity.  Denying the petition for  rehearing, the Commission not only overruled the part of  Great Lakes I on which petitioners had relied, but also  articulated a new policy:  replacement shippers obtaining  released capacity post-expansion on an incrementally priced  system are similarly situated to expansion shippers, not to releasing shippers.  PG&E Gas Transmission, Northwest  Corp., 82 FERC p 61,289 at 62,123 (1998).  Applying that new  policy, the Commission rejected replacement shippers' challenges.

II

9
Several replacement shippers, petitioners Sierra Pacific  Power Co., Sierra Pacific Resources, and Engage Energy US,  L.P. ("replacement shipper petitioners"), argue that FERC's  new policy is inconsistent with its price cap regulation, 18  C.F.R. § 284.243, as interpreted in Order No. 636.  They also  argue that application of the new policy to them is impermissibly retroactive and contrary to FERC precedent.  FERC  argues that replacement shipper petitioners cannot challenge  the reasoning in the order denying rehearing because they  failed to seek further rehearing of that order.  FERC ignores  our holding in Southern Natural Gas Co. v. FERC, 877 F.2d  1066, 1073 (D.C. Cir. 1989).  "[W]hen FERC makes no  change in the result, but merely supplies a new improved  rationale upon realizing that its first one won't wash, it does  not thereby transform its order denying rehearing into a new  'order' requiring a new petition for rehearing before a party  may obtain judicial review.  Otherwise, we would 'permit an  endless cycle of applications for rehearing and denials,' limited only by FERC's ability to think up new rationales."  Id.Here, too, although the order denying rehearing abandoned  the reasoning of the earlier order approving the settlement,  FERC reached precisely the same result. Replacement shipper petitioners therefore had no obligation to seek further  rehearing.

10
On the merits, these petitioners fare less well.  They  challenge neither the logic behind FERC's ruling that they  are similarly situated to expansion shippers--the prior policy  was unfair to expansion shippers--nor the Commission's authority to overrule Great Lakes I.  Instead, they complain  that insofar as the new policy may require replacement shippers to pay more than releasing shippers, that policy conflicts with Order No. 636, the preamble to section 284.243  of the Commission's regulations.

11
Replacement shipper petitioners read Order No. 636, which  states that "the pipeline [must] allocate released capacity to  the person offering the highest rate not over the maximum  tariff rate the pipeline can charge to the releasing shipper,"  to require that they pay the same rate as PG&E.  57 Fed.  Reg. at 13285 (emphasis added).  According to the Commission, a subsequent order, Order No. 636-A, made clear that  the sentence from Order No. 636 on which petitioners rely  does not apply to incrementally priced systems.  Because  FERC's position represents an interpretation of its own  regulations, we give it "controlling weight unless it is plainly  erroneous or inconsistent with the regulation."  Exxon Corp.  v. FERC, 114 F.3d 1252, 1258 (D.C. Cir. 1997) (internal  quotation marks omitted).  Petitioners have not come close to  meeting this heavy burden.

12
The Commission's position rests on the following sequence  of events.  After FERC issued Order No. 636, several petitions for rehearing "raise[d] questions about the maximum  rate for released capacity."  Order No. 636-A, 57 Fed. Reg.  36,128, 36,149 (1992).  Those petitions observed that shippers  holding expansion capacity on a pipeline with an incremental  rate system would have a difficult time releasing that capacity  because the maximum rate for capacity released by shippers  on pipelines with rolled-in rates would be significantly lower.Id. at 36,150.  Petitioners suggested several ways to address  this problem, including giving priority to incremental releases  or establishing a floor for prices at the incremental rate.

13
Responding to these comments in Order No. 636-A, FERC  refused to "make a generic determination on the various  methodologies proposed [in the comments] since resolution of  such issues may depend on the characteristics of the pipeline  and the services it offers.  The parties in restructuring  proceedings involving incremental rates should consider and  propose methodologies to ensure that the capacity release  mechanism operates efficiently and that all parties are treated fairly and equitably, without undue discrimination."  Id. at 36,150.  Order No. 636-A thus "left open the issue of how to  price capacity releases in the context of a system with incremental rates."  PG&E Gas Transmission, Northwest Corp.,  82 FERC p 61,289 at 62,129.  Put another way, Order No.  636-A made clear that Order No. 636's definition of "maximum rate" does not apply to incrementally priced rate structures.  Petitioners have given us no basis for concluding that  the Commission's interpretation of Order Nos. 636 and 636-A  is either "plainly erroneous" or inconsistent with section  284.243.

14
Equally without merit is replacement shipper petitioners'  argument that by adopting the new policy, the Commission  impermissibly departed from prior cases in which it refused  to remove or raise the section 284.243 rate cap in individual  proceedings.  See, e.g., Tennessee Gas Pipeline Co., 70 FERC  p 61,076, 61,200 (1995).  As the Commission observed, it did  not remove or raise the rate cap in this case;  instead, it  defined the term "maximum rate" in the context of an incrementally priced vintaged system as the maximum rate under  the tariff sheets that the expansion shippers could be  charged.  PG&E Gas Transmission, Northwest Corp., 82  FERC p 61,289 at 62,131.  To be sure, the Commission held  in Great Lakes I that the maximum rate was the releasing  shipper's maximum tariff rate, but the Commission has now  overruled that part of Great Lakes I.  See id.  Because  replacement shippers have not argued that the Commission  could change the Great Lakes I policy only through notice  and comment rulemaking rather than through adjudication,  we have no reason to address that issue.

15
Petitioners' remaining arguments with respect to the new  policy relate to whether the Commission could apply it to  their existing contracts.  Having entered into contracts for  released capacity prior to the settlement of this case, replacement shipper petitioners argue that applying the new policy  to them now is impermissibly retroactive.  Because petitioners have failed to establish that they relied on the Commission's prior policy to their detriment--in other words, that  they would not have entered into these contracts had they  known that the Commission would change its policy--they cannot prevail on this argument.  See Public Service Co. of  Colorado v. FERC, 91 F.3d 1478, 1490 (D.C. Cir. 1996) (in  determining that it was permissible for Commission to apply  new interpretation of law, "the apparent lack of detrimental  reliance ... is the crucial point").  In February 1994, when  petitioner Engage Energy, the first replacement shipper  petitioner to contract for PG&E's released capacity, executed  its contract, FERC had already announced that the incremental versus rolled-in rate issue would be addressed when the  pipeline submitted its next rate filing in late 1994 or early  1995.  All replacement shipper petitioners therefore should  have been fully aware of the possibility that the pipeline  would adopt rolled-in rates.  In fact, by the time petitioner  Sierra Pacific executed its contracts in February and June  1995, the pipeline had already proposed rolled-in rates.Moreover, the mitigation replacement shippers receive during  the interim period produces a lower rate than those shippers  would have paid under a fully rolled-in rate system.  Because  they are paying rates lower than the rates to which they  should have known they were exposed, they cannot show  detrimental reliance.  The only plausible detrimental reliance  argument that these petitioners could have made is that by  paying rates higher than PG&E, they suffered some sort of  competitive injury vis-A-vis PG&E that they had not anticipated.  But none of these petitioners alleges competitive  injury;  the only replacement shipper to have done so did not  petition for review.  By way of a record reference to a portion  of a brief filed with FERC, petitioners suggest that they  relied on PG&E to oppose vigorously and litigate the rolled-in  rate issue.  Absent a more direct mention of this at best  attenuated reliance interest, however, we see no need to  address it.  See Washington Legal Clinic for the Homeless v.  Barry, 107 F.3d 32, 39 (D.C. Cir. 1997) (refusing to reach  issue where party offered only "bare-bones arguments").

16
Replacement shipper petitioners fare no better with their  argument that by applying the new policy to them, FERC  departed from Great Lakes Transmission Ltd. Partnership,  72 FERC p 61,081 at 61,427 (1995) ("Great Lakes II"), petitions for review denied in part and granted in part, Southeastern Michigan Gas Co. v. FERC, 133 F.3d 34 (D.C. Cir.  1998), where the Commission refused to apply a new policy  retroactively.  In denying rehearing in this case, FERC took  great pains to distinguish Great Lakes II:  The policy that the  Commission changed in Great Lakes II had been "consistently applied" for thirty years, whereas the Commission's new  policy here overruled only one case, Great Lakes I, decided  just five years prior to the decision in this case.  82 FERC  p 61,289 at 62,127.  We agree with the Commission that these  differences distinguish Great Lakes II from the situation  presented in this case.

17
Replacement shipper petitioners next argue that even if  replacement shippers as a general rule are similarly situated  to expansion shippers, they are not similarly situated to  expansion shippers in the circumstances of this case.  This is  so, they contend, because as replacement shippers they paid  millions of dollars in tariffs when the incremental rate system  was in place--tariffs for which expansion shippers were not  responsible.  As intervenors point out, however, the rate paid  by these replacement shippers under the incremental rate  system, even including the additional tariffs, was still significantly lower than the rate paid by expansion shippers.  Since  replacement shippers are similarly situated to expansion shippers for purposes of determining rates and since it is undisputed that they paid less than expansion shippers for the  period in question, petitioners have no cause to complain now  about the tariffs.

18
Replacement shipper petitioners also contend that the settlement is unduly discriminatory because PG&E enjoys a  greater degree of mitigation and a number of other "special  benefits."  In order to prevail on an undue discrimination  claim, petitioners must demonstrate not only differential rates  between two classes of customers but also "that the two  classes of customers are similarly situated for purposes of the  rate."  "Complex" Consolidated Edison Co. of New York v.  FERC, 165 F.3d 992, 1012 (D.C. Cir. 1999).  Because replacement shipper petitioners are similarly situated to expansion  shippers rather than to PG&E, and because their rates are lower than the rates of expansion shippers, the undue discrimination argument fails.

19
Finally, replacement shipper petitioners challenge a provision of the settlement agreement under which the pipeline  will refund a certain percentage of the tariffs paid by PG&E  in exchange for an agreement by CPUC, PG&E's primary  customer, to withdraw two appeals that it had filed in this  court challenging the Commission's determination that the  pipeline could recover certain transition costs.  Petitioners  maintain first that this provision is unfair because PG&E paid  only a portion of the tariffs but receives all of the refund, and  second that the Commission ignored Southern California  Edison Co., 49 FPC 717, 721 (1973), a decision of the Commission's predecessor refusing to approve a settlement that  included a provision settling an ancillary appeal pending  before this court.  As the Commission pointed out in denying  rehearing in this case, however, giving PG&E the benefit of  the refund is consistent with its policy of facilitating settlements to resolve the difficult issues raised by transition cost  disputes.  See 82 FERC p 61,289 at 62,142.  Moreover, unlike  in Southern California Edison Co., even with the refund  provided under the settlement, PG&E still pays "a significantly higher proportionate amount" of the transition cost  tariffs than any other shipper.  See 82 FERC p 61,289 at  62,143.

III

20
The remaining two petitions require only brief discussion.Claiming that a new volume-based charge included in the  settlement will increase its rate by 16 percent and that FERC  has a general policy of requiring mitigation where a shipper's  rate increases by more than 10 percent, petitioner Washington Water Power Co. maintains that FERC should not have  approved the settlement without requiring additional mitigation.  FERC responds that it has no such "general" rate  shock policy.  Denying rehearing, FERC explained that its  rate shock policy applies only when the rate shock results  either from a straight fixed-variable rate design or from a transition from incremental to rolled-in rates.  82 FERC  p 61,289 at 62,144.  Washington Water's increased rate results from neither.  Instead, the rate increase results from a  new non-mileage based charge.  Having cited no authority  either supporting its assertion that the Commission has required mitigation in such a situation or leading us to question  the Commission's explanation that it has no general rate  shock policy outside of the two situations mentioned above,  Washington Water's argument fails.

21
Petitioners DEK Energy Corp. and Apache Corp. (collectively "DEK"), expansion shippers who failed timely to file  their comments on the settlement, now contest the settlement's mitigation provisions.  DEK participated neither in  the litigation of the pipeline's section 4 rate filing nor in the  settlement negotiations.  After submission of the settlement,  DEK filed comments stating that it had no opposition to the  rolled-in rate structure.  It registered no opposition to the  settlement's mitigation provisions.  Then, over two months  after the final deadline for filing comments on the settlement,  DEK filed a "clarification," asserting for the first time that  the mitigation provided to PG&E and the replacement shippers under the settlement was unjust and unfair.  Several  parties opposed DEK's "clarification" on timeliness grounds,  and the Commission said nothing about DEK's comments in  its September 1996 order approving the settlement.  Denying  DEK's petition for rehearing, the Commission found that  DEK's comments were untimely.  82 FERC p 61,289 at  62,138.  Although the Commission also addressed the "factual  inaccuracy underlying DEK's position," PG&E Gas Transmission, Northwest Corp., 83 FERC p 61,251 at 62,066 (1998),  it noted that

22
[a]ddressing DEK's opposition now, in light of extendedsettlement conferences and resolution of the case in amanner acceptable to all other similarly situated to DEK,would unfairly disrupt and detract from the compromisesof parties that did participate.  This is especially trueconsidering that DEK's initial comments were silent onthe issues raised in its 'clarification' and request forrehearing.  Consideration of the late opposition would besimilar to all owing an eleventh hour intervention by a person that had chosen not to comment at all, and wouldlend uncertainty to the settlement negotiation process which thrives, in part, on the timely filing of positions.

23
82 FERC p 61,289 at 62,138.  Agreeing with the Commission's sound reasons for finding DEK's opposition to the  settlement untimely, we find it unnecessary to reach DEK's  arguments that the Commission erred in its assessment of the  factual inaccuracies inherent in DEK's position.

IV

24
The petitions for review are denied.

25
So ordered.