Court Opinion

ID: 9466441
Source: CourtListenerOpinion
Date Created: 2023-08-05 01:15:34.690333+00
Date Added: 2024-06-11T17:39:43.820615
License: Public Domain

J. SKELLY WRIGHT, Chief Judge,
concurring in part and dissenting in part:
Panhandle Eastern Pipeline Company (Panhandle) challenges certain orders of the Federal Energy Regulatory Commission (FERC) relating to costs and revenues associated with the transportation of natural gas.1 The first order, in No. 78-1356,2 requires that Panhandle flow through3 to its resale gas customers the revenue it will gain from transporting natural gas for another company by crediting that revenue to its “purchased gas account.” The second, in No. 78-1960,4 denies Panhandle the right to flow through the cost of obtaining transportation services from other pipelines. The remaining orders, in No. 78-1630,5 require Panhandle to absorb increased costs but allow it to flow through savings from decreased charges associated with certain transportation contracts. In these contracts Panhandle serves as a mere accounting conduit between other pipelines. The majority vacates the first order, affirms the second, vacates the portion of the third requiring Panhandle to absorb increased costs, and affirms the remainder of the third.
I join in the majority’s disposition of the third order. As indicated in the majority opinion, in neither the order nor its brief does FERC provide any real justification for its decision to waive the requirement of tracking authority for rate decreases, but not for rate increases. Indeed, it seems to me that the Government admits the justice of Panhandle’s claim when it says:
Although [Panhandle] has now set forth in its brief here some data which may be sufficient to call for a reexamination of the denial of a waiver, it has not submitted that data to the Commission as required by the Natural Gas Act. * * If Panhandle believes that it has sufficient cause to be granted a waiver, then it should request the Commission to grant such a waiver in the first instance. * *
Brief for respondent at 54-55 (citations omitted). According to the working papers, Panhandle did present to FERC at the time of its requested waiver all the data it now presents to this court. I therefore consider it appropriate to grant Panhandle relief from the onerous decision of the Commission without further procedural complication. In joining the majority on this point, however, I would emphasize that my agreement is limited to cases in which the pipeline involved is merely an accounting con*1142duit.6 Where the pipeline actually makes a charge for providing transportation services, I believe a different case would be presented.
In the remainder of this opinion I shall discuss only the first two orders.7
I
A
The orders under review represent an attempt by FERC to accommodate the changing economics of natural gas pipeline operation to the provisions of the Natural Gas Act of 1938, 52 Stat. 821, 15 U.S.C. §§ 717-717z (1976 & Supp. I 1977) (as amended). It is therefore necessary to review briefly the features of the Act and the general problem faced by the Commission in its application today.
We are primarily concerned with three sections of the Act, Sections 4, 5, and 7. Section 7, 15 U.S.C. § 717f, is the provision for initial rate review. It requires all “natural gas companies,” a term which encompasses interstate natural gas pipelines,8 to obtain a “certificate of public convenience and necessity” from the Commission before offering new services. This certificate may be granted subject to “such reasonable terms and conditions as the public convenience and necessity may require.” Section 7(e), 15 U.S.C. § 717f(e). FERC will commonly condition the certificate upon a rate lower than the contract rate,9 or upon a contingent refund obligation.10 Temporary certificates may be issued in emergencies without notice or hearing pursuant to Section 7(c); permanent certificates, issued pursuant to Section 7(e), require notice and hearing unless the parties waive their right to a hearing.
Once rates for a pipeline are set, they may be changed at the instigation of the pipeline company or the Commission.11 The pipeline company may obtain a rate increase by filing a new rate schedule 30 days in advance of its taking effect, pursuant to Section 4, 15 U.S.C. § 717c. The Commission, by acting within the 30 days, may suspend the new rates for a five-month period. If a hearing on the new rates is not completed within the five months, the new rates may be put into effect, subject to the obligation ■ of the pipeline company to refund the excess if the Commission subsequently determines the rates to be above the just and reasonable rate. The burden is on the company to prove the justice and reasonableness of the new rates. Section 4(dMe).
If at any time the Commission suspects that the current rates charged by a pipeline company are above the just and reasonable level, it may order a hearing pursuant to Section 5, 15 U.S.C. § 717d. After the hearing the Commission may determine the just and reasonable rate and order the company to conform to it.12
*1143Rapid changes in natural gas costs occurring over short periods of time — resulting primarily from the much-lamented “energy crisis” — have induced the Commission to make adaptations in the statutory procedures. The primary instance of such adaptation concerns the treatment of changes in the cost of natural gas itself. As explained in Order No. 452, 47 FPC 1049 (1972), modified, Order No. 452-A, 47 FPC 1510 (1972), amended, Order No. 452 — B, 49 FPC 84 (1973), the Commission recognizes that the cost of purchased gas is, for most natural gas companies, the largest single component of their cost of service. In a time of rising gas costs, pipeline companies seek a form of “tracking” provision which enables them to flow through the increased gas cost to their customers automatically. If unable to obtain “tracking” authority, pipeline companies must file frequent rate increases pursuant to Section 4. Such increased filings are burdensome to both the Commission and the companies. They produce a backlog of rate filings for FERC to review, thus prolonging and delaying the administrative process. Moreover, the contingent refund obligations of natural gas companies pursuant to Section 4(e) swell, and may lead to extensive and unpredictable shifts in natural gas rates charged to consumers.
Responding to this problem, FERC adopted a procedure called a “purchased gas cost adjustment provision.” Id; see 18 C.F.R. § 154.38(d)(4) (1979). The essential purpose of the provision is to obviate the need for natural gas companies to resort to cumbersome Section 4 proceedings. It permits them to alter their rates in response to changes in the cost of their purchased gas, without full reexamination of cost-of-service data. In effect the rate is adjusted in response to changes in one variable — the cost of purchased gas — with all other' components of cost-of-service assumed to remain constant.
The mechanism for this adjustment is called the “unrecovered purchased gas cost account,” numbered Account 191, see 18 C.F.R. Part 201 (1979). Increases or decreases in purchased gas costs are registered in the account. Every six months the company’s rates are adjusted, so that over the next six-month period the revenue shortfall or excess will be amortized to zero. Thus, if the purchased gas cost of the company increases, the amount of that increase will be recorded in Account 191; at the end of the six-month period the rates will be surcharged an amount sufficient to restore the company’s net revenues to the level prevailing before the cost increase. Conversely, if the purchased gas cost declines, then natural gas consumers will receive a compensating decrease in their rates during the succeeding six-month period. These changes require no examination of the underlying cost-of-service of the company. The public is protected, however, by the requirement that cost decreases as well as increases be reflected in the purchased gas account, and by periodic (every 36 months) review by the Commission of the company’s total cost of service and the effect of the purchased gas account.
The natural gas industry has recently undergone another change in conditions that again may require an adaptation of FERC’s procedures. As a result of the natural gas shortages starting in the first part of the 1970’s, many natural gas pipelines have had to obtain new sources of gas, often not connected to their established pipelines. Accordingly, it has become common for one natural gas company to transport gas for another from the gas producer to the other company’s established pipeline. Generally, this sort of arrangement entails little additional cost to the transporting company, because the shortage has left excess capacity in the pipelines. Accordingly, the costs and revenues of pipeline companies may fluctuate widely. If transporting for others, the pipeline company receives a large amount of revenue, with little attendant incremental cost. If purchasing transportation services from others, it incurs great unanticipated cost.
The orders under review reflect FERC’s initial attempt to solve the problem of these cost and revenue fluctuations. As in the case of the purchased gas cost problem, the solution may be to obviate resort to the *1144procedures of Sections 4 and 5, lest backlogs, administrative delays, and contingent liabilities proliferate. It is not for this court to decide precisely how FERC should respond to the problem of new transportation costs and revenues;13 we must, however, decide whether the Commission has the statutory authority to respond as it did, and whether that response is reasonable and fair. I therefore turn my attention to the orders under review.
B
The first order concerns the treatment of revenues received by Panhandle from an agreement to transport up to 1,800 Mcf of natural gas on a firm basis and 1,200 Mcf on a best efforts basis for eventual delivery to an industrial consumer, Libby-Owens-Ford Company. Panhandle is to be paid $7,650 per month for its services.14 Since Panhandle will be able to provide this transportation without substantial additional cost, because of its excess capacity, Panhandle will receive nearly $7,650 monthly in additional net revenues. FERC agreed to this arrangement, subject to the condition that this increase in net revenues be flowed through to the resale gas customers, by crediting the additional net revenue to Panhandle’s purchased gas account. In that way the revenues could be accumulated during each six-month period, and flowed through during the next, without any party being required to resort to the cumbersome procedures for rate changes set up in Sections 4 and 5 of the Act.
The majority declares this procedure illegitimate, suspecting it of being an under-the-cover way for FERC to lower the just and reasonable rates established in a full Section 4 ratemaking proceeding. I, however, cannot view this procedure as altering in any way the results of that earlier proceeding. All the Commission has attempted to do is to govern the use of revenues generated from a new service. As I will explain in more detail below,151 believe the Commission’s Section 7 power to condition a certificate of public convenience and necessity is ample to support an order of this kind.
The second order concerns the treatment of transportation charges incurred by Panhandle in connection with a new agreement between Panhandle and three other pipelines. Panhandle pays the others an estimated $1.5 to $2 million per year to transport natural gas from offshore Louisiana to Panhandle’s line in the Midwest; the company therefore petitioned FERC for permission to include the new transportation costs in the purchased gas account, which would enable it to flow the newly-incurred costs directly through to its customers. FERC denied this petition, in effect ruling that Panhandle must absorb the increased cost until such time as its rates are revised in a Section 4 proceeding.
Panhandle contends that this treatment of new transportation costs is inconsistent with FERC’s treatment of new transportation revenues in the first order. The majority apparently agrees with this contention, but finds it unnecessary to reverse the second order because the inconsistency is removed by the reversal of the first order. The majority concludes:
It probably would be wise for the Commission to adopt a mechanism in appropriate proceedings allowing transportation costs similar treatment to that of *1145purchased gas costs, but we do not think it arbitrary for the Commission to refuse to expand the definition of purchased gas costs to benefit Panhandle in a section 7 certificate proceeding for Trunkline. * *
Majority opinion, 198 U.S.App.D.C. -, 613 F.2d 1139. I agree with this conclusion insofar as it recognizes the Commission’s authority to adopt whatever reasonable procedures it deems necessary to deal with new transportation costs. I am disturbed, however, at the cumulative effect of the majority’s treatment of the two orders.
In my view, the Commission is fully within its powers when it seeks to provide an expeditious procedure for accounting for changes in various costs and revenues that occur between Section 4 proceedings. Neither the first nor the second order is, in itself, arbitrary, unreasonable, or in excess of the Commission’s delegated power. The majority, however, would prevent the Commission in the first order from adopting an expeditious procedure for dealing with increased revenues. In the second order the majority would permit the Commission to refrain from adopting such a procedure for dealing with increased costs. By the combination of the two positions, the majority effectively prevents the Commission from adopting expeditious procedures altogether. Even though the opinion purports in dictum to endorse “tracking”16 or, in the alternative, allowing a “cross-refund” of excess profits as determined in a later proceeding,17 I believe its holding — that the Commission lacks statutory authority to condition Section 7 certificates on a revenue flow-through to customers — will preclude any such procedures in this case.18 The result of the majority’s approach will be to force both the Commission and the pipelines to employ the Section 4 and Section 5 procedures more frequently, even though a separate treatment of new transportation costs and revenues is legitimate and practical. This, in my judgment, is contrary to the interest of both Commission and pipeline; more important, it is contrary to the public’s overriding interest in the efficient setting of just and reasonable rates.19
*1146Nevertheless, as I explain in more detail below, see Part III infra, I agree that FERC has acted unreasonably in its inconsistent treatment of new transportation costs and revenues. I do not believe that FERC has suggested any acceptable explanation — in terms either of procedural differences between the two or of substantive differences — that justifies this inconsistency. I reach this conclusion not out of solicitude for the fortunes of Panhandle’s shareholders, but out of a conviction that consumers in the long run will be better off when rules are adopted that will lead to effective setting of just and reasonable rates. Any procedure that induces a regulated party to turn to complicated and costly procedures when simple and inexpensive ones will do, and any procedure that induces regulated parties to avoid transactions beneficial to the public because of unreasonable treatment at the hands of the Commission, will ill serve the public interest.
I would therefore hold that the orders in Nos. 78-1356 and 78-1960 be vacated and remanded to the Commission to give the Commission the opportunity to select, in the light of its experience and expertise, a fair and expeditious procedure for accounting for new transportation costs and revenues. I believe the Commission, and not this court, is in the best position to make this judgment. On remand, however, the Commission must bear in mind its obligation to deal evenhandedly with the parties; accordingly, the Commission must devise a method for treating parallel costs and revenues in the same manner, so far as possible.
II
A
The majority rightly recognizes that the “actual language of Section 7(e) is broad indeed,” majority opinion, 198 U.S.App. D.C. at-, 613 F.2d at 1128, but it contends that the Section 7 power falls short of that required to order a revenue flow-through in the first order under review. The majority reaches this conclusion primarily because of a mischaracterization of the FERC order. The majority treats the order as if it were one “adjusting previously approved rates for services not before the Commission in the relevant certificate proceeding.” Id. This it is not. Rates are not adjusted; only the size of future rate changes via the purchased gas account is affected. The Commission has not reevaluated Panhandle’s cost of service, nor has it, as the majority implies, used the Section 7 conditioning power as a vehicle for lowering Panhandle’s otherwise applicable rate of return. All that the first order accomplishes is to require Panhandle to dispose of new revenues in a particular way — i. e., to flow those revenues through to its resale customers. Admittedly, those customers are better off than before the order. Panhandle, however, is neither better off nor worse off than before. The effect of the order is to leave Panhandle’s rate of return at exactly the same level as before the order.
This is the classic situation in which the Commission employs the Section 7 conditioning power — to “hold the line,” or maintain the status quo —until a full cost-of-service proceeding is completed.20 If FERC *1147were to condition a new service upon an overall lowering of the rate of return, I might have to agree that it had overstepped its authority. That is not this case.21
Once the majority’s mischaracterization of the order is corrected, its three arguments that the Commission exceeded its Section 7 authority are quickly disposed of. First, the majority argues that the procedure adopted by FERC in this order would “emasculate the role of Section 5 in the ratemaking scheme,” id., 198 U.S.App.D.C. at -, 613 F.2d at 1129, by enabling FERC to lower a pipeline company’s rates by attaching conditions to new certificates. Second, it argues that the procedure erodes the protections against “regulatory lag” and “rate instability,” id., 198 U.S.App.D.C. at -, 613 F.2d at 1129, by exposing pipeline companies to unexpected rate reductions. Third, it argues that the procedure circumvents the Section 5 requirements of a hearing and findings of justness and reasonableness of rates, id., 198 U.S. App.D.C. at-, 613 F.2d at 1130.
These three are merely restatements of the one argument — that the Commission used its Section 7 power to lower the rates on Panhandle’s other services. The answer is the same: the underlying cost-of-service and rate-of-return determinations are unchanged by the order; only the disposition of new revenues is affected. Unless the majority seeks to prevent all rate adjustments between Section 4 or Section 5 proceedings, including tracking clauses, purchased gas adjustment clauses, and the like, there is no reason to deny FERC the authority to maintain the status quo by flowing new revenues through to the pipeline customers.
Most of the precedent concerning the scope of the Section 7 conditioning power concerns the setting of rates or contract terms for the certified service, as the majority observes. See majority opinion, text and notes at note 60. But there is no hint in those cases that the conditioning power is limited to the setting of rates for certificated services. Indeed, such a holding is precluded by the very language of the Act: “The Commission shall have the power to attach to the issuance of the certificate and to the exercise of the rights granted thereunder such reasonable terms and conditions as the public convenience and necessity may require.” Section 7(e), 15 U.S.C. § 717f(e) (1976). The order requiring Panhandle to flow its new transportation revenues through to its customers falls squarely within the apparent meaning of the statutory language. The burden is on the majority to show why the order exceeded that language; the fact that previous cases have concerned a different type of condition avails little.
The majority assumes that the revenue flow-through requirement here imposed would have been permissible pursuant to a Section 4 proceeding, but that for some reason it could not be imposed in a Section 7 proceeding. See majority opinion, 198 U.S.App.D.C. at -, 613 F.2d at 1133. This misconceives the' differences between the two sections. Section 4 has no magical property that affords the Commission greater powers than it otherwise would have. Rather, the main difference between the sections is that Section 4 is the mechanism for evaluating changes in the costs associated with already certificated services, while Section 7 provides the mechanism for pricing and conditioning new services. Under Section 7 FERC has ample authority to ensure that certification of a new service — such as transportation— does not create an imbalance in the pipeline company’s overall profit structure.
B
The majority also accepts Panhandle’s argument that the first order under review violates the Commission’s regulations. This argument is based on the name and description of Account 191, the account for “unre*1148covered purchased gas costs.” This account has been described above;22 needless to say, the majority is correct when it concludes that the name and description of the account refer to “costs, not revenues, and to purchased gas items, not transportation items.” Majority opinion, 198 U.S.App. D.C. at-, 613 F.2d at 1135 (emphasis in original). There is no question but that the original purpose of the account was to accommodate changes in the cost of purchased gas. The existence of Account 489, entitled “Revenues from Transportation of Gas for Others,” bolsters the majority’s argument. The implication is that new transportation revenues belong in Account 489, not Account 191.
Admittedly, the name of the account is inapt and the description incomplete; but this does not constitute a violation of the regulations. The fact that certain items are required by regulation to be included in Account 191 does not imply that the Commission may not also use that account for other items. There is no FERC regulation that forbids the practice adopted by the Commission in this order. Indeed, in decisions promulgated after the order under review here (and consequently no direct support for the ^Commission’s position in this case), FERC adopted new regulations requiring the crediting of new transportation revenues to Account 191. 44 Fed. Reg. 52185 (1979) (amending 18 C.F.R. § 284.-103); id. at 30329-30330 (amending 18 C.F.R. § 284.205(b)).
Looking behind the names on the accounts reveals that Account 191 is more appropriate than Account 489 in these circumstances: the latter is an ordinary revenue account, which does not provide for flowing through revenue, while Account 191 is precisely designed to serve the purposes of accommodating changes in costs and revenues on a six-month basis. Perhaps the names and descriptions of the accounts should be changed, but this court should not mistake clumsy agency nomenclature for unlawful agency action.
C
The majority also sets aside the Commission’s first order because it was not based on “an express finding that Panhandle’s rates continued to recover its full cost of service.” Majority opinion, 198 U.S.App. D.C. at-, 613 F.2d at 1136. According to the majority, such an express finding is necessary before the Commission might order the new transportation revenues to be flowed through to Panhandle’s customers, because otherwise the company might be deprived of a just and reasonable rate of return. The majority misconceives the nature of the Commission’s assumptions.
In deciding to require the revenue flow-through, FERC did not, impliedly or otherwise, determine that Panhandle’s revenues are still adequate to meet its cost of service, which was last determined in 1975.23 Rather, it chose — properly, in my judgment — to leave reevaluation of the cost of service to the next Section 4 proceeding.24 Panhandle has no more right to increase its rate of return by keeping new transportation revenues — without resorting to Section 4 — than FERC has to decrease the rate of return using its Section 7 powers. See 198 U.S. App.D.C.---, 613 F.2d at 1126-1127, supra. Operating on an analogy to the purchased gas adjustment procedure, *1149the Commission decided that new transportation revenues should be credited immediately, without the delay of a Section 4 proceeding. There is nothing arbitrary .or unreasonable in using this sort of interim tracking mechanism; there is, therefore, no reason to set aside the order for failure to make express findings on Panhandle’s cost of service.25
Ill
Although the order requiring flow-through of new transportation revenues thus appears unobjectionable when viewed by itself, I cannot vote to affirm it in the light of the Commission’s second order, which denied Panhandle’s request to flow through parallel transportation costs. Admittedly, nothing in the Act or the regulations promulgated thereunder requires FERC to approve flow-through procedures for increased costs of any sort, any more than they require FERC to approve flow-through procedures for increased revenues.26 The Commission, however, has insisted upon a flow-through of new revenues from transportation services, and therefore assumes the burden of explaining why it treats revenues differently from parallel costs. I have searched through the orders and the brief of the Commission for an adequate explanation; finding none, I conclude that both orders must be vacated and remanded to the Commission for consistent treatment.
The Commission has not suggested any technical distinctions between new transportation costs and revenues that would justify their opposite treatment. Presumably, the data on which to base the decisions are of the same sort. It would seem that new transportation costs bear the same relationship to new transportation revenues that increases in purchased gas costs bear to decreases in purchased gas costs. The Commission adopted evenhanded treatment of the purchased gas costs; it suggests no plausible reason why evenhanded treatment of new transportation costs and revenues is not desirable as well.
The Commission’s sole explanation why transportation revenues, but not costs, should be credited to the purchased gas account is:
The purpose of the [revenue crediting] condition was to assure that the pipelines’ customers share in the revenues received from such transportation service, since the rates that the customers pay are based on costs and revenues established in the pipelines’ most recent approved rate case. The nonrecurring short term transportation services enable the company to retain revenues attributable to these volumes, absent the Commission’s recently imposed crediting conditions. Furthermore, including transportation costs under PGA provisions is not permitted unless the pipeline has an approved “tracking” provision in its tariff. * *27
That, of course, is no explanation at all. If Panhandle’s customers should receive the benefits accruing from their shares of the fixed costs, then they should also bear the costs incurred in obtaining additional benefits. When the Commission adopts a flexible approach to accounting for revenues, it *1150may not retreat behind the lack of formal “tracking authority” when it denies parallel treatment for related costs. The Commission must indeed seek the “lowest possible reasonable rate consistent with the maintenance of adequate service in the public interest.” 28 But lower rates are not always synonymous with just and reasonable rates. I have always understood the theory of ratemaking as setting rates at a level such that revenue will be equal to cost plus a reasonable profit. Any procedure that increases cost while forbidding an increase in related revenue must necessarily deviate from that ideal.
FERC argues that the ill effects of this uneven treatment will be offset by revenue from Panhandle’s increased sales of the gas being transported. According to this theory, Panhandle would benefit from the increased sales because the price of each unit of new gas sold will include a portion of the fixed costs for the entire system. Since those fixed costs are already fully allocated to existing sales, the fixed cost component of the new sales would offset the transportation losses.
FERC’s theory would come true, however, only if the fixed costs per unit, multiplied by the number of new units of gas sold, were equal to the total of new transportation costs.29 There is no reason to assume this to be true: in this case it is embarrassingly false. The price Panhandle must pay the producers for the new supplies of natural gas is 102.83 cents per Mcf; the cost of transportation by others is 58.53 cents per Mcf. Panhandle’s highest charge for gas is 118.22 cents per Mcf. . Thus, far from reaping any gains from additional fixed cost charges, Panhandle will lose 43.14 cents per Mcf on these new sales — a total of $1,576,435 per year — assuming that the company incurs no other costs in connection with the new sales.30
This manner of penalizing natural gas companies for bringing new supplies of natural gas to their customers can only harm the public. In order to provide customers with the service they require, natural gas companies have had to search far for new supplies of gas, and to procure transportation from other pipelines when those new supplies are not located along established pipeline routes. The Commission has no power to force a company to pursue new gas supplies diligently; its only inducement to a natural gas company is to permit a fair return on investment in new supplies. The consequences of FERC’s orders in this case are easily predictable: the pipeline companies will be reluctant to procure distant supplies of gas, or they will file more frequent Section 4 increases, with all the problems such frequent filings entail. Neither possibility is in the consumers’ interest. It is not the job of this court to dictate what incentives the Commission should offer the natural gas companies. But it is appropriate to note that orders that are arbitrary and unexplained may harm more than the company involved; they may hurt us all.31
CONCLUSION
The majority opinion leaves little alternative to the Commission but to abandon its attempt in this case to make interim adjust-*1151merits to account for new transportation costs and revenues. The order refusing to allow cost flow-through has been affirmed; the order requiring revenue flow-through has been reversed. I respectfully suggest that my alternative disposition of the two orders32 — to vacate and remand both for consistent treatment — would leave the Commission a much wider range of options to deal with this challenging problem. It might choose — as the majority apparently would require — to treat new transportation costs and revenues like any other changing factors, and await Section 4 or Section 5 proceedings before adjusting Panhandle’s rates. It might choose to adopt a procedure for immediate flow-through of new transportation costs and revenues. It might choose to distinguish between short- and long-term transportation arrangements, or between companies with and without purchased gas cost adjustment clauses. It should have wide latitude in its decision-making so that it may construct necessary safeguards for the public interest. I would insist simply that the Commission choose a procedure that treats like accounts alike. Evenhandedness we should require; all other policy choices should be left to the. Commission.

. The petitions for review were filed pursuant to § 19(b) of the Natural Gas Act, 15 U.S.C. § 717r (1976).

. Panhandle Eastern Pipe Line Co., Docket No. CP77-479 (Dec. 16, 1977), reprinted in Joint Appendix (JA) at 50-62, modified (Feb. 22, 1978), reprinted in JA 68-71.

. The awkward term “to flow through” is used to denote an accounting method that permits a particular item of cost or revenue to be charged or credited to a company’s customers directly; the procedure is in contrast to the usual rate-making procedure, in which changes in cost or revenue merely affect the setting of the prospective rate after the next ratemaking proceeding.

. Trunkline Gas Co., Docket No. CP78-43 (April 17, 1978), reprinted in JA 119-126, rehearing denied (Sept. 25, 1978), reprinted in JA 135-139.

. Panhandle Eastern Pipe Line Co., Docket Nos. RP78-39 and RP78-40 (March 10, 1978), reprinted in JA 91-92, rehearing denied (May 9, 1978), reprinted in JA 99-103. These orders will be referred to collectively as “the third order.”

. Panhandle’s “accounting conduit” status arises from arrangements between it and four other pipelines. An explanation of one of the deals will suffice. In it, Panhandle delivers gas to Northern Natural Gas Company at a point of intersection between the two pipelines. Panhandle in turn receives gas from Trunkline Gas Company (and indirectly from two other pipeline companies as well) at a point of intersection downstream from the first point. Thus the entire fee charged by Panhandle to Northern is remitted to Trunkline; no part of the cost of transportation is attributable to Panhandle’s operations. See brief for petitioner at 49-50. FERC’s decision in Docket No. RP78-11 (Dec. 1, 1977) to increase the transportation fees payable to Trunkline, coupled with its refusal in the order now under review to permit Panhandle to increase the fees payable by Northern, thus constitutes an inexplicable penalty imposed on Panhandle in favor of Northern.

. See also note 19 infra.

. 15 U.S.C. § 717á(b) (1976).

. See Atlantic Refining Co. v. Public Service Comm’n, 360 U.S. 378, 79 S.Ct. 1246, 3 L.Ed.2d 312 (1959).

. See FPC v. Sunray DX Oil Co., 391 U.S. 9, 88 S.Ct. 1526, 20 L.Ed.2d 388 (1968).

. Other affected parties may instigate a rate change by petitioning the Commission. 15 U.S.C. § 717d (1976).

. FERC has no authority under § 5 to increase the company’s rates, unless the company has filed a new rate schedule. 15 U.S.C. § 717d (1976).

. No one can doubt that FERC has the power to adopt procedures it deems most efficient in effectuating the purposes of the Act. As the Supreme Court has emphasized, the Act does not prescribe a “rate-changing ‘procedure,’ ” United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332, 342, 76 S.Ct. 373, 100 L.Ed. 373 (1956). Rather, the Act “defin[es] and implement[s] the powers of the Commission to review rates set initially by natural gas companies * * *.” Id. at 343, 76 S.Ct. at 380. So long as FERC performs its responsibility to review rates searchingly in the public interest, within the authority delegated by the Act, and in accordance with its own regulations and precedent, this court should not dictate a particular form or procedure.

. This rate was approved by FERC, Panhandle Eastern Pipe Line Co., Docket No. CP77-479 (Dec. 16, 1977), reprinted in JA 50-62.

. See Part III infra.

. See majority op., text and notes at notes 66-68.

. See id. at note 68.

. Because we are dealing with new, previously uncertificated transportation services, it is not likely that a general transportation “tracker” adopted at a previous § 4 proceeding would be applicable on its terms to the new service. The majority implies that if a pipeline company has the foresight and foreknowledge to request and receive a transportation “tracker” that would apply to new transportation services when they are certificated, such a “tracker” would be lawful. In this I agree. But in my view a § 7 proceeding is a more logical and appropriáte occasion to decide on the treatment of costs and revenues associated with a new service. I do not see why the lack of tracking authority for previously certificated services prevents adoption of such authority for a new service.

. As I understand its opinion, the majority does not disagree with this statement of the usefulness of expeditious procedures to accommodate cost and revenue fluctuations between § 4 proceedings. We disagree primarily on the issue of the scope of FERC’s statutory authority to make the necessary accommodations. The majority’s restrictive view, however, has produced several inconsistencies.
First, the majority appears to endorse the “purchased gas cost adjustment provision” of 18 C.F.R. § 154.38(d)(4) (1978). See majority op., text and notes at notes 69-86. Yet this provision serves to increase rates without a § 4 proceeding, .or to decrease rates without a § 5 proceeding; thus it would seem to be impermissible under the majority’s ánalysis. Admittedly, a purchased gas adjustment clause is established pursuant to a § 4 proceeding, but the majority does not explain where the Commission derives its authority to alter the statutory scheme — as the majority sees it — in the course of a § 4 proceeding, any more than it may do so in a § 7 proceeding.
Second, the majority says that “the order was unreasonable because it did not allow offset of revenues by increased transportation costs.” Majority op., 198 U.S.App.D.C. -, 613 F.2d at 1137. The majority suggests that such a “netting procedure” could be “essential.” Id., 198 U.S.App.D.C. -, 613 F.2d at 1138. Yet, if new revenues exceed new costs, then the rates would be lowered without resort to § 5, and without any “tracking” provision. Again, this violates the principle enunciated by the majority in its Part II-A-1. Apparently the majority intended to propound alternative holdings. If so, there ensues the anomaly that the two alternative holdings lead to different results : under one, no revenue crediting is per*1146mitted at all, while under the other, such crediting is permitted subject to a cost offset.
Finally, the majority’s disposition of the third order, see id., 198 U.S.App.D.C. at-, 613 F.2d at 1140, conflicts with the analysis of the first order. In the third order the majority permits FERC to alter rates without a cost-of-service proceeding, in the absence of tracking authority. By affirming the Commission’s decision to waive tracking authority in the third order, the majority silently admits that alterations in rates may be made outside of § 4 or § 5 proceedings.
I believe the majority’s endorsement — implied or otherwise — of the purchased gas adjustment provisions, offset of new transportation revenues by costs, and waiver of tracking authority is commendable. But I suggest that, since the majority’s restrictive interpretation of the Commission’s powers is inconsistent with these and other sensible procedures, that interpretation — which in my view is a misreading of the Natural Gas Act — should be rejected. As it is, the majority’s view is so pocked with exceptions as to be incomprehensible.

. See Atlantic Refining Co. v. Public Service Comm’n, supra note 9, 360 U.S. at 392, 79 S.Ct. 1246.

. Strictly speaking, this case does not even involve a lowering of rates. The revenue flow-through requirement will merely reduce the size of the purchased gas account surcharge in the next period. So long as new transportation revenues minus new transportation costs are smaller than the increase in gas costs, the rates to the consumer will continue to increase.

. See text and notes at notes 12-13 supra.

. Panhandle’s rates were last set by settlement agreement in Panhandle Eastern Pipe Line Co., Docket No. RP75-102 (April 25, 1977). Until they are revised, the Commission may operate as if they were still accurate. The general rate level for Panhandle is the subject of a proceeding now under way in Docket No. RP78-62.

. Cf. California Oil Co. v. FPC, 315 F.2d 652, 655 (10th Cir. 1963):
At the outset, we must recognize and emphasize that this involves the issuance of a certificate of public convenience and necessity under Section 7(e) of the Act. It is not a “rate” case under either Section 4 or Section 5 and, therefore, the complex and intricate problems as to what is a “just and reasonable” price under those sections are not before us. We have only to determine the issue of the validity of the price condition imposed upon the certificate issued to petitioner.

. Panhandle also claims that the first order is inconsistent with the decision in Northwest Pipeline Corp., Docket No. RP72-154 et al. (March 31, 1978). In that decision Northwest Pipeline Corporation’s rates were increased pursuant to a purchased gas adjustment clause. Southwest Gas Corporation intervened in the proceeding for the purpose of requesting that Northwest be required to flow through transportation revenues via the purchased gas account. FERC rejected this request, noting that treatment of transportation revenues is properly considered in the course of a § 7 or a § 4 proceeding. Obviously, that conclusion does not conflict with the decision in the first order under review here.

. Panhandle makes no claim that FERC is required by statute or regulation to approve transportation cost flow-throughs, nor does the majority. See majority op., 198 U.S.App.D.C. at-, 613 F.2d at 1139.

. Findings and Order after Statutory Hearing Issuing Certificate of Public Convenience and Necessityf,] Granting Intervention, and Denying Petition at 5 (April 17, 1978), reprinted at JA 119.

. Atlantic Refining Co. v. Public Service Comm’n, supra note 9, 360 U.S. at 388, 79 S.Ct. 1246.

. This assumes that the price the pipeline receives for new gas will be equal to the variable cost per unit of the new gas plus the fixed cost per unit as previously set by ratemaking. Often, however, this assumption is untrue — and the pipeline’s revenue shortfall will be even more dramatic.

. Application for Rehearing of Panhandle Eastern Pipe Line Company, Docket No. CP7843, at 6, reprinted at JA 132 (arithmetic error corrected).

. I join in the majority’s disposition of the third order. See text and notes at notes 5-6 supra.

. Panhandle also challenges the lack of an evidentiary hearing in the orders under review. This raises difficult questions about hearing requirements and waiver of such requirements. Given my suggested disposition of this appeal, these questions need not be resolved: on remand FERC would presumably accord the full procedural protections mandated by the statute or provided in the sound discretion of the agency.
Panhandle also has argued that the challenged orders are discriminatory. In my view, FERC has satisfactorily explained the difference in treatment accorded in the cited instances.