Court Opinion

ID: 185093
Source: CourtListenerOpinion
Date Created: 2011-02-05 02:27:42+00
Date Added: 2024-06-11T09:13:24.577320
License: Public Domain

United States Court of Appeals

               FOR THE DISTRICT OF COLUMBIA CIRCUIT

       Argued November 23, 1999   Decided February 1, 2000 

                           No. 98-1245

             Washington Water Power Company, et al., 
                           Petitioners

                                v.

              Federal Energy Regulatory Commission, 
                            Respondent

    Great Lakes Gas Transmission Limited Partnership, et al., 
                           Intervenors

                        Consolidated with 
                    98-1249, 98-1251, 98-1274

            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 Corpo-
ration.

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

                                I

     Intervenor PG&E Gas Transmission-Northwest Corpora-
tion ("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.

     Historically, the pipeline used a rate system in which 
shippers who entered into contracts for capacity after expan-
sion ("expansion shippers") bore the entire cost of the expan-
sion;  shippers who held capacity on the pipeline prior to 
expansion ("original shippers") paid only for the costs associ-
ated with the original pipeline, including any unrecovered 
costs of building the original pipeline, depreciation, and asso-
ciated tariffs.  According to FERC, this so-called "incremen-
tal" 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).

     Not surprisingly, the expansion shippers preferred a differ-
ent 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 argu-
ing 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 resolu-
tion 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. s 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 

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

     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. 
s 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. s 284.243(e).  Although "maximum rate" is not de-
fined 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 per-
son offering the highest rate not over the maximum tariff 
rate the pipeline can charge to the releasing shipper."  Pipe-
line Service Obligations and Revisions to Regulations Gov-
erning 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 pipe-
line 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.

     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 exist-
ing incremental rate structure was maintained.  During the 
second period, running from the 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 repre-
sents a steep increase for PG&E and other original shippers 
who had not previously been paying for the pipeline's expan-
sion, 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, al-
though 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 mitiga-
tion 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 perma-
nently or temporarily releases capacity.

     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' chal-
lenges.

                                II

     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. s 284.243, as interpreted in Order No. 636.  They also 
argue that application of the new policy to them is impermis-
sibly 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,' limit-
ed 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 ship-
per petitioners therefore had no obligation to seek further 
rehearing.

     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 au-
thority 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.

     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 Commis-
sion, 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.

     The Commission's position rests on the following sequence 
of events.  After FERC issued Order No. 636, several peti-
tions 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.

     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 treat-
ed 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 incre-
mental 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 "maxi-
mum rate" does not apply to incrementally priced rate struc-
tures.  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.

     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 incre-
mentally 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.

     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, replace-
ment shipper petitioners argue that applying the new policy 
to them now is impermissibly retroactive.  Because petition-
ers have failed to establish that they relied on the Commis-
sion'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 incremen-
tal 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 antici-
pated.  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").

     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"), peti-
tions for review denied in part and granted in part, South-

eastern 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 "consistent-
ly 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.

     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 signifi-
cantly lower than the rate paid by expansion shippers.  Since 
replacement shippers are similarly situated to expansion ship-
pers for purposes of determining rates and since it is undis-
puted that they paid less than expansion shippers for the 
period in question, petitioners have no cause to complain now 
about the tariffs.

     Replacement shipper petitioners also contend that the set-
tlement 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 replace-
ment 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 dis-
crimination argument fails.

     Finally, replacement shipper petitioners challenge a provi-
sion 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 Com-
mission'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 settle-
ments 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 signifi-
cantly higher proportionate amount" of the transition cost 
tariffs than any other shipper.  See 82 FERC p 61,289 at 
62,143.

                               III

     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 Washing-
ton Water Power Co. maintains that FERC should not have 
approved the settlement without requiring additional mitiga-
tion.  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 re-
sults 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 re-
quired 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.

     Petitioners DEK Energy Corp. and Apache Corp. (collec-
tively "DEK"), expansion shippers who failed timely to file 
their comments on the settlement, now contest the settle-
ment'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 ship-
pers 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 Trans-
mission, Northwest Corp., 83 FERC p 61,251 at 62,066 (1998), 
it noted that

     [a]ddressing DEK's opposition now, in light of extended 
     settlement conferences and resolution of the case in a 
     manner acceptable to all other similarly situated to DEK, 
     would unfairly disrupt and detract from the compromises 
     of parties that did participate.  This is especially true 
     considering that DEK's initial comments were silent on 
     the issues raised in its 'clarification' and request for 
     
     rehearing.  Consideration of the late opposition would be 
     similar to allowing an eleventh hour intervention by a 
     person that had chosen not to comment at all, and would 
     lend uncertainty to the settlement negotiation process 
     which thrives, in part, on the timely filing of positions.
     
82 FERC p 61,289 at 62,138.  Agreeing with the Commis-
sion'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

     The petitions for review are denied.

                                                      So ordered.