Distrigas of Massachusetts Corp. v. Federal Energy Regulatory Commission

751 F.2d 20
Court of Appeals for the First Circuit·Decided December 20, 1984·No. No. 84-1307·Published·Cited by 3 cases

Opinion

BREYER, Circuit Judge.

This case concerns the lawfulness of a refund obligation that the Federal Energy Regulatory Commission (“FERC”) has im[21] posed upon a regulated natural gas utility, Distrigas of Massachusetts Corp. (also known as “DOMAC”), under § 4 of the Natural Gas Act, 15 U.S.C. § 717c. Essentially, the refund is supposed to represent the amount by which DOMAC overcharged its eleven gas distributor customers between July, 1979 (when it raised its prices above a pre-existing lawful level) and August, 1981 (when it raised its prices to a still higher level — prices FERC has considered in a separate proceeding). The parties agree that the refund is limited to the amount by which the rate increase (during this twenty-five month “locked-in” period) exceeded the pre-existing lawful rate. FPC v. Sunray DX Oil Co., 391 U.S. 9, 21-25, 88 S.Ct. 1526, 1532-34, 20 L.Ed.2d 388 (1968). But they disagree about whether FERC can carve up the 25-month “locked-in” period into three separate sub-periods and calculate the refund question for each separately. Through what one might call a quirk of fate or rate, during the first of those three sub-periods the new rates brought DOMAC less revenue than the old rates would have done. FERC disregarded the first sub-period, calculated the refund on the basis of the second and third sub-periods alone, and refused to “subtract” the “first sub-period loss.” DOMAC argues that FERC’s “carve-up” is arbitrary, designed solely to impose a refund obligation greater in amount than the extra revenues that the “locked-in” period rates brought it while they were in effect. We agree with Distrigas that FERC has acted arbitrarily, and we hold the Commission’s refund calculation unlawful.

I

We have already discussed the factual and legal background of this case in two prior opinions and we refer the interested reader to those opinions for details. Dis-trigas of Massachusetts Corp. v. FERC, 737 F.2d 1208 (1st Cir.1984); Distrigas of Massachusetts Corp. v. Boston Gas Co., 693 F.2d 1113 (1st Cir.1982). Therefore, we take as given the facts that DOMAC’s charges in early 1979 were those contained in a lawful, FERC-approved, tariff; that in early 1979 DOMAC sought a rate increase under Natural Gas Act § 4, 15 U.S.C. § 717c; that FERC suspended the increase for five months; that the increased rates took effect in July 1979 pending the conclusion of FERC’s investigation of their lawfulness; that FERC eventually found the rates unlawfully high; and that DOMAC therefore must refund the excess charges it has collected. We must explain, however, why it is that FERC’s division of the locked-in period into three parts could increase the size of DOMAC’s refund obligation.

DOMAC charged prices for its liquified natural gas (“LNG”) that varied, depending upon how much LNG DOMAC had already sold during its “contract year” (a twelve month period running from April 1 of one year to March 31 of the next). Thus, under its old, lawful, tariff DOMAC charged $.65 per MMBtu (gas providing one million British thermal units of heat) until it had sold 7.5 million MMBtu. It then charged $.55 per MMBtu until it had sold 23.5 million more MMBtu. It charged $.18 per MMBtu thereafter. Under its new proposed rate DOMAC charged higher first and second tier rates. It also changed the scope of first and second tier coverage (extending the scope of the first tier rate, while diminishing the scope of the second). To be more specific, DOMAC’s new locked-in period rates were $1.05 per MMBtu over the first 8.1 million MMBtu; $.615 per MMBtu for the next 14 million MMBtu; and $.18 per MMBtu thereafter. Figure 1 shows the rates graphically. The rate change was to provide DOMAC with additional revenues amounting to the sum of areas A, B, and C, minus area D. When DOMAC sold 30 million MMBtu or more in a contract year, this sum would amount to about $1.3 million in additional revenues.

Although DOMAC’s new rates did not take effect until July 5, 1979, DOMAC calculated the amount of gas it sold (for purposes of triggering a “rate tier” change) from April 1, 1979 (the beginning of its “contract year”). Thus, soon after the new rates took effect DOMAC dropped its rate [22] into the new rates’ “second tier.” This fact, combined with the fact that DOMAC sold more “third tier” gas than expected meant that new rates produced revenues in the 1979-1980 contract year that were about $1.5 million less than its old rates would have produced. (Graphically, the company failed to collect most of area A and “undercollected” all of area D in Figure 1.) During the rest of the locked-in period, however, (contract year 1980-81, and the first part of contract year 1981-82), the new rates earned DOMAC about $7.4 million more than its old rates would have done. Taking the locked-in period as a whole, the new rates earned DOMAC $5.9 million more. ($7.4 million less $1.5 million.) The effect of the new rates on DO-MAC’s revenues is illustrated by Figure 2.

As we previously stated, FERC found that the “just and reasonable” rate was lower than DOMAC’s new rate. See Opinion No. 178, 23 FERC 11 61.416. In fact, it found that the “just and reasonable” rate was even lower than DOMAC’s old lawful rate. It recognized, however, that DOMAC could not be required to refund more than the difference between the new rate and the old one. FPC v. Sunray DX Oil Co., 391 U.S. at 24, 88 S.Ct. at 1534. Thus, it ordered DOMAC to propose refunds, noting the “[rjefunds ... for the locked-in period ... should yield revenues equal to those that would result from the [old] ... rates.” 25 FERC 11 61,163 at 61,451. DO-MAC proposed refunds totalling about $5.9 million. Two of its customers — Boston Gas Company and Brooklyn Union Gas Company — then objected, arguing that the refund should equal the entire revenues obtained in the later part of the locked-in period without any offset for the earlier deficiency. FERC agreed and ordered a refund of about $7.4 million. DOMAC challenges that decision on this appeal.

II

We conclude that the Commission has acted unlawfully in ordering a refund that, in effect, requires DOMAC to refund more money than its rate change brought it. Our conclusion rests upon the following reasons. First, the Supreme Court has stated, and we have specifically held in the course of this proceeding, that “the pre-ex-isting lawful rate provides a refund floor in a section 4 proceeding,” Distrigas of Massachusetts Corp. v. FERC, 737 F.2d at 1224; see FPC v. Sunray DX Oil Co., 391 U.S. at 21-25, 88 S.Ct. at 1533-34. We clearly stated that § 4’s refund authority is “limited to” what § 4 describes in statutory language as the “amounts received by reason of such increase,” namely the increase in rates for which the utility sought FERC approval under § 4. Distrigas of Massachusetts Corp. v. FERC, 737 F.2d at 1224. DOMAC received $5.9 million in additional revenue by reason of the “increase” over the previously lawful rate. Yet FERC ordered it to refund $7.4 million. We can find no natural way to characterize FERC’s action that will square it with the language of § 4, of Sunray, or of our previous opinion.

Free access — add to your briefcase to read the full text and ask questions with AI

Distrigas of Massachusetts Corp. v. Federal Energy Regulatory Commission, 751 F.2d 20 (1st Cir. 1984).

751 F.2d 20 (Distrigas of Massachusetts Corp. v. Federal Energy Regulatory Commission) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

Related

Untitled Case
E.D. California, 2026
Whitinsville Water Co. v. Covich
507 N.E.2d 1059 (Massachusetts Appeals Court, 1987)