Public Utilities Commission v. Federal Energy Regulatory Commission

236 F.3d 708, 344 U.S. App. D.C. 341, 158 Oil & Gas Rep. 1131, 31 Envtl. L. Rep. (Envtl. Law Inst.) 20366, 2001 U.S. App. LEXIS 446
CourtCourt of Appeals for the D.C. Circuit
DecidedJanuary 12, 2001
DocketNos. 99-1390, 99-1399 and 99-1444
StatusPublished
Cited by5 cases

This text of 236 F.3d 708 (Public Utilities Commission v. Federal Energy Regulatory Commission) is published on Counsel Stack Legal Research, covering Court of Appeals for the D.C. Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Public Utilities Commission v. Federal Energy Regulatory Commission, 236 F.3d 708, 344 U.S. App. D.C. 341, 158 Oil & Gas Rep. 1131, 31 Envtl. L. Rep. (Envtl. Law Inst.) 20366, 2001 U.S. App. LEXIS 446 (D.C. Cir. 2001).

Opinion

Opinion for the Court filed by Circuit Judge ROGERS.

ROGERS, Circuit Judge:

Petitioners1 seek review of four orders of the Federal Energy Regulatory Commission (“FERC”) relating to three pipeline capacity sale contracts between El Paso Natural Gas Company (“El Paso”) and Dynegy Marketing and Trade (“Dyne-gy”) (formerly National Gas Clearinghouse). Petitioners contend that in approving the contracts, FERC abused its discretion and acted arbitrarily and capriciously by (1) not adhering more closely to antitrust principles, as instructed by the court in Southern California Edison v. FERC, 172 F.3d 74 (D.C.Cir.1999) (“SoCal II”), and as manifested by the pro-competitive purposes of FERC Order No. 636,2 and (2) finding that a certain portion of the sold pipeline capacity, designated as “Block II” capacity, was not recallable if unused by Dynegy. Because the contracts expired in December 1999, we hold that the issues underlying the petitions are moot, and accordingly, we dismiss the petitions.

I.

El Paso is one of four interstate pipelines delivering natural gas to California. In 1995, one of El Paso’s major firm gas transportation customers, Pacific Gas and Electric Company (“PG&E”), notified El Paso that it would terminate its entire contract of mainline capacity effective December 1997. PG&E’s “turnback,” along with other smaller capacity relinquish-ments, would leave more than thirty-five percent of El Paso’s firm capacity unsubscribed. Shortly thereafter, in 1996, El Paso negotiated a ten-year rate settlement with all of its direct customers concerning the impending excess capacity (“1996 Settlement”). The 1996 Settlement reduced El Paso’s reservation charges and established'a ten-year moratorium on general rate increases. The Settlement also divided PG&E’s “turnback” capacity into three “blocks,” designated as Blocks I, II, and III; these blocks had system-wide receipt points and primary delivery points to To-pock, California. According to the 1996 Settlement, Block II capacity was subject to certain recall rights, upon notice, in favor of shippers located in PG&E’s service territory in Northern California. FERC approved the 1996 Settlement on April 16, 1997. See El Paso Natural Gas Co., 79 F.E.R.C. ¶ 61,028 (1997), reh’g order, 80 F.E.R.C. ¶ 61,084 (1997).

Although El Paso continued to seek buyers for the excess capacity, as of August 1997 more than 1200 MMcf per day of firm capacity remained unsubscribed. El Paso held an open season during August and September 1997 to sell the excess Block II and Block III capacity. In October 1997, El Paso entered into a transaction contract with Dynegy that committed most of the unsubscribed Block I, II, and III capacity to Dynegy for a two-year period, commencing January 1, 1998 and ending December 31, 1999. The transaction was divided into three separate contracts to reflect the different characteristics of the three blocks of capacity created [711]*711by the 1996 Settlement. Each contract included a revenue reduction mechanism (“RRM”), under which Dynegy’s minimum pay obligation would be reduced if El Paso sold interruptible capacity above certain volume levels in competition with Dynegy’s resale of the firm capacity it had purchased from El Paso.

On December 24, 1997, El Paso filed for approval of a revised tariff to include the terms of the El Paso-Dynegy transaction contract. See Natural Gas Act § 4, 15 U.S.C. § 717c(d) (1997) (“NGA”).3 On January 5, 1998, petitioners filed a protest, objecting, among other things, to the fact that the contracts, and particularly the RRM, were anticompetitive and inconsistent with the 1996 Settlement. In the first challenged order, dated January 23, 1998, FERC authorized the contracts to become effective January 1,1998, subject to refund and the outcome of a technical conference, which was held on March 3, 1998. See El Paso Natural Gas Co., 82 F.E.R.C. ¶ 61,052 (1998) (“El Paso I”).

Petitioners filed a request for rehearing of the January 23, 1998 order. As relevant here, petitioners argued that FERC must apply antitrust principles in examining issues of competition and discrimination raised by the El Paso-Dynegy transaction. Petitioners asserted that, in light of established antitrust principles, the RRM was per se unlawful because it tended to restrain competition in the secondary transportation market, and that the El Paso-Dynegy contracts were anti-competitive in granting Dynegy excessive market power upon El Paso’s transfer of the purchased capacity. See El Paso Natural Gas Co., 83 F.E.R.C. ¶ 61,286, at 62,193 (1998) (“El Paso IF). In addition, petitioners asserted that El Paso’s Block II contract with Dynegy contravened the 1996 Settlement by effectively denying Block II shippers access to the Northern California market. See id. at 62,199-200.

In its second challenged order, El Paso II, dated June 11, 1998, FERC denied the rehearing request. See El Paso II, 83 F.E.R.C. at 62,187-205. In El Paso II, FERC held that, “[wjhile [it] may apply anti-trust concepts in analyzing competitive issues ... [, it] is not charged with administering or enforcing the antitrust laws.” Id. at 62,194. Rather, its obligation was to examine each transaction “in the context of [FERC’s] current regulatory paradigm under the Natural Gas Act.” Id. The relevant regulatory structure, FERC stated, was set forth largely in its Order No. 636 and subsequent rehearing orders, which provide, among other things, that interstate gas pipelines are not required to discount below the maximum lawful rate contained in their tariffs. See id. (citing Order No. 636-B, 57 Fed.Reg. 57,911 (Nov. 27, 1992); Order No. 636-A, 57 Fed.Reg. 36,128 (Aug. 3, 1992)). Further, FERC stated, Order No. 636 “specifically rejected assertions that anti-trust style regulation should play a central role in developing [its] regulatory paradigm.” Id. Thus, FERC stated, the relevant analysis was whether, in light of the regulatory structure set forth in Order No. 636, the contracts at issue were unduly discriminatory. See id.

Applying this analytical structure, FERC concluded that, while the RRM reduced El Paso’s incentive to compete and was therefore anti-competitive, it did not result in an unduly discriminatory situation in the gas transportation market to California. See id. at 62,196. First, the rate established by the contracts was far below the maximum transportation rate authorized by El Paso’s tariff. See id. at 62,197. Second, the anti-competitive effect of the transaction was diminished by the “large amount of unutilized capacity that [was] available on pipelines serving California, the fact that this [was] a two-year [712]*712transaction, that gas demand [was] not expected to increase in California in the next two years, and [that] capacity release rates remained] well below the maximum ceiling.” Id. at 62,198. In rejecting petitioners’ anticompetitiveness arguments, FERC also cited Southern California Edison Company v. Southern California Gas Company, 79 F.E.R.C. ¶ 61,157, reh’g denied, 80 F.E.R.C. ¶ 61,390 (1997) (“SoCal I”),

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236 F.3d 708, 344 U.S. App. D.C. 341, 158 Oil & Gas Rep. 1131, 31 Envtl. L. Rep. (Envtl. Law Inst.) 20366, 2001 U.S. App. LEXIS 446, Counsel Stack Legal Research, https://law.counselstack.com/opinion/public-utilities-commission-v-federal-energy-regulatory-commission-cadc-2001.