Transwestern Pipeline Co. v. Federal Energy Regulatory Commission

897 F.2d 570, 283 U.S. App. D.C. 116, 1990 U.S. App. LEXIS 4151
CourtCourt of Appeals for the D.C. Circuit
DecidedMarch 23, 1990
DocketNos. 88-1046, 88-1371, 88-1484, 88-1555, 88-1559 and 88-1573
StatusPublished
Cited by2 cases

This text of 897 F.2d 570 (Transwestern Pipeline Co. 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
Transwestern Pipeline Co. v. Federal Energy Regulatory Commission, 897 F.2d 570, 283 U.S. App. D.C. 116, 1990 U.S. App. LEXIS 4151 (D.C. Cir. 1990).

Opinion

Opinion for the Court filed by Circuit Judge STEPHEN F. WILLIAMS.

STEPHEN F. WILLIAMS, Circuit Judge:

This appeal grows out of the Federal Energy Regulatory Commission’s attempt to afford natural gas consumers the benefits of increased competition. Its basic stratagem was to “unbundle” the sale of gas from its transportation, enabling local distribution companies and end-users to buy gas in the field and to use interstate pipelines simply for transportation. See Order No. 436, Regulation of Natural Gas Pipelines after Partial Wellhead Decontrol, 50 Fed.Reg. 42,408 (1985). In Associated Gas Distributors v. FERC, 824 F.2d 981 (D.C.Cir.1987), this court upheld the substance of the Commission’s new approach, but vacated and remanded Order No. 436 because the Commission had failed to address adequately the effect of its new regulations on the interstate pipelines’ take-or-pay liability. Because Order No. 436 put pressure on pipelines to allow shipments of gas in competition with their own supplies, it increased their difficulties in selling (without loss) quantities of gas that they were obligated to either take or pay for. On remand, the Commission sought to offset these difficulties by shifting some of the costs onto producers and customers. See Order No. 500, Regulation of Natural Gas Pipelines after Partial Wellhead Decontrol, 52 Fed.Reg. 30,334 (1987). Challenges to the order were consolidated into one complex case, the first phase of which addressed a facial challenge to the entire order, and the second phase of which considered the application of the Commission's “equitable sharing” policy to a particular pipeline. See American Gas Association v. FERC, 888 F.2d 136 (D.C.Cir.1989) (Phase I); Associated Gas Distributors v. FERC, 893 F.2d 349 (D.C.Cir.1989) (Phase II).

This segment of the case was intended to address issues raised by a so-called gas inventory charge, also known by the acronym GIC. Here the Commission's object was to define the limits on pipelines’ ability to charge their customers for the costs of maintaining an inventory of contract rights to purchase gas (including one form those costs may take, namely liability under contracts requiring a pipeline to take gas or pay for it anyway), and thereby to prevent recurrence of the recent take-or-pay pass-through issues.1 The Commission originally discussed the charge as a policy statement within Order No. 500 and later implemented it in a number of specific decisions, including the one now before us.

Although a large number of cases were filed challenging FERC implementation of the gas inventory charge, the present case was jointly selected by the- parties as the most suitable one for its review; the remainder were held in abeyance. As will be developed below, most of the key issues in this case have been rendered moot. The only customers of Transwestern potentially affected by Transwestern’s gas inventory charge proposals have ceased to purchase gas from that pipeline, and nothing before [120]*120us suggests that any judicial correction of FERC’s asserted errors would restore gas sales transactions. A number of peripheral issues survive mootness, but the upshot is that this case has failed as the selected vehicle for review of the Commission’s actions on gas inventory charges.

I

Before turning to the Commission’s disposition of Transwestem’s gas inventory charge proposal, we must first clear out of the way Transwestem’s attack on the Commission’s rejection of its earlier filing, in June 1986, of a proposal for a somewhat similar charge, then called a “supply reservation charge.”2 The Commission rejected the filing and set it down for a hearing. 36 FERC ¶61,048 at 61,104 (1986). After hearing, the ALJ rejected the proposal, 39 FERC 11 63,025 (1987), and the Commission affirmed. 40 FERC ¶61,324 at 61,994-95 (1987). The Commission found the proposed charge too vague since crucial terms — such as the amount of the charge and its relation to Transwestern's actual cost of reserving supplies — depended on the outcome of negotiations with Transwestem’s producers, which it had not then completed. Transwestem, 40 FERC at 61,-995.

Transwestem tells us that the Commission’s objection, the proposal’s lack of specific figures, is of no weight: Transwestem offered the supply reservation charge only as a “mechanism.” We do not believe that as an ordinary matter a pipeline’s attachment of the “mechanism” label requires the Commission to dispense with insistence on specific figures. Of course that may be so where a pipeline offers to establish that market forces will hold charges to just and reasonable levels and submits adequate support for the claim. But in the absence of some such special circumstance the Commission’s position seems entirely reasonable. Here, although the proposed charge was designed to cover Transwestem’s cost of maintaining gas supplies, Transwestem could offer no actual evidence of the costs because it had not yet completed negotiations with any of its producers. Id. The Commission was surely not arbitrary or capricious in declining “to allocate risks and unknown future costs between the pipeline and its customers in a vacuum.” 40 FERC at 61,996.

Transwestem also complains that FERC applied its Order No. 500 policy statement after the record was closed and even though its proposal was filed before Order No. 500. This is simply not true. After rejecting Transwestern’s proposal as “not sufficiently developed,” the Commission noted that any new proposal should look to the principles stated in Order No. 500. 40 FERC at 61,995. Where an agency has rejected a proposal on legitimate standards, its offer of a helpful hint as to criteria for the future is not the same as reliance on the latter.

II

After Transwestem’s 1986 filing was rebuffed, it submitted in December 1987 a filing under § 4 of the Natural Gas Act, 15 U.S.C. § 717c (1988), in which it sought to avoid future take-or-pay problems by implementing a gas inventory charge in accordance with Order No. 500. Under the proposal, a customer would nominate in advance the amount of gas it intended to buy from Transwestern for a specified period. Before nominations were due, Transwestem would publish the relevant prices — rate schedules for the purchase of gas, and the gas inventory charge, i.e., a charge for each unit of gas nominated but not taken, somewhat equivalent to a liquidated damages clause in a longterm purchase contract. Joint Appendix (“J.A.”) 225-26, 242, 256-58. The actual amount of the charges would be up to Transwestem, which argued that competitive market forces would keep them at just and reasonable levels. Id. at 263-64.

In a companion filing under § 7 of the Natural Gas Act, 15 U.S.C. § 717f, [121]*121Transwestem proposed that whenever a customer’s nomination fell below its certificated firm sales entitlement, the unused entitlement would be automatically abandoned and converted to an entitlement to firm transportation. J.A. 228-29.

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897 F.2d 570 (D.C. Circuit, 1990)

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Bluebook (online)
897 F.2d 570, 283 U.S. App. D.C. 116, 1990 U.S. App. LEXIS 4151, Counsel Stack Legal Research, https://law.counselstack.com/opinion/transwestern-pipeline-co-v-federal-energy-regulatory-commission-cadc-1990.