United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 3, 1998 Decided January 26, 1999
No. 97-1457
Northern Municipal Distributors Group,
Petitioners
v.
Federal Energy Regulatory Commission,
Respondent
Terra International, Inc., et al.,
Intervenors
Consolidated with
No. 97-1492
On Petitions for Review of Orders of the Federal
Energy Regulatory Commission
Thomas C. Gorak argued the cause and filed the briefs for
petitioners Northern Municipal Distributors Group and Mid-
west Region Gas Task Force Association. Carl W. Ulrich
entered an appearance.
Frank X. Kelly argued the cause for petitioner Northern
Natural Gas Company. With him on the briefs were Steve
Stojic, Franklin R. Bay and Dari R. Dornan.
Andrew K. Soto, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. On the brief
were Jay L. Witkin, Solicitor, and Susan J. Court, Special
Counsel.
Carolyn Y. Thompson argued the cause and filed the brief
for intervenor Minnegasco, a Division of NorAm Energy
Corporation.
Frank X. Kelly, Steve Stojic, Franklin R. Bay, Dari R.
Dornan and Carolyn Y. Thompson were on the joint brief for
intervenors Northern Natural Gas Company and Minnegasco,
a Division of NorAm Energy Corporation.
Before: Randolph, Rogers and Tatel, Circuit Judges.
Opinion for the Court filed by Circuit Judge Rogers.
Rogers, Circuit Judge: The Federal Energy Regulatory
Commission sought in five orders to ensure adequate supplies
of gas at Carlton, Minnesota on the Northern Natural Gas
Pipeline. A settlement agreement, as modified by the Com-
mission, requires that some shippers supply gas at Carlton
and other shippers pay a surcharge to reimburse the supply-
ing shippers. Petitioner Northern Natural Gas ("Northern")
contends that it should be permitted to discount the Carlton
surcharge in its contracts with customers as it sees fit.
Northern maintains that the Commission's decision to limit its
ability to discount the surcharge is not well-reasoned, upsets
the delicate balance of the settlement agreement, erroneously
relies on an inapplicable standard that governs only transition
costs, ignores existing policy on discounting of non-transition
costs, and ultimately forces Northern to bear the cost of the
surcharge despite the principle adopted by the Commission
that Northern should act only as a conduit for distributing
costs among shippers. Petitioner Northern Municipal Dis-
tributors Group ("NMDG") challenges the denial of an ex-
emption from the surcharge, contending that the Order 636
"Global Settlement" expressly exempts small customers like
NMDG from all pro rata receipt point allocations occasioned
by Order 636 restructuring, and that the Commission has
established a policy of exemption for small customers. Be-
cause we conclude that the Commission's orders address an
operational problem in a well-reasoned manner and NMDG's
arguments for exemption fail, we deny the petitions.
I.
After Northern unbundled its transportation and sales
services pursuant to the restructuring requirements of Order
636,1 Northern and its customers had to decide how to
allocate receipt point capacity among the customers. Certain
receipt points were more popular than others because gas
supplies were cheaper; thus demand at those points was
higher. Additionally, certain receipt points require input in
order to ensure that gas can be delivered throughout the
system serviced by a pipe. Along the Northern pipeline a
problem arose when the Farmington, Minnesota receipt point
was over-subscribed, causing a bottleneck, while a point one
hundred miles north at Carlton, Minnesota was under-
subscribed. The concerned parties contemplated two solu-
tions: build facilities to relieve the bottleneck at Farmington
__________
1 See Order No. 636, Pipeline Service Obligations and Revisions
to Regulations Governing Self-Implementing Transportation Un-
der Part 284 of the Commission's Regulations, and Regulation of
Natural Gas Pipeline After Partial Wellhead Decontrol, III FERC
Stats. & Regs. Preambles p 30,939 (1992), on reh'g, Order No.
636-A, III FERC Stats. & Regs. Preambles p 30,950 (1992), on
reh'g, Order No. 636-B, 61 FERC p 61,272 (1992), reh'g denied, 62
FERC p 61,007 (1993), aff'd in part and remanded in part, United
Distribution Cos. v. FERC, 88 F.3d 1105 (D.C. Cir. 1996), on
remand, Order No. 636-C, 78 FERC p 61,186 (1997), on reh'g,
Order No. 636-D, 82 FERC p 61,210 (1998).
or increase inputs at Carlton to ensure sufficient supply at
the more northern point.
The parties entered into interim agreements but eventually
came to the Commission for a final solution. Northern
proposed four alternatives, two of which involved some or all
shippers, excluding small customers, being required to source
at Carlton and two of which involved building facilities. In
the first order under review, the Commission, noting that
"this is a highly contentious issue," resolved that sourcing at
Carlton rather than building facilities would be the preferred
solution. 76 FERC p 61,180, at 62,000 (1996). The Commis-
sion observed that the parties seemed to agree that the
Carlton Resolution, "whereby sufficient volumes would be
available to meet Northern's contractual delivery obligations
north of Farmington, is less expensive, and, thus, preferable
to Northern building additional facilities to relieve the Farm-
ington bottleneck." Id. Accordingly, shippers would be re-
quired or encouraged to source their gas at Carlton. Because
the required sourcing at Carlton was "in lieu of building
additional facilities," the costs of solving this systemic prob-
lem would be borne by all shippers. Id. at 62,001. Because
it was inefficient to require all shippers to source at Carlton,
especially if they already had receipt and delivery points
south of Farmington, the Commission reasoned:
The most efficient solution is to require only the shippers
most directly affected, those ... downstream [i.e. north]
of Farmington, to source gas at Carlton on a pro rata
basis. These shippers should then be compensated by
the other shippers on Northern's system for the addition-
al costs they incur because they must buy the higher
priced gas for delivery at Carlton.
Id. Regarding the small customers, the Commission noted
that although these entities could encounter operational prob-
lems in sourcing small quantities, they had the options of
assigning their sourcing obligations to other shippers and/or
amalgamating their responsibilities into larger buying blocks.
In any event, the Commission saw no reason why small
shippers "or any other shipper should not shoulder its pro-
portionate share of the costs of [the Carlton problem]." Id.
In the second order, the Commission addressed the various
exemptions sought by parties in response to Northern's filing
of proposed tariff sheets and a draft of a Carlton Resolution
that was not the product of an agreement between the
affected parties. See 77 FERC p 61,022 (1996).2 Rejecting a
small customer exemption, the Commission explained that the
Global Settlement on restructuring under Order 636, see 64
FERC p 61,073 (1993), determined that certain shippers
would not have a pro rata allocation at every receipt point
because "small customers [should] not be allocated an unusa-
ble sliver of capacity at many receipt points." 77 FERC at
61,081. As a result, small customers, unlike other shippers,
could have all of their capacity at one point. However, the
Commission distinguished between the broad policy of alloca-
tion associated with restructuring and the particular problem
of system integrity at Carlton. The Carlton-type problem
could arise only in a certain part of the year at one particular
receipt point. Under "these limited circumstances," the Com-
mission concluded that small customers would not be "unduly
burdened in assisting to ensure that their own services con-
tinue to be provided." Id.
As to Northern's customers' concerns about discounts and
the effect of the Carlton surcharge, the Commission decided
that Northern could collect the surcharge from a shipper
unless specifically prohibited by Northern's contract with that
customer.3 See id. at 61,083. Further, if Northern did
__________
2 In the second order, the Commission also noted that receipt
point capacity allocation was not the only solution--construction
remained a viable alternative--except that the Commission could
not order Northern to undertake construction under these circum-
stances; therefore, a construction solution would have to be negoti-
ated. See 77 FERC at 61,080.
3 For example, one customer wanted to know whether Carlton
costs could be discounted and whether other shippers or Northern
discount its rates, it would be required to reflect discounts to
the Carlton surcharge after base rates but before transition
costs. See id. The Commission applied the reasoning of its
decision in Natural Gas Pipeline Company of America, 69
FERC p 61,029 (1994) ("Natural"), which established that
discounts would be attributed to transition costs last.4 The
Commission thereby prioritized which costs would be deemed
recovered and increased the likelihood that shippers forced to
source at Carlton would be reimbursed.
The Commission rejected Northern's "deviations" from the
guidelines set forth in its previous order, concluding that
Northern did not meet the guidelines when it decided to
require all market area shippers--rather than only those
shippers downstream of Farmington--to receive the neces-
sary volumes at Carlton. 77 FERC at 61,084-85. This
arrangement was contrary to the requirement that the fewest
number of shippers and only those nearest Carlton would
receive gas there, see id. at 61,085, because it would enable
Northern to avoid its duty to compensate one class of ship-
pers for the cost of sourcing at Carlton. The Commission
also rejected Northern's attempt to exempt various classes of
__________
itself would be required to absorb any discounts. Another shipper
on Northern's pipeline, Terra, argued that it was exempt from the
Carlton surcharge because it negotiated discounts with Northern.
Because Terra was exempt from this and other surcharges under
its contract, the Commission would have had to abrogate the
contract in order to assess the charges against Terra--an act that
would require finding that the contract rate was so low as not to be
in the public interest. See 77 FERC at 61,083. The Commission
found that Terra's contract did not prevent it from being required
to source volumes at Carlton, but did seem to prohibit Terra from
being assessed costs associated with reimbursing other shippers.
4 In other words, Terra would pay its discounted rate; but under
the policy in Natural, that discount would be reflected first in base
rates, then in the Carlton surcharge, and last in any transition
costs.
customers as undercutting the goal that the Carlton Resolu-
tion have the same effect as new construction. See id. The
Commission likewise was unpersuaded by Northern's com-
plaints that a reimbursement system was unworkable because
it was too difficult to determine incremental cost and the
appropriate timing of the reimbursement. See id. at 61,086.
Thereafter, Northern and its customers, save one, reached
a settlement supported to varying degrees by the parties
affected. The proposed settlement would obligate certain
market area customers to source at Carlton based on their
current entitlement. These shippers could source or partici-
pate in a bidding process whereby they would opt out of their
obligation to source; a "Carlton Account" would settle the
costs of sourcing amongst these shippers. Shippers not
obligated to source at Carlton would pay a surcharge of $0.04
that Northern would recover only where it could contractually
collect the surcharge; the amount collected would be reim-
bursed on a pro rata basis to the shippers who sourced at
Carlton. Small customers had the option to buy out of their
sourcing obligations at a rate of $.60 multiplied by their daily
sourcing obligation and a specified number of days.
Numerous parties filed comments to the settlement. Min-
negasco, the largest resale customer on Northern's system,
urged the Commission to reject the settlement for four
reasons: first, the fixed surcharge was "not the equivalent of
the true-up reimbursement mechanism ordered by the Com-
mission;" second, the settlement would "allow non-sourcing
shippers to escape all financial responsibility for the sur-
charge;" third, the implausibility of reimbursement was
heightened by Northern's insertion of a clause that permitted
it to "contract away" its ability to collect the surcharge; and
fourth, both the small customer buyout and the surcharge for
non-sourcing shippers would prove inadequate to cover the
actual cost to the sourcers at Carlton. Minnegasco suggested
that rather than predetermining that shippers north of Farm-
ington would source at Carlton and those south would not, the
Commission should permit shippers south of Farmington to
choose between sourcing or paying the surcharge. Northern
Illinois Gas, another shipper on Northern's pipeline, also
expressed concern that Northern might be able to "discount
away" collections from non-sourcing shippers, but supported
the compromise over a solution imposed by the Commission,
so long as the Commission clarified that the discounting issue
could be addressed in the next general rate case. NMDG
maintained that small customers were "exempt from any
Carlton receipt point allocation, reallocation, or obligation,"
citing the Global Settlement concerning Order 636 restructur-
ing, which gave these customers the "right to choose and
utilize a single primary receipt point on a permanent basis,"
and established that for purposes of allocating receipt point
capacity, their receipt point requests would be honored in full
and other converting sales customers would be allocated
capacity on a pro rata basis.
In the third order, the Commission approved the settle-
ment with one modification to the surcharge discounting
provision. See 77 FERC p 61,201 (1996). Reiterating that
Natural applied, and thus the Carlton surcharges must be
discounted after the base rate, see id. at 61,786, the Commis-
sion reaffirmed that Northern was to be merely a conduit of
the Carlton costs between shippers, and therefore, it would
not be required to bear any of the Carlton costs unless it
chose to do so by offering discounts, see id. at 61,787.
Recognizing that Northern would bear some cost if it dis-
counted significantly, the Commission applied Natural in an
effort to "discourage Northern from shifting costs among the
parties to its settlement after the settlement has taken ef-
fect."5 Id. In rejecting the small customer exemption, the
__________
5 The Commission noted that while the current proceedings were
pending, Northern had entered into a contract with Terra that
exempted Terra from any transition or Carlton costs. The Com-
mission found that Northern had no authority to exempt Terra from
the Carlton costs and therefore could not reflect Terra's allocated
costs in its computation of the surcharge to be paid by other
shippers. The Commission thereby rejected Northern's attempt to
"passthrough" the costs to other shippers. 77 FERC at 61,787.
Commission observed that the Global Settlement could not be
used to apply in every situation, and concluded that "the
settlement reaches a suitable middle ground between the
forces that would require small customers to share the same
burdens as all other Northern shippers, and those that would
call for small customers to enjoy the benefits of a Carlton
resolution without contributing at all." Id. at 61,788.
Northern objected, noting that the parties to the settle-
ment had agreed that Natural's application to the Carlton
surcharge would not be addressed until Northern's next rate
case, "an essential element of the bargain for Northern," and
that the settlement incorporated each party's understanding
that the sourcing shippers would only recover what Northern
could collect and no more.6 Therefore, in Northern's view,
"there is no 'cost' to shift among the parties," and further, the
Commission's decision would cause Northern to pay some of
the costs of solving the Carlton problem, a result the Com-
mission claimed it did not desire. If the Commission refused
to reinstate the surcharge policy from the settlement, North-
ern requested that the Commission either clarify that Natu-
ral's discounting rule would apply only prospectively, or
design a compensation mechanism that would ensure that
Northern would bear none of the costs, for example by
setting a charge to be collected separately from a shipper's
contract with Northern.
In the fourth order, the Commission abandoned application
of Natural,7 but repeated that its basic goal was "to ensure
that the Carlton costs are shared fairly among all of North-
ern's shippers." 79 FERC p 61,348, at 62,488 (1997). North-
__________
6 NMDG also objected, but its arguments were repetitive or
unrelated to the issues in the instant appeal.
7 The Commission concluded that because Natural applies to
"transition costs ... collected through a surcharge mechanism with
a true-up procedure to ensure recovery of the costs" and because
there is no true-up or recalculation of costs under the surcharge
here, it had "erred in stating that it was applying the Natural
policy." 79 FERC p 61,348, at 62,488 (1997).
ern's plan to reimburse sourcing shippers only insofar as it
collected the surcharge from other shippers remained unac-
ceptable. While discounts permit pipelines to increase their
"throughput," and increased throughput is generally encour-
aged, "Northern had increased its throughput by allowing a
shipper to escape paying its portion of the Carlton costs at
the expense of shippers like Minnegasco that were paying the
Carlton costs." Id. The Commission was concerned that the
shippers obligated to source at Carlton could not be parties to
Northern's agreements to discount other shippers' rates and
thus had no "protect[ion] from having their reimbursement
amounts given away by Northern." Id. The Commission
therefore continued to require that any discounts would be
deemed to come from Northern's base rates before the
Carlton surcharge. See id. at 62,489. In the Commission's
view, Northern would act as a conduit that would not bear the
Carlton surcharge costs unless it "deeply discount[ed] its
rates," and then it would be "only reasonable" for Northern,
rather than other shippers, to bear the costs of its choice. Id.
In response, Northern argued that the Commission could
not maintain its stance on discounting in view of its admission
that Natural was inapplicable and its discounting policy in
other contexts, and that the Commission should approve the
settlement agreement. In the fifth order, the Commission
denied rehearing. See 80 FERC p 61,148 (1997). These
petitions for review of the five orders followed.
II.
Two statutes control our review of the Commission's or-
ders. First, under the Administrative Procedure Act, the
court must hold unlawful and set aside agency actions, find-
ings, and conclusions that are "arbitrary, capricious, an abuse
of discretion, or otherwise not in accordance with law." 5
U.S.C. s 706(2) (1994). Upon examining the record the court
inquires whether it can discern a rational connection between
the facts found and the choice made by the Commission, and
whether the Commission has considered all the relevant
factors and provided an adequate explanation to support its
decision. See Motor Vehicle Mfrs. Ass'n v. State Farm Mut.
Auto. Ins. Co., 463 U.S. 29, 42-43 (1983); Greater Boston
Television Corp. v. FCC, 444 F.2d 841, 850-53 (D.C. Cir.
1970). The court can rely only on the reasons supplied by the
agency to justify its action. See State Farm, 463 U.S. at 43;
SEC v. Chenery Corp., 332 U.S. 194, 196-97 (1947).
Second, under the Natural Gas Act, the Commission's
findings of fact are "conclusive" on appellate review if "sup-
ported by substantial evidence." 15 U.S.C. s 717r(b) (1994).
Congress granted the Commission authority to determine
just and reasonable policies and practices affecting rates,
charges, or classifications in connection with the transporta-
tion or sale of natural gas under Section 5 of the Act. See id.
s 717d. Thus, "judicial scrutiny under the Natural Gas Act
is limited to assuring that the Commission's decisionmaking is
reasoned, principled, and based upon the record." Pennsyl-
vania Office of Consumer Advocate v. FERC, 131 F.3d 182,
185 (D.C. Cir. 1997), corrected by 134 F.3d 422 (D.C. Cir.
1998) (quotation marks and alterations omitted); see also
Koch Gateway Pipeline Co. v. FERC, 136 F.3d 810, 814 (D.C.
Cir. 1998).
A.
Northern Natural Gas: Discounting. Northern contends
that the Commission's discounting policy is not the product of
reasoned decision making for two reasons. First, the Com-
mission erroneously applied its decision in Natural governing
transition costs and failed to follow its precedent and previous
practices for non-transition costs. Second, the Commission's
policy does not achieve the purported goals of the surcharge:
to guarantee that shippers pay their fair share, to ensure that
shippers sourcing at Carlton are fully reimbursed, and to
make Northern a mere conduit for the surcharges. As a
related matter, Northern contends that the Commission did
not give adequate consideration to the settlement agreement.
Northern maintains that precedent and practice permit
Northern to elect when and how to discount non-transition
costs.8 It first contends that the Commission's discounting
decision deserves no deference by the court because the
Commission erroneously applied Natural. The court has
reasoned that the Commission's reliance on a "concededly
mistaken construction" of one of its precedents, "removes the
usual presumption of deference that attends administrative
decisions made in the exercise of the agency's delegated
authority." Tennessee Gas Transmission Co. v. FERC, 789
F.2d 61, 62-63 (D.C. Cir. 1986). But there would be no point
in penalizing the Commission for correcting its mistakes,
much less in finding disparate treatment of similar situations
to be arbitrary and capricious, so long as the Commission
provides a reasoned foundation for its current decision. See
Williams Natural Gas Co. v. FERC, 3 F.3d 1544, 1550-54
(D.C. Cir. 1993). Thus, we will not deny deference to the
Commission's discounting decision on the sole basis that it
applied a prior precedent it later found to be inapplicable.
The Commission has consistently articulated the principle
that all shippers should share in the Carlton costs. Simply
because the Commission recognized that Natural did not
apply did not mean that the only reasoned decision that
remained was to implement Northern's discounting plan. A
decision to prevent Northern from shifting the fair distribu-
tion of costs among shippers could be well-reasoned even
without the application of Natural.
Northern next contends that the Commission's decision in
Panhandle Eastern Pipeline Co., 75 FERC p 61,004 at
61,012-13 (1996), established a policy that governs discount-
__________
8 Northern also points out that the Commission permitted parties
to agree in previous settlements to a method for discounting
transition costs that did not follow Natural, and that the proposed
permanent resolution merely continued previous practices regard-
ing discounting. However, there was no agreement on the dis-
counting issue in the instant case because Minnegasco has contested
Northern's discounting policy from the outset. The Commission
was not required to consider prior agreements as a factor in this
"contentious" case.
ing of all non-transition costs from which the Commission
inexplicably deviated. In Panhandle, which discussed miscel-
laneous costs, the Commission explained that the Natural
policy established a priority of discounting for transition costs
and clarified that non-transition reservation charges would be
attributed as agreed by the parties. Discounts could be
attributed either before or after base rates. But the Com-
mission persuasively maintains that Panhandle did not create
a policy governing all non-transition costs or contemplate the
unique costs stemming from the Carlton operational problem.
In the Commission's view the Carlton surcharge discounting
policy is a new policy for a new situation.
Even if we were to conclude that the Commission could
have considered treating the Carlton surcharge like non-
transition costs, it does not follow that it was required to do
so. That Natural and Panhandle distinguished between
transition costs and non-transition costs does not establish a
policy that all non-transition costs are to be treated the same.
Given the systemic nature of the Carlton problem and the
legitimate goal that all shippers share in the cost, the Com-
mission was not required under its prior orders to allow
Northern to discount the Carlton surcharge in any way it
chose. The departure cases on which Northern relies, see,
e.g., ANR Pipeline Co. v. FERC, 71 F.3d 897, 901 (D.C. Cir.
1995), are therefore inapposite.
Northern also contends that the structure and amount of
the surcharge fail to advance the Commission's purported
purposes. First, under the current policy, Northern main-
tains, it will inevitably bear some of the Carlton costs, con-
trary to the Commission's view that Northern should be
"merely a conduit" for the Carlton surcharges. 77 FERC at
61,787. In Northern's view, it was the Commission's goal to
have Northern bear some of the costs; in a later, unrelated
proceeding the Commission stated that Northern should bear
the risk for any discounting of Carlton costs because North-
ern controlled the decision not to build new facilities. See
Northern Natural Gas Co., 81 FERC p 61,411, at 62,864
(1997). Thus, in Northern's view, the Commission's decision
is flawed because it either imposes costs contrary to the
Commission's stated goals or imposes costs as the Commis-
sion intended, but did not inform Northern during the Carl-
ton proceedings.
Second, it is unnecessary for Northern to act as a "conduit"
for the surcharge because the Carlton costs could be recov-
ered from the responsible shippers directly. Northern con-
tends that the Commission has failed to design an appropriate
mechanism that would successfully reimburse shippers for
their added cost of sourcing at Carlton. In addition, North-
ern maintains that the $0.04 surcharge, first created in the
negotiated settlement, was arbitrarily adopted by the Com-
mission without support for the proposition that the sur-
charge would allow full reimbursement. Northern also main-
tains that the Commission's view that the discounting policy
will result in each shipper paying its share is a fiction; if a
shipper has a discounted rate, it will pay that same rate no
matter what the surcharge and Northern will bear that cost.
Although Northern raises legitimate concerns, it does not
follow that the Commission's determination was arbitrary or
capricious and not the product of reasoned decision making.
The Commission was faced with the "highly contentious"
issue of how customers would bear the Carlton costs. The
parties' settlement was contested by the largest sourcing
customer at Carlton. Under the circumstances, the Commis-
sion could decide the merits of the contested settlement issue,
and be affirmed so long as the record contains substantial
evidence upon which to base a reasoned decision. See 18
C.F.R. s 385.602(h)(1). The Commission took note of North-
ern's concerns, pointing out that Northern listed only two
contracts, which did not represent much of its transportation
volume, where it offered Carlton discounts, and that North-
ern has the opportunity in its next rate case to make a
showing of the Carlton costs it has borne. The record
therefore supports the Commission's reasoned determination
that the settlement, combined with a restricted discounting
policy, will best serve the public interest.
B.
Northern Municipal Distributors Group: Small Custom-
er Exemption. NMDG contends that small customers were
exempted from any and all receipt point capacity allocations
by express agreement, and alternatively, that the Commission
has established a policy regarding small customers from
which it cannot deviate.
In the Global Settlement, the unbundling of services pursu-
ant to order 636 restructuring required allocation of receipt
points. Receipt point capacity would be allotted first to
converting sales customers who would submit nominations for
capacity. If the nominations exceeded available capacity,
then Northern would first allocate to small customers and
then allocate on a pro rata basis to all other converting sales
customers. Under the settlement, small customers were
exempt from the rules generally applicable to other sales
customers.
NMDG interprets the Global Settlement to govern all
receipt point capacity allocation issues that arise in relation to
restructuring. Under NMDG's theory, the receipt point allo-
cations at Carlton are governed by the same provision of the
Global Settlement. The Commission disagreed, finding that
no prior agreement entitled small customers to an exemption
from the Carlton receipt point allocation. Once the Commis-
sion has approved a settlement, the court will defer to the
Commission's interpretation of it, see Western Resources, Inc.
v. FERC, 9 F.3d 1568, 1576-77 (D.C. Cir. 1993); National
Fuel Gas Supply Corp. v. FERC, 811 F.2d 1563, 1568-72
(D.C. Cir. 1987); and we find no reason not to do so here.
The Commission adequately supports its interpretation of
the Global Settlement. If the Global Settlement covered any
and all receipt point capacity allocations related to or arising
out of Order 636 restructuring, it would bind in perpetuity all
parties with respect to problems and situations unknown and
unforeseen when the agreement was created. As the Com-
mission explained, the Carlton problem is different than the
problem that gave rise to the Global Settlement. The Global
Settlement simply allowed small customers to receive all of
their demand at a single point even if that receipt point was
over-subscribed; it did not address a systemic problem of
capacity at an under-subscribed point. The Commission thus
could reasonably conclude that the Carlton problem falls
outside the scope of the Global Settlement as a systemic
problem in whose solution all shippers must share.
As an alternative to an express agreement, NMDG relies
on the interim Carlton Resolution and other orders to support
its contention that the Commission has established a policy of
exemption for small customers. The interim Carlton Resolu-
tion exempts small customers from allocation of receipt point
capacity at Carlton. See Northern Natural Gas Co., 65
FERC p 61,126 (1993).9 According to NMDG, because small
customers were already exempt under the Global Settlement,
the "non-exempt" customers were left to allocate the receipt
points on a pro rata basis. However, the Resolution was by
its terms expressly interim, and the parties' 1993 settlement
stated explicitly that the parties did not intend to establish
any precedent for future Carlton operating responsibility. In
accepting the interim terms, the Commission made clear that
the terms were expected to be in effect for a limited time and
that it was not approving the resolution with Northern's sales
customers, nor its terms or conditions. See 65 FERC at
61,622.
Resolving the Carlton problem, as the Commission ex-
plained, is distinct from receipt point capacity allocations as
__________
9 In another order, the Commission explained why small custom-
ers were not subject to the same pro rata allocation as other
customers:
Pro rata allocation would result in capacity entitlements in
individual segments too small and too burdensome to manage
for these [small] customers. Exemption from pro rata alloca-
tion for these customers is appropriate given the traditional
special treatment afforded such customers and small impact
imposed on the rest of the system.
ANR Pipeline Co., 64 FERC p 61,140, at 62,005-06 (1993).
part of restructuring generally. The problem arises in limit-
ed circumstances, and small customers have the option to pool
their allotted capacity, assign their obligations to other ship-
pers, or buy out of their obligation altogether. The Commis-
sion could reasonably conclude that the settlement fairly and
appropriately balanced the special interests that small cus-
tomers have with the responsibilities they should bear.
Accordingly, we deny the petitions for review.
No Muni Distr Grp v. FERC
Court: Court of Appeals for the D.C. Circuit
Date filed: 1999-01-26
Citations: 165 F.3d 935
Copy Citations