Panhandle Eastern Pipe Line Co. v. Federal Energy Regulatory Commission

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 11, 1999 Decided November 26, 1999

No. 98-1048

Panhandle Eastern Pipe Line Company,
Petitioner

v.

Federal Energy Regulatory Commission,
Respondent

Kansas Gas Service Company, et al.,
Intervenors

On Petition for Review of Orders of the
Federal Energy Regulatory Commission

Brian D. O'Neill argued the cause for petitioner. With
him on the briefs were Merlin E. Remmenga and F. Nan
Wagoner.

 David H. Coffman, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With him on
the brief were Jay L. Witkin, Solicitor, John H. Conway,
Deputy Solicitor, and Susan J. Court, Special Counsel.

Douglas E. Winter was on the brief for intervenors River-
side Pipeline Company, L.P., et al. James J. Murphy en-
tered an appearance.

David A. Glenn, Gregory Grady and Michael J. Thompson
were on the brief for amicus curiae Transcontinental Gas Pipe
Line Corporation.

Before: Silberman, Sentelle, and Garland, Circuit
Judges.

Opinion for the Court filed by Circuit Judge Garland.

Garland, Circuit Judge: Petitioner Panhandle Eastern
Pipe Line Company ("Panhandle") transports natural gas
through its interstate pipeline system. Motivated by an
earlier dispute over its responsibility to build pipeline inter-
connections ("interconnects") to permit access to its system,
Panhandle filed a proposed tariff with the Federal Energy
Regulatory Commission (FERC) intended to memorialize the
criteria under which it would be willing to construct such
interconnects in the future. FERC struck certain provisions
of the proposed tariff and mandated that Panhandle adopt
modified criteria for pipeline interconnects. See 81 F.E.R.C.
p 61,295, at 62,393-94 (1997) (denial of rehearing); 79
F.E.R.C. p 61,016, at 61,077-78 (1997). Panhandle petitions
for review of FERC's orders.

FERC objected to three provisions in Panhandle's pro-
posed tariff. Those provisions required that a party request-
ing an interconnect: 1) be a "shipper"; 2) demonstrate the
existence of "market demand commensurate with the facility
requested"; and 3) establish that construction of the new
interconnect would not result in "adverse economic impact to
Panhandle." 79 F.E.R.C. at 61,077. FERC directed Panhan-
dle to delete those requirements and to insert language
stating that Panhandle would construct an interconnect for
"any party willing to pay the reasonable costs and expenses

of the construction and who meets the other conditions of
Panhandle's interconnect construction policy as modified by
the Commission...." Id.

On request for rehearing, Panhandle raised a number of
objections to FERC's orders. In particular, it contended that
the tariff modifications imposed by the Commission conflicted
with or changed established FERC policy. As Panhandle
recounted, FERC's policy had been to require a pipeline to
build interconnects on a case-by-case basis if, but only if, the
Commission found that the pipeline had previously built them
for similarly situated parties. See, e.g., Southwestern Pub.
Serv. Co. v. Red River Pipeline, 63 F.E.R.C. p 61,125, at
61,824, 61,825 (1993) (refusing to require pipeline to construct
mid-point tap because requester was "not similarly situated to
any other shipper on the system"), reh'g granted, 74 F.E.R.C.
p 61,133, at 61,475 (1996) (requiring construction after reques-
ter met similarly situated standard); Southwestern Glass Co.
v. Arkla Energy Resources, 62 F.E.R.C. p 61,089, at 61,648
(1993) (refusing to find unduly discriminatory a pipeline's
refusal to construct bypass delivery tap because it had treat-
ed requester "the same as other similarly situated shippers");
Arcadian Corp. v. Southern Natural Gas Co., 61 F.E.R.C.
p 61,183, at 61,679 (1992) ("[T]he Commission's regulations do
not directly require an open-access pipeline to construct
facilities to provide service ... [except] ... where the pipe-
line has voluntarily decided to construct facilities for similarly
situated customers."), vacated on other grounds sub nom.
Atlanta Gas Light Co. v. FERC, 140 F.3d 1392, 1404 (11th
Cir. 1998); see also Missouri Gas Energy v. Panhandle
Eastern Pipe Line Co., 75 F.E.R.C. p 61,166, at 61,550 (1996);
Texas Eastern Transmission Corp., 37 F.E.R.C. p 61,260, at
61,683 & n.114 (1986).

FERC did not dispute Panhandle's description of its estab-
lished policy. Nor did it attempt to justify its demand that
Panhandle delete the proposed interconnect criteria on the
ground that they inaccurately reflected the criteria the pipe-
line utilized in the past. Instead, FERC rejected Panhandle's
proposed "market demand" criterion on the ground that it
was "unnecessary" to protect the pipeline's interests. 79

F.E.R.C. at 61,077. It directed deletion of the tariff's limita-
tion to shippers in order to ensure that entities such as
storage companies and market centers could seek an inter-
connect. See id. And it ordered removal of Panhandle's
"adverse economic impact" criterion on the ground that it was
"vague," and thus "might" allow Panhandle to deny an inter-
connect to a future requester that would have received one
under the similarly situated standard. Id.

Notwithstanding the rationales it gave for its orders,
FERC insisted that its directions to Panhandle did not "con-
flict with or change" its policy of requiring the construction of
interconnects only when requesters were similarly situated to
parties whose requests had previously been granted. 81
F.E.R.C. at 62,395. There was no conflict or change, the
Commission said, because "the subject order does not order
an interconnect to be constructed, for similarly situated ship-
pers or otherwise." Id.; see id. at 62,396 n.8, 62,398. Rather
than compel Panhandle to construct a specific interconnect,
FERC argued, it had merely required Panhandle to modify
its tariff language. If and when a future applicant requested
an interconnect pursuant to that tariff, "the requesting party
[still would have] to meet numerous requirements," including
the requirements of the Natural Gas Act. Id. at 62,396.

FERC's argument fails to persuade us that it has not
changed its policy. Although FERC did not require Panhan-
dle to build any interconnects immediately, it did require
Panhandle to adopt tariff language stating that the company
would construct an interconnect "for any party willing to pay
the reasonable costs and expenses of the construction and
who meets the other conditions of Panhandle's interconnect
policy as modified by the Commission...." 79 F.E.R.C. at
61,077. At oral argument, FERC's counsel agreed with
Panhandle's contention that the pipeline would be required to
construct a requested interconnect if the FERC-modified
criteria in the new tariff were met, because FERC regula-
tions bind companies to the terms of their tariffs. See 18
C.F.R. s 154.3(a). Yet, FERC also agreed that the modified
criteria were not based on Panhandle's historical practices.
See also ANR Pipeline Co. v. Transcontinental Gas Pipe

Line Corp., 84 F.E.R.C. p 61,106, at 61,534 (1998) (noting that
the tariff changes required in Panhandle "were not based on
any similarly-situated analysis"). Although it is true that a
requester would have to meet "numerous requirements" to
qualify for an interconnect, none would necessarily relate to
how Panhandle had treated others in the past.

In sum, were we to uphold FERC's orders, Panhandle
would be bound to construct an interconnect for any reques-
ter falling within its FERC-modified tariff, even if the reques-
ter were not similarly situated to any party for whom Pan-
handle had previously built an interconnect. That constitutes
a clear change in FERC's policy. Indeed, in an opinion
handed down soon after Panhandle, the Commission ex-
plained that its order "directing [Panhandle] to modify its
tariff provisions involved no Commission policy requiring a
similarly-situated analysis to establish undue discrimination."
Id.

FERC may well be able to defend its new policy. The
orders below, however, neither acknowledge the change nor
explain its rationale. " 'An agency's view of what is in the
public interest may change, either with or without a change in
circumstances. But an agency changing its course must
supply a reasoned analysis....' " Motor Vehicle Mfrs. Ass'n
v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 57 (1983)
(quoting Greater Boston Television Corp. v. FCC, 444 F.2d
841, 852 (D.C. Cir. 1970)). As we have repeatedly reminded
FERC, if it wishes to depart from its prior policies, it must
explain the reasons for its departure. See, e.g., Williston
Basin Interstate Pipeline Co. v. FERC, 165 F.3d 54, 65 (D.C.
Cir. 1999); Northeast Energy Assocs. v. FERC, 158 F.3d 150,
156 (D.C. Cir. 1998); Grace Petroleum Corp. v. FERC, 815
F.2d 589, 591 (D.C. Cir. 1987).

Accordingly, we grant Panhandle's petition and remand the
case to the Commission for an explanation of its reasoning.
In light of this disposition, at this juncture we have no
occasion to consider Panhandle's other challenges to FERC's
orders.