Tennessee Valley Municipal Gas Ass'n v. Federal Energy Regulatory Commission ( 1998 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 6, 1998 Decided April 21, 1998
No. 93-1566
Tennessee Valley Municipal Gas Association, et al.,
Petitioners
v.
Federal Energy Regulatory Commission,
Respondent
ANR Pipeline Company, et al.,
Intervenors
Consolidated with
Nos. 93-1837, 94-1016, 94-1023, 94-1357, 94-1562
On Petitions for Review of Orders of the
Federal Energy Regulatory Commission
Jennifer N. Waters argued the cause for petitioners East
Tennessee Group and Tennessee Valley Municipal Gas Asso-
ciation. With her on the briefs were Jack M. Irion, Glenn W.
Letham and Channing D. Strother, Jr.
Lee A. Alexander argued the cause for petitioners Ocean
State Power, et al. With him on the briefs were Stefan M.
Krantz and Yoav K. Gery. Carl M. Fink entered an appear-
ance.
Edward S. Geldermann, Attorney, Federal Energy Regula-
tory Commission, argued the cause for respondents. With
him on the brief were Jay L. Witkin, Solicitor, John H.
Conway, Deputy Solicitor, Susan J. Court, Special Counsel,
and Janet Kay Jones, Attorney.
Robert H. Benna argued the cause for intervenor Tennes-
see Gas Pipeline Company. With him on the brief was
Jeanne M. Bennett. Michael J. Fremuth entered an appear-
ance.
Bruce A. Connell, Kevin M. Sweeney, Joseph D. Naylor,
John E. Dickinson, Michael L. Pate, Charles J. McClees, Jr.,
Mickey Jo Lawrence, and Norma J. Rosner were on the brief
for intervenors Indicated Shippers. J. Paul Douglas entered
an appearance.
Before: Wald, Sentelle, and Randolph, Circuit Judges.
Opinion for the Court filed Per Curiam.
Per Curiam: The two issues presented in these consolidat-
ed petitions arise from orders of the Federal Energy Regula-
tory Commission relating to Tennessee Gas Pipeline Compa-
ny's restructuring of its service and operations to conform
with Order No. 636. See United Distribution Cos. v. FERC
("UDC"), 88 F.3d 1105 (D.C. Cir. 1996).
The first issue deals with a difference in the pipeline's
treatment of some of its "small" customers in terms of their
eligibility for "one-part" sales service, eligibility that is for a
discount subsidized by other pipeline customers. The Com-
mission's order of November 12, 1993, set a 5,300 dekatherm
("Dth/day") eligibility limit on the pipeline's former "indirect"
small customers, but allocated a 10,000 Dth/day eligibility
limit on Tennessee's former upstream, or "direct," small
customers. See 65 F.E.R.C. p 61,224, at 62,062-63 (1993).
Petitioners East Tennessee Group and Tennessee Valley Mu-
nicipal Gas Association, representing some of the pipeline's
former indirect small customers, point out that after restruc-
turing they are in the same position as the pipeline's former
"upstream" small customers; both classes are now direct
customers. Their argument is that the Commission's approv-
al of an eligibility cutoff for former upstream small customers
nearly double that granted to former indirect small customers
amounts to "undue discrimination" in violation of the Natural
Gas Act, 15 U.S.C. ss 717c(b), 717d(a). The Commission, of
course, denies that it has discriminated. In its view, it has
merely maintained the status quo. Before restructuring the
eligibility limit for indirect small customers was no more than
5,300 Dth/day; for upstream small customers, the limit was
10,000 Dth/day. Maintaining these cutoffs, the Commission
believes, did not result in unequal treatment. Both classes of
small customers were treated the same: They were placed in
the same position after restructuring as they were in before
restructuring.
We had a related problem before us in UDC. Order No.
636-B indicated that an upstream pipeline's former indirect
small customers could qualify for discounts only if they could
demonstrate need in the individual restructuring proceedings,
although former upstream small customers automatically re-
ceived the discount. See 61 F.E.R.C. p 61,272, at 62,020
(1992). East Tennessee Group and Tennessee Valley Munici-
pal Gas Association claimed that this difference in treatment
amounted to "undue discrimination" against them. We held
that the Commission had failed to justify this seemingly
"arbitrary distinction between former indirect small custom-
ers of upstream pipelines (who are now direct small custom-
ers) and small customers who have always been direct cus-
tomers of the same pipelines," and remanded the "issue to the
Commission for further consideration of whether or not the
small customer benefits should be made available to the
former downstream small customers." UDC, 88 F.3d at 1175.
The Commission rendered its orders in this case before
UDC came down. In the ordinary course, we would consider
vacating and remanding for reconsideration in light of our
intervening decision. Although there are differences between
the issue in UDC and the issue in this case, other develop-
ments convince us that the proper course is to send the case
back. Proceedings on remand from UDC are well underway.
In Order No. 636-C, the Commission reaffirmed its decision
to determine on a case-by-case basis the limits on former
indirect small customers' eligibility for the upstream pipe-
line's small-customer rate. See 78 F.E.R.C. p 61,186, at
61,776-78 (1997). To demonstrate why it was appropriate to
proceed in this manner, the Commission discussed its orders
in Tennessee's restructuring proceeding--this case--setting
different eligibility limits for former indirect small customers
and former upstream small customers. See id. at 61,778. East Tennessee and Tennessee Valley Municipal Gas Associa-
tion sought rehearing of Order No. 636-C. Their rehearing
petition makes arguments identical to those in their brief in
this case, using the same sources and at times even the same
language. The rehearing petition is still pending before the
Commission.
Thus, the general issue of the treatment of a pipeline's
former indirect small customers under Order No. 636 has not
yet been finally decided by the Commission. It would be
imprudent for us to review the merits of a question still under
consideration by the Commission. Accordingly we shall re-
mand this aspect of the case to the Commission so that it may
be considered in light of the outcome of the rehearing of
Order No. 636-C.
The remaining matter before us is the challenge by JMC
Power Projects to what it describes as a final agency action in
the Commission's Second Compliance Order--a decision to
price the costs of newly constructed facilities on Tennessee on
an "incremental" rather than on a "rolled-in" basis. 64
F.E.R.C. p 61,020, at 61,219-21 (1993). These facilities, which
were constructed to serve JMC Power Projects and other
Northeastern customers of Tennessee, consist of additions
and replacements of pipeline looping, and new compressors
and interconnections on Tennessee's integrated mainline.
They have been priced on an "incremental" basis since their
original certification, meaning that only those customers di-
rectly served by the facilities--customers such as JMC Power
Projects--pay for costs associated with them. See, e.g., 45
F.E.R.C. p 61,010 (1988). In the Second Compliance Order,
the Commission considered permitting Tennessee to switch
from incremental to "rolled-in" pricing, thereby spreading the
costs of the facilities across all customers of Tennessee. See
64 F.E.R.C. at 61,219-21.
We do not believe this challenge is ripe for review. Al-
though the Commission considered the rolled-in pricing issue
in its Second Compliance Order, and tentatively concluded
that the evidence in the record did not justify it, the Commis-
sion expressly deferred making a final decision until the
parties had the opportunity to present further evidence in
Tennessee's ongoing rate case. See id. at 61,220-21. The
Commission informed the parties that they "should further
address the roll-in issue in Tennessee's ongoing rate proceed-
ing.... There, the parties will have the opportunity to
develop a record that fully explores the costs and benefits to
the existing shippers...." Id. at 61,221. True to its word,
the Commission reconsidered the issue in the rate proceed-
ing, and determined that the evidence did not support rolled-
in pricing. See Tennessee Gas Pipeline Co., 76 F.E.R.C.
p 61,022, at 61,112 (1996), reh'g denied, 80 F.E.R.C. p 61,060
(1997). JMC Power has not yet filed a petition for judicial
review from this final decision. It nevertheless argues that
the Commission's decision to defer the rolled-in rate issue in
the Second Compliance Order should be treated as a final
decision on the merits because it demonstrated that the
Commission was applying an unlawfully stringent standard in
determining whether rolled-in rates were justified. The
question is not, however, whether the evidence before the
Commission was sufficient to justify rolled-in rates. The
question is whether the Commission made a final decision
about the validity of such rates. On that score, it appears
clear to us that the Commission decided only to examine the
issue in the rate proceeding.
JMC Power also thinks that the Commission must have
fully resolved the rolled-in rate issue because it required the
parties to develop an "exhaustive record" in the restructuring
proceeding, and because it had previously expressed its intent
to decide the rolled-in rate issue in the restructuring docket.
But whatever the Commission initially contemplated, it ulti-
mately decided not to decide the issue. An agency has broad
discretion to determine when and how to hear and decide the
matters that come before it. See Mobil Oil Exploration v.
United Distribution Cos., 498 U.S. 211, 230 (1991); Algon-
quin Gas Transmission Co. v. FERC, 948 F.2d 1305, 1314-15
(D.C. Cir. 1991); GTE Service Corp. v. FCC, 782 F.2d 263,
273 (D.C. Cir. 1986). The Commission is not barred from
hearing new evidence in a rate case simply because it previ-
ously gathered evidence on that issue in the restructuring
proceeding. JMC Power points to no statute or regulation
preventing the Commission from deferring a final decision to
the rate proceeding even though, at an earlier point, the
Commission considered resolving the issue in the restructur-
ing hearing.
* * * * *
We remand the eligibility limitation placed on Tennessee's
former indirect small customers for consideration in light of
the Commission's rehearing of Order No. 636-C. We deny
the petition to review the rate treatment of facilities on
Tennessee's pipeline for lack of a final judgment on that
issue.
So ordered.