NY St Elec & Gas v. FERC ( 1999 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 19, 1999 Decided June 4, 1999
No. 97-1430
New York State Electric & Gas Corporation, Petitioner
v.
Federal Energy Regulatory Commission,
Respondent
The City of Charlottesville, Virginia, et al.,
Intervenors
On Petition for Review of Orders of the
Federal Energy Regulatory Commission
Jonathan D. Schneider argued the cause for petitioner.
With him on the briefs were Richard M. Lorenzo and David
D'Alessandro.
Laura J. Vallance, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent. With her on
the brief were Jay L. Witkin, Solicitor, and Susan J. Court,
Special Counsel.
Robin Nuschler argued the cause for intervenor Columbia
Gas Transmission Corporation. With her on the brief was
Frederic J. George.
Before: Ginsburg, Randolph and Rogers, Circuit Judges.
Opinion for the Court filed by Circuit Judge Rogers.
Rogers, Circuit Judge: New York State Electric & Gas
Corporation ("NYSEG"), a customer of Columbia Gas Trans-
mission Company ("Columbia"), petitions for review of two
orders by the Federal Energy Regulatory Commission, allow-
ing Columbia to build additional facilities on its pipeline
system and finding that absent changed circumstances Co-
lumbia may roll-in the cost of the expansion into systemwide
rates in its next rate case. See Columbia Gas Transmission
Corp., 78 F.E.R.C. p 61,030 (1997), reh'g denied, 79 F.E.R.C.
p 61,160 (1997). Although Columbia proceeded under section
7 of the Natural Gas Act ("NGA"), 15 U.S.C. s 717f (1994),
NYSEG contends that because the Commission established a
presumption in favor of Columbia rolling-in the cost of its new
facilities at its next section 4 rate proceeding, the Commission
erred by failing to proceed under section 4. See 15 U.S.C.
s 717c (1994). Because this appeal is not ripe for review, we
dismiss NYSEG's petition without reaching the merits of its
contentions.
I.
In February 1996, Columbia filed an application under
NGA section 7 to construct and expand its pipeline opera-
tions, as well as abandon certain pipelines and lease firm
capacity from Texas Eastern Transmission Corporation
("Texas Eastern") at an estimated cost of $350 million.1
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1 Columbia's Expansion Project proposed the construction of
over forty miles of new pipeline, the replacement of eight miles of
other pipeline, the uprating of nearly 280 miles of pipeline, the
addition of 45,699 horsepower of compression, the increase in
capacity of 14 storage fields, the sale of 8,200 million cubic feet
Columbia further sought an "upfront determination that it
may roll the costs associated with the Expansion Project into
its systemwide Part 284 rates in its next rate case," rather
than impose such charges "incrementally," i.e. solely on ex-
pansion facility customers. See Columbia
Gas, 78 F.E.R.C. at 61,117. The Commission agreed, relying
on its Pricing Policy Statement, which established a presump-
tion in favor of rolled-in rates where the rate impact is five
percent or less and the pipeline shows specific system-wide
operational and financial benefits to its customers. See id. at
61,119; see also Pricing Policy for New and Existing Facili-
ties Constructed by Interstate Natural Gas Pipelines, 71
F.E.R.C. p 61,241, at 61,916-17 (1995), reh'g denied, 75
F.E.R.C. p 61,105 (1996). Finding that Columbia's project
met these criteria, the Commission determined that Columbia
could "roll-in" its costs associated with the expansion project
"in Columbia's next rate proceeding unless there has been a
significant change from the facts and circumstances underly-
ing this order." Columbia Gas, 78 F.E.R.C. at 61,124.
In rejecting NYSEG's arguments that Columbia's rate
impact study was flawed and that a substantial part of its
operational benefits were withdrawn, the Commission con-
cluded that Columbia had sufficiently demonstrated that the
rate impact of the Expansion Project was below the five
percent threshold and that Columbia had "shown ample oper-
ational and financial benefits to its system."2 Id. at 61,119.
Hence, the Commission ruled, the burden of proof shifted to
the objecting customer to show that the benefits of rolled-in
pricing were so "insignificant" that such rates were not
__________
(MMcf) of its fixed asset base gas, and the leasing of additional
capacity from Texas Eastern.
2 The Commission found that the benefits to customers includ-
ed greater storage deliverability and turnover capacity, additional
facility integrity and operational flexibility with the establishment of
a third high pressure pipeline system, reductions in the required
base gas in the system, lowered costs associated with retained
storage, and system-wide fuel savings. Id. at 61,118-19.
justified. Id. The Commission found that NYSEG had not
met this burden, because Columbia's impact study had relied
on appropriate considerations and "not all customers must
benefit equally to justify rolled-in rate treatment." Id. It
therefore preliminarily determined that Columbia could pro-
ceed with its expansion project, subject to environmental
review and issuance of a final order. Id. at 61,124.
On rehearing NYSEG challenged the Commission's deter-
minations on several grounds, including that the policy state-
ment provided an insufficient basis on which the Commission
could evaluate the merits of Columbia's application, that the
Commission failed to consider its precedent, that the impact
determination was unsupported by record evidence and based
on an inflationary scheme that encouraged uneconomic invest-
ments, that the Commission's order lacked any reasoned
analysis to support the finding of benefits to existing custom-
ers and, in any event, that the claimed benefits were illusory.
The Commission found NYSEG's challenges unpersuasive
and also rejected NYSEG's request for an evidentiary hear-
ing because no material fact was in dispute. 79 F.E.R.C.
at 61,759. The Commission then issued cer-
tificates of convenience and necessity generally authorizing
Columbia to proceed with its expansion program. Id. at
61,762.
In its petition for review, NYSEG contends that the Com-
mission's presumption in favor of rolled-in rates will, in fact,
control Columbia's next section 4 rate case, and therefore the
Commission erred by failing to follow its usual section 4
procedures with a full evidentiary hearing.3 It further main-
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3 The Pricing Policy provides, in part, that:
The decision made in the certificate order will apply to the
pricing of the facilities in the first rate case after the facilities
go into operation, unless the parties demonstrate that circum-
stances have changed significantly between the time the certifi-
cate is issued and the pipeline files the rate case. If there is no
significant change in circumstance between the certificate or-
der and the first rate case, the Commission will summarily
tains that the Commission acted arbitrarily and capriciously
by placing the burden on customers to show that the system
benefits were not sufficiently substantial to warrant rolled-in
pricing and by adopting five percent as a threshold for its
presumption favoring rolled-in rates. Finally, it contends
that the Commission failed to apply Battle Creek Gas Co. v.
FPC, 281 F.2d 42, 47 (D.C. Cir. 1960), and its progeny, which
require the Commission when imposing rolled-in rates to
identify how the new facilities are integrated into the main
system and how they will benefit all the customers in the
system. See also TransCanada Pipelines Ltd. v. FERC, 24
F.3d 305, 308 (D.C. Cir. 1994). The Commission responds
that the appeal is not ripe because Columbia has not yet filed
a section 4 rate case, nor has the Commission actually ap-
proved rolled-in rates.
II.
A claim is unripe for review when it rests "upon contingent
future events that may not occur as anticipated, or indeed
may not occur at all." Texas v. United States, 523 U.S. 296,
___, 118 S. Ct. 1257, 1259 (1998) (quotation marks omitted).
The primary focus of the ripeness doctrine as applied to
judicial review of agency action "has been a prudential
attempt to time review in a way that balances the
petitioner's interest in prompt consideration of allegedly
unlawful agency action against the agency's interest in
crystallizing its policy before that policy is subjected to
judicial review and the court's interests in avoiding un-
necessary adjudication and in deciding issues in a con-
crete setting."
Mississippi Valley Gas Co. v. FERC, 68 F.3d 503, 508 (D.C.
Cir. 1995) (quoting Eagle-Picher Indus. v. EPA, 759 F.2d 905,
915 (D.C. Cir. 1985)). To evaluate ripeness, a court must
therefore consider "both the fitness of the issues for judicial
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resolve the pricing issue in the first rate case consistent with
its certificate decision.
71 F.E.R.C. at 61,918.
decision and the hardship to the parties of withholding court
consideration." Texas, 118 S. Ct. at 1260 (quoting Abbott
Labs. v. Gardner, 387 U.S. 136, 149 (1967)); see also Tennes-
see Gas Pipeline Co. v. FERC, 736 F.2d 747, 749 (D.C. Cir.
1984). This doctrine allows courts to "postpone review of
administrative action when delay would facilitate examination
of the issues without causing significant hardship to the
petitioner."4 Great Lakes Gas Transmission Ltd. Partner-
ship v. FERC, 984 F.2d 426, 431 (D.C. Cir. 1993).
The two orders challenged by NYSEG do not actually
impose rolled-in rates, and they specifically provide that the
issue will be revisited at the next section 4 rate proceeding
upon a showing of a significant change in circumstances. The
Commission suggests that the next section 4 proceeding "may
not come to pass" and that it will not occur, at a minimum,
before February 1, 2000, as a result of an agreement settling
Columbia's prior section 4 rate case. See Columbia Gas
Transmission Corp., 79 F.E.R.C. p 61,044, at 61,201 (1997).
NYSEG responds that rate cases, like "death and taxes," are
an inevitable fact of life. As to inevitability, NYSEG may
have the better of the argument, but its effort to obtain
review now ultimately fails as a matter of law.
Although NYSEG views these orders to establish a pre-
sumption that will control Columbia's next case, it does not
deny that it will have the opportunity to appeal the rolled-in
rates if the Commission fails to follow the requirements of
section 4, including the requirement that Columbia bear the
burden of proving that rolled-in rates are "just and reason-
able." See 15 U.S.C. s 717c. As in Tennessee Valley Mun.
Gas Ass'n v. FERC, 140 F.3d 1085 (D.C. Cir. 1998), where the
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4 Because the petition is unripe, we do not reach the Commis-
sion's alternative argument that NYSEG is not aggrieved under the
NGA, see 15 U.S.C. s 717r(b) (1994), or under Article III, see
Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992); Shell
Oil Co. v. FERC, 47 F.3d 1186, 1200-01 (D.C. Cir. 1995). The
hardship inquiry under ripeness review, however, "overlaps with the
'injury in fact' facet of standing doctrine." Navegar, Inc. v. United
States, 103 F.3d 994, 998 (D.C. Cir. 1997).
court held that the petitioner's challenge was unripe because
the Commission had only "tentatively concluded that the
evidence in the record did not justify" rolled-in pricing and
had deferred "making a final decision until the parties had
the opportunity to present further evidence in Tennessee's
ongoing rate case," id. at 1088, so too here there is no final
agency decision on rolled-in rates that will govern future
proceedings. See Mississippi Valley, 68 F.3d at 506. Al-
though the Commission has indicated its predisposition to
allow Columbia to roll-in the costs of its expansion program at
its next section 4 rate proceeding, it remains for Columbia to
file for new rates and, in that event, to show that such rates
are just and reasonable. Under the Commission's challenged
orders, opponents of rolled-in rates could still show that
changed circumstances necessitate reexamination of the ques-
tion, and NYSEG can challenge the presumption created by
the Pricing Policy Statement as well as what it views as the
Commission's improper placement of a burden on it to dem-
onstrate changed circumstances. In any event, even assum-
ing that NYSEG's rates will assuredly increase, its challenges
are presently unfit for judicial resolution because it is unclear
just how the Commission will apply the policy statement in a
future section 4 proceeding. See Clean Air Implementation
Project v. EPA, 150 F.3d 1200, 1205 (D.C. Cir. 1998).
NYSEG nonetheless contends that it suffers current hard-
ship and injury as a result of the orders because it is paying
rates resulting from "the cost of Columbia's payments to
Texas Eastern through the Transmission Cost Recovery Ad-
justment ("TCRA")." NYSEG points to the Commission's
statement that "[Columbia] intends to account for the costs
associated with the lease as operational Account 858 costs. It
proposes to recover these costs pursuant to its tariff's
[TCRA] mechanism." Columbia Gas, 78 F.E.R.C. at 61,110
(emphasis added). In fact, the costs contested were approved
in other orders. NYSEG admits that "[c]urrent recovery was
agreed to in the settlement of Columbia's previous rate case
[under section 4], subject to litigation of the case here on
appeal." Reply Br. at 3 n.5; see also Columbia Gas, 79
F.E.R.C. p 61,044. Indeed, a 1998 Commission order at-
tached to NYSEG's reply brief provides that "[i]n accordance
with the Commission's May 14, 1997 order in Docket No.
CP96-213 [the second order here on appeal], authorizing the
lease, Columbia is including $7,245,180 in its Current Opera-
tional TCRA Rate associated with the [Texas Eastern] lease
agreement." Letter Order from the Office of Pipeline Regu-
lation, to Columbia Gas Transmission Corp., No. RP99-12-
000, at 1 (Oct. 27, 1998). That letter order explains that a
stipulation approved in the settlement agreement "allows
Columbia to include and collect the subject lease payments in
and through its TCRA mechanism contingent upon the ap-
proval of the lease agreement in Columbia's Docket No. CP
96-213 (Market Expansion Application)." Id. The order ap-
proving the settlement agreement is not challenged in NY-
SEG's petition, as counsel for NYSEG acknowledged during
oral argument. Moreover, counsel for NYSEG acknowledged
at oral argument that under the settlement it is entitled to
receive a refund if the court or the Commission disapproves
rolled-in rates. Of course, NYSEG's failure to seek review of
the orders approving the settlement and the imposition of the
TCRA costs bars us from reviewing those orders. See 15
U.S.C. s 717r(b) (1994); Process Gas Consumers Group v.
FERC, 912 F.2d 511, 514 (D.C. Cir. 1990). Furthermore, the
refund provision would appear to mitigate any potential inju-
ry, which the court may consider in evaluating the hardship
NYSEG may face. Cf. Papago Tribal Util. Auth. v. FERC,
628 F.2d 235, 240 (D.C. Cir. 1980). But in any event, the two
orders that NYSEG challenges in its current petition do not
impose the costs creating the alleged hardship.
Accordingly, because the Commission has not rendered a
final order approving Columbia's request for rolled-in rates,
see id. at 239, we dismiss NYSEG's petition as unripe and do
not reach the merits of its contentions. Even if it is virtually
inevitable that Columbia will request rolled-in rates at its
next section 4 proceeding, it is not inevitable that the Com-
mission will approve such rates. NYSEG has not demon-
strated that it suffered current hardship as a result of the
orders under appeal, see Mississippi Valley, 68 F.3d at 508,
and to the extent the Commission's orders bind Columbia's
next section 4 rate proceeding, NYSEG can seek review at
that time.