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01/27/89 Public Service Commission v. Federal Energy Regulatory

January 27, 1989

PUBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK, PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION, RESPONDENT, TENNESSEE GAS PIPELINE COMPANY, OZARK GAS TRANSMISSIONS SYSTEM, INTERVENORS; OZARK GAS TRANSMISSION SYSTEM, PETITIONER,

v.

FEDERAL ENERGY REGULATORY



UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

COMMISSION, RESPONDENT, PUBLIC

SERVICE COMMISSION OF THE

STATE OF NEW YORK, INTERVENOR

Nos. 87-1706, 88-1007 1989.CDC.32

Petitions for Review of Orders of the Federal Energy Regulatory Commission.

APPELLATE PANEL:

Edwards and Williams, Circuit Judges, and John W. Reynolds,* Senior District Judge. Opinion for the Court filed by Circuit Judge Williams.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE WILLIAMS

The Natural Gas Act, 15 U.S.C. §§ 717 et seq. (1982), sets up a carefully balanced mechanism for the Federal Energy Regulatory Commission's supervision of natural gas company rates. Under § 4, 15 U.S.C. § 717c, a company may file rate changes, but these are subject to Commission review to determine whether they are "just and reasonable." Under § 5, 15 U.S.C. § 717d, the Commission may take the initiative and determine that rates already filed are not just and reasonable and may issue an order changing them.

The two modes of Commission review entail quite different procedures. Under § 4 the company has the burden of showing that the proposed rates are just and reasonable, while under § 5 the Commission must show that the rates it would alter are not just and reasonable, and that the ones it seeks to impose are. The unifying principle is that the proponent of change bears the burden. Under § 4, moreover, the Commission may suspend the rates for up to five months while deciding the issue; even after the end of any suspension period, if the company has filed increased rates, the Commission may order them collected under bond and may order refunds if it ultimately rejects the company's proposed rates. Under § 5 there is no provision for refund of rates collected while the Commission hears the matter.

On four occasions in the last three years this court has reviewed Commission efforts to compromise § 5's limits on its power to revise rates. On each the court has repelled the Commission's gambit. This is number five. I.

Ozark Gas Transmission System is a partnership that transports natural gas for its partners through an interstate pipeline in southeastern Oklahoma and northeastern Arkansas. It neither purchases nor resells gas. In July 1981 FERC issued a certificate of public convenience and necessity to Ozark, pursuant to § 7 of the Act, 15 U.S.C. § 717f. It approved a demand rate that would recover Ozark's operating and maintenance expenses, certain taxes, and amortization and interest on its debt. But as Ozark's rate base was expected to decline through depreciation, there was concern that a fixed commodity rate would lead to an unreasonable return on equity. Accordingly FERC rejected permanent rates for Ozark. Instead it established interim rates, with the requirement that Ozark file a rate case under § 4 within two years of the start of service. Ozark Gas Transmission System, Opinion No. 125, 16 F.E.R.C. P. 61,099 at 61,198-99 (1981). *fn1 This court affirmed. Public Service Commission of New York v. FERC, 220 U.S. App. D.C. 216, 680 F.2d 252 (D.C. Cir. 1982) (per curiam).

On March 1, 1984 Ozark filed under § 4, proposing to retain its original rates. The Commission staff objected that Ozark should be compelled to refile its rates under § 4 every three years, giving the Commission an opportunity for periodic rate review under § 4's favorable procedural provisions. Public Service Commission of New York agreed with the staff, but sought an additional protection. Rather than using the book value of the relevant assets at the start of the relevant period, PSCNY sought to require Ozark to use an "average" rate base, i.e., a value reflecting the expected decline of the rate base through depreciation over the period the rates were to be in effect.

The administrative law judge approved Ozark's rates and, on the ground that FERC did not have the authority to sidestep the strictures of §§ 4 and 5, refused to follow the staff's refiling recommendation. Ozark Gas Transmission System (Initial Decision), 32 F.E.R.C. P. 63,019 (1985). The opinion noted, however, that concerns regarding the declining rate base were "legitimate and worthy of full consideration." Id. at 65,053. The ALJ suggested that in their exceptions to the initial decision the parties might consider, as a device for addressing the ...


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