494 F.2d 925 | D.C. Cir. | 1974
Lead Opinion
We are called upon to review orders of the. Federal Power Commission which establish a temporary curtailment plan for use on the Southern Division System of the El Paso Natural Gas Company. The temporary plan was approved on October 31, 1972 and will remain in effect until the Commission approves a permanent plan.
I. BACKGROUND
On April 15, 1971, the Commission issued Order No. 431, a statement of general policy. Citing recently experienced natural gas shortages,
During the proceedings on the proposed revisions, however, El Paso filed a motion requesting the Commission to prescribe interim emergency curtailment procedures to be followed until the issuance of its final order. Although hearings regarding the proposed permanent plan had already been completed, they were reconvened for the limited purpose of ascertaining the need for interim curtailment procedures. Following ten days of hearings, the matter was submitted directly to the Commission, bypassing intermediate decision by the Administrative Law Judge. On October 31, 1972, the Commission issued Opinion No. 634, which (i) declared that the curtailment provisions of El Paso’s tariff then in force were discriminatory and violative of the Natural Gas Act and (ii) established a- temporary curtailment plan to be followed in El Paso’s Southern Division until October 31, 1973 or the issuance of a final order in the proceedings, whichever should occur earlier.
II. THE COMMISSION’S ACTION
In Opinion No. 634 the Commission found that, in the event of a gas shortage, El Paso’s existing tariff provisions called for complete cut-off of all EOC customers, including residential and small commercial customers, before any service to California would be curtailed.
Priority 1. Residential, small commercial (less than 50 Mcf on a peak day) and residential needs associated with industrial requirements served directly or indirectly.
Priority 2. Large commercial requirements and industrial requirements for plant protection, feedstock and process needs.
Priority 3. All industrial requirements not specified in Priorities 2, 4 and 5.
Priority 4. Industrial requirements for boiler fuel use at less than 3,000 Mcf per day, but more than 1,500 Mcf per day, where existing alternate fuel capacity is present.
Priority 5. Industrial requirements for large volume (in excess of 3,000 Mcf per day) boiler-fuel use where existing alternate fuel capability is present.8
Under the interim plan, delivery reduction in each subordinate category must be complete before deliveries for higher priority requirements are curtailed. The stated purpose of the plan is twofold: “(1) to protect deliveries for residential and small volume commercial consumers who cannot be safely curtailed on a daily basis and (2) to require, as the initial level of curtailment, reduction in deliveries for large volume boiler fuel applications where alternate fuels are available.”
Various parties have challenged the authority of the Commission to prescribe the interim curtailment plan, the adequacy of the fact findings upon which the plan is based and the appropriateness of the remedy it has adopted. Although we conclude that the Commission has the authority to implement interim curtailment plans pending final approval of permanent tariff provisions, we are compelled to remand this matter to the Commission because of certain defects in the orders now under review.
III. THE COMMISSION’S AUTHORITY
The authority of the Federal Power Commission to regulate service curtailments by natural gas pipelines has been sustained by the Supreme Court in FPC v. Louisiana Power & Light Co., 406 U.S. 621, 92 S.Ct. 1827, 32 L.Ed.2d 369 (1972). The narrow question in that case was whether the FPC has jurisdiction to regulate curtailment of service to direct sales customers (as opposed to customers who purchase gas for resale). In deciding this issue in favor of the Commission, the Court provided broad guidance as to the scope of the Commission’s authority. The Court found that the Commission’s power to regulate curtailments is derived from two provisions of the Natural Gas Act: section 1(b), which makes the Act applicable to “the transportation of natural gas in interstate commerce,” and section 16, which gives the Commission broad enforcement powers:
The Commission shall have power to perform any and all acts, and to prescribe, issue, make, amend, and rescind such orders, rules, and regulations as it may find necessary or appropriate to carry out the provisions of this chapter.
Id. at 638, 642, 92 S.Ct. at 1839. The Court also pointed out that the substantive standard for regulation of service curtailments is found in section 4(b) of the Act. Id. at 642, 92 S.Ct. 1827. That section provides:
No natural-gas company shall, with respect to any transportation or sale of natural gas subject to the jurisdiction of the Commission, (1) make or grant any undue preference or advantage to any person or subject any person to any undue prejudice or disadvantage, or (2) maintain any unreasonable difference in rates, charges, service, facilities, or in any other respect, either as between localities or as between classes of service.
The general authority of the Commission to regulate curtailment plans is not questioned by the petitioners and intervenors. It is argued, however, that the Commission has exceeded this authority in issuing Opinions 634 and 634-A. This contention is directed to substantive features of the opinions as well as the procedure whereby they were issued.
A. Interim Orders
As explained above, the orders under review are interim orders. An interim order is one entered during the course of proceedings which resolves some of the issues while leaving others to be determined at a later time. The use of interim orders is a well established practice in rate proceedings. FPC v. Natural Gas Pipeline Co., 315 U.S. 575, 583-585, 62 S.Ct. 736, 86 L.Ed. 1037 (1942); FPC v. Tennessee Gas Co., 371 U.S. 145, 154, 83 S.Ct. 211, 9 L.Ed.2d 199 (1962). Although we are not aware of any case testing the use of this device in a curtailment proceeding, Supreme Court dicta indicates that it is perfectly proper. In Louisiana Power & Light Co., supra, the Court discussed the alternative Commission procedures available for regulation of curtailment plans. Noting the delay inherent in the section 5 procedure, the Court observed:
Of course, even when conducting a § 5 hearing, the Commission would have emergency authority to issue interim orders effecting a curtailment plan.
The briefs reveal some confusion as to the precise basis and extent of the Commission’s authority to issue interim orders. It is suggested by some parties that the Commission was exercising “emergency authority”
The Commission’s power to promulgate an interim curtailment plan is not born of emergency. Rather, it is based upon the statutory authorization to perform “any and all acts” necessary or appropriate for the implementation of the Natural Gas Act. As we have stated before, of course, section 16 does not itself grant independent powers but merely provides for implementation of the core sections of the Natural Gas Act. Texaco, Inc. v. FPC, 154 U.S.App.D.C. 168, 474 F.2d 416, 420 (1972), cert. granted, 414 U.S. 817, 93 S.Ct. 119, 38 L.Ed.2d 49 (1973). The “core section” underlying the orders now before us is section 5(a) which empowers the Commission, on its own motion, after hearing, to correct discriminatory practices by natural gas companies. Like any order issued pursuant to section 5(a), an interim order can only issue after full hearing and must include a statement of reasons based upon findings of fact which are supported by substantial evidence in the record. No emergency can excuse these procedural requirements.
This is not to say that the exigencies of a gas supply shortage are completely irrelevant. The threat of a heating-season shortage such as that discussed in the briefs would be relevant to at least two determinations which the Commission must make: (1) whether an interim curtailment order is necessary and (2) whether a particular interim plan is just and reasonable. If, for example, there were no expectation that gas shortages would occur before a permanent plan could be formulated, then an interim order might be unnecessary, even though the existing curtailment regulations may be clearly discriminatory. Similarly, once it becomes necessary to adopt interim curtailment procedures, a plan which might not meet the “just and reasonable” standard if prof-erred as a final order might be acceptable as a temporary measure in light of the emergency. In short, the existence of an emergency is a factor to be considered by the Commission and by this court upon judicial review. It does not create special powers in the Commission, however, nor does it abrogate the usual procedural requirements for valid administrative action.
B. Abrogation Of Contract Rights
One of the most persistent objections to the Commission’s curtailment plan is that it disrupts the contractual relations of the parties. The California customers point out that they have negotiated for and received firm commitments from El Paso, whereas the service to EOC customers is, by the terms of their contracts, subject to curtailment.
(a) Whenever the Commission, after a hearing had upon its own motion or upon complaint of any State, municipality, State commission, or gas distributing company, shall find that any rate, charge, or classification demanded, observed, charged, or collected by any natural-gas company in connection with any transportation or sale of natural gas, subject to the jurisdiction of the Commission, or that any rule, regulation, practice, or contract affecting such rate, charge, or classification is unjust, unreasonable, unduly discriminatory, or preferential, the Commission shall determine the just and reasonable rate, charge, classification, rule, regulation, practice, or contract to be thereafter observed and in force, and shall fix the same by order. . . .
In issuing Opinions 634 and 634-A, the Commission was clearly acting within this provision.
Several of the parties concede the Commission’s authority to override contractual arrangements, but argue that the opinions now under review lack certain threshold findings which, they say, are a condition precedent to the exercise of that authority. These parties rely chiefly upon the following passage from International Paper Co. v. FPC, 476 F.2d 121, 128 (5th Cir.1973):
It must be recognized that there are two quite difficult determinations that the FPC must take before it can abrogate terms in private contracts even accepting the most favorable reading that the claimed power can be given. First, we feel it is incumbent on the agency to give clear reasons why it has determined that these substitute fuel clauses are indeed “undue preferences” within the meaning of that term in the Natural Gas Act.
Secondly, we feel that the FPC must make findings and set forth its reasons for holding that abrogation of these clauses is “in the public interest.” The FPC must show that the recognized public interests in freedom to contract and contract stability are outweighed by the public interest it seeks to assert under the Natural Gas Act.
Taken out of context, this language appears pertinent. A full reading of the International Payer case discloses, however, that the issue in that case was quite different from that presented here. The question decided in International Payer was whether the Commission’s adoption of a curtailment plan would iyso facto immunize the pipe line from liability for breach of service contracts. In other words, would a pipe line be liable to its customers for nondelivery if acting in compliance with a valid Commission order which contains no express findings regarding contractual liability. The couijt concluded that such an order would not be an absolute defense absent express findings with respect to contractual liability. 476 F.2d at 125. Hence, the twin findings mentioned in the International Payer opinion are only required for the purpose of exonerating a pipe line from liability for breaches of contract which may result
C. The End Use Method
As explained above, the plan adopted in Opinion 634 establishes a schedule of priorities to be followed in allocating gas service curtailments. The differentiating factor among these priorities is “end use.” Thus, the Commission has determined that certain uses of gas (e. g. use by residential and small commercial customers) should have a higher priority than others (e. g. use as boiler fuel). In the event of a shortage, customers purchasing gas for inferior uses will be completely cut off before any service to higher-priority customers is curtailed. Several parties take issue with the Commission’s treatment of boiler fuel uses in this scheme. Their objections are discussed below at part V, C. For the moment we wish to take up the contention of petitioner City of Willcox that the Commission “exceeded its statutory powers by prescribing service priorities based upon the nature of end use by ultimate consumers.”
Willcox’ attack on the Commission’s authority is twofold. Its first contention is that end use is an improper criterion. The authorities relied upon by Willcox are inapposite, however. In Fuels Research Council, Inc. v. FPC, 374 F.2d 842 (7th Cir. 1967), the court approved a two-part rate structure which allocated costs among peak season customers and off-peak customers. A dissatisfied customer complained that the rate structure in question would encourage “inferior” uses of natural gas. The court replied that the Commission “is not authorized to consider the end use of natural gas in a rate proceeding [citation omitted] as distinguished from a certificate proceeding under section 7 of the Act.” Id. at 854 (emphasis added). The decision does not prohibit consideration of end use in a curtailment proceeding.
Public Service Commission of State of New York v. FPC, 149 U.S.App.D.C. 421, 463 F.2d 824 (1972), also cited by Willcox, involved the Commission’s certification of a proposed sale of natural gas for use in an oil refinery. The New York Public Service Commission sought review, arguing that the contemplated use was inferior to use by interstate residential and commercial customers. We remanded the case to the Commission for consideration of that objection.
In different certificate applications the factor of end use will have varying importance. In the case at bar the end use factor is not, by itself, of decisive importance. While it may be*17 true that as to the particular natural gas involved, it would be desirable to have this gas go into the hands of residential rather than industrial users, there is no assurance that this would happen if the certificate were not granted.
Id. at 826.
Willcox’ second objection to the end use method is that the plan effects a “reallocation” of gas supplies in violation of section 7(a). Willcox relies upon FPC v. Transcontinental Gas Corp., 365 U.S. 1, 81 S.Ct. 435, 5 L.Ed.2d 377 (1961). In that case the Supreme Court was called upon to review the Commission’s refusal to approve a contract for the sale of natural gas to be used as boiler fuel. The Commission denied certification on grounds, inter alia, that the proposed use of the gas was inferior to residential needs. The Court approved the Commission’s action, stating that end use was a proper consideration in disapproving the contemplated sale. 365 U.S. at 22, 81 S.Ct. 435. Although this holding endorses the Commission’s consideration of end use, the Willcox brief directs our attention to the following admonition of the court:
[I]t must be realized that the Commission’s powers under § 7 are, by definition, limited. [Citation omitted.] The Commission cannot order a natural gas company to sell gas to users that it favors; it can only exercise a veto power over proposed transportation and it can only do this when a balance of aU the circumstances weighs against certification.
Id. at 17, 81 S.Ct. at 444. We reiterated that admonition in Granite City Steel Co. v. FPC, 115 U.S. App.D.C. 392, 320 F.2d 711 (1963), also cited in the Will-cox brief, when we disapproved the Commission’s wholesale reallocation of pipe line capacity from industrial users to public utility customers. Neither that ruling nor the dictum of the Supreme Court quoted above is in point, however. Both opinions were concerned with section 7(a) which prohibits the Commission from compelling a natural gas company to sell natural gas when to do so would impair service to existing customers. As we stated in Granite City:
The theory and purpose of the statutory restriction appear to be that persons desiring gas for the first time, or desiring more gas, should not get it by taking it away from existing lawful customers.
320 F.2d at 713 (emphasis added). Quite clearly, this statutory restriction is not infringed by a curtailment plan based on end use. The curtailment plan does not order the sale of additional gas to one customer to the detriment of another. Rather, it prescribes a formula for allocating insufficient supplies among existing customers. We are not unmindful of Willcox’ argument that the effect of the interim plan under review is the same as an order reallocating gas supplies from one customer to another, since the former curtailment plan would have protected the California customers from service curtailments. Even if this is true, however, we do not think the statutory prohibition applies to curtailment plans. Section 7(a) is plainly intended to regulate expansions of service. The prohibitory proviso we have been discussing must be read in that context. If this clause is construed to forbid approval of any curtailment plan which effects a shifting of the burden of future gas shortages, then the Commission would be powerless to regulate curtailments. Such a result would obviously be at odds with the Supreme Court’s holding in Louisiana Power & Light, supra.
We conclude, therefore, that the curtailment plan now under review does not violate the section 7(a) prohibition against reallocation of gas service and is not inconsistent with previous decisions regarding the propriety of end use criteria in the regulation of the natural gas industry. Indeed, we think end use is a most appropriate consideration for purposes of a curtailment plan.
Several of the parties maintain that certain of the Commission’s fact findings are not adequately supported by the evidence. The standard of our review in such matters is defined by the Natural Gas Act, section 19(b):
The finding of the Commission as to the facts, if supported by substantial evidence, shall be conclusive.
A. Findings Regarding The Former Plan
In Opinion No. 634 the Commission found that, under tariff provisions then in effect, El Paso’s California customers would be protected from service curtailments until all service to EOC customers had been completely cut off. As a result, the Commission found, human needs customers (residential and small commercial customers) in one part of the El Paso system would be subordinate to industrial customers in another part in the event of a severe gas shortage. That the Commission’s concern was more than merely theoretical is apparent from the following statement:
The supply evidence introduced by El Paso at the reopened proceeding clearly indicated that there was a real probability that curtailments under its presently effective tariff would result in cutting off not only commercial customers east of California but residential customers also, while California would probably be curtailed not at all.
J.A. at 137. Based upon these findings, the Commission concluded that the curtailment provisions of El Paso’s tariff were discriminatory under sections 4 and 5 of the Natural Gas Act.
We think the Commission’s findings as to the effect of El Paso’s former curtailment plan are, for the most part, sustained by substantial evidence in the record. Exhibit 237
Q. And what conclusion do you draw from, or would you have us draw from, the showings made in [Exhibit 237, Schedule 1] ?
A. I can tell you what conclusions I draw from the information shown there, and that is significant curtailment of the customers east of California, of the commercial and residential component of the requirements on á peak day, and full service to California, and significant industrial and irrigation curtailments to the east of California customers on the average days throughout the year, while full service is being rendered to the California customers by El Paso.
J.A. at 542. Several petitioners challenge these estimates, stating that supplies have been underestimated and peak day demands exaggerated. The maximum demand estimate is, in fact, based upon a hypothetical coincidence of peak demand days throughout the El Paso
The estimated supply figures presented by El Paso are questioned because they fail to include two sources of gas. The first of these is withdrawal of gas from certain wells in excess of amounts allowed by various state regulatory authorities. There was reliable testimony, however, to the effect that “exceeding allowables” • is a short-term emergency measure involving potential adverse effects upon supplies in the future.
In short, we think the Commission’s prediction of severe EOC curtailments under the former plan is supported by substantial evidence. We note, however, that the testimony does not distinguish between commercial and residential service for purposes of estimating peak day demands. Exhibit 237 merely contains figures representing aggregate peak day curtailments of both commercial and residential EOC customers which could have been anticipated under the former plan.
B. Findings Regarding “Grouping”
“Grouping”, or “conjunctive billing” as it is sometimes called,
[W]e find that the imposition of conjunctive billing as proposed by El Paso is not justified at this time, and could well result in increased industrial gas usage by those customers having a number of delivery points. Certainly it could result in discrimination against those customers, including California, who have only one delivery point.
J.A. 241. Southern Union Gas Co. (“Union”) objects to this prohibition against grouping. Union is a gas distribution company with many relatively small distribution systems scattered along El Paso’s Southern Division System. Each of Union’s systems connects with the El Paso line but they are not otherwise interconnected. Prior to the Commission’s prohibition against grouping, service curtailments to Union were computed on a systemwide basis. Thus, if a 30% curtailment of priority 5 gas were in effect on a given day, Union would be curtailed by a volume equal to 30% of the total of its priority 5 entitlements. The effect of Opinion 634-A is that curtailments to Union must now be computed separately for each delivery point. Mathematically, the result would appear to be the same, but as the testimony of Union’s Vice-President points out, there is a significant difference:
A. The best way to explain it probably would be to take the case of a delivery point from El Paso to Southern Union through which only one industrial customer is served. We have, in fact, several such situations. Let’s assume this is a Priority 4 customer with a daily requirement of 1,000 Mcf, and that during a particular 10-day period El Paso is curtailing its Priority 4 deliveries an average of 30 percent each day. In that situation, as El Paso is interpreting Opinion No. 634-A, Southern Union cannot receive for redelivery to this customer more than 700 Mcf on any one day. And right there is where we run into trouble, because many of our industrial customers cannot, as a practical matter, continue operating their facilities if their gas supply is subject to any significant curtailment. So far as gas usage is concerned, they are either completely on or completely off.
J.A. 582-83 (Testimony of Oran L. Haseltine). The grouping method would permit Union to deliver gas to its on-or-off customers in such a way that none would be curtailed more than necessary and systemwide curtailment of Union would be on a level equal with other El Paso customers. Thus, if a 30% curtailment of priority 4 customers were in effect for a ten-day period:
[W] e could provide the customer with his full requirements on seven days and cut him off completely for three. This, over the full 10-day period, would give him merely the same 7,000 Mcf in the aggregate which we have assumed to be his entitlement. Instead of effectively shutting him down for the entire 10 day period simply because he cannot operate on only 700 Mcf per day, we would have enabled*21 him to continue operating 70 percent of the time.
By staggering the days of cut-off among them, we obviously should be able to put all of them on the same sort of three-days-off, seven-days-on schedule I’ve been talking about, and still overall not be delivering more gas to them on any day than the aggregate of its individual allotments of gas for that purpose; none of El Paso’s other customers would suffer any resultant decrease in service.
Id. at 586-87. We are not called upon here to judge the merits of the grouping technique. The testimony set out above is cited only for the purpose of explanation. The question before us now is whether the Commission acted arbitrarily in prohibiting this practice. Union argues that there is no evidence of record to support the Commission’s finding that grouping of delivery points “could result in discrimination against those customers, including California, who have only one delivery point.” The Commission’s brief fails to point out any such evidence and, at oral argument, counsel conceded that there was none:
QUESTION: Well, couldn’t we find that there was no substantial evidence supporting the grouping decision and just excise that out of the order ?
MR. McHENRY: Your Honor, there is no substantial evidence supporting the position taken by Southern Union on this record that it should necessarily have grouping. This was just—
QUESTION: Is there any evidence to the contrary?
MR. McHENRY: I don’t believe there is evidence to the contrary, either way or the other, on this record, your Honor.
Tr. at 44. The Commission suggests that its action was justified because Union failed to raise the issue at hearings on the interim plan. It is clear, however, that the burden is upon the Commission to show that substantial evidence sustains its finding that grouping of delivery points would be .discriminatory. There is no indication that the question was ever considered until El Paso requested clarification of the Commission’s original order, Opinion No. 634. Indeed, testimony before the Commission strongly suggests that it was understood by all parties that grouping would be permitted.
Y. THE COMMISSION’S CONCLUSIONS OF LAW
At this point it may be helpful, for purposes of our analysis, to restate the source of the Commission’s authority to prescribe an interim curtailment plan:
Whenever the Commission . shall find that any rate, charge, or classification ... or that any rule, regulation, practice, or contract affecting such rate, charge, or classification is unjust, unreasonable, unduly discriminatory, or preferential, the Commission shall determine the just and reasonable rate, charge, classification, rule, regulation, practice, or contract to be thereafter observed and in force, and shall fix the same by order ....
Natural Gas Act, section 5(a). The Commission’s exercise of its authority under this statute is a two-step adjudicatory process: first, the Commission must find that an existing condition is unjust or discriminatory; second, the Commission must prescribe the remedy for that condition. Each step requires
The decisions require a commission in a quasi-judicial proceeding to make basic findings supported by evidence and ultimate findings which flow rationally from the basic findings—this in order that the commission shall itself perform the initial function of evaluating the evidence and deciding the issues of fact, and in order that the courts, as reviewing tribunals, can decide whether or not the ultimate decision reached by the commission follows as a matter of law from the facts found as its basis, and also whether or not the facts found have substantial support in the evidence.
See also Saginaw Broadcasting Co. v. FCC, 68 U.S.App.D.C. 282, 96 F.2d 554, 559, cert. denied, 305 U.S. 613, 59 S.Ct. 72, 83 L.Ed. 391 (1938); In re United Corp., 249 F.2d 168, 179-180 (3rd Cir. 1957); Greater Boston Television Corp. v. FCC, 143 U.S.App.D.C. 383, 444 F.2d 841, 850 (1970), cert. denied, 403 U.S. 923, 91 S.Ct. 2229, 2233, 29 L.Ed.2d 701 (1971). The Commission’s action must be sustained if it is reasonable in light of the basic fact-findings and the record evidence. In the matter now before us, a number of the parties challenge the reasonableness of the Commission’s action. This part of the opinion will consider those objections.
A. “Pre-existing Curtailment”
Petitioners Southern California Edison Co. and the Department of Water and Power of the City of Los Angeles (hereafter referred to collectively as “Edison”) argue that the Commission’s action is unreasonable in light of the gas supply shortages being experienced in the California market.
Edison’s argument must fail. The Commission properly found, based upon substantial record evidence, that the former curtailment plan would have required complete cutoff of EOC customers prior to any curtailment by El Paso of its service to California customers.
SoCal and San Diego raise a more difficult question, namely: was it reasonable for the Commission to issue an interim curtailment plan which fails to take into account pre-existing gas shortages in California? In our opinion the
In the present case, we think the Commission’s action was reasonable. Once having determined that the existing curtailment procedures were discriminatory, the Commission was faced with the choice of allowing them to remain in effect pending issuance of a permanent order, or instituting a temporary plan which would cure at least the more severe defects of the illegal plan. The main purpose of the interim plan was to avert the danger that EOC residential users might be curtailed during the winter of 1972-73. The pre-existing shortages in California add complex problems, the resolution of which the Commission properly deferred until the issuance of a final order.
Our approval of the Commission’s action is obviously based upon the assumption that it has merely deferred consideration of California market conditions and that this factor will be taken into account in the formulation of the permanent plan. Ideally, such an intention should be expressed in the agency’s interim order, so that the reviewing court is not left to guess at its reasoning. Upon remand, therefore, we invite the Commission to incorporate into its interim order a full statement of its reasons for postponing the resolution of issues arising from the California gas shortage.
B. Withdrawals From Storage
In computing the curtailment to be apportioned to each of its customers on a particular day, El Paso is required to use a formula set forth in section 11.3(b) (i) of its revised tariff, which we paraphrase as follows:
Customer's Needs _ Customer's Share
Systemwide Needs Available Supply
J. A. at 347 (Testimony of M. A. Erlich). Because California customers rely on El Paso for only part of their gas supply, only part of their needs are counted for purposes of this formula. The proper proportion is determined by the ratio of scheduled deliveries from El Paso to total scheduled deliveries from all sources. If, for example, only one-half of the California customer’s supply for the day is scheduled to be provided by El Paso, then only one-half that customer’s requirements are counted for purposes of computing its share of the shortened El Paso supply. The basic formula set out above quickly discloses the effect of such a reduction of the “needs” figure: it reduces the customer’s share of the El Paso supply.
The California customers do not challenge the basic fairness of this scheme, but they strongly object to the treatment of stored gas as an independent source of supply, because at least some of the gas withdrawn from storage on a particular day will be traceable to previous purchases from El Paso. Treating this gas as an independent supply, it is argued, results in an underestimation of El Paso’s share of the total California
One further question was raised in the briefs concerning the Commission’s treatment of withdrawals from storage. SoCal takes the position that no part of such withdrawals should be counted as a source of supply for purposes of curtailment. To do otherwise, it is argued, will discourage the development of gas storage facilities. This prediction is convincingly disputed by testimony in the record.
C. Shift of Industrial Gas
Perhaps the most strenuous objections of the California customers to the temporary plan are directed toward its effect on the allocation of gas for industrial uses. As explained above, the old curtailment plan placed every EOC customer in a priority subordinate to all California customers. In the event of a gas shortage, the California customers would have been the last to suffer any curtailment. Since the temporary plan is based upon categories of end use, however, the California customers must now share ratably any curtailment which becomes necessary. As a result, EOC industrial users will suffer less immediate curtailment than under the old plan and the California industrial users will suffer more. This effect is referred to by the California customers as a “shift” of industrial gas from California to EOC users. They complain that this measure is not warranted by the “emergency” and not necessary for the protection of EOC human needs customers.
In Opinion 634 the Commission clearly found that the former curtailment plan was discriminatory in toto, not just in
Under [the former] tariff provision no curtailment would take place to California customers until all EOC service had been curtailed. This means that both residential and commercial customers east of California would be cut off before any service to California was cut off. Almost all of the parties concede that under the present circumstances this would patently discriminate against the EOC customers. The supply evidence introduced by El Paso at the reopened proceeding clearly indicated that there was a real probability that curtailments under its presently effective tariff would result in cutting off not only commercial customers east of California but residential customers also, while California probably would be curtailed not at all. It is obvious that we would be negligent in our duties if we allowed human needs customers on any portion of the system to be cut off while industrial customers were still receiving gas on another portion of the system. We find that the currently effective plan of El Paso, is discriminatory and violative of Section 4(b) of the Natural Gas Act.
J.A. at 136-37. Concededly, the Commission placed great emphasis upon the most eggregious faults of the former plan, i. e. its effect upon EOC residential and small commercial customers. But the key findings of the Commission refer to EOC customers generally: the former curtailment plan “would patently discriminate against the- EOC customers” because “. . . no curtailment would take place to California customers until all EOC service had been curtailed.” Since we have already concluded that these findings are sustained by substantial evidence (part IV A), the only remaining question is whether the temporary plan is arbitrary in its treatment of industrial users in California. We think not. The ratable curtailment of industrial users in order to protect supplies to Priority 1 and Priority 2 customers is a reasonable interim course of action in light of the Commission’s findings. Although it might not be the sole solution or the best solution, it is certainly within the range of conclusions which might be reached by reasoned decision making. A separate question arises regarding the Commission’s disparate treatment of boiler fuel users as opposed to other industrial customers. This is treated in the following section.
D. Boiler Fuel Uses
Under the Commission’s interim curtailment plan, the lowest two priorities (Priority 4 and Priority 5) are assigned to customers who use natural gas as boiler fuel when alternate fuel facilities are present. (The only difference between Priority 4 and Priority 5 is the daily volume involved.) Such customers will be the first to experience curtailment in the event of a gas shortage and service to them will be completely terminated before any curtailment of service to higher priority customers, including industrial customers applying gas to uses other than as fuel for boilers. Several of the parties argue that this treatment of boiler fuel uses is unreasonable
A search of the two opinions under review reveals no specific findings or reasoning in support of the Commission’s decision to assign boiler fuel uses of gas to the lowest priority. As we have stated many times in the
The Government suggests that it was not necessary for the Commission to state its reasoning in this matter because the determination is supported by established Commission policy and precedent. We requested supplemental briefing on this point by our Order of October 31, 1973, which posed the following question:
Is there established Commission policy and precedent which will sustain the Commission’s further finding (2) of Opinion No. 634 subordinating certain boiler fuel uses to all other uses ?
We conclude that this question must be answered in the negative.
While it is true that the Commission has for a long time considered the use of natural gas as boiler fuel to be “inferior” to other uses,
Commission policy in the past has not been to deny boiler fuel sales, but to authorize them where they served some public advantage. Texas Gas Transmission Corp., 12 FPC 658 (1953); Transcontinental Gas Pipe Line Corp., 11 FPC 615 (1952); Northern Natural Gas Company (Black Dog), 29 FPC 1025 (1963); Michigan Wisconsin Pipe Line Company, 32 FPC 737 (1964). In the Transcontinental case the Commission authorized the sale of interruptible gas to Duke Power Company for boiler fuel where it was shown that Transco would obtain additional revenues without substantial operating cost. In the Northern Natural case the Commission approved a sale of natural gas for resale for boiler fuel where the sale was contemplated in a settlement of Northern’s rates and was therefore beneficial to Northern’s customers. In the Michigan Wisconsin case the Commission authorized the direct sale of gas to a power company for boiler fuel use where there would be a fuel saving to the power company and a resulting rate reduction by Michigan Wisconsin.
In our opinion, while we have termed boiler fuel use inferior in the past, at present it cannot necessarily be so termed because of the air pollution problem. In Transcontinental Gas Pipe Line Corp., 38 FPC 906 (1967), the Commission approved delivery of additional firm gas to Con Ed for boiler fuel use noting among other things that is [sic] would be an affirmative step in dealing with the air pollution problem.
Chandeleur Pipe Line Co., 44 FPC 1747, 1756 (1970). A subsequent opinion in the same case stated that “there is no superior or inferior use of natural gas per se; it depends upon the circumstances.” Chandeleur Pipe Line Co., 45 FPC 370, 371 (1971). Thus, the Commission’s policy disfavoring the use of natural gas as boiler fuel can be outweighed by other considerations arising in a particular case. Our duty in this case is not to weigh the anti-boiler fuel policy against other factors, but to point out that such a balancing process must take place. The Commission’s own re
When applied in specific cases, opportunity will be afforded interested parties to challenge or support this policy through factual or legal presentation as may be appropriate in the circumstances presented.
FPC Order No. 467 at 1 (January 8, 1973)
E. Volumetric Limits
Following the issuance of Opinion 634, El Paso filed tariff revisions intended to implement the Commission’s order. Section 11 (j) of the revised tariff, which was approved by Opinion 634-A, establishes limits upon the amounts of gas El Paso’s customers will be entitled to purchase while the interim order is in effect. There is both a daily limitation and a periodic limitation, i. e. a limit on the total amount of gas which may be purchased while the interim plan is in effect. For convenience, we shall refer to this latter limit as the annual limit. The daily limit is set at the maximum daily delivery obligation of El Paso under its contract with each customer. The annual limit is. computed in either of two ways: (1) the limit for a customer who purchases his entire gas supply from El Paso (a “full requirements” customer) is the quantity actually received by that customer between July 1, 1971 and June 30, 1972 (plus any curtailment experienced during that period) ; (2) the limit for a customer who purchases only part of his gas supply from El Paso (a “partial requirements” customer) is a quantity equal to his maximum daily contract entitlement multiplied by the number of days in the year. Since the EOC customers are full requirements customers, the annual limit on their gas entitlements is measured under the first rule. The maximum annual entitlements of the two California customers (PG&E and SoCal) are measured under the second rule, however, because they are partial requirements customers.
Petitioner American Smelting and Refining Co. (Asarco) contends that the effect of this dual standard is that the California customers will be permitted to purchase volumes of gas in excess of the amounts delivered to them in the past whereas Asarco and other EOC customers are limited to their historic takes.
East of California (EOC) customers are limited to annual takes during the twelve-month period ending June 30, 1972. This was provided for inasmuch as the existing contracts for EOC customers do not provide for annual limitations.
Order of February 7, 1973, J.A. at 334. While this does explain the need for a tariff provision restricting annual consumption by EOC customers, it does not explain why these customers should be restricted on a different basis than the California customers. We must therefore remand this matter in order to provide the Commission with an opportunity to make further findings and to state the reasons for its decision or any modification of that decision which may appear to be necessary.
F. Penalties
Asarco also objects to the Commission’s deletion of overrun penalties from the revised tariff filed by El Paso in response to Opinion 634.
With regard to penalties for unauthorized overruns, we note that El Paso has never had them in its tariff and we do not consider it appropriate to institute them in an interim proceeding. As we also noted above, a number of customers have not recently revised their contracts and have been making substantial overruns for the use of human needs customers. While some provisions for preventing unauthorized overruns may well be necessary in a permanent curtailment plan, we do not believe we should prescribe one at this time.
J.A. at 242. The Commission’s concern for human needs customers is clearly unnecessary. The stricken penalty provision carefully defined the term “unauthorized overruns” to exclude overruns taken for the purpose of fulfilling residential and small commercial requirements.
We note that the passage quoted above makes vague reference to El Paso’s past practices regarding penalties and to the “inappropriateness” of instituting such penalties in an interim plan. It is possible that these references were intended to state additional reasons for rejection of the penalty provisions. If so, we are of the opinion that such grounds are not sufficiently articulated so as to permit meaningful review here. This matter is remanded to the Commission, therefore, for further clarification of its reasons for deleting the penalty provisions of the El Paso tariff.
VI. ENVIRONMENTAL IMPACT
The National Environmental Policy Act (NEPA) requires that, “to
This very question has been raised and decided in a similar case in the Fifth Circuit. In Atlanta Gas Light Co. v. FPC, 476 F.2d 142, 150 (5th Cir. 1973), the duties of the Commission under the Natural Gas Act were held to supercede the procedural dictates of NEPA:
The mandate of the NEPA on federal agencies is that they comply with the procedural duties imposed by the Act to the fullest extent possible. See Calvert Cliffs’ Coord. Com. v. United States Atomic Energy Com’n, D.C. Cir., 1971, 146 U.S.App.D.C. 33, 449 F.2d 1109, 1114-1115. As there noted, the legislative history of the NEPA interprets “to the fullest extent possible” to mean compliance unless compliance would give rise to a violation of statutory obligations. As Louisiana Power & Light Co., supra, makes clear, the Federal Power Commission has a statutory duty to the public under the Natural Gas Act to take effective interim curtailment action in the exigencies presented by gas shortages. We cannot say that the NEPA suspends this duty of the Commission.
We think this reasoning is correct and dispositive. In the present case, the Commission’s duty under the Natural Gas Act to prevent discriminatory practices in times of gas shortage called for prompt action. This created the type of “statutory conflict” which alone can excuse compliance with section 4332(2) (C). Calvert Cliffs’ Coordinating Committee v. AEC, 146 U.S.App.D.C. 33, 449 F.2d 1109, 1115 (1971).
Edison and SoCal attempt to distinguish Atlanta Gas on the ground that the time constraints at work in that case are absent here. Both parties note that in Atlanta Gas a revised tariff was filed in November 1971 indicating that immediate curtailment was required for the 1971-72 winter heating season. By contrast, El Paso’s initial filing preceded issuance of the interim plan by some sixteen months, ample time for preparation of an environmental impact statement. This distinction is misleading. El Paso’s original filing (July 6, 1971) which is still pending before the Commission, did not request interim action by the Commission. Rather, it contemplated the approval of a final permanent curtailment plan after full hearings. It was not until August of 1972 that El Paso requested an interim order regulating curtailments for the 1972-73 heating season, by then only a few months away.
Our discussion of this issue would not be complete without the following caveat. A federal agency which seeks to excuse itself from its duties under section 4332(2) (C) cannot do so by simply ignoring that statute. Rather, it must make express findings which demonstrate the “statutory conflict” which prohibits compliance. Cf. Calvert Cliffs’ Coordinating Committee v. AEC supra, 449 F.2d at 1115; Scientists’ Institute for Public Information, Inc. v. AEC, 156
VII. SUMMARY
We hold that the Commission has authority under section 5(a) of the Natural Gas Act to establish, by interim order, a temporary curtailment plan based upon end use. This authority is not restricted by contractual arrangements among pipeline companies and their customers. The Commission’s finding that the former curtailment plan was discriminatory and its determination to postpone consideration of preexisting gas shortages in the California market and to subordinate industrial uses of gas to residential and commercial uses are affirmed. Its determinations with regard to grouping, storage withdrawals, boiler fuel uses, annual volumetric limits and penalties for overruns are reversed for the reasons stated in this opinion. We further hold that the Commission’s failure to issue an environmental impact statement at the time the interim plan was established did not violate NEPA, 42 U.S.C. § 4332(2)(C). This matter is remanded to the Commission for further proceedings consistent with this opinion. In order to insure orderly administration of gas curtailments, the Commission may continue the interim order in effect for a reasonable period of time pending its decision regarding the matters remanded for further consideration.
So ordered.
. The interim plan was originally supposed to expire on October 31, 1973 unless a permanent plan was approved before then. On October 18, 1973, however, the Commission extended the operation of the interim plan pending further action on a permanent plan.
. J.A. at 735, 740, 746, 751, 757, 763, 769 and 776.
. J.A. at 343-44, 353 (Testimony of Mr. Travis Petty).
. Although the parties seem to agree that there is a serious shortage of natural gas, we make no assumption on this point. We pause, however, to note the following advertisement which appeared at page 23 of the Wall Street Journal on October 26, 1973: “Natural Gas—Long Term Supply Available —50 Billion Cubic Ft.—We can provide a 15 year supply at 10 million cubic ft. per day.”
. The order is codified at 18 C.F.R. § 2.70 (1973).
. The expiration date has been changed. See note 1, supra.
. According to the Commission’s findings, the former tariff provisions required El Paso to curtail its customers in the following sequence (J.A. at 136) :
(a) best efforts gas; (b) irrigation gas; (c) direct industrial gas; (d) industrial gas of distributors east of California (EOC) ; (e) commercial gas of distributors EOC; (f) residential gas for distributors EOC; (g) gas sales to California customers under Rate Schedule G.
. J.A. at 144.
. J.A. at 143-44.
. San Diego Br. at. 22; FPC Br. at 33.
. Edison Br. at 18; San Diego Br. at 20-23; SoCal Br. at 9 ; Willcox Br. at 44.
.This interpretation of the El Paso service contracts is not undisputed. Bee Brief of Intervenors American Smelting and Refining Co. et al. at 2-9.
. Opinion No. 634, ¶ 4, J.A. at 135.
.We express no opinion as to the correctness of the International Paper decision, which suggests that a pipeline whose own shortsightedness or overreaching necessitates a curtailment plan should not be immune from contractual liability. 476 F.2d at 126 n. 5.
. J.A. at 136-37.
. Br. at 48 et seq.
. Public Service Commission of State of New York v. FPC, 141 U.S.App.D.C. 174, 436 F.2d 904 (1970).
.“Summary of Estimated Monthly Mainline Requirements, Curtailment and Sales for the Period November 1, 1972 through October 31, 1973 Based on El Paso’s Currently Effective Tariff,” Prepared by El Paso Natural Gas Co., J.A. at 651 et seq.
. J.A. at 477 (Testimony of M. K. O’Toole of El Paso Natural Gas Co.).
. Exhibit 237, Schedule 1, pp. 14-17, J.A. at 665-68; J.A. at 477 (Testimony of M. K. O’Toole of El Paso Natural Gas Co.).
. J.A. at 475.
. J.A. at 477, 540-41, 546, 554 (Testimony of M. K. O’Toole of El Paso Natural Gas Co.).
. J.A. at 568-69, 572 (Testimony of A. M. Derrick of El Paso Natural Gas Co.).
. Exhibit 237, Schedule 1, pp. 1-14, 18, J.A. 651-65, 669.
. Testimony indicates that separate estimates of residential and commercial needs on a peak day were not available to El Paso. J.A. at 545 (Testimony of M. K. O’Toole of El Paso Natural Gas Co.).
. El Paso’s witness conceded that he could not predict residential curtailment on an average day, as opposed to a peak day. J.A. at 545.
. We note that these terms are not necessarily synonymous. See Decision of Administrative Law Judge on Grouping of Delivery Points at 1 (September 19, 1973). (This decision approves grouping for purposes of the permanent plan.)
. J.A. at 550 (Testimony of M. K. O’Toole of El Paso Natural Gas Co.), 576 (Testimony of James M. Kiely, Jr. of the FPO staff).
. For purposes of clarity, we do not follow Edison’s practice of referring to these shortages as “pre-existing curtailment.” In fact, there had never been any curtailment of El Paso’s service to its California customers prior to adoption of the interim plan. J.A. at 340, 344, 353 (Testimony of Mr. Travis Petty of El Paso Natural Gas Co.).
. See the discussion at part IV A, supra.
. J.A. at 529-31 (Testimony of John O. Abram of Southern California Gas Co.).
. J.A. at 483 (Testimony of James M. Kiely, Jr. of the FPC staff).
. Opinion 634, ¶ 12, J.A. at 141.
. J.A. at 346-49 (Testimony of M. A. Erlich of El Paso Natural Gas Co.).
. For similar reasons, we do not think arguments addressed to the economic impact of the interim plan (SoCal Br. at 20; PG&E Br. at 17; San Diego Br. at 31), its effect on the development of alternate fuel facilities (PG&E Br. at 21) and the availability of “less disruptive” plans (SoCal Br. at 24) require reversal of the Commission’s interim order. Of course any of these factors may take on greater significance for purposes of a permanent curtailment plan.
.Tr. at 24; SoCal Br. at 13; PG&E Br. at 13 et seq.; Edison Br. at 20-22; San Diego Br. at 7-8, 20-23.
. PG&E Br. at 20-22; Brief of Intervenor State of California at 7-8.
. Edison Br. at 33-35; Willcox Br. at 5-6.
. PG&E Reply Brief at 10; Willcox Br. at 55.
. See, e. g., Federal Power Commission Annual Report (1940) at 79.
. This order was modified by orders 467-A (January 15, 1973) and 467-B (March 2, 1973). The latter order contains the following statement: “. . . Order No. 467 is a policy statement and is not intended to initiate a proceeding or to provide a binding rule without further proceedings directed towards curtailment problems on specific pipelines.”
. Although this result is not readily apparent, recent modifications of SoOal’s contract with El Paso together with past transfers of gas between PG&E and SoCal make it possible. Asarco Br. at 41-43. The Commission apparently admits this in its brief at 52 n. 54.
. Id.
. J.A. at 242.
. See § 20 of the Revised Tariff, J.A. at 233-34.
.Id. § 20.2.
. We note that over a year has passed since the implementation of the interim plan and that the plan has been extended indefinitely by the Commission’s order of October 18, 1973. To the best of our knowledge, no environmental impact statement has yet been filed. It should be understood, however, that our ruling today is not a license for permanent or prolonged evasion of responsibilities under NEPA. If it becomes clear that the Commission’s non-compliance is attributable to motives other than statutory impossibility, interested parties will not be barred by this opinion from seeking appropriate relief.
Concurrence Opinion
(concurring) :
I concur except with respect to the scope of the remand. Upon my study of the record I conclude that the court should not disturb the Commission’s interim plan regarding those parts thereof designated as follows in the court’s opinion: (B) Withdrawals from Storage, (E) Volumetric Limits, and (F) Penalties. I would not require further consideration of these three subjects. In all other respects I concur in Judge Tamm’s opinion for the court.
