Opinion for the Court filed by Circuit Judge WILLIAMS.
Mоving natural gas through a pipeline requires energy, which is commonly, perhaps invariably, supplied by natural gas itself. Koch Gateway Pipeline Company has customarily used its shippers’ own gas for thеse purposes, simply providing a little less gas (about two percent less) at the point of delivery than the shipper supplied at the point of receipt. In 1995 Koch filed tariff sheets under which it wоuld give shippers an additional option — that of paying Koch in cash for the requisite fuel, at a price that Koch would post on its electronic bulletin board. The Commission approved thе tariff change, see
Koch Gateway Pipeline Co.,
Petitioner Natural Gas Clearinghouse is an independent marketer buying and selling natural gas, unaffiliated with any рipeline. It views the orders as representing a Ther-midor in the natural gas revolution that began in 1985, turning “the competitive clock back in the direction of a far darker age ... [when] vigorous comрetition among many different [natural gas] suppliers was a mere academic concept.” Petitioner’s Brief at 9. Even assuming we had authority to check such counter-revolutionary impulses in thе Commission, which of course we don’t, this ease presents no such issue. Finding no violation of statutes, of the Commission’s regulations, or of any precept of administrative law, we deny the petition for review.
* * *
In its reshaping of the regulatory environment the Commission has sought to assure
*399
that competition at the wellhead is carried downstream to customers, undistorted by regulation of the pipelines’ natural monopolies in gas transportation. A series of rules and policies requires, among other things, that pipelines carry the gas of competing natural gas vendors on a non-discriminatory basis, separate their own gas marketing from their transportation functions, and, indeed, quit the business of making “bundled” sales of gas (i.e., sales by the entity that provides the transportation). See
Order No. 636, Pipelinе Service Obligations and Revisions to Regulations Governing Self-Implementing Transportation; and Regulation of Natural Gas Pipelines After Partial Wellhead Decontrol,
57 Fed.Reg. 13267, 13268-77 (1992), III FERC Stats.
&
Regs. ¶ 30,939,
aff'd but remanded for consideration of certain issues, United Distribution Cos. v. FERC,
A major concern behind this unbundling was that otherwise the pipelines could use their transportation monopolies to secure illegitimate advantages in gas sales. For example, they might undercharge for carrying their own gas, or provide better service for that gas, and, by burying the costs of such favoritism in higher charges to competing sellers of gas (or their vendees), could gain an artificial advantage in the gas market. 1 The Commission’s actions have thus been based on the familiar proposition that a price-regulated monopoly’s business activity upstream or downstream from the area it monopolizes carries a risk both of defeating the regulatory scheme (by enabling the monopolist to inflate the costs that under eost-of-serviee principles are recoverable from captive customers), and of impairing competition in the adjacent activity (by enabling the monopolist to use inflated cost recоveries in the regulated market to subsidize its competition in the adjacent competitive one). See, e.g., 3 Phillip Areeda & Donald F. Turner, Antitrust Law § 726e (1978).
Natural Gas Clearinghouse’s essential argument is that Koch’s offer of a fuel-gas option is an attempted sale of natural gas and therefore, under Order No. 636, an offer that Koch could make only through its separate, merchant affiliate. Natural Gas Clearinghouse cites no specific language in Order No. 636 that the Commission’s approval of the fuel-gas option might violate; its claim is that the approval contradicts the fundamental purposеs of that Order. We must sustain the Commission’s interpretation of the Order if it is reasonable. See
Udall v. Tallman,
As a matter of ordinary language FERC’s approach seems unassailable. FERC defines “transportation” to include “storage, exchange, backhaul, displacement, or other methods of transportation.” 18 C.F.R. § 284.1(a) (1996). Here the gas is used, by Koch itself, to provide transportation service to Koch’s transportation customers, and nothing in the FERC definition suggests that energy used for transportation is not an aspеct of transportation service. We inquired at oral argument whether the Commission could not allow a pipeline simply to offer a transportation rate with the fuel cost embedded in the rаte, just as a railroad charges for transportation without any separate “sale” of diesel fuel to the shippers. Counsel for Natural Gas Clearinghouse acknowledged (as we think was neсessary) that there would be no legal impediment to such an arrangement, and could identify no way in which Koch’s fuel-gas option could impose a more severe impact on gas marketеrs such as Natural Gas Clearinghouse.
*400 The reasonableness of classifying compensation for fuel gas with the provision of transportation service seems confirmed by an examination of whеther Koch’s proposal will in fact enable Koch to engage in the sort of manipulation that is traditionally feared from vertical integration by a price-regulated monopolist. Cleаringhouse argues that Koch’s staff, nominally dedicated to provision of pipeline transportation, is devoting some time and resources to the various tasks associated with buying gas for “sale” into the fuel-gas submarket. Thus Koch might be seen as “inflating” the costs passed on to its captive transportation customers, and making a “sale” of gas subsidized by those customers.
But in this context it seems impossiblе to speak meaningfully of “shifting” costs or of cross-subsidization. Koch offers the option on a non-discriminatory basis. If it slipped fuel-gas costs into its non-fuel transportation charges, the parties that lost by the inflated non-fuel charges would gain by reduced fuel costs. As Koch’s competitors would be the beneficiaries of any “cross-subsidization” of fuel gas, the supposed cost-shifting would give Koch no net advantage in the natural gas market generally. Thus the incongruity of calling fuel gas something other than part of the transportation service is underscored by the complete mismatch with the standard depiction of the menacеs posed by a regulated monopoly’s integration into adjacent activities.
Even if the above were completely wrong, the opportunity for distortion seems rather trivial. Clearinghouse hаs not laid out a scenario that suggests much opportunity for Koch to manipulate gas costs in any harmful way. The commodity is fungible and appears to be sold in rather “thick” markets in the producing аreas, so that outsiders should not have great difficulty spotting any serious cost-shifting (assuming it were meaningful to talk of “shifting” costs from fuel gas to transportation service). Cf.
Koch I,
Thus FERC appears to have been entirely reasonable in concluding that Clearinghouse’s concеrns that Koch’s offer of its fuel-gas option might lead to cross-subsidization are “unfounded.” See
Koch II,
As a fail-back position, Clearinghouse argues that even if the sale of fuel gas is a transportation function, FERC erred in not requiring that the price be set on the basis of cost, as FERC’s regulations generally require for pipeline transportation service. See 18 C.F.R. § 284.7(c)(4) (1996). Here the true concern seеms the opposite of petitioner’s cross-subsidization claim: Koch is pictured as possibly overcharging for fuel gas, whereas in the prior section the concern was that it might
underprice
its fuel-gas “sales.” In аny event, as FERC noted, Koch’s tariff merely gives the shipper an additional choice, beyond the always available (and concededly legitimate) one of having Koch retain a specified percentage of the shipper’s gas. See
Koch II,
Accordingly, the petition for review is
Denied.
Notes
. Because regulation will presumably have been holding the firm’s rates below the profit-maximizing level, the rate increases resulting from this artificial cost inflation will not reduce the firm's profit. Such rate increases presumably would reduce profit for an unregulated monopolist, which would have selected the profit-maximizing price and quantity on the basis of its real marginal revenue and real marginal cost, and any rate increase would lower its profit.