The CITY OF MESA, ARIZONA; The City of Las Cruces, New
Mexico; The Navajo Tribal Utility Authority, Petitioners,
v.
FEDERAL ENERGY REGULATORY COMMISSION, Respondent,
American Public Gas Association; Apache Nitrogen Products,
Inc.; Arizona Public Service Company; Phelps Dodge
Corporation; Salt River Project Agricultural Improvement
and Power District; Asarco, Inc.; Cyprus Miami Mining
Corporation; Magma Copper Company; El Paso Electric
Company; El Paso Natural Gas Company; Foothills Pipe Lines
Ltd.; Gas Company of New Mexico; Meridian Oil Inc.; Mobil
Producing Texas & New Mexico Inc.; Mobil Natural Gas Inc.;
Pacific Gas and Electric Company; Pan-Alberta Gas Ltd.;
Process Gas Consumers Group; Public Utilities Commission of
the State of California; Saguaro Power Company, a Limited
Partnership; Southern California Edison Company; Southern
Union Gas Company; Southwest Gas Corporation; The United
Distribution Companies; Western Gas Resources, Inc., Intervenors.
No. 91-1499.
United States Court of Appeals,
District of Columbia Circuit.
Argued March 2, 1993.
Decided May 25, 1993.
[
John P. Gregg, with whom Susan N. Kelly and Eric A. Bilsky, were on the brief, for petitioners.
Jill Hall, Attorney, F.E.R.C., with whom William S. Scherman, Gen. Counsel, and Jerome M. Feit, Sol., F.E.R.C., were on the brief, for respondent.
William H. Penniman, with whom Joel L. Greene, Barbara S. Jost, Merek E. Lipson, Patrick G. Golden, David W. Anderson, Paul H. Keck, and Nicholas W. Fels were on the joint brief, for intervenors and amicus curiae.
Roberta L. Halladay, Christopher J. Barr, and Kristine L. Delkus were on the brief, for amicus curiae United Distribution Companies.
Britton White, Jr., Richard C. Green, and Mary Anne Mason were on the brief, for intervenor El Paso Natural Gas Co.
Joel L. Greene and Barbara S. Jost entered appearances for intervenors Apache Nitrogen Products, Inc., Arizona Public Service Co., Phelps Dodge Corp., and Salt River Project Agr. Imp. and Power Dist.
Shippen Howe and John R. Staffier entered appearances, for intervenor Pan-Alberta Gas Ltd.
John B. Rudolph entered an appearance, for intervenor Western Gas Resources, Inc.
Nicholas W. Fels entered an appearance, for intervenors ASARCO, Inc., Cyprus Miami Min. Corp., and Magma Copper Co.
Shippen Howe and George W. McHenry, Jr., entered appearances, for intervenor Foothills Pipe Lines Ltd.
James F. Moriarty entered an appearance, for intervenor Southern Union Gas Co.
Irving J. Golub entered an appearance, for intervenor Gas Co. of New Mexico.
William H. Penniman entered an appearance, for intervenor Process Gas Consumers Group.
Harvey Y. Morris, Peter Arth, Jr., and Edward W. O'Neil entered appearances for intervenor Public Utilities Com'n of State of Cal.
William T. Miller entered an appearance, for intervenor American Public Gas Ass'n.
David W. Anderson and Merek E. Lipson, Patrick G. Golden, and Paul H. Keck entered appearances, for intervenor Pacific Gas and Elec. Co.
Peter G. Esposito entered an appearance, for intervenor Saguaro Power Co., A Ltd. Partnership.
John C. Walley entered an appearance, for intervenor Southwest Gas Corp.
J. Michel Marcoux entered an appearance, for intervenor El Paso Elec. Co.
Before MIKVA, Chief Judge, WALD and BUCKLEY, Circuit Judges.
Opinion for the Court filed by Circuit Judge WALD.
WALD, Circuit Judge:
This case is yet another progeny of the Federal Energy Regulatory Commission's ("FERC" or "Commission") recent efforts to foster competition in the natural gas industry by "unbundling"--separating--the sale of gas from its transportation. Pipelines formerly transported gas exclusively or principally in conjunction with sales of their own product; now, pipelines transport gas whether it is their own or has been purchased from a third party. This sea change in the natural gas industry has inevitably raised new issues [
I. BACKGROUND
On August 31, 1990, El Paso submitted for the Commission's approval a proposed "Global Settlement" of a slew of outstanding regulatory proceedings in which it was involved. A cornerstone of the proposed multiparty settlement was El Paso's agreement to unbundle its services. More specifically, El Paso offered to convert all of its customers' "bundled" entitlements to gas supply and transportation on the pipeline into transportation1 entitlements alone. This transformation, which the Commission had strongly encouraged all pipelines to undertake, see Order No. 436, 50 Fed.Reg. 42,408 (1985) (providing incentives for pipelines to offer unbundled services), would permit El Paso customers heretofore dependent on the pipeline for both supply and carriage of gas to choose whether to buy gas from El Paso or from a third party. Cf. Associated Gas Distributors v. FERC,
As part of this seismic restructuring, El Paso proposed a pro rata method of "curtailing" its new unbundled transportation customers, i.e., reducing the amount of gas they received in force majeure or other circumstances2 when El Paso lacked the capacity [
The El Paso Municipal Consumer Group (the "Municipal Group"), an organization that includes the petitioners, LDCs served under the T-3 Rate Schedule, as well as smaller LDCs served under the FTS-S Rate Schedule, argued to the FERC that El Paso's plan should be modified to require scarce capacity to be allocated to protect the high-priority end-users they served. The Commission, however, rejected their proposal and on March 20, 1991, issued an order approving the Global Settlement, including its pro rata capacity constraint curtailment provisions. Explaining its decision, the Commission said that since the Global Settlement gave the small FTS-S customers capacity "off the top" in periods of capacity constraint, the Municipal Group's objections were either "moot or resolve[d] ... to a very great degree in [its] favor." Additionally, it pointed out, the parties had not agreed to an end-use-based plan and the FERC was reluctant to impose such a plan absent a showing that the pro rata plan would inflict harm on the high-priority consumers served by the Municipal Group. Finally, the Commission emphasized that § 401 of the NGPA, the provision that mandated an end-use plan for curtailments of El Paso's bundled sales and transportation service, applied only to supply-based curtailments and said nothing about capacity constraint curtailments of unbundled transportation service.
The Municipal Group's petition for rehearing of the FERC's order was denied on August 14, 1991. The petition highlighted two alleged weaknesses in the FERC's original order. First, the Municipal Group contended that the order was inconsistent with Title IV of the NGPA, and particularly § 401, which focused on the health and safety consequences of the failure of high-priority users to receive gas, not on whether that failure was caused by a capacity constraint or a supply shortage. In response, the Commission reiterated its position that the NGPA, which Congress passed in the context of the chronic natural gas supply shortages of the late 1970s, was designed to deal only [
II. DISCUSSION
The petitioners press on appeal the same two arguments advanced in their rehearing petition to the FERC. We address them in turn.
A. The NGPA Claim
Section 401(a) of the NGPA states in pertinent part:
[T]o the maximum extent practicable, no curtailment plan of an interstate pipeline may provide for curtailment of deliveries of natural gas for any essential agricultural uses, unless such curtailment--
. . . . .
(2) is necessary in order to meet the requirements of high-priority users.
15 U.S.C. § 3391(a) (emphasis added). Petitioners cite this provision as clear proof that Congress, in enacting the NGPA, intended to shield high-priority end-users from all forms of curtailment. Seizing on Congress' use of the allegedly inclusive term "deliveries" instead of "sales" or "transportation" (which are used elsewhere in the NGPA), petitioners contend that § 401's plain language applies to capacity constraint curtailments affecting unbundled transportation services as well as supply problems affecting sales services. Additionally, they argue that only their expansive reading of § 401's ambit is consistent with Congress' evident concern with the effect of curtailments on high-priority users. Whether a curtailment is caused by a capacity constraint or a shortage of gas, it creates the same health and safety hazards to residences, hospitals, and other high-priority end-users that might have to do without gas; accordingly, § 401 must sensibly be read to apply to unbundled transportation service as well as bundled sales and transportation service.
The FERC takes issue with petitioners' argument. It maintains that the text and legislative history of the NGPA as well as the historical context in which it was enacted lend support to its position that Congress, by using the term "deliveries" in § 401, intended to mandate end-use curtailments only in situations involving the sale of natural gas. According to the Commission, Congress in that pre-deregulation era had no occasion to consider the issue of capacity curtailments affecting customers using unbundled transportation service, and it cannot be taken to have intended to tie the FERC's hands in dealing with problems in pipeline/customer relations that are totally different from those that existed when it legislated.
Our analysis of these interpretive arguments about the scope of § 401 must of course follow the analytical path laid down by Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc.,
First, the use of the word "deliveries" in § 401 does not convey an unambiguous intent to cover pure transportation service as opposed to transportation of pipeline gas bundled with the later sale of that gas. Naturally, we try not to interpret statutory language by plucking a single word out of context and placing it under a microscope. Rather, mindful of "the cardinal rule that a statute is to be read as a whole since the meaning of statutory language, plain or not, depends on context," King v. St. Vincent's Hospital, --- U.S. ----, ----,
That suggestion gains additional force from the use of the term "deliveries" in comments found in pre-NGPA documents issued by the Federal Power Commission ("FPC"), the FERC's predecessor. Mid-1970s FPC policy statements applying only to curtailments of sales repeatedly used the key term "deliveries." See, e.g., Order No. 467, 49 FPC 85, 85 (1973) ("This order contains a statement of policy by the Commission on priorities-of-deliveries by jurisdictional pipeline companies during periods of curtailment."). Thus, by using that same term [
The final blow to petitioners' claim of clarity comes from the legislative history of the NGPA. The Conference Report stresses in no uncertain language that Congress sought to assure that the enactment of the law would only minimally disrupt existing curtailment plans: "[T]he Commission is instructed to reopen curtailment plans that are already in effect under the Natural Gas Act only to the extent necessary to adjust those plans to bring them into conformity with the new curtailment priority schedule. The conferees were concerned that the[ ] changes [enacted through § 401] not burden the Commission with lengthy proceedings which might throw existing curtailment plans into disarray." H.R. REP. NO. 1752, 95th Cong., 2d Sess. 113 (1978), U.S.Code Cong. & Admin.News 1978, pp. 8800, 9029-30. Requiring end-use curtailment plans for transportation of nonpipeline gas would have precipitated the very "disarray" that Congress disclaimed any intent to create. At the time the NGPA was enacted, the FPC did not require end-use curtailment plans for pipelines' transportation of third-party-owned gas. See Order No. 533-A, 54 FPC 2058, 2059 (1975); see also American Public Gas Association v. FERC,
While no single one of these pieces of evidence may demonstrate incontestably that Congress had a specific intent not to require end-use curtailment plans for unbundled transportation service, they do suffice cumulatively to pierce the petitioners' shield of inviolability on the meaning of "deliveries" in § 401 and so require us to move to the second step of Chevron analysis. At that stage, the FERC's interpretation of § 401 as applying to bundled sales and transportation but not to transportation alone easily survives limited review. We think that the context in which the NGPA was passed militates especially strongly toward the reasonableness of the FERC's interpretation of § 401. Although there had always been the possibility of capacity constraints caused by force majeure accidents on the pipeline, it was not until the chronic supply shortages of the 1970s that first the FPC, see Order No. 467, 49 FPC 85 (1973), and then Congress mandated end-use-based curtailment plans. The contemporaneous evidence surrounding the passage of the NGPA leaves no doubt that it was this pressing problem of supply shortages that spurred its enactment.4 Against that backdrop, the FERC might reasonably conclude that Congress, in enacting § 401, had in mind the limited goal of coping with supply shortages. See Atlanta Gas Light Co. v. FERC,
Finally, contrary to the petitioners' argument, the Commission's more limited interpretation of § 401 is not rendered unreasonable by the fact that high-priority users suffer equally from supply and capacity curtailments. There are important differences between the two kinds of constraints. Supply shortages usually lead to prolonged periods in which there is simply too little gas to serve the needs of all users. In contrast, capacity constraints occur when there is enough gas in the market but an unexpected event has caused a brief interruption in the movement [
B. The NGA Claim
The petitioners also allege that the FERC violated § 4 and § 7(e) of the Natural Gas Act, 15 U.S.C. §§ 717c & 717f(e), by not modifying the Global Settlement to ensure that their high-priority end-use customers receive a continuous supply of natural gas. It is well-established--and the FERC does not contest--that § 4, which requires that rates be "just and reasonable," and § 7(e), which requires that all natural gas transactions meet the test of "present or future public convenience and necessity," oblige the Commission to protect the ultimate consumers of gas. See Atlantic Refining Co. v. Public Service Commission,
The issue, then, is not whether the FERC has an NGA obligation to assure protection of high-priority end-users during periods of curtailment, but whether it properly discharged that obligation in approving the proposed settlement in this particular case. See id. (the Commission must exercise its independent judgment in determining whether a proposed settlement is consistent with NGA requirements). Of course, since the NGA gives the FERC no specific guidance as to how to apply its broad mandates in a particular case, our review of the FERC's actions here is, again, quite limited. Cf. City of Charlottesville v. FERC,
The most important factor in this mode of review is the agency's own explanation for its decision. Accordingly, we set out the FERC's reasoning relevant to its NGA obligations in full. In its initial order, the Commission explained:
[T]he settlement already removes the small Rate Schedule FTS-S transportation customers from the pro rata process and permitting [sic] them to get their gas "off the top," up to each such customer's volumetric levels for a representative period. This either renders the [Municipal] Group's arguments moot or resolves them to a very great extent in the [Municipal] Group's favor. The Commission is reluctant to order an end-use specific transportation-capacity curtailment plan absent the agreement of the parties and absent a record.... [T]he [Municipal] Group has not made a showing that it will be curtailed inconsistently with existing end-use supply curtailment criteria in spite of their first priority for exempted customers. The Commission concludes that this "off the top" treatment adequately protects high-priority users.
On rehearing, after the Municipal Group had stressed that three of its members--the petitioners here--were ineligible for "off-the-top" protection because of their size, the Commission said:
As there is no legal requirement [in the NGPA] for the imposition of [an end-use-based plan], the Commission will not force one upon a pipeline absent evidence of a need to do so. In the absence of evidence of such a need or of such legal requirement, the Commission finds that El Paso has adequately provided for the need of high priority uses. While customers' rights to capacity will not be curtailed in exactly the same manner as under the existing end-use supply curtailment criteria, the Commission finds that El Paso's pro rata capacity curtailment plan, with its "off the top" capacity allocation treatment for small sales customers under Rate Schedule FTS-S, adequately protects most small high-priority end-users. [The Municipal Group is], in essence, requesting that the Commission exercise its power under section 5 of the NGA to find El Paso's existing tariff unjust and unreasonable.[6 The Commission declines to do so here. The Commission cannot find that El Paso's capacity curtailment plan is unjust and unreasonable.
These explanations, unfortunately, do not suffice to demonstrate that the Commission engaged in reasoned decisionmaking. In its order denying rehearing, the FERC stated: "[T]he Commission finds that El Paso's pro rata capacity curtailment plan, with its 'off the top' capacity allocation treatment for small sales customers under Rate Schedule FTS-S, adequately protects most small high-priority end-users." (emphasis added). Read by itself, this statement suggests, as the petitioners argue, that the FERC believed that a plan that safeguards only some high-priority users fulfills the NGA's consumer protection requirements. This puzzling position is never defended in the orders and on its face seems arbitrary and capricious; [
But perhaps the FERC did not mean its orders to stand for this facially unreasonable proposition. The Commission did in fact make several statements suggesting that it believed that El Paso's plan would protect all--not just most--high-priority users. Most importantly, in its rehearing order, the Commission said that it "finds that El Paso has adequately provided for the need of high priority uses." (emphasis added). Thus, as its counsel suggests, the FERC may have meant that the El Paso plan's "off-the-top" protection for the smallest pipeline customers combined with the ability of larger customers like the petitioners to "fend for themselves" by using the type of self-help strategies discussed above, see supra page 895, to protect the remaining high-priority users sufficed to shelter all high-priority users from curtailments. Cf. State Farm,
But even if the Commission did implicitly rely on reasoning akin to that in Order No. 636-A in the orders under review here, and even if it was reasonable for the Commission to conclude that 636-A self-help mechanisms normally protect high-priority end-users from capacity curtailments, the FERC has not explained its application of those principles to this particular case sufficiently to allow a reviewing court to find that it gave reasoned consideration to all the factors relevant to its decision. See State Farm,
In sum, to engage in reasoned decisionmaking, the FERC must explain (1) why the size of a transportation customer--even one that serves largely high-priority end-users--is relevant to its ability to protect those end-users under a pro rata curtailment plan and (2) why the specific size-based line drawn here was reasonable. Cf. Maine Public Service Co. v. FERC,
CONCLUSION
Section 401 of the NGPA does not answer the precise issue of whether it covers capacity constraint curtailment plans for transportation service. In view of Congress' contemporaneous concern with supply shortages, the Commission has reasonably concluded that it does not. But the NGPA is not the sole source of statutory protection against curtailments. The Commission acknowledges that the NGA requires it to assure that high-priority end-users have continuous access to natural gas, but it has failed to provide an adequate explanation for its apparent conclusion that El Paso's "off-the-top" protection for a discrete group of its smallest customers suffices to protect all high-priority end-users served (indirectly) by El Paso. Accordingly, we deny the petition for review as to the Commission's decision on the NGPA issue, but remand for a better explanation of its position on the NGA issue.
So ordered.
Notes
Because natural gas is fungible, a pipeline need not physically move any specific supply of gas to particular customers. There are a variety of ways, including "exchanges," "backhauling," and "displacement," by which pipelines can assure that a shipper receives the same quantity of gas that it puts on the pipeline. See Associated Gas Distributors v. FERC,
The parties differ as to the circumstances that give rise to a "capacity constraint" curtailment. Petitioners contend that a capacity constraint exists when there is either "overbooking" (oversubscription) of pipeline capacity during times of extreme weather conditions or a force majeure problem (e.g., a compressor station failure or a break in the line). See Petitioners' Brief at 9. The FERC asserts that only when a pipeline cannot deliver scheduled volumes of gas due to a force majeure is there a capacity constraint. See FERC Brief at 9. Our analysis does not turn on the resolution of that definitional question
Some additional doubt as to the inevitability of the petitioners' reading of § 401 is created by Title I of the NGPA, where the word "deliver" is defined in terms of the sale, not the transportation, of gas. See 15 U.S.C. § 3301(22) ("The term 'deliver' when used with respect to any first sale of natural gas, means the physical delivery from the seller....")
The legislative history is peppered with references to the supply problem. See, e.g., H.R. REP. NO. 95-543, 95th Cong., 2d Sess., Vol. II, 383-92 (1977)
Indeed, it was largely from these NGA provisions that the FPC drew its authority to promulgate its pre-NGPA policies requiring curtailment plans to protect high-priority end-users. See Order No. 467, 49 FPC 85, 87 (1973) (citing, inter alia, § 4 and § 7 of the NGA as authorizing policy mandating end-use-based plans for curtailments)
Although the Commission treated the Municipal Group's argument under §§ 4 and 7(e) as "essentially" one under § 5 (which, like § 4, requires that rates be "just and reasonable"), neither party contends that there is any difference between those provisions for purposes of the consumer protection requirement at issue in this case
We note that, in terms of the self-help strategies that the Commission has enumerated, it might well be reasonable to assume that, in general, larger pipeline customers, even those that serve mostly high-priority end-users, would be able to protect themselves more readily than smaller customers. For example, larger customers might be able to take advantage of economies of scale in contracting for or building their own storage facilities. But of course our lay ruminations on this issue cannot substitute for explicit FERC reasoning