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Pacific Gas Transmission Co. v. Federal Energy Regulatory Commission

decided: August 26, 1993.


Petitions for Review of an Order of the Federal Energy Regulatory Commission. FERC NOS. CP89-1-008 & CP89-1-011

Before Reynaldo G. Garza, Smith, and Barksdale, Circuit Judges.

Author: Smith

JERRY E. SMITH, Circuit Judge:

Pacific Gas Transmission Company ("PGT") petitions for review of the Federal Energy Regulatory Commission's (the "Commission's" or "FERC's") orders amending Kern River Gas Transmission Company's ("Kern River's") and Mojave Pipeline Company's ("Mojave's") optional certificates of public convenience and necessity and denying PGT's application for rehearing. Because we find that the Commission's actions were neither arbitrary nor capricious and that the Commission did not abuse its discretion in amending the certificates and denying PGT's motion for rehearing, we affirm.


On January 24, 1990, Kern River and Mojave received authorizations under the Commission's optional certificate procedure jointly and individually to construct, own, and operate new pipeline facilities in order to transport natural gas into south-central California.*fn1 The certificated cost of Kern River's facilities was $631,329,000, and the certificated cost of Mojave's facilities was $109,332,000. The certificated cost of the common facilities was $204,010,000. Kern River's share of this cost was $129,825,000, and Mojave's share was $74,185,000. The companies based these figures upon 1989 estimates of total costs.

Based upon these cost figures, the Commission approved maximum reservation fees for both Kern River and Mojave, which the Commission set forth in its certificate order. 50 FERC P 61,069, 1990 WL 488664 reh'g denied, 51 FERC P 61,195, 1990 WL 488742 (1990).*fn2 For the first fifteen-year period of service, the Commission approved a maximum monthly reservation fee of $12.75 per Mcf for Kern River and a maximum daily reservation fee of .2022 cents per MMbtu for Mojave. The Commission also established minimum reservation fees of zero for both companies. The Commission authorized the companies to negotiate reservation fees with their customers within these parameters.

Subsequently, the companies negotiated rates that complied with the terms set forth in the Commission's certificate order, and the Commission approved the rates as incorporated into the companies' contracts. Kern River Gas Transmission Co., 53 FERC P 61,172 (1990); Mojave Pipeline Co., 56 FERC P 61,282, reh'g granted, 57 FERC P 61,300 (1991). The Commission's certificate order also provided as follows:

... The Commission is requiring Kern River [and Mojave] to make ... [section 4] tariff filings, three years after [their] in-service dates, either justifying [their] existing rates or proposing alternative rates to be effective no later than three years after the in-service date. This requirement will enable the Commission to examine Kern River's [and Mojave's] actual operating costs, and to make a determination at that time as to whether ... rates are in the public interest. The filings must use the same or greater throughput levels on which Kern River's [and Mojave's] initial rates have been predicated. The previously negotiated reservation fees will not be subject to review; any rate adjustment will be made to the usage charges.

50 FERC P 61,069, at 61,151, 61,153.*fn3

Before commencing service, Kern River and Mojave filed applications requesting amendments to their optional certificates so as more accurately to reflect the costs of constructing their pipeline systems. They sought increases in the initial transportation rates, including the usage and reservation fees, set by the Commission, in order to reflect the updates in actual costs of construction. Both companies represented that they had informed their customers of the new cost projections and rate calculations and that neither company had received objections.

On January 30, 1992, in two separate orders, the Commission approved an amendment to the companies' certificates increasing the initial rates, including the usage and reservation fees, that the Commission originally had authorized, in order to compensate for the increased construction costs. Kern River Gas Transmission Co., 58 FERC P 61,073 (1992); Mojave Pipeline Co., 58 FERC P 61,074 (1992). The Commission calculated a new maximum monthly reservation fee of 12.92/Mcf for Kern River and increased Mojave's maximum daily reservation rate to .2144/MMBtu.

PGT, a pipeline competitor, applied for rehearing. PGT, which holds a traditional section 7 certificate to service the same markets as Kern River and Mojave, contended that the Commission lacked authority to raise the initial rates for the two companies' services above the originally certificated rates. PGT argued that pursuant to the Natural Gas Act (NGA), the Commission could implement the proposed rate changes only through a section 4 rate filing, not through an amendment to the companies' section 7 certificates. Furthermore, PGT argued that the rate increase proposals violated the express conditions and the plain language of the optional certificates by allowing an increase in the fixed reservation fees of both companies. PGT contended that the companies' claims that none of their customers objected to the increases could not justify non-compliance with the optional certificate conditions.

The Commission denied PGT's application. Kern River Gas Transmission Co., 60 FERC P 61,123 (1992). PGT appeals, challenging the Commission's two orders amending Kern River and Mojave's certificates and its order denying PGT's application for rehearing.*fn4


"The function of judicial review of agency action is to determine the authority of the agency, compliance by the agency with the appropriate procedural requirements, and to review any claim that agency action is arbitrary, capricious, or an abuse of discretion." Acadian Gas Pipeline Sys. v. FERC, 878 F.2d 865, 868 (5th Cir.1989) (citing Administrative Procedure Act, 5 U.S.C. § 706). We review an agency's interpretations of its authorizing statute, its prior orders, and its own regulations under a highly deferential standard.*fn5 While we accord an agency's interpretation of its own regulation due deference, however, "the interpretation must rationally flow from the language of the regulation, and any departure from past interpretations of the same regulation must be adequately explained and justified." Acadian Gas, 878 F.2d at 868.


PGT objects to the Commission's authority under section 7 of the NGA, 15 U.S.C. ยง 717f, to issue orders amending Kern River's and Mojave's optional certificates to increase the initial reservation rates before commencement of service. The Commission responds that its action was ...

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