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Washington Urban League v. Federal Energy Regulatory Commission

as amended november 1 1989.: September 25, 1989.


Petition for Review Federal Energy Regulatory Commission.

Becker, Stapleton, and Garth, Circuit Judges.

Author: Stapleton


STAPLETON, Circuit Judge

This petition for review of an order of the Federal Energy Regulatory Commission presents questions concerning the interaction of a 1986 FERC order involving the Gulf Oil Corp. (Gulf) and a 1985 FERC-approved settlement involving the Columbia Gas Transmission Corp. (Columbia). The 1986 Gulf order resulted in, among other things, a payment of $37 million to one of Gulf's customers, the Texas Eastern Transmission Co. (Texas Eastern). Texas Eastern, acting as a self-described "conduit" for these funds, passed them on to its customers, among them Columbia. Columbia, rather than passing on these funds to its customers, cited its 1985 settlement as allowing it to retain the funds. Washington Urban League (Urban League) represents consumers of the utilities to whom it argues Columbia ought to pass on the funds.*fn1

The FERC ruled that Columbia is entitled to keep the Gulf funds to the extent allowed by Columbia's 1985 settlement, as interpreted by the FERC. We will deny the petition for review.


In 1963, Gulf*fn2 entered into a 26-year agreement with Texas Eastern whereby Gulf agreed to warrant the supply of certain quantities of natural gas at initial rates ranging between 19 and 20.987 cents per thousand cubic feet (Mcf), with subsequent rates specified in the agreement.*fn3 The Federal Power Commission (the predecessor of the Federal Energy Regulatory Commission, both referred to here as the Commission) approved the agreement in 1964 by issuing a certificate of public convenience to Gulf. Gulf began performance, but within a few years it was unable to meet its delivery obligations to Texas Eastern because it had greatly overestimated the reserves of the gas field from which it expected to obtain most of Texas Eastern's gas.

In October 1976, the Commission adopted a plan requiring Gulf to escrow funds representing the difference between the contract price of the undelivered gas and the Commission's ceiling price at the time of nondelivery multiplied by the difference between Texas Eastern's requests for gas and Gulf's deliveries. Gulf Oil Corp. & Texas Eastern Transmission Corp., 56 F.P.C. 2293, No. CI64-26 (Oct. 15, 1976). The Commission's order was affirmed by this court. Gulf Oil Corp. v. F.P.C. [Gulf Oil I], 563 F.2d 588 (3d Cir. 1977).

The Commission articulated further details of the refund plan in a December 1981 order, and in January 1982, the Commission accepted Gulf's argument that it be allowed to deduct from the refunds amounts related to quantities of gas undelivered on account of force majeure. These two orders were consolidated for appeal to this court. We affirmed the Commission as to the details of the refund plan and reversed as to the Commission's allowance of deductions by Gulf on account of force majeure, Gulf Oil Co. v. F.E.R.C. [Gulf Oil III], 706 F.2d 444 (1983), remanding the case to the Commission.

On remand, the Commission ordered Gulf on June 6, 1986 to pay more than $18 million -- representing amounts Gulf had sought to avoid on force majeure grounds -- into the escrow account. The Commission further ordered Gulf to pay more than $37 million of interest to Texas Eastern. The June 6 order did not indicate the manner in which Texas Eastern was expected to dispose of the funds. Gulf Oil Corp., No. CI64-26-014, Order Revising Refund Plan in Part, Directing Payment of Refunds, and Scheduling Conference (June 6, 1986).

On June 24, 1986, Texas Eastern requested clarification from the Commission regarding the disposition of the $37 million it received from Gulf pursuant to the Commission's June 6 order. Texas Eastern requested the Commission to order it to "pay" certain designated amounts to its customers according to "allocation factors" previously approved by the Commission. App. at 12. Texas Eastern further requested the Commission to release it from any liability regarding the funds to either Chevron or Texas Eastern's customers. Urban League, as an intervenor in the proceeding, asked that the Commission direct four of the intended recipients of the $37 million being held by Texas Eastern to flow through the amounts apportioned to their customers. Among these intended recipients was Columbia, which in turn supplies utilities, or the distributors of utilities, that serve consumers represented by Urban League.

On July 16, the Commission approved Texas Eastern's disposition plan, refused to hold Texas Eastern harmless with regard to the funds, and denied Urban League's request. Regarding the latter, the Commission noted:

Urban League has not shown that it is reasonable or necessary for the Commission to address the manner in which the pipeline recipients of these funds should, in turn, make distributions. As a general matter, pipelines would flow through these refunds to their customers consistent with the PGA [purchased gas adjustment]*fn4 and/or refund provisions of their respective FERC gas tariffs. The Commission accordingly declines to adopt Urban League's suggestion.

Gulf Oil Corp., No. CI64-26-014, Order Granting Clarification (July 16, 1986); App. at 19.

Urban League petitioned for rehearing. It was particularly concerned that Columbia would interpret its 1985 Commission-approved settlement as entitling it to retain rather than flow through the Gulf interest funds.

Columbia's 1985 settlement addressed Columbia's rate and rate-related FERC filings between 1981 and 1985. Columbia Gas Transmission Corp., 31 F.E.R.C. para. 61,307 at 61674 (June 14, 1985) Although Urban League was absent at the proceedings culminating in the 1985 settlement, "virtually all," 31 FERC at 61,678, of Columbia's customers were parties, including intervenor Baltimore Gas & Electric Co., as well as many state consumer groups and state regulatory agencies.

The settlement contained certain provisions favorable to Columbia's customers and other provisions favorable to Columbia. As to the former, the settlement reduced Columbia's commodity rate by 12 percent and offered a two-year moratorium on rate increases. The Commission valued the savings to Columbia's customers from this provision to be over $628 million. In Article IV of the settlement, Columbia also agreed to forego entirely the future recovery of certain costs -- up to $600 million -- attributable to the 1985-87 settlement period.

As to provisions more favorable to Columbia, Article II provided for Columbia's retention of certain refunds:

Any commodity refunds received by Columbia applicable to periods prior to April 1, 1985, shall be retained by Columbia. . . . In addition, any commodity refunds received by Columbia applicable to the Settlement Period [April ...

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