Commissioner James Danly Statement
July 18, 2022
Docket No. RP21-1187-000
I dissent from today’s order[1] finding Eastern’s existing tariff provisions covering reservation charge credits to be unjust and unreasonable. This decision is not based upon substantial evidence, fails to articulate a rational connection between the facts found and the choice made, and is arbitrary and capricious. Put simply, it violates the Natural Gas Act (NGA) and the Administrative Procedure Act (APA).
Before delving into the merits, I must first acknowledge that I have voted for several orders involving the question of the Commission’s reservation charge credit policy.[2] Over time, however, my apprehension over this policy has grown. In the underlying October 2021 Order directing that Eastern show cause, I expressed misgivings regarding whether the Commission could meet its statutory burden under NGA section 5 and requested that parties comment on a number of questions I posed.[3] I very much appreciate the responses we received to those questions.[4]
The majority’s determination that the tariff provision is unjust and unreasonable is itself based on two separate findings: first, that the tariff requires shippers to nominate during total outages, and second, that the tariff could allow credits to be calculated based on a time period during which a previous outage occurred. Neither determination, either alone or together, ultimately support the majority finding that the existing tariff provision as unjust and unreasonable.
The majority first finds that Eastern’s tariff is unjust and unreasonable because it requires nominations during a “total outage on a given segment” because in such circumstances “it is not possible for a pipeline to . . . provide reasonable assurance that it can meet its firm obligations on that segment.”[5] The majority states that reasonable assurance is required by the Commission’s policy in Transcontinental Gas Pipe Line Co., LLC (Transco), which provides that shippers “should be permitted to focus on obtaining alternate supply routes, and not compelled to submit nominations that they do not reasonably expect the pipeline to honor.”[6] This finding is arbitrary and capricious for several reasons.
First, I am doubtful that Eastern’s tariff, which requires shippers to nominate when there is a “total outage on a given segment,” is unjust and unreasonable. How often is Eastern wholly unable to provide requested primary service? The record shows that such occurrences are rare indeed. Eastern states “[n]o allegations of [increasing service disruptions and force majeure declarations] have been made about [Eastern’s] service, which remains very reliable with very little cause for reservation charge crediting.”[7] It explains that as a reticulated system gas “can flow in myriad ways and deliveries frequently are made by displacement.”[8] Eastern also states that it “did not declare any force majeure events on its system in 2019, 2020, or 2021”[9] and that during non-force majeure events “requested primary service actually could not be provided—with respect to only minor nominated transportation quantities on a total of 3 days over the 3 years 2019-2021.”[10] I presume that those three days involved partial outages; had they involved total outages, I would expect that reservation charge credits would have been due for more than “minor nominated transportation quantities.”
Even if there are circumstances where Eastern is wholly unable to provide primary service, does that mean Eastern’s tariff is now unjust and unreasonable? True, it may be more burdensome for a shipper to submit nominations to be eligible for credits during total outages while they scurry to identify and nominate alternative service. But how much burden is actually incurred? How much more does it cost a shipper to nominate service during a total outage? The majority does not say. And if it is too burdensome to nominate during total outages, is it presumptively just and reasonable to require shippers to nominate during all partial outages[11] (which would, by the way, include occasions when 99.9% of the capacity is unavailable)? [12] Again, the majority does not say.
Second, the majority’s declaration that “this policy applies regardless of whether an outage is force majeure or non-force majeure”[13] is inconsistent with the very case that the majority states that it adheres to—Transco. In that case, the Commission found that it was unjust and unreasonable to require shippers to nominate to receive partial credits during force majeure outages and explicitly contrasted such circumstance with that of receiving full credits during non-force majeure outages for which the Commission had found nominations were not required.[14] The Commission followed that approach in Texas Eastern[15] and in this very proceeding.[16] While the Commission may change course, it is obligated to “acknowledge that it is in fact changing its position and ‘show that there are good reasons for the new policy.’”[17] The majority fails to do so.
Third, the majority fails to engage with an argument raised—a bedrock requirement of the APA.[18] As the majority acknowledges,[19] Eastern points out that while Transco stated that pipelines could not require nominations, later in that same proceeding, “the Commission accepted reservation charge crediting language that requires nominations in the event of pre-announced outages.”[20] It appears that the Commission’s application of its policy might be so inconsistent as to render the decision arbitrary and capricious. Perhaps there is a nuance of which I am unaware. But it is the majority’s obligation to explain itself, which it declines to do.
The majority’s second finding—that Eastern’s tariff is unjust and unreasonable because it could result in reservation charge credits being calculated based on usage levels that have been constrained by previous outages—fares no better. How can a tariff provision be unjust and unreasonable for not contemplating an event that the Commission considers “unlikely”[21] and “rare?”[22] An event that is so unusual that Eastern has described it as having “never arisen, to the best of [its] knowledge, during the more than eight years that the tariff provision has been in effect,”[23] and which staff has informed me they have no evidence of having ever occurred on Eastern’s system? Of course, such an occurrence may be “possible,”[24] but many, many things are possible, including those that the Commission has dismissed both in this case[25] and in analogous circumstances.[26]
The majority argues that the likelihood that such event will occur is irrelevant. Instead, the majority states that “[b]ecause the NGA limits our ability to grant retroactive relief, it is only prudent for the Commission to ensure that tariffs are just and reasonable in advance” so as to prevent the “harm that would befall an innocent party if an outage did occur.”[27]
In other words, better safe than sorry. And while I appreciate my colleagues’ conservatism, proverbs cannot replace the “relevant evidence as a reasonable mind might accept as adequate to support [the] conclusion”[28] required under the APA in order to find Eastern’s tariff is unjust and unreasonable. Nor is the majority’s argument logical. How can a tariff be unjust and unreasonable because the statute operates according to the manner in which it was written and does not authorize a remedy that Congress has only granted in the rarest of circumstances?[29] And could this better-safe-than-sorry reasoning not apply to a whole host of tariff provisions under both the NGA and FPA? Read for all its worth, a litigant aggrieved by virtually any tariff provision could simply plead, “[XYZ tariff provision] is unjust and unreasonable because one day [insert unlikely event] could occur and Congress has not authorized us to direct retroactive relief,” and—voilà–the Commission has met its burden under step one of section 5 and is free to establish a replacement rate. Consider the breadth of the implications. I could imagine that transmission owners and operators might wish to take note: this case could be read to support the proposition that there are no longer unlikely scenarios for transmission planning.
The majority also appears to find its decision acceptable as revising the tariff “would impose almost no cost on the pipeline.”[30] It might cost a pipeline almost nothing to file a compliance filing. But that fact ignores the cost incurred to respond to the Commission’s show cause order and to the shippers’ arguments all in order to assist the Commission in addressing a problem that does not exist. More importantly, the cost of a compliance filing has no relevance to the actual question: is it unjust and unreasonable for Eastern’s tariff to not contemplate such an unlikely scenario?[31]
The Commission’s obligations under the NGA and APA are simple. It must base its decisions on substantial evidence and articulate a rational connection between the facts found and choice made.[32] Conclusions based on conjecture alone do not suffice.[33] The majority must either provide evidence that Eastern’s reservation charge credit provisions are actually a problem[34] or terminate its proceeding. I would have preferred the latter. Simply because the Commission directed Eastern to show cause does not mean the majority must now find Eastern’s tariff unjust and unreasonable.
For these reasons, I respectfully dissent.
[1] E. Gas Transmission & Storage, Inc., 180 FERC ¶ 61,014 (2022) (Order on Show Cause).
[2] See Tex. E. Transmission, LP, 179 FERC ¶ 61,201 (2022) (Danly, Comm’r, concurring); Tex. E. Transmission, LP, 178 FERC ¶ 61,135 (2022) (Danly, Comm’r, concurring); Columbia Gulf Transmission, LLC, 177 FERC ¶ 61,145, at PP 22-23 (2021); E. Gas Transmission & Storage, Inc., 177 FERC ¶ 61,064 (2021) (Danly, Comm’r, concurring) (October 2021 Order); Tex. E. Transmission, LP, 176 FERC ¶ 61,138, at PP 28-32 (2021); Transcontinental Gas Pipe Line Co., LLC, 175 FERC ¶ 61,085, at P 19 (2021) (Transco); Rover Pipeline LLC, 172 FERC ¶ 61,103, at P 9 (2020)
[3] See October 2021 Order, 177 FERC ¶ 61,064 (Danly, Comm’r, concurring).
[4] See National Grid Gas Delivery Companies January 18, 2022 Comments at 16-19; Eastern November 29, 2021 Response to Order Directing Show Cause at 8 (Eastern November 2021 Reply).
[5] Order on Show Cause, 180 FERC ¶ 61,014 at P 42 (emphasis in original).
[6] Id. P 36 (citing Transco, 175 FERC ¶ 61,085 at P 19).
[7] Eastern November 2021 Reply at 8.
[8] Eastern February 2, 2022 Reply Comments, and Motion to Leave to Answer if Needed, at 8 (Eastern February 2022 Answer).
[9] Id. at 9 (emphasis in original).
[10] Id. at 8.
[11] Order on Show Cause, 180 FERC ¶ 61,014 at P 43 (finding Eastern’s tariff not unjust and unreasonable when applied to partial outages).
[12] This is not to say that I believe we should prohibit pipelines from requiring nominations during partial outages. I recently concurred in a Texas Eastern Transmission, LP case that denied shippers’ arguments along these lines. See Tex. E. Transmission, LP, 179 FERC ¶ 61,201 (Danly, Comm’r, concurring).
[13] Order on Show Cause, 180 FERC ¶ 61,014 at PP 44, 48.
[14] See Transco, 175 FERC ¶ 61,085 at P 19 (“In its answer, Transco cites three cases in support of its claim that it may base all credits on shippers’ nominations. All of those cases, however, were discussing the Full Credits scenario, specifically in the context of a non-force majeure outage. By contrast, when the pipeline proposes less than full credits, and there is advance notice of an outage, credits for that day must be based solely on a measure of each shipper’s historical usage, and not on the shippers’ nominations.”) (citations omitted) (emphasis in original).
[15] See Tex. E. Transmission, LP, 176 FERC ¶ 61,138 at P 30 (“The Commission has found that when the pipeline proposes a method of reducing credits in the case of force majeure, and there is advance notice of an outage, credits for that day must be based solely on a measure of each shipper’s historical usage, and not on the shippers’ nominations.”) (citing Transco, 175 FERC ¶ 61,085, among other cases) (emphasis in original).
[16] See October 21 Order, 177 FERC ¶ 61,064 at P 28 (“EGTS must show how its tariff does not require shippers to nominate quantities during a force majeure event to qualify for reservation charge credits.”). The words “non-force majeure” appear nowhere in the decision.
[17] FCC v. Fox Television Stations, Inc., 567 U.S. 239, 250 (2012) (quoting FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009)).
[18] See TransCanada Power Mktg. Ltd. v. FERC, 811 F.3d 1, 12 (D.C. Cir. 2015) (“It is well established that the Commission must ‘respond meaningfully to the arguments raised before it.’”) (quoting Pub. Serv. Comm’n v. FERC, 397 F.3d 1004, 1008 (D.C. Cir. 2005)).
[19] Order on Show Cause, 180 FERC ¶ 61,014 at P 15.
[20] Id. (citing Eastern November 2021 Reply 15-16).
[21] October 2021 Order, 177 FERC ¶ 61,064 at P 26.
[22] Order on Show Cause, 180 FERC ¶ 61,014 at P 46.
[23] Eastern February 2022 Answer at 10-11.
[24] October 2021 Order, 177 FERC ¶ 61,064 at P 26.
[25] See Order on Show Cause, 180 FERC ¶ 61,014 at P 43 n.85 (“It is possible that certain extreme behavior, such as declaring a partial outage when 99.9% of the capacity is unavailable, could be unjust and unreasonable. However, in the absence of evidence, we will not presume bad faith behavior will occur.”) (emphasis added).
[26] See Trunkline Gas Co., LLC, 172 FERC ¶ 61,218, at P 11 (2020) (“We are not persuaded by Consumers’ claim that Trunkline’s proposal enables it to opportunistically call an outage in a high demand season but announce it in a low load period so as to minimize credits. We find this claim speculative as Consumers has provided no evidence that Trunkline plans to take such action.”) (citations omitted) (emphasis added). We have also dismissed speculative claims in Federal Power Act (FPA) proceedings. See, e.g., PJM Interconnection, L.L.C., 177 FERC ¶ 61,209, at P 30 (2021) (“Here PJM does not provide support for concluding that its hypothetical situation has or is likely to occur with sufficient frequency that it renders PJM’s currently effective rules unjust and unreasonable.”); Midcontinent Indep. Syst. Operator, Inc., 165 FERC ¶ 61,067, at P 120 (2018) (“Although there is no certainty that HUCs will be fully funded and thus there is a chance that LSEs will not be made whole, we note that MISO reviewed past Auctions and determined that this scenario is unlikely. We agree with MISO . . . We find this MISO proposal to be a just and reasonable approach to providing affected LSEs a hedge against price separation directly caused by changes to MISO’s resource adequacy construct.”) (citation omitted). “It is, of course, well settled that the comparable provisions of the Natural Gas Act and the Federal Power Act are to be construed in pari materia.” Ky. Utils. Co. v. FERC, 760 F.2d 1321, 1325 n.6 (D.C. Cir. 1985).
[27] Order on Show Cause, 180 FERC ¶ 61,014 at P 46.
[28] Butler v. Barnhart, 353 F.3d 992, 999 (D.C. Cir. 2004) (quoting Richardson v. Perales, 402 U.S. 389, 401 (1971)).
[29] While the Interstate Commerce Act allows the Commission to award damages two years prior to the filing of a complaint, 49 U.S.C. app. § 16(3), the FPA limits refunds to the date the complaint was filed to five months thereafter. 16 U.S.C. § 824e(b) (“In the case of a proceeding instituted on complaint, the refund effective date shall not be earlier than the date of the filing of such complaint nor later than 5 months after the filing of such complaint.”).
[30] Order on Show Cause, 180 FERC ¶ 61,014 at P 46 (emphasis added).
[31] These factors may be relevant to whether the replacement term is just and reasonable, but the majority does not appear to be making that argument.
[32] See Motor Vehicles Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).
[33] See Nat’l Fuel Gas Supply Corp. v. FERC, 468 F.3d 831, 843 (D.C. Cir. 2006) (“Professing that an order ameliorates a real industry problem but then citing no evidence demonstrating that there is in fact an industry problem is not reasoned decisionmaking.”); see also Ill. Com. Comm’n v. FERC, 576 F.3d 470, 476 (7th Cir. 2009) (“As FERC itself explained, ‘a claim of generalized system benefits is not enough . . . The rehearing applicants. . . . point to no evidence in the record that seeks to quantify this benefit, or even shows that such a benefit has occurred. . . . The Commission concludes that all these alleged benefits are simply too speculative and unsupported to be taken into account.’”) (quoting Transcontinental Gas Pipe Line Corp., 112 FERC ¶ 61,170, at PP 109-11 (2005)).
[34] It may be that the Commission should have set this issue for hearing along with the general NGA section 4 rate proceeding. But see E. Gas Transmission & Storage, 177 FERC ¶ 61,207 (2021) (finding, in an order on certified question from the presiding Administrative Law Judge, that the Commission did not set the reservation charge credit tariff provision for hearing).