UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


NO MUNI DISTR GRP

v.

FERC


97-1457a

D.C. Cir. 1999


*	*	*


Rogers, Circuit Judge: The Federal Energy Regulatory  Commission sought
in five orders to ensure adequate supplies  of gas at Carlton,
Minnesota on the Northern Natural Gas  Pipeline. A settlement
agreement, as modified by the Com- mission, requires that some
shippers supply gas at Carlton  and other shippers pay a surcharge to
reimburse the supply- ing shippers. Petitioner Northern Natural Gas
("Northern")  contends that it should be permitted to discount the
Carlton  surcharge in its contracts with customers as it sees fit. 
Northern maintains that the Commission's decision to limit its 
ability to discount the surcharge is not well-reasoned, upsets  the
delicate balance of the settlement agreement, erroneously  relies on
an inapplicable standard that governs only transition  costs, ignores
existing policy on discounting of non-transition  costs, and
ultimately forces Northern to bear the cost of the  surcharge despite


that Northern should act only as a conduit for distributing  costs
among shippers. Petitioner Northern Municipal Dis- tributors Group
("NMDG") challenges the denial of an ex- emption from the surcharge,
contending that the Order 636  "Global Settlement" expressly exempts
small customers like  NMDG from all pro rata receipt point allocations
occasioned  by Order 636 restructuring, and that the Commission has 
established a policy of exemption for small customers. Be- cause we
conclude that the Commission's orders address an  operational problem
in a well-reasoned manner and NMDG's  arguments for exemption fail, we
deny the petitions.


I.


After Northern unbundled its transportation and sales  services
pursuant to the restructuring requirements of Order  636,1 Northern
and its customers had to decide how to  allocate receipt point
capacity among the customers. Certain  receipt points were more
popular than others because gas  supplies were cheaper; thus demand at
those points was  higher. Additionally, certain receipt points require
input in  order to ensure that gas can be delivered throughout the 
system serviced by a pipe. Along the Northern pipeline a  problem
arose when the Farmington, Minnesota receipt point  was
over-subscribed, causing a bottleneck, while a point one  hundred
miles north at Carlton, Minnesota was under- subscribed. The concerned
parties contemplated two solu- tions: build facilities to relieve the




__________

n 1 See Order No. 636, Pipeline Service Obligations and Revisions  to
Regulations Governing Self-Implementing Transportation Un- der Part
284 of the Commission's Regulations, and Regulation of  Natural Gas
Pipeline After Partial Wellhead Decontrol, III FERC  Stats. & Regs.
Preambles p 30,939 (1992), on reh'g, Order No.  636-A, III FERC Stats.
& Regs. Preambles p 30,950 (1992), on  reh'g, Order No. 636-B, 61 FERC
p 61,272 (1992), reh'g denied, 62  FERC p 61,007 (1993), aff'd in part
and remanded in part, United  Distribution Cos. v. FERC, 88 F.3d 1105
(D.C. Cir. 1996), on  remand, Order No. 636-C, 78 FERC p 61,186
(1997), on reh'g,  Order No. 636-D, 82 FERC p 61,210 (1998).


or increase inputs at Carlton to ensure sufficient supply at  the more
northern point.


The parties entered into interim agreements but eventually  came to the
Commission for a final solution. Northern  proposed four alternatives,
two of which involved some or all  shippers, excluding small
customers, being required to source  at Carlton and two of which
involved building facilities. In  the first order under review, the
Commission, noting that  "this is a highly contentious issue,"
resolved that sourcing at  Carlton rather than building facilities
would be the preferred  solution. 76 FERC p 61,180, at 62,000 (1996).
The Commis- sion observed that the parties seemed to agree that the 
Carlton Resolution, "whereby sufficient volumes would be  available to
meet Northern's contractual delivery obligations  north of Farmington,
is less expensive, and, thus, preferable  to Northern building
additional facilities to relieve the Farm- ington bottleneck." Id.
Accordingly, shippers would be re- quired or encouraged to source
their gas at Carlton. Because  the required sourcing at Carlton was
"in lieu of building  additional facilities," the costs of solving
this systemic prob- lem would be borne by all shippers. Id. at 62,001.
Because  it was inefficient to require all shippers to source at
Carlton,  especially if they already had receipt and delivery points 


The most efficient solution is to require only the shippers  most
directly affected, those ... downstream [i.e. north]  of Farmington,
to source gas at Carlton on a pro rata  basis. These shippers should
then be compensated by  the other shippers on Northern's system for
the addition- al costs they incur because they must buy the higher 
priced gas for delivery at Carlton.


Id. Regarding the small customers, the Commission noted  that although
these entities could encounter operational prob- lems in sourcing
small quantities, they had the options of  assigning their sourcing
obligations to other shippers and/or  amalgamating their
responsibilities into larger buying blocks.  In any event, the
Commission saw no reason why small 


shippers "or any other shipper should not shoulder its pro- portionate
share of the costs of [the Carlton problem]." Id.


In the second order, the Commission addressed the various  exemptions
sought by parties in response to Northern's filing  of proposed tariff
sheets and a draft of a Carlton Resolution  that was not the product
of an agreement between the  affected parties. See 77 FERC p 61,022
(1996).2 Rejecting a  small customer exemption, the Commission
explained that the  Global Settlement on restructuring under Order
636, see 64  FERC p 61,073 (1993), determined that certain shippers 
would not have a pro rata allocation at every receipt point  because
"small customers [should] not be allocated an unusa- ble sliver of
capacity at many receipt points." 77 FERC at  61,081. As a result,
small customers, unlike other shippers,  could have all of their
capacity at one point. However, the  Commission distinguished between
the broad policy of alloca- tion associated with restructuring and the
particular problem  of system integrity at Carlton. The Carlton-type
problem  could arise only in a certain part of the year at one
particular  receipt point. Under "these limited circumstances," the
Com- mission concluded that small customers would not be "unduly 
burdened in assisting to ensure that their own services con- tinue to


As to Northern's customers' concerns about discounts and  the effect of
the Carlton surcharge, the Commission decided  that Northern could
collect the surcharge from a shipper  unless specifically prohibited
by Northern's contract with that  customer.3 See id. at 61,083.
Further, if Northern did 




__________

n 2 In the second order, the Commission also noted that receipt  point
capacity allocation was not the only solution--construction  remained
a viable alternative--except that the Commission could  not order
Northern to undertake construction under these circum- stances;
therefore, a construction solution would have to be negoti- ated. See
77 FERC at 61,080.


3 For example, one customer wanted to know whether Carlton  costs could
be discounted and whether other shippers or Northern 


discount its rates, it would be required to reflect discounts to  the
Carlton surcharge after base rates but before transition  costs. See
id. The Commission applied the reasoning of its  decision in Natural
Gas Pipeline Company of America, 69  FERC p 61,029 (1994) ("Natural"),
which established that  discounts would be attributed to transition
costs last.4 The  Commission thereby prioritized which costs would be
deemed  recovered and increased the likelihood that shippers forced to
 source at Carlton would be reimbursed.


The Commission rejected Northern's "deviations" from the  guidelines
set forth in its previous order, concluding that  Northern did not
meet the guidelines when it decided to  require all market area
shippers--rather than only those  shippers downstream of
Farmington--to receive the neces- sary volumes at Carlton. 77 FERC at
61,084-85. This  arrangement was contrary to the requirement that the
fewest  number of shippers and only those nearest Carlton would 
receive gas there, see id. at 61,085, because it would enable 
Northern to avoid its duty to compensate one class of ship- pers for
the cost of sourcing at Carlton. The Commission  also rejected
Northern's attempt to exempt various classes of 




__________

n itself would be required to absorb any discounts. Another shipper  on
Northern's pipeline, Terra, argued that it was exempt from the 
Carlton surcharge because it negotiated discounts with Northern. 
Because Terra was exempt from this and other surcharges under  its
contract, the Commission would have had to abrogate the  contract in
order to assess the charges against Terra--an act that  would require
finding that the contract rate was so low as not to be  in the public
interest. See 77 FERC at 61,083. The Commission  found that Terra's
contract did not prevent it from being required  to source volumes at
Carlton, but did seem to prohibit Terra from  being assessed costs
associated with reimbursing other shippers.


4 In other words, Terra would pay its discounted rate; but under  the
policy in Natural, that discount would be reflected first in base 
rates, then in the Carlton surcharge, and last in any transition 


customers as undercutting the goal that the Carlton Resolu- tion have
the same effect as new construction. See id. The  Commission likewise
was unpersuaded by Northern's com- plaints that a reimbursement system
was unworkable because  it was too difficult to determine incremental
cost and the  appropriate timing of the reimbursement. See id. at
61,086.


Thereafter, Northern and its customers, save one, reached  a settlement
supported to varying degrees by the parties  affected. The proposed
settlement would obligate certain  market area customers to source at
Carlton based on their  current entitlement. These shippers could
source or partici- pate in a bidding process whereby they would opt
out of their  obligation to source; a "Carlton Account" would settle
the  costs of sourcing amongst these shippers. Shippers not  obligated
to source at Carlton would pay a surcharge of $0.04  that Northern
would recover only where it could contractually  collect the
surcharge; the amount collected would be reim- bursed on a pro rata
basis to the shippers who sourced at  Carlton. Small customers had the
option to buy out of their  sourcing obligations at a rate of $.60
multiplied by their daily  sourcing obligation and a specified number


Numerous parties filed comments to the settlement. Min- negasco, the
largest resale customer on Northern's system,  urged the Commission to
reject the settlement for four  reasons: first, the fixed surcharge
was "not the equivalent of  the true-up reimbursement mechanism
ordered by the Com- mission;" second, the settlement would "allow
non-sourcing  shippers to escape all financial responsibility for the
sur- charge;" third, the implausibility of reimbursement was 
heightened by Northern's insertion of a clause that permitted  it to
"contract away" its ability to collect the surcharge; and  fourth,
both the small customer buyout and the surcharge for  non-sourcing
shippers would prove inadequate to cover the  actual cost to the
sourcers at Carlton. Minnegasco suggested  that rather than
predetermining that shippers north of Farm- ington would source at


Commission should permit shippers south of Farmington to  choose
between sourcing or paying the surcharge. Northern  Illinois Gas,
another shipper on Northern's pipeline, also  expressed concern that
Northern might be able to "discount  away" collections from
non-sourcing shippers, but supported  the compromise over a solution
imposed by the Commission,  so long as the Commission clarified that
the discounting issue  could be addressed in the next general rate
case. NMDG  maintained that small customers were "exempt from any 
Carlton receipt point allocation, reallocation, or obligation," 
citing the Global Settlement concerning Order 636 restructur- ing,
which gave these customers the "right to choose and  utilize a single
primary receipt point on a permanent basis,"  and established that for
purposes of allocating receipt point  capacity, their receipt point
requests would be honored in full  and other converting sales
customers would be allocated  capacity on a pro rata basis.


In the third order, the Commission approved the settle- ment with one
modification to the surcharge discounting  provision. See 77 FERC p
61,201 (1996). Reiterating that  Natural applied, and thus the Carlton
surcharges must be  discounted after the base rate, see id. at 61,786,
the Commis- sion reaffirmed that Northern was to be merely a conduit
of  the Carlton costs between shippers, and therefore, it would  not
be required to bear any of the Carlton costs unless it  chose to do so
by offering discounts, see id. at 61,787.  Recognizing that Northern
would bear some cost if it dis- counted significantly, the Commission
applied Natural in an  effort to "discourage Northern from shifting
costs among the  parties to its settlement after the settlement has
taken ef- fect."5 Id. In rejecting the small customer exemption, the




__________

n 5 The Commission noted that while the current proceedings were 
pending, Northern had entered into a contract with Terra that 
exempted Terra from any transition or Carlton costs. The Com- mission
found that Northern had no authority to exempt Terra from  the Carlton
costs and therefore could not reflect Terra's allocated  costs in its
computation of the surcharge to be paid by other  shippers. The
Commission thereby rejected Northern's attempt to  "passthrough" the
costs to other shippers. 77 FERC at 61,787.


Commission observed that the Global Settlement could not be  used to
apply in every situation, and concluded that "the  settlement reaches
a suitable middle ground between the  forces that would require small
customers to share the same  burdens as all other Northern shippers,
and those that would  call for small customers to enjoy the benefits
of a Carlton  resolution without contributing at all." Id. at


Northern objected, noting that the parties to the settle- ment had
agreed that Natural's application to the Carlton  surcharge would not
be addressed until Northern's next rate  case, "an essential element
of the bargain for Northern," and  that the settlement incorporated
each party's understanding  that the sourcing shippers would only
recover what Northern  could collect and no more.6 Therefore, in
Northern's view,  "there is no 'cost' to shift among the parties," and
further, the  Commission's decision would cause Northern to pay some
of  the costs of solving the Carlton problem, a result the Com-
mission claimed it did not desire. If the Commission refused  to
reinstate the surcharge policy from the settlement, North- ern
requested that the Commission either clarify that Natu- ral's
discounting rule would apply only prospectively, or  design a
compensation mechanism that would ensure that  Northern would bear
none of the costs, for example by  setting a charge to be collected


In the fourth order, the Commission abandoned application  of Natural,7
but repeated that its basic goal was "to ensure  that the Carlton
costs are shared fairly among all of North- ern's shippers." 79 FERC p
61,348, at 62,488 (1997). North-




__________

n 6 NMDG also objected, but its arguments were repetitive or  unrelated
to the issues in the instant appeal.


7 The Commission concluded that because Natural applies to  "transition
costs ... collected through a surcharge mechanism with  a true-up
procedure to ensure recovery of the costs" and because  there is no
true-up or recalculation of costs under the surcharge  here, it had
"erred in stating that it was applying the Natural  policy." 79 FERC p
61,348, at 62,488 (1997).


ern's plan to reimburse sourcing shippers only insofar as it 
collected the surcharge from other shippers remained unac- ceptable.
While discounts permit pipelines to increase their  "throughput," and
increased throughput is generally encour- aged, "Northern had
increased its throughput by allowing a  shipper to escape paying its
portion of the Carlton costs at  the expense of shippers like
Minnegasco that were paying the  Carlton costs." Id. The Commission
was concerned that the  shippers obligated to source at Carlton could
not be parties to  Northern's agreements to discount other shippers'
rates and  thus had no "protect[ion] from having their reimbursement 
amounts given away by Northern." Id. The Commission  therefore
continued to require that any discounts would be  deemed to come from
Northern's base rates before the  Carlton surcharge. See id. at
62,489. In the Commission's  view, Northern would act as a conduit
that would not bear the  Carlton surcharge costs unless it "deeply
discount[ed] its  rates," and then it would be "only reasonable" for
Northern,  rather than other shippers, to bear the costs of its


In response, Northern argued that the Commission could  not maintain
its stance on discounting in view of its admission  that Natural was
inapplicable and its discounting policy in  other contexts, and that
the Commission should approve the  settlement agreement. In the fifth
order, the Commission  denied rehearing. See 80 FERC p 61,148 (1997).
These  petitions for review of the five orders followed.


II.


Two statutes control our review of the Commission's or- ders. First,
under the Administrative Procedure Act, the  court must hold unlawful
and set aside agency actions, find- ings, and conclusions that are
"arbitrary, capricious, an abuse  of discretion, or otherwise not in
accordance with law." 5  U.S.C. s 706(2) (1994). Upon examining the
record the court  inquires whether it can discern a rational
connection between  the facts found and the choice made by the


whether the Commission has considered all the relevant  factors and
provided an adequate explanation to support its  decision. See Motor
Vehicle Mfrs. Ass'n v. State Farm Mut.  Auto. Ins. Co., 463 U.S. 29,
42-43 (1983); Greater Boston  Television Corp. v. FCC, 444 F.2d 841,
850-53 (D.C. Cir.  1970). The court can rely only on the reasons
supplied by the  agency to justify its action. See State Farm, 463
U.S. at 43;  SEC v. Chenery Corp., 332 U.S. 194, 196-97 (1947).


Second, under the Natural Gas Act, the Commission's  findings of fact
are "conclusive" on appellate review if "sup- ported by substantial
evidence." 15 U.S.C. s 717r(b) (1994).  Congress granted the
Commission authority to determine  just and reasonable policies and
practices affecting rates,  charges, or classifications in connection
with the transporta- tion or sale of natural gas under Section 5 of
the Act. See id.  s 717d. Thus, "judicial scrutiny under the Natural
Gas Act  is limited to assuring that the Commission's decisionmaking
is  reasoned, principled, and based upon the record." Pennsyl- vania
Office of Consumer Advocate v. FERC, 131 F.3d 182,  185 (D.C. Cir.
1997), corrected by 134 F.3d 422 (D.C. Cir.  1998) (quotation marks
and alterations omitted); see also  Koch Gateway Pipeline Co. v. FERC,
136 F.3d 810, 814 (D.C.  Cir. 1998).


A.


Northern Natural Gas: Discounting. Northern contends  that the
Commission's discounting policy is not the product of  reasoned
decision making for two reasons. First, the Com- mission erroneously
applied its decision in Natural governing  transition costs and failed
to follow its precedent and previous  practices for non-transition
costs. Second, the Commission's  policy does not achieve the purported
goals of the surcharge:  to guarantee that shippers pay their fair
share, to ensure that  shippers sourcing at Carlton are fully
reimbursed, and to  make Northern a mere conduit for the surcharges.
As a  related matter, Northern contends that the Commission did  not
give adequate consideration to the settlement agreement.


Northern maintains that precedent and practice permit  Northern to
elect when and how to discount non-transition  costs.8 It first
contends that the Commission's discounting  decision deserves no
deference by the court because the  Commission erroneously applied
Natural. The court has  reasoned that the Commission's reliance on a
"concededly  mistaken construction" of one of its precedents, "removes
the  usual presumption of deference that attends administrative 
decisions made in the exercise of the agency's delegated  authority."
Tennessee Gas Transmission Co. v. FERC, 789  F.2d 61, 62-63 (D.C. Cir.
1986). But there would be no point  in penalizing the Commission for
correcting its mistakes,  much less in finding disparate treatment of
similar situations  to be arbitrary and capricious, so long as the
Commission  provides a reasoned foundation for its current decision.
See  Williams Natural Gas Co. v. FERC, 3 F.3d 1544, 1550-54  (D.C.
Cir. 1993). Thus, we will not deny deference to the  Commission's
discounting decision on the sole basis that it  applied a prior
precedent it later found to be inapplicable.  The Commission has
consistently articulated the principle  that all shippers should share
in the Carlton costs. Simply  because the Commission recognized that
Natural did not  apply did not mean that the only reasoned decision
that  remained was to implement Northern's discounting plan. A 
decision to prevent Northern from shifting the fair distribu- tion of
costs among shippers could be well-reasoned even  without the


Northern next contends that the Commission's decision in  Panhandle
Eastern Pipeline Co., 75 FERC p 61,004 at  61,012-13 (1996),
established a policy that governs discount-




__________

n 8 Northern also points out that the Commission permitted parties  to
agree in previous settlements to a method for discounting  transition
costs that did not follow Natural, and that the proposed  permanent
resolution merely continued previous practices regard- ing
discounting. However, there was no agreement on the dis- counting
issue in the instant case because Minnegasco has contested  Northern's
discounting policy from the outset. The Commission  was not required
to consider prior agreements as a factor in this  "contentious"


ing of all non-transition costs from which the Commission 
inexplicably deviated. In Panhandle, which discussed miscel- laneous
costs, the Commission explained that the Natural  policy established a
priority of discounting for transition costs  and clarified that
non-transition reservation charges would be  attributed as agreed by
the parties. Discounts could be  attributed either before or after
base rates. But the Com- mission persuasively maintains that Panhandle
did not create  a policy governing all non-transition costs or
contemplate the  unique costs stemming from the Carlton operational
problem.  In the Commission's view the Carlton surcharge discounting 
policy is a new policy for a new situation.


Even if we were to conclude that the Commission could  have considered
treating the Carlton surcharge like non- transition costs, it does not
follow that it was required to do  so. That Natural and Panhandle
distinguished between  transition costs and non-transition costs does
not establish a  policy that all non-transition costs are to be
treated the same.  Given the systemic nature of the Carlton problem
and the  legitimate goal that all shippers share in the cost, the Com-
mission was not required under its prior orders to allow  Northern to
discount the Carlton surcharge in any way it  chose. The departure
cases on which Northern relies, see,  e.g., ANR Pipeline Co. v. FERC,
71 F.3d 897, 901 (D.C. Cir.  1995), are therefore inapposite.


Northern also contends that the structure and amount of  the surcharge
fail to advance the Commission's purported  purposes. First, under the
current policy, Northern main- tains, it will inevitably bear some of
the Carlton costs, con- trary to the Commission's view that Northern
should be  "merely a conduit" for the Carlton surcharges. 77 FERC at 
61,787. In Northern's view, it was the Commission's goal to  have
Northern bear some of the costs; in a later, unrelated  proceeding the
Commission stated that Northern should bear  the risk for any
discounting of Carlton costs because North- ern controlled the
decision not to build new facilities. See  Northern Natural Gas Co.,
81 FERC p 61,411, at 62,864  (1997). Thus, in Northern's view, the
Commission's decision 


is flawed because it either imposes costs contrary to the 
Commission's stated goals or imposes costs as the Commis- sion
intended, but did not inform Northern during the Carl- ton


Second, it is unnecessary for Northern to act as a "conduit"  for the
surcharge because the Carlton costs could be recov- ered from the
responsible shippers directly. Northern con- tends that the Commission
has failed to design an appropriate  mechanism that would successfully
reimburse shippers for  their added cost of sourcing at Carlton. In
addition, North- ern maintains that the $0.04 surcharge, first created
in the  negotiated settlement, was arbitrarily adopted by the Com-
mission without support for the proposition that the sur- charge would
allow full reimbursement. Northern also main- tains that the
Commission's view that the discounting policy  will result in each
shipper paying its share is a fiction; if a  shipper has a discounted
rate, it will pay that same rate no  matter what the surcharge and
Northern will bear that cost.


Although Northern raises legitimate concerns, it does not  follow that
the Commission's determination was arbitrary or  capricious and not
the product of reasoned decision making.  The Commission was faced
with the "highly contentious"  issue of how customers would bear the
Carlton costs. The  parties' settlement was contested by the largest
sourcing  customer at Carlton. Under the circumstances, the Commis-
sion could decide the merits of the contested settlement issue,  and
be affirmed so long as the record contains substantial  evidence upon
which to base a reasoned decision. See 18  C.F.R. s 385.602(h)(1). The
Commission took note of North- ern's concerns, pointing out that
Northern listed only two  contracts, which did not represent much of
its transportation  volume, where it offered Carlton discounts, and
that North- ern has the opportunity in its next rate case to make a 
showing of the Carlton costs it has borne. The record  therefore
supports the Commission's reasoned determination  that the settlement,
combined with a restricted discounting  policy, will best serve the


B.


Northern Municipal Distributors Group: Small Custom- er Exemption. NMDG
contends that small customers were  exempted from any and all receipt
point capacity allocations  by express agreement, and alternatively,
that the Commission  has established a policy regarding small
customers from  which it cannot deviate.


In the Global Settlement, the unbundling of services pursu- ant to
order 636 restructuring required allocation of receipt  points.
Receipt point capacity would be allotted first to  converting sales
customers who would submit nominations for  capacity. If the
nominations exceeded available capacity,  then Northern would first
allocate to small customers and  then allocate on a pro rata basis to
all other converting sales  customers. Under the settlement, small
customers were  exempt from the rules generally applicable to other


NMDG interprets the Global Settlement to govern all  receipt point
capacity allocation issues that arise in relation to  restructuring.
Under NMDG's theory, the receipt point allo- cations at Carlton are
governed by the same provision of the  Global Settlement. The
Commission disagreed, finding that  no prior agreement entitled small
customers to an exemption  from the Carlton receipt point allocation.
Once the Commis- sion has approved a settlement, the court will defer
to the  Commission's interpretation of it, see Western Resources, Inc.
 v. FERC, 9 F.3d 1568, 1576-77 (D.C. Cir. 1993); National  Fuel Gas
Supply Corp. v. FERC, 811 F.2d 1563, 1568-72  (D.C. Cir. 1987); and we
find no reason not to do so here.


The Commission adequately supports its interpretation of  the Global
Settlement. If the Global Settlement covered any  and all receipt
point capacity allocations related to or arising  out of Order 636
restructuring, it would bind in perpetuity all  parties with respect
to problems and situations unknown and  unforeseen when the agreement
was created. As the Com- mission explained, the Carlton problem is
different than the 


problem that gave rise to the Global Settlement. The Global 
Settlement simply allowed small customers to receive all of  their
demand at a single point even if that receipt point was 
over-subscribed; it did not address a systemic problem of  capacity at
an under-subscribed point. The Commission thus  could reasonably
conclude that the Carlton problem falls  outside the scope of the
Global Settlement as a systemic  problem in whose solution all


As an alternative to an express agreement, NMDG relies  on the interim
Carlton Resolution and other orders to support  its contention that
the Commission has established a policy of  exemption for small
customers. The interim Carlton Resolu- tion exempts small customers
from allocation of receipt point  capacity at Carlton. See Northern
Natural Gas Co., 65  FERC p 61,126 (1993).9 According to NMDG, because
small  customers were already exempt under the Global Settlement,  the
"non-exempt" customers were left to allocate the receipt  points on a
pro rata basis. However, the Resolution was by  its terms expressly
interim, and the parties' 1993 settlement  stated explicitly that the
parties did not intend to establish  any precedent for future Carlton
operating responsibility. In  accepting the interim terms, the
Commission made clear that  the terms were expected to be in effect
for a limited time and  that it was not approving the resolution with
Northern's sales  customers, nor its terms or conditions. See 65 FERC


Resolving the Carlton problem, as the Commission ex- plained, is
distinct from receipt point capacity allocations as 




__________

n 9 In another order, the Commission explained why small custom- ers
were not subject to the same pro rata allocation as other 


Pro rata allocation would result in capacity entitlements in 
individual segments too small and too burdensome to manage  for these
[small] customers. Exemption from pro rata alloca- tion for these
customers is appropriate given the traditional  special treatment
afforded such customers and small impact  imposed on the rest of the


ANR Pipeline Co., 64 FERC p 61,140, at 62,005-06 (1993).


part of restructuring generally. The problem arises in limit- ed
circumstances, and small customers have the option to pool  their
allotted capacity, assign their obligations to other ship- pers, or
buy out of their obligation altogether. The Commis- sion could
reasonably conclude that the settlement fairly and  appropriately
balanced the special interests that small cus- tomers have with the
responsibilities they should bear. 


Accordingly, we deny the petitions for review.