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


PANHANDLE EA PIPE

v.

FERC


98-1048a

D.C. Cir. 1999


*	*	*


Garland, Circuit Judge: Petitioner Panhandle Eastern  Pipe Line Company
("Panhandle") transports natural gas  through its interstate pipeline
system. Motivated by an  earlier dispute over its responsibility to
build pipeline inter- connections ("interconnects") to permit access
to its system,  Panhandle filed a proposed tariff with the Federal
Energy  Regulatory Commission (FERC) intended to memorialize the 
criteria under which it would be willing to construct such 
interconnects in the future. FERC struck certain provisions  of the
proposed tariff and mandated that Panhandle adopt  modified criteria
for pipeline interconnects. See 81 F.E.R.C.  p 61,295, at 62,393-94
(1997) (denial of rehearing); 79  F.E.R.C. p 61,016, at 61,077-78
(1997). Panhandle petitions  for review of FERC's orders.


FERC objected to three provisions in Panhandle's pro- posed tariff.
Those provisions required that a party request- ing an interconnect:
1) be a "shipper"; 2) demonstrate the  existence of "market demand
commensurate with the facility  requested"; and 3) establish that
construction of the new  interconnect would not result in "adverse
economic impact to  Panhandle." 79 F.E.R.C. at 61,077. FERC directed
Panhan- dle to delete those requirements and to insert language 
stating that Panhandle would construct an interconnect for  "any party
willing to pay the reasonable costs and expenses 


of the construction and who meets the other conditions of  Panhandle's
interconnect construction policy as modified by  the Commission...."
Id.


On request for rehearing, Panhandle raised a number of  objections to
FERC's orders. In particular, it contended that  the tariff
modifications imposed by the Commission conflicted  with or changed
established FERC policy. As Panhandle  recounted, FERC's policy had
been to require a pipeline to  build interconnects on a case-by-case
basis if, but only if, the  Commission found that the pipeline had
previously built them  for similarly situated parties. See, e.g.,
Southwestern Pub.  Serv. Co. v. Red River Pipeline, 63 F.E.R.C. p
61,125, at  61,824, 61,825 (1993) (refusing to require pipeline to
construct  mid-point tap because requester was "not similarly situated
to  any other shipper on the system"), reh'g granted, 74 F.E.R.C.  p
61,133, at 61,475 (1996) (requiring construction after reques- ter met
similarly situated standard); Southwestern Glass Co.  v. Arkla Energy
Resources, 62 F.E.R.C. p 61,089, at 61,648  (1993) (refusing to find
unduly discriminatory a pipeline's  refusal to construct bypass
delivery tap because it had treat- ed requester "the same as other
similarly situated shippers");  Arcadian Corp. v. Southern Natural Gas
Co., 61 F.E.R.C.  p 61,183, at 61,679 (1992) ("[T]he Commission's
regulations do  not directly require an open-access pipeline to
construct  facilities to provide service ... [except] ... where the
pipe- line has voluntarily decided to construct facilities for
similarly  situated customers."), vacated on other grounds sub nom. 
Atlanta Gas Light Co. v. FERC, 140 F.3d 1392, 1404 (11th  Cir. 1998);
see also Missouri Gas Energy v. Panhandle  Eastern Pipe Line Co., 75
F.E.R.C. p 61,166, at 61,550 (1996);  Texas Eastern Transmission


FERC did not dispute Panhandle's description of its estab- lished
policy. Nor did it attempt to justify its demand that  Panhandle
delete the proposed interconnect criteria on the  ground that they
inaccurately reflected the criteria the pipe- line utilized in the
past. Instead, FERC rejected Panhandle's  proposed "market demand"
criterion on the ground that it  was "unnecessary" to protect the
pipeline's interests. 79 


F.E.R.C. at 61,077. It directed deletion of the tariff's limita- tion
to shippers in order to ensure that entities such as  storage
companies and market centers could seek an inter- connect. See id. And
it ordered removal of Panhandle's  "adverse economic impact" criterion
on the ground that it was  "vague," and thus "might" allow Panhandle
to deny an inter- connect to a future requester that would have
received one  under the similarly situated standard. Id.


Notwithstanding the rationales it gave for its orders,  FERC insisted
that its directions to Panhandle did not "con- flict with or change"
its policy of requiring the construction of  interconnects only when
requesters were similarly situated to  parties whose requests had
previously been granted. 81  F.E.R.C. at 62,395. There was no conflict
or change, the  Commission said, because "the subject order does not
order  an interconnect to be constructed, for similarly situated ship-
pers or otherwise." Id.; see id. at 62,396 n.8, 62,398. Rather  than
compel Panhandle to construct a specific interconnect,  FERC argued,
it had merely required Panhandle to modify  its tariff language. If
and when a future applicant requested  an interconnect pursuant to
that tariff, "the requesting party  [still would have] to meet
numerous requirements," including  the requirements of the Natural Gas
Act. Id. at 62,396.


FERC's argument fails to persuade us that it has not  changed its
policy. Although FERC did not require Panhan- dle to build any
interconnects immediately, it did require  Panhandle to adopt tariff
language stating that the company  would construct an interconnect
"for any party willing to pay  the reasonable costs and expenses of
the construction and  who meets the other conditions of Panhandle's
interconnect  policy as modified by the Commission...." 79 F.E.R.C. at
 61,077. At oral argument, FERC's counsel agreed with  Panhandle's
contention that the pipeline would be required to  construct a
requested interconnect if the FERC-modified  criteria in the new
tariff were met, because FERC regula- tions bind companies to the
terms of their tariffs. See 18  C.F.R. s 154.3(a). Yet, FERC also
agreed that the modified  criteria were not based on Panhandle's
historical practices.  See also ANR Pipeline Co. v. Transcontinental


Line Corp., 84 F.E.R.C. p 61,106, at 61,534 (1998) (noting that  the
tariff changes required in Panhandle "were not based on  any
similarly-situated analysis"). Although it is true that a  requester
would have to meet "numerous requirements" to  qualify for an
interconnect, none would necessarily relate to  how Panhandle had
treated others in the past.


In sum, were we to uphold FERC's orders, Panhandle  would be bound to
construct an interconnect for any reques- ter falling within its
FERC-modified tariff, even if the reques- ter were not similarly
situated to any party for whom Pan- handle had previously built an
interconnect. That constitutes  a clear change in FERC's policy.
Indeed, in an opinion  handed down soon after Panhandle, the
Commission ex- plained that its order "directing [Panhandle] to modify
its  tariff provisions involved no Commission policy requiring a 
similarly-situated analysis to establish undue discrimination."  Id.


FERC may well be able to defend its new policy. The  orders below,
however, neither acknowledge the change nor  explain its rationale. "
'An agency's view of what is in the  public interest may change,
either with or without a change in  circumstances. But an agency
changing its course must  supply a reasoned analysis....' " Motor
Vehicle Mfrs. Ass'n  v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29,
57 (1983)  (quoting Greater Boston Television Corp. v. FCC, 444 F.2d 
841, 852 (D.C. Cir. 1970)). As we have repeatedly reminded  FERC, if
it wishes to depart from its prior policies, it must  explain the
reasons for its departure. See, e.g., Williston  Basin Interstate
Pipeline Co. v. FERC, 165 F.3d 54, 65 (D.C.  Cir. 1999); Northeast
Energy Assocs. v. FERC, 158 F.3d 150,  156 (D.C. Cir. 1998); Grace
Petroleum Corp. v. FERC, 815  F.2d 589, 591 (D.C. Cir. 1987).


Accordingly, we grant Panhandle's petition and remand the  case to the
Commission for an explanation of its reasoning.  In light of this
disposition, at this juncture we have no  occasion to consider
Panhandle's other challenges to FERC's  orders.