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


WA WATER POWER CO

v.

FERC


98-1245a

D.C. Cir. 2000


*	*	*


Tatel, Circuit Judge: These consolidated petitions seek  review of the
Federal Energy Regulatory Commission's ap- proval of a settlement
resolving a rate case filed by a natural  gas pipeline serving parts
of Oregon, Washington, and Cali- fornia. Finding petitioners' various
challenges without merit,  we deny the petitions.


I


Intervenor PG&E Gas Transmission-Northwest Corpora- tion ("the
pipeline") has owned a natural gas pipeline running  from near British
Columbia down through Oregon since the 


1960s. For many years, its parent company, Pacific Gas &  Electric
("PG&E"), was the main shipper on the line. In  1980, and again in
1991, FERC granted certificates to expand  the pipeline's capacity.
The 1991 expansion, which increased  the pipeline's mainline capacity
by approximately 75 percent,  went into service in 1993.


Historically, the pipeline used a rate system in which  shippers who
entered into contracts for capacity after expan- sion ("expansion
shippers") bore the entire cost of the expan- sion; shippers who held
capacity on the pipeline prior to  expansion ("original shippers")
paid only for the costs associ- ated with the original pipeline,
including any unrecovered  costs of building the original pipeline,
depreciation, and asso- ciated tariffs. According to FERC, this
so-called "incremen- tal" or "vintaged" rate structure is justified
because it allows  original shippers to "fully benefit from their
earlier long-term  agreements with the pipeline.... [S]hippers pay[ ]
higher  rates in the early years which are offset by lower rates in
the  later years." Great Lakes Transmission Ltd. Partnership,  62 FERC


Not surprisingly, the expansion shippers preferred a differ- ent rate
structure: a "rolled-in" rate system in which the  costs of the
expansion and any unrecovered costs associated  with the original
pipeline are rolled together and divided  equally so that all shippers
pay the same rate regardless of  when they obtain their capacity. In
late 1992 and early 1993,  when the pipeline filed its tariff sheets
addressing other rate  issues, some of the expansion shippers filed
comments argu- ing that the pipeline should adopt a rolled-in rate
structure.  FERC, agreeing with the pipeline that the incremental rate
 structure should be temporarily maintained, deferred resolu- tion of
the issue raised by the expansion shippers until the  pipeline's next
general rate filing. Less than fourteen  months later, the pipeline
submitted a rate filing pursuant to  section 4 of the Natural Gas Act,
15 U.S.C. s 717c, in which it  proposed the rolled-in rate structure
the expansion shippers  had requested. When PG&E, the primary original
shipper,  and its customer, Intervenor the California Public Utilities


Commission ("CPUC"), opposed the proposed rolled-in rate  structure,
the issue was set for litigation before FERC.


As the "rolled-in" versus "incremental" rate debate raged,  PG&E
permanently transferred or "released" part of its  excess capacity to
other shippers pursuant to 18 C.F.R.  s 284.243. Section 284.243
provides the mechanism by which  a shipper that has contracted for
capacity that it no longer  needs (the "releasing shipper") can
reallocate that capacity to  another shipper (the "replacement
shipper"): "The pipeline  must allocate released capacity to the
person offering the  highest rate (not over the maximum rate) and
offering to  meet any other terms and conditions of the release." 18 
C.F.R. s 284.243(e). Although "maximum rate" is not de- fined in the
text of the regulation, Order No. 636, the  preamble to section
284.243, explains that "[t]he regulations  require the pipeline to
allocate released capacity to the per- son offering the highest rate
not over the maximum tariff  rate the pipeline can charge to the
releasing shipper." Pipe- line Service Obligations and Revisions to
Regulations Gov- erning Self-Implementing Transportation Under Part
284 of  the Commission's Regulations, and Regulation of Natural  Gas
Pipelines After Partial Wellhead Decontrol, 57 Fed. Reg.  13267, 13285
(1992) (emphasis added). Under the capacity  release regulation,
replacement shippers in this case obtained  capacity at the rate that
PG&E had been paying. As a  result, replacement shippers on the
incrementally priced pipe- line paid significantly lower rates than
expansion shippers  even though those replacement shippers had
obtained their  capacity at a later date. This result conformed to
FERC's  then-existing policy as set forth in Great Lakes Transmission 
Ltd. Partnership, 64 FERC p 61,017 at 61,155, 61,157 (1993)  ("Great
Lakes I"). In that case, the Commission, rejecting  complaints from
expansion shippers that it was unfair to allow  replacement shippers
to pay less, held that the maximum rate  for released capacity was
"the applicable maximum tariff rate  for the service being released"
and that "[t]he expansion  shippers are assessed an incremental rate
because their  service request caused facilities to be constructed for


In 1996, the parties to the still-pending rate proceeding  reached a
settlement agreement under which the pipeline  would phase in a
rolled-in rate system. During the first (and  uncontested) phase
lasting until November 1, 1996, the exist- ing incremental rate
structure was maintained. During the  second period, running from the
later of November 1, 1996 or  the date the Commission approves the
settlement until the  pipeline's next rate filing, expansion costs are
rolled in so that  all shippers end up paying the same base
rate--26.28 cents  per Decatherm ("cents/Dth"). Because that base rate
repre- sents a steep increase for PG&E and other original shippers 
who had not previously been paying for the pipeline's expan- sion, the
settlement provides for mitigation during the interim  period: until
November 1, 2002, PG&E pays only 75 percent  of the base rate, or
19.91 cents/Dth. The settlement also  provides for mitigation of
replacement shippers' rates, al- though less so: they pay
approximately 92 percent of the  base rate, or 24.28 cents/Dth.
Expansion shippers pay the  base rate plus a 6.5 cent surcharge to
offset the rate mitiga- tion provided to PG&E and replacement
shippers, or a total  of 32.74 cents/Dth. The settlement gives PG&E
several  other benefits, including rebates on certain surcharges that
it  had paid and an entitlement to obtain refunds when it perma-


Most of the parties, including PG&E, CPUC and most  expansion shippers,
either supported the settlement or did  not oppose it. Over the
objections of several replacement  shippers and petitioner Washington
Water Power, FERC  approved the settlement. Pacific Gas Transmission
Co., 76  FERC p 61,246 (1996). Replacement shippers filed a petition 
for rehearing, arguing that under FERC's existing case law,  primarily
Great Lakes I, 64 FERC p 61,017 (1993), they could  not be charged
rates higher than PG&E, the shipper from  whom they obtained their
capacity. Denying the petition for  rehearing, the Commission not only
overruled the part of  Great Lakes I on which petitioners had relied,
but also  articulated a new policy: replacement shippers obtaining 
released capacity post-expansion on an incrementally priced  system
are similarly situated to expansion shippers, not to 


releasing shippers. PG&E Gas Transmission, Northwest  Corp., 82 FERC p
61,289 at 62,123 (1998). Applying that new  policy, the Commission
rejected replacement shippers' chal- lenges.


II


Several replacement shippers, petitioners Sierra Pacific  Power Co.,
Sierra Pacific Resources, and Engage Energy US,  L.P. ("replacement
shipper petitioners"), argue that FERC's  new policy is inconsistent
with its price cap regulation, 18  C.F.R. s 284.243, as interpreted in
Order No. 636. They also  argue that application of the new policy to
them is impermis- sibly retroactive and contrary to FERC precedent.
FERC  argues that replacement shipper petitioners cannot challenge 
the reasoning in the order denying rehearing because they  failed to
seek further rehearing of that order. FERC ignores  our holding in
Southern Natural Gas Co. v. FERC, 877 F.2d  1066, 1073 (D.C. Cir.
1989). "[W]hen FERC makes no  change in the result, but merely
supplies a new improved  rationale upon realizing that its first one
won't wash, it does  not thereby transform its order denying rehearing
into a new  'order' requiring a new petition for rehearing before a
party  may obtain judicial review. Otherwise, we would 'permit an 
endless cycle of applications for rehearing and denials,' limit- ed
only by FERC's ability to think up new rationales." Id.  Here, too,
although the order denying rehearing abandoned  the reasoning of the
earlier order approving the settlement,  FERC reached precisely the
same result. Replacement ship- per petitioners therefore had no


On the merits, these petitioners fare less well. They  challenge
neither the logic behind FERC's ruling that they  are similarly
situated to expansion shippers--the prior policy  was unfair to
expansion shippers--nor the Commission's au- thority to overrule Great
Lakes I. Instead, they complain  that insofar as the new policy may
require replacement  shippers to pay more than releasing shippers,


conflicts with Order No. 636, the preamble to section 284.243  of the
Commission's regulations.


Replacement shipper petitioners read Order No. 636, which  states that
"the pipeline [must] allocate released capacity to  the person
offering the highest rate not over the maximum  tariff rate the
pipeline can charge to the releasing shipper,"  to require that they
pay the same rate as PG&E. 57 Fed.  Reg. at 13285 (emphasis added).
According to the Commis- sion, a subsequent order, Order No. 636-A,
made clear that  the sentence from Order No. 636 on which petitioners
rely  does not apply to incrementally priced systems. Because  FERC's
position represents an interpretation of its own  regulations, we give
it "controlling weight unless it is plainly  erroneous or inconsistent
with the regulation." Exxon Corp.  v. FERC, 114 F.3d 1252, 1258 (D.C.
Cir. 1997) (internal  quotation marks omitted). Petitioners have not
come close to  meeting this heavy burden.


The Commission's position rests on the following sequence  of events.
After FERC issued Order No. 636, several peti- tions for rehearing
"raise[d] questions about the maximum  rate for released capacity."
Order No. 636-A, 57 Fed. Reg.  36,128, 36,149 (1992). Those petitions
observed that shippers  holding expansion capacity on a pipeline with
an incremental  rate system would have a difficult time releasing that
capacity  because the maximum rate for capacity released by shippers 
on pipelines with rolled-in rates would be significantly lower.  Id.
at 36,150. Petitioners suggested several ways to address  this
problem, including giving priority to incremental releases  or
establishing a floor for prices at the incremental rate.


Responding to these comments in Order No. 636-A, FERC  refused to "make
a generic determination on the various  methodologies proposed [in the
comments] since resolution of  such issues may depend on the
characteristics of the pipeline  and the services it offers. The
parties in restructuring  proceedings involving incremental rates
should consider and  propose methodologies to ensure that the capacity
release  mechanism operates efficiently and that all parties are
treat- ed fairly and equitably, without undue discrimination." Id. at


36,150. Order No. 636-A thus "left open the issue of how to  price
capacity releases in the context of a system with incre- mental
rates." PG&E Gas Transmission, Northwest Corp.,  82 FERC p 61,289 at
62,129. Put another way, Order No.  636-A made clear that Order No.
636's definition of "maxi- mum rate" does not apply to incrementally
priced rate struc- tures. Petitioners have given us no basis for
concluding that  the Commission's interpretation of Order Nos. 636 and
636-A  is either "plainly erroneous" or inconsistent with section 


Equally without merit is replacement shipper petitioners'  argument
that by adopting the new policy, the Commission  impermissibly
departed from prior cases in which it refused  to remove or raise the
section 284.243 rate cap in individual  proceedings. See, e.g.,
Tennessee Gas Pipeline Co., 70 FERC  p 61,076, 61,200 (1995). As the
Commission observed, it did  not remove or raise the rate cap in this
case; instead, it  defined the term "maximum rate" in the context of
an incre- mentally priced vintaged system as the maximum rate under 
the tariff sheets that the expansion shippers could be  charged. PG&E
Gas Transmission, Northwest Corp., 82  FERC p 61,289 at 62,131. To be
sure, the Commission held  in Great Lakes I that the maximum rate was
the releasing  shipper's maximum tariff rate, but the Commission has
now  overruled that part of Great Lakes I. See id. Because 
replacement shippers have not argued that the Commission  could change
the Great Lakes I policy only through notice  and comment rulemaking
rather than through adjudication,  we have no reason to address that


Petitioners' remaining arguments with respect to the new  policy relate
to whether the Commission could apply it to  their existing contracts.
Having entered into contracts for  released capacity prior to the
settlement of this case, replace- ment shipper petitioners argue that
applying the new policy  to them now is impermissibly retroactive.
Because petition- ers have failed to establish that they relied on the
Commis- sion's prior policy to their detriment--in other words, that 
they would not have entered into these contracts had they  known that
the Commission would change its policy--they 


cannot prevail on this argument. See Public Service Co. of  Colorado v.
FERC, 91 F.3d 1478, 1490 (D.C. Cir. 1996) (in  determining that it was
permissible for Commission to apply  new interpretation of law, "the
apparent lack of detrimental  reliance ... is the crucial point"). In
February 1994, when  petitioner Engage Energy, the first replacement
shipper  petitioner to contract for PG&E's released capacity, executed
 its contract, FERC had already announced that the incremen- tal
versus rolled-in rate issue would be addressed when the  pipeline
submitted its next rate filing in late 1994 or early  1995. All
replacement shipper petitioners therefore should  have been fully
aware of the possibility that the pipeline  would adopt rolled-in
rates. In fact, by the time petitioner  Sierra Pacific executed its
contracts in February and June  1995, the pipeline had already
proposed rolled-in rates.  Moreover, the mitigation replacement
shippers receive during  the interim period produces a lower rate than
those shippers  would have paid under a fully rolled-in rate system.
Because  they are paying rates lower than the rates to which they 
should have known they were exposed, they cannot show  detrimental
reliance. The only plausible detrimental reliance  argument that these
petitioners could have made is that by  paying rates higher than PG&E,
they suffered some sort of  competitive injury vis-A-vis PG&E that
they had not antici- pated. But none of these petitioners alleges
competitive  injury; the only replacement shipper to have done so did
not  petition for review. By way of a record reference to a portion 
of a brief filed with FERC, petitioners suggest that they  relied on
PG&E to oppose vigorously and litigate the rolled-in  rate issue.
Absent a more direct mention of this at best  attenuated reliance
interest, however, we see no need to  address it. See Washington Legal
Clinic for the Homeless v.  Barry, 107 F.3d 32, 39 (D.C. Cir. 1997)
(refusing to reach  issue where party offered only "bare-bones


Replacement shipper petitioners fare no better with their  argument
that by applying the new policy to them, FERC  departed from Great
Lakes Transmission Ltd. Partnership,  72 FERC p 61,081 at 61,427
(1995) ("Great Lakes II"), peti- tions for review denied in part and
granted in part, South-


eastern Michigan Gas Co. v. FERC, 133 F.3d 34 (D.C. Cir.  1998), where
the Commission refused to apply a new policy  retroactively. In
denying rehearing in this case, FERC took  great pains to distinguish
Great Lakes II: The policy that the  Commission changed in Great Lakes
II had been "consistent- ly applied" for thirty years, whereas the
Commission's new  policy here overruled only one case, Great Lakes I,
decided  just five years prior to the decision in this case. 82 FERC 
p 61,289 at 62,127. We agree with the Commission that these 
differences distinguish Great Lakes II from the situation  presented


Replacement shipper petitioners next argue that even if  replacement
shippers as a general rule are similarly situated  to expansion
shippers, they are not similarly situated to  expansion shippers in
the circumstances of this case. This is  so, they contend, because as
replacement shippers they paid  millions of dollars in tariffs when
the incremental rate system  was in place--tariffs for which expansion
shippers were not  responsible. As intervenors point out, however, the
rate paid  by these replacement shippers under the incremental rate 
system, even including the additional tariffs, was still signifi-
cantly lower than the rate paid by expansion shippers. Since 
replacement shippers are similarly situated to expansion ship- pers
for purposes of determining rates and since it is undis- puted that
they paid less than expansion shippers for the  period in question,
petitioners have no cause to complain now  about the tariffs.


Replacement shipper petitioners also contend that the set- tlement is
unduly discriminatory because PG&E enjoys a  greater degree of
mitigation and a number of other "special  benefits." In order to
prevail on an undue discrimination  claim, petitioners must
demonstrate not only differential rates  between two classes of
customers but also "that the two  classes of customers are similarly
situated for purposes of the  rate." "Complex" Consolidated Edison Co.
of New York v.  FERC, 165 F.3d 992, 1012 (D.C. Cir. 1999). Because
replace- ment shipper petitioners are similarly situated to expansion 
shippers rather than to PG&E, and because their rates are 


lower than the rates of expansion shippers, the undue dis- crimination
argument fails.


Finally, replacement shipper petitioners challenge a provi- sion of the
settlement agreement under which the pipeline  will refund a certain
percentage of the tariffs paid by PG&E  in exchange for an agreement
by CPUC, PG&E's primary  customer, to withdraw two appeals that it had
filed in this  court challenging the Commission's determination that
the  pipeline could recover certain transition costs. Petitioners 
maintain first that this provision is unfair because PG&E paid  only a
portion of the tariffs but receives all of the refund, and  second
that the Commission ignored Southern California  Edison Co., 49 FPC
717, 721 (1973), a decision of the Com- mission's predecessor refusing
to approve a settlement that  included a provision settling an
ancillary appeal pending  before this court. As the Commission pointed
out in denying  rehearing in this case, however, giving PG&E the
benefit of  the refund is consistent with its policy of facilitating
settle- ments to resolve the difficult issues raised by transition
cost  disputes. See 82 FERC p 61,289 at 62,142. Moreover, unlike  in
Southern California Edison Co., even with the refund  provided under
the settlement, PG&E still pays "a signifi- cantly higher
proportionate amount" of the transition cost  tariffs than any other
shipper. See 82 FERC p 61,289 at  62,143.


III


The remaining two petitions require only brief discussion.  Claiming
that a new volume-based charge included in the  settlement will
increase its rate by 16 percent and that FERC  has a general policy of
requiring mitigation where a shipper's  rate increases by more than 10
percent, petitioner Washing- ton Water Power Co. maintains that FERC
should not have  approved the settlement without requiring additional
mitiga- tion. FERC responds that it has no such "general" rate  shock
policy. Denying rehearing, FERC explained that its  rate shock policy
applies only when the rate shock results  either from a straight
fixed-variable rate design or from a 


transition from incremental to rolled-in rates. 82 FERC  p 61,289 at
62,144. Washington Water's increased rate re- sults from neither.
Instead, the rate increase results from a  new non-mileage based
charge. Having cited no authority  either supporting its assertion
that the Commission has re- quired mitigation in such a situation or
leading us to question  the Commission's explanation that it has no
general rate  shock policy outside of the two situations mentioned
above,  Washington Water's argument fails.


Petitioners DEK Energy Corp. and Apache Corp. (collec- tively "DEK"),
expansion shippers who failed timely to file  their comments on the
settlement, now contest the settle- ment's mitigation provisions. DEK
participated neither in  the litigation of the pipeline's section 4
rate filing nor in the  settlement negotiations. After submission of
the settlement,  DEK filed comments stating that it had no opposition
to the  rolled-in rate structure. It registered no opposition to the 
settlement's mitigation provisions. Then, over two months  after the
final deadline for filing comments on the settlement,  DEK filed a
"clarification," asserting for the first time that  the mitigation
provided to PG&E and the replacement ship- pers under the settlement
was unjust and unfair. Several  parties opposed DEK's "clarification"
on timeliness grounds,  and the Commission said nothing about DEK's
comments in  its September 1996 order approving the settlement.
Denying  DEK's petition for rehearing, the Commission found that 
DEK's comments were untimely. 82 FERC p 61,289 at  62,138. Although
the Commission also addressed the "factual  inaccuracy underlying
DEK's position," PG&E Gas Trans- mission, Northwest Corp., 83 FERC p
61,251 at 62,066 (1998),  it noted that


[a]ddressing DEK's opposition now, in light of extended  settlement
conferences and resolution of the case in a  manner acceptable to all
other similarly situated to DEK,  would unfairly disrupt and detract
from the compromises  of parties that did participate. This is
especially true  considering that DEK's initial comments were silent
on  the issues raised in its 'clarification' and request for 


rehearing. Consideration of the late opposition would be  similar to
allowing an eleventh hour intervention by a  person that had chosen
not to comment at all, and would  lend uncertainty to the settlement
negotiation process  which thrives, in part, on the timely filing of
positions.


82 FERC p 61,289 at 62,138. Agreeing with the Commis- sion's sound
reasons for finding DEK's opposition to the  settlement untimely, we
find it unnecessary to reach DEK's  arguments that the Commission
erred in its assessment of the  factual inaccuracies inherent in DEK's
position.


IV


The petitions for review are denied.


So ordered.