[Federal Register Volume 62, Number 101 (Tuesday, May 27, 1997)]
[Notices]
[Pages 28692-28694]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13789]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission
[Docket No. IN97-1-000]


Questar Pipeline Company; Order Instituting Proceeding

Issued May 9, 1997.
    Before Commissioners: Elizabeth Anne Moler, Chair; Vicky A. 
Bailey, James J. Hoecker, William L. Massey, and Donald F. Santa, 
Jr.

    After completing a preliminary investigation under the Commission's 
Rules Relating to Investigations, 18 CFR Part 1b, the Enforcement 
Section, Office of the General Counsel (Enforcement), has reported to 
the Commission that from November 1, 1988 through September 30, 1992, 
Questar Pipeline Company (Questar) may have collected gathering rates 
from Mountain Fuel Supply Company (Mountain Fuel) that violate section 
4(d) of the Natural Gas Act (NGA), 15 U.S.C. Sec. 717c(d) (1994), and 
Questar's Federal Energy Regulatory Commission (FERC) tariff. The 
instant order establishes a proceeding, pursuant to sections 4, 5 and 
16 of the NGA, 15 U.S.C. Secs. 717c, 717d and 717o (1994).
    As discussed below, the Commission is ordering Questar to show: (a) 
Why it has not violated section 4(d) of the NGA and its FERC tariff as 
a result of its gathering charges to Mountain Fuel from November 1, 
1988 through September 30, 1992; and (b) why it should not refund (with 
interest running through the refund date) the portion of those 
gathering charges that exceeded the one-part gathering rates contained 
in the revisions to Sheet No. 8, Volume 3, of Questar's tariff that 
were in effect during that period.

A. Background

    For a period including November 1, 1988 through September 30, 1992, 
Questar was an interstate pipeline engaged in the transportation and 
sale of natural gas in interstate commerce, and was located in Salt 
Lake City, Utah. Mountain Fuel was a local distribution company also 
located in Salt Lake City. Questar and Mountain Fuel were corporate 
affiliates.
    Questar gathered and transported gas for Mountain Fuel. Volume No. 
3 of Questar's FERC tariff contained Rate Schedule No. X-33 (RS X-33), 
which governed Questar's transportation for Mountain Fuel, and Sheet 
No. 8, which governed the transportation rates Questar charged under RS 
X-33. Questar periodically filed revisions to Sheet No. 8 with the 
Commission.
    On September 9, 1988, Questar filed two tariff sheets with the 
Commission that included gathering rates. One of these was Tenth 
Revised Sheet No. 8, which set out a gathering rate of $0.28941 per 
decatherm (Dth), to become effective November 1, 1988. The Commission 
accepted these sheets for filing on December 1, 1988. 45 FERC para. 
61,447 (1988).
    On April 17, 1989, Questar filed an offer of settlement in Docket 
No. RP88-93. Questar's offer included Substitute Tenth and Eleventh 
Revised Sheets No. 8, effective November 1, 1988 and January 1, 1989, 
respectively, both of which contained a gathering rate of $0.23095/Dth. 
On October 6, 1989, the Commission approved Questar's settlement offer 
in Docket No. RP88-93, with modifications not relevant here. 49 FERC 
para. 61,018 (1989).\1\ The settlement gathering rate of $0.23095/Dth 
remained in effect through October 1991.
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    \1\ All citations to the FERC Reports are captioned Questar 
Pipeline Co. unless otherwise indicated.
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    On July 24, 1992, Questar submitted a settlement offer in Docket 
No. RP91-140. The settlement offer included Third Substitute Seventh 
Revised Sheet No. 8 and Second Substitute Eighth Revised Sheet No. 8, 
effective November 1, 1991 and January 1, 1992, respectively, both of 
which included a ``one-part'' (commodity only, as opposed to demand and 
commodity) gathering rate of $0.18296/Dth. The offer also included 
Ninth Revised Sheet No. 8, effective October 1, 1992, which contained a 
one-part gathering rate of $0.32693/Dth.\2\ The Utah Division of Public 
Utilities (UDPU), which regulated Mountain Fuel's retail rates in Utah, 
intervened in this docket and filed comments supporting the settlement. 
On November 3, 1992, the Commission approved the settlement. 61 FERC 
para. 61,180 (1992).
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    \2\ On August 12, 1992, Questar amended its settlement offer in 
ways not relevant here.
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B. The Alleged Overcharges

    Based on the information gathered in its investigation, Enforcement 
alleges that during the period from November 1, 1988 through September 
30, 1992:
    1. Questar's gathering rates to Mountain Fuel exceeded the 
gathering rates set out in the revisions to Sheet No. 8. The excessive 
rates, per decatherm, were as follows:

----------------------------------------------------------------------------------------------------------------
                             Months                                 Tariff rate    Charged rate     Excess rate 
----------------------------------------------------------------------------------------------------------------
11-12/88........................................................        $0.23095        $0.27840        $0.04745
01-12/89........................................................          .23095          .24580          .01485
01-12/90........................................................          .23095          .27940          .04845
01-10/91........................................................          .23095          .28064          .04969

[[Page 28693]]

                                                                                                                
11-12/91........................................................          .18296          .28064          .09768
01-09/92........................................................          .18296          .28190          .09894
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    2. Questar's gathering overcharges to Mountain Fuel totaled 
$3,427,192. The overcharges for the time periods set out in para. 1 
were as follows:

----------------------------------------------------------------------------------------------------------------
                                                                    Decatherms                                  
                             Months                                    sold         Excess rate     Overcharge  
----------------------------------------------------------------------------------------------------------------
11-12/88........................................................       5,619,369        $0.04745        $266,639
01-12/89........................................................      18,439,042          .01485         273,820
01-12/90........................................................      15,107,171          .04845         731,942
01-10/91........................................................      14,613,340          .04969         726,137
11-12/91........................................................       5,496,168          .09768         536,866
01-01/92........................................................       9,013,427          .09894         891,788
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    3. Mountain Fuel passed through to its customers all gathering 
charges that it paid to Questar, including Questar's overcharges.

C. Discussion

    During the course of the investigation, Questar made a number of 
contentions that warrant comment. Questar argued that the Commission 
lacks jurisdiction over its gathering rates, and cited Section 1(b) of 
the NGA, 15 U.S.C. Sec. 717(b) (1994), and Northwest Pipeline Corp. v. 
FERC, 905 F.2d 1403 (10th Cir. 1990), in support of this assertion. 
Section 1(b) states that the NGA does not apply ``to the production or 
gathering of natural gas.'' In Northwest Pipeline, the court reversed a 
Commission order asserting jurisdiction over what the Commission 
claimed were a pipeline's transportation rates; the court held that the 
Commission had failed to adequately support its conclusion that the 
pipeline's rates were for transportation rather than gathering.
    However, Northern Natural Gas Co. v. FERC, 929 F.2d 1261 (8th Cir. 
1990), cert. denied, 502 U.S. 856 (1991), rather than Northwest 
Pipeline, governs the Commission's authority to regulate Questar's 
gathering rates. In Northern Natural, the court upheld the Commission's 
authority to regulate an interstate pipeline's gathering rates on the 
ground that the rates were charged ``in connection with'' 
jurisdictional transportation and therefore were subject to regulation 
under section 4(a) of the NGA, 15 U.S.C. Sec. 717c(a) (1994). The court 
distinguished the Tenth Circuit's decision in Northwest Pipeline, 
noting that the Tenth Circuit had relied on the Commission's failure to 
support its determination that the rates were transportation rates; in 
Northern Natural, the Commission acknowledged that the rates were 
gathering rates.
    Questar also argued that the Commission never asserted its 
jurisdiction over Questar's gathering rates. Questar stated that the 
first time any representative of the Commission directed Questar to 
include a gathering rate in its tariff sheets was during an August 4, 
1988 meeting that Questar had arranged with staff of the Office of 
Pipeline Regulation (OPR) to discuss a July 18, 1988 letter order that 
the Director of OPR had issued in Docket No. RP88-93. In that meeting, 
OPR staff directed Questar to include a ``gathering rate of general 
applicability'' in its tariff. On August 17, 1988, Questar included a 
challenge to staff's directive in Questar's appeal of the letter order. 
``Questar Pipeline Company's Appeal from Staff Action'' (Docket No. 
RP88-93-005, et al.). Questar based its challenge on the assertion that 
the Commission lacks jurisdiction over gathering. Id. at pp. 18-19. On 
February 1, 1989, the Commission denied Questar's appeal in part, but 
did not address Questar's jurisdictional challenge. 46 FERC para. 
61,115 (1989).\3\ Questar views the Commission's silence on this point 
as a failure to assert jurisdiction.
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    \3\ Questar did not seek rehearing.
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    However, the Commission's December 1, 1988 order, discussed supra, 
accepting the Questar tariff filing that included Tenth Revised Sheet 
No. 8--which contained a gathering rate--constituted an assertion of 
the Commission's jurisdiction over Questar's gathering rates for 
Mountain Fuel. Moreover, Questar's filing of that tariff sheet 
constituted Questar's acceptance of that jurisdiction, at least for the 
period in which the tariff gathering rate remained in effect. The 
Commission orders approving the settlements in Docket Nos. RP88-93 and 
RP91-140 constituted additional instances of the Commission's assertion 
and Questar's acceptance of Commission jurisdiction over Questar's 
gathering rates.
    Indeed, Questar's acceptance of these settlements precludes the 
company from challenging the Commission's jurisdiction over Questar's 
gathering rates during the period at issue. In Colorado Interstate Gas 
Co. v. FERC, 83 F.3d 1298 (10th Cir. 1996), the court held that an 
interstate pipeline that had entered into a settlement requiring it to 
charge specified gathering rates lacked standing to challenge 
Commission jurisdiction over those rates during the term of the 
settlement. The settlement rates in either Docket No. RP88-93 or Docket 
No. RP91-140 were in effect throughout the period from November 1, 1988 
through September 30, 1992.\4\
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    \4\ Questar also suggested that the settlement the Commission 
approved in Docket No. RP91-140 precludes further Commission action 
based on Questar's past gathering charges. Questar cited section 
III.B(2), which states that the settlement resolves ``any current 
dispute or inquiry raised by . . . the Commission concerning prior 
statements of Questar's rates for gathering services on its FERC Gas 
Tariff rate sheets.''
    However, the Commission's order approving the settlement 
reserves the Commission's right to redress Questar's overcharges to 
Mountain Fuel. Ordering Paragraph (C) states:
    The Commission's approval of this settlement does not preclude 
any Commission action regarding Questar's collection of gathering 
charges from Mountain Fuel Supply Company prior to the date of this 
order.
    61 FERC at p. 61,656. Questar did not seek rehearing of this 
order.
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    Questar also claimed that the gathering rates contained in the 
revisions to Sheet No. 8 did not apply to Mountain Fuel. Questar 
contended that these rates were ``default rates'' that only applied to 
those gathering contracts that did not provide for specific gathering 
rates (such as contracts that expressly incorporated the prevailing 
tariff rate). During the period at issue, Questar calculated its 
gathering charges to Mountain Fuel in accordance with a gathering 
agreement that the two affiliates executed in 1987,

[[Page 28694]]

but never filed with the Commission. Questar argued that the rates 
calculated under this gathering agreement superseded the rates 
contained in the revisions to Sheet No. 8.
    Questar's contentions are inconsistent with applicable law. Once 
the Commission's orders approving the settlements in Docket Nos. RP88-
93 and RP91-140 became final and no longer subject to judicial review, 
the gathering rates (and effective dates) contained in the revisions to 
Sheet No. 8 took precedence over any gathering rate dictated by the 
Questar-Mountain Fuel gathering agreement. See Arkansas Louisiana Gas 
Co. v. Hall, 453 U.S. 571, 582, (1981) (where the tariff rate and the 
contract rate conflict, the tariff rate controls).
    Questar further contended that even if the Commission has the legal 
right to require Questar to refund a portion of its gathering charges 
to Mountain Fuel, the Commission's exercise of that right would be 
inequitable. The company offered several reasons for this contention.
    Questar produced two ``supplemental agreements'' in which the UDPU 
endorsed the Questar-Mountain Fuel gathering agreement. In the first 
``supplemental agreement,'' which Questar's predecessor, Mountain Fuel 
and the UDPU executed on November 5, 1987, the UDPU stated that the 
gathering agreement ``provides a fair, just and reasonable means for 
[Mountain Fuel] to obtain gathering services from [Questar],'' and 
agreed not to challenge Mountain Fuel's passthrough of the gathering 
rates charged by Questar during 1988. In the second ``supplemental 
agreement,'' which Questar, Mountain Fuel and the UDPU executed on 
April 27, 1989, the parties agreed, among other things, that Questar 
would charge Mountain Fuel a gathering rate of $0.2458/Dth during 
calendar year 1989 and that the UDPU, which had intervened in Docket 
No. RP88-93, would support Questar's proposed settlement in that 
docket.
    However, the UDPU's general endorsement of the gathering agreement 
did not relieve Questar of the obligation to charge Mountain Fuel the 
gathering rates contained in Questar's tariff. The UDPU did not have 
jurisdiction over Questar's gathering rates. See Schneidewind v. ANR 
Pipeline Co., 485 U.S. 293 at 310 (1988) (quoting Nothern Natural Gas 
Co. v. State Corporation Comm'n of Kansas, 372 U.S. 84 at 91-92 (1963)) 
(``When a state regulation `* * * presents the prospect of interference 
with the federal regulatory power, then the state law may be pre-empted 
even though `collision between the state and federal regulation may not 
be an inevitable consequence.' ''). In addition, the UDPU did not 
address Questar's gathering rates for 1990 through 1992, a period that 
includes 33 of the 47 months at issue. Finally, the UDPU's support of 
the settlements in Docket Nos. RP88-93 and RP91-140 conflicts with the 
agency's endorsement of the gathering agreement because the settlements 
provided for lower gathering rates than those Questar charged under the 
agreement.
    Questar further asserted that its alleged gathering overcharges did 
not harm Mountain Fuel's ratepayers. Questar noted that during the 
relevant time period, Rate Schedule No. CD-1 of Questar's tariff (RS 
CD-1) governed its sales of gas to Mountain Fuel. Questar contended 
that it subtracted the gathering revenues collected under its 
transportation rate schedules--including RS X-33--from the cost of 
service used in calculating its sales rate under RS CD-1. Thus, Questar 
argued, if it had charged Mountain Fuel the tariff rate for the 
gathering provided under RS X-33, the pipeline would have had to charge 
Mountain Fuel a higher rate for the gas Questar sold Mountain Fuel 
under RS CD-1 to fully recover its costs.
    However, Questar's gathering rates and sales rates were determined 
in the settlements that the Commission approved in Docket Nos. RP88-93 
and RP91-140. Charging Mountain Fuel the settlement gathering rates 
would not have allowed Questar to charge its affiliate higher sales 
rates; Questar would have had to charge Mountain Fuel the sales rates 
set out in the settlements. Therefore, it appears that if Questar had 
charged Mountain Fuel the settlement gathering rates, Mountain Fuel's 
ratepayers would have benefitted.
    Finally, Questar asserted that if it is forced to refund its 
alleged overcharges, it will not recover its cost of service for the 
period during which the overcharges took place. However, this 
assertion, even if proven by Questar, would not appear to excuse 
Questar's refund obligation. It appears that the imposition of refunds 
is necessary to enforce the settlements that the Commission determined 
to be in the public interest in Docket Nos RP88-93 and RP91-140. The 
Commission and courts have long recognized that upholding such 
settlements serves a strong public interest. E.g., Mobil Oil Corp. v. 
FPC, 570 F.2d 1021, 1026 (D.C. Cir. 1978) (``[J]ust as encouraging 
settlements is in the public interest, so is abiding by settlements 
that are entered into in good faith and without overreaching.'')
    The Commission orders:
    (A) Within 30 days of the issuance of this order, Questar shall:
    (1) File an answer to the allegations of overcharges and violations 
that conforms to the requirements of Rule 213 of the Commission's 
Rules, 18 CFR 385.213. In its answer, Questar shall admit or deny, 
specifically and in detail, each allegation set forth in Part B of this 
order, and shall set forth every defense relied on. If an allegation is 
only partially accurate, Questar shall specify that part of the 
allegation it admits and that part of the allegation it denies.
    (2) Show (a) why it has not violated section 4(d) of the NGA and 
its FERC tariff as a result of its gathering charges to Mountain Fuel 
during the period November 1, 1988 through September 30, 1992 and (b) 
why it should not refund (with interest running through the refund 
date) the portion of those gathering charges that exceeded the one-part 
gathering rates contained in the revisions to Sheet No. 8 that were in 
effect during that time period.
    (3) Questar shall separately state the facts and the arguments that 
it advances. Questar must support with exhibits, affidavits and/or 
prepared testimony any facts that it alleges. Questar's statement of 
material facts must include citation to supporting data. At a minimum, 
Questar should provide work papers and any other documents to support 
its allegations that all of the revenues received by Questar associated 
with the Mountain Fuel gathering agreement were used in the applicable 
rate proceedings to reduce the cost of service allocated to Questar's 
sales service under Rate Schedule CD-1, and Mountain Fuel was the only 
customer receiving service under Rate Schedule CD-1. All materials must 
be subscribed and verified as set forth in sections 385.2005 (a) and 
(b)(2) of the Commission's regulations, 18 CFR 385.2005 (a) and (b)(2).
    (B) Notice of this proceeding shall be published in the Federal 
Register. Interested parties shall file petitions for intervention no 
later than 30 days after the date of publication.

    By the Commission.
Lois D. Cashell,
Secretary.
[FR Doc. 97-13789 Filed 5-23-97; 8:45 am]
BILLING CODE 6717-01-M