In a consolidated appeal before the Eleventh Circuit, appellants Atlanta Gas Light Company, the American Gas Association, and the Board of Water, Light and Sinking Fund Commissioners of Dalton, Georgia, challenged four orders issued by the Federal Energy Regulatory Commission (FERC) between 1991 and 1996. These orders pertained to Arcadian Corporation's efforts to secure direct natural gas service from Southern Natural Gas Company, bypassing Atlanta Gas, which had historically supplied gas for Arcadian's fertilizer production at its Augusta, Georgia plant. Arcadian's request for direct service was prompted by Southern's refusal to construct a short connecting pipeline, despite offering direct service to other end-users, which Arcadian claimed violated the anti-discrimination provisions of the Natural Gas Act (NGA).
In its initial ruling, FERC found no discrimination by Southern. However, upon rehearing, FERC reversed itself, determined that Southern had indeed discriminated against Arcadian, and ordered Southern to provide direct service and establish tariff sheets for future connections. Despite appeals for reconsideration from Southern, Atlanta Gas, and AGA, Southern complied with the 1992 order by constructing the necessary interconnection facility. Subsequently, in 1993, a settlement was reached where Southern agreed to supply gas to Arcadian under a requirements contract, leading to the withdrawal of Arcadian’s complaint.
Atlanta Gas, AGA, and Dalton opposed both the settlement and the proposed tariffs submitted by Southern Natural Gas to the Commission. Despite this opposition, the Commission approved the settlement and the tariffs for end-users, subsequently terminating Arcadian's complaint proceeding. Atlanta Gas requested a rehearing of the 1994 Order, arguing that FERC did not conduct an adequate hearing on the settlement's effects, claimed the decision lacked rationality, and sought to vacate the 1992 Order. Dalton also challenged the approval of the tariffs. While these petitions were pending, on March 15, 1995, Southern proposed a Global Settlement to the Commission to resolve various rate and certificate cases, which included terms related to the Southern-Arcadian bypass, specifically Atlanta Gas's agreement to withdraw claims of discrimination. The Commission stayed the rehearing requests related to the 1994 Order until the Global Settlement was finalized. After approving the Global Settlement, the Commission denied the rehearing petitions on November 26, 1996. The Court consolidated multiple petitions for appeal concerning these FERC orders.
The excerpt then contextualizes the case within the broader statutory and regulatory framework of the natural gas industry, summarizing its structure as traditionally comprising producers, interstate pipelines, and local distribution companies (LDCs). The Natural Gas Act of 1938 facilitated this structure by not requiring pipelines to offer transportation services to third parties, allowing them to maintain monopoly power. The Natural Gas Policy Act of 1978 aimed to increase market competition by deregulating wellhead prices and promoting gas transportation for third parties, while FERC's Order No. 436 in 1985 introduced an 'open access' rule to incentivize pipelines to provide transportation services.
In 1992, FERC's Order No. 636 mandated that interstate pipelines separate their transportation services from natural gas sales and provide common carriage for buyers seeking to ship gas from various sources. While FERC did not require these pipelines to offer local transportation services to deliver gas to end-users, larger industrial consumers began constructing their own connections to interstate pipelines, bypassing local distribution networks. The current case arises from disputes related to this deregulatory phase and involves the regulatory framework established by the Natural Gas Act (NGA).
Section 1(b) of the NGA grants FERC broad authority over the interstate transportation and sale of natural gas and the companies involved. FERC regulates market entry for natural gas producers and interstate pipelines via Section 7, which allows the issuance of certificates for transportation, sale, and construction of facilities. Additionally, Sections 4 and 5 of the NGA empower FERC to oversee pricing and terms of natural gas sales and transportation to ensure that rates are just and reasonable, free from undue discrimination.
The review standard for FERC’s decisions, as outlined in § 19(b) of the NGA, states that its factual findings are conclusive if backed by substantial evidence. This standard aligns with the "arbitrary and capricious" standard from the Administrative Procedure Act, requiring that FERC's actions are upheld unless they are found to be arbitrary, capricious, an abuse of discretion, or not in accordance with the law. The review process is limited and does not permit substitution of the court's judgment for that of the agency but focuses on whether there is a rational connection between the established facts and the decisions made, considering relevant factors without clear error in judgment.
The 1994 and 1996 Orders involved a settlement between Southern and Arcadian that altered the litigation's direction, prompting a review of the settlement's validity under the 'public convenience and necessity' standard of § 7(e) of the NGA. Atlanta Gas contested the Commission's approval, raising four main arguments: (1) the Commission lacked a reasoned justification for the Arcadian bypass's public convenience and necessity, (2) it did not conduct a full evidentiary hearing, thus invalidating the orders, (3) retroactive authorization for the bypass contravened application procedures for sales taps, and (4) even if the settlement was valid, the Commission should have vacated its earlier 1991 and 1992 Orders.
In its 1994 Order, FERC justified the settlement as necessary for public convenience and necessity, aligning with its established bypass policy from the 1992 Order. This policy aimed to enhance access to transportation markets, compel local distribution companies (LDCs) to manage costs competitively, and ensure benefits of competition for all market participants. Atlanta Gas argued that the Commission should prove that the specific bypass enhances competition rather than relying on general assumptions. However, in its 1996 Order, the Commission clarified that it is not required to demonstrate that every pipeline service contract enhances competition, as fair competition is believed to serve the public interest over time despite potential drawbacks for certain LDCs. The Commission acknowledged that competition can result in losses for some, as demonstrated by Atlanta's loss of Arcadian's business for the contract's duration. Ultimately, the Commission's interpretation of its burden regarding 'public convenience and necessity' in Section 7(e) proceedings was found to be legally supported.
The Commission, as an administrative agency, is tasked with developing regulatory frameworks for the natural gas sector. Courts defer to the Federal Energy Regulatory Commission (FERC) regarding its economic analyses, provided they are rationally supported by evidence. FERC's bypass policy relies on economic assumptions about the natural gas market, and it is within its discretion to make predictions based on this evidence.
Atlanta Gas argues that FERC must demonstrate that each bypass results in a net benefit for all parties, citing the case Electricity Consumers Resource Counsel v. FERC, where the court criticized FERC for relying on economic theory without substantial evidence. However, the precedent set in ELCON is narrower than Atlanta Gas suggests; FERC has adequately justified its decisions in this instance. The ELCON court acknowledged that while economic theory can be used, it must be grounded in specific case evidence.
FERC has also rebutted Atlanta Gas's claims that the bypass harms its interests. Atlanta Gas's forecasts of revenue losses and rate increases were deemed overestimated by FERC, which noted that a Global Settlement allowed Atlanta Gas to decrease its dependency on Southern, offsetting potential losses. FERC characterized Atlanta Gas’s predictions about future customer losses as speculative and based on an unlikely worst-case scenario, emphasizing that the agency need not conduct experiments to validate general economic predictions such as competition leading to lower prices.
Atlanta Gas challenged a bypass, arguing it would hinder the Georgia Public Service Commission's (PSC) regulation of natural gas rates, impacting residential consumers. The Commission found that Atlanta Gas provided insufficient evidence regarding the PSC’s ratemaking policies and how they would be affected by the bypass, leading to the rejection of this objection. The Commission stated that Atlanta Gas's forecast regarding residential customers relied on speculative assumptions about industrial users bypassing Atlanta Gas.
Additionally, Atlanta Gas claimed that unresolved material facts necessitated a trial-type evidentiary hearing. The Commission, however, determined that the existing record was sufficient and contained no genuine material facts in dispute, thus not requiring a hearing. FERC's decision was reviewed for abuse of discretion, and it was concluded that FERC acted within its authority and discretion, as live testimony would not have enhanced the inquiry.
Lastly, Atlanta Gas's argument regarding procedural irregularity in the authorization of Southern's construction of a sales tap was found unpersuasive. The Commission authorized Southern to connect to Arcadian under its blanket certificate authority, despite Atlanta Gas's claim that Southern did not file the required application prior to construction.
Southern's failure to file an application regarding sales tap construction did not prevent Atlanta Gas from being adequately notified or able to participate in the proceedings, as Atlanta Gas actively engaged by submitting comments and participating in oral arguments. Accepting Atlanta Gas's appeal would prioritize form over substance. The 1993 settlement between Arcadian and Southern, ratified by the Commission in 1994, effectively mooted prior complaints and challenges linked to the 1991 and 1992 Orders concerning FERC's authority under the NGA to mandate bypass construction. Atlanta Gas argues that the issue remains relevant and seeks vacatur of the earlier orders if deemed moot, but mootness applies when issues are no longer live or parties lack a legal interest in the outcome. The dispute is no longer active between the original parties, and Atlanta Gas, as an intervenor, claims a revenue loss of about $4 million due to Southern's direct supply to Arcadian. However, even if its intervenor status doesn’t negate its interest, such interest alone does not prevent mootness, as any judicial relief would not effectively address its claimed injuries. The appellate court emphasizes that mootness arises when it cannot provide effective relief, and the existence of a partial remedy alone can prevent mootness.
An injunction is deemed ineffective since the pipeline has already been constructed, and Section 7 of the Natural Gas Act (NGA) does not permit claims for damages, leading to the conclusion that the 1991 and 1992 Orders are moot. The central issue is whether vacatur of these orders is warranted. Atlanta Gas argues for vacatur based on precedents set in *United States v. Munsingwear* and *A. L. Mechling Barge Lines v. United States*. The Supreme Court in *Munsingwear* established a practice of vacating district court opinions in cases that become moot, facilitating future litigation and preserving party rights. *Mechling* affirmed this principle applies to unreviewed administrative orders. FERC did not address vacatur in its brief, but the conclusion is that the 1991 and 1992 Orders should be vacated based on *Mechling*'s principles. The decision to vacate does not adjudicate the merits of FERC's authority under Section 5 of the NGA regarding pipeline bypasses. The vacatur serves to maintain fairness without precluding FERC's ability to assert its powers in future cases. Although FERC contends Atlanta Gas's actions caused mootness, the mootness resulted from a separate settlement. Consequently, the 1991 and 1992 Orders are vacated in line with *Mechling* and *Munsingwear*.
FERC referenced the Supreme Court's decision in Bancorp, which reiterated that mootness due to happenstance justifies vacatur, while also establishing that a party that settles and moots a dispute forfeits its right to seek vacatur. In Bancorp, the Supreme Court denied the request to vacate a lower court's opinion because Bancorp was not involved in the settlement that rendered the case moot. FERC clarified that, in this instance, the mootness stemmed from the Southern-Arcadian settlement, as noted in the 1994 Order, which indicated that Southern no longer opposed Arcadian’s service request.
Dalton argued that the pro forma bypass tariff provisions from the 1994 and 1996 Orders permit Southern to unfairly compete for gas service provision to industrial end-users. Dalton highlighted a tariff provision that mandates Southern to grant "economically feasible" bypass requests, defining such feasibility in a way that could disadvantage Dalton and other local distribution companies (LDCs). However, the Commission dismissed Dalton's concerns, anticipating robust competition from LDCs and committing to evaluate Southern's tariff on a case-by-case basis to ensure fair competition. Additionally, FERC noted that certain settlement provisions lessened the impact of Dalton's worries.
Dalton appealed the Commission's decision, but the appeal was deemed not ripe for adjudication. Ripeness assesses the timing of a legal claim, determining that claims based on uncertain future events are not ready for judicial review. Although the Natural Gas Act does not explicitly require ripeness, FERC orders must still be ripe for review, as established in precedent. Courts evaluate ripeness by considering the suitability of issues for decision and the potential hardship on the parties if review is deferred, guided by four evaluative factors.
The analysis evaluates four key factors regarding Dalton's challenge to tariff provisions:
1. The legal nature of the issues, indicating that Dalton's challenge does not involve purely legal questions, as it hinges on future bypass terms and Dalton's market position.
2. The status of the agency action, noting that no final agency action has occurred since Southern must follow specific notice procedures before any bypass affecting Dalton can be addressed.
3. The impact on Dalton, where it is determined that current tariff provisions do not have a direct and immediate effect since no end-user has sought to bypass Dalton.
4. The potential interference with agency policy, suggesting that judicial review at this stage is inappropriate without sufficient factual development regarding a bypass case.
Consequently, Dalton's petition is dismissed as unripe, the Commission’s approval of the tariff bypass provisions is affirmed, and the prior 1991 and 1992 Orders are vacated. Dalton's claims regarding competitive harm and procedural burdens are inadequate to establish immediate impact, as FERC retains the authority to evaluate future bypass proposals, negating Dalton's assertion of immediacy.
