                        United States Court of Appeals


                     FOR THE DISTRICT OF COLUMBIA CIRCUIT


              Argued April 6, 1998        Decided April 21, 1998


                                 No. 93-1566


             Tennessee Valley Municipal Gas Association, et al., 

                                 Petitioners


                                      v.


                    Federal Energy Regulatory Commission, 

                                  Respondent


                        ANR Pipeline Company, et al., 

                                 Intervenors


                              Consolidated with 


              Nos.  93-1837, 94-1016, 94-1023, 94-1357, 94-1562


 


                  On Petitions for Review of Orders of the 

                     Federal Energy Regulatory Commission


     Jennifer N. Waters argued the cause for petitioners East 
Tennessee Group and Tennessee Valley Municipal Gas Asso-



ciation.  With her on the briefs were Jack M. Irion, Glenn W. 
Letham and Channing D. Strother, Jr.

     Lee A. Alexander argued the cause for petitioners Ocean 
State Power, et al.  With him on the briefs were Stefan M. 
Krantz and Yoav K. Gery. Carl M. Fink entered an appear-
ance.

     Edward S. Geldermann, Attorney, Federal Energy Regula-
tory Commission, argued the cause for respondents.  With 
him on the brief were Jay L. Witkin, Solicitor, John H. 
Conway, Deputy Solicitor, Susan J. Court, Special Counsel, 
and Janet Kay Jones, Attorney.

      Robert H. Benna argued the cause for intervenor Tennes-
see Gas Pipeline Company.  With him on the brief was 
Jeanne M. Bennett.  Michael J. Fremuth entered an appear-
ance.

     Bruce A. Connell, Kevin M. Sweeney, Joseph D. Naylor, 
John E. Dickinson, Michael L. Pate, Charles J. McClees, Jr., 
Mickey Jo Lawrence, and Norma J. Rosner were on the brief 
for intervenors Indicated Shippers.  J. Paul Douglas entered 
an appearance.

     Before:  Wald, Sentelle, and Randolph, Circuit Judges.

     Opinion for the Court filed Per Curiam.

     Per Curiam:  The two issues presented in these consolidat-
ed petitions arise from orders of the Federal Energy Regula-
tory Commission relating to Tennessee Gas Pipeline Compa-
ny's restructuring of its service and operations to conform 
with Order No. 636.  See United Distribution Cos. v. FERC 
("UDC"), 88 F.3d 1105 (D.C. Cir. 1996).

     The first issue deals with a difference in the pipeline's 
treatment of some of its "small" customers in terms of their 
eligibility for "one-part" sales service, eligibility that is for a 
discount subsidized by other pipeline customers.  The Com-



mission's order of November 12, 1993, set a 5,300 dekatherm 
("Dth/day") eligibility limit on the pipeline's former "indirect" 
small customers, but allocated a 10,000 Dth/day eligibility 
limit on Tennessee's former upstream, or "direct," small 
customers.  See 65 F.E.R.C. p 61,224, at 62,062-63 (1993).  
Petitioners East Tennessee Group and Tennessee Valley Mu-
nicipal Gas Association, representing some of the pipeline's 
former indirect small customers, point out that after restruc-
turing they are in the same position as the pipeline's former 
"upstream" small customers;  both classes are now direct 
customers.  Their argument is that the Commission's approv-
al of an eligibility cutoff for former upstream small customers 
nearly double that granted to former indirect small customers 
amounts to "undue discrimination" in violation of the Natural 
Gas Act, 15 U.S.C. ss 717c(b), 717d(a).  The Commission, of 
course, denies that it has discriminated.  In its view, it has 
merely maintained the status quo.  Before restructuring the 
eligibility limit for indirect small customers was no more than 
5,300 Dth/day;  for upstream small customers, the limit was 
10,000 Dth/day.  Maintaining these cutoffs, the Commission 
believes, did not result in unequal treatment.  Both classes of 
small customers were treated the same:  They were placed in 
the same position after restructuring as they were in before 
restructuring.

     We had a related problem before us in UDC. Order No. 
636-B indicated that an upstream pipeline's former indirect 
small customers could qualify for discounts only if they could 
demonstrate need in the individual restructuring proceedings, 
although former upstream small customers automatically re-
ceived the discount.  See 61 F.E.R.C. p 61,272, at 62,020 
(1992).  East Tennessee Group and Tennessee Valley Munici-
pal Gas Association claimed that this difference in treatment 
amounted to "undue discrimination" against them.  We held 
that the Commission had failed to justify this seemingly 
"arbitrary distinction between former indirect small custom-
ers of upstream pipelines (who are now direct small custom-
ers) and small customers who have always been direct cus-
tomers of the same pipelines," and remanded the "issue to the 
Commission for further consideration of whether or not the 



small customer benefits should be made available to the 
former downstream small customers."  UDC, 88 F.3d at 1175.

     The Commission rendered its orders in this case before 
UDC came down.  In the ordinary course, we would consider 
vacating and remanding for reconsideration in light of our 
intervening decision.  Although there are differences between 
the issue in UDC and the issue in this case, other develop-
ments convince us that the proper course is to send the case 
back.  Proceedings on remand from UDC are well underway.  
In Order No. 636-C, the Commission reaffirmed its decision 
to determine on a case-by-case basis the limits on former 
indirect small customers' eligibility for the upstream pipe-
line's small-customer rate.  See 78 F.E.R.C. p 61,186, at  
61,776-78 (1997).  To demonstrate why it was appropriate to 
proceed in this manner, the Commission discussed its orders 
in Tennessee's restructuring proceeding--this case--setting 
different eligibility limits for former indirect small customers 
and former upstream small customers.  See id. at 61,778.  
East Tennessee and Tennessee Valley Municipal Gas Associa-
tion sought rehearing of Order No. 636-C.  Their rehearing 
petition makes arguments identical to those in their brief in 
this case, using the same sources and at times even the same 
language.  The rehearing petition is still pending before the 
Commission.

     Thus, the general issue of the treatment of a pipeline's 
former indirect small customers under Order No. 636 has not 
yet been finally decided by the Commission.  It would be 
imprudent for us to review the merits of a question still under 
consideration by the Commission.  Accordingly we shall re-
mand this aspect of the case to the Commission so that it may 
be considered in light of the outcome of the rehearing of 
Order No. 636-C.

     The remaining matter before us is the challenge by JMC 
Power Projects to what it describes as a final agency action in 
the Commission's Second Compliance Order--a decision to 
price the costs of newly constructed facilities on Tennessee on 
an "incremental" rather than on a "rolled-in" basis.  64 
F.E.R.C. p 61,020, at 61,219-21 (1993).  These facilities, which 



were constructed to serve JMC Power Projects and other 
Northeastern customers of Tennessee, consist of additions 
and replacements of pipeline looping, and new compressors 
and interconnections on Tennessee's integrated mainline.  
They have been priced on an "incremental" basis since their 
original certification, meaning that only those customers di-
rectly served by the facilities--customers such as JMC Power 
Projects--pay for costs associated with them.  See, e.g., 45 
F.E.R.C. p 61,010 (1988).  In the Second Compliance Order, 
the Commission considered permitting Tennessee to switch 
from incremental to "rolled-in" pricing, thereby spreading the 
costs of the facilities across all customers of Tennessee.  See 
64 F.E.R.C. at 61,219-21.

     We do not believe this challenge is ripe for review.  Al-
though the Commission considered the rolled-in pricing issue 
in its Second Compliance Order, and tentatively concluded 
that the evidence in the record did not justify it, the Commis-
sion expressly deferred making a final decision until the 
parties had the opportunity to present further evidence in 
Tennessee's ongoing rate case.  See id. at 61,220-21.  The 
Commission informed the parties that they "should further 
address the roll-in issue in Tennessee's ongoing rate proceed-
ing....  There, the parties will have the opportunity to 
develop a record that fully explores the costs and benefits to 
the existing shippers...."  Id. at 61,221.  True to its word, 
the Commission reconsidered the issue in the rate proceed-
ing, and determined that the evidence did not support rolled-
in pricing.  See Tennessee Gas Pipeline Co., 76 F.E.R.C. 
p 61,022, at 61,112 (1996), reh'g denied, 80 F.E.R.C. p 61,060 
(1997).  JMC Power has not yet filed a petition for judicial 
review from this final decision.  It nevertheless argues that 
the Commission's decision to defer the rolled-in rate issue in 
the Second Compliance Order should be treated as a final 
decision on the merits because it demonstrated that the 
Commission was applying an unlawfully stringent standard in 
determining whether rolled-in rates were justified.  The 
question is not, however, whether the evidence before the 
Commission was sufficient to justify rolled-in rates.  The 
question is whether the Commission made a final decision 



about the validity of such rates.  On that score, it appears 
clear to us that the Commission decided only to examine the 
issue in the rate proceeding.

     JMC Power also thinks that the Commission must have 
fully resolved the rolled-in rate issue because it required the 
parties to develop an "exhaustive record" in the restructuring 
proceeding, and because it had previously expressed its intent 
to decide the rolled-in rate issue in the restructuring docket.  
But whatever the Commission initially contemplated, it ulti-
mately decided not to decide the issue.  An agency has broad 
discretion to determine when and how to hear and decide the 
matters that come before it.  See Mobil Oil Exploration v. 
United Distribution Cos., 498 U.S. 211, 230 (1991);  Algon-
quin Gas Transmission Co. v. FERC, 948 F.2d 1305, 1314-15 
(D.C. Cir. 1991);  GTE Service Corp. v. FCC, 782 F.2d 263, 
273 (D.C. Cir. 1986).  The Commission is not barred from 
hearing new evidence in a rate case simply because it previ-
ously gathered evidence on that issue in the restructuring 
proceeding.  JMC Power points to no statute or regulation 
preventing the Commission from deferring a final decision to 
the rate proceeding even though, at an earlier point, the 
Commission considered resolving the issue in the restructur-
ing hearing.

                                  * * * * * 


     We remand the eligibility limitation placed on Tennessee's 
former indirect small customers for consideration in light of 
the Commission's rehearing of Order No. 636-C.  We deny 
the petition to review the rate treatment of facilities on 
Tennessee's pipeline for lack of a final judgment on that 
issue.

So ordered.


     
