## Facts

- FERC implemented Order No. 636 to restructure interstate natural gas pipelines by requiring unbundling of sales and transportation services and establishing open-access transportation.
- Interstate pipelines submitted compliance tariffs and restructuring plans; FERC approved or modified these filings through multiple follow-on and pipeline-specific orders.
- Local distribution companies and other parties petitioned for review, challenging FERC’s jurisdictional determinations, rate design and fixed-cost allocation, and recovery/allocation of restructuring “transition costs,” including gas supply realignment (GSR) costs.
- Petitioners also argued that particular orders lacked adequate explanation, evidentiary support, or procedural fairness.
- Multiple petitions were consolidated for appellate review.

## Issues

1. Whether FERC exceeded its statutory authority under the Natural Gas Act by aspects of its Order 636 implementation, including jurisdictional line-drawing between interstate transportation and non-jurisdictional gathering or local distribution.
2. Whether FERC lawfully approved pipeline rate designs and fixed-cost allocations consistent with “just and reasonable” and non-discriminatory requirements.
3. Whether FERC permissibly allowed recovery and allocation of transition costs (including GSR costs) and whether those mechanisms were unduly discriminatory.
4. Whether FERC adequately explained its decisions and supported them with substantial evidence while providing sufficient procedural protections.

## Decision

- The court largely denied the petitions and upheld FERC’s overall Order 636 implementation.
- The court sustained FERC’s authority to require unbundling and to approve open-access transportation measures as within the Natural Gas Act’s regulation of interstate transportation and related practices.
- The court generally upheld FERC’s rate design and cost-allocation choices, deferring to the agency’s technical and policy judgments when reasonably explained and supported by the record.
- The court approved the general legality of allowing recovery of prudently incurred transition costs, including GSR costs, through ratemaking mechanisms.
- The court granted limited relief by remanding discrete aspects of particular orders where FERC had not adequately justified specific cost allocations or differential treatment among shipper categories.

## Legal Principles

- FERC has broad authority under the Natural Gas Act to regulate interstate transportation and related terms and practices, including requiring unbundling and open-access transportation to ensure just and reasonable rates and practices.
- Judicial review of FERC ratemaking is highly deferential; the court will uphold agency choices in rate design and cost allocation if the agency reasonably explains its methodology and the decision is supported by substantial evidence.
- Transition costs resulting from regulatory restructuring may be recoverable in rates if FERC reasonably finds the costs were prudently incurred and allocates them in a manner consistent with cost-causation principles and the statutory ban on undue discrimination.
- Differential treatment among shipper classes is permissible when rationally tied to cost or service characteristics; the agency must articulate a reasoned basis for any disparities.
- When FERC’s reasoning or record support is insufficient on specific ratemaking determinations, the proper remedy is a targeted remand for further explanation or reconsideration rather than wholesale invalidation of the regulatory program.

## Conclusion

The D.C. Circuit largely affirmed FERC’s post–Order 636 restructuring decisions, including unbundling and transition-cost recovery, while requiring limited remands where particular cost-allocation or discrimination determinations lacked adequate explanation or record support.


United Distrib. Cos. v. FERC, 88 F.3d 1105 (D.C. Cir. 1996)