Full opinion text
Opinion for the Court filed PER CURIAM. Table of Contents I. INTRODUCTION .1121 A. Background: Natural Gas Industry Structure.1122 B. Order No. 436: Open-Access Transportation.1123 C. Order No. 636: Mandatory Unbundling.1125 D. Issues on Review and Conclusions .1127 II. Open-Acoess Firm Transportation.1130 A. Unbundling.1130 1. Prohibition on unilateral customer release of transportation capacity_1130 2. Pipeline modification of contract-storage rights.1133 3. Capacity retention by transportation-only pipelines.1135 4. Eligibility date for no-notice transportation.1136 B. Right of First Refusal.1137 1. Pre-granted abandonment generally.1138 2. The twenty-year contract term.1140 3. Requirement to discount.1141 C. Curtailment.1142 1. Supply curtailment of pipeline gas.1144 2. Capacity curtailment.1146 3. Supply curtailment of third-party gas.1147 III. Capaoity Release.1148 A. Introduction .1149 B. Jurisdictional Challenges.1151 1. FERC’s jurisdiction to regulate capacity release.1152 2. Jurisdiction over LDCs’ capacity sales to their own end-users.1152 3. Jurisdiction over municipal capacity release.1158 4. Jurisdiction over “buy/sell” arrangements.1154 a. Introduction to federal preemption.1155 b. Analysis.1156 C. Substantive Challenges.1157 1. Exclusion of Part 157 shippers from capacity release.1157 2. The standard for determining the best bid.1159 3. Interruptible transportation revenue crediting.1160 D. Conclusion.1161 IV. Rate Design.1161 A.FERC’s Authority to Adopt SFV Rate Design.1161 1. MFV rate design’s anticompetitive effects.1161 2. SFV rate design and NGA § 5.1163 B. SFV Rate Design and Substantial Evidence.1167 1. MFV rate design’s distortions of the natural gas market.1167 2. FERC’s choice of SFV rate design .1168 a. LDCs’ claim.1168 b. PUCs’claim.1169 c. Electric Generators’ claim.1169 d. Small Distributors’ and Municipalities’ claim.1170 3. Regulatory Flexibility Act.1170 C. FERC’s Discretion to Adopt Mitigation Measures.1170 1. Background.1170 2. Justifications for mitigation measures.1171 3. Non-permanence of mitigation measures.1172 4. Impact on pipeline rate of return.1173 5. Individual customer vs. customer class.1173 6. Discounts for former customers of downstream pipelines.1174 7. Triennial rate review.1175 V. TRANSITION Costs.1176 A. Background to Transition Costs .1176 1. Order No. 436 and its successors.1176 2. Order No. 636 and petitioners’ challenges .1177 B. Stranded Costs and the “Used and Useful” Doctrine.1178 C. LDC Bypasses.1180 D. Above-Market Recovery for Great Plains Gas.1181 E. GSR Costs.1182 1. Ripeness of petitioners’' challenges to FERC’s treatment of GSR transition costs.1182 2. Gas producers’ exemption from GSR costs.1183 3. Allocation of GSR costs among customer classes.1184 a. “Cost spreading” and “value of service” .1184 b. Petitioners’ challenges.1185 1.) Limitation to bundled sales customers .1185 2.) Interruptible transportation customers.1186 4. Pipelines’ exemption from GSR costs 1188 F. Conclusion.1191 VI. Conclusion.1191 PER CURIAM: I. Introduction In Order No. 636, the Federal Energy Regulatory Commission (“Commission” or “FERC”) took the latest step in its decade-long restructuring of the natural gas industry, in which the Commission has gradually withdrawn from direct regulation of certain industry sectors in favor of a policy of “light-handed regulation” when market forces make that possible. We review briefly the regulatory background for natural gas. A. Background: Natural Gas Industry Structure The natural gas industry is functionally separated into production, transportation, and distribution. Traditionally, before the move to open-access transportation, a producer extracted the gas and sold it at the wellhead to a pipeline company. The pipeline company then transported the gas through high-pressure pipelines and re-sold it to a local distribution company (LDC). The LDC in turn distributed the gas through its local mains to residential and industrial users. See generally Edward C. Gallick, Competition in the NatuRal Gas INDUSTRY 9-12 (1993). The Natural Gas Act (NGA), ch. 556, 52 Stat. 821 (1938) (codified as amended at 15 U.S.C. §§ 717-717w (1994)), enacted in 1938, gave the Commission jurisdiction over sales for resale in interstate commerce and over the interstate transportation of gas, but left the regulation of local distribution to the states. NGA § 1(b), 15 U.S.C. § 717(b). The NGA was intended to fill the regulatory gap left by a series of Supreme Court decisions that interpreted the dormant Commerce Clause to preclude state regulation of interstate transportation and of wholesale gas sales. See Arkansas Elec. Coop. Corp. v. Arkansas Pub. Serv. Comm’n, 461 U.S. 375, 377-80, 103 S.Ct. 1905, 1908-10, 76 L.Ed.2d 1 (1983). The overriding purpose of the NGA is “ ‘to protect consumers against exploitation at the hands of natural gas companies.’ ” FPC v. Louisiana Power & Light Co., 406 U.S. 621, 631, 92 S.Ct. 1827, 1833, 32 L.Ed.2d 369 (1972) (quoting FPC v. Hope Natural Gas Co., 320 U.S. 591, 610, 64 S.Ct. 281, 291, 88 L.Ed. 333 (1944)). Federal regulation of the natural gas industry is thus designed to curb pipelines’ potential monopoly power over gas transportation. The enormous economies of scale involved in the construction of natural gas pipelines tend to make the transportation of gas a natural monopoly. Indeed, even with the expansion of the national pipeline grid, or network, in recent decades, many “captive” customers remain served by a single pipeline. Order No. 436, ¶ 30,665, at 31,473. Even though the market function potentially subject to monopoly power is the transportation of gas, for many years the Commission also regulated the price and terms of sales by producers to interstate pipelines. See Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672, 677-84, 74 S.Ct. 794, 796-800, 98 L.Ed. 1035 (1954). Producer price regulation was widely regarded as a failure, introducing severe distortions into what otherwise would have been a well-functioning producer sales market. See Stephen G. BREYER & Paul W. MaoAvoy, Energy Regulation by the Federal Power Commission 56-88 (1974). When a severe gas shortage developed in the 1970s, Congress enacted the Natural Gas Policy Act of 1978 (NGPA), Pub.L. No. 95-621, 92 Stat. 3351 (codified as amended at 15 U.S.C. §§ 3301-3432 (1994)), which gradually phased out producer price regulation. Under the NGPA’s partially regulated producer-price system, many pipelines entered into long-term contractual obligations, in what were known as “take-or-pay’ provisions, to purchase minimum quantities of gas from producers at costs that proved to be well above current market prices of gas. See Richard J. Pierce, Jr., Reconstituting the Natural Gas Industry from Wellhead to Bumertip, 9 Energy L.J. 1, 11-16 (1988). The problem of pipelines’ take-or-pay settlement costs has plagued the industry and the Commission over the last fifteen years. The Commission’s initial response to escalating pipeline take-or-pay liabilities was to authorize pipelines to offer less expensive sales of third-party (non-pipeline-owned) gas to non-captive customers while still offering only higher-priced pipeline gas to captive customers. The court struck down these measures because the Commission “ha[d] not adequately attended to the agency’s prime constituency,” captive customers vulnerable to pipelines’ market power. Maryland People’s Counsel v. FERC, 761 F.2d 780, 781 (D.C.Cir.1985) (MPC II); see also Maryland People’s Counsel v. FERC, 761 F.2d 768, 776 (D.C.Cir.1985) (MPC I). In response to the court’s decisions in MPC I and MPC II, the Commission embarked on its landmark Order No. 436 rulemaking. See Order No. 436, ¶ 30,665, at 31,467. B. Order No. 436: Open-Access Transportation In Order No. 436, the Commission began the transition toward removing pipelines from the gas-sales business and confining them to a more limited role as gas transporters. Under a new Part 284 of its regulations, the Commission conditioned receipt of a blanket certificate for firm transportation of third-party gas on the pipeline’s acceptance of non-discrimination requirements guaranteeing equal access for all customers to the new service. Order No. 436, ¶30,-665, at 31,497-518. In effect, the Commission for the first time imposed the duties of common carriers upon interstate pipelines. See Associated Gas Distributors v. FERC, 824 F.2d 981, 997 (D.C.Cir.1987) (AGD I), cert. denied, 485 U.S. 1006, 108 S.Ct. 1468, 1469, 99 L.Ed.2d 698 (1988). By recognizing that anti-competitive conditions in the industry arose from pipeline control over access to transportation capacity, the equal-access requirements of Order No. 436 regulated the natural-monopoly conditions directly. In addition, every open-access pipeline was required to allow its existing bundled firm-sales customers to convert to firm-transportation service and, at the customer’s option, to reduce its firm-transportation entitlement (its “contract demand”). Order No. 436, ¶ 30,665, at 31,518-33. Moreover, the Commission established a flexible rate structure under which transportation charges were limited to the maximum approved rate (based on fully allocated costs) but pipelines could selectively discount down to the minimum approved rate (based on average variable cost). Id. at 31,533-19. The court largely approved Order No. 436, but the principal stumbling-block was the unresolved problem of uneconomical pipeline-producer contracts in the transition to the unbundled environment. The Commission had decided not to provide pipelines with relief from their take-or-pay liabilities, even though the introduction of open-access transportation in Order No. 436 would likely exacerbate the problem by reducing pipeline sales. AGD I, 824 F.2d at 1021-23. After the court remanded the case on the ground that the Commission’s inaction on take-or-pay did not exhibit reasoned decision making in light of open access, id. at 1030, the Commission adopted various interim measures in Order No. 500. First, it instituted a “crediting mechanism,” under which a pipeline could apply any third-party gas that it transported toward the pipeline’s minimum-purchase obligation from that particular producer. Order No. 500, ¶ 30,761, at 30,779-84. Second, the Commission adopted two alternative cost-recovery mechanisms. As customary, a pipeline could recover all of its prudently incurred costs in its commodity (sales) charges, although that could prove difficult for pipelines with shrinking sales-eustomer bases. In the alternative, under the equitable-sharing approach, a pipeline offering open-access transportation could, if it voluntarily absorbed between twenty-five and fifty percent of the costs, recover an equal share of the costs through a “fixed charge” and recover the remaining amount (up to fifty percent) through a volumetric surcharge based on total throughput (and thus borne by both sales and transportation customers alike). Id. at 30,784-92; 18 C.F.R. § 2.104. Third, the Commission authorized pipelines not recovering take-or-pay costs in any other manner to impose a “gas inventory charge” (GIC), a fixed charge for “standing ready” to deliver gas — the sales analogue to a reservation charge. Order No. 500, ¶ 30,761, at 30,792-94; 18 C.F.R. § 2.105. The Commission’s alternative solutions to the problem of take-or-pay settlement costs in Order No. 500 fared poorly on judicial review. First, the court remanded the crediting mechanism for an explanation of whether the Commission had the requisite authority under § 7 of the NGA. American Gas Ass’n v. FERC, 888 F.2d 136, 148-49 (D.C.Cir.1989) (AGA I). After the Commission explained its § 7 authority for the crediting mechanism in Order No. 500-H, the court upheld the crediting mechanism. American Gas Ass’n v. FERC, 912 F.2d 1496, 1509-13 (D.C.Cir.1990) (.AGA II). Second, the court struck down the equitable-sharing cost-recovery mechanism on the ground that the Commission’s “purchase deficiency” method for calculating the “fixed charge,” which assigned costs to each customer based on how much its purchases had declined over the relevant preceding period, violated the filed-rate doctrine. Associated Gas Distributors v. FERC, 893 F.2d 349, 354-57 (D.C.Cir.1989) (AGD II), reh’g en banc denied, 893 F.2d 809 (D.C.Cir.), cert. denied, 498 U.S. 907, 111 S.Ct. 277, 278, 112 L.Ed.2d 233 (1990). The Commission responded to the invalidation of the “purchase deficiency” method in AGD II by adopting Order No. 528, which allowed pipelines, in the “fixed charge,” to pass through a portion of costs to customers based on any of several measures of current (rather than past) demand or usage, with the intent of avoiding the filed-rate problem. Order No. 528, ¶ 61,-163, at 61,597-98. Finally, the court struck down the Commission’s approval of a GIC on a particular pipeline because it had given undue weight to the pipeline’s customers’ having agreed to the GIC and failed adequately to consider the interests of end-users. Tejas Power Corp. v. FERC, 908 F.2d 998, 1003-05 (D.C.Cir.1990). Congress completed the process of deregulating the producer sales market by enacting the Natural Gas Wellhead Decontrol Act of 1989, Pub.L. No. 101-60, 103 Stat. 157 (codified in scattered sections of 15 U.S.C.). As the House Committee on Energy and Commerce emphasized, the Commission’s creation of open-access transportation was “essential” to Congress’ decision completely to deregulate wellhead sales. H.R.Rep. No. 29, 101st Cong., 1st Sess. 6 (1989), U.S.Code Cong. & Admin.News 1989, pp. 51, 56. The committee report declared also that “[b]oth the FERC and the courts are strongly urged to retain and improve this competitive structure in order to maximize the benefits of decontrol.” Id. The committee expected that, by ensuring that “[a]ll buyers [are] free to reach the lowest-selling producer,” id., open-access transportation would allow the more efficient producers to emerge, leading to lower prices for consumers, id. at 3, 7. C. Order No. 636: Mandatory Unbundling In Order No. 636, the Commission declared the open-access requirements of Order No. 436 a partial success. The Commission found that pipeline firm sales, which in 1984 had been over 90 percent of deliveries to market, had declined by 1990 to 21 percent. Order No. 636, ¶ 30,939, at 30,399 tbl. 1. On the other hand, only 28 percent of deliveries to market in 1990 were firm transportation, whereas 51 percent of deliveries used interruptible transportation. Id. at 30,-399 & n. 61. The Commission concluded that many customers had not taken advantage of Order No. 436’s option to convert from firm-sales to firm-transportation service because the firm-transportation component of bun-died firm-sales service was “superior in quality” to stand-alone firm-transportation service. Id. at 30,402. In particular, the Commission found that stand-alone firm-transportation service was often subject to daily scheduling and balancing requirements, as well as to penalties for variances from projected purchases in excess of ten percent. Moreover, pipelines usually did not offer storage capacity on a contractual basis to stand-alone firm-transportation shippers. Id. The result was that many of the non-converted customers used the pipelines’ firm-sales service during times of peak demand but in non-peak periods bought third-party gas and transported it with interrupti-ble transportation. The Commission found that “[i]t is often cheaper for pipeline sales customers to buy gas on the spot market, and pay the pipeline’s demand charge plus the interruptible rate, than to purchase the pipeline’s gas.” Id. at 30,400. Because of the distortions in the sales market, these customers often paid twice for transportation services and still received an inferior form of transportation (interruptible rather than firm). Id. Because of the anti-competitive effect on the industry, the Commission found that pipelines’ bundled firm-sales service violated §§ 4(b) and 5(a) of the NGA. Id. at 30,405. The Commission’s remedy for these anti-competitive conditions, and the principal innovation of Order No. 636, was mandatory unbundling of pipelines’ sales and transportation services. By making the separation of the two functions mandatory, the Commission expects that pipelines’ monopoly power over transportation will no longer distort the sales market. Order No. 636, ¶ 30,939, at 30,406-13; Order No. 636-A, ¶ 30,950, at 30,-527-46; Order No. 636-B, ¶ 61,272, at 61,-988-92. To replace the firm-transportation component of bundled firm-sales service, the Commission introduced the concept of “no-notice firm transportation,” stand-alone firm transportation without penalties. Those customers who receive bundled firm-sales service have the right, during the restructuring process, to switch to no-notice firm-transportation service. Pipelines that did not offer bundled firm-sales service are not required to offer no-notice transportation; but if they do, they must offer no-notice transportation on a non-diseriminatory basis. Order No. 636, ¶ 30,939, at 30,421-25; Order No. 636-A, ¶ 30,950, at 30,570-77; Order No. 636-B, ¶ 61,272, at 62,006-10; see 18 C.F.R. § 284.8(a)(4). In contrast to the continued regulation of the transportation market, the Commission essentially deregulated the pipeline sales market. The Commission issued every Part 284 pipeline a blanket certificate authorizing gas sales. Although acknowledging that “only Congress can ‘deregulate,’” the Commission “instituted] light-handed regulation, relying upon market forces at the wellhead or in the field to constrain unbundled pipeline sale for resale gas prices within the NGA’s ‘just and reasonable’ standard.” Order No. 636,¶ 30,939, at 30,440. The Commission reasoned that open-access transportation, combined with its finding that “adequate divertible gas supplies exist in all pipeline markets,” would ensure that the free market for gas sales would keep rates within the zone of reasonableness. Id. at 30,437-43; Order No. 636-A, ¶ 30,950, at 30,609-24; Order No. 636-B, ¶ 61,272, at 62,024-25; see 18 C.F.R. §§ 284.281-284.288. The Commission also undertook several measures to ensure that the pipeline grid, or network, functions as a whole in a more competitive fashion. First, open-access pipelines may not inhibit the development of “market centers,” which are pipeline intersections that allow customers to take advantage of many more transportation routes and choose between sellers from different natural gas production areas. Similarly, open-access pipelines may not interfere with the development of “pooling areas,” which allow the aggregation of gas supplies at a production area. Order No. 636, ¶ 30,939, at 30,427-28; Order No. 636-A, ¶ 30,950, at 30,581-82; Order No. 636-B, ¶ 61,272, at 62,011-12; see 18 C.F.R. §§ 284.8(b)(6), 284.9(b)(5). Finally, as part of the move toward open-access transportation, the Commission required Part 284 pipelines to allow shippers to deliver gas at any delivery point without penalty and to allow customers to receive gas at any receipt point without penalty. Order No. 686, ¶ 30,939, at 30,428-29; Order No. 636-A, ¶ 30,950, at 30,582-86; Order No. 636-B, ¶ 61,272, at 62,012-13; see 18 C.F.R. § 284.221(g)-(h). Even though this is the court’s first occasion to address Order No. 636, which was enacted in 1992, we do not write on a clean slate. Beginning with MFC I and MPC II, the court has consistently required the Commission to protect consumers against pipelines’ monopoly power. No longer reluctantly engaged in the unbundling enterprise, the Commission has responded by initiating sweeping changes with Order No. 636. Accordingly, we review the Commission’s exercise of its authority under the NGA in light of the principles that the court has already applied in this area. D. Issues on Review and Conclusions After two comprehensive rehearing orders, Orders No. 636-A and No. 636-B, the Commission denied further rehearing. 62 F.E.R.C. ¶ 61,007 (1993). The Judicial Panel on Multidistrict Litigation consolidated all the petitions for review of the Order No. 636 series and transferred them to the Eleventh Circuit by random selection pursuant to 28 U.S.C. § 2112(a)(3). On February 15, 1994, the Eleventh Circuit transferred the petitions for review to this court. We consolidated with this case petitions for review of the Commission’s decision to prohibit buy/sell agreements, and of the Commission’s decision to end capacity-brokering programs. We ordered the petitioners to file briefs in consolidated industry groups: pipelines; local distribution companies (LDCs); small distributors and municipalities; industrial end-users; electric generators; and public utility commissions (PUCs). The petitioners do not challenge the mandatory unbundling remedy itself. At issue on review are numerous other aspects of Order No. 636 involving changes that the Commission undertook as part of its comprehensive restructuring of the natural gas industry. In Part II of our opinion, we discuss the challenges to the Commission’s rules on Part 284 firm transportation. Part III addresses the challenges to the Commission’s new capacity-release program. Part IV covers the requirement that pipelines use the straight fixed/variable rate-design methodology. Finally, in Part V we deal with challenges to the Commission’s handling of transition costs. As we discuss in Part II.A, the petitioners challenge four peripheral aspects of the Commission’s unbundling remedy. We uphold the Commission’s rule that customers must retain contractual firm-transportation capacity for which the pipeline receives no other offer. See 18 C.F.R. § 284.14(e). Further, insofar as the Commission may have stated that a § 7(b) abandonment proceeding is never required for pipeline changes to contract-storage withdrawal and injection schedules, we grant relief, but we defer review of possible challenges to specific pipeline changes. The challenge to the Commission’s rule that transportation-only pipelines may not acquire capacity on other pipelines has been rendered moot by virtue of an intervening Commission decision. We remand for further explanation the Commission’s decision that only those customers who received bundled firm-sales service on May 18, 1992, are entitled to the new no-notice transportation service. Part II.B concerns the Commission’s award of pre-granted abandonment to long-term firm-transportation service, subject to the existing shipper’s “right of first refusal” (ROFR). Under this provision of the rules, pipelines are no longer required to go through § 7 abandonment proceedings when a transportation contract expires. In return, the existing customer has the right to retain service if it matches the terms of a competing offer for that capacity. Such bids are capped at the maximum rate approved by the Commission for that service, and the contract length may not exceed twenty years. Order No. 636, ¶ 30,939, at 30,448-52; Order No. 636-A, ¶ 30,950, at 30,627-36; Order No. 636-B, ¶ 61,272, at 62,025-28; see 18 C.F.R. § 284.221(d). While we conclude that in its basic structure the right-of-first-refusal mechanism complies with § 7, we remand the right-of-first-refusal mechanism to the Commission for further explanation of why it adopted a twenty-year term-matching cap. We uphold the Commission’s decision not to require pipelines to discount rates in the right-of-first-refusal process. The Commission also re-visited its policies for the curtailment of gas in times of a supply shortage or a capacity interruption. Gas can be curtailed on an end-use basis, meaning that high-priority users have priority in times of curtailment, or on a pro rata basis, meaning that each user’s deliveries are curtailed proportionally. The Commission found that it was statutorily obligated to require pipelines to adopt an end-use curtailment plan for shortages in the supply of pipeline gas. On the other hand, the Commission declined to require pipelines to adopt end-use curtailment for capacity interruption. Order No. 636, ¶ 30,939, at 30,429-31; Order No. 636-A, ¶ 30,950, at 30,586-93. In Part II.C, we affirm the Commission’s decision that title IV of the NGPA requires end-use supply curtailment and conclude that the issue of curtailment compensation is not ripe for review. We also deny the petitions for review of the Commission’s capacity-curtailment policies, but we do not examine whether pure pro rata capacity curtailment is always appropriate because the Commission has examined that issue on a pipeline-specific basis in the restructuring proceedings. Finally, we uphold the Commission’s policies for supply shortages of third-party gas. Part III addresses the Commission’s adoption of a uniform capacity-release program — a regulated market that allows capacity-holders to re-sell the rights to pipeline firm-transportation capacity. An existing shipper that finds itself with excess capacity may list that capacity on the pipeline’s electronic bulletin board (EBB), which functions as a central clearinghouse for the secondary capacity market. Order No. 636, ¶ 30,939, at 30,416-21; Order No. 636-A, ¶ 30,950, at 30,-550-65; Order No. 636-B, ¶ 61,272, at 61,-994-62,003; see 18 C.F.R. § 284.243. We uphold the Commission’s jurisdiction to regulate the re-sale of interstate-transportation rights in general, as well as specifically its jurisdiction over LDCs who broker capacity to local end-users and over municipal LDCs. We also uphold the Commission’s decision that state-authorized “buy/sell arrangements” are pre-empted by the Commission’s capacity-release program. Finally, we uphold the Commission’s decision to exclude Part 157 shippers and conclude that other challenges to the substance of the capacity-release program are not ripe for review. Part IV deals with the Commission’s requirement that pipelines adopt a new rate-design methodology known as straight fixed/variable (SFV). Under SFV, pipelines must allocate fixed costs to the reservation charge, and variable costs to the usage charge. The Commission mandated SFV so that fixed costs, which vary greatly between pipelines, would no longer affect the usage charge and thus distort the national gas-sales market that Order No. 686 fosters. Because the shift from the previous modified fixed/variable (MFV) rate design would disadvantage low-load-factor customers, the Commission adopted various SFV mitigation measures to protect those customers. Order No. 636,¶ 30,939, at 30,431-37; Order No. 636-A, ¶ 30,950, at 30,593-609; Order No. 636-B, ¶ 61,272, at 62,013-24; see 18 C.F.R. § 284.8(d). We uphold the Commission’s authority under § 5 to adopt SFV rate design and conclude that substantial evidence supports the Commission’s findings that MFV rate design distorted the producer sales market and that SFV is an appropriate rate-design methodology. Although we uphold the Commission’s SFV mitigation measures against most challenges, we conclude that the Commission failed to explain why it ordered some mitigation measures on an individual-customer basis and others on a customer-class basis and why it did not require pipelines to offer small-customer discounts to former customers of downstream pipelines. Accordingly, we remand those issues to the Commission. Finally, as we explain in Part V, the Commission addressed the transition costs involved with implementing Order No. 636. The Commission allowed pipelines, whose role as gas merchants was greatly reduced, to pass through to transportation customers all the costs of reducing contractual purchase obligations from producers, known as gas-supply realignment (GSR) costs. Unlike the Order No. 500 equitable-sharing cost-recovery mechanism for take-or-pay costs from pipeline-producer contracts, Order No. 636 imposes all the costs of realigning unneeded producer-pipeline contracts on pipeline customers. The Commission authorized pipelines to recover 90% of the GSR costs from current firm-transportation customers (including customers who converted from being bundled firm-sales customers under Order No. 436) and 10% of the GSR costs from interruptible-transportation customers. Order No. 636, ¶ 30,939, at 30,457-62; Order No. 636-A, ¶ 30,950, at 30,641-64; Order No.636-B, ¶ 61,272, at 62,031^15. We uphold the Commission’s decision to allow pipelines to recover GSR costs from customers who converted to open-access transportation before Order No. 636, but remand the decision that pipelines must allocate 10% of GSR costs to interruptible-transportation customers for further explanation. We also remand the decision that pipelines can pass through all their GSR costs to customers for further consideration by the Commission in light of the equitable-sharing procedures in Order No. 500 and the general cost-spreading principles of Order No. 636. We affirm the Commission’s treatment of LDC by-pass, GSR costs for the Great Plains coal gasification project, and stranded costs. The Commission resolved issues that it considered generic to all pipelines in the Order No. 636 rulemaking, but deferred many issues associated with the implementation of mandatory unbundling to restructuring proceedings. Every Part 284 pipeline is required to go through an individual pipeline restructuring proceeding, to conform its operations to the new regulations and to address pipeline-specific issues. 18 C.F.R. § 284.14; Order No. 686, ¶ 30,939, at 30,462-69; Order No. 636-A, ¶ 30,950, at 30,664-73. The Commission has by now completed the restructuring proceedings, and in the proceedings for some pipelines interested parties have petitioned for review. In this decision, we review only the Order No. 636 rulemaking, although on some issues we have necessarily had to consider the interaction between the rulemaking and the subsequent restructuring proceedings. II. Open-Access Firm Transportation A. Unbundling The petitioners challenge four aspects of the Commission’s unbundling remedy: the rule that customers must retain contractual firm-transportation capacity for which the pipeline receives no other offer; the Commission’s policy on pipelines’ ability to modify existing storage contracts without abandonment proceedings; the rule that transportation-only pipelines may not acquire capacity on other pipelines; and the eligibility date for no-notice transportation service. 1. Prohibition on unilateral customer release of transportation capacity When the Commission concluded that the pipelines’ bundled firm-sales service violated §§ 4(b) and 5(a) of the NGA, Order No. 636, ¶ 30,939, at 30,405, the Commission found also that “the continued enforcement of a pipeline sales customer’s purchase obligations, agreed to before implementation of unbundling under this rule, is unjust and unreasonable, and unduly discriminatory.” Id. at 30,453. Accordingly, all existing bun-died firm-sales customers were given the option to reduce or terminate their contractual pinchase obligations during the pipeline’s restructuring proceedings. 18 C.F.R. § 284.14(d)(1). By contrast, those customers were not relieved of their contractual transportation obligations unless either an alternative, creditworthy shipper offered to assume the capacity at the same or a higher rate (up to the maximum approved rate), or the pipeline agreed to reduce or terminate the transportation obligation. Id. § 284.14(e)(2). If a customer wished to reduce or terminate its transportation obligation, and either a replacement shipper assumed the capacity or the pipeline agreed, then the pipeline was authorized to abandon the service under the prior contract. Id. § 284.14(e)(3). In effect, existing bundled firm-sales customers remained contractually bound to receive firm-transportation service on the pipeline. On rehearing, Northern Indiana Public Service Company (NIPSCO) maintained that the Commission’s actions entirely abrogated the existing pipeline-customer bundled firm-sales contracts, and that the Commission could not require the LDCs to enter into new transportation contracts. The Commission denied that it had abrogated the contracts: the pipelines remained contractually obligated to provide separate sales and transportation services. “[T]he fact that LDCs have an opportunity to revise their sales entitlements under existing contracts with their pipeline suppliers does not mean they should also have an unqualified right to terminate their obligations for the costs of transportation capacity under those contracts.” Order No. 636-A, ¶ 30,950, at 30,638. The Commission also explained that if it released former bundled-sales customers from transportation obligations, “these capacity costs could be shifted from the customer who has contracted for the capacity to the pipeline or other customers that have no need for the capacity.” Id. at 30,637. NIPSCO, joined by other LDC petitioners, contends that, by holding pipeline customers to the transportation component of bundled firm-sales contracts, the Commission essentially imposed a new contract upon the customers, which is beyond the Commission’s § 5 authority. Section 5(a) provides that, whenever the Commission has found that an existing contract is “unjust, unreasonable, unduly discriminatory, or preferential,” it “shall determine the just and reasonable contract to be thereafter observed and in force, and shall fix the same by order.” 15 U.S.C. § 717d(a). NIPSCO contests not the Commission’s underlying finding that the bundled firm-sales contracts violated §§ 4(b) and 5(a), but only the remedy imposed under § 5. Our review is limited to whether the Commission’s reading of § 5 to authorize it to hold LDCs to the remaining terms of a modified pipeline-customer contract is a reasonable construction of its statutory authority. See AGD I, 824 F.2d at 1001. The bundled firm-sales contracts between pipelines and LDCs were subject to the Commission’s § 5 authority. The regulatory structure of the Natural Gas Act is contract-based: it “permits the relations between the parties to be established initially by contract, the protection of the public interest being afforded by supervision of the individual contracts.” United Gas Pipe Line Co. v. Mobile Gas Serv. Corp., 350 U.S. 332, 339, 76 S.Ct. 373, 378, 100 L.Ed. 373 (1956). Under § 5, “the Commission has plenary authority to limit or to proscribe contractual arrangements that contravene the relevant public interests.” Permian Basin Area Rate Cases, 390 U.S. 747, 784, 88 S.Ct. 1344, 1369, 20 L.Ed.2d 312 (1968). For example, in Wisconsin Gas Co. v. FERC, 770 F.2d 1144 (D.C.Cir.1985), cert. denied, 476 U.S. 1114, 106 S.Ct. 1968, 1969, 90 L.Ed.2d 653 (1986), the court affirmed the Commission’s decision in Order No. 380 that “minimum bill” provisions in existing contracts were “unjust and unreasonable” under § 5. The court upheld the Commission’s remedy, eliminating the minimum bill from the contracts, against the claim that such a remedy “unlawfully alter[ed] the terms of existing contracts,” on the ground that “section 5 gives the Commission authority to alter terms of any existing contract found to be ‘unjust’ or ‘unreasonable.’ ” Id. at 1153 n. 9. NIPSCO also maintains that the Commission has construed its § 5 authority to extend beyond the limits in § 1(b) on the Commission’s jurisdiction. Regardless of the Commission’s authority to impose modified contractual obligations on pipelines, NIPSCO contends that the Commission lacks such authority over LDCs because LDCs are “non-jurisdictional” entities. Under § 1(b), the Commission’s jurisdiction over “the transportation of natural gas in interstate commerce” does not apply to “the local distribution of natural gas or to the facilities used for such distribution.” 15 U.S.C. § 717(b). But the local-distribution exception applies only to the movement of gas within an LDC’s local mains and not to the movement of gas in high-pressure interstate pipelines. FPC v. East Ohio Gas Co., 338 U.S. 464, 470-71, 70 S.Ct. 266, 269-70, 94 L.Ed. 268 (1950); see also Louisiana Power & Light, 406 U.S. at 636 & n. 13, 92 S.Ct. at 1836 & n. 13. Thus, for the same reasons that the Commission has jurisdiction over the re-sale of interstate capacity rights by LDCs to local end-users, see infra Part III.B.2, it also has jurisdiction over an LDC’s ability to reduce or terminate its contractual interstate-transportation obligation. The pipeline-LDC contracts for transportation through interstate pipelines do not fall within the local-distribution exception to the Commission’s jurisdiction. The Commission cannot use the pipeline-LDC contracts as a jurisdictional hook for non-jurisdictional measures that do not relate to the Commission’s § 5 remedial authority over the contracts. As the court has held in a different context, the Commission may not assert its jurisdiction over a party merely because it is “involved in a contractual relationship with a jurisdictional pipeline.” ARCO Oil & Gas Co. v. FERC, 932 F.2d 1501, 1503 (D.C.Cir.1991). NIP-SCO maintains that the Commission has done just that by replacing the agreed-upon contractual terms with entirely new terms of the Commission’s own devising, when it would otherwise be without jurisdiction to compel the LDC to receive service in the first instance. But we do not agree that the Commission has overstepped the bounds of its § 5 authority in the first place. First, an LDC may maintain its original bargain by choosing not to exercise its unilateral right to terminate the purchase obligation. The resulting combination of sales service and no-notice firm-transportation service replicates its prior contractual entitlement. Thus, it is somewhat difficult to see the purported compulsion against LDCs in the Commission’s decision not to grant them the right to terminate their transportation obligations. Second, the Commission’s remedy was appropriately confined to the underlying violation. Because the Commission found the sales component of the bundled contracts to be unjust and unreasonable, Order No. 636, ¶ 30,939, at 30,453, it interfered with existing contracts only to the extent necessary to remedy the effects of pipelines’ market power. The Commission has the authority under § 5 to adopt a remedy proportionate to the problem being addressed. AGD I, 824 F.2d at 1019. Finally, § 5 instructs that “the Commission shall determine the just and reasonable ... contract to be thereafter observed and in force, and shall fix the same by order.” 15 U.S.C. § 717d(a). The limits of the Commission’s authority to modify pipeline-LDC contracts under § 5 lie in the requirement that, given the original contract and the Commission’s findings of unlawfulness, the resulting contract be “just and reasonable.” NIPSCO does not contend that the result of unbundling the firm-sales contracts was unjust or unreasonable. We therefore uphold the Commission’s § 5 authority to hold LDCs to the transportation component of the modified bundled firm-sales contracts. NIPSCO contends in the alternative that, even if the Commission’s action was within its § 5 authority, the Commission acted arbitrarily and capriciously. In NIP-SCO’s view, the limited nature of the remedy allows pipelines to continue to exercise market power over customers in the transportation contracts, in contravention of the overall goals of Order No. 636. We reject this challenge as well because the Commission has provided a reasonable basis for its decision not to allow customers unilaterally to reduce their contractual transportation obligations. Cf. ARCO, 932 F.2d at 1502. The Commission found in Order No. 636 that “the amount of capacity reserved for pipeline firm sales still far exceeds the pipelines’ actual sales so that capacity is not available for firm transportation and, as a result, interruptible transportation maintains a significant share of peak period transportation.” Order No. 636, ¶ 30,939, at 30,406. In other words, because many firm-sales customers decided to purchase third-party gas and transport it using interruptible service, those customers ended up holding excess reserved capacity. NIPSCO asserts that the effect of the Commission’s decision not to allow LDCs unilaterally to reduce their contractual transportation obligations is to perpetuate customers’ excessive capacity holdings. NIPSCO is correct insofar as the effect of any contract is to lock in current conditions, and the existence of a long-term contract necessarily slows the transition of a market to a new equilibrium when some underlying condition changes. Moreover, the capacity-release mechanism is an imperfect solution for the LDCs because the existing pipeline customer is unlikely to receive full compensation for released capacity in an ex-eess-capacity market situation. Yet the problem of capacity excess that the Commission identified was that customers held more capacity in bundled-sales contracts than they purchased gas from the pipeline, not that customers held more firm-transportation capacity than needed for their peak demand. Contrary to NIPSCO’s contention, there is no contradiction between the general goal in Order No. 636 of encouraging more efficient use of reserved capacity and the challenged rule that customers may not unilaterally release contractual transportation obligations: the Commission never found that the natural gas industry after mandatory unbundling would be characterized by excess reserved capacity. Moreover, the Commission provided in Order No. 636-A a coherent rationale for its decision. Because a pipeline’s rate structure is predicated upon levels of reserved capacity, providing customers with the unilateral option to reduce those levels would either reduce the pipeline’s cost recovery or force the pipeline to increase rates for the remaining customers. Order No. 636-A, ¶ 30,950, at 30,637. Because someone has to bear the costs of unfavorable contractual capacity obligations, the Commission reasoned that the customer who voluntarily assumed those obligations by entering into the contract should bear those costs rather than spreading them over all of the pipeline’s customers. The Commission decided to modify the set of contracts that forms the structure of the natural gas industry only as much as necessary to alleviate the anti-competitive sales component of the bundled contracts. The Commission is not required to exercise its § 5 authority beyond the limits of the problem it has identified, see AGD I, 824 F.2d at 1019, and its cost-shifting rationale was a well-reasoned justification for its decision not to go further. We therefore uphold this portion of the rules. 2. Pipeline modification of contract-storage rights Because the Commission found that “pipelines’ superior rights with respect to access and control provide them with several advantages over other gas merchants with no access to storage for their gas,” it required pipelines to offer access to their storage capacity on an open-access basis. Order No. 636, ¶ 30,939, at 30,425-26. By defining “transportation” to include “storage,” 18 C.F.R. § 284.1(a), the Commission made storage subject to the same non-discrimination requirements as capacity rights. Id. §§ 284.8(b), 284.9(b). Although pipelines were allowed to retain storage capacity for system management and in order to ensure the delivery of no-notice service, they were required to offer remaining storage capacity on an open-access contractual basis for customer-owned gas. Order No. 636, ¶ 30,939, at 30,426-27. The Commission granted former bundled firm-sales customers a priority right to that storage capacity. Order No. 636-A, ¶ 30,950, at 30,578. In its request for rehearing of Order No. 636, CNG Transmission Corporation, a pipeline company, explained that the changes involving open-access storage would create difficulties for it in providing the contractual levels of service to its existing contract-storage customers. Because “current contract storage injection and withdrawal schedules, and other related operational protocols, are based upon current levels of contract storage service,” CNG requested the ability to modify existing storage customers’ contractual rights to inject or withdraw gas. The Commission responded that its intent was that current contract storage customers retain their full right to capacity as specified in their contracts. The Commission did not mean to infer [sic] that the terms and conditions associated with then-rights could not be changed if they proved unreasonable in light of Order No. 636’s requirements of no-notiee transportation and open access contract storage. This, of course, is a pipeline specific matter and must be addressed in the restructuring proceeding. Order No. 636-A, ¶ 30,950, at 30,579. Upon further rehearing, however, the Commission went further, stating that, while it has authorized pipelines to propose to change existing storage arrangements, if necessary, to provide no-notice transportation service, the pipeline must still show that the changes are necessary and reasonable. This includes an impact of a change on current contract storage customers. The Commission has not authorized any reduction in contract storage capacity. The Commission views changes to injection and withdrawal schedules as changes to terms and conditions, rather than to the level of certificated service. Hence, the Commission concludes that changes to existing contract storage terms and conditions will not need action under NGA section 7(b). Order No. 636-B, ¶ 61,272, at 62,011. A group of LDC petitioners challenges the Commission’s statement that changes to contract-storage withdrawal and injection schedules do not require a § 7(b) abandonment proceeding. We agree with the petitioners that it is difficult to discern exactly what the Commission’s position is on this issue, and we grant the petitioners relief insofar as the Commission stated in Order No. 636-B that any change to injection and withdrawal schedules can be effected without a § 7(b) abandonment proceeding. If the Commission has permitted the pipelines to “abandon” a “service rendered by means of ... facilities” certificated by the Commission, then it has failed to comply with § 7(b), which requires a “due hearing” and a Commission finding that “the present or future public convenience or necessity permit such abandonment.” 15 U.S.C. § 717f(b). In general, the test for § 7 abandonment is whether the certificate-holder “permanently reduces a significant portion of a particular service.” Reynolds Metals Co. v. FPC, 534 F.2d 379, 384 (D.C.Cir.1976); see also Kansas Power & Light Co. v. FERC, 851 F.2d 1479, 1481 (D.C.Cir.1988). By comparison, the withholding of gas delivery to an interruptible-transportation customer is not an “abandonment,” because the customer has no right to guaranteed delivery under its contract or the certificate of service. Cerro Wire & Cable Co. v. FERC, 677 F.2d 124, 129-30 (D.C.Cir.1982). Although the court has reserved the issue whether a § 7(b) abandonment occurs when only the identity of the customer changes, an abandonment does take place “when there is a reduction or alteration in overall service.” Tennessee Gas Pipeline Co. v. FERC, 972 F.2d 376, 384 (D.C.Cir.1992). According to the submissions by the Associated Gas Distributors in the administrative record, a customer who contracts for storage is concerned with two elements: capacity (how much gas can be stored) and delivera-bility (how much gas can be withdrawn on a given day). The AGD attached affidavits from six member LDCs who stated that changes to injection and withdrawal schedules could reduce deliverability, with adverse consequences on their ability to meet residential customers’ demands. Elizabethtown Gas Company, in its opposition to CNG’s compliance filing in its restructuring proceeding, objected to CNG’s specific proposals to reduce withdrawal amounts when eon-tract-storage customers had low gas inventories in storage, to maintain elevated minimum inventory levels during the early winter months, to limit monthly withdrawal amounts to less than the total of the daily amounts, to reduce firm withdrawal rights to best-efforts rights, and to impose minimum inventory turnovers. It is impossible, on the current record, to determine on a generic basis what changes to injection and withdrawal schedules would “permanently reduce[] a significant portion” of contract-storage service. Reynolds Metals, 534 F.2d at 384. Because contractual deliverability entitlements are an integral part of the customer’s contract-storage rights, modifications that affect those rights could in some instances constitute a § 7 abandonment. On the other hand, under other circumstances an adjustment to an injection or withdrawal schedule could be sufficiently minor or temporary that no abandonment would occur. Whether an abandonment proceeding is necessary depends on the individual customer’s storage contract and on the pipeline’s proposed modifications, none of which are before us now. To the extent that the Commission issued in Order No. 636-B a sweeping statement that no modifications to injection and withdrawal schedules for a contract-storage customer require an abandonment proceeding, such a statement is inconsistent with § 7. In its brief, however, the Commission denies that it has taken any such steps to degrade contract-storage rights. Instead, the Commission maintains that it has merely allowed pipelines to propose “necessary and reasonable” changes in the restructuring proceedings, Order No. 636-B, ¶ 61,272, at 62,011, for which the Commission has authority under § 5. In the restructuring proceedings, the Commission has followed this approach, approving proposed modifications to withdrawal and injection schedules if the pipeline can prove that the changes are “necessary and reasonable.” The Commission’s theory that it has the authority to proceed in the restructuring proceedings under § 5 rather than in abandonment proceedings under § 7(b) is explained nowhere in the Order No. 636 series. See Order No. 636-A, ¶ 30,950, at 30,579; Order No. 636-B, ¶ 61,272, at 62,011. Under § 7(b), the Commission must hold a “due hearing” and must make a finding that “the present or future public convenience or necessity permit such abandonment.” 15 U.S.C. § 717f(b). By contrast, under § 5 the Commission need hold only a “hearing” and must find that an existing contract is “unjust, unreasonable, unduly discriminatory, or preferential.” Id. § 717d(a). We need not decide whether compliance with the procedures in § 5 could in certain circumstances satisfy the applicable statutory requirement in § 7(b). The Commission has assured us in its brief that its approach under § 5 will be “consistent” with the § 7 requirements. But without any explanation in the Order No. 636 decisions for why the Commission’s procedures satisfy § 7(b), we cannot accept the Commission’s suggestion that its exercise of its § 5 authority in the restructuring proceeding would obviate the need for abandonment hearings. On the other hand, any claim that a particular pipeline’s modification to contract-storage withdrawal and injection schedules requires a § 7(b) abandonment proceeding is premature and should be raised, if at all, in the review of individual restructuring proceedings. 3. Capacity retention by transportation-only pipelines A central part of the Commission’s unbundling program is the requirement that all pipelines assign to their firm-transportation customers the firm-transportation capacity that the pipelines held on upstream pipelines. 18 C.F.R. § 284.242. Now that customers can buy gas directly from the producers, they may bear the responsibility of reserving capacity both on “upstream” and “downstream” pipelines. If the downstream pipeline were allowed to retain the capacity on the upstream pipeline, the Commission reasoned, it would inhibit the formation of a competitive gas-sales market by preventing downstream customers from gaining access to the new opportunity to purchase gas directly from the producers. Order No. 636, ¶ 30,939, at 30,417-18. Two pipeline petitioners, ANR Pipeline Company and Colorado Interstate Pipeline Company, urge the Commission to carve out an exception for “transportation-only pipelines” — pipelines that do not offer any gas sales. For example, a downstream pipeline may wish to offer a customer a package of firm-transportation capacity on its pipeline as well as on a connecting upstream pipeline; the customer may well prefer not to have to contract separately with the upstream pipeline. This petition for review has been rendered moot by an intervening declaratory order. In Texas Eastern Transmission Corp., 74 F.E.R.C. ¶ 61,074, at 61,220 (1996), reh’g pending, Docket No. CP 95-218, the Commission declared that the successful completion of unbundling under Order No. 636, with the separation of pipelines’ merchant and transportation functions, had alleviated the Commission’s former concerns that pipelines would obstruct access to production areas to favor their merchant functions. Accordingly, the Commission announced that it would “decide whether to allow pipelines to acquire upstream or downstream capacity on a case-by-ease basis.” Id. The Commission’s intervening action appears to have provided the pipeline petitioners with the relief that they had sought; any further relief is available in review of the declaratory-order proceeding. 4. Eligibility date for no-notice transportation In its new regulation, the Commission requires interstate pipelines “that provided a firm sales service on May 18, 1992” to offer no-notiee transportation service. 18 C.F.R. § 284.8(a)(4). In Order No. 636-A, the Commission clarified that “[t]he pipelines are required to offer no-notice transportation service only to customers that were entitled to receive a no-notice firm, city-gate, sales service on May 18, 1992.” Order No. 636-A, ¶ 30,950, at 30,573. Although several commentators requested the Commission to require pipelines to extend no-notice transportation service to customers who had already converted from bundled firm-sales service under Order No. 436 and consequently no longer received such service on May 18,1992, the Commission denied rehearing. The Commission offered three reasons: first, that it was prudent to begin the experiment with no-notiee transportation on a limited basis; second, that customers who were not receiving bundled firm-sales service on May 18, 1992, “were not relying on that service”; and third, that such customers “could not reasonably expect to receive no-notice transportation in the future” because neither Order No. 436 nor the Notice of Proposed Rulemaking for Order No. 636 had contemplated it. Order No. 636-B, ¶ 61,272, at 62,007. The National Association of Gas Consumers (NAGC) contends that the ineligibility of former bundled firm-sales customers who converted to open-access transportation under Order No. 436 to receive no-notice transportation is unduly discriminatory. NAGC relies on the Commission’s own regulation, promulgated by Order No. 486, which requires an open-access pipeline to offer service “without undue discrimination.” 18 C.F.R. § 284.8(b)(1). And as NAGC points out, the Commission found in Order No. 686 that the pipelines’ open-access firm-transportation service under Order No. 436 was unlawfully discriminatory because it did not provide the same quality of transportation service as was available with bundled firm-sales service. Order No. 636, ¶ 30,939, at 30,402. Now, customers who converted under Order No. 436 remain limited to standalone firm-transportation service subject to scheduling and balancing requirements and other penalties. Thus, NAGC maintains that the Commission must extend eligibility for no-notiee transportation service to customers who converted before Order No. 636 in reliance on the non-discrimination provisions. We find the Commission’s justifications in Order No. 636-B unconvincing. The Commission’s desire to proceed cautiously with no-notice transportation, rather than require pipelines to offer it to all customers, cannot explain the disadvantaging of former bundled firm-sales customers who converted under Order No. 436. Although those customers had no right to expect to receive no-notice transportation service under Order No. 636, neither did customers who did receive bundled firm-sales service on May 18, 1992. Finally, the Commission has not provided substantial evidence to support its assumption that bundled firm-sales customers who retained bundled service relied more heavily on reliability of transportation service than did customers who switched to open-access transportation. We therefore remand this issue to the Commission for further explanation of which customers should be eligible for no-notice transportation service. B. Right of First Refusal Section 7(b) of the Natural Gas Act prohibits pipelines from abandoning certificated firm-transportation service until the Commission makes a finding that “the present or future public convenience or necessity permit such abandonment.” 15 U.S.C. § 717f(b). In its original adoption of open-access transportation in Order No. 436, the Commission provided automatic “pre-granted abandonment” for all firm-transportation service provided under a Part 284 blanket certificate. 18 C.F.R. § 284.221(d) (1989). After the order was twice vacated on other grounds, the Commission re-promulgated the automatic pre-granted abandonment rule in Order No. 500-H, ¶ 30,867, at 31,583-85. In its review of Order No. 500-H, the court remanded automatic pre-granted abandonment because “the Commission has not yet adequately explained how pregranted abandonment trumps another basic precept of natural gas regulation — protection of gas customers from pipeline exercise of monopoly power through refusal of service at the end of a contract period.” AGA II, 912 F.2d at 1518. In AGA II, the court concluded that the Commission’s reliance on various market alternatives available to LDCs — namely interruptible transportation, stand-by gas service and gas from alternative suppliers — provided inadequate protection for LDCs. Id. at 1517. The court similarly rejected the Commission’s contention that it was furthering purposes other than the protection of existing customers because “the Commission’s response seems to entail an enormous qualification of its basic purpose.” Id. On remand from AGA II, the Commission decided to hold the issue of pre-granted abandonment in abeyance until Order No. 636. See Order No. 500-J, [Current] F.E.R.C. Stats. & Regs. (CCH) ¶ 30,915 (1991). In Order No. 636, the Commission responded to AGA II by amending its regulations to provide that an existing customer of long-term firm-transportation service could avoid pre-granted abandonment if it abided by a new right-of-first-refusal (ROFR) mechanism. 18 C.F.R. § 284.221(d). No petitioner challenges the Commission’s rule that interruptible transportation, and firm transportation with a contract term of less than one year, are subject to automatic pre-granted abandonment even without the right of first refusal. Order No. 636, ¶ 30,939, at 30,446; Order No. 636-A, ¶ 30,950, at 30,-625-26. But the petitioners do challenge pre-granted abandonment for long-term firm transportation. In essence, the issue is whether the right-of-first-refusal mechanism provides the protection for pipeline customers that AG AII requires. The right-of-first-refusal mechanism consists principally of two matching requirements: rate and contract term. See 18 C.F.R. § 284.221(d)(2)(ii). Near the end of a long-term firm-transportation contract, the existing customer may notify the pipeline that it intends to exercise its right of first refusal. The pipeline must post the availability of that capacity on its