Opinion ID: 513412
Heading Depth: 2
Heading Rank: 4

Heading: Rejection of Full Requirements

Text: 84 Finally, we note that if the full requirements provision had still been in its historical place in the GS sales schedule as of the time of Tennessee's second filing, the Commission would have been required to bear the burden of proving that it was unlawful in order to justify its rejection of Tennessee's alternative proposal to maintain the provision in the event that the Commission again rejected the GS-IT rate. The record before us would not provide substantial evidence to support our finding that the Commission had indeed borne this burden. The burden in such a case would be a significant one in light of the Commission's longstanding position that full requirements provisions are just and reasonable. An agency changing its course ... is obligated to supply a reasoned analysis for the change beyond that which may be required when an agency does not act in the first place. Motor Vehicles Manufacturing Association v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29, 42, 103 S.Ct. 2856, 2866, 77 L.Ed.2d 443 (1983). The prevalent use of such provisions in competitive as well as regulated industries and, most importantly, the Commission's own policy announcements in Order No. 436 and other adjudications add to the weight of the Commission's burden. 85 Contributing to our concern about the FERC's action here is our uncertainty about the breadth intended in its holding on full requirements. Read at its narrowest, the Commission's rehearing order holds that Tennessee's full requirements provision is unduly discriminatory solely because of the inappropriateness of the partial requirements rate schedule for GS customers. 14 The FERC says that because the partial requirements rate schedule is designed for larger, higher-load customers, GS customers are effectively prevented from obtaining open-access transportation services if their only option is to switch from full to partial requirements. We would be hard-pressed, however, to find in the record as it now stands substantial evidence to support the Commission's burden of proof on this conclusion. The Commission cites no examples of GS customers that have been precluded from switching to the partial requirements schedule; nor does it adequately explain the basis for its predication that size and load factor will preclude switching. The Commission devotes greater attention to the fact that Tennessee's customers are captive customers, apparently to emphasize that if unable to switch to partial requirements, GS customers are precluded from transporting entirely for they cannot abandon Tennessee as their supplier. This fact on its own, however, obviously cannot be used to prove that the partial requirements rate is effectively unavailable to GS customers. 86 If, on the other hand, the FERC's discussion of the status of GS customers as captive customers is intended to provide an independent basis for proving that the full requirements provision is unlawful per se, regardless of the design of the partial requirements rate, then the burden of proof was certainly not met here by the Commission. While we are reluctant to infer that the Commission has used this oddly-poised opportunity to announce a per se prohibition on single-pipeline full requirements provisions with so little explanation, we are concerned that the rehearing order is susceptible of this interpretation and could operate in the future to prevent Tennessee from re-introducing a full requirements provision in connection with appropriate modifications to its partial requirements rate. 15 87 In Order No. 436 the Commission clearly indicated that it had not determined that full requirements provisions are per se incompatible with the transformation of the natural gas industry into a more competitive market. In response to commentators who argue[d] that full requirements contracts ... prevent a customer from making use of the transportation services offered by [Order No. 436], the Commission responded: 88 We agree with these commentators that to the extent full requirements contracts ... prevent a customer from making use of the rule's transportation services they are inconsistent with the [rule].... [A] pipeline with sole supplier clauses ... [must] modify any existing contract terms that would prevent the reduction conversion. We do not necessarily agree, however, ... that customers that previously purchased under a full requirements rate should be allowed to continue to purchase under that rate schedule even though they no longer purchase their full requirements from the pipeline.... We can perceive no reason why a partial requirements customer should be allowed to purchase under the full requirements rate schedule. 89 50 Fed.Reg. at 42445. In supplemental comments on Order No. 436 the Commission elaborated on its treatment of full requirements in light of open-access. Noting that the full requirements rate schedule is typically a more favorable rate schedule than a partial requirements rate schedule, in terms of the price that is paid for a unit of service, the Commission stated: 90 A customer that moves from a full requirements customer to a partial requirements customer ... may then use the next rate case as an opportunity to argue that the criteria for full requirements customers should be amended so that it could continue to take advantage of the full requirements rate schedules. 91 50 Fed.Reg. at 52241. 92 Subsequent FERC decisions have eliminated various forms of full requirements provisions; but the Commission has not cited any decision reaching the broad conclusion that where there is a single pipeline connection, full requirements provisions are per se violative of Order No. 436. In Consolidated Gas Transmission Corp., 38 F.E.R.C. p 61,150 (February 13, 1987), the Commission restated that Order No. 436 93 did not eliminate sole supplier contracts. Rather, it simply pointed out that the customers that are served under full requirements contracts may become subject to partial requirements rate schedules when they exercise their reduction and conversion rights. 94 38 F.E.R.C. at 61,405. Consolidated dealt with staff objections to a settlement agreement which modified a full requirements provision to allow full requirements customers to continue to retain that status provided they either purchased from or transported their full requirements on Consolidated's pipeline. The Commission noted there that 95 Consolidated argues that the staff has failed to demonstrate that the sole supplier provisions are illegal per se.... We agree. 96 Id. Panhandle Eastern Pipe Line Co., 38 F.E.R.C. p 61,164 (February 20, 1987), cited by the Commission in its rehearing order, concerned a sole-supplier provision in contracts with customers with multiple pipeline connections. Moreover, the rate schedules applicable to such customers contained ordinary two-part tariffs with separate demand charges; thus, Panhandle's sole supplier provision did not operate to allow the pipeline to recoup its demand costs. The Commission noted the importance of these features: 97 In eliminating Panhandle's sole-supplier provision we are not saying that all full requirements schedules are unacceptable. We note that there is a distinction between a full requirements rate schedule and Panhandle's sole supplier provision. We are only finding Panhandle's sole supplier clause to be unjust and unreasonable in this case. The difference is this. Small general service full requirements rate schedules generally provide for volumetric rates with no demand charges. Such full requirements rate schedules provide mutual obligations under which the supplier stands ready to provide the full requirements of the buyer, regardless of the level of those requirements, and the buyer agrees to take its full requirements from that supplier alone. 16 98 38 F.E.R.C. at 61,471 (emphasis added). Panhandle does not support the broad holding that the provision is unjust and unreasonable per se, particularly in light of the clear statements in Order No. 436 and other FERC cases to the contrary. In sum, whether the Commission's rationale is read broadly or narrowly, the Commission has not borne its burden of proof as to the unlawfulness of the full requirements provision this case.