Opinion ID: 544590
Heading Depth: 2
Heading Rank: 1

Heading: Minimum Bill

Text: 5 FERC has established a presumption that minimum bills are anticompetitive and therefore prima facie unlawful under section 5 of the Natural Gas Act, 15 U.S.C. Sec. 717d. We upheld this presumption in East Tennessee Natural Gas Co. v. F.E.R.C., 863 F.2d 932, 935-40 (D.C.Cir.1988). See also Tennessee Gas Pipeline Co. v. F.E.R.C., 871 F.2d 1099, 1104 (D.C.Cir.1989). Transco attempted to rebut the presumption of anticompetitiveness and to justify its minimum bill by showing that its minimum bill is no more onerous than the purchase obligations into which its customers have voluntarily entered. To this end Transco introduced into the record a stipulation that some of its contract demand customers are entering into long-term firm contracts with producers and that these contracts contain take-or-pay obligations. 1 FERC responded: 6 Irrespective of the quality or sufficiency of this evidence, it is not relevant to rebut the presumptive anticompetitiveness of Transco's minimum bill. Transco submits that the purposes and effects of a minimum bill and a take-or-pay obligation are the same. However, it ignores the fact that a contractual obligation with a non-pipeline supplier is voluntary, whereas a pipeline minimum bill is not. 7 October 3 Order, 45 FERC p 61,001 at 61,001 (1988). The Commission properly explained that Transco's stipulation shed no light on the competitiveness of Transco's minimum bill. That some of Transco's customers have entered voluntarily into contracts with third party producers containing provisions which in some respects resemble minimum bills does not in any way demonstrate that a minimum bill imposed as part of a mandatory rate schedule is anything other than anticompetitive. Customers desiring service under Transco's CD rate schedule would be obligated to accept the minimum bill. This would, in effect, prevent them from entering into those contracts with producers that Transco finds analogous unless they were willing to pay a deficiency charge for falling below 65% of their contract demand. Such a provision is demonstrably anticompetitive and Transco has admitted as much by stating that the function of a minimum bill is to provide a measure of discipline on customers' purchasing decisions.... Brief for Petitioners at 25. A decision by a customer to voluntarily bind itself to take-or-pay obligations bears only the most superficial resemblance to the imposition of an involuntary minimum bill.
8 FERC has previously determined that a pipeline, such as Transco, with a modified fixed variable rate design, may rebut the presumption of anticompetitiveness under what is known as the third Seaboard criterion. Opinion No. 260-A, Transcontinental Gas Pipe Line Corp., 40 FERC p 61,188 at 61,590-91 (1987) (citing Atlantic Seaboard Corp., 38 FPC 91 (1967), aff'd, Atlantic Seaboard Corp. v. F.P.C., 404 F.2d 1268 (D.C.Cir.1968)). The third Seaboard criterion allows a minimum bill if it links cost-incurrence with cost-causation, i.e., if it assists in collecting take-or-pay costs from those customers that have caused the costs by reducing their purchases. Tennessee Gas Pipeline Co., 871 F.2d at 1105. Although this Court in both Tennessee Gas Pipeline Co., id. at 1106, and Trunkline Gas Co. v. F.E.R.C., 880 F.2d 546, 551 (D.C.Cir.1989), professed being disturbed by the Commission's narrow technical focus on the mechanics of the minimum bill under the third Seaboard criterion, it upheld both of the Commission's decisions to delete the minimum bills. 9 Evidence in the record establishes that Transco faces take-or-pay obligations nearly equal to the capacity of its system. August 3 Order, 44 FERC p 61,216 at 61,808 n. 41 (1988) (citing record evidence that Transco's system take obligation is approximately 2.7 Bcf/day, or 87% of its certificated sales obligation of 3.1 Bcf/day). Consequently, even taking a narrow technical focus, it is a matter of logical necessity that those customers that purchase less than their contract demand will cause the incurrence of take-or-pay liability. Because liability is nearly equal to capacity, any significant drop in demand will cause the incurrence of take-or-pay liability. Take-or-pay costs are attributable to those customers who take less than their con tract demand. As a matter of fact--whether by design or chance--this situation results in the linkage of Transco's minimum bills to the causation of take-or-pay charges. Thus it would appear that Transco has met the requirement of the third Seaboard criterion that the minimum bill link cost-causation and cost-incurrence. 10 Neither of FERC's decisions explains why the Commission rejected the minimum bill in spite of Transco's coupling the bill to those customers who cause the liability. The Commission cites no record evidence showing that Transco's evidence is in error or that other evidence indicates that Transco has not  'ensure[d] that any costs arising from the pipeline's own [take-or-pay] obligations are collected from the customers responsible for a drop in demand.'  Trunkline Gas Co., 880 F.2d at 551 (quoting East Tennessee, 863 F.2d at 940). In order to invalidate the minimum bill the Commission must find, based on substantial evidence, that the bill is unlawful. Natural Gas Act Sec. 19(b), 15 U.S.C. Sec. 717r(b); East Tennessee, 863 F.2d at 938. 11 FERC stated that Transco had merely shown that its minimum bill helped to mitigate take-or-pay costs and rejected the minimum bill, citing four factors: 12 (1) there is no insurance that the carrying cost associated with take-or-pay penalties will be borne by the customers that caused their incurrence; (2) the minimum bill recovers all nongas fixed costs in the commodity component, not just carrying charges on take-or-pay obligations; (3) the minimum bill is not calibrated to variations in either Transco's systemwide take-or-pay obligations or take-or-pay obligations resulting from the purchase level of a particular customer; and (4) Transco is not required to apply minimum bill revenues to its take-or-pay liabilities. 13 August 3 Order, 44 FERC p 61,216 at 61,808 (footnotes omitted). 14 The first and third factors offered by FERC express the same concern as the third Seaboard criterion, namely, that a minimum bill must link assessment of minimum charges with the incurrence by the pipeline of take-or-pay charges. The first factor asserts that Transco's minimum bill will not necessarily charge those customers who cause take-or-pay penalties with the costs of those penalties. However, as discussed above, because Transco's take-or-pay liability is nearly equal to its system capacity, every customer deficiency below 65% of its contract demand causes both the incurrence of take-or-pay liability to Transco and the assessment of minimum bill charges to the customer. Likewise, the third factor relied upon by FERC charges that Transco's minimum bill is unrelated to Transco's take-or-pay liabilities, either systemwide or by customer, and suffers from the same logical defect as the first factor. 15 FERC charges in the second factor that the minimum bill recovers costs other than the carrying costs of take-or-pay liabilities. If the Commission means by this that it believes that the 15 cents per dekatherm charge for deficiencies exceeding 35% of contract demand is an incorrectly calculated amount, then the Commission must so state with a reasonable explanation supported by substantial evidence. Likewise, the fourth factor appears to introduce an accounting technicality without any explanation of its possible support or significance. Before we can accord these factors any weight, the Commission must explain, based on the record evidence, how they influence the analysis under the third Seaboard criterion. The agency's determination must reflect reasoned decisionmaking that has adequate support in the record and must include an 'understandable' agency analysis and rationale. Panhandle Eastern Pipe Line Co. v. F.E.R.C., 881 F.2d 1101, 1118 (D.C.Cir.1989). 16 Early in these proceedings FERC made clear to Transco that if it wished to justify its minimum bill it would have to do so under the third Seaboard criterion. Opinion No. 260-A, Transcontinental Gas Pipe Line Corp., 40 FERC p 61,188 at 61,590-91 (1987). The four-factor explanation suggests that FERC has impermissibly adopted a new test without providing any explanation for its change in policy, in contravention of elementary principles of administrative law. See, for example, United Municipal Distributors Group v. F.E.R.C., 732 F.2d 202, 210 (D.C.Cir.1984); Columbia Gas Transmission Corp. v. F.E.R.C., 628 F.2d 578, 585-86 (D.C.Cir.1979).