Opinion ID: 362296
Heading Depth: 2
Heading Rank: 1

Heading: Coordination with the National Ratemaking at the Level of the Whole Program

Text: 69 New York contends that there is a fundamental inconsistency between the national ratemaking program, based on average costs, and the optional certification program, based on the individual costs of high-cost programs. On rehearing before the FPC, New York contended that (t)he fact that Pennzoil's project costs are in excess of the nationwide norm is hardly a 'special circumstance'. Since the nationwide rates are based on the producers' average costs . . . it is to be expected that approximately half the volumes produced will be at rates in excess of this level. 68 On appeal, New York elaborated: 69 70 It would however appear to be lawful, though of doubtful practicality, to establish a pricing system under which all producer sales (or all sales of a particular producer) would be justified on a project cost basis . . .. Similarly, it is lawful to fix the just and reasonable rates for all producer sales on an area or nationwide basis reflecting primarily, if not exclusively, average producer costs. . . . However, the combination of the two cost techniques resulting from the Commission's action here is neither proper nor lawful. 71 As stated by New York, the Commission's present mixture of ratemaking standards presents the problem of double counting of high costs and single counting of low costs. When the same cost treatment approach is used in both national ratemaking and optional certification, there is no coordination problem. Both ratemaking procedures can use an average costs approach, so that all consumers pay for the average costs of high and low cost gas. Alternatively, both procedures can use a project cost approach, so that consumers of high cost gas pay high costs, and consumers of low cost gas pay low costs. However, when different cost treatment approaches are used in the two proceedings without coordination, then there is a double counting problem. Consumers of high cost gas pay high costs because the high cost projects received optional certification. Consumers of low cost gas pay an average of high and low costs because of national ratemaking. In sum, all consumers taken together end up paying more than the average of all costs: they pay double for high costs. 72 This is precisely the kind of problem which we warned in Consumers Union would have to be reconciled if the FPC changed from its Order No. 455 average costs standard to a project costs standard. 166 U.S.App.D.C. at 278, 510 F.2d at 658. This is also the kind of problem we recently noted twice in The Second National Natural Gas Rate Cases. There, we upheld an FPC scheme designed to keep consumers from paying through national ratemaking for gas they pay for in the advance payments program. 186 U.S.App.D.C. at 59-61, 567 F.2d at 1052-1054. We also warned it was questionable to make consumers pay through national ratemaking for gas they pay for in intrastate purchases. Id. at 58, 567 F.2d at 1051. 73 Pragmatically, there is no incentive value served by charging consumers through the national program for high costs covered by other mechanisms. More fundamental is the problem of inconsistency and unfairness. The Commission is free to change the standards in the optional certification program, but to do so it must give reasoned consideration to the effects of its change. We hold that on remand, the FPC must give such consideration to how best to coordinate the optional certification program with national ratemaking in order to reconcile the inconsistencies set forth herein. 70 74