Opinion ID: 572124
Heading Depth: 2
Heading Rank: 1

Heading: Roll-In of Facilities Costs for the Incremental Services

Text: 25 In reaching its roll-in decision, the Commission emphasized that the facilities in question are primarily located along the main line and that they increase the pipeline's transmission capacity. From these facts, the Commission concluded that Algonquin's new facilities enable the pipeline to provide more reliable service to its customers and that they make cheaper and easier any future expansion that the pipeline might undertake. The Commission decided that the benefits from the new facilities accrue to all of Algonquin's customers and it would therefore be unjust and unreasonable to allocate their cost only to those subscribing to the incremental services. The order also relied on the Commission's historical preference for rolled-in rates when the pipeline in question is an integrated one. 47 FERC at 61,154-55. 26 Once we look beyond the Commission's conclusionary statements about the facilities' benefits, however, its order reveals less than careful consideration of the benefits that actually flow to the customers who will bear the financial burden of the facilities cost roll-in. The roll-in order discusses only one instance of a concrete, discernible benefit resulting from an identified portion of the incremental facilities. This instance is the 18.8 miles of looping that Algonquin installed near the origin of the pipeline. According to the order, this looping contributes to the reliability of the pipeline's service in two respects. First, it permits the operation of the preexisting, parallel segment of the line at a lower pressure, reducing the likelihood of rupture. Second, the looping ensures that, even in the event one line bursts, Algonquin will be able to continue its service through the parallel segment. 47 FERC at 61,153. 27 This analysis of discernible benefits is confined, however, to facilities associated with the F-4 schedule--and only a fraction of the F-4 facilities at that. See supra note 7. The Commission's order contains only the most general and cursory discussion of any benefits flowing to the pipeline's customers from other facilities the cost of which the Commission rolled into Algonquin's rates. 47 FERC at 61,154-55. The Commission states that many of the new facilities exist at or near the head of the pipeline and increase the line's capacity, thereby benefitting all of Algonquin's customers. It does not, however, segregate those facilities that provide such system-wide benefits from those that, because of their placement along the line, benefit only some of Algonquin's customers. Instead, it rolled in the cost of all facilities without conducting a sufficiently detailed inquiry into the question of whom they benefit. 12 28 The Commission's indiscriminate approach does not carry its section 5(a) burden of producing substantial evidence to support its finding that the continuation of the incremental rate structure would be unjust and unreasonable. Where new facilities increase a pipeline's transmission capacity or the reliability of its service, they may benefit all customers to the extent necessary to justify a cost roll-in. In Great Lakes Gas Transmission Co., 45 FERC [292 U.S.App.D.C. 205] p 61,237 at 61,701 n. 55 (Nov. 17, 1988), the Commission stated that a roll-in is warranted when the quality of the system's services is enhanced by the presence of the facilities in question. We do not quarrel with that standard. We do not suggest, for instance, as the petitioners argue, that substantial evidence to support a roll-in exists only when the record shows that the incremental facilities are a prerequisite to the provision of service. What we do require, however, is that the Commission, before ordering a roll-in under section 5(a), offer more than a conclusionary statement that the existence of system-wide benefits renders it unjust to allocate facilities costs incrementally. 29 We recognize that the question of how to allocate costs among a pipeline's customers is a difficult issue of fact, Battle Creek Gas Co. v. FPC, 281 F.2d 42, 47 (D.C.Cir.1960), and one on which the Commission enjoys broad discretion. See Consolidated Gas Supply Corp v. FPC, 520 F.2d 1176, 1185 (D.C.Cir.1975). At oral argument, however, it became apparent that the Commission's position is that system-wide benefits exist primarily because the Commission says they do. An agency's unsupported assertion does not amount to substantial evidence. Instead, to support the facilities cost roll-in on remand, we direct that the Commission undertake an analysis of the benefits flowing from each of the incremental facilities to Algonquin's customers. Only when the Commission outlines with reasonable particularity the system-wide benefits which each new facility produces will the roll-in of that facility's cost be supported by substantial evidence as required under section 5(a) of the Natural Gas Act. 30 We turn briefly to the other justifications the Commission offered for its decision to roll in facilities costs. Apart from the largely unsupported assertion that the incremental facilities create benefits flowing to all of the system's customers, the Commission provided two explanations for its roll-in order. First, it noted its long-standing policy of rolling in costs where a system operates on an integrated basis as does Algonquin's pipeline. 47 FERC at 61,154. Second, it asserted that the incremental facilities may make cheaper some future system expansions that Algonquin might undertake. Id. 31 The Commission's asserted policy of rolling in the facilities costs in integrated systems cannot justify a roll-in order that is not otherwise supported by substantial evidence in the record. We first note that the Commission's observation that Algonquin's system operates on an integrated basis to the benefit of all its customers offers little in the way of a useful definition of an integrated system. 13 We take this statement to mean that an integrated system is one in which all portions of the system benefit all customers. If this is the meaning the Commission attaches to the phrase, it merely presupposes the existence of the sort of evidence which, we hold, the Commission must produce to support its order. Absent evidence of specific system-wide benefits, the Commission's declaration that the pipeline is integrated provides no basis for rolling in facilities costs. 32 We also find unpersuasive the Commission's assertion that the roll-in is justified because the new facilities may make cheaper future expansions that Algonquin might undertake. 47 FERC at 61,154 (emphasis added). There is no evidence to which the Commission has pointed showing [292 U.S.App.D.C. 206] that Algonquin contemplates any future expansions that would be less costly because of the incremental facilities now in place. The Commission asks us to agree that, because, at some point in the future, Algonquin might undertake expansion that might be cheaper because of the incremental facilities, a present roll-in of the facilities is necessary to avoid an unjust or unreasonable result. We decline to join the Commission in such speculation. 33 Finally, we note briefly the basis the Commission articulated for allocating to all pipeline customers the cost associated with the construction of improvements to spurs leading off Algonquin's main line. In reaching its roll-in decision in connection with the spur improvements, the Commission relied on the fact that, in the past, Algonquin had rolled in the cost of its spurs: the Commission believes that the additional looping added to [the spurs] should also be rolled in; there appears to be no reason to treat the spurs and the loops differently. 47 FERC at 61,154. Here again, we remind the Commission of its function when operating under section 5(a). The proper inquiry does not involve an analysis of the rationality and consistency of rolling in the cost of the original spurs while treating the spur looping costs incrementally; instead, the Commission must determine whether the incremental treatment of the new looping is unjust or unreasonable. 34 Because the Commission has not shown that the incremental facilities produce specific, system-wide benefits, it has failed to demonstrate that the continuation of incremental facilities cost recovery is unjust and unreasonable. Accordingly, we remand the portion of the order rolling in facilities costs for further action by the Commission. 35