Opinion ID: 542917
Heading Depth: 1
Heading Rank: 2

Heading: Transportation Rates

Text: 45 The second issue on appeal is FERC's rejection of CIG's requested transportation rate change. CIG proposed to increase its on-system (EUS-1), or sales displacement, rate from 36cents to approximately 60.95cents per million cubic feet (Mcf). It also proposed an off-system (EUS-2) rate of 30.63cents per Mcf. CIG argues FERC erred in rejecting its proposal and in establishing the same rate for on- and off-system transportation, 22 but that even if FERC's rate design is upheld, it should not be applied to certain certificated transactions. 46 CIG argues the increased on-system rate is needed to pay the costs it fails to recover when it merely transports gas to its on-system market, versus when it makes a gas sale. Transporting gas on-system displaces its own sales, CIG asserts; thus the pipeline suffers an economic penalty if the transportation rate does not recover the same costs that a sale would recover. CIG's proposed on-system rate was designed to recover [CIG's] fully allocated sales commodity rate. According to CIG, off-system transportation incurs lower costs, and it represents new, incremental business that will absorb a share of systemwide costs and benefit all other customers. 23 47 CIG claims the evidence submitted by CIG and the Commission staff fully supported the very obvious class of service and cost distinction between 'off-system' transportation business which is truly 'incremental,' and transportation to on-system markets historically served by CIG (i.e., 'sales displacement' transportation). Furthermore, it claims [t]here was no evidence submitted in opposition to this rate design. CIG bears the burden of proving the reasonableness of its proposed rate increase. But CIG has directed us to no evidence that fully supports the rate differential, and we have discovered none. 24 48 The ALJ concluded that on- and off-system service appear[ ] to be comparable. According to FERC and CIG, the ALJ consequently required that the rate charged for on-system service equal that charged for off-system transportation, thus lowering the on-system rate from 36cents to 31cents. However, we can find no indication in the ALJ's decision nor in FERC Opinion No. 290 or 290-A that FERC affirmatively lowered the rate for on-system transportation below its level prior to CIG's proposed rate increase (i.e., 36cents). Moreover, arguments presented by intervenor Big Horn Fractionation Co. (Big Horn), upon which the ALJ relied heavily, urged only that the on-system rate be returned to the prior 36cents level. 25 49 The ALJ devoted one-and-a-half pages of an eighty-page opinion to the transportation rate issue. 35 FERC p 63,043, at 6767-68. FERC summarily affirmed the ALJ's decision in Opinion No. 290, 41 FERC at 61,454; upon CIG's request for rehearing, it allotted one page of discussion to the issue in Opinion No. 290-A, 43 FERC at 61,272-73. CIG faults FERC for affirming the ALJ's decision on this issue without discussion of the true cost incurrence and cost responsibility difference. The pipeline concludes the ALJ and FERC orders are completely unsupported and arbitrary and capricious. 50 In the hearing before the ALJ, CIG and the FERC staff apparently agreed that the on-system transportation rate should equal the non-gas component of the sales rate ... in order to allow CIG to be economically indifferent as to whether it sells or transports gas. Thus, the FERC staff initially favored CIG's proposed rate increase; however, it subsequently reversed its position and now supports the ALJ's decision. 51 The ALJ concluded that the proposed rate has not been shown to be just and reasonable particularly, in light of the continuation of the much lower rate for what appears to be comparable service under [the off-system rate]. The ALJ relied heavily on arguments made by Big Horn (predecessor of Western Gas Processors, Ltd.), an intervenor in the rate proceeding. Big Horn argued that CIG had not adequately justified the requested rate change and that it should be required to refile a rate that would recover only CIG's transmission costs. The ALJ found Big Horn's position had merit and rejected the proposed increase. 52 As the proponent of the rate change, CIG bears the burden of demonstrating that it is just and reasonable. But CIG's arguments are based largely on conjecture and appear flawed as a matter of logic. As Big Horn argued to the ALJ, [i]t seems incredible ... that [CIG] would burden interruptible ... service [customers] with the fixed costs for production, gathering, and storage as per the ... sales rate (for firm service). And FERC points out that CIG makes inconsistent arguments with respect to transportation rates. In a portion of its rate case not appealed here, it urged that storage costs should not be included in transportation rates, yet it makes the opposite argument here. 53 In contrast to CIG's presentation on this issue, Big Horn offered extensive arguments opposing the change. The ALJ was persuaded by those arguments, and FERC concurred. We must agree that CIG has not borne its burden of persuasion on this issue. 54 We hold only that CIG has not demonstrated that its proposed 60.95cents rate for on-system transportation is reasonable; thus, we affirm FERC's rejection of the rate increase. Despite FERC's and CIG's contrary interpretations in their briefs, we do not read the ALJ's decision or either of FERC's orders as establishing an on-system transportation rate of 30.63cents, the rate CIG proposed for off-system service. The ALJ found only that the two classes of service were comparable, not that they were equal. 26 No party to the FERC proceeding argued that the rates for the two types of service should be equal, nor did any party object to CIG's proposed off-system rate. In the absence of any evidentiary basis for reducing the on-system rate below the prior systemwide level of 36cents, we construe FERC's orders as rejecting the on-system rate increase, restoring the 36cents systemwide transportation rate, and ordering appropriate refunds. 27 If FERC wishes to reduce this rate to the EUS-2 level (30.95cents), it may do so only according to the procedures specified in 15 U.S.C. Sec. 717d and regulations promulgated thereunder. 55 Lastly, CIG claims that, even if FERC's rate design is upheld, it should not be applied to certain transactions for which FERC has issued certificates of public convenience and necessity. 15 U.S.C. Sec. 717f. FERC terms this an impermissible collateral challenge to Commission-issued certificates that never were appealed and now are final. The certificates, each of which included a fully compensatory, cost recouping, sales displacement rate, such as the EUS-1 Rate (i.e., 61cents/Mcf), were issued subject to the outcome of this rate proceeding. CIG states that the specific transactions covered by these certificates were not even subject to Rate Schedule EUS-1, and that the rate provided in that rate schedule was merely referenced by CIG and the Commission as a 'shorthand' for a fully compensatory, sales displacement, transportation rate. 56 FERC argues that the subject to the outcome condition, which was included in each of the certificates, requires that the on-system rate ultimately found to be just and reasonable in this case becomes the rate applicable to each certificate. Upon CIG's request for rehearing of FERC's EUS-1 decision, FERC held that this rate proceeding is not the appropriate forum to discuss the effects of the conclusions with respect to the EUS-1 rate on other issues [i.e., the certificates] in other dockets. Opinion No. 290-A, 43 FERC p 61,089, at 61,273 n. 7. In responding to the issue now raised by CIG, FERC declares: This Court's analysis therefore comes to an end once it affirms the decision of the Commission to lower CIG's EUS-1 on-system transportation rate. 57 Neither party has provided us with copies of these certificates; thus we are unable to review the precise language of the disputed condition. Moreover, CIG did not even identify to FERC the specific certificates that warranted rehearing. Opinion No. 290-A, 43 FERC p 61,089, at 61,273 n. 7. Although it appears that CIG has now identified those certificates, we will not review them or the related proceedings de novo. Therefore, we cannot say that FERC's determination that CIG should raise those issues in the relevant certificate proceedings is unreasonable. 58 AFFIRMED.