Opinion ID: 513412
Heading Depth: 2
Heading Rank: 3

Heading: Application of Sec. 4 to the Commission's First Order

Text: 78 In the instant case, the Commission was bound to satisfy both of these requirements before it could impose new rates on Tennessee. Here there was no existing rate for interruptible transportation for GS customers. Consequently, the first prong was irrelevant. Nonetheless, the Commission still bore the burden on the second prong, in imposing its remedial rate schedule governing transportation for GS customers at the regular IT rate, of showing that the remedy was just and reasonable. 79 As in the case where the Commission simply rejects a proposed change in an existing rate, the Commission's burden in justifying its remedial order would have been minimal if it had left intact the presumptively just and reasonable status quo: maintenance of the full requirements provision and the absence of a rate for GS interruptible transportation. However, the Commission fashioned a remedial order which altered the status quo; it thus brought upon itself the burden of affirmatively showing the lawfulness of such order. 80 The Commission styles the effective elimination of the full requirements provision as an acceptance of Tennessee's proposal; as such no burden would be raised for the Commission beyond exercise of its discretion to ensure that proposals are shown by the pipeline to be just and reasonable. This, however, mischaracterizes the modification proposed by Tennessee. Tennessee did not eliminate from its rate schedule the full-requirements condition that to qualify for the special one-part GS rate a customer must not purchase gas direct from other suppliers. J.A. 19. Rather, it added an exception to this condition: customers would not violate the condition if they purchased gas from other suppliers but received such gas by transportation service pursuant to Seller's Rate Schedule[ ] ... IT. Id. This modification did not eliminate the full-requirements condition. It did not, for example, relieve GS customers of the prohibition on establishing a second pipeline connection for purchasing gas from suppliers other than Tennessee. It simply offered to transport gas purchased elsewhere at a specified rate: the GS-IT rate. Although Tennessee did not make explicit until its second filing (filed nine days after the Commission's first order) that it wished to transport for GS customers only at the GS-IT rate, and although the FERC is generally allowed to interpret filings according to their literal terms, it borders on the incredible in the circumstances of this case to interpret this filing, as the Commission did, as an independent proposal to eliminate the full requirements provision altogether. 81 Conversely, the GS one-part sales rate was designed to work in tandem with the full-requirements provision to recoup total demand charges sufficient to cover the fixed cost to Tennessee of providing firm sales. Tennessee did not propose to sever that relationship; rather, it proposed to modify it by continuing to collect the demand charge on each unit of gas that GS customers used (their full requirements). When the Commission (in exercising its policymaking discretion to require rates to be designed so as to recoup only costs attributable to the service provided) rejected this proposal and required transportation to be offered at the regular IT rate, it reduced the demand charges paid by GS customers below the existing presumptively just and reasonable level and below the level paid by other customers under a two-part rate design. This was a change wrought by the Commission's order. It was not a change that Tennessee proposed to make. The Commission cannot avoid its burden of demonstrating that its order is one which follows a determin[ation of] the just and reasonable rate, charge, classification, rule, regulation, practice, or contract, 15 U.S.C.A. Sec. 717d(a) (1976), simply by weaving its order from the tattered threads of Tennessee's proposal. 82 Tennessee never offered to demonstrate and the Commission never found that the modification to the sales rate schedule was just and reasonable in the absence of the proposed modification to the IT schedule. Indeed, modification of the sales rate schedule alone would have resulted in a reduction of GS demand charges below the level paid by all other firm sales customers on Tennessee's system; Tennessee directly argued the unlawfulness of such a discriminatory modification in both its second filing and its request for rehearing of the first order. See J.A. 64-67; 101-05. Unless it can be reasonably inferred from the record that there is substantial evidence to uphold a finding that a component of a pipeline's proposed rate schedule is just and reasonable standing alone, the use of that component in fashioning an order under Sec. 4 does not relieve the Commission of the requirement of determining that the effect of such an order is just and reasonable. 83 There is not substantial evidence in the record before us to support the Commission's determination that it has here met this burden. The effect of the Commission's order was to impose on Tennessee an underrecovery of the fixed costs of providing firm sales to GS customers and to disturb the design of the special one-part GS sales rate so as to give these customers an ostensibly preferential demand charge. This was made evident to the Commission immediately by Tennessee both in its second filing in which it sought to prevent the decoupling of the GS-IT rate component from the full requirements component and in its arguments in support of its requests for rehearing of the Commission's first and second orders. On remand, the Commission must demonstrate substantial evidence to support its determination that the effect of its first order--arising from the changes in both the status quo GS Rate Schedule and IT Rate Schedule--is just and reasonable.