Opinion ID: 525206
Heading Depth: 1
Heading Rank: 4

Heading: the block rates

Text: 48 In Decision I, FERC gave two reasons for rejecting Southern's proposal for an incentive rate for purchases over a specified percentage of a customer's contract demand: (1) that the structure constituted a new service requiring a Sec. 7 certificate; and (2) that the rates established thereunder might violate Sec. 4. In Decision II, FERC added that Southern has not met its prima facie burden of showing that its rates are just and reasonable because it failed to show that the disparity between its proposed Block I and Block II rates corresponded to a difference in its cost of providing service for each block. 49 Southern claims that the last-mentioned rationale is unsupported by the evidence. Specifically, it points to data that it submitted along with its filing showing that it derived the proposed rate structure as a whole, taking into consideration the operation of both the Block I and the Block II rates, from its jurisdictional costs. 50 Procedurally, this objection stands in the same posture as Southern's objection to FERC's cost rationale for rejecting the Alagasco transportation tariff: it challenges a rationale that the agency advanced for the first time in the course of denying rehearing. Because we have already held that Southern was not obliged to file a further petition for rehearing in order to challenge such an afterthought, this objection is properly before the court. 51 On the merits, however, Southern's argument misses the point. FERC objected to the proposed Block II rate not because the rate structure as a whole was insufficiently justified by Southern's fixed costs, but rather because the differential between the Block I and Block II rates was not cost-justified. In other words, Southern failed to show that the cost of providing service above the contract demand levels that would trigger the Block II rate was lower than its cost with respect to the Block I rate. Southern does not challenge FERC's authority to require such cost justification. It denies that it failed to adequately show that its proposed block rate is cost based, but the record explanation to which it refers shows that the Block II rates were set without regard to a difference in the costs of providing the services: 52 Block I rates were designed to recover all of the fixed and variable costs assigned to the commodity component. Rates for the Block II incentive sales are based on 50% of the Block I rates for the corresponding season. 53 Inasmuch as FERC's cost-based reason for rejecting the Block II rates is both properly before us and adequate to support its decision, we need not address its other reasons for reaching the same result.