Opinion ID: 721438
Heading Depth: 3
Heading Rank: 1

Heading: Exclusion of Part 157 shippers from capacity release

Text: 167 In Order No. 636-A, the Commission concluded that only Part 284 blanket[319 U.S.App.D.C. 95] certificated shippers would be permitted to engage in capacity release and utilize flexible receipt and delivery points. Order No. 636-A, p 30,950, at 30,565. The Electric Generator Petitioners (Electric Generators) contend that FERC's exclusion of Part 157 individually certificated shippers 74 was arbitrary and capricious. Their theory is that capacity release and flexible receipt and delivery points were intended to compensate for the greater costs of straight-fixed-variable rate design, which both Part 284 and Part 157 shippers are subject to; excluding Part 157 shippers from capacity release therefore allegedly deprives them of a necessary and equivalent means of cost mitigation. They also contend that subjecting Part 157 shippers to SFV rate design while excluding them from capacity release is unduly discriminatory, given that both SFV rate design and capacity release were intended to develop a national natural gas market. 168 The Commission's decision to exclude Part 157 shippers from capacity release and flexible receipt and delivery points was not arbitrary and capricious. While capacity release does ameliorate the costs of SFV rate design, it was never intended as the central cost-mitigation measure, see Order No. 636-A, p 30,950, at 30,594, 30,597-98, for there are specific mechanisms in place intended to address the particular costs associated with SFV, including alternative ratemaking techniques, phase-in measures, and the continued use of one-part rates for small customers. See infra Part IV.C.1. Moreover, allowing individually certificated shippers to utilize capacity release would in effect require Part 284 shippers to subsidize their Part 157 counterparts, given that Part 284 shippers pay costs that Part 157 shippers do not. 75 Specifically, Part 157 shippers are not required to pay the transition costs of Order No. 636, and their transportation arrangements are not subject to pre-granted abandonment. Further, the Commission prohibits Part 157 shippers, which do not operate under open-access provisions, from including unique terms and conditions in their contracts in order to avoid undue discrimination. For that very reason, the Commission prohibits Part 157 shippers from granting discounts, which itself presents a major obstacle to Part 157 shippers' participation in capacity release because competitive bidding presumes the ability to offer a lower price. 169 The Electric Generators reply that these factors have no connection to the cost-mitigation effects of the capacity release program. The more salient issue, however, is whether the factors identified by either the Commission or the Electric Generators have any intrinsic connection to SFV rate design; they do not. Fundamentally, the petitioners contend that they are entitled to release capacity as one way of making up for the costs of SFV. FERC replies, quite sensibly, that while capacity release would reduce the Electric Generators' costs, including costs associated with SFV, the Electric Generators are already receiving cost benefits not available to Part 284 customers, and are not entitled to further benefits. 170 [319 U.S.App.D.C. 96] Nor was the Commission's decision to exclude Part 157 shippers unduly discriminatory. The Commission applied SFV rate design to both Part 284 and Part 157 shippers because both generally have been subject to the same rate design. See Order No. 636-B, p 61,272, at 61,992. Even if the goal of both SFV rate design and capacity release is the creation of a national gas market, that does not mean that FERC's decision to apply only one to Part 157 shippers constitutes undue discrimination. [T]he competitive rationale for adopting SFV rate design as a means to promote the development of a national gas market applies equally to [Part 284 and] Part 157 rates. Id. While allowing Part 157 shippers to engage in capacity release might expand the national gas marketplace, as we have explained, it would also give them an unfair subsidy over Part 284 shippers. As FERC notes in its brief, [g]iven the significant differences between these two forms of service under Order No. 636, it was not unreasonable to confine the capacity release program to Part 284 open access service. We see no reason to disturb the Commission's conclusion that those cost considerations outweighed any benefit to the national gas marketplace and disentitled Part 157 shippers from engaging in capacity release. 171 Moreover, as the Commission explains, the Electric Generators may receive access to capacity release and flexible receipt and delivery points by converting to Part 284 service. This does not mean, as petitioners contend, that the Commission is unlawfully attempting to leverage the Electric Generators' conversion. Here, we reject petitioners' reliance on National Fuel Gas Supply Corp. v. FERC, 909 F.2d 1519 (D.C.Cir.1990). In National Fuel, this court turned back an effort by FERC to condition its certification of a Part 157 shipper's gas services on the shipper's obtaining a blanket Part 284 certificate as well. Our ruling there was based on the fact that the Commission had already determined that a Part 157 certificate was required by the public convenience and necessity when it nonetheless attempted to add the additional condition of acquiring a Part 284 certificate. Given the Commission's conclusion that the shipper was already entitled to a Part 157 certificate, [i]t was thus clear at the outset that the Commission considered certification ... to be in the public interest regardless of whether the pipeline also accepted a blanket transportation certificate. Id. at 1522. FERC therefore lacked authority to deny the shipper a Part 157 certificate. In this case, in contrast, the Electric Generators do not contend that the Commission has determined that Part 157 shippers have the right to engage in a certain service, but is nonetheless denying them the right to engage in it. Moreover, even under the petitioners' far more expansive reading of National Fuel, this is not an instance in which FERC is attempting to coerce a conversion from Part 157 to Part 284 service; the Commission is simply pointing out that conversion offers the Electric Generators one means of cost-mitigation. 172