Opinion ID: 184604
Heading Depth: 2
Heading Rank: 5

Heading: FERC's Refusal to Adopt an Alternative Hybrid Plan

Text: 47 Texaco claims that the Commission arbitrarily rejected one of the Mojave shippers' proposals for a hybrid MFV/SFV rate design in which the shippers would pay the contracted MFV-based reservation charge for unused capacity and a higher SFV-based reservation charge for used capacity. In its Second Rehearing Order, in which it rejected the proposal, FERC noted that, under the proposed scheme, 48 payment of the pipeline's fixed costs would vary depending upon its usage of the pipeline. The more it used its capacity, the more fixed costs it would incur.... [Thus,] just as under MFV, the rate charged for each additional unit of gas shipped on Mojave's system would include fixed costs, and not, as under SFV, just the variable costs associated with shipping that unit of gas. 49 65 FERC at 61,468. Texaco now claims that the Commission's rejection of the alternative proposal betrayed its ignorance of local market [331 U.S.App.D.C. 246] conditions and is therefore suffused with error. 50 The hybrid proposal, however, contains the same erroneous assumption we noted earlier. To the degree that a pipeline's rate structure includes any portion of its fixed costs in its usage fees, it will be more difficult to determine and compare the wellhead costs of the gas it carries. As FERC noted in its Second Rehearing Order and repeats on appeal, the hybrid rate proposal is impermissible not because of its effect upon gas consumers but because it fails to remedy the market problem inherent in undifferentiated natural gas pricing. See Second Rehearing Order, 65 FERC at 61,468.