Opinion ID: 721438
Heading Depth: 3
Heading Rank: 7

Heading: Triennial rate review

Text: 238 In Order No. 636-A, FERC abandoned the requirement of triennial rate review, which it had formerly imposed on many pipelines in exchange for granting the pipelines certain powers over their rates. FERC explained that the only reason it had formerly required triennial rate review was because of the power it had granted the pipelines. Specifically, under the purchased gas adjustment (PGA) regulatory scheme, participating pipelines had discretion to change the gas supply cost element of their rates. In exchange for this ability, pipelines had to agree to a reexamination of all their costs and rates at three year intervals to assure that gas cost increases were not offset by decreases in other costs. Order No. 636-A, p 30,950, at 30,671; see also 18 C.F.R. § 154.303(e) (laying out triennial rate review requirement). Under the Order No. 636 regime, pipelines have no special rate adjustment mechanism comparable to the PGA scheme, so FERC concluded that triennial rate review was unnecessary. In Order No. 636-B, FERC even raised the question of whether it had the discretion to order triennial rate review under the Order No. 636 regime, noting that there are limits to the authority of the Commission to require pipelines to periodically justify their existing rate levels. Order No. 636-B, p 61,272, at 62,044-45 (citing Public Serv. Comm'n v. FERC, 866 F.2d 487 (D.C.Cir.1989) (PSCNY) (holding that requiring periodic filings under NGA § 4 is beyond FERC's statutory authority)). 239 The LDCs 89 argue that FERC should not have abandoned triennial rate review. First, they claim that FERC ignored that the market-based sales rate authority granted pipelines under Order [No.] 636 is a 'special rate adjustment mechanism'  justifying a periodic rate review. In any case, they argue that FERC certainly does have the authority to impose triennial rate review under the Order No. 636 regime. In their view, PSCNY simply means that FERC cannot impose [a periodic filing] requirement except as a condition of some other benefit voluntarily accepted by the pipeline. Because Order No. 636 conferred several benefits on pipelines, the LDCs contend that FERC's failure to attach periodic rate review to at least one of those benefits was unjustified. FERC, however, contends that the benefits to pipelines cited by the LDCs are not nearly so certain: there is no reason to believe that by allowing a pipeline to sell gas at market-based rates, rather than regulated cost-based rates, Order No. 636 makes it more likely that rates for unbundled transportation service will become unjust and unreasonable. 240 The PUCs also argue in favor of retaining triennial rate review, restating the LDCs' argument that FERC has conferred a benefit on pipelines by instituting SFV rate design and can accordingly require periodic rate review. They also point out that, under SFV, as long as fixed costs continue to decline, pipelines will have no incentive to file NGA § 4 rate cases since they will be recovering all of their fixed costs through reservation and usage fees. Consumers will then be left with an NGA § 5 complaint as their only option for protecting themselves, but a § 5 complaint is less satisfactory than a § 4 rate case because under § 5 the burden is on the complainant to establish the unjustness or unreasonableness of the rate. Also, § 5 relief is prospective only; § 4 relief can encompass a refund order. FERC responds that traditional ratemaking tools are available to take account of long-run declining costs, and a three-year review [is] unnecessary.[319 U.S.App.D.C. 113] FERC's position that it lacks authority to impose triennial rate review is quite strong. The LDCs' claim that the market-based sales authority granted to pipelines is a benefit to which triennial rate review may be attached rings hollow in light of the fact that pipelines are leaving the gas sales business in favor of gas transportation under Order No. 636. Furthermore, whatever the benefits of SFV rate design to pipelines, they are not benefits voluntarily accepted by the pipelines and so cannot be the basis for the imposition of periodic rate review. See PSCNY, 866 F.2d at 492 (noting that FERC's authority to impose triennial rate review in the PGA context obviously rests on pipeline consent to triennial rate review in exchange for automatic PGA adjustment authority). In any case, in the presence of these serious doubts about FERC's authority to impose periodic rate review in the Order No. 636 context and in view of the alternative procedures available to the Commission for ensuring reasonable rates, we hold that petitioners have failed to show that FERC has not supported its decision to drop triennial rate review with substantial evidence.