Opinion ID: 527537
Heading Depth: 2
Heading Rank: 4

Heading: The Imputed Load Factor for SG Customers

Text: 72 Municipal Defense Group (MDG) challenges, as arbitrary, capricious, and an abuse of discretion, FERC's decision to set the imputed load factor for SG customers of Panhandle at 52.5%. MDG comprises a number of municipal utilities that buy from Panhandle and act as local distribution companies. The utilities that compose MDG pay only a one-part volumetric rate, with demand costs converted from a fixed charge to a volumetric charge using an imputed load factor. ALJ Decision, 32 F.E.R.C. at 65,300. The higher the imputed load factor, the lower the volumetric rate. These small customers historically have had a 52.5% imputed load factor, even though their actual load factor was lower. FERC has granted SG customers special treatment because they often lack the flexibility to construct storage and lack industrial load to better balance their purchases, Texas Eastern, 30 F.E.R.C. at 60,288, and because they serve the distinct function of delivering gas primarily to residential and light commercial users. Third Initial Decision, Tennessee Gas Pipeline Co., 27 F.E.R.C. p 63,090, at 65,375 (1984). The imputed load factor mitigates the disparity in unit costs between the SG customers and larger, more flexible customers. 73 When the MFV methodology replaced the prior, so-called United methodology in Panhandle's rates, 6 SG customers incurred a heavier increase in costs than larger customers with higher load factors, because the MFV methodology placed more costs in the demand portion of the rate. ALJ Decision, 32 F.E.R.C. at 65,300. Reasoning that SG customers are least able to absorb a major shift in cost responsibility, because they are less able than other customers to expand their loads, the ALJ applied the principle that the SG customers should bear approximately the same proportion of total costs as was borne by them under the previous methodology. Id. (citing Opinion No. 269, 13 F.P.C. at 110). Following the staff recommendation, the ALJ determined that a 65% imputed load factor would achieve this result. Id. at 65,301. 74 FERC rejected the ALJ's ruling and retained the 52.5% load factor. Opinion No. 265, 38 F.E.R.C. at 61,454. The Commission featured two precedents. In Transcontinental Gas Pipe Line Corp., 37 F.E.R.C. p 61,328 (1986), FERC had reduced a 100% imputed load factor for a class of small customers to 80%, because the 80 percent load factor [was] closer to the 46 percent actual load factor of the small customers in that case. Opinion No. 265, 38 F.E.R.C. at 61,454. 7 Earlier, in Texas Eastern, FERC had reduced the imputed load factor from 50% to 35% upon finding no economic justification to require that [the] larger customers continue to subsidize the SGS rate schedule at the higher level. 8 In this case, FERC observed: [T]he actual load factor for SG customers is 29.3 percent. The existing 52.5 percent load factor is closer to 29.3 percent than the proposed 65 percent load factor. Opinion No. 265, 38 F.E.R.C. at 61,454. The Commission recapitulated: 75 [T]he two-part demand mechanism of the MFV (which we have adopted here) sufficiently protects low load factor customers against cost shifting. In other words, we do not believe that cost shifting is a valid complaint.... [W]e find no economic justification here for allowing subsidization at any level higher than 52.5 percent. 76 Opinion No. 265-A, 40 F.E.R.C. at 61,597 (footnote omitted) (quoting Texas Eastern, 30 F.E.R.C. at 61,289). 9 77 MDG claims that FERC acted arbitrarily because it did not address the ALJ's grounds for adopting the 65% figure. Brief of Petitioner Municipal Defense Group at 9, 11. An agency's departure from the ALJ's findings is vulnerable if it fails to reflect attentive consideration to the ALJ's decision. Citizens State Bank v. FDIC, 718 F.2d 1440, 1444 (8th Cir.1983). In particular, MDG points to the ALJ's reference to Opinion No. 269, which purportedly established a principle that the share of total costs borne by SG customers should remain constant despite ratemaking changes. Reply Brief of Petitioner Municipal Defense Group at 6. But see infra note 10. MDG thus invokes this court's repeated admonition: An agency's view of what is in the public interest may change, either with or without a change in circumstances. But an agency changing its course must supply a reasoned analysis indicating that prior policies and standards are being deliberately changed, not casually ignored.... Greater Boston Television Corp. v. FCC, 444 F.2d 841, 852 (D.C.Cir.1970), cert. denied, 403 U.S. 923, 91 S.Ct. 2233, 29 L.Ed.2d 701 (1971). 78 We may take as given that SG customers will bear a larger portion of total costs under the MFV method with the existing imputed load factor. FERC does not dispute this factual finding by the ALJ. Rather, FERC held that the cost-shifting against which MDG complained was not unfair, because SG customers still retained a substantial subsidy. 79 Assuming arguendo that the ALJ's interpretation of Opinion No. 269 was correct, and that as a general matter SG customers should bear the same share of total costs despite ratemaking changes, 10 the precedents cited in FERC's orders nevertheless reveal that FERC has exercised authority, in particular cases, to reject as excessive an existing imputed load factor. Although FERC's explanation in this case was skeletal, the Commission rested on agency adjudications, Transcontinental and Texas Eastern, which indicate that large subsidies of the type here at issue lack economic justification and have been reduced in the past when appraised by the Commission as unreasonable. In Texas Eastern, 30 F.E.R.C. at 61,288, FERC recognized that proponents of the reduction in question were urging a break from past practice, and the Commission acknowledged the modification it was ordering: [E]ven though the SGS customers have historically been granted special treatment because of their small size, [that treatment] should no longer be allowed to operate to the detriment of other customers. The appropriate size of the subsidy falls within the domain of FERC's expert judgment in deciding what rates are reasonable. 80 Once it is seen that FERC retains discretion to reduce existing imputed load factors on the ground that they are excessive, it follows that the Commission may refuse to increase the existing imputed load factor on the same ground, despite cost-shifting effects of a change in rate design. 11 SG customers are not entitled to a permanently guaranteed subsidy level and therefore are not entitled to complete and unconditional protection against cost-shifting. Consequently, we affirm FERC's judgment on this issue.