Opinion ID: 457683
Heading Depth: 2
Heading Rank: 2

Heading: The T-6 Rate Methodology

Text: 45 The Commission ordered Great Lakes to utilize simultaneously two rate methodologies to assess ANR for the T-6 service--both an incremental rate to cover the cost of the loop's facilities and services, and a pro rata share of the rolled-in costs of the mainline system. This new methodology resulted in an immediate lowering of T-6 rates for Great Lakes' other customers, with, as explained above, the increase to ANR to occur later. 46 ANR protests that this methodology, which was not suggested by either Great Lakes (which did not propose any change in the existing T-6 rate methodology) or by the Commission's staff (which proposed changing the existing methodology from an incremental to a rolled-in method), requires ANR, its customers, and the ultimate gas consumer, to pay twice for the same service. Brief of ANR at 10. Because we are unable to find substantial evidence in the record to support the Commission's conclusions concerning the T-6 rate, we reverse this portion of the Commission's order. 47 Although agency expertise is entitled to respect in a case of this sort, we nonetheless must ascertain that the Commission's order is supported by substantial evidence and reached by reasoned decisionmaking--that is, a process demonstrating the connection between the facts found and the choice made. Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 167-68, 83 S.Ct. 239, 245, 9 L.Ed.2d 207 (1962); Electricity Consumers Resources Council v. FERC, 747 F.2d 1511, 1513-14 (D.C.Cir.1984); see also City of Charlottesville v. FERC, 661 F.2d 945, 950 (D.C.Cir.1981) (What is basic is the requirement that there be support in the public record for what was done.) (citation omitted). 48 In this case, we can fathom no support in the record for the Commission's decision regarding the T-6 methodology. The record presents evidence in favor of either the incremental or the rolled-in method, but not both. The staff originally proposed changing from the incremental to the rolled-in method for two reasons: first, that it was unlawful and unjust for ANR not to pay a portion of the rolled-in costs of the mainline system reflecting its use; second, that there were actual or potential benefits flowing from the loop to all customers. On this latter point, the staff's witness, Mr. Zebot, testified that 49 Great Lakes' system is a single pipeline, approximately 1,100 miles long ... [along which] [s]ales and transportation services are rendered at various points.... The pipeline is thus an integrated system. In my opinion, the facilities utilized to provide the T-6 basic service are a part of the integrated system, and the associated costs should be allocated on a rolled-in basis as is currently done for the other rate schedules. 50 J.A. 112-13. Zebot viewed the looped portion of the system as a potential benefit to all customers because there is nothing in the certificate or the contract underlying the T-6 service that restricts the use of the looping facilities solely to the T-6 schedule or solely to any specific customer or customers. Id. Therefore, 51 should it be necessary to shut down Great Lakes' main line along this looped portion of the system, Great Lakes would be able to use this looping to continue service to its customers. The net effect is that the looping provides additional pipeline system security, a potential benefit to all customers. [Also,] ... the looping is actually available for serving other customers [and] ... actually has been used to provide service for other customers. 52 J.A. 113. 53 It is uncontroverted that Zebot was proposing to substitute the rolled-in methodology for the existing incremental methodology, and not to combine the methods. He testified that Great Lakes had not justified its use of the incremental method, id., and that that method was improper in an integrated system. J.A. 113, 114. Therefore, according to the staff's witness, [t]he more appropriate rate is a rolled-in cost approach. J.A. 114. 54 The staff counsel, Ms. Boyle, testified that the staff viewed the incremental rate design on the T-6 schedule to be a carryover that had never been determined to be just and reasonable. J.A. 191. She explained that, 55 incremental costing is unlawful because ... there is no other service, even though there are similar services such as T-8 and T-10 services, that are costed incrementally, so this is preferential treatment and it is unjust and unreasonable because the incremental costs of the T-6 service has [sic] decreased due to reduction in volumes, but actual costs have increased due to increased fuel costs.... 56 Furthermore, the incremental costing fails to recognize that other customers benefit from the facilities, such as by added system security and fuel savings.... 57 .... [R]olled-in costing is just and reasonable because rolled-in costing is appropriate for an integrated system which [Zebot's] testimony shows Great Lakes to be. 58 J.A. 194. In short, staff presented no evidence or argument to support an incremental methodology, either by itself or in combination with rolled-in costing. In staff's view, incremental costing is unlawful. 59 On the other hand, TransCanada's witness argued that the incremental, not the rolled-in, methodology should remain as the basis for the allocation of costs under the T-6 service. J.A. 389-92, 430-31. Natural Gas Pipeline's witness also supported incremental costing, J.A. 481-82, as did Great Lakes' witnesses. J.A. 503D-E; 503H-J; 514C-E. Great Lakes' consultant, Mr. Chinn, agreed that the incremental method should be maintained. He explained: 60 I disagree with Mr. Zebot on his use of a rolled-in method to design the rate for the transportation service under the T-6 Rate Schedule. Mr. Zebot's argument boils down to the proposition that if at any time a transmission company provides a new service for the benefit of single customer ... the rates of the existing customers of such transmission company should be increased and they should be required to bear additional costs related to the new facilities because there may be a potential ancillary benefit, however small, to some of such existing customers. Mr. Zebot ... [reasons] ... that Great Lakes operates an integrated system and, therefore, that the incremental facilities also benefit other system customers.... The plain fact is that the other customers do not benefit from this service.... Mr. Zebot alone proposes without factual basis that the T-6 facilities benefit other customers on the system, an assumption which simply is not supportable. 61 J.A. 547C-D. 62 Thus, the only evidence in the record concerning the T-6 schedule supports the adoption of either the rolled-in method of cost allocation (the staff proposal) or the incremental method (the proposal of Great Lakes and its customers), not both. The ALJ discussed the evidence for and against the adoption of either method, J.A. 2545-48, and concluded that the staff had not met its evidentiary burden of showing that the incremental method was preferential and unduly discriminatory. J.A. 2549. Applying a functional test, the ALJ found that, in fact, the system was not integrated because the looped facilities did not benefit all customers. He concluded that, since there must be 'equal treatment for customers receiving equal service,' the T-6 rate should be computed on an incremental basis. J.A. 2550. 63 Having determined that the incremental method should apply, however, the ALJ added sua sponte that the 64 [s]taff is correct, however, in stating that the T-6 rate is unlawful because it does not include any portion of the cost for use of the mainline system. Although the Great Lakes system is not sufficiently integrated to require the rolling-in of the cost of the T-6 facilities, it is uncontroverted that the mainline system is used to provide the T-6 service to Mich Wis. Therefore, Mich Wis should bear its share of the costs of the mainline system. 65