Opinion ID: 492011
Heading Depth: 1
Heading Rank: 4

Heading: contract demand (cd) adjustmentnt

Text: 174 Local distribution companies require a firm supply of gas. Typically they have looked to pipeline sales service to fill this need. Firm sales contracts give the customer the right to demand, and obligate the pipeline at all times to stand ready to deliver, a certain quantity of gas per day, generally known in the industry as Contract Demand or CD. Once the arrangement receives the necessary certificate under Sec. 7 of the NGA, the LDC's entitlement and the pipeline's obligation acquire a legal existence independent of the contract and persist until the Commission issues formal approval of abandonment. See California v. Southland Royalty Co., 436 U.S. 519, 98 S.Ct. 1955, 56 L.Ed.2d 505 (1978); Panhandle Eastern Pipe Line Co. v. Michigan Consolidated Gas Co., 177 F.2d 942, 945 (6th Cir.1949). For a full requirements customer, relying on a single pipeline, the CD will amount to its entire anticipated gas needs; partial requirements customers, as the name suggests, rely on more than one pipeline. 175 Demand charges are based on CD and are payable regardless of the customer's actual use; having thus committed itself to partial payment for the gas covered by its CD, a customer pays only a commodity charge when it actually takes gas. 14 Thus, if the demand charge is $1 and the commodity charge $3, the customer will switch to an alternative supply only when the alternative's total cost (transportation and gas) is under $3, even though (in a sense) gas at $3.50 would be a better bargain. (It is better only in a sense because the customer gets a security of supply from its pipeline supplier that it does not get in the spot market.) The relation with a regular pipeline supplier thereby constrains the customer's practical freedom to take advantage of open access to the wellhead market. The higher the CD in relation to its total usage, and the higher the demand charge as a proportion of total price, the more severe is the constraint. 176 To make the customers' access meaningful, Order No. 436 provides customers a limited right to unilaterally modify their contracts with pipelines who elect to operate under the Order. It entitles any party with a firm sales contract on the date the pipeline becomes subject to Order No. 436 15 to (a) convert specified percentages of its CD from gas purchase (i.e., fully bundled service) to unbundled gas transportation or (b) reduce its CD by the same percentages. 177 The entitlement to convert or reduce 16 is 15% for each of the first and second years, 20% for the third year, and 25% for each of the fourth and fifth years. The entitlements are cumulative. For example, a firm customer could reduce contract demand not at all in the first two years and then reduce by 50% in the third year. Or it could refrain from exercising the option at all in the first four years, and then reduce by 100% in the fifth year or any year thereafter. See Order 436-C, J.A. 1355-60. 178 Petitioners attack the Commission's CD adjustment program on several fronts. A number of pipelines assert that the conditions violate the rule of Panhandle Eastern Pipe Line Co. v. FERC, 613 F.2d 1120 (D.C.Cir.1979), cert. denied, 449 U.S. 889, 101 S.Ct. 247, 66 L.Ed.2d 115 (1980), restricting the use of the Commission's power to impose conditions on certificates issued under Sec. 7. In addition, the pipelines attack the sufficiency of the Commission's reasoning for adopting CD conversion and CD reduction. With respect to CD reduction a number of LDCs lend their voices to the attack. Finally, Maryland People's Counsel contends that this court's opinion in Maryland People's Counsel v. FERC, 768 F.2d 450 (D.C.Cir.1985) (MPC III ), compels the Commission to permit customers to convert 100% of their CD to transportation immediately. 179
180
181 Several pipelines contend that the Commission's creation of the CD conversion/reduction options violates the principle established by this court in Panhandle, supra. Panhandle had applied for certification under Sec. 7(c) of new transportation service to an industrial gas user. Exercising its Sec. 7(e) authority to attach such reasonable terms and conditions as the public convenience and necessity may require, the Commission approved the certification subject to a condition requiring Panhandle to flow the resulting revenues through to its wholesale gas customers. The condition effectively gave the latter a rate reduction equal to the new revenues. The Commission's theory was that the wholesale gas customers had already paid for the capacity used to provide the service to the industrial user (or had obligated themselves to do so under existing rates). 613 F.2d at 1123. This court held, however, that such a use of the Commission's Sec. 7 conditioning authority was an illegal circumvention of Sec. 5. The latter authorizes the Commission to modify pipeline rates and charges when it finds them unjust, unreasonable, unduly discriminatory, or preferential, but only after notice and hearing in which, it is well established, the Commission bears the burden of proof. See, e.g., Sea Robin Pipeline Co. v. FERC, 795 F.2d 182, 184 (D.C.Cir.1986). 182 In the present case, the Commission's creation of the CD conversion/reduction option similarly modifies previously approved arrangements that are separate from the transportation authority that a pipeline would seek under Order No. 436. On its face, it appears to challenge Panhandle's strictures against extensions of the Sec. 7(e) conditioning power that would erode substantive or procedural limits on the Commission's power. 183 The Commission has taken high ground, which we think quite untenable. It argues that since application for a blanket certificate under Sec. 7 is entirely voluntary, there is no need for it to point to any express congressional grant of power. It asserts that in the CD modification conditions it was not requiring the adjustment of previously-certificated service.... FERC Brief at 107 n. 1 (emphasis added). Obviously the suggestion that Panhandle presents no problem because the application for certification is voluntary is unacceptable. As all Sec. 7 applications are voluntary in a legal sense, the Commission's theory would extirpate the Panhandle doctrine. 184 Apart from the voluntariness theory, the Commission notes that it has invoked Sec. 7(b), authorizing it to permit natural gas companies to abandon certificated service. In 18 C.F.R. Sec. 284.10(f)(3) it expressly finds that pipeline abandonments of service, pursuant to customer elections under the Order, are permitted by the present or future public convenience and necessity. But this finding looks only to the pipeline's obligation, as is fitting under Sec. 7(b). Neither that section nor the finding thereunder supports the Commission's relieving customers of their contract obligations. 185 For that, it appears one must turn to Sec. 5 of the NGA, which allows the Commission to set aside any unjust, unreasonable or unduly discriminatory contract affecting rates and charges. Much of the Commission's reasoning suggests a belief that under present circumstances inflexible CDs in fact qualify as unjust, unreasonable, [or] unduly discriminatory terms. But the Commission has expressly declined to rely on Sec. 5, and has not explained why not. J.A. 1059. 186 The voluntariness theory and the invocation of Sec. 7(b) appearing inadequate, and the Commission having disclaimed reliance on any other provision (notably Sec. 5), the CD modifications are without basis in law insofar as they condition blanket certificate transportation under the NGA on release of customers from contract obligations. (Immediately below we address the issue of transportation under Sec. 311.) On remand, the Commission can proceed under such grants of power as it believes are relevant, undistracted by the notion that its power under Sec. 7(e) entitles it to sweep aside the substantive and procedural constraints of the NGA. In so doing, of course it may employ rulemaking. Cf. Wisconsin Gas Co. v. FERC, 770 F.2d 1144 (D.C.Cir.1985), cert. denied, --- U.S. ----, 106 S.Ct. 1969, 90 L.Ed.2d 653 (1986). 187 CP National and other LDCs contend that the Commission is without authority to impose the CD conversion/reduction option as a condition of authority to transport under Sec. 311 of the NGPA. No analysis is offered in support of the claim. The premises of the Panhandle doctrine are absent here. Perhaps because of its expectation that Sec. 311 would operate simply to forge interstitial links between the hitherto separate interstate and intrastate markets, see Public Service Comm'n of the State of New York v. Mid-Louisiana Gas Co., 463 U.S. 319, 342, 103 S.Ct. 3024, 3037, 77 L.Ed.2d 668 (1983); Process Gas Consumers Group v. United States Dep't of Agric., 694 F.2d 728, 764 (D.C.Cir.1981) (other portions vacated and reconsidered en banc, 694 F.2d 778 (D.C.Cir.1982)), cert. denied, 461 U.S. 905, 103 S.Ct. 1874, 76 L.Ed.2d 807 (1983), Congress never created for Sec. 311 transportation any elaborate structure paralleling that of the NGA. This claim fails. 188 In summary, the Commission has failed to ground the CD adjustment provisions in any adequate section of the NGA. Because the conditions can legally apply to Sec. 311 transportation, however, and because we have no reason to expect that the Commission's interest in attaching the options to Sec. 7 transportation has waned, we proceed to address a number of other attacks. 189
190 As noted above, the Commission has, in the CD modification provisions, identified circumstances under which pipelines are automatically entitled to abandonment of service--namely, when the customer exercises the election provided. In support of this it has made the necessary finding under Sec. 7(b) that such abandonment serves the public convenience or necessity. 17 CP National and others fault the Commission for failing to make various specific findings said to be subsidiary parts of that conclusion. They cite, for example, Transcontinental Gas Pipe Line Corp. v. FPC, 488 F.2d 1325, 1329-30 (D.C.Cir.1973), cert. denied, 417 U.S. 921, 94 S.Ct. 2629, 41 L.Ed.2d 226 (1974), overturning the Commission's decision to permit certain producers to abandon sales to an interstate pipeline. In that context, the court held that the Commission must study various factors and make a broadly conceived comparison of the needs of the two natural gas systems [the current purchaser and the producers' intended substitute] and the public markets they serve. Id. at 1330 (footnote omitted). 191 The petitioners implicitly assert that the substantive ingredients of the public convenience or necessity are the same regardless of the type of abandonment. This makes no sense. Clearly the substantive concerns relevant to terminations at the option of LDCs are altogether different from those relating to producers' abandonment of their sales to pipelines in a period of acute shortage, as was the case in Transcontinental. 192 Elizabethtown Gas Company derives from Transcontinental the proposition that the Commission cannot wholly defer to private parties' choice. Id. at 1328-29. We see no conflict between that precept and the Commission's action here: nothing in Transcontinental prevents the Commission from identifying circumstances which, when coupled with the purchaser's election, satisfy the public convenience and necessity. 193
194 Pipelines attack CD conversion as arbitrary and capricious, focusing mainly on its impact on preexisting supply arrangements. They entered into these arrangements primarily in response to their Commission-imposed obligations to maintain sources of supply adequate to meet their sales commitments, 18 see 18 C.F.R. Sec. 2.61, and in reliance on their ability to recoup the costs through firm sales contracts. The arrangements consist largely of long-term supply contracts with producers, but also include investments in expensive facilities for the importation of liquefied natural gas (LNG), see Trunkline LNG Co. (Opinion No. 796), 58 F.P.C. 726 (1977); Trunkline LNG Co. (Opinion No. 796-A), 58 F.P.C. 2935 (1977). 19 In addition to arguing that the rule defeats their justifiable reliance on their sales contracts, the pipelines argue that the Order is shortsighted: seeing their treatment in this situation, pipelines will hardly jump to meet any future shortage or come to the assistance of a converting LDC that later finds itself in trouble when the market tightens. 195 An assertion that agency conduct was arbitrary and capricious requires the court to explore the links between that conduct and the agency's statutory authority. We must examine the agency's reasoning to determine whether it considered the relevant factors and drew a 'rational connection between the facts found and the choice made.'  Motor Vehicle Mfrs. Ass'n v. State Farm Mutual Automobile Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2866, 77 L.Ed.2d 443 (1983) (quoting Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168, 83 S.Ct. 239, 246, 9 L.Ed.2d 207 (1962)). Here we are hampered because, insofar as the Commission has attached the CD conditions to Sec. 7 blanket certificate transportation, its asserted statutory basis, Sec. 7(e), is legally insufficient. See supra part IV.A.1. However, in attaching the condition to Sec. 311 transportation, the Commission plainly invokes the authority of Sec. 311(c), which allows it to prescribe terms and conditions. Section 311 itself states no explicit standards for the exercise of the power, but the overall purposes of the NGPA provide a standard--somewhat amorphous, to be sure--against which we can and must measure the Commission's decision. See, e.g., Permian Basin Area Rate Cases, 390 U.S. 747, 776, 88 S.Ct. 1344, 1364, 20 L.Ed.2d 312 (1968). Given the overlap in the purposes of the NGA and the NGPA this process will have implications for possible future exercises of the Commission's NGA authority, presumably Sec. 5, but in view of the Commission's disclaimer of reliance on Sec. 5, our analysis does not directly apply to such an exercise. 196 Unilateral abrogation of a contract is an extreme measure. This is true even where the abrogation is partial, as it is under the conversion option, and even though common law doctrines of impracticability and impossibility shift the risk allocation nominally arrived at by the parties. (They may well do so only to arrive at the allocation the parties would have made had they considered in advance the risk that eventuated. Posner & Rosenfield, Impossibility and Related Doctrines in Contract Law: An Economic Analysis, 6 J. Legal Stud. 83 (1977).) Nonetheless, we find the reasoning underlying CD conversion persuasive. 197 Unlike the typical contract, those at issue here necessarily reflect the pipelines' monopoly power. The Commission found the transportation network highly monopolistic in some markets, fairly competitive in others. J.A. 281. Historically, in fact, many customers have been served by only one pipeline. J.A. 279. This is not disputed. Until the recent partial unbundling of pipeline sales and transportation service, the pipelines were the only parties from whom LDCs might practicably buy gas. Once the unbundling of services began, the LDCs' position changed little, as the pipelines wielded their monopoly power over transportation to deny them the ability to purchase from would-be competing suppliers. J.A. 318, 352 (finding practice unduly discriminatory and preferential). Absent these market restraints, there is no reason to believe that the LDCs would have agreed to the long-term sales contracts binding them to pay rates based on the pipelines' costs, whatever those might be. 20 Yet, by virtue of these arrangements, the LDCs found themselves denied access to the spot market, which offers prices at least 20% below the pipelines' average gas costs. 21 See supra part I. 198 FERC thus found that to remedy these effects, it was essential to permit limited LDC abrogation of pipeline sales contracts: 199 The transitional contract demand reduction and conversion options are essential if the goal of nondiscriminatory access to transportation is to be achieved.... With such an option, full-requirements customers--especially small, sole-supplied local distribution companies ...--will have access to competitively-priced supplies of the gas commodity. 200 Thus, they will no longer be dependent on a single merchant for their gas supplies.... 201 J.A. 407-08. See also J.A. 424 (only through conversions can sole-supplied customers have access ... to the national market). Failing to provide such an option, FERC concluded, would be to condone the fundamental form of undue discrimination by monopoly power which the NGA intended to prohibit. J.A. 426. 202 Thus while the CD conversion option partially denies pipelines the benefits of their contracts, it does so only because those contracts are vestiges of their monopoly power, and only in order to correct the consequences of that power. This action therefore conforms to the purposes of the NGPA. In Transcontinental Gas Pipe Line Corp. v. State Oil & Gas Board, 474 U.S. 409, 106 S.Ct. 709, 88 L.Ed.2d 732 (1986), the Supreme Court declared that enactment of the NGPA left as the aim of federal regulation ... to assure adequate supplies of natural gas at fair prices, id., 106 S.Ct. at 716, and referred to Congress's determination that the supply, the demand, and the price of high-cost gas [the type at issue there] be determined by market forces, id. at 716-17. Congress's continued concern for the market power of pipelines is expressly reflected in NGPA Sec. 601(b)(1)(E), providing that the price of gas purchased by a pipeline at the wellhead from its affiliate is deemed just and reasonable only to the extent that it does not exceed independents' prices in comparable sales. 203 Thus it would appear that the Commission has been correct in its belief that under Sec. 311 it should assert the traditional regulatory approach in areas where it is needed to protect the public from market dominance by natural gas companies. J.A. 271. Provision of the CD conversion option for customers of pipelines offering Sec. 311 transportation properly implements that view. Any principle quashing the Commission's chosen remedy would seem to block pro-competitive regulatory reform and run counter to a long judicial tradition favoring agency development of whatever pro-competitive policies are consistent with the agency's enabling act. See, e.g., Gulf States Utils. Co. v. FPC, 411 U.S. 747, 760, 93 S.Ct. 1870, 1878, 36 L.Ed.2d 635 (1973); Denver & Rio Grande W.R.R. Co. v. United States, 387 U.S. 485, 492-93, 87 S.Ct. 1754, 1759-60, 18 L.Ed.2d 905 (1967). 204 CD conversion may to a degree shift the costs of overpriced gas and take-or-pay liability to those pipeline customers least able to switch to reliance on the wellhead market. But circumstances limit the pipelines' power to shift the costs. Any customer of a pipeline electing to provide transportation under Order No. 436 has, by definition, the power to go out into the market to secure gas and unbundled transportation. That strategy has its costs--including, of course, the management costs of negotiating and coordinating long-term supplies, or fees to brokers for doing so. But these costs form the ceiling on what pipelines may charge. Accordingly we see no basis for rejecting FERC's conclusion that the cost-shifting risk was tolerable. 205 We accept FERC's conclusion that the relevant factors under Sec. 311 tilt in favor of the CD conversion option. 206
207 Several LDCs attack the Commission's authorization of CD reduction. They contend primarily that it failed to meet the substantial evidence requirements of Sec. 19(b) of the NGA and Sec. 506(a)(4) of the NGPA, which are understood by the parties to be equivalent, in the rulemaking context, to the arbitrary and capricious standard. See Wisconsin Gas Co. v. FERC, 770 F.2d 1144, 1156 (D.C.Cir.1985), cert. denied, --- U.S. ----, 106 S.Ct. 1969, 90 L.Ed.2d 653 (1986); Mid-Tex Elec. Coop., Inc. v. FERC, 773 F.2d 327, 338 (D.C.Cir.1985). This standard requires the agency to articulate a satisfactory explanation for its action including a 'rational connection between the facts found and the choice made.'  Motor Vehicle Mfrs. Ass'n v. State Farm Mutual Automobile Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2866, 77 L.Ed.2d 443 (1983) (quoting Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168, 83 S.Ct. 239, 246, 9 L.Ed.2d 207 (1962)). 208 We agree with the challengers that the Commission has failed to develop an adequate rationale in support of CD reduction. Review of the Order on this point is considerably hampered by the Commission's tendency to wrap its justification for CD reduction together with the case for CD conversion. The two almost always appear together, like Rosenkranz and Guildenstern, making it hard to extract the portion of the argument that has any real connection with reduction. This is understandable in terms of the proposals' history. In the NOPR, the Commission offered CD reduction as the sole device by which customers could escape their long-term contracts with pipelines. When the Commission later recognized and embraced CD conversion, its analysis of CD reduction became largely obsolete. Yet it has continued in places to justify it as necessary to effect the goal of providing consumers access to competitively priced gas. E.g., J.A. 407-08. See also J.A. 1055-58. If CD conversion is available, however, this justification fails. Below we review various other purposes asserted by FERC, as well as its treatment of the cost-shifting consequences of CD reduction. 209 (a) FERC argues that [t]he transitional contract demand reduction and conversion options are essential if the goal of non-discriminatory access to transportation is to be achieved when pipelines operate under the new transportation rules. J.A. 407. In a later passage, rejecting a proposal that it afford only CD conversion, the Commission reasoned that a CD option limited in such a way would restrict customers' access to transportation services on the same pipeline and deny them the ability to shop around for unused transportation capacity booked on other pipelines. J.A. 448. 210 As justifications for CD reduction, these arguments seem peripheral to the problem the Commission set out to solve in this rulemaking: access to gas competitively priced at the wellhead. CD reduction would of course help each LDC secure access to all the different producing areas of the country, in addition to the ones from which its existing pipeline supplier(s) draw their gas. But the record contains no suggestion that competitive wellhead prices are subject to important regional variations. While easy LDC access to all producing regions would help correct or prevent regional price variations, the Commission makes no argument that any such variations pose so great a problem as to require such drastic action as 100% CD reduction. 211 Of course, competition among pipelines in transportation services may well be expected to engender lower prices (at any given level of service quality). If so, it would fulfill the general consumer-benefit purposes of the Order. But the Commission does not spell out any such arguments. Moreover, any analysis along these lines would trigger attempted rebuttals, essentially based on the view that in a monopolistic or oligopolistic industry unrestricted consumer choice may lead to duplication of capacity and higher costs for consumers. Without assessing the validity of those arguments or the Commission's authority to adopt rules moving the industry towards more competition in transportation, we simply cannot find any Commission effort to justify CD reduction in such terms. 212 (b) The Commission argues that the levels of sales service that customers have contracted for on a firm basis may no longer correspond to what they desire to purchase. J.A. 406 (footnote omitted). The Commission found that this imbalance between actual needs and contracted-for capacity has caused at least two problems. First, the discrepancy results in an undesirable inequity as on some systems, interruptible transportation is as a practical matter virtually the same quality of service as firm, though available at lower rates. Id. (emphasis in original). Second, the discrepancy also has the effect of unnecessarily denying firm service to some potential users, making the reduction option necessary to allow a freeing up of firm capacity. J.A. 411. See also J.A. 417. 213 While the argument seems highly relevant to CD reduction, it hardly supports the broad remedy adopted. Even in its terms, it refers to a limited portion of the industry. The finding's lack of general application is underscored by the Commission's observations that most firm sales customers need their full contract demand on peak days. J.A. 420. If so, then the obsolescence referred to is clearly far from universal. If such obsolete certificates exist only on some systems, it is unclear why the Commission believes that an industry-wide solution is needed, especially one that permits all LDCs--or rather, all LDCs in their relations with pipelines opting to offer service under Order No. 436--a right to reduce contract demand 100%. 214 The Commission argues that Wisconsin Gas Co. v. FERC, 770 F.2d 1144 (D.C.Cir.1985), cert. denied, --- U.S. ----, 106 S.Ct. 1969, 90 L.Ed.2d 653 (1986), allows it to make Sec. 5 determinations generically. J.A. 412. True but irrelevant. Neither Wisconsin Gas nor any other case of which we are aware supports an industry-wide solution for a problem that exists only in isolated pockets. In such a case, the disproportion of remedy to ailment would, at least at some point, become arbitrary and capricious. This is not to say, of course, that the Commission could not use generic rules to identify a limited class of LDCs to be entitled to reduce CD when special conditions are present. But here the Commission has said nothing to link the asserted obsolescence of CD levels to the broad class of purchasers made eligible. 215 (c) Responding to the complaints of some LDCs that the CD reduction option will force them to bear an additional share of pipelines' capital costs (i.e., the costs now borne by the customers that will exercise the option), the Commission asserts that customers are likely to seek little net CD reduction. J.A. 420. Accordingly there will be little net change, nationwide, in aggregate recovery of costs. Id. 216 The improbability of major aggregate cost-shifting, however, provides little answer to the concerns of captive customers of pipelines that are likely to lose out in the competitive race. While the Commission might justify the losses of such a captive by reference to potential aggregate gains, it has neither confronted the problem nor developed in any detail its reasons to expect the net gains. 217
218 Maryland People's Counsel argues that under the principle established in Maryland People's Counsel v. FERC, 768 F.2d 450 (D.C.Cir.1985) (MPC III ), the Commission was required to afford firm customer an immediate option to convert any purchase obligation completely. 22 We find the claim unpersuasive. 219 In MPC III this court addressed the validity of certain special marketing programs (SMPs), successors to the SMPs held invalid in Maryland People's Counsel v. FERC, 761 F.2d 768 (D.C.Cir.1985) (MPC I ). The SMPs reviewed in MPC I authorized the following approach to the mounting problem of high-cost gas subject to high take-or-pay burdens: A producer would resell, at market rates, high-cost gas previously committed to a pipeline. A limited class of persons was eligible to purchase, and that class excluded captive consumers. The producer would credit the pipeline's take-or-pay liability for the sale, and the pipeline would transport the gas to the new purchaser. This court held the program invalid because it excluded captive consumers from the class of eligible new purchasers, without adequate consideration of possible anti-competitive and anti-consumer consequences. FERC then amended the program to permit anyone with a firm contractual entitlement to purchase a pipeline's gas to nominate up to 10% of its contract demand to be purchased under the SMP. Thus the second-generation SMPs gave captive customers access to gas at competitive wellhead prices, but only up to the 10% figure. This court overturned the second-generation SMPs, finding them to be of a piece with the first. MPC III, 768 F.2d at 455. 220 We think that MPC finds more in MPC III than it contains. The Commission there made no effort to justify the 10% option in the second-generation SMPs by reference to classical grandfathering values. Here, by contrast, it invokes those values emphatically and we think plausibly, arguing that the pipelines require time to adjust to the new dispensation, particularly to resolve the take-or-pay problems presented by the producer-pipeline contracts. J.A. 1152. The specific phase-in period and percentages and election procedures resulted from detailed consideration of various options. 23 See J.A. 1145-55. In the event that the Commission modifies its disposition of the producer-pipeline contracts in light of our treatment of the take-or-pay issue or for any other reason, however, the Commission may wish to reconsider the phase-in of the conversion option.