Opinion ID: 457683
Heading Depth: 1
Heading Rank: 7

Heading: the t-8 and t-10 rate schedules

Text: 70 TransCanada and Natural contend that the Commission's decision with respect to Rate Schedules T-8 and T-10 is unsupported by the record and further contend that the Commission erroneously neglected to consider the existence of negotiated agreements between the parties in reaching its determination. We agree and consequently remand this portion of the case to the Commission. Because we find remand in order in any event, we do not address the question whether the minimal notice afforded by the Commission was adequate under the circumstances. 71 The sole record evidence underlying the Commission's decision is the Supplemental Testimony of Cyril J. Zebot, the staff's industry economist. Zebot was first asked whether he agreed with the rate design for Schedules T-8 and T-10. He testified that 72 [a]lthough the concept is similar to my proposal for all transportation rates, I feel it more appropriate to use the same Mcf mile approach used in my direct testimony for these rate schedules. 73 Zebot was then asked to explain the rate design for Schedules T-8 and T-10. Zebot stated: 74 Rate Schedules T-8 and T-10 are based on a rolled-in or a systemwide basis of allocation. This is the same basic type of allocation that I have proposed for all of Great Lakes transportation service, including the T-6 rate design. The difference between my proposal and Great Lakes' T-8 and T-10 rate design is quite subtle; Great Lakes' proposal credits the revenues to the Cost of Service based on a rate per Mcf mile; whereas my proposal allocates cost in the same manner as the zone allocation. 75 Finally Zebot was asked to explain the difference between this rate design and the rate design for the T-6 service. He merely asserted: 76 Great Lakes uses an incremental rate design for the T-6 service presumably because the incremental cost is higher than the rolled-in allocation of costs. The T-8 and T-10, as explained above, are determined on a rate per Mcf mile as presented by Great Lakes in Docket No. RP80-134. 77 J.A. 123-24. This was the entirety of the testimony relied upon to give adequate notice to all interested parties that company use gas was in question and to provide substantial evidence for the Commission's deviation from the status quo. The ALJ relied on these sentences both for the assertion that staff witness proposes that the cost of company use gas included in the T-8 and T-10 rates be calculated on the basis of the total system Mcf-miles, 17 F.E.R.C. at 65,100, and for the conclusion that staff has presented a patent case of preference and undue discrimination within a class of customers. Id. at 65,101. 78 We find the testimony too slim to support the conclusions based upon it. All concede that incremental costing was the certificated method and constituted the status quo. Consequently, the burden was on the Commission to establish that the resultant rates are unjust and unduly discriminatory within the meaning of the NGA. Zebot's testimony does not establish that ANR is within the same class of customers. It does not establish that the seasonal, storage-related backhaul services to which schedules T-8 and T-10 pertain are the same as or substantially similar to the basic year-round forward-haul transportation services. In light of the Commission's own observation that the T-8 and T-10 services are in some ways functionally unlike other transportation services, 25 F.E.R.C. at 61,726, the Commission has failed to present substantial evidence that the differing treatment of these rates was unjust or unreasonable. 79 TransCanada and Natural have also contended that the Commission's decision is deficient in that neither the ALJ nor the Commission gave appropriate consideration to the fact that the decision to employ incremental costing for company use gas derived from a negotiated agreement among Great Lakes customers. FERC seems to acknowledge that this agreement existed and that neither the ALJ nor the Commission took it into account, but contends that the fact that these agreements were negotiated by all the parties is irrelevant. FERC's Brief at 24. 80 The existence of contractual arrangements among the parties is not binding on FERC or dispositive of the question of the legality of rates. The Commission is not justified, however, in cavalierly disregarding private contracts. This court has said that 81 Because the preservation of private contract within the context of a rate-setting statutory scheme promotes economic stability, the Supreme Court held in the Mobile and Sierra cases, that statutory provisions governing public utilities' rates should be construed, when possible, as compatible with private rate agreements. 82 Cities of Bethany v. FERC, 727 F.2d 1131, 1137, 1139. (D.C.Cir.1984). This court has further suggested that settlement agreements can constitute a factual difference that may justify a rate disparity. Id. Other cases have pointed out that the Commission is obligated to consider equitable considerations that may derive from contracts in making its determinations. Thus the Commission's assertion that contracts are irrelevant is erroneous, and the Commission's failure to take the existence of the negotiated agreements into account is a material deficiency in its reasoning. 83 In sum, we are not convinced that the Commission has given reasoned consideration to each of the pertinent factors. Cf. In re Permian Basin Area Rate Cases, 390 U.S. 747, 792, 88 S.Ct. 1344, 1373, 20 L.Ed.2d 312 (1968); Transco, 589 F.2d 542, 549 (D.C.Cir.1978). Consequently, we remand this portion of the case for more thorough consideration and a more carefully reasoned determination. In so ruling, we do not suggest that a change to rolled-in costing is necessarily unacceptable. We hold only that the present record is inadequate to support such a departure from the negotiated status quo.