Opinion ID: 577178
Heading Depth: 3
Heading Rank: 2

Heading: Legitimate State and Local Interests

Text: 43 Petitioners further maintain that the Commission arbitrarily failed to take into account the local effects of the bypass. 44 Traditionally, state regulatory agencies like the WUTC have designed the rates a LDC may charge based on the average cost of providing service to all consumers within the service area that may desire them. This system of rate design acts as a tax upon high-volume consumers who pay rates much higher than the LDC's costs of providing them service and serves to subsidize the provision of services to other consumers within a service area. Presumably, when high-volume consumers like Weyerhaeuser and Norpac leave the distribution system, the LDC can no longer depend on the high profit margins from these customers to achieve the same rate of return it previously received, even though the variable costs associated with providing services to these consumers disappear. The state regulatory commission has two choices: it can force the LDC to swallow its loss, or it can attempt to guarantee to the LDC the same rate of profit by raising the rates of the remaining consumers. 45 Petitioners argued before the Commission that approval of this and other bypasses in the region would increase the rates of services to remaining customers. Petitioners offered no evidence or made no specific allegation as to the degree to which this might possibly occur. 46 In its order denying a rehearing, the Commission offered several reasons for not denying Northwest's application on these grounds. First, it reiterated its claim that after careful consideration it concluded that the benefits which will accrue to the public as a result of competition in the natural gas industry outweigh any adverse impacts on particular parties. 53 F.E.R.C. at 61,052. Second, having noted previously that it was speculative whether remaining consumers would be harmed, because that decision would depend on the WUTC, the Commission noted that the petitioners offered no new evidence to support the claim that adverse effects outweighed the overall benefits of the Commission's policies to the nation as a whole. Id. Third, the Commission reserved the right in future bypass cases to conclude at some later date that the circumstances obtaining in a particular region of the country or the adverse impact on a particular LDC warrant a different approach. Id. Fourth, the commission noted that presently 47 nothing in the record of this case, or in other recent by-pass cases, leads the Commission to conclude that there is a need at this time to protect one party from the pressures of a competitive market. We note that although Northwest has proposed several transactions which by-pass LDCs, these by-passes will occur in Washington and Oregon and involve more than one LDC. Thus, the adverse effects, if any, are not likely to fall on only one LDC or group of consumers. 48 Id. Finally, the Commission noted that local authorities like the WUTC can discourage consumers from bypassing the LDCs by promoting rate designs and other policies that will make service provided by LDCs efficient, competitive and, therefore, economical. Id. at 61,053. If rates to industrial end-users are [consequently] lowered, the state commissions have alternatives which would not necessarily result in rate increases to residential customers. Moreover, it may be in certain circumstances that an increase in rates to residential customers will not be unjust or unreasonable. Id. See also Associated Gas Distrib. v. FERC, 824 F.2d 981, 1036-38 (D.C.Cir.1987), cert. denied, 485 U.S. 1006, 108 S.Ct. 1468, 99 L.Ed.2d 698 (1988). 49 While this response perhaps demonstrates insensitivity to the state's current strategy of subsidizing services to residential consumers, again, there is nothing in this response that would allow us to label the Commission's determination as devoid of a rational basis and therefore arbitrary and capricious. 50