Opinion ID: 721438
Heading Depth: 3
Heading Rank: 5

Heading: Individual customer vs. customer class87

Text: 229 FERC required that pipelines use measures such as seasonal contract adjustments to avoid significant cost shifting for individual customers. If, after application of these mitigation measures, the use of SFV still results in a 10 percent or greater increase in revenue responsibility for any historic customer class, then the pipelines are required to phase in the increase over four years. Order No. 636-B, p 61,272, at 62,016 (emphasis added). The Pipeline Petitioners argue that the mitigation measures short of four-year phase in should also have been required on the basis of customer class rather than on the basis of SFV's effects on individual customers. 230 In deciding to base the initial mitigation measures on SFV rate design's effects on individual customers rather than customer class, FERC cited several recent decisions in individual pipeline restructuring proceedings. Id. at 62,016 n. 140. However, these rulings simply implement Order No. 636 and order studies on the effect of SFV rate design on individual customers, anticipating the adoption of mitigation measures on a customer-by-customer basis. But relying on these orders as a justification for the customer-by-customer basis would be a classic case of bootstrapping, amounting to a conclusion that Order No. 636 properly requires the customer-by-customer approach since several decisions implementing Order No. 636 take that approach. Nothing in any of the decisions justifies the basic determination in favor of the individual customer approach. Significantly, FERC cites no other support for its decision in Order No. 636-B to favor the individual customer approach. 231 [319 U.S.App.D.C. 111] The Pipeline Petitioners also raise an important question about the danger of the individual customer approach with respect to pipeline cost recovery: 232 [R]ates are determined on the basis of costs incurred and billing quantities during a specified test period. While it is reasonable to expect that the actual billing quantities of all customers in each class during the period the rates are in effect will approximate those experienced by the class during the test period, it is likely that individual customers may experience larger variances in billing quantities. The establishment of rates on a customer-by-customer basis therefore increases the risk that a pipeline will fail to collect its total costs during the period in which rates are in effect. 233 Pipeline Petitioners' Brief at 27. They also argue that FERC's order fails to take into account potential customer cost reductions under Order No. 636 that are not directly related to the switch to SFV rate design, and that the individual customer method increases the likelihood for discrimination in rates to similarly situated customers in violation of Sections 4 and 5 of the Natural Gas Act. 234 FERC has provided, in response to our request at oral argument, several citations to Order Nos. 636-A and 636-B which supposedly explain FERC's decision to implement the initial mitigation measures on a customer-by-customer basis. However, after examination of these citations, we conclude that the discussions cited on this question are ambiguous at best and incomplete at worst. FERC has failed to address adequately, in either the Order No. 636 series or in its brief, the Pipeline Petitioners' objections which we have outlined above. Because, as previously noted, the Commission has failed to provide any reasoned justification for its decision on this issue, and because the petitioners' objections raise serious questions about the appropriateness of FERC's ruling, we conclude that the Commission has failed to support its decision on this issue with substantial evidence. We therefore remand to the Commission the question of whether the initial mitigation measures should be implemented on the basis of customer class for further examination. 235