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

Heading: Interruptible transportation revenue crediting

Text: 177 After the implementation of capacity release under Order No. 636, the number of firm transportation sellers in the marketplace substantially increased. As a result, it became difficult for pipelines to determine how much demand there will be for interruptible transportation (IT) service. In turn, it is difficult for the pipelines to determine what portion of their costs to recoup through billings to IT (as opposed to firm) service. In the Order No. 636 proceedings, FERC suggested that a pipeline 178 might decide to attribute no revenue responsibility to interruptible transportation. Since the pipeline's firm shippers would be responsible for all pipeline costs, revenues from the sale of interruptible transportation would [later] be credited to the firm shippers. 179 Order No. 636-A, p 30,950, at 30,563. Under true cost accounting, 100% of IT revenues would be credited to firm shippers, because firm customers are essentially being overcharged until the pipeline can figure out how much money it is recovering from IT service. The Commission suggested, however, that pipelines might adopt a 90/10 mechanism, under which only 90% of IT revenues would be credited to firm shippers. This 10% difference was thought by FERC to be a necessary incentive for pipelines to market interruptible transportation. Without it, pipelines would be assured of recovering their costs through firm sales charges, and therefore would have no reason to maximize IT throughput. 180 [319 U.S.App.D.C. 98] The Industrial End-Users, who utilize interruptible transportation, challenge the Commission's endorsement of a 90/10 IT revenue crediting mechanism on two grounds. First, they argue that the 10% gain creates an insufficient incentive for pipelines to market IT. The Industrial End-Users note that FERC rejected proposals for revenue crediting under Order No. 436, because they give[ ] the pipeline little or no incentive to provide service under the rule. Order No. 436, p 30,665, at 31,537. Second, they argue that the 90/10 mechanism reduces other shippers' incentive to release capacity; shippers know that if they do not put their firm capacity on the market, thereby forcing other companies to utilize IT service, they will receive some portion of the IT revenues through the crediting mechanism anyway. 181 We conclude that the Industrial End-Users' challenge to the IT revenue crediting mechanism is premature. Order No. 636-A expressly provides that pipelines might adopt this potential approach, and that parties to the restructuring proceedings also may consider whether other methods are needed. Order No. 636-A, p 30,950, at 30,563; see also Order No. 636-B, p 61,272, at 62,000 ([T]he parties to the restructuring proceedings could consider a variety of approaches, such as agreeing on an appropriate level of throughput for interruptible transportation or some type of revenue crediting mechanism.). 78 Our concerns are magnified given that the Industrial End-Users maintain that the 10% pipeline credit does not provide pipelines with a sufficient incentive to market IT, but provide no data or explanation of why that is the case. The only way to evaluate their claim is in the light of the particular facts presented in individual pipelines' restructuring proceedings. See id. (The petitioners requesting rehearing have not been aggrieved by the suggestion that the Commission would consider a revenue crediting approach proposed in a specific restructuring proceeding. In implementing its regulations, the Commission will not adopt rigid rate-making methodologies that fail to reflect the reality of the market or the intent of its regulations.). We therefore defer resolution of the Industrial End-Users' IT revenue crediting challenge to the individual pipeline restructuring proceedings.