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

Heading: Requirement to discount

Text: 76 Petitioner Meridian Oil Inc., joined by the American Public Gas Association, challenges a different aspect of the right-of-first-refusal mechanism. The Commission declared that a pipeline need not accept a competing bid for a rate less than the maximum approved rate; in other words, pipelines are not required to discount under the rule. Order No. 636-A, p 30,950, at 30,629. The result is that a pipeline can choose between providing service to the highest bidder at a discounted rate and not providing service at all unless a shipper is willing to pay the maximum approved rate. In its comments to the Commission, [319 U.S.App.D.C. 79] Meridian urged that pipelines be required to accept the best bid, which on pipelines on which capacity was not constrained would likely be less than the maximum approved rate. The Commission responded that it would 77 not require pipelines to discount transportation rates. However, if a pipeline fails to attempt to maximize throughput, there is no guarantee that it will be able to recover all the costs of its underutilized capacity from its firm customers when it files its next rate case. Evidence that a pipeline refused to accept the highest valued bid for capacity below the maximum rate will be given significant weight during its next rate case. 78 Order No. 636-B, p 61,272, at 62,028 (footnote omitted). 79 Meridian contends first that the Commission violated § 7(b) by authorizing pre-granted abandonment without requiring the pipeline to discount. In Meridian's view, by forcing the existing customer to pay the maximum approved rate to ensure continuity of service, even if the competitive outcome as determined by the bidding process is a below-maximum rate, the Commission has failed to protect customers against pipelines' market power. See Mobil Oil, 498 U.S. at 227, 111 S.Ct. at 625; AGA II, 912 F.2d at 1517. However, as we held above, the Commission has already protected against pipelines' market power by removing the pipeline's ability to influence the bidding and by limiting the maximum rate that the pipeline may charge. See supra at 76. The Commission first authorized selective discounting by pipelines providing transportation under a Part 284 blanket certificate in Order No. 436, p 30,665, at 31,540-48. See 18 C.F.R. § 284.7(d)(5); AGD I, 824 F.2d at 1007-13; see also Mississippi Valley Gas Co., 68 F.3d at 507. Given that the purpose of selective discounting is to increase throughput by allowing pipelines to engage in price discrimination in favor of demand-elastic customers, AGD I, 824 F.2d at 1011, Meridian's proposal that pipelines be required to discount in favor of demand-inelastic, captive customers would render meaningless pipelines' ability to charge up to the maximum approved rate. The § 7(b) abandonment provisions protect customers against loss of service only if the customer is willing to pay the maximum rate approved in a rate proceeding. 80 Meridian's second contention is that the Commission acted in an arbitrary and capricious manner by not responding to Meridian's comments that the lack of a requirement to discount would prevent the right-of-first-refusal mechanism from reflecting competitive market forces on pipelines with excess capacity. The Commission responded to Meridian's objection by assuring that a pipeline is not entitled to full cost recovery in its next rate proceeding when it forgoes the opportunity to recover some of its fixed costs from a bid rate between the minimum and maximum filed rates. 48 Order No. 636-B, p 61,272, at 62,028. Meridian has offered no reason why the Commission's rate scrutiny will not provide sufficient incentives for pipelines to discount in appropriate circumstances. Accordingly, we affirm the Commission's decision not to require pipelines to discount in the right-of-first-refusal process.