product." In cases where we have approved market-based rates, we have first found that the buyer had sufficient alternatives to ensure that the seller lacked market power.2 Neither the need for power, nor an avoided cost cap, nor the "voluntary" nature of the contract, nor the state's approval, nor the absence of intervenors is a substitute for the crucial finding that the seller lacks market power over the buyer a finding we simply cannot make in this case, where the buyer examined so few alternatives.

The reason for our emphasis on alternatives is simple. Market-based rates cannot be shown to be just and reasonable-that is, within the zone of reasonableness in the absence of competition. As we said in one of our first market-based rate cases, it is the rivalry among competitors to supply the needed power that "exert[s] a downward pressure on the price that [the customer] must pay for needed capacity." This ensures that the rates do not exceed the zone of reasonableness. There simply was not enough "downward pressure" demonstrated in this case to allow us to find that the rate is within that zone.

While we have taken comfort from an avoided cost cap in several cases, such as Ocean State, Doswell, and Public Service Company of Indiana, in each of these cases the fact that the rate did not exceed the buyer's avoided cost was a factor mentioned only after the critical finding that the seller lacked market power over the buyer — a finding based on the presence of sufficient alternatives. In fact, in Doswell we specifically stated that "we cannot accept a QF avoided cost rate as just and reasonable without examining whether market forces were at work to establish the price and nonprice terms.' "4 If all that were required is that the rate not exceed the buyer's avoided cost, and if the avoided cost were determined by examining only a few alternatives, there would be little of that downward pressure on the price that we found so crucial in Ocean State.

1 Public Service Co. of Indiana, Inc., 51 FERC ¶61,367, at p. 62,205 (1990). Also see Ocean State Power, 44 FERC 61,261, at p. 61,979 (1988) ("[1]ack of market power is the key prerequisite for allowing market-oriented pricing").

2 Doswell Limited Partnership, 50 FERC ¶ 61,251, at p. 61,757 (1990) ("multi-party" negotiation process); Dartmouth Power Associates Limited Partnership, 53 FERC ¶ 61,117, at p. 61,360 (1990) (buyer had "numerous" alternatives); Ocean State Power, supra, 44 FERC at p. 61,981 ("abundant" sources of power).

Ocean State Power, 44 FERC at p. 61,980.

We have also taken comfort in several cases from a state's finding that the market-based rate represented the buyer's best alternative. However, we have only approved a marketbased rate after making an independent finding required by the FPA —that the buyer had sufficient alternatives to ensure that the seller lacked market power. While we have great respect for the Nevada Commission's expertise, we cannot delegate to the states our responsibilities under the Federal Power Act. It is not in our discretion to decide whether to establish a federal standard for determining the justness and reasonableness of wholesale rates; the Federal Power Act requires such a standard.5

Another issue that may have become confused during our discussion at the meeting is what showing is required to demonstrate that the buyer had sufficient alternatives. I would like to make it clear (although it seems to me to be clear on the face of the order) that this order does not require a formal bidding procedure. We have never stated such a requirement, and we do not do so now. Indeed, we have previously approved negotiated market-based rates.6 As long as the buyer had sufficient alternatives to demonstrate that the seller lacked market power in generation, there need not have been a formal bidding procedure. This order does not state how many alternatives are sufficient. It simply finds that the small number here is not sufficient not a difficult finding, in my view.

Another thing this order does not do is to make any findings related to transmission. While the majority has been accused of holding utilities "hostage" to the Transmission Task Force, that accusation is ignoratio elenchi and has apparently become boilerplate; this order has nothing to do with transmission, since SunPeak's association with Southern California Edison Company is not a basis for our rejection of this rate.

450 FERC at p. 61,757.

5 The National Energy Strategy does not empower us to delegate our existing FPA statutory responsibilities to the states, nor does it eliminate the statutory requirement that rates be just and reasonable.

6 Note that in Dartmouth, we approved a market-based rate even though the seller had not taken part in a bidding procedure. The fact that the buyer had solicited bids from QFs and had received many responses simply provided evidence that the buyer had numerous alternatives.

its four nonexempt upstream suppliers, including Panhandle and Texas Gas, since at the time of the December 6 filing those pipelines did not have revised allocation methods in effect.

On January 4, 1991, the Commission accepted and suspended Columbia's December 6, 1990 filing to become effective January 6, 1991.5 The Commission also established a conference to address the concerns of the protestors and discuss settlement. The Commission observed that, despite Columbia's proposed general tariff language concerning the as-billed passthrough of fixed charges billed by the four upstream suppliers subject to Order No. 528, Columbia could not recover from its customers any costs billed by those pipelines without making a new filing with the Commission, since Columbia had not included rate sheets for those costs in its December 6 filing. The Commission also stated that all parties would be free at that time to raise any issues regarding Columbia's recovery of those costs.

The Subject Filing

In the instant filing, Columbia proposes to: (a) revise the allocation of the fixed charges now being billed to Columbia by Panhandle pursuant to its Order No. 528 filing in Docket No. RP91-53-000;

(b) revise the allocation of the fixed charges now being billed by Texas Gas pursuant to its Order No. 528 filing in Docket No. RP91-61-000;

(c) correct the daily total firm entitlements and recalculate the allocation factors and charges to all customers regarding FTS transportation quantities which Columbia asserts were inadvertently overstated for one of Columbia's customers, Dayton Power and Light Company (Dayton), in Columbia's December 6, 1990 filing concerning the Transco costs; and

(d) in accordance with Order No. 528-A, reallocate to its larger customers fifty percent of those amounts billed to Columbia by Transco which Columbia had previously allocated to SGS customers in the December 6, 1990 filing.

On December 17, 1990, in Docket No. RP91-53-000, Panhandle filed primary and alternate proposals to revise its allocation of its own take-or-pay costs. On January 16, 1991,7 the Commission accepted and suspended Panhandle's alternate method, subject to refund,

554 FERC 61,002 (1991).

6 Columbia states that the instant filing does not propose to reallocate its flowthrough of the Panhandle fixed charges in which Panhandle recovers fixed charges billed it by Trunkline Gas Company reflected in Panhandle's filing in Docket No. RP91-52-000.

effective January 17, 1991. Under that method, Panhandle allocates its take-or-pay costs to its firm sales and converted transportation customers based on each customer's total annualized contract demand in effect as of the date of each of Panhandle's Order No. 500 filings. The Commission recently required Panhandle to revise its alternate method so as, consistent with the policy established in Order No. 528-A, either to reallocate to its larger customers paying the direct bill 50 percent of the costs which would otherwise be allocated to its small customers or to implement some other method of allocating fixed charges only that gives small customers as much or more relief than the Commission's approach.

In the instant filing, Columbia states it has allocated Panhandle's monthly fixed charge to it of $137,871 among its firm sales and converted firm transportation customers on the same basis used by Panhandle. Columbia proposes to allocate the Panhandle costs based on the D-1 contract demand quantities which were in effect for each firm sales and converted firm transportation customer on the same dates utilized in Panhandle's filing. Columbia's customers will be permitted to elect to pay such costs in a lump sum or over a 36-month amortization period.

On December 26, 1990, Texas Gas filed tariff sheets in Docket No. RP91-61-000 to revise the allocation of its take-or-pay costs pursuant to Order No. 528. Texas Gas proposed to allocate the costs to its firm sales and converted firm transportation customers using an equal weighing of their D-1 and D-2 levels which were in effect for each customer on the dates of Texas Gas' Order No. 500 filings. On January 31, 1991, the Commission accepted and suspended Texas Gas's filing, subject to refund. The Commission's acceptance was conditioned, among other things, on Texas Gas refiling to implement the reallocation of costs away from small customers set forth in Order No. 528-A.

Columbia proposes to recover the $86,730 per month fixed charge allocated to it by Texas Gas from its firm sales and converted transportation customers using the same allocation method used by Texas Gas. Columbia proposes a 24-month amortization period beginning March 10, 1991.

Columbia has not in this filing reallocated any of the Panhandle or Texas Gas costs away from small customers pursuant to the policy set

7 Panhandle Eastern Pipe Line Co., 54 FERC 61,026 (1991).

8 Texas Gas Transmission Corp., 54 FERC 61,097 (1991).

forth in Order No. 528-A. However, Columbia states that in the event Panhandle and Texas Gas make revised filings pursuant to Order No. 528-A to reallocate to its larger customers fifty percent of the direct billed costs otherwise allocable to its small customers, Columbia will make a revised filing to track whatever change is proposed by its upstream suppliers.

Public Notice and Interventions

Public notice of the instant filing was issued on February 12, 1991 providing for protests, motions or notices to intervene to be filed on or before February 20, 1991. Timely notices or motions to intervene were filed by certain parties as noted in Appendix C to this order. Pursuant to Rule 214 (18 C.F.R. § 385.214 (1990)), any timely filed motions to intervene are granted unless an answer in opposition is filed within 15 days of the date such motion is filed. Any timely filed motions or notices not listed in Appendix C are also granted in accordance with the conditions of Rule 214.

Mountaineer Gas Company on February 21, 1991, and Dayton on February 22, 1991, filed untimely motions to intervene, as indicated in Appendix C. Pursuant to section 385.214 (d) of the Commission's regulations, the Commission finds that at this early stage of the proceeding, granting these late interventions will neither disrupt this proceeding nor prejudice the interests of any other party. Therefore, the late-filed motions to intervene are granted.

As further indicated in the Appendix C, a number of the intervenors filed protests to the filings, outlining numerous objections to Columbia's proposed methodology. The major concerns raised include whether:

(1) Columbia should be required to absorb a portion of the upstream supplier costs;

(2) Columbia should be denied recovery of its upstream take-or-pay costs because Columbia's incurrence of these costs is directly attributable to its own imprudent purchasing practices;

(3) Columbia's Stipulation and Agreement in Docket No. TA82-1-21-001 et al. (1985 PGA Settlement) prohibits Columbia from recovering the Panhandle and Texas Gas fixed charges;

(4) Firm transportation customers should not be required to absorb any costs since they were not the cause of Columbia's take-or-pay problem;

(5) Customers not on Columbia's system at the time of take-or-pay cost incurrence should not be allocated any costs;

(6) Columbia's filing violates the filed rate doctrine and would be retroactive ratemaking;

918 C.F.R. § 385.214 (d) (1990).

(7) There is no relationship between D-1 contract demand and take-or-pay cost incurrence;

(8) Columbia's filing should be made subject to the outcome of the proceedings in Columbia's first Order No. 528 filing in Docket No. RP91-41-000; and

(9) Columbia's proposal fails to minimize the burden of upstream pipeline take-or-pay costs on small captive customers.

Based on such concerns several protestors request summary rejection, summary disposition, or an evidentiary bearing.

Discussion

Preliminary review of Columbia's proposal indicates that the tariff sheets listed in Appendix A, which revise Columbia's allocation of the Panhandle and Texas Gas costs, generally follow the guidelines set forth in Order No. 528. Accordingly, the Commission accepts and suspends, subject to refund and conditions, the tariff sheets listed in Appendix A, effective March 11, 1991. Further, the Commission accepts and suspends subject to refund and conditions, the tariff sheets listed in Appendix B, effective January 6, 1991. Those tariff sheets reflect revisions to the proposed flowthrough of Transco's Order No. 500 billings included in Columbia's December 6, 1990 filing in Docket No. RP91-41-000. Since the issues raised in the instant filing are similar to those raised with respect to Columbia's first Order No. 528 filing in Docket No. RP91-41-000, the Commission will consolidate this proceeding with Docket No. RP91-41-000. The Commission also directs staff to convene a conference to discuss settlement with regard to these tariff sheets, as discussed below.

In Order No. 528, the Commission sought to encourage pipelines and their customers to reach settlements concerning revised methods for allocating the settlement costs included in their fixed charges. Furthermore, the Commission stated that in order to accommodate settlement discussion, it might among other things, convene conferences.

Accordingly, consistent with Order No. 528, the Commission directs that staff convene a conference at which all issues raised by Columbia's filing may be addressed. All parties should come prepared to discuss settlement, and the parties should be represented by principals who have the authority to commit to a settlement. Staff is directed to report the results of the conference within 120 days of the issuance of this order. Thereafter, the Commission will take such further action as is appropriate. The Commission will no longer require staff to report the results of the conference

already held in Docket No. RP91-41-000 by May 3, 1991 (120 days from the date of the order) but will instead require one report 120 days from the date of this order.

In view of the conference to discuss settlement, the Commission will not address the individual issues raised by the parties at this time, with one exception. As discussed above, Columbia has not included in this filing any reallocation of costs away from small customers, consistent with the policy established in Order No. 528-A. Because Columbia's tariff provides for it to track the allocation methods used by its upstream suppliers on an as-billed basis, and Panhandle and Texas Gas have not yet filed pursuant to the Order No. 528-A policy, the Commission will require Columbia, within 30 days of the required filings by Panhandle and Texas Gas, to track the reallocation of costs proposed by those pipelines.

With respect to the 1985 PGA settlement, some protesters contend that article IV of the 1985 PGA Settlement prohibits Columbia's recovery of any fixed charges billed by its upstream suppliers. Further, some protestors have requested a hearing concerning the prudence of Columbia's purchasing practices which resulted in the incurrence of these costs, in spite of the Commission's previous holding that article VII of the 1985 PGA settlement bars such hearing, at least with respect to purchase-deficiency based fixed charges billed by upstream suppliers. 10 The issues whether (1) the 1985 PGA settlement prevents Columbia from recovering through a fixed charge the fixed take-or-pay charges billed by its upstream pipeline suppliers and (2) the extent to which the settlement prohibits inquiry into Columbia's prudence have also been raised on rehearing of the Commission's suspension order on Columbia's first Order No. 528 filing in Docket No. RP91-41-000. Therefore, the Commission will consider those issues when it acts on the rehearing requests in Docket No. RP91-41-000, and acceptance of Columbia's proposed tariff sheets in this proceeding is subject to the Commission's decision on those rehearing requests.

The take-or-pay charges from Panhandle and Texas Gas were conditionally accepted by the Commission and made the subject of conferences. Therefore, acceptance of the tariff sheets will be subject to the outcome of the proceedings involving the costs allocated by Panhandle, in Docket No. RP91-53-000, and any future proceeding to passthrough such costs, and the costs allocated by Texas Gas, in Docket No. RP91-61-000, and any future pro

10 See 45 FERC ¶ 61,144 (1988), at pp. 61,434-35 and 46 FERC 61,266 (1989), at pp. 61,784-85.

ceeding to passthrough such costs. Further, such acceptance is conditioned upon Columbia tracking any changes in the take-or-pay costs being tracked herein.

In Order No. 528, the Commission stated that it did not intend to waive the statutory 30-day notice requirement.11 Columbia's proposed March 10, 1991 effective date does not give the Commission the full 30-days' notice. Therefore, Columbia's request to make the tariff sheets listed in Appendix A effective on March 10, 1991, is denied. The tariff sheets in Appendix A will be made effective, subject to refund and the conditions, herein on March 11, 1991, in order to provide the full 30-days' notice. However, since the tariff sheets listed in Appendix B reflect revisions to the December 6, 1990 filing, the tariff sheets in Appendix B will be made effective subject to refund and the conditions herein on January 6, 1991.

Suspension

Based upon a review of the filing, the Commission finds that the proposed tariff sheets listed in Appendices A and B have not been shown to be just and reasonable, and may be unjust, unreasonable, unduly discriminatory, or otherwise unlawful. Accordingly, the Commission shall accept the tariff sheets listed in Appendices A and B for filing and suspend their effectiveness for the period set forth below, subject to the conditions set forth in this order.

The Commission's policy regarding rate suspensions is that rate filings generally should be suspended for the maximum period permitted by statute where preliminary study leads the Commission to believe that the filing may be unjust, unreasonable, or that it may be inconsistent with other statutory standards. See Great Lakes Gas Transmission Co., 12 FERC

61,293 (1980) (five-month suspension). It is recognized, however, that shorter suspensions may be warranted in circumstances where suspension for the maximum period may lead to harsh and inequitable results. See Valley Gas Transmission, Inc., 12 FERC ¶ 61,197 (1980) (one-day suspension). Such circumstances exist here, where the pipeline is filing because of changed circumstances resulting from a court remand, as recognized by the Commission in Order No. 528. Accordingly, in this case, the Commission will exercise its discretion to suspend the rates for a shorter period and permit the rates in Appendix A to take effect on March 11, 1991, and the rates in Appendix B to take effect on January 6, 1991, subject to refund and subject to the conditions set forth in

11 53 FERC 61,163, at p. 61,595.