notice requirement, and requested a fivemonth suspension, an evidentiary hearing and the initiation of price squeeze proceedings. In support of their request for suspension, the Cities challenge the reasonableness of the following items in Missouri's cost of service: (1) return on equity and cash working capital allowance; (2) adjustments to the Period I study; (3) capitalization of expenses associated with the Sibley plant (Sibley); and (4) allocation of distribution plant to wholesale customers. The Cities also allege that the following terms and conditions contained in existing agreements with Missouri may be unjust and unreasonable: (1) a five-year ratchet; (2) a restriction on resales;4 (3) provisions for meter adjustments to be made in accordance with state commission rules; (4) a requirement to specify a contract demand and to pay a minimum bill based on that contract demand; and (5) a ten-day bill payment requirement. On December 26, 1990, Missouri filed an answer to the Cities' motions of December 11, 1990. Missouri does not object to the intervention of the Cities. It does, however, oppose rejection of its rate filing and denies the appropriateness of any of the Cities' proposed adjustments. More specifically, Missouri denies that its filing is deficient in any regard and denies the Cities' allegations that the proposed equity return, cash working capital allowance, or any component of the capital structure are excessive or otherwise inconsistent with any methods prescribed by the Commission. Similarly, Missouri argues that it has derived its Period I adjustments in the same manner as in its latest rate proceeding. Missouri claims that its agreements with the Cities do not include resale prohibitions and that all contract terms and conditions are reasonable. Missouri further states that summary rejection of these terms and conditions is inappropriate and concludes that the Cities have not raised any specific facts that would justify a five-month suspension or the initiation of price squeeze proceedings. On January 2, 1991, Gilman City, Missouri (Gilman) filed a motion to intervene. Gilman states that it is a customer and a competitor of Missouri and asserts that, if the proposed rate 4 Specifically, the Cities allege that their agreements with Missouri contain resale restrictions which permit the resale of power purchased from Missouri only to retail customers within each city's municipal boundaries. 5 The Cities, however, failed to renew their motion, originally tendered in their December 11, 1990 pleading, for rejection of Missouri's rate filing as deficient. Accordingly, we shall dismiss the Cities' motion to reject as moot, on the assumption that increase is accepted, its ability to compete with Missouri would be seriously undermined. On February 19, 1991, the Cities and Gilman filed a joint motion to intervene in response to Missouri's amended rate filing. The joint motion requests the same remedies and raises the same issues presented in their initial motions to intervene.5 Cities and Gilman also raise additional claims that: (1) Missouri's fuel stock allowance is excessive; (2) Missouri has improperly allocated advertising expenses to wholesale service; (3) Missouri's annualization of the recent Sibley capital additions in the Period I study is improper; and (4) the increase in the differential between summer and winter demand charges is unsupported. The intervenors continue to assert that their agreements with Missouri include a resale prohibition, contrary to Missouri's claim. On March 6, 1991, Missouri filed a response to the joint motion of February 19, 1991. Missouri contends that objections to its filing are not sufficiently supported to justify a fivemonth suspension. Missouri contends that it has followed its historical methodologies, such as with fuel supply, or established Commission precedent, such as with cash working capital. According to Missouri, its procedures conform with established ratemaking principles, particularly with respect to adjustments to known and measurable plant costs and related costs and revenues. In addition, Missouri states that its requested return on equity is equal to the Commission's benchmark rate of return on common equity, which Missouri contends is the low end of the range of reasonableness for Missouri. Finally, Missouri contends that should the Commission find a five-month suspension necessary, it should calculate the period of suspension from the date of Missouri's November 16, 1990 filing, so that increased rates would become effective June 14, 1991, rather than September 1, 1991. Discussion Under Rule 214 of the Commission's Rules of Practice and Procedure, the timely, unopposed interventions of the Missouri Public Service Commission, the Cities, and Gilman serve to make them parties to this proceeding. Missouri's response to the Commission staff's deficiency letter cured the Cities' concerns regarding the alleged deficiency of Missouri's filing. 6 Missouri contends that due to a minor, inadvertent omission, the rate filing was given a filing date of November 19, 1991, instead of November 16, 1991. See Missouri Answer of March 6, 1991 at 1-2. 718 C.F.R. § 385.214 (1990). The Cities contend that their contracts with Missouri include a resale prohibition of the type the Commission has found to be per se illegal. Specifically, the contracts provide that service is available to a municipal wholesale customer only "for resale within that municipality". Missouri responds that it is not its intention to restrict the resale of power purchased from Missouri and contends that since such a restriction would be unenforceable, there should be no modification to the contracts. This rationale is not sufficient to retain the restrictive language in the contracts. As we explained in Gulf States Utilities Co., 5 FERC ¶ 61,066, at p. 61,099 (1978), the imposition of a resale restriction is an "unnecessarily blunt device" for insuring that the loads of wholesale customers will not vary, "given their apparent anticompetitive effect and the availability of other, well-established ways for utilities to regulate their loads without impairing competition". The Commission has consistently applied the per se rule against resale restrictions in subsequent cases.8 Accordingly, we will direct Missouri to remove the offending language from the contracts within 15 days of the date of this order. Missouri requests waiver of the Commission's 60-day notice requirement to permit an effective date of March 1, 1991, only 30 days after completion of its rate filing in response to the Commission staff's determination that Missouri's original filing was deficient. In support of its request, Missouri makes numerous arguments. Missouri states that a later effective date will produce financial detriment to Missouri. Missouri contends that the objective of the notice requirement is to provide the Commission's staff and intervenors with a reasonable amount of time to review the application. Missouri further contends that this objective has been satisfied because: (1) the deficient application contained the vast bulk of the information needed to assess the proposal; (2) the information provided in response to the notice of deficiency had no material impact on the level of the rate proposal; and (3) relevant information had been provided to the Commission's staff and intervenors through informal discovery. Missouri concludes that an additional 30 days to review the "small incremental" data provided in its deficiency response is sufficient to satisfy the notice requirements of the Commission's regulations, 18 C.F.R. §35.3(a), and section 205(d) of the Federal Power Act, 16 U.S.C. § 824d(d). In support of these conclusions, Missouri: (1) states that it is the intent of Congress that rate changes be implemented as early as possible, consistent with appropriate Commission review, and (2) notes that the Commission's rules for natural gas applications require only 30 days of notice. Missouri's dissatisfaction with the 60-day notice requirement does not, without more, demonstrate the "good cause" necessary for waiver. Its suggestion that its rate filing, as initially tendered, was not substantially deficient is not supportable. The Commission staff's deficiency letter to Missouri identified material defects in Missouri's application, including: (1) Missouri's failure to provide workpapers supporting extensive adjustment to its Period I study; and (2) Missouri's proposal to extend rate base and expense balances for the last month of the test year to the entire test period, effectively resulting in a one-month test period. In addition, we note that waiver of notice is opposed by Missouri's customers. Accordingly, we shall deny Missouri's request for a waiver of the 60-day notice requirement. In West Texas Utilities Company, 18 FERC ¶ 61,189 (1982), we explained that where our preliminary examination indicates that proposed rates may be unjust and unreasonable and may be substantially excessive, as defined in West Texas, we would generally impose a maximum suspension. Since our preliminary analysis indicates that Missouri's proposed rates in this docket may produce substantially excessive revenues, we will suspend the rates for five months commencing 60 days after the completion of the filing, to become effective, subject to refund, on September 1, 1991 and set the proposed rates for hearing. In addition, in accordance with Arkansas Power & Light Company, 8 FERC ¶ 61,131 (1979), we shall institute price squeeze procedures. (E) Pursuant to the authority contained in and subject to the jurisdiction conferred upon the Federal Energy Regulatory Commission by section 402(a) of the Department of Energy Organization Act and the Federal Power Act, particularly sections 205 and 206 thereof, and pursuant to the Commission's Rules of Practice and Procedure and the regulations under the Federal Power Act (18 C.F.R. Chapter I), a public hearing shall be held concerning the justness and reasonableness of Missouri's proposed rates. (F) The Commission's trial staff shall serve top sheets in this proceeding within ten (10) days of the date of this order. (G) A presiding administrative law judge, to be designated by the Chief Administrative Law Judge, shall convene a conference in this proceeding to be held within approximately ten (10) days of the service of top sheets, in a hearing room of the Federal Energy Regulatory Commission, 810 First Street, NE., Washington, DC 20426. Such conference shall be held for the purpose of establishing a procedural schedule. The presiding judge is authorized to establish procedural dates and to rule on all motions (except motions to dismiss), as provided for in the Commission's Rules of Practice and Procedure. (H) The Commission hereby orders the initiation of price squeeze procedures and further orders that this proceeding be phased so that the price squeeze procedures begin after issuance of a Commission opinion establishing the rate which, but for consideration of price squeeze, would be just and reasonable. The presiding judge may modify this schedule for good cause shown. The price squeeze portion of this case shall be governed by the procedures set forth in section 2.17 of the Commission's regulations as they may be modified prior to the initiation of the price squeeze phase of this proceeding. (I) Missouri is hereby informed of the rate schedule designations shown on the Attach ment. Attachment Rate Schedule Designations Designation - Other Party (1) Supplement No. 16 to Rate Schedule FPC No. 34 (Supersedes Supplement No. 15) — City of Pleasant Hill (2) Supplement No. 16 to Rate Schedule FPC No. 36 (Supersedes Supplement No. 15) — City of Liberal (3) Supplement No. 16 to Rate Schedule FERC No. 38 (Supersedes Supplement No. 15) City of Galt (4) Supplement No. 16 to Rate Schedule FERC No. 39 (Supersedes Supplement No. 15) City of Harrisonville (5) Supplement No. 7 to Rate Schedule FERC No. 46 (Supersedes Supplement No. 6) City of Gilman (6) Supplement No. 7 to Rate Schedule FERC No. 47 (Supersedes Supplement No. 6) City of Odessa (7) Supplement No. 3 to Rate Schedule FERC No. 48 (Supersedes Supplement No. 2) City of El Dorado Springs (8) Supplement No. 5 to Rate Schedule FERC No. 49 (Supersedes Supplement No. 4) City of Rich Hill [¶ 61,358] Northern Border Pipeline Company, Docket No. RP91-99-000 Order Accepting and Suspending Tariff Sheets Subject to Refund and Conditions and Establishing Technical Conference (Issued March 29, 1991) Before Commissioners: Martin L. Allday, Chairman; Charles A. Trabandt, On February 27, 1991, Northern Border Pipeline Company (Northern Border) filed tariff sheets1 to establish backhaul transportation service and rates for both firm and interruptible shippers on Northern Border's system. Northern Border requests an effective date of April 1, 1991. The Commission accepts and suspends the filing subject to refund and condi 1 See Appendix A. tions, effective April 1, 1991, and establishes a technical conference. Background Northern Border's pipeline system extends from the Canadian border at Monchy, Saskatchewan/Port of Morgan, Montana, to its terminus at Ventura, Iowa. Currently, North 1 ern Border's transportation service does not include a backhaul service. The February 27, 1991, filing proposes to establish backhaul transportation for firm and interruptible service on its system. The minimum rate proposed by Northern Border for interruptible service is not less than 1.000 cent per MMBtu. Under Northern Border's proposal, volumes nominated for forward haul interruptible transportation service will be scheduled before volumes nominated for backhaul interruptible transportation service. Because it is proposing a new service, Northern Border proposes to establish an open window period for those who wish to subscribe to the new backhaul service. Northern Border proposes to open the window seven (7) days after a Commission order approving its filing and to leave the window open for fourteen (14) days. Public Notice, Interventions, and Protests Public notice of the instant filing was issued on March 1, 1991, providing for motions to intervene and protests to be filed on or before March 8, 1991. Timely motions to intervene were filed by parties listed in Appendix B to this order. Pursuant to Rule 214 of the Commission's regulations,2 timely motions to intervene are granted unless an opposition is filed within fifteen days of the date such motions are filed. Any timely motions not listed in Appendix B are also granted in accordance with the conditions of Rule 214. Northern Natural Gas Company filed an untimely motion to intervene, also indicated on Appendix B. Pursuant to Rule 214(d), the Commission finds that at this early stage of the proceeding, granting this late intervention will neither disrupt the proceeding nor prejudice the interests of any other party. Therefore, the late-filed motion to intervene is granted. pending before the Commission a certificate application to expand its system to a point near six major interstate pipelines; this expansion should increase the potential for future backhaul arrangements. In Docket No. CP91-967, Northern Border filed an application to acquire from Natural Gas Pipeline of America (Natural) a pipeline segment known as the "109 Interconnect."3 This segment extends from Ventura, Iowa, where Northern Border's existing pipeline terminates, to Harper, Iowa. In the same certificate application, Northern Border requests authorization to construct and operate new facilities extending from Harper, Iowa, to near Tuscola, Illinois. Thus, Northern Border's acquisition of the "109 Interconnect" and the construction of new facilities, if authorized, would extend Northern Border's pipeline terminus to near Tuscola, Illinois. Northern Border states that it intends to use the proposed new facilities to provide open-access interruptible and firm transportation services under its Part 284, section 7 blanket certificate.4 The Commission encourages backhaul arrangements as an efficient use of a pipeline's system. Because there is no actual physical reversal of the flow of gas, a backhaul may create additional capacity on the pipeline between the receipt and delivery points, resulting in a cost savings for the pipeline through avoidance of marginal costs. Our concern is not with the establishment of a backhaul service itself, but rather with the pricing of such a service. As we noted in our Policy Statement on Interstate Natural Gas Pipeline Rate Design, when a transaction creates additional capacity or reduces costs, as a backhaul service may do, a lower rate may be appropriate, particularly where an arrangement is mutually beneficial and provides substantially equal benefits. Because it is unclear what backhauls would be provided by Northern Border given its currently certificated facilities, and because Northern Border has not proposed any specifics for the service, we do not have enough information to fully evaluate the proposal. Accordingly, we will direct Commission staff to convene a technical conference within 15 days of the issuance of this order, and will condition acceptance of Northern Border's proposal on the outcome of the technical conference. tion to expand its own existing pipeline to provide comparable service to Tuscola, Illinois. 5 Interstate Natural Gas Pipeline Rate Design, 47 FERC 61,295, at pp. 62,058-59, and 48 FERC 61,122, at p. 61,451 (1989). Among the issues that Northern Border should be prepared to discuss at the technical conference are: (1) how its proposed backhaul service would affect existing capacity allocation on its system; (2) what safeguards there will be against affiliate preferences; and (3) what backhauls Northern Border would provide and what the projected volumes for those backhauls would be. Further, since Northern Border has proposed that forward haul interruptible transportation service be scheduled before backhaul interruptible service, but has offered no explanation for doing so, Northern Border also should be prepared to discuss this portion of its proposal at the technical conference. Commission staff will be directed to report the results of the technical conference to the Commission within 20 days of its conclusion. Thereafter, the Commission will take such further action as is appropriate. Finally, Northern Border will be directed not to start its 14-day open window period until after the Commission issues an order on the technical conference. Northern Border also will be directed to file with the Commission, within 10 days after the open window period closes, the responses it receives during the open window period. Such information should include the name of the shipper, its demand level, and its requested receipt and delivery points. Suspension Based upon a review of the filing, the Commission finds that the proposed tariff sheets 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 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 where suspension for the maximum period may lead to harsh or inequitable results. See Valley Gas Transmission, Inc., 12 FERC ¶ 61,197 (1980) (one-month suspension). Such circumstances exist here, where Northern Border's proposal generally is consistent with the Commission's policy as set forth in the Commission's policy statement on rate design and where the proposal is unopposed. Accordingly, in this case, the Commission will exercise its discretion to suspend the rates for a shorter period and permit the rates to take effect on April 1, 1991, subject to refund and subject to the conditions set forth in the body of this order and in the Ordering Paragraphs below. The Commission orders: (A) Northern Border's tariff sheets listed in Appendix A to this order are accepted and suspended, effective April 1, 1991, subject to refund and conditions set forth below. (B) The Commission staff is directed to convene a technical conference within 15 days of issuance of this order. Northern Border should be prepared to discuss issues as described in the body of this order. Staff is directed to report the results of the conference to the Commission within 20 days after the conclusion of the conference. The acceptance of Northern Border's proposal is subject to the outcome of the technical conference. (C) Northern Border may not start its 14-day open window period until 30 days after the Commission issues an order on the technical conference. Northern Border also is directed to file, within 10 days after the open window period closes, a copy of all the responses it receives during the open window period. The responses should include the name of the shipper, its demand level and its requested receipt and delivery points. (D) The motion to intervene out of time filed by Northern Natural Gas Company is granted subject to the rules and regulations of the Commission; provided, however, that its participation shall be limited to the matters affecting rights and interests set forth in its motion to intervene; and provided, further, that its admission shall not be construed as recognition that it might have been aggrieved by any order entered in this proceeding. Appendix A Tariff Sheets Included In Northern Border's February 27, 1991 Filing FERC Gas Tariff, Original Volume No. 1 |