3 These reserves are audited by independent accounting firms, which can qualify their accounting statements if they believe that the reserves are inadequate. Pipelines are faced with considerable pressure to resolve rate proceedings quickly and amicably in order to avoid the buildup of reserves over time and the financial uncertainties involved with unresolved rate proceedings. Moreover, in today's marketplace the balance of power has shifted even more to the customers, because pipelines in the present era of open-access and the spot market face compelling competitive pressures to keep their rates responsive. As noted above, the AGD proposal could not have come at a more inopportune time, when the need for flexibility and competitive rates requires faster action by the pipeline industry in the ratemaking process. It is also interesting to note that AGD's proposal is represents a warmed-over version of similar proposals that have been considered and rejected by Congress as long as 30 years ago. (See, e.g. S. 666 87th Cong. 1st Sess. (1961)). For example, in S. 666 Congress considered proposed amendments that would have prohibited a change in rates from going into effect if there was in effect an increased rate the reasonableness of which the Commission had not determined. The bill would also have imposed procedural time constraints, such as a requirement that a hearing be concluded within a year from the date of first hearing, that the presiding officer's report to the Commission be submitted within six weeks of the conclusion of the hearing, and that the Commission's decision be issued within 90 days of receipt of the report from the presiding officer. All of these proposals were rejected, except an amendment to Section 4(e) that authorized the Commission to suspend sales for resale for industrial use which formerly had not been subject to suspension. In addition, AGD greatly understates the power of the Commission to rule expeditiously to reduce pipeline rates which it finds to be excessive. First, the Commission's suspension orders, issued 30 days after pipeline rate filings, frequently (indeed, almost always) order rate reductions when it deems certain elements of a pipeline's rates to be excessive in ways which are contrary to its policies and 4 regulations.2 In addition, the Commission has the authority to phase rate proceedings, and issue interim rates reductions on an expedited basis.3 The Commission also can use rulemaking and notice and comment procedures to establish criteria for measuring the reasonableness of proposed rates.4 Moreover, pipelines themselves have entered into interim settlements with their customers which defer or moderate rate increases while the Commission considers the merits of the rate filings,5 and in some instances the pipelines themselves have moved to suspend the effectiveness of rate increases and have placed rates into effect which are less than the original rate filing for competitive reasons. And even when the pipelines place new rates into effect, they often must offer substantial discounts for transportation rates to maintain throughput on their system. AGD asserts that similar mechanisms to its proposal have worked well at the state level for "cost of service rate cases". However, AGD provides no basis, or any criteria whatsoever for a conclusion that this mechanism has been particularly effective at the state level or, more importantly, that it is appropriate at the federal level. In implementing NGA Section 4, FERC must balance a wide diversity of interests, encompassing different regions of the nation as well as different classes of customer. Cost allocation issues which have implications by region as well as by customer classes are an example. The current settlement process at FERC is well suited to accommodate these often diverse, even conflicting interests. Further, the AGD proposal goes well beyond traditional Section 4 rate increases. It includes all Section 4 rate filings, e.g. PGAs, other trackers and special rate filings necessary to comply with FERC 2 Colorado Interstate Gas Co., 49 FERC 161,169 (1989), Columbia Gas Transmission Corp., Docket Nos. RP90-108, et al., order issued May 31, 1990. 3 4 5 FPC v. Tennessee Gas Transmission Co.. 371 U.S. 145 (1962). See, e.g. Mechanisms for Passthrough of Pipeline Take-or-Pay Buyout and Buydown Costs, 53 FERC (CCH) ¶ 61,163 (1990) (Order No. 528) reh'g granted in part and denied in part, 54 FERC (CCH) 961,095 (1991) (Order No. 528-A). Tennessee Gas Pipeline Co., 47 FERC 161,254 (1989). 6 Kentucky West Virginia Gas Company, Docket Nos. RP89-61-000, notice issued July 7 CNG Transmission Co., 48 FERC ¶61,141 (1989). 5 policies and regulations or to respond to competitive conditions. Moreover, the current Section 4 rate procedures are working well for "cost of service” issues in pipeline general rate filings, which are frequently settled among the parties on a relatively short-term basis. The real problems and delays center upon how to divide the pipelines' costs among various services and customers. These issues, which include cost classification, cost allocation and rate design, are the thorniest, and affect the broad spectrum of intervenors in these proceedings (not just wholesale customers, but hundreds of transporters, end-users, marketers, brokers and producers), which make pipeline rate proceedings far more complex and difficult to resolve than LDC rate proceedings within the States. Moreover, these same questions of cost allocation would remain under the AGD proposal and AGD's members would be the first to appeal a FERC decision on allocation as not being based on reasoned decisionnmaking due to inadequate time for submission of data. The active participation of these myriad of interests, also including state commissions, consumer advocate groups and pipeline competitors, make it virtually impossible for the Commission to issue a sound and legally supportable decision in a final order (i.e., an order on rehearing) within one year after a pipeline filing. The Commission has been frequently criticized in recent years for issuing decisions which cannot withstand judicial review. While pipelines favor expediting the ratemaking process, they cannot support legislation that will lead to poorly reasoned and unsupported rate determinations by the Commission that can only create more uncertainty during the appellate process. Further, AGD's complaint that customers may be pressured into settlements is only a pejorative way of stating that the current ratemaking process has fostered settlements. It is in the interest of the Commission, the natural gas industry and the public to encourage settlements to resolve complicated and costly rate proceedings. Settlements are usually reached because parties, especially LDCs subject to state regulation, want to avoid uncertainties, including the uncertainty as to when a matter will be decided. If the parties know that rate cases must be decided within a one-year period it will not be possible to conduct settlement proceedings and at the same time develop an appropriate record upon which to base a decision. This 6 will smother the settlement process and the creativity inherent therein. The parties will literally be forced to litigate. AGD also complains that refunds are not an adequate remedy for market loss. However, there is no showing that pipeline customers are suffering market loss, and given the increased choices that customers have in this era of open access, these customers may, and do, avoid market loss by insisting upon discounts, playing the spot market, switching to other pipelines, other services, and, in the case of end-users, other fuels. Moreover, the claim that pipelines file for excessive rates in order to force "borrowing" of capital from their customers ignores the tremendous pressures that pipelines face today to keep their rates as low as possible to meet competition. AGD's complaint about “pancaking" of pipeline rate cases is exaggerated and contrary to actual experience. Indeed, in many instances pipelines are forced to file rate proceedings which they otherwise would forego because of the three-year rule under the Commission's PGA regulations. INGAA and other parties have advocated the elimination of this three-year rule to provide pipelines with incentives for increased efficiency and productivity. The FERC's policies favoring open access have provided enormous benefits to pipeline customers, both in terms of reduced costs and increased competitive options. Producers have also benefitted from increased marketing opportunities, and open access has spawned a new segment of our industry gas marketers. During this transition, pipelines have suffered sharply reduced earnings and much greater risks as they must manage their gas supply and cope with increased operational and financial challenges associated with numerous competing suppliers on their systems. Given the tremendous benefits to other segments of the industry -- including LDCs -- while pipelines face increased risks, there is no reason to impede pipelines from effectuating rate changes (nor, for that matter, by penalizing pipelines for filings to decrease rates, as Section 10004 of S. 341 provides). 7 Finally, it is apparent that AGD seeks to overturn the careful balancing of interest incorporated in the NGA. In this regard, the Supreme Court noted in the landmark Memphis case: It seems plain that Congress, in so drafting contractual arrangements for the supply of United Gas Pipe Line Co. v. Memphis Light, Gas & Meter Division, 358 U.S. 103 at 113-114 (1958). |