National Association of State Utility Advocates

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NATIONAL ASSOCIATION OF STATE UTILITY CONSUMER ADVOCATES

R E S O L U T I O N

Urging the Federal Energy Regulatory Commission to Prohibit Negotiated/Recourse Rates in Non-Competitive Markets or, If Negotiated/Recourse Rates Are Allowed, to Protect Consumers by Prohibiting Cross-Subsidies, Allowing Ease of Market Exit and Limiting Negotiations to Rate Terms
WHEREAS, The Federal Energy Regulatory Commission ("FERC") issued a Statement of Policy and Request for Comments on February 7, 1996 in Docket Nos. RM95-6-000 and RM96-7-000 which allows pipelines to negotiate rates for pipeline services on an individual customer basis in non-competitive markets so long as the customers have recourse to a cost-of-service based rate and which seeks comments on whether FERC should extend the ability to negotiate service contracts in non-competitive markets to non-rate terms and conditions;

WHEREAS, FERC's decision to authorize negotiated/recourse rates in non-competitive markets is premised on a belief that the use of the straight-fixed variable ("SFV") rate design has resulted in very high rates for pipeline service thus requiring more flexibility for customers in structuring the services they receive from interstate pipelines in non-competitive markets and on the belief that the existence of recourse rates will mitigate the pipeline's ability to wield market power in non-competitive markets;

WHEREAS, FERC's primary responsibility under the Natural Gas Act ("NGA") is not to protect interstate pipelines from the greater risks stemming from attempts to introduce greater flexibility in non-competitive markets, but to protect natural gas consumers from the ability of interstate pipelines to wield market power over the rates and terms and conditions for pipeline services;

WHEREAS, the negotiated/recourse rate policy contradicts FERC's statements in Louisville Gas and Electric Company, Docket No. ER92-553-000, 62 FERC ¶ 61,016 at 61,143, footnote 15 on an analogous issue that electric consumers' recourse to avoided cost rates validated rather than mitigated the exercise of market power by electric utilities;

WHEREAS, the policy of allowing pipelines in non-competitive markets to negotiate rates with customers runs afoul of the consumer protection mandates in the NGA since the policy ensures that only large customers with negotiating leverage will benefit from lower rates while leaving the vast majority of captive customers with the higher cost-of-service based rates, thus allowing undue discrimination between customers for rates and services in violation of Section 4 of the NGA and in violation of judicial mandates in Maryland Peoples Counsel v. FERC, 761 F.2d 780 (D.C. Cir. 1985) that all consumers should benefit from access to competitively priced natural gas services;

WHEREAS, the policy of allowing pipelines in non-competitive markets to negotiate rates with customers raises the risk that pipelines will seek to subsidize below-cost negotiated rates by shifting the discounts stemming from such negotiated rates to captive customers paying cost-of-service or recourse rates;

WHEREAS, allowing cross-subsidies between recourse rate customers and negotiated rate customers will result in significant rate increases for captive consumers, thus further exacerbating the problem of high rates under SFV rate design, and allow pipelines to subsidize competitive offerings with monopoly services;

WHEREAS, FERC should prohibit any cross-subsidies between negotiated rate and recourse rate customers in order to protect captive consumers from the pipelines' abilities to wield market power in non-competitive markets;

WHEREAS, in the event FERC refuses to adopt an outright ban on cross-subsidies between negotiated rate and recourse rate customers, FERC should provide consumers with advanced notice of its intended policy as it did with respect to the pricing of capacity expansion projects in Docket No. PL94-4-000, Pricing Policy for New and Existing Facilities Constructed by Interstate Natural Gas Pipelines, 71 FERC ¶ 61,241 (1995), by establishing a rebuttable presumption prohibiting cross-subsidies between negotiated rate and recourse rate customers;

WHEREAS, FERC's policy in Order No. 636 of requiring customers to retain existing levels of contract entitlements for the remaining term of existing service contracts results in recourse customers being unable to exit their contracts in response to a significant change in their rates, terms and conditions of service if negotiated/recourse rates are adopted;

WHEREAS, allowing negotiated rates in non-competitive markets is unnecessary since existing mechanisms under Order No. 636 already allow pipeline customers flexibility in negotiating price terms and conditions of service under the right of first refusal and capacity release mechanisms;

WHEREAS, allowing the negotiation of non-rate terms and conditions for service would represent a dramatic step back from the policy advanced in Order No. 636 of attempting to place all customers on an equal footing with respect to terms and conditions for pipeline services and violate the undue discrimination provisions in Sections 4 and 5 of the NGA;

WHEREAS, FERC should instead pursue a policy which allows all customers to pursue greater flexibility in service contracts by requiring pipelines to expand their current service offerings to include more flexibility in storage and pipeline service contracts, e.g. more hourly, daily and seasonal flexibility in contract terms;

WHEREAS, FERC's proposed procedure of allowing negotiated rates to go into effect not subject to refund and subject only to a NGA Section 5 complaint proceeding which entails only prospective relief fails to provide sufficient protection for captive consumers against undue discrimination and unjust and unreasonable rates since the policy provides no refund protection and shifts the burden of proof from the pipelines to captive consumers;

THEREFORE BE IT RESOLVED, that the National Association of State Utility Consumer Advocates (NASUCA) calls upon the FERC to reconsider its negotiated/recourse rate policy and prohibit negotiated/recourse rates in non-competitive markets;

BE IT FURTHER RESOLVED, that in the event FERC decides to continue to pursue the negotiated/recourse rate policy, FERC should prohibit any cross-subsidies between negotiated rate and recourse rate customers, should allow recourse rate customers ease of exit from existing service contracts, should prohibit the negotiation of non-rate terms and conditions for service; should instead require all pipelines to expand current service offerings to include more flexibility in existing terms and conditions for service and should only allow negotiated rates into effect subject to refund and NGA Section 4 rate reviews.

BE IT FURTHER RESOLVED, that NASUCA authorizes its Executive Committee to develop specific positions and to take appropriate actions consistent with the terms of this resolution. The Executive Committee shall advise the membership of any proposed action prior to taking such action if possible. In any event, the Executive Committee shall notify the membership of any action taken pursuant to this resolution.

Approved by NASUCA:

By Faxed Ballot Place

May 29, 1996 Date

Submitted by:

NASUCA Gas Committee

Committee Members:

Craig R. Burgraff (PA), Chair
Denise C. Goulet(PA)
Paula Carmody(MD)
Byron Harris(WV)
Werner Margard(OH)
Judith Appel (NJ)
Barbara Burton (DC)
M. Shawn McMurray (AR)
Doug Micheel (MO)
Ron Polle (IA)
Richard Steeves (CT)
Jim Stetson (MA)
Dianne Wells (CO)
Eric Witkowski (NV)
Hana Williamson (SC)