99-1840 Bethany, Illinois, et al. v. FERC, et al.

Listen to this article

“From an economic standpoint, the Commission’s preference for allocating available capacity to the bidder willing to pay the most for it is sound. It has the effect of allocating resources to those who most value them, and it results in lower fixed-cost charges to everyone else on the pipeline. The net present value approach is consistent with these goals. It is true that the auction approach makes it harder for small customers to expand their firm capacity at their special one-part rates, but that is not enough by itself to reject the Commission’s order. The Commission itself recognized this burden in its orders in this case, as it has in previous cases in which it has approved the net present value system. Balancing that hardship to the small customers against the efficiency interests of the remaining customers, the Commission determined that the small customers were adequately protected by being able to continue to pay one-part rates on their existing capacity. Allowing the small customers to compete for new capacity on the basis of their one-part rates, the Commission found, would be unfair to the other pipeline users, who would be better served if the new capacity was allocated to a customer willing to pay a higher rate. In reaching this conclusion, the Commission considered the relevant factors and made a policy determination that balanced the competing interests before it. The District of Columbia Circuit recently approved the Commission’s net present value policy as a reasonable exercise of its expertise, see Municipal Defense Group v. FERC, 170 F.3d 197, 201-03 (D.C. Cir. 1999), and we agree with our sister circuit’s conclusion on that point.”

Orders enforced.

On Petition for Review of Orders of the Federal Energy Regulatory Commission, Diane P. Wood, J.