ALJ Favors Zones Rates for Sempra on Kern River
In a decision siding with Sempra Energy, FERC Administrative Law
Judge (ALJ) Herbert Grossman last week found that postage-stamp
rates on Kern River Gas Transmission are "unjust and unreasonable."
Instead, he ruled in favor of a distance-sensitive zonal rate
design, which was proposed by Sempra.
The initial decision adopting zonal rates, which was issued last
Tuesday, applies only to Sempra, but Grossman indicated that the
rate design should be considered in Kern River's future rate cases.
The dispute over Kern River's rate design stemmed from a 1999
settlement in which the pipeline agreed to reduce its maximum rate
and establish a three-year moratorium on future rate increases.
Sempra was the only party to contest the settlement, and
subsequently was severed from it so it could litigate the issue of
Sempra argued that while postage-stamp rates, which don't
reflect mileage, may have been an appropriate rate design when all
of the gas that Kern River picked up in Wyoming supply basins was
delivered directly to the California market (no deliveries were
made along the way), this was no longer the case today
[RP99-274-003]. It was estimated that about 20% of the gas
transported on Kern River is now delivered to markets upstream of
California - Utah and Nevada.
"Consequently, we cannot blindly continue the initial rate
design, even if it had been approved by the Commission, in that
there has been a substantial change in operations that should be
considered in determining whether the postage stamp rate is still
appropriate. Nor should we consider ourselves bound to the
postage-stamp rate by the commitments made at the inception of the
pipeline," Grossman said.
Kern River contends that zonal rates would allow upstream
customers (Utah, Nevada) to "piggyback," or take advantage of, the
"large-scale economies" of the 900-mile pipeline system that it
credits to the California customers.
"Far from negating the benefits to the downstream customers of
the economies of scale, as Kern River alleges, the net effect of
having the upstream customers pay for their costs of capacity, even
on a zonal basis, would added to these benefits," Grossman noted.
He further said that since "the large diameter downstream
[portion of the] pipe does not benefit the upstream customers at
all...they should not have to pay for it" through postage-stamp
rates, "except to the extent that they are effectively using it or
rendering it unusable."
Sempra's zonal rate proposal, which Grossman adopted, would
separate Kern River's system into three zones based - Zone 3
extends from the Goodspring Compressor Station near the
Nevada-California border to the terminus of Kern River's system;
Zone 2 extends from the Filmore Compressor Station to the
Goodspring station; and Zone 3 extends from where Kern River
orginates to the Filmore station. The proposed rates are: Zone 1,
$0.1434, Zone 2, $0.4577, and Zone 3, $0.6800.