00-3597. Optional Certificate and Abandonment Procedures for Applications for New Service Under Section 7 of the Natural Gas Act

Issued February 9, 2000.

AGENCY:

Federal Energy Regulatory Commission.

ACTION:

Notice of Proposed Rulemaking.

SUMMARY:

The Federal Energy Regulatory Commission is proposing to remove its optional certificate regulations. On September 15, 1999, the Commission issued a policy statement to provide the industry with guidance with respect to how the Commission will evaluate new proposals for pipeline construction projects to take account of changes in the natural gas industry in recent years. The Policy Statement provides that pipelines should not rely on existing customers to subsidize new projects that do not benefit them, and also provides that the Commission will only certificate new projects where it finds that, on balance, the public benefits outweigh any adverse effects. The Policy Statement did not include applications for new construction projects filed under the optional certificate rules, however. The Commission is proposing to remove the optional certificate regulations because it believes that a uniform regulatory scheme applicable to all certificate applications will best accomplish the Commission's goals, as set out in the Policy Statement, of assuring that all relevant interests and circumstances are considered and balanced in assessing the public convenience and necessity.

DATES:

Written comments are due on or before April 3, 2000.

ADDRESSES:

File comments with the Office of the Secretary, Federal Energy Regulatory Commission, 888 First Street, NE, Washington, DC 20426.

FOR FURTHER INFORMATION CONTACT:

William L. Zoller, Office of Energy Projects, Federal Energy Regulatory Commission, 888 First Street, NE, Washington, DC 20426, [phone].

Joseph B. O'Malley, Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street, NE, Washington, D.C. 20426, [phone].

SUPPLEMENTARY INFORMATION:

I. Introduction

The Federal Energy Regulatory Commission proposes to remove its optional certificate regulations in Subpart E of Part 157 of the Commission's regulations.^[1] The policies embedded in these regulations have been overtaken by subsequent policy developments—most particularly the Commission's September 15, 1999 Policy Statement.^[2] The optional certificate regulations, promulgated in 1985, established procedures whereby an eligible applicant may obtain, for purposes of providing new service, a certificate authorizing: the transportation of natural gas; sales of natural gas; the construction and operation of natural gas facilities; the acquisition and operation of natural gas facilities; and conditional pre-granted abandonment of such activities and facilities. On September 15, 1999, the Commission issued a policy statement to provide the industry guidance with respect to how the Commission will evaluate new proposals for pipeline construction projects to take account of changes in the natural gas industry in recent years. The Policy Statement provides that pipelines may not rely on existing customers to subsidize new projects that will not benefit them and that construction projects will be approved only where the public benefits outweigh any adverse effects. The optional regulations do not provide for consideration and weighing of public interest factors, and are thus inconsistent with current Commission policy.

II. Background

Before a pipeline may construct any natural gas facilities subject to the Commission's Natural Gas Act (NGA) jurisdiction, it must obtain a certificate of public convenience and necessity authorizing such construction under section 7 of the NGA. In conjunction with the open access transportation program that the Commission established in Order No. 436, the Commission adopted the optional certificate regulations in 1985 as an alternative to the conventional certificate process. A key goal of the optional certificate program was to provide the full benefits of competition to consumers by facilitating easier pipeline entry and exit from markets.^[3]

The optional certificate regulations establish a rebuttable presumption that, subject to review under the National Environmental Policy Act, an application is required by the public convenience and necessity if the applicant is willing to assume all the economic risk of a new service.^[4] To assure that the applicant shoulders the project risk, the optional regulations prohibit cost shifting ^[5] and any reduction in the certificated level of billing determinants used to design initial rates for a project or service.^[6] In addition, the Commission requires maximum demand and usage recourse rates in optional certificates based on 100 percent and 95 percent of the project's design capacity, respectively.^[7]

The Commission's September 15, 1999 Policy Statement

In a Notice of Inquiry issued July 29, 1998,^[8] the Commission revisited its section 7 certificate policy in view of the continuing changes taking place in the natural gas industry. After conducting a comprehensive review, with considerable input from the public, the Commission issued its September 15, 1999 Policy Statement, Certification of New Interstate Natural Gas Pipeline Facilities, to provide guidance on how the Commission will evaluate proposals for certificating new construction in the future. The Policy Statement did not adopt new rules for filing applications; rather, the Policy Statement is intended to provide an analytical framework for determining when a particular pipeline project is required by the public convenience and necessity.

The threshold requirement of the new policy is that the pipeline must be prepared to develop the project without relying on subsidization by its existing customers.^[9] The Policy Statement also encourages pipelines seeking a certificate to resolve potential issues very early in the process by submitting applications designed to avoid or minimize adverse effects on such groups as existing customers of the applicant, existing pipelines serving the market and their captive customers, and affected landowners and other community interests. After the applicant makes efforts to minimize adverse effects, construction projects that have residual unresolved issues will be approved only where the public benefits of the projects are found to outweigh the adverse effects. An applicant may submit evidence of the public benefits to be achieved by the proposed project, such as contracts, precedent agreements, studies of projected demand in the market to be served, or other evidence of public benefit of the project.

III. Discussion

The Commission is proposing to remove the optional certificate regulations because it believes that a uniform regulatory scheme applicable to all certificate applications will best accomplish the Commission' s goals, as set out in the Policy Statement, of assuring that all relevant interests and circumstances are considered and balanced in assessing the public convenience and necessity.

The Commission's Policy Statement established a core set of principles and considerations for evaluating new pipeline construction projects that is in part consistent with the policies that underlie the optional certificate procedures. By precluding subsidization of new projects, the Policy Statement provides that existing customers are protected from assuming the risk of a project that was not designed for their benefit. Similarly, under the optional certificate program, the applicant cannot look to subsidization from customers.^[10] In other respects, however, current policy is inconsistent with the optional certificate regulations. Because the optional certificates operate under a rebuttable presumption that they are in the public interest, the Commission does not weigh the public benefits against the adverse effects in considering such applications. The Commission believes that at this point it is better to consider all certificate applications under the recently articulated Policy Statement.^[11]

IV. Environmental Analysis

Commission regulations describe the circumstances where preparation of an environmental assessment or an environmental impact statement will be required.^[12] The Commission has categorically excluded certain actions from this requirement as not having a significant effect on the human environment.^[13] No environmental consideration is necessary for the promulgation of a rule that is clarifying, corrective, or procedural, or that does not substantially change the effect of legislation or regulations being amended.^[14]

This proposed rule removal is procedural in nature. Applicants for pipeline construction authority must satisfy the same environmental requirements under either the optional or Policy Statement procedure. Thus, no environmental assessment or environmental impact statement is necessary for the requirements proposed in the rule.

V. Regulatory Flexibility Impact Statement

The Regulatory Flexibility Act of 1980 (RFA) ^[15] generally requires a description and analysis of final rules that will have significant economic impact on a substantial number of small entities. The Commission is not required to make such analysis if a rule would not have such an effect.^[16]

The Commission does not believe that removal of the optional certificate rules would have such an impact on small entities. The proposed removal of regulations would have impact only on interstate pipelines, which generally do not fall within the RFA's definition of small entity.^[17] Accordingly, pursuant to Section 605(a) of the RFA, the Commission proposes to certify that the removal of regulations proposed here will not have a significant economic impact on a substantial number of small entities.

VI. Information Collection Statement

The following collection of information is being forwarded to the Office of Management and Budget (OMB) for review under section 3507(d) of the Paperwork Reduction Act of 1995.^[18] The collection of information related to the subject involved here falls under FERC-537, Gas Pipeline Certificates: Construction, Acquisition, and Abandonment.^[19]

The action proposed here will remove a heretofore little used alternative to the conventional section 7(c) application process. While the optional certificate process does arguably offer pipelines a less burdensome process, in practice the overwhelming majority of applications for construction authority since adoption of the optional certificate rules have been filed under the conventional application process. What we are intending to accomplish is not to impose new information burdens on pipeline applicants, but to maintain the informational status quo. As a practical matter, our action should not have any appreciable effect on the collection of data from the pipeline industry. Nevertheless, we invite parties submitting comments to address this matter. Comments are solicited on the Commission's need for this information, whether the information will have practical utility, the accuracy of the provided burden estimates, ways to enhance the quality, utility, and clarity of the information to be collected , and any suggested methods for minimizing respondents' burden, including the use of automated information techniques.

The OMB regulations require OMB to approve certain information collection requirements imposed by agency rule.^[20] Accordingly, pursuant to OMB regulations, the Commission is providing notice of its proposed information collection to OMB.

Title: FERC-537, Gas Pipeline Certificates: Construction, Acquisition, and Abandonment.

Action: Proposed Data Collection.

OMB Control No. 1902-0060. The respondent shall not be penalized for failure to respond to this collection of information unless the collection of information displays a valid OMB control number.

Respondents: Business or other for profit.

Frequency of Responses: On occasion.

Interested persons may obtain information on the reporting requirements by contacting the following: Federal Energy Regulatory Commission, 888 First Street, NE, Washington, DC 20426, [Attention: Michael Miller, Office of the Chief Information Officer, Phone: [phone], fax: [phone], e-mail: [e-mail]]

For submitting comments concerning the collection of information and the associated burden estimate, please send your comments to the contact listed above and to the Office of Management and Budget, Office of Information and Regulatory Affairs, Washington, DC 20503. [Attention: Desk Officer for the Federal Energy Regulatory Commission, phone: [phone], fax: [phone]]

VII. Comment Procedure

The Commission invites interested persons to submit written comments on the matters and issues proposed in this notice to be adopted, including any related matters or alternative proposals that commenters may wish to discuss.

The original and 14 copies of such comments must be received by the Commission before 5:00 p.m. April 3, 2000. Comments should be submitted to the Office of the Secretary, Federal Energy Regulatory Commission, 888 First Street, NE, Washington DC 20426 and should refer to Docket No. RM00-5-00.

In addition to filing paper copies, the Commission encourages the filing of comments either on computer diskette or via Internet E-Mail. Comments may be filed in the following formats: WordPerfect 8.0 or below, MS Word Office 97 or lower version, or ASCII format.

For diskette filing, include the following information on the diskette label: Docket No. RM00-5-000; the name of the filing entity; the software and version used to create the file; and the name and telephone number of a contact person.

For Internet E-Mail submittal, comments should be submitted to “[e-mail]” in the following format. On the subject line, specify Docket No. RM00-5-000. In the body of the E-Mail message, include the name of the filing entity; the software and version used to create the file, and the name and telephone number of the contact person. Attach the comment to the E-Mail in one of the formats specified above. The Commission will send an automatic acknowledgment to the sender's E-Mail address upon receipt. Questions on electronic filing should be directed to Brooks Carter at 202-501-8145, E-Mail address [e-mail].

Commenters should take note that, until the Commission amends its rules and regulations, the paper copy of the filing remains the official copy of the document submitted. Therefore, any discrepancies between the paper filing and the electronic filing or the diskette will be resolved by reference to the paper filing.

All written comments will be placed in the Commission's public files and will be available for inspection in the Commission's Public Reference room at 888 First Street, NE, Washington, DC 20426, during regular business hours. Additionally, comments may be viewed, printed, or downloaded remotely via the Internet through FERC's Homepage using the RIMS or CIPS links. RIMS contains all comments but only those comments submitted in electronic format are available on CIPS. User assistance is available at 202-208-2222, or by E-Mail to [e-mail].

VIII. Document Availability

In addition to publishing the full text of this document in the Federal Register, the Commission provides all interested persons an opportunity to view and/or print the contents of this document via the Internet through FERC's Home Page (http://www.ferc.fed.us) and in FERC's Public Reference Room during normal business hours (8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street, NE, Room 2A, Washington, DC 20426.

From FERC's Home Page on the Internet, this information is available in both the Commission Issuance Posting System (CIPS) and the Records and Information Management System (RIMS).

—CIPS provides access to the texts of formal documents issued by the Commission since November 14, 1994.

—CIPS can be accessed using the CIPS link or the Energy Information Online icon. The full text of this document is available on CIPS in ASCII and WordPerfect 8.0 format for viewing, printing, and/or downloading.

—RIMS contains images of documents submitted to and issued by the Commission after November 16, 1981. Documents from November 1995 to the present can be viewed and printed from FERC's Home Page using the RIMS link or the Energy Information Online icon. Descriptions of documents back to November 16, 1981, are also available from RIMS-on-the-Web; requests for copies of these and other older documents should be submitted to the Public Reference Room. User assistance is available for RIMS, CIPS, and the Website during normal business hours from our Help line at [phone] (E-Mail to [e-mail]) or the Public Reference at [phone] (E-Mail to [e-mail] ).

During normal business hours, documents can also be viewed and/or printed in FERC's Public Reference Room, where RIMS, CIPS, and the FERC Website are available. User assistance is also available.

List of Subjects in 18 CFR Part 157

• Administrative practice and procedure
• Natural gas
• Reporting and recordkeeping requirements

By direction of the Commission.

Linwood A. Watson, Jr.,

Acting Secretary.

In consideration of the foregoing, the Commission proposes to amend Part 157—Chapter I, Title 18, Code of Federal Regulations, as follows.

PART 157—APPLICATIONS FOR CERTIFICATES OF PUBLIC CONVENIENCE AND NECESSITY AND FOR ORDERS PERMITTING AND APPROVING ABANDONMENT UNDER SECTION 7 OF THE NATURAL GAS ACT

1. The authority citation for Part 157 continues to read as follows:

Authority: 15 U.S.C. 717-717W, 3301-3432; 42 U.S.C. 7101-7352.

Subpart E of Part 157—[Removed and Reserved]

2. Remove and reserve subpart E, consisting of § § 157.100 through 157.106.

Footnotes

1.  18 CFR 157.100 et seq.

2.  Certification of New Interstate Natural Gas Pipeline Facilities, 88 FERC ¶61,227 (1999) (Policy Statement)

3.  See Order No. 436, Regulation of Natural Gas Pipelines After Partial Wellhead Decontrol, 50 FR 42408 (Oct. 18, 1985), 50 FR 45907 (Nov. 5,1985); FERC Stats. & Regs. ¶30,665 (1985), at p. 31,570.

4.  See Order No. 436, at p. 31,584.

5.  Section 157.103(d)(8) provides that no costs originally allocated to the new service (or facility) by the certificate holder may thereafter be shifted by the certificate holder to any other service without a filing under Part 154 and a determination by the Commission that the costs sought to be reallocated are in fact being incurred for the benefit of the other services.

6.  Section 157.103(d)(4) provides that any rate filed for new service must be designed to recover costs on the basis of projected units of service. The units projected for the new service in the filed initial may be increased in a subsequent rate filing (in effect, decreasing rates) but may not be decreased.

7.  See, e.g., Mojave Pipeline Company, 47 FERC ¶ 61,200 (1989) and Delta Pipeline Company, 52 FERC ¶ 61,004 (1989). The Commission found that design of rates on a lower load factor has the effect of shielding the pipeline from the risks of underutilization of capacity. The 95% load factor used to design usage rates recognizes that the design capacity of the capacity is not always available due to maintenance considerations and compressor outages.

8.  Notice of Inquiry, Regulations of Interstate Natural Gas Transportation Services, 84 FERC ¶ 61,087 (1998).

9.  Policy Statement, at p. 61,750.

10.  The Commission notes that the optional certificate regulations have not resulted in faster issuance of certificates, as originally anticipated. There has been little or no difference between the two programs in Commission review and processing time. Environmental review is the driving force in total processing time, and environmental review requirements are the same under either program.

11.  In its order clarifying the Policy Statement, which is being issued contemporaneously with this NOPR, the Commission provides that, pending a final rule in this proceeding, the presumption in favor of an application filed under the optional certificate regulations will be considered rebutted if the adverse affects of the proposed project are found to outweigh its benefits. This is an interim solution, however. In the long run, the Commission believes that the better course is to treat all applications under one set of procedures.

12.  Regulations Implementing National Environmental Policy Act, 52 FR 47897 (Dec. 17, 1987), codified at 18 CFR Part 380.

13.  18 CFR 380.4(a)(2)(ii).

14.  18 CFR 380.4.

15.  5 U.S.C. 601-612.

16.  5 U.S.C. 605(b).

17.  5 U.S.C. 601(3), citing to section 3 of the Small Business Act, 15 U.S.C. 632. Section 3 of the Small Business Act defines a “small business concern” as a business which is independently owned and operated and which is not dominant in its field of operations.

18.  44 U.S.C. 3507(d).

19.  The current burden estimate for FERC-537 is 138,264 hours. This number is based on an average of 50 respondents (companies making filings), 11.2 responses (filings per respondent), and 246.9 hours of preparation time per response.

20.  5 CFR 1320.11.