[Federal Register Volume 63, Number 78 (Thursday, April 23, 1998)]
[Rules and Regulations]
[Pages 20072-20096]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-10685]
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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Part 284
[Docket No. RM96-1-007; Order No. 587-G]
Standards for Business Practices of Interstate Natural Gas
Pipelines
April 16, 1998.
AGENCY: Federal Energy Regulatory Commission.
ACTION: Final rule.
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SUMMARY: The Federal Energy Regulatory Commission (Commission) is
amending Sec. 284.10 of its regulations governing standards for
conducting business practices and electronic communication with
interstate natural gas pipelines. The Commission is incorporating by
reference, in Sec. 284.10(b), the most recent version (Version 1.2) of
standards promulgated by the Gas Industry Standards Board (GISB). The
Commission also is adopting, in new Sec. 284.10(c), regulations, not
developed by GISB, governing intra-day nominations, operational
balancing agreements (OBAs), netting and trading of imbalances,
standardization of communications over the public Internet, and notices
of operational flow orders. These business practices and communication
standards supplement standards adopted by the Commission in Order Nos.
587, 587-B, and 587-C. 61 FR 39053 (Jul. 26, 1996) 62 FR 5521 (Feb. 6,
1997), 62 FR 10684 (Mar. 10, 1997).
DATES: Effective May 26, 1998. On August 1, 1998 pipelines must
implement Sec. 284.10(b), which incorporates by reference Version 1.2
of the GISB standards, and the regulations, in Secs. 284.10(c)(3)(ii)
through (v), relating to the standards for information posted on
pipeline web sites, the content of information provided electronically,
the use of numeric designations, and retention of electronic
information.
The implementation date for the regulations regarding intra-day
nominations, Sec. 284.10(c)(1)(i), operational balancing agreements,
Sec. 284.10(c)(2)(i), trading of imbalances, Sec. 284.10(c)(2), and
Internet notification of critical notices, Sec. 284.10(c)(3)(vi), will
be established when the Commission adopts standards relating to these
activities.
ADDRESSES: Federal Energy Regulatory Commission, 888 First Street,
N.E., Washington DC, 20426.
FOR FURTHER INFORMATION CONTACT:
Michael Goldenberg, Office of the General Counsel, Federal Energy
Regulatory Commission, 888 First Street, NE., Washington, DC 20426,
(202) 208-2294
Marvin Rosenberg, Office of Economic Policy, Federal Energy Regulatory
Commission, 888 First Street, N.E., Washington, DC 20426, (202) 208-
1283
Kay Morice, Office of Pipeline Regulation, Federal Energy Regulatory
Commission, 888 First Street, N.E., Washington, DC 20426, (202) 208-
0507
SUPPLEMENTARY INFORMATION: In addition to publishing the full text of
this document in the Federal Register, the Commission provides all
interested persons an opportunity to inspect or copy the contents of
this document during normal business hours in Room 2A, 888 First
Street, N.E., Washington D.C. 20426. The complete text on diskette in
WordPerfect format may be purchased from the Commission's copy
contractor, La Dorn Systems Corporation. La Dorn Systems Corporation is
located in the Public Reference Room at 888 First Street, N.E.,
Washington, D.C. 20426.
The Commission Issuance Posting System (CIPS), an electronic
bulletin board service, also provides access to the texts of formal
documents issued by the Commission. CIPS is available at no charge to
the user. CIPS can be accessed over the Internet by pointing your
browser to the URL address: http://www.ferc.fed.us. Select the link to
CIPS. The full text of this document can be obtained in ASCII or
WordPerfect format. CIPS also may be accessed using a personal computer
with a modem by dialing 202-208-1397 if dialing locally or 1-800-856-
3920 if dialing long distance. To access CIPS, set your communications
software to 19200, 14400, 12000, 9600, 7200, 4800, 2400, or 1200 bps,
full duplex, no parity, 8 data bits and 1 stop bit. The full text of
this order will be available on CIPS in ASCII and WordPerfect 6.1
format. CIPS user assistance is available at 202-208-2474.
Standards for Business Practices of Interstate Natural Gas
Pipelines
TABLE OF CONTENTS
I. Background
II. Discussion
A. Introduction
B. Regulations Adopted by this Rule
1. Version 1.2 of the Standards
2. Regulations Establishing Priority of Intra-Day Nominations
3. Regulation Requiring Pipelines to Enter into Operational
Balancing Agreements
4. Regulation Requiring Pipelines to Net Imbalances and Permit
Imbalance Trading
5. Electronic Communication Using the Internet
C. Issues on which the Commission Determined Not to Adopt
Requested Regulations
1. Title Transfer Tracking
2. Cross-Contract Ranking
3. Multi-Tiered Allocations
4. Paper Pooling
5. Reimbursement for Compressor Fuel
6. Penalty Determinations
D. Market-Based Rates for Pipeline Services
E. Implementation Schedule and Schedule for Submission of
Additional Standards
III. Information Collection Statement
IV. Environmental Analysis
V. Regulatory Flexibility Act Certification
VI. Effective Date
Before Commissioners: James J. Hoecker, Chairman; Vicky A. Bailey,
William L. Massey, Linda Breathitt, and Curt Heert, Jr.
The Federal Energy Regulatory Commission (Commission) is amending
Sec. 284.10 of its regulations governing standards for conducting
business practices and electronic communication with interstate natural
gas pipelines. The Commission is incorporating by reference, in
Sec. 284.10(b) of its regulations, the most recent version (Version
1.2) of standards promulgated by the Gas Industry Standards Board
(GISB). The Commission also is adopting regulations, in new
Sec. 284.10(c) of its regulations, governing intra-day nominations,
operational balancing agreements (OBAs), netting and trading of
imbalances, standardization of communications over the public Internet,
and notices of operational flow orders.
I. Background
In Order Nos. 587, 587-B, and 587-C 1 the Commission
adopted regulations
[[Page 20073]]
to standardize the business practices and communication methodologies
of interstate pipelines in order to create a more integrated and
efficient pipeline grid. In those orders, the Commission incorporated
by reference consensus standards developed by GISB, a private,
consensus standards developer composed of members from all segments of
the natural gas industry. The standards established uniform
requirements for conducting critical industry business practices--
Nominations, Flowing Gas, Invoicing, and Capacity Release. The
standards also required pipelines to use the Internet as the means of
conducting business transactions electronically as well as for
providing customers with general information.
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\1\ Standards For Business Practices Of Interstate Natural Gas
Pipelines, Order No. 587, 61 FR 39053 (Jul. 26, 1996), III FERC
Stats. & Regs. Regulations Preambles para. 31,038 (Jul. 17, 1996),
Order No. 587-B, 62 FR 5521 (Feb. 6, 1997), III FERC Stats. & Regs.
Regulations Preambles para. 31,046 (Jan. 30, 1997), Order No. 587-C,
62 FR 10684 (Mar. 10, 1997), III FERC Stats. & Regs. Regulations
Preambles para. 31,050 (Mar. 4, 1997).
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In Order No. 587-C, however, the Commission did not adopt standards
approved by GISB concerning intra-day nominations, operational
balancing agreements, and imbalances. The Commission found that those
standards did not clearly outline the pipelines' obligations. The
Commission gave GISB and the industry until September 1, 1997 to
propose additional standards in these areas.
In addition, throughout its deliberations in 1996, GISB had been
unable to reach consensus on whether standards are needed in several
areas--title transfer tracking, ranking of gas packages, treatment of
compressor fuel, operational balancing agreements, imbalance
resolution, operational flow orders, multi-tiered allocations, and
additional pooling standards. The Commission staff held a technical
conference on December 12-13, 1996, to consider these issues.
Subsequently, on September 2, 1997, GISB filed with the Commission
its latest revisions to the consensus standards, Version 1.2. It also
filed a report on its progress in attempting to resolve the issues
reserved for further consideration by Order No. 587-C and some of the
disputed issues considered at the technical conference.
In the Notice of Proposed Rulemaking (NOPR) issued on November 12,
1997,2 the Commission proposed to adopt Version 1.2 of the
GISB standards. The Commission also considered the issues left
unresolved by GISB and proposed regulations that would require
pipelines to:
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\2\ Standards For Business Practices Of Interstate Natural Gas
Pipelines, Notice of Proposed Rulemaking, 62 FR 61459 (Nov. 18,
1997), IV FERC Stats. & Regs. Proposed Regulations para. 32,527
(Nov. 12, 1997).
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Give firm intra-day nominations priority over already
nominated and scheduled interruptible transportation (thus permitting
firm shippers to change their nomination quantities during the day and
bump scheduled interruptible service);
Enter into operational balancing agreements at all
pipeline to pipeline interconnects;
Permit shippers to offset imbalances across contracts and
trade imbalances amongst themselves when such imbalances have similar
operational impact on the pipeline's systems;
Post all information and conduct all business transactions
using the public Internet and internet protocols by June 1, 1999 and
comply with other standards regarding communication over the Internet.
Comments on the NOPR were due by December 18, 1997. Fifty-five comments
were filed.3
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\3\ The commenters, and the abbreviations used in this order,
are listed in the Appendix.
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In addition, in several areas where the Commission did not propose
regulations, the Commission provided guidance in the NOPR on its
policies to aid GISB's development of standards in these areas. The
Commission asked for comment from GISB and the industry on the
development of standards in these areas by March 31, 1998. On March 23,
1998, GISB filed with the Commission a report containing its approved
intra-day nomination standards and a progress report on its process for
developing standards in the other areas discussed in the NOPR.
II. Discussion
A. Introduction
Through GISB's consensus process, the gas industry has been able to
work together to pass a set of mutually-agreed upon standards that have
greatly contributed to providing a more efficient and reliable
transportation and communication system. In previous orders, the
Commission has recognized this contribution and incorporated the GISB
standards into the Commission regulations. But it is only to be
expected that a standards organization composed of representatives from
every facet of the gas industry would disagree over the need for
standards in certain areas, particularly when the disputes center on
regulatory policy decisions. Although some commenters take issue with
aspects of the regulations proposed in the NOPR, they virtually all
support the Commission's determination to resolve the divisive policy
disputes that are impeding GISB's standards development efforts.
In this rule, therefore, the Commission is addressing the disputed
policy issues so that the industry can move forward and develop the
standards needed to further integrate the pipeline grid. The Commission
is adopting regulations establishing the scheduling priority of intra-
day nominations for firm service and requiring pipelines to enter into
operational balancing agreements (OBAs) and to permit imbalance
trading. It also is standardizing communications by requiring that, by
June 1, 1999, all transactions between pipelines and their customers
will be transacted using the public Internet.
The business practices regulations adopted here will enable
shippers to move gas more easily across multiple pipelines.
Establishing one rule governing the priority of intra-day nominations
will permit firm shippers to coordinate nomination changes across
multiple pipelines without having a different priority regime on one
pipeline break the nomination chain. The OBA and imbalance trading
regulations will increase the reliability of shipments crossing
multiple pipeline by reducing the business and financial risks of
imbalances and the associated penalties.
The Commission's requirement that pipelines conduct all business
transactions over the public Internet represents the culmination of the
Commission's efforts to replace the current individual, and
idiosyncratic electronic bulletin board system of each pipeline, with a
standardized method of conducting business electronically across all
the pipelines. Although GISB's standards have moved much information
and many electronic transactions to the Internet, those standards are
incomplete and do not eliminate the need for shippers to use the
individual pipeline electronic bulletin boards. The adoption of this
regulation will fulfill the original vision of creating a system in
which all electronic communications and transactions will take place in
a standardized format.
Creation of a standardized communication system promises to
markedly increase the efficiency of transactions. As just one small
example, in the past, shippers would have to log-on to each pipeline's
private bulletin board seriatim to obtain information on available
capacity on the pipeline. With the use of the Internet, shippers can
now easily use one Internet connection to go to GISB's homepage, click
on a pipeline's hypertext link, obtain the
[[Page 20074]]
information they want, and then return and find the information from
another pipeline, without having to log-off or change computers or
programs. Those shippers using GISB's standardized datasets can realize
even more efficiency because they can download the same information
from multiple pipelines in a standardized format and, if they choose,
directly import that information into their gas management systems or
other software programs where the information can be manipulated to
show the available capacity along a proposed path.
The regulations adopted in this rule are not the final riff of the
standardization set.4 There is still much work to be done.
With the policy questions resolved, the Commission is looking to GISB
and the industry to develop the technical standards needed to implement
these policies in the most uniform and efficient manner possible. In
addition, in other areas, the Commission has outlined the need for the
development of additional standards and is establishing a timetable for
submission of standards in these areas.
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\4\ See Order No. 587, 61 FR at 39057, III FERC Stats. & Regs.
Regulations Preambles, at 30,060 (standards development is like a
jazz musician who takes a theme and constantly revises, enhances,
and reworks it).
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Specifically, in this rule, the Commission is amending
Sec. 284.10(b) of its regulations to incorporate by reference the most
recent version of GISB's standards, Version 1.2. Pipelines must
implement the new version on the first day of the month following 90
days after the publication of this order in the Federal Register.
Further, the Commission is establishing its own business practices
and communications standards in new Sec. 284.10(c) of its regulations.
The business practices standards will require pipelines to:
Give firm intra-day nominations priority over already
nominated and scheduled interruptible transportation service and permit
firm intra-day nominations submitted on the day prior to gas flow to go
into effect at the start of the gas day;
Enter into operational balancing agreements at all
interstate and intrastate pipeline to pipeline interconnects; and
Permit shippers to offset imbalance across contracts and
trade imbalances amongst themselves when such imbalances have similar
operational impact on the pipeline's systems.
The electronic communication standards will require pipelines to:
Post all information and conduct all business transactions
using the public Internet and internet protocols by June 1, 1999;
Adhere to standards governing the provision of information
on pipeline web sites and retention of electronic records of
transactions;
Notify shippers of critical events affecting the system,
such as operational flow orders, by posting the information on pipeline
web sites and by direct notice either through Internet E-Mail or
notification to the shipper's Internet address.
With respect to implementation of the requirements in
Sec. 284.10(c), the Commission is heeding the commenters who argue that
the Commission should defer implementation of some of the regulations
until GISB has developed the associated standards needed to implement
the requirements.5 The Commission agrees that implementation
of the intra-day nomination, OBA, imbalance trading, and critical
notice notification regulations would be more effective if they
occurred only once, after GISB and the industry have the opportunity to
develop appropriate standards. The Commission, therefore, will defer
implementation of these regulations to coincide with the implementation
of standards to implement these regulations.
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\5\ See comments by ANR/CIG, Enron, INGAA, NGPL, NGC, NWIGU,
(intra-day standards), Altra (OBA and imbalance trading),
TransCapacity (imbalance trading), ECT, NGC, NGSA (critical
notices).
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A consensus of the industry supports GISB's Annual Plan for 1998
under which intra-day standards will be developed by the first quarter
of 1998 and OBA and imbalance trading standards by the second quarter
of 1998.6 GISB has already filed its completed intra-day
standards with the Commission, and the Commission will be issuing a
NOPR contemporaneous with this rule proposing to adopt the intra-day
standards. The Commission will establish a timetable for the filing of
proposed standards for OBA and imbalance trading that follows the
industry consensus in GISB's Annual Plan, with standards in these areas
due by June 30, 1998. Since GISB has not established a schedule for
developing standards for critical notices, the Commission is setting a
deadline of December 31, 1998, for submission of such standards. While
some commenters suggest that implementation of Internet communications
be delayed to coincide with GISB's development of
standards,7 the June 1, 1999 deadline already seems to build
in sufficient time for GISB and the industry to develop the necessary
standards, and the Commission will not change this date.
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\6\ December 18, 1997 letter from INGAA, AGA, and NGSA to James
J. Hoecker (filed in Docket No. RM96-1-007).
\7\ Comments by ANR/CIG, Columbia Gas/Columbia Gulf, Enron,
Koch, NGPL, NGSA, Southern.
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In addition, in the November 12, 1997 NOPR, the Commission found no
need to propose regulations in other disputed areas--title transfer
tracking, cross-contract ranking, multi-tiered allocations, fuel
reimbursement, and penalty calculations. The Commission, however, did
provide guidance on its policy in these areas to remove obstacles to
the development of standards. The Commission requested comments from
GISB and the industry by March 31, 1998, proposing standards based on
the Commission guidance with respect to title transfer tracking and
cross-contract ranking.
A consensus of the industry, as reflected in the GISB 1998 Annual
Plan, has recommended that due to resource commitments and the
difficulty of developing standards for title transfer tracking and
cross-contract ranking, the schedule for development of final standards
in these areas should be postponed until the fourth quarter of 1998.
The Commission will accept the industry consensus and delay the
deadline for submission of standards for title transfer tracking and
cross-contract ranking.
The Commission will first address the regulations adopted by this
rule. The Commission will then discuss those areas in which it is not
adopting regulations requested by commenters, but instead is providing
policy guidance as to the direction of future standardization efforts.
B. Regulations Adopted by This Rule
1. Version 1.2 of the Standards
a. Adoption of version 1.2. The Commission is adopting Version 1.2
of the GISB standards. Version 1.2 principally revises the datasets
used to conduct business transactions with the pipelines.8
Version 1.2 also contains interpretations of the standards. The
Commission proposed to adopt the interpretations, because, although
they would not be determinative, they would help to provide reliable
guides to the industry's understanding of the standards in the event
disputes arise.
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\8\ The datasets are essentially a uniform template that
shippers can use to conduct business with multiple pipelines.
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No commenter has objected to adoption of Version 1.2 of the GISB
[[Page 20075]]
standards. TransCapacity and El Paso contend the Commission should give
great weight to the interpretations. Koch, SGPC, and ANR/CIG, while not
objecting to the adoption of the interpretations, maintain that
pipelines should not be required to modify their tariffs to incorporate
them. ANR/CIG also contend there is no need for pipelines to modify
their tariffs to incorporate the Version 1.2 standards by reference
unless their tariffs are inconsistent with the new standards.
Version 1.2 improves the datasets to better reflect pipeline
business practices. The Commission will adopt Version 1.2 to be
implemented on the first day of the month following 90 days after the
publication of this order in the Federal Register. Pipelines need not
modify their tariffs to incorporate the interpretations, just as they
did not have to incorporate the GISB principles in their
tariffs.9 Pipelines, however, will need to make compliance
filings to adopt Version 1.2 of the standards into their tariffs since
their tariffs reflect an older version number.10 Pipelines
also will need to make any other tariff changes to conform their
tariffs to the new standards.11 The tariff changes must be
filed not less than 30 days prior to the date for implementing Version
1.2 of the standards.12
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\9\ Order No. 587 at 61 FR 39060, III FERC Stats. & Regs.
Regulations Preambles at 30,066.
\10\ See Texas Eastern Transmission Corporation, 77 FERC para.
61,175, at 61,646 (1996) (pipelines incorporating standards by
reference in their tariffs must include number and version).
\11\In filing to implement Version 1.2, pipelines need to change
all references to GISB standards in their tariffs to Version 1.2.
The version number applies to all standards contained in GISB's
Version 1.2 Standards Manuals, including standards that have not
changed from prior versions.
\12\ 18 CFR 154.207.
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b. Hiatus in implementing new versions and waivers. The NOPR also
requested comment on two issues: Whether the Commission should refrain
from adopting further dataset changes for a period of a year or more
and whether the Commission should continue to grant pipelines waivers
that permit them to deviate from the standardized datasets. Many
commenters support the concept of a hiatus of about a year in order to
give pipelines and shippers a chance to implement the
standards.13 But even some of those supporting a hiatus
contend the hiatus could not be absolute, because there will be a need
to adjust the standards to clean-up errors 14 or to address
other compliance issues.15 Others urge that the current
schedule of issuing standards every six months or so is appropriate for
the start-up phase of software development in which errors need to be
corrected.16 Some also point out that new standards need to
be developed for new needs.17 In its March 23, 1998 filing,
GISB anticipates completion of Version 1.3 of the standards by July
1998. It then projects updates of various portions of the standards
occurring on an annual basis, with Version 2 (update of Flowing Gas and
Invoicing) by July 1999 and Version 2 (update of Nominations and
Capacity Release) by July 2000.
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\13\ Comments by Columbia Gas/Columbia Gulf (one year), Duke
Energy Interstate Pipelines, Engage, Koch, Latitude (every two
years) MGE, NGC, NGSA, Nicor Gas, PG&E, ProEnergy, Williston Basin.
\14\ See comments by Duke Energy Interstate Pipelines and Koch.
\15\ See comment by NGSA and PG&E.
\16\ Comments by Altra, ECT, Enron, INGAA, SoCal Gas/SDG&E,
TransCapacity.
\17\ See comment by SoCal Gas/SDG&E.
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Because the regulations adopted in this proceeding require changes
to the existing standards, granting a significant hiatus on adoption of
revised datasets at this time is inappropriate. To ensure that shippers
can fully take advantage of the benefits from the regulations, the
appropriate standards need to be implemented as soon as feasible. As
reflected in GISB's projected schedule, a longer time period between
adoption of revised versions may be more appropriate once the initial
phase of standardization is complete and the focus turns to maintenance
and improvement of the datasets.
In implementing Order No. 587, the Commission granted pipelines two
types of waivers. It granted some, generally smaller, pipelines, whose
computer systems were not yet ready to implement the standards,
extensions of time to comply with the electronic communication
requirements.18 It also granted waivers permitting some
major pipelines to use non-standardized data elements to accommodate
specific business practices while their requests for changes to the
datasets were pending at GISB.19
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\18\See Gulf States Transmission Corporation, 79 FERC para.
61,102 (1997).
\19\See Texas Eastern Transmission Corporation, 79 FERC para.
61,223 (1997).
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In the NOPR, the Commission asked whether the time for permitting
these waivers had ended and whether all pipelines should be required to
adhere to the Version 1.2 standards. The pipelines contend the
Commission should continue to grant waivers on a case-by-case basis if
a need is shown, although the comments did not differentiate between
the extensions of time for small pipelines to implement the standards
and the waivers for larger pipelines of dataset
compliance.20 Koch claims that Version 1.2 may still contain
errors that need to be corrected. Other commenters contend the need for
waivers has ended, and pipelines now need to conform to the
standardized data elements.21
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\20\ See Comments of Duke Energy Interstate Pipelines, INGAA,
Koch, NGPL, Williston Basin.
\21\ See Comments of Altra, ECT, Engage, MGE, NGC, NGSA, PG&E,
SoCal Gas/SDG&E, TransCapacity.
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The Commission will examine requests for extensions of waivers on a
case-by-case basis. However, because waivers are antithetical to the
concept of standardization, such extensions will be disfavored. Non-
uniform implementation of the datasets on major pipeline systems, in
particular, creates burdens for shippers because they have to maintain
unique sets of data elements to conduct business solely on those
pipelines with waivers. Pipelines, therefore, will have a heavy burden
of justifying any request for a waiver of the data elements.
2. Regulations Establishing Priority of Intra-Day Nominations
The Commission is adopting regulations in Sec. 284.10(c)(1)(i)
establishing the scheduling priority for intra-day nominations. The
regulations require pipelines to accord an intra-day nomination
submitted by a firm shipper scheduling priority over nominated and
scheduled volumes for interruptible shippers. Pipelines are to provide
an interruptible shipper with advance notice that its scheduled volumes
are to be reduced as well as notice of whether penalties will apply on
the day its scheduled volumes are reduced. In addition, the regulation
requires that an intra-day nomination submitted on the day prior to gas
flow will take effect at the start of the gas day at 9 a.m. CCT.
a. Background. (1) Commission policy on service priority. Under the
GISB standards, shippers submit initial nominations at 11:30 a.m. for
gas to flow on the next gas day (starting at 9 a.m.).22 An
intra-day nomination is any nomination submitted after the initial
nomination.23 An intra-day nomination can be made either on
the day prior to gas flow (after 11:30 a.m.) or on the day of gas
flow.24 The current standards require a pipeline to permit
one intra-
[[Page 20076]]
day nomination four hours prior to gas flow.25
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\22\ 18 CFR 284.10(b)(1)(i) (1997), Nominations Related
Standards 1.3.1 and 1.3.2.
\23\ 18 CFR 284.10(b)(1)(i) (1997), Nominations Related
Standards 1.2.4.
\24\ 18 CFR 284.10(b)(1)(i) (1997), Nominations Related
Standards 1.2.7.
\25\ 18 CFR 284.10(b)(1)(i) (1997), Nominations Related
Standards 1.3.10.
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The Commission's policy since Order No. 636 has been that firm
shippers, who pay reservation charges, are entitled to service superior
to that of interruptible shippers. Interruptible shippers, by
definition, take the risk that their service will be interrupted if
firm shippers choose to use their capacity.
In Order No. 636, the Commission did not require pipelines to
provide intra-day nomination opportunities and, therefore, did not
address the intra-day priority issue in that rule. In the Order No. 636
restructuring proceedings, some pipelines were continuing or proposing
to add intra-day nomination opportunities. The Commission allowed them
to do so and also permitted those pipelines to continue tariff
provisions under which scheduled interruptible nominations would not be
bumped by firm intra-day nominations.
However, as intra-day nominations became more prevalent, the
Commission's policy changed and it began to require that intra-day
nominations conform to its general policy giving firm service priority
over interruptible service.26 Thus, the Commission found
that firm service intra-day nominations should be entitled to bump
scheduled interruptible service. The Commission, however, concluded
that interruptible shippers should receive notice of their rescheduled
quantities and an opportunity to renominate.27 The
Commission also determined that bumped interruptible shippers should
not be subject to penalties directly related to the bump on the day on
which the bump takes place.28
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\26\ See Tennessee Gas Pipeline Company, 73 FERC para. 61,158,
at 61,456 (1995).
\27\ Id.
\28\Id. (daily variance charge waived, but only for the day on
which the bump takes place).
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When Order No. 587 required all pipelines to implement at least one
intra-day nomination, the Commission determined that those pipelines
filing to institute intra-day nominations on their systems had to
follow the general policy on service priority and permit firm intra-day
nominations to bump scheduled interruptible service upon reasonable
notice.29 On those pipelines with pre-Order No. 587 tariff
provisions that prohibited bumping of interruptible service, the
Commission permitted the no-bump provisions to stand, because the
pipeline filings were strictly compliance filings, and the Order No.
587 standards did not address the priority issue for intra-day
nominations.30
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\29\ See El Paso Natural Gas Company, 77 FERC para. 61,176
(1996); Alabama-Tennessee Natural Gas Company, 79 FERC para. 61,117
(1997); Algonquin Gas Transmission Company, 78 FERC para. 61,281
(1997); ANR Pipeline Company, 78 FERC para. 61,142 (1997); Arkansas-
Western Pipeline Company, 78 FERC para. 61,250 (1997); Canyon Creek
Compression Company, 78 FERC para. 61,003 (1997); CNG Transmission
Corporation, 78 FERC para. 61,131 (1997); Great Lakes Gas
Transmission Limited Partnership, 79 FERC para. 61,194 (1997);
Iroquois Gas Transmission System, L.P., 79 FERC para. 61,196 (1997);
K N Interstate Gas Transmission Company, 79 FERC para. 61,208
(1997); Mojave Pipeline Company, 78 FERC para. 61,153 (1997);
National Fuel Gas Supply Corporation, 78 FERC para. 61,332 (1997);
NorAm Gas Transmission Company, 79 FERC para. 61,069 (1997);
Overthrust Pipeline Company, 78 FERC para. 61,285 (1997); Questar
Pipeline Company, 78 FERC para. 61,305 (1997); Southern Natural Gas
Company, 78 FERC para. 61,125 (1997); Texas Gas Transmission
Corporation, 79 FERC para. 61,175 (1997); Trailblazer Pipeline
Company, 77 FERC para. 61,328 (1996); Viking Gas Transmission
Company, 78 FERC para. 61,243 (1997); Young Gas Storage Company,
Ltd., 79 FERC para. 61,030 (1997).
\30\ See Transwestern Pipeline Company, 78 FERC para. 61,146
(1997); Florida Gas Transmission Company, 77 FERC para. 61,177
(1996).
---------------------------------------------------------------------------
(2) GISB deliberations on intra-day nominations. In Order No. 587-
C, the Commission recognized that the divergent ways in which pipelines
had implemented the intra-day nomination requirements prevented
shippers from coordinating their intra-day nominations across
interconnecting pipelines. The Commission requested that GISB provide
recommendations as to standards for coordinating intra-day nominations
by September 1, 1997.
In its September 2, 1997 filing, GISB reported that it had been
able to reach certain agreements on intra-day issues; for example, it
submitted a proposed schedule establishing three synchronization times
when shippers could coordinate their intra-day nominations: 6 p.m. (to
take effect on the next gas day), and 10 a.m. and 5 p.m. to take effect
on the same gas day.
[GRAPHIC] [TIFF OMITTED] TR23AP98.004
GISB reported, however, that it had been unable to resolve certain
policy issues, principally whether, and under what circumstances,
intra-day nominations by firm shippers could bump or displace
previously scheduled interruptible service. Interruptible shippers did
not want their service to be disrupted, while firm shippers argued that
their payment of reservation charges entitled them to nomination
priority over interruptible service.
According to GISB's March 23, 1998 filing, it has approved the
intra-day synchronization schedule and, in addition, has passed 18 new
or revised intra-day nomination standards. The approved standards,
however, do not resolve the bumping question. If the Commission
determines to require bumping in this rule, the standards do not
resolve the question of when a firm intra-day nomination submitted on
the day prior to gas flow (6 p.m.) and which bumps interruptible
service would take effect. The standards leave that date to be
determined by the Commission in this rule.
(3) NOPR proposals. In the November 12, 1997 NOPR, the Commission
agreed
[[Page 20077]]
that the three intra-day nomination times established by GISB would
significantly improve shippers' ability to coordinate intra-day
nominations. The Commission sought to achieve greater coordination in
intra-day scheduling by resolving the dispute within GISB over bumping
of interruptible service. The Commission proposed to follow its current
policy and require pipelines to provide for firm intra-day nominations
to bump scheduled interruptible service. The Commission also required
that an interruptible shipper be given notice that its scheduled
volumes would be reduced.
While not proposing a regulation, the Commission sought to resolve
the dispute at GISB over the time at which an intra-day nomination
submitted at 6 p.m. (on the day prior to gas flow) which bumps an
interruptible shipper can take effect. The Commission concluded that
the firm intra-day nomination should take effect at the start of gas
flow at 9 a.m., rather than at 5 p.m. the next day, as suggested by
interruptible shippers. The Commission reasoned that firm shippers pay
for their service priority and have the right for their intra-day
nomination to take effect as soon as possible. In addition, in
accordance with the report from the GISB intra-day nomination task
force, the Commission stated that those pipelines permitting three
intra-day nomination opportunities could submit a request to exempt the
last intra-day nomination opportunity from the bumping rule. Providing
a final no-bump opportunity, the Commission reasoned, would provide
stability to the nomination process.
The Commission will first address the comments on its proposal to
permit firm intra-day nominations to bump scheduled interruptible
service. The Commission will then address several related issues: the
imposition of penalties on bumped interruptible shippers, the provision
of an overnight rescheduling opportunity, the relative priority of firm
primary and firm secondary service, and the effect of its intra-day
standards on pipelines employing a rolling or continuous intra-day
process.
b. Bumping. (1) Comments. Most commenters agree with the Commission
that industry-wide coordination of intra-day nominations is
needed,31 although a few contend that issue should be
addressed on a pipeline specific basis.32 And, a large
majority of the commenters support the Commission's decision that firm
intra-day nominations should bump interruptible, at least under some
circumstances.33
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\31\ Comments by AGA, Altra, Burlington, Centra Manitoba,
Columbia Gas/Columbia Gulf, ECT, Indicated End Users, K N Interstate
Group, National Fuel Distribution, NGC, NGSA, Nicor Gas, Pan
Alberta, Peoples/North Shore, PG&E, Piedmont.
\32\ Comments by Koch, NWIGU, Viking, Williston Basin.
\33\ Comments by Burlington, Cascade, Centra Manitoba, Columbia
Gas/Columbia Gulf, ECT, Engage, Florida Cities, FPL, Indicated End
Users, INGAA, MCV, Minnegasco, Mississippi Distributors, MoPSC,
MLGW, National Fuel Distribution, NGC, NGSA, NGPL, Pan Alberta, PGC,
et al., PGT, Peoples/North Shore, PG&E, Piedmont, ProEnergy,
ProLiance, SGPC, SoCal Gas/SDG&E, TVA. But see comments by Enron, K
N Interstate Group, Koch, Viking, Williston Basin (opposing
bumping).
---------------------------------------------------------------------------
The major area of disagreement is how to implement the bumping
requirement given the intra-day schedule proposed by GISB. NGC, NGSA,
ProEnergy, Columbia Gas/Columbia Gulf take issue with the Commission's
determination that a firm shipper should be permitted to submit a
nomination at 6 p.m. (on the day prior to gas flow) to become effective
at 9 a.m. (the beginning of gas flow). They contend that permitting the
6 p.m. bump would decrease the value and certainty of interruptible
service. Since the interruptible shipper will not be notified of the
bump until after normal working hours, they assert, the shipper will
not know it has been bumped until the next morning and will have no
opportunity to renominate. NGSA is concerned that bumping at 9 a.m.,
without a renomination opportunity before the bump takes effect, could
result in an unplanned shut-in of gas.34 Rather than a 9
a.m. effective time, these four parties contend the Commission should
establish that the 6 p.m. intra-day nomination becomes effective at 5
p.m. the next day so that interruptible shippers will have an
opportunity to renominate.
---------------------------------------------------------------------------
\34\ These parties also note that firm shippers wanting greater
flexibility in nominations can subscribe to no-notice service.
---------------------------------------------------------------------------
Taking a different tack, PGT and Pan Alberta do not object to the
timing of the 6 p.m. nomination, but contend that no bumping should be
permitted after gas starts to flow. They argue that permitting bumping
of flowing gas will devalue interruptible service and create logistical
difficulties for market participants by complicating the balancing
process and requiring last minute adjustments to marketing plans. They
further contend that permitting bumping after gas flows is inconsistent
with the Canadian practice, which will cause interconnection problems.
Firm shippers, on the other hand, support the Commission's proposal
that firm intra-day nominations should bump interruptible service both
on the day prior to the gas day and on the gas day itself. They
particularly support the Commission's proposal that a firm intra-day
nomination at 6 p.m. will take effect at 9 a.m.35 They
contend that their payment of reservation charges entitles them to such
priority and that, if they nominate on the day prior to gas flow, that
nomination should be effective at the start of gas flow, rather than
eight hours later. Indicated End Users argue that delaying the bump
from 9 a.m. until 5 p.m. essentially provides interruptible shippers
with eight hours of firm service while degrading the value of firm
service. Such a result, it asserts, is particularly inappropriate since
bumping occurs only on pipelines with no excess capacity, where firm
service is accordingly extremely valuable.
---------------------------------------------------------------------------
\35\ Comments by Indicated End Users, Mississippi Distributors,
National Fuel Distribution, PGC, et al., SoCal Gas/SDG&E, TVA.
---------------------------------------------------------------------------
(2) Commission determination. The Commission has determined that
intra-day nominations for firm capacity should be given scheduling
priority over scheduled and flowing interruptible service. The vast
majority of the comments support this regulation, and the regulation is
consistent with the priority rights to which firm shippers are
legitimately entitled. This issue cannot be left to individual
determinations on a pipeline specific basis, as suggested by Koch,
NWIGU, Viking, and Williston Basin. Continuation of the current
bifurcated system is inconsistent with the creation of an integrated
pipeline grid and would effectively reduce the effectiveness of firm
shippers' intra-day nominations on the majority of pipelines that
permit bumping. A firm shipper nominating gas across multiple pipelines
needs to be able to coordinate its intra-day nominations. Under the
present system, if even one pipeline in its nomination chain has a no-
bump rule, the shipper may be unable to have its entire chain of intra-
day nominations confirmed. Thus, a single approach to bumping is
necessary to integrate the pipeline grid.
With respect to the principal disputed issue--the effective time of
an intra-day nomination submitted on the day prior to gas flow (the 6
p.m. intra-day nomination under the GISB schedule)--the Commission
finds that the intra-day nomination should become effective at the
start of the gas day at 9 a.m., and will amend its regulations to make
clear that an intra-day nomination submitted on the day prior to gas
flow will take effect at the start of the gas day.
Firm shippers are paying reservation charges for priority rights
and those
[[Page 20078]]
rights should include the right to have a nomination become effective
as early as possible on the gas day following the nomination.
Interruptible shippers voluntarily take the risk that their service
will be interrupted and while they are entitled to advance notice of
such interruption, they should not be able to prevent firm shippers
from having their nominations take effect at the earliest possible
time. Gas flows on the interstate grid 24-hours a day, and is consumed
throughout the day, so interruptible shippers need to be prepared to
adjust gas volumes even during non-business hours. The interruptible
shippers will receive sufficient advance notice (approximately 11
hours) to reduce flows if necessary. They will still have the two
additional intra-day opportunities during the gas day (the 10 a.m. and
5 p.m. intra-day opportunities) to reschedule their gas. And,
interruptible shippers have the tools, such as pooling, gas package
identifiers, and ranking, that they can use to manage their gas
supplies in the event of bump.36 If interruptible shippers
still find the bumping risk unacceptable, they have the opportunity to
obtain firm capacity either from the pipeline or through the capacity
release system.
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\36\ 18 CFR 284.10(b)(1)(i) (1997), Nominations Related
Standards 1.3.18, 1.3.23, 1.3.24. See text accompanying notes 100
and 93, infra. Pooling together with ranking permit shippers to
designate which supplies or markets should be cut first in the event
scheduled volumes are reduced. Thus, producers can rank those supply
sources where volumes can be changed most easily as the first to be
cut in the event of a bump.
---------------------------------------------------------------------------
While the commenters contend that bumping creates the risk that gas
will be shut-in without an opportunity to reschedule, that could occur
under the existing system as well. During the regular scheduling
process, an interruptible shipper takes a risk that a firm nomination
may result in a reduction in or termination of its flow from one day to
the next, a change that must take effect at 9 a.m. in the morning.
Prior to Order No. 587, many pipelines provided no opportunity for the
interruptible shipper to reschedule that gas prior to having to
implement the reduced flow. Even after Order No. 587, many pipelines do
not provide an intra-day scheduling opportunity prior to the start of
the gas day in which case the interruptible shippers are unable to
reschedule gas prior to the beginning of gas flow. Indeed,
interruptible shippers are better off in many ways under the new
regulation, than they were prior to the expansion of the intra-day
nomination process. Before adoption of multiple intra-day nominations,
interruptible shippers could have their volumes reduced with no
opportunity to renominate that gas, while under the multiple intra-day
nomination schedule, interruptible shippers bumped by a 6 p.m. intra-
day nomination will still have two opportunities to reschedule gas on
an industry-wide basis (the 10 a.m. and 5 p.m. intra-day
opportunities).
The Commission will follow the GISB consensus and permit pipelines
with three intra-day nomination opportunities to exempt the last intra-
day opportunity from bumping. Both firm and interruptible shippers
support GISB's and the Commission's proposal that no bumping should
take place at the third intra-day nomination opportunity.\37\ Local
distribution companies (LDCs) contend that allowing bumping at the
third opportunity would interfere with their efforts to manage their
own systems. A few commenters contend that making the third intra-day
opportunity non-bumping is inconsistent with the priority to which firm
service is entitled.\38\ The Commission, however, agrees with the
consensus of the GISB members that making the third intra-day
nomination non-bumping creates a fair balance between firm shippers,
who will have had two opportunities to reschedule their gas, and
interruptible shippers and will provide some necessary stability in the
nomination system, so that shippers can be confident by mid-afternoon
that they will receive their scheduled flows.
---------------------------------------------------------------------------
\37\ Comments by Burlington, Engage, INGAA, NGSA, Nicor Gas
Peoples/North Shore.
\38\ Comments by Cascade, TVA.
---------------------------------------------------------------------------
c. Penalties for bumped interruptible shippers. In Tennessee Gas
Pipeline Company,\39\ the Commission permitted the pipeline to
implement a tariff provision under which firm intra-day nominations
bumped scheduled interruptible gas, but waived the pipeline's daily
variance penalty for bumped interruptible shippers on the day of the
bump. Referring to this decision, the Commission, in the NOPR, stated
that pipelines filing to implement the regulation giving firm intra-day
nominations priority over scheduled interruptible gas should consider
whether bumped interruptible shippers should be exempt from certain
penalties on the day of the bump.
---------------------------------------------------------------------------
\39\ 73 FERC para. 61,158, at 61,456 (1995).
---------------------------------------------------------------------------
Pipelines as well as some shippers contend that the pipelines must
be able to assess penalties against interruptible shippers or else
shippers will have no incentive to comply with the bump and the
pipelines' management of their system will be jeopardized.\40\ Columbia
Gas/Columbia Gulf maintain that penalties should be waived only if the
interruptible shipper conforms its flow to the rescheduled volumes. The
pipelines contend that they do not have the system flexibility to
permit overuse of capacity even on a single day.\41\
---------------------------------------------------------------------------
\40\ Comments by Enron, INGAA, NGPL, Nicor Gas, NGT/MRT,
Southern, TransCapacity, Cascade.
\41\ See comments by INGAA, Enron, NGPL, Southern.
---------------------------------------------------------------------------
Shippers maintain that penalties should be waived for bumped
interruptible shippers.\42\ They contend that interruptible shippers
should not be subject to penalties when the shipper is unable to
reschedule gas and may not be able to get a point operator to change
physical volumes. NGC maintains the Commission should not just consider
waiving penalties, but affirmatively adopt a rule that no penalties can
be assessed on bumped shippers.
---------------------------------------------------------------------------
\42\ Comments by ECT, FPL, National Fuel Distribution, NGC,
NGSA, PGC, et al.
---------------------------------------------------------------------------
Given the variety of penalty provisions in pipeline tariffs, the
waiver of penalties for bumped shippers will have to be considered when
pipelines make compliance filings. The Commission will set forth below
some general principles for assessing when pipelines should waive
penalties for bumped interruptible shippers. No penalties should be
imposed on bumped shippers if the pipeline fails to provide appropriate
notice of a bump. Once notified, shippers are expected to make a good
faith effort to adjust their flows to conform to revised scheduling
volumes. But the Commission recognizes that in some cases the shortened
notice period for intra-day nominations (three hours under the GISB
timeline) may make such adjustments difficult. As in Tennessee,
therefore, pipelines should waive non-critical penalties, such as daily
scheduling or variance penalties, for the day of the bump. But these
penalties would be waived only for the day of the bump; interruptible
shippers should remain responsible for the excess gas put on the system
and would be subject to all penalties in subsequent days resulting from
the excess gas.
The Commission also recognizes the pipelines' need to maintain
control of their systems in critical situations, when they invoke
operational flow orders. In these cases, bumped interruptible shippers
may not be entitled to special treatment on penalties, because, when
OFOs are in effect, the pipelines are less likely to be able to absorb
extra gas on their systems and all shippers may have difficulty
adjusting to the OFO. Waiving penalties for bumped interruptible
[[Page 20079]]
shippers in critical situations, therefore, could come at the expense
of reduced service or increased penalties on other shippers. The
Commission, however, expects pipelines to comply with the principle
embodied in standard 1.1.14 which provides:
where a nomination is required by the service provider to make an
effective physical change necessary to comply with an Operational
Flow Order, unless critical circumstances dictate otherwise, an
Operational Flow Order penalty should not be assessed unless the
shipper is given the opportunity to correct the circumstance giving
rise to the Operational Flow Order and fails to do so or the
action(s) taken fails to do so. The opportunity to correct the
critical circumstance should include the opportunity to:
(a) Make a nomination, which, once confirmed and scheduled would
cure the circumstance giving rise to the Operational Flow Order, or
(b) Take other appropriate action which cures the circumstance
giving rise to the Operational Flow Order.\43\
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\43\ 18 CFR 284.10(b)(1)(i) (1997), Nominations Related
Standards 1.1.14.
For instance, under this principle, where an OFO would require an
interruptible shipper (which is bumped by a firm service intra-day
nomination at 6 p.m. the day prior to gas flow) to make a nomination to
effect a physical change to comply with the OFO, the pipeline should
afford the interruptible shipper the opportunity to make a new intra-
day nomination at the next intra-day nomination opportunity (10 a.m.)
to cure the circumstance giving rise to the OFO. If the interruptible
shipper can make such a change, no OFO penalties should be charged for
the period between 9 a.m. and 5 p.m. when the interruptible shipper's
10 a.m. intra-day nomination would take effect. However, if the
interruptible shipper is unable to cure the OFO at the 10 a.m. intra-
day nomination opportunity all applicable OFO penalties would apply.
These principles appear to strike a fair balance between the
operational needs of the pipelines and the protection of shippers.
When pipelines file to implement the regulations, the Commission
will consider whether pipelines should waive specific penalties for
bumped interruptible shippers. Section 284.10(c)(1)(i)(A) also requires
pipelines to notify bumped interruptible shippers if penalties for
overrunning their scheduled quantities will apply on the day of the
bump.
d. Other Issues. (1) Overnight rescheduling opportunity. In the
NOPR, the Commission decided not to propose a regulation requiring
pipelines to provide an overnight rescheduling opportunity for
interruptible shippers which are bumped. PGC, et al., contend that the
Commission should require pipelines to permit interruptible shippers to
renominate bumped supply overnight. NGPL, on the other hand, contends
that pipelines cannot provide overnight renominations, because
confirmation of these nominations could not take place in the evening
and early morning.
Pipelines wishing to provide greater certainty to interruptible
shippers may provide an overnight opportunity for interruptible
shippers to reschedule bumped gas. However, the Commission agrees with
NGPL that given the confirmation difficulties occasioned by overnight
rescheduling, pipelines should not be required to provide such a
service. The 11 hour advance notice to interruptible shippers and the
interruptible shippers' ability to renominate at the 10 a.m. intra-day
opportunity provides sufficient protection to interruptible shippers.
(2) Priority of firm capacity to primary and secondary points. In
the NOPR, the Commission restated its policy that, once scheduled,
intra-day nominations for firm service to primary receipt or delivery
points do not bump previously scheduled firm capacity to secondary
points. ECT, K N Interstate Group, and NWIGU support the current policy
that intra-day nominations to firm primary points do not bump already
scheduled gas at secondary points. ECT and NWIGU maintain that giving
firm primary and secondary points firm priority is necessary for the
capacity release process to work efficiently. On the other hand, MGE
and NGT/MRT contend the Commission should change the policy to give
intra-day nominations to firm primary points priority over previously
scheduled firm capacity at secondary points. They assert that firm
shippers pay for such primary point rights. Cascade maintains that
Commission policies permitting exceptions to priority rules need to be
reconsidered as the industry moves to a more continuous and contiguous
scheduling system under which the pipelines may reschedule the entire
system more frequently than once a day. Koch, PG&E, and SoCal Gas/SDG&E
request clarification that the Commission's statements of priority
regarding the impact of intra-day nominations on scheduled service to
firm secondary points do not affect specific resolution of priority
issues with respect to the Koch and El Paso pipelines.
At this time, the Commission will not adopt a regulation requiring
pipelines to revise existing tariff priorities relative to the rights
of intra-day nominations to firm primary points to affect scheduled
volumes to firm secondary points. Given the potential effects of
changing the priority rules relating to intra-day nominations to
secondary points, such as potentially reducing the ability of shippers
to obtain released capacity and to use that capacity at secondary
points, changes in priority rules require additional consideration by
the Commission and the industry.
(3) Pipelines processing intra-day nominations on a continuous or
rolling basis. Some pipelines currently process intra-day nominations
on a continuous or rolling basis permitting the shipper to choose when
to submit its intra-day nomination. Others use a batch process in which
all intra-day nominations are processed at the same time.
CNG, Enron, Nicor Gas, Peoples/North Shore, Southern, and
TransCapacity contend that pipelines should be able to revise their
prior continuous intra-day nomination procedures to conform to the GISB
batch schedule. CNG maintains that pipelines should not be held to
prior intra-day schedules based on different operating assumptions. CNG
and Enron maintain that changing to a batch process should not be
deemed a degradation of service. Peoples/North Shore and Nicor Gas
maintain that continuous processing complicates LDCs' supply planning
because they have to make operational changes throughout the gas day.
AGA, on the other hand, is concerned that pipelines currently
offering continuous service should not be able to unnecessarily degrade
their services by changing to the batch process. While Peoples/North
Shore support the batch process, they argue that pipelines offering
special services with more than the required number of intra-day
opportunities should not be able to reduce those to the standard three.
Adoption of the three synchronization times is not necessarily
inconsistent with continuous intra-day processing, since the shipper
can simply choose whether to time its nominations to achieve synchrony
with other pipelines. However, if a pipeline finds that continuation of
the continuous process will disrupt its system, it should be able to
change its procedures to conform to the industry standards. The
efficiency gained by the entire industry in being able to coordinate
nominations across the pipeline grid outweighs any potential diminution
of service resulting solely from the change in the method of processing
the nominations. Pipelines, however, should not use the change to batch
processing to reduce the number of intra-day opportunities to which
[[Page 20080]]
shippers are entitled. Although these additional intra-day
opportunities are not coordinated across pipelines, they still provide
shippers with benefits, particularly to those shippers revising storage
or other nominations that do not need to be coordinated with
nominations on other pipelines.
3. Regulation Requiring Pipelines To Enter Into Operational Balancing
Agreements
In Sec. 284.10(c)(2)(i), the Commission is adopting a regulation
requiring each interstate pipeline to enter into an Operational
Balancing Agreements at all points of interconnection between its
system and the system of another interstate or intrastate pipeline.
a. Background. An operational balancing agreement (OBA) is a
contract between two physically interconnected parties specifying the
procedures to be used in processing imbalances or differences in hourly
flows between the parties. GISB passed a standard requiring pipelines
to enter into OBAs at all interstate and intrastate pipeline
interconnects where economically and operationally feasible. In Order
No. 587-C, the Commission declined to adopt this standard, finding the
phrase economically and operationally feasible too vague to define
pipeline obligations. In the NOPR, the Commission proposed to require
interstate pipelines to enter into OBAs with all interconnecting
interstate and intrastate pipelines.
b. Adoption of the regulation. Almost all the commenters either
support the regulation or do not oppose it. INGAA and some of the
pipelines suggest the regulation is not needed since OBAs already exist
at over 91% of interconnects between interstate pipelines. Enron
contends that, instead of mandating that pipelines enter into OBAs, the
Commission should adopt a regulation prohibiting pipelines from
enacting tariff provisions that inhibit the use of OBAs at interconnect
points.
The Commission concludes the regulation is needed. As the
commenters point out, OBAs have increased the efficiency and
reliability of the pipeline grid. An OBA ensures that a shipper, once
it has properly nominated and had its gas confirmed, will not be
subjected to imbalance penalties resulting from the transfer of gas
between the pipelines. Enron's suggestion that the Commission limit the
regulation to one that merely prohibits pipelines from adopting tariff
provisions inhibiting the development of OBAs does not go far enough,
because it imposes no affirmative obligation on the pipelines to enter
into OBAs.
Other issues raised by the comments will be discussed below.
c. Definition of intrastate pipeline. Section 284.10(c)(2)(i)
requires interstate pipelines to enter into OBAs at all interstate and
intrastate pipeline interconnects. The comments principally concern the
scope of the term intrastate pipeline. The pipelines contend it should
be limited to intrastate pipelines only (defined by Koch as those with
transmission facilities that do not cross state lines) and should not
include gatherers and LDCs.44 ANR/CIG contend it should
include only intrastate pipelines regulated by the Commission which
would obviate the possibility that interstate pipelines would have to
file for waivers if they cannot negotiate an acceptable OBA with an
unregulated entity. The pipelines argue that expanding the requirement
to gatherers and LDCs would be too burdensome, particularly if they had
to file for a waiver every time they could not negotiate an acceptable
agreement.
---------------------------------------------------------------------------
\44\ Comments by ANR/CIG, Enron, INGAA, Koch, National Fuel
Distribution, SGPC, Williston Basin.
---------------------------------------------------------------------------
TransCapacity and PGC, et al., assert the requirement should extend
to all interconnect points where nominations need to be confirmed with
multiple parties behind the point, specifically including interconnects
with LDCs and gatherers. TransCapacity contends that the burden of
including these points is minimal if GISB develops a model OBA.
The proposed regulation uses the term intrastate pipeline, as
contained in the original GISB formulation. The term intrastate
pipeline should apply to pipelines providing transmission services, as
opposed to gathering or local distribution functions. To aid in
identifying those pipelines to which the regulation applies, the term
will apply to all pipelines performing interstate transportation that
are subject to the Commission's regulations under Subparts C and G of
Part 284.45 As National Fuel Distribution suggests, this
constitutes a good beginning, but, after experience is gained,
consideration should be given to expanding the definition so that
interstate pipelines will be expected to negotiate OBAS with all those
transporting gas for others, such as gatherers and LDCs.
---------------------------------------------------------------------------
\45\ 18 CFR 284.121-126; 18 CFR 284.224.
---------------------------------------------------------------------------
As ANR/CIG suggest, since the requirement applies only to OBAs
between interstate pipelines and intrastate pipelines regulated by the
Commission, pipelines have no need to file for waivers. While the
Commission expects that interconnecting parties will be able to
negotiate acceptable OBA conditions, if an intractable dispute should
arise, they can submit the dispute to the Commission for resolution.
d. Date by which pipelines must execute OBAs. Enron questions
whether pipelines can be expected to enter into an OBA by a date
certain, while NGC contends the Commission needs to set an outside date
by which the OBA process must be completed. The Commission recognizes
that pipelines must be given some time to negotiate and enter into OBAs
and, therefore, would expect that pipelines should be able to complete
the OBA process within three months after the Commission adopts final
regulations governing OBAs.
e. Requirement to make OBA contracts available. NGPL objects to the
requirement that pipelines maintain OBAs and provide them to requesting
parties, asserting the Commission has offered no justification for the
requirement. NGPL would not object to posting the OBA operator and the
points covered by the OBA. PG&E contends OBAs are proprietary contracts
and should be filed under seal. SoCal Gas/SDG&E and TransCapacity
maintain OBAs must be publicly available.
Section 4 of the Natural Gas Act requires that pipelines:
file * * * and shall keep open in convenient form and place for
public inspection, schedules showing all rates and charges for any
transportation or sale * * * and the classifications, practices, and
regulations affecting such rates and charges, together with all
contracts which in any manner affect or relate to such rates,
charges, classifications, and services.
Since OBAs are contracts relating to the provision of transportation
service, they are jurisdictional. The Commission, however, has not
required pipelines to file OBAs with the Commission.46
Instead, pipelines must make them available, along with all relevant
records of volumes and amounts paid under OBAS, to the Commission and
any person requesting copies.
---------------------------------------------------------------------------
\46\ See Transcontinental Gas Pipe Line Corporation, 65 FERC
para. 61,315, at 62,437 (1994) (although OBAs are jurisdictional,
filing is unnecessary if copies are made available by the pipeline).
---------------------------------------------------------------------------
f. Development of a standard OBA and other issues relating to
negotiation and implementation of OBAs. Several commenters contend that
GISB should develop a standard OBA and pipelines should be required to
accept the standard OBA.47 A standard OBA, they assert, will
reduce the burden of having to individually negotiate OBA terms in
[[Page 20081]]
every instance. The pipelines oppose a requirement that they adhere to
a standard OBA, because, they assert, an OBA needs to deal with issues
specific to the interconnected parties.48
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\47\ Comments by NGC, SoCal Gas/SDG&E, TransCapacity.
\48\ Comments by CNG, INGAA, K N Interstate Group.
---------------------------------------------------------------------------
Development of a standard OBA would be of significant value in
setting forth terms that are reasonably fair to both parties, and GISB
should work on developing such a contract. Pipelines, however, would
not have to agree to the standard OBA if its terms are inapplicable in
a particular situation.
Pipelines raise questions about negotiation and implementation of
OBAs. El Paso seeks clarification that it can insist on inclusion of
certain necessary terms, such as creditworthiness guarantees and other
assurances of performance. K N Interstate Group, Koch, and NGPL ask if
pipelines can terminate OBAs for non-performance. NGT/MRT ask whether
pipelines can reject OBAs, without filing for a waiver, where the OBA
would inhibit pipeline operations. SGPC raises concerns about having to
enter into unreasonable terms and conditions with unregulated entities,
such as gatherers.
Pipelines can insist that OBAs contain reasonable terms that are
standard in the industry. Development of a standard OBA would provide a
benchmark for comparison. Based on the history of OBAs, the Commission
does not expect numerous cases in which parties fail to perform.
However, pipelines would have a right to terminate an OBA for
substantial, consistent non-performance, but must do so in a non-
discriminatory fashion and should make every effort to work out any
difficulties with the other contracting party.
Pipelines cannot unilaterally decide not to enter into an OBA with
an interconnecting pipeline. As discussed previously, interstate
pipelines must enter into OBAs only with intrastate pipelines regulated
by the Commission. Any disputes over OBA terms and conditions between
interconnected parties can be submitted to the Commission for
resolution.
NGSA argues the OBA regulation should be expanded to require the
downstream party to adhere to the pre-determined allocations of the
upstream party. Without such a requirement, it claims the OBA cannot
properly allocate volumes to the appropriate downstream customer when
capacity is scarce.
The Commission, at this time, does not have sufficient information
to impose this as a requirement for all OBAs. As NGSA recognizes, this
issue is related to the question of how to handle multi-tiered
allocations on which GISB will be developing standards by the fourth
quarter of 1998. GISB should consider how to handle upstream and
downstream pre-determined allocations when it considers the issues
relating to a standard OBA and multi-tiered allocations.
4. Regulation Requiring Pipelines To Net Imbalances and Permit
Imbalance Trading
In Sec. 284.10(c)(2)(ii), the Commission is requiring pipelines to
permit shippers (including agents) to offset imbalances on different
contracts held by the shipper and to trade imbalances with other
shippers so long as the imbalances have similar operational impact on
the pipeline. In their filings to comply with this regulation, each
pipeline must delineate the largest operational area in which
imbalances can be traded without affecting system operations. Pipelines
also will be expected to propose procedures governing the method by
which they will post and process imbalance trades provided to them by
shippers or shippers' agents, including third-party firms that would
conduct imbalance trading for shippers. GISB is examining standards to
make the posting and processing of imbalance trades more uniform and
efficient, and the Commission will defer implementation of the
imbalance trading requirement until after approval of standards
governing imbalance trading, which are due to be filed on June 30, 1998
according to GISB's 1998 Annual Plan.
Under the regulation, pipelines are not required to establish a
computerized system on which trading would take place, although they
would be free to establish such a system and to assess a separate fee
for using that system. If a pipeline does establish its own trading
system, it must provide equal and non-discriminatory access for
shippers trading their own imbalances or those using third-party
services.
The Commission will address below the comments dealing with the
adoption of the requirement itself and the operational details.
a. Adoption of imbalance trading. Most of the comments favor or do
not oppose the imposition of imbalance trading.49 Those
supporting imbalance trading contend that it is needed to offset the
tightened balancing tolerances, increased penalties, and gas forfeiture
provisions implemented by pipelines.
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\49\ Comments by Altra, Burlington, ECT, Engage, INGAA, K N
Interstate Group (pipelines account for imbalances differently and
pipelines should define operational impact), MoPSC, MGE, NGPL, NGC,
NGSA, Nicor Gas, Peoples/North Shore, PGC, et al., PG&E, ProEnergy,
ProLiance, SoCal Gas/SDG&E, TransCapacity.
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WGP and SGPC oppose the requirement, contending that permitting
imbalance trading could reduce financial incentives for shippers to
stay in balance. WGP also argues that if a pipeline accounts for
operational imbalances at the end of the month, a severe imbalance in
one direction at the beginning of the month would not be operationally
offset by a corresponding imbalance running the other way at the end of
the month.
Permitting shippers to trade imbalances in the same operational
area enables shippers to avoid imbalance charges without jeopardizing
system reliability. When individual shipper imbalances offset each
other, the pipeline as a whole is in balance. The Commission does not
agree with WGP and SGPC that imbalance trading will significantly
weaken shippers' incentives to stay in balance. As NGSA points out,
shippers are unlikely to allow large imbalances to accumulate, because
they run the risk that they will be subject to penalties if they are
unable to find a shipper with an offsetting imbalance with whom to
trade. For example, if one shipper has a financial incentive to
underdeliver gas, other shippers likely will have the same incentive
and all the imbalances will run in the same direction and be
untradable. Thus, imbalance trading will ensure that imbalance
penalties are linked more closely to operational integrity, so that
shippers are not penalized for imbalances that do not affect pipeline
operations.
WGP's example of imbalances occurring at different times of the
month appears to have little to do with imbalance trading. Currently, a
single shipper may run positive imbalances early in the month and
negative ones at the end of the month. Despite WGP's concern about
potential adverse operational affects on a daily basis, the shipper's
imbalances will offset each other by the end of the month, resulting in
no imbalance penalties. Thus, establishing imbalance trading on a
monthly basis will not change the relative operational impacts of
imbalances on a daily basis.
b. Operational details. Most of the commenters address operational
aspects of imbalance trading, such as whether imbalances can be traded
across rate schedules, the role of agents, and what services pipelines
are required to provide.
[[Page 20082]]
(1) Accommodating imbalance trading to system requirements. INGAA
argues that each pipeline should be able to accommodate imbalance
trading to the requirements of its system. The regulation does permit
each pipeline to structure imbalance trading to its system, because
pipelines need only permit imbalance trading in areas where the
imbalances have similar operational effect. When pipelines file to
comply with this requirement, they must define the largest possible
areas on their systems in which imbalances have similar operational
effect and explain why imbalances crossing those lines are not
sufficiently similar in operational effect.
(2) Trading across rate schedules or rate zones. Section
284.10(c)(2)(ii) requires pipelines to permit imbalance trades as long
as they have similar operational impact on the pipeline. Some of the
pipelines contend that further restrictions are appropriate. ANR/CIG,
El Paso, and NGPL contend imbalance trading should be limited to trades
within rates zones.
Whether imbalance trading should be permitted across rate zones
depends on the operational characteristics of the
pipeline.50 As stated earlier, each pipeline must delineate
in its compliance filing, the largest operational area in which
imbalances can be traded without affecting system operations.
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\50\ Trunkline Gas Company, 64 FERC para. 61,141, at 62,134
(1993) (denying request for netting of imbalances across rate zones
where the imbalance within each zone may have operational impact on
system operations).
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Other pipelines contend they should not have to permit imbalance
trades that affect transportation charges.51 El Paso
maintains a pipeline may lose revenue if imbalances on discounted
contracts are traded with those on full price contracts. Williston
Basin argues that imbalances should not be traded across different
contract classes, providing the following example. If a shipper has a
positive imbalance of 1,000 Dth under an interruptible contract
52 and trades that imbalance with a shipper that has a 1,000
Dth negative imbalance on a firm contract,53 Williston Basin
claims it would have received revenues only on 100 Dth at the higher
interruptible rate and revenues based on 1,100 Dth at the lower firm
commodity rate. Williston Basin contends that if the trade was between
interruptible contracts alone, it would receive revenues on 1,200 Dth
at the higher interruptible rate. (100 Dth for the shipper with the
positive imbalance and 1,100 Dth for the shipper with the negative
imbalance).
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\51\ Comments by Columbia Gas/Columbia Gulf, Enron, El Paso,
Williston Basin.
\52\ The shipper delivers 1,100 Dth into the system of which the
pipeline delivers only 100 Dth off the system.
\53\ The shipper delivers 100 Dth into the system and the
pipeline delivers 1,100 Dth off the system.
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Permitting pipelines to limit imbalance trading to contracts within
the same rate schedule would significantly reduce the efficacy of the
imbalance trading program and is unrelated to operational needs of the
pipeline. Trading would be restricted because shippers would not only
have to search out offsetting imbalances in the same operational area,
they would have to find offsetting imbalances under the same rate
schedule. Such a restriction on trading is unrelated to pipeline
operations since, regardless of the rate schedule under which the gas
is shipped, the pipeline is physically in balance so long as imbalances
net out.
The pipelines have not made clear how they lose transportation
revenue from imbalance trading across firm and interruptible or maximum
rate and discounted contracts.54 The Commission's policy is
to require pipelines to permit shippers to offset imbalances across
contracts under different rate schedules.55 If a pipeline
can document that such trading will cause a loss of transportation
revenue, the solution is not to restrict imbalance trading, but for the
pipeline to devise an appropriate mechanism to ensure that it is made
whole for all appropriate transportation charges.56
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\54\ In the example given by Williston Basin, the pipeline's
transportation revenues for the quantity of gas delivered for each
shipper appears the same with or without imbalance trading. The
pipeline delivers only 100 units of interruptible volume and charges
for the amount delivered. The only potential loss of revenue would
be from resolution of the imbalance through cash-out. Under
Commission policy, however, pipelines are not entitled to such
penalty revenue; such charges are imposed only to discourage conduct
inimical to the operations of the system.
\55\ See Panhandle Eastern Pipeline Company, 64 FERC para.
61,009, at 61,066 (1993); Trunkline Gas Company, 64 FERC para.
61,141, at 62,133 (1993); Algonquin Gas Transmission Company, 63
FERC para. 61,188, at 62,373 (1993).
\56\ See Panhandle Eastern Pipeline Company, 64 FERC para.
61,009, at 61,066 (1993).
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(3) Pipeline fees for providing imbalance trading services.
Commenters raise questions about the pipelines' ability to charge fees
for imbalance trading services. NGPL is uncertain which services
pipelines must provide and for which a fee can be charged. NGC contends
that pipelines with current imbalance trading programs should not be
able to charge a fee and that no fee should be charged for shippers
trading amongst themselves. CNG and Columbia Gas/Columbia Gulf contend
the pipelines should not post imbalances, but provide a space on their
EBB or web site for shippers to post imbalances. Altra is concerned
that pipelines may abuse the imbalance trading process by establishing
affiliates with preferential access to pipeline delivery and receipt
information. Altra further maintains pipelines should be precluded from
hosting the trading process, because it fears that allowing the
pipelines to participate in a rate-based environment would preclude
competitive markets from working most efficiently.
To clarify, pipelines will be required, without charging a separate
fee, to notify shippers of their imbalances and post imbalances
automatically if shippers provide pipelines with standing authority for
posting. Pipelines also should permit shippers the opportunity to post
their own imbalances in the same location. Pipelines also must process,
without charging a separate fee, imbalance trades submitted by shippers
or third-parties acting to facilitate imbalance trading.
The posting of imbalances will permit shippers to negotiate their
own trades. Pipelines also can set up an imbalance trading or auction
process by which shippers can arrange to trade imbalances and charge a
separate fee for this service. The Commission will not forbid pipelines
from hosting such an imbalance trading service, as Altra suggests,
since such a prohibition would limit potential competition. If
pipelines charge a separate fee for such a service, third-parties
providing a similar service should not be unduly disadvantaged.
Pipelines establishing such a system or dealing with an affiliate,
however, must act non-discriminatorily in processing imbalance trades
submitted by shippers or third-parties and comply with the Commission's
standards of conduct with respect to sharing of relevant information.
(4) Standards and procedures for trading imbalances. Commenters
raise questions about the procedures that pipelines should adopt to
facilitate netting of imbalances and imbalance trading.57
PG&E argues pipelines should file tariff changes to establish the
protocols for imbalance trading so shippers can comment.
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\57\ ECT argues pipelines should automatically offset imbalances
across a shipper's contracts. Enron argues that pipelines need to
establish practical parameters for trading such as setting a fixed
time frame for shippers to trade imbalances, keeping the pipeline
out of shipper trading negotiations and agreements, except to
process the resulting adjustments to the parties, and limiting
trading activity to the immediately preceding production month's
activity to avoid cross-month price arbitrage.
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[[Page 20083]]
As discussed earlier, the development of standards for processing
imbalance trading would make the process more efficient, and the
Commission, therefore, is deferring implementation of the imbalance
netting and trading requirement until after approval of standards
governing imbalance trading, which are due to be filed on June 30, 1998
according to GISB's 1998 Annual Plan. Pipelines will have to make
tariff filings to establish the parameters of their trading areas as
well as other aspects of their programs, if not covered by the
standards. At that time, shippers will have an opportunity to comment
on these provisions.
Enron and Koch raise questions about a statement in the NOPR that
shippers may be willing to put gas on a pipeline system for a fee in
order to resolve another shipper's imbalance. Koch maintains that
shippers should not be physically permitted to add or take away gas to
resolve historic imbalances. Enron requests clarification that
imbalance trading should reflect end of the month imbalances and not
daily incremental needs.
The Commission will clarify that the regulation relates to the
pipelines' current methods for accounting for imbalances and does not
require pipelines to institute daily imbalance procedures, if they are
not already present on the system. However, if a pipeline presently
imposes daily imbalance penalties, it should establish a means of
permitting shippers to trade those imbalances before assessing
penalties. The regulation also does not require pipelines to permit
shippers to add gas to the system at other than the normal scheduling
opportunities.
(5) Agents. The Commission has proposed to allow agents for
shippers to offset imbalances across contracts and to trade imbalances.
National Fuel Distribution contends that permitting agents to provide
an imbalance netting service will diminish pipelines' control of their
systems. Columbia Gas/Columbia Gulf contend that offset and trade
options should not be extended to shippers' agents unless they are
acting for the shipper. They contend agents do not have title to the
gas, but act only as a surrogate for nominating supplies and some
contracting activity. ProLiance argues that there is no reason to
exclude agents from imbalance netting or trading.
National Fuel Distribution does not explain why permitting agents
to participate in netting imbalances or trading imbalances will affect
pipelines' control of their systems. As long as imbalances offset each
other within the relevant operational area, there should be no negative
operational effects on the pipeline. In fact, since all shippers will
be able to trade imbalances, there is no reason why agents should not
be able to offset imbalances on the contracts they manage. Columbia
Gas/Columbia Gulf's concern with agents is similarly unclear. For
imbalance trading to work efficiently, pipelines must process imbalance
trades by those acting on behalf of shippers. A third-party, for
example, may establish a computerized service to facilitate imbalance
trades for shippers, and the pipeline will need to process the results
of those trades. Any issues with establishing the proper scope of
agency should be worked out between the pipeline, the third-party, and
the parties involved.
5. Electronic Communication Using the Internet
a. Background. For many years, pipelines have communicated with
their customers using direct dial up connections to pipeline Electronic
Bulletin Boards (EBBs). Each pipeline EBB is a proprietary system, with
unique software, log-on, and other procedures. The uniqueness of each
pipeline's EBB raises costs to those who ship across multiple
pipelines, since shippers must maintain redundant computers and
communication software and train their staff in the idiosyncracies of
each pipeline's system.
Creating greater standardization in electronic communication was
one of the first standardization tasks the Commission and GISB
undertook. The current communication system reflects a tripartite
approach. First, shippers can still use EBBs to conduct interactive
transactions with the pipelines and obtain information from the
pipelines.
Second, pipelines must permit shippers to conduct many of the
important business transactions in the industry, such as nominations,
flowing gas, invoicing, and capacity release, using datasets in ASC X12
electronic data interchange (EDI) format 58 transmitted over
the Internet. An EDI dataset is a highly structured or formatted method
of conducting computer-to-computer communication.59 To make
use of EDI over the Internet, the user must have its own Universal
Resource Locator (URL) address 60 and be able to translate
the formatted information into the report or display it desires. For
instance, a user could, if it wanted, translate the EDI information
into the same display it now receives from an EBB. Or, it could use the
EDI data to feed a more sophisticated gas management computer system.
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\58\ ASC X12 is a standardized format for electronic
transmission of documents. Standards for the use of such documents
are promulgated by the American National Standards Institute (ANSI)
Accredited Standards Committee (ASC).
\59\ An EDI dataset is analogous to a spread-sheet with each
block or location containing specific information that is then
processed by a computer. A computer program can translate from the
raw EDI data to whatever format or display the user wants.
\60\ To maintain a URL address, the user has to have its own
Internet server and establish a connection to the Internet.
---------------------------------------------------------------------------
Third, some information, such as pipeline tariffs, affiliate
information, and available capacity, that is posted on EBBs also is
posted on pipeline web sites.61 This information, however,
is not transactional, like a nomination, in which the shipper needs to
communicate with the pipeline; the information is posted on web sites
for shippers to read or to download.
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\61\ 18 CFR 284.10(b)(i)(iv) (1997), Electronic Delivery
Mechanism Related Standards 4.3.6.
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Although GISB's standards state that all current EBB transactions
should be achieved through one mode of communication,62 the
standards developed by GISB do not cover all transactions now conducted
electronically over EBBs. Pipelines are continuing to post information
and conduct many transactions on their proprietary EBBs.
---------------------------------------------------------------------------
\62\ 18 CFR 284.10(b)(1)(iv) 1997), Electronic Delivery
Mechanism Related Standards 4.3.6.
---------------------------------------------------------------------------
In Sec. 284.10(c)(3), the Commission is adopting a series of
regulations to standardize electronic communication, specifically
requiring pipelines to: post all information and conduct all business
transactions using the public Internet and internet protocols by June
1, 1999; adhere to specific standards in posting information on
pipeline web sites and in maintaining electronic records; and provide
shippers with notice of critical system events by using the Internet.
The Commission will discuss these requirements below.
b. Regulation requiring pipelines to conduct all transactions over
the Internet. In Sec. 284.10(c)(3)(i), the Commission is requiring
pipelines to provide all electronic information and conduct all
electronic transactions over the public Internet. The Commission
further is requiring pipelines to provide private networks with non-
discriminatory connections using internet tools, internet directory
services, and internet communication protocols upon payment of a
reasonable fee to recover the costs of providing such an
interconnection. The comments address both the Commission's proposed
use of the Internet to conduct all transactions and various aspects of
[[Page 20084]]
its implementation, which are discussed below.
(1) The requirement to use the internet to conduct transactions.
The commenters generally support the requirement to move transactions
to the Internet to establish a single, efficient mode of conducting
business with all pipelines.63 Only two commenters oppose
requiring pipelines to move all electronic communication to the
Internet. Koch argues that, rather than requiring that all transactions
be conducted over the Internet, the Commission should require pipelines
to conduct only basic, minimum transactions over the Internet, such as
the EDI transactions contained in Version 1.2 of the datasets.
Wisconsin Distributors contend that the Internet may not be reliable
enough and that pipelines must have back-up systems, such as EBBs,
available to avoid degradation of reliability.
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\63\ See comments by Altra, CNG, Duke Energy Interstate
Pipelines, ECT, Engage, Enron, Gaslantic, INGAA, K N Interstate
Group, Latitude, MGE, NGSA, Nicor Gas, PGC, et al., PG&E, Piedmont,
ProEnergy, SoCal Gas/SDG&E, Southern, TransCapacity.
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The Commission is adopting the requirement that all transactions
and information be conducted using the Internet, because, as the
majority of the comments recognize, moving to a single, standardized
mode of communication is necessary to achieve an efficient
communication system. GISB has considered the reliability and security
issues relating to the use of the Internet for conducting transactions
and concluded that these concerns can be met.64 Indeed, as
Wisconsin Distributors note, the Internet backbone itself is reliable;
most of the difficulties with Internet connections are the result of
problems with the Internet servers of the parties and not the Internet
itself, problems that can also affect pipeline EBBs.65
Pipelines, therefore, must make sure that they test their Internet
systems prior to implementation. Since problems with Internet
communications generally will result from problems with pipeline
servers or with the Internet Service Provider (ISP) used to connect the
pipeline's server to the Internet, GISB and the pipelines should
consider measures to ensure communication reliability, such as mirrored
(duplicate) servers and the use of a back-up ISP. Pipelines also may
keep their EBBs functional for one year after implementation of the
Internet system, solely as a back-up.
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\64\ K N Interstate Group states that no pipelines have
experienced difficulties with the Internet and that stocks and bonds
are traded over the Internet, reflecting the financial industry's
confidence in the security of the Internet.
\65\ The Internet is designed to maintain communication even if
portions of the network go down. What is now termed the Internet
initially was conceived during the cold war as a communication
method to maintain continuing transmission capability in the event
of nuclear war. The concept was to replace the point-to-point
networks, where each site on the network was dependent on the link
before it, with a web network, where information could find its own
path even if a section was destroyed. See e.g., Bruce Sterling,
Short History of the Internet, http://www.forthnet. gr/forthnet/
isoc/short.history.of.internet (Feb. 27, 1997). The more likely
eventuality, therefore, is an individual problem such as a pipeline
or customer's Internet service provider going down, just as in the
current EBB system a pipeline or customer's EBB computer can
malfunction.
---------------------------------------------------------------------------
Moving to the Internet is intended to eliminate the idiosyncracies
resulting from the EBB system. Thus, the goal of the regulation would
be defeated if, as Koch suggests, only some functions were moved to the
Internet, since shippers still would be forced to use the EBBs for
other transactions.
(2) Implementation of the regulation. (a) EDI v. interactive web
sites and the future of EBBs. The principal division between the
comments is over how the proposal is to be implemented and what will
happen to EBBs. Several commenters envision a system where the current
interactive EBBs will become interactive web sites.66 This
would mean that shippers would be able to conduct transactions in much
the same way they do today, by having a person type information on the
computer screen. NGSA argues that the standards should include both EDI
and an interactive web site.
---------------------------------------------------------------------------
\66\ Comments by Duke Energy Interstate Pipelines (migrate EBBs
to the Internet), NGSA (should require interactive web sites),
Southern (not sacrifice the ease of use of EBBs).
---------------------------------------------------------------------------
TransCapacity and Gaslantic contend that requiring pipelines to
provide interactive web sites fails to achieve the necessary
standardization. They contend that except for the few informational
components already required to be posted on web pages,67 all
transactions should be conducted through EDI dataset transactions.
TransCapacity asserts that an EDI solution would be far less expensive
for the pipelines to implement than an interactive web approach. It
maintains that GISB need only create a few more datasets to transfer
all EBB functions to EDI and that implementation of these datasets will
be relatively simple, since the infrastructure for transferring EDI
data already exists. Koch similarly urges that the requirement only
apply to EDI transactions. Requiring a dual EDI and interactive web-
based system, it asserts, is just as inefficient as the current dual
EDI and EBB system and pipelines would have to make substantial
investments to create an interactive web-based system.
---------------------------------------------------------------------------
\67\ 18 CFR 284.10(b)(1)(iv) (1997), Electronic Delivery
Mechanism Related Standards 4.3.6.
---------------------------------------------------------------------------
TransCapacity further asserts that if pipelines are able to recover
their interactive web site costs through their cost-of-service, the
less efficient interactive web-based system will receive an unfair
subsidy relative to shippers implementing EDI on their own or by using
third-parties. The shippers using the interactive web site will incur
no incremental charge,68 while those using EDI will incur
costs for implementing this solution. It argues that if pipelines want
to provide an interactive web based or EBB approach they should do so
only if they impose a separate charges for this service. Other
commenters similarly contend that once the Internet solution is
implemented, pipeline recovery of dial-up EBB costs through cost-of-
service should be discontinued.69
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\68\ Shippers not paying demand rates, in effect, would receive
the interactive EBB solution for free.
\69\ Comments by Altra, NGC, NGSA.
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According to GISB's 1998 Annual Plan, it is convening an Internet
transition task force to consider how to effectuate the transition to
full Internet communications. However, according to the minutes of the
GISB Executive Committee Meeting of February 12, 1998, GISB also
appears divided over which model of Internet communication should be
adopted.70
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\70\ See GISB's March 23, 1998 filing (Volume I, Appendix 9).
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To guide the industry's deliberations, the Commission will explain
below the general outline of how the standardized communications policy
should be implemented.
First, pipelines conducting business transactions electronically
must conduct all such transactions using EDI format. The industry, and
the Commission, chose EDI as the standardized method for conducting
transactions with all pipelines using a single uniform methodology.
Many of the efficiency benefits from establishing the infrastructure to
process EDI transactions would be lost unless shippers can use EDI for
conducting all business transactions with the pipelines. Thus, the
pipelines and GISB need to create EDI datasets for all transactions not
yet standardized.
Second, pipelines may, but will not be required to, provide
interactive web sites. Pipelines will be permitted cost-of-service
recovery in subsequent section 4 rate cases for the costs of the
interactive web site only if the pipelines together with GISB create
standards governing the access to, presentation,
[[Page 20085]]
and format (``look and feel'') of the sites. This approach will enable
the pipelines to respond to shippers' needs while still providing a
reasonably standardized method of communication. As NGC notes, many
electric utilities collaborated on developing a common Internet site
that not only provided shippers with a standardized format, but
significantly reduced the utilities' development costs as well. The
pipelines and GISB should give serious consideration to pursuing a
similar course.
Third, the pipelines must assure a level playing field for shippers
using EDI and the interactive web site. Regardless of which system is
used, the shipper must obtain the same service and same information
handling and response priority from the pipeline. All transactions
available on the interactive web site also must be available through
standardized EDI communications.
Fourth, by the June 1, 1999 conversion to Internet communications,
communications using EBBs should cease. Continued use of EBBs past June
1, 1999 would only delay the move to a standardized communication
system. Pipelines, however, may maintain EBBs solely as a back-up
system for a period of one year after the June 1, 1999 date for
implementing Internet communication. Pipelines must remove EBB costs
from cost-of-service in any general section 4 rate case effective after
June 1, 2000. Pipelines also may request recovery of any stranded costs
resulting from discontinuation of EBBs that are incurred during the
test period of a general section 4 rate case that removes EBB costs
from cost-of-service.71 New investments in EBB technology
will not be recoverable.
---------------------------------------------------------------------------
\71\ 18 CFR Part 154, subpart D.
---------------------------------------------------------------------------
TransCapacity suggests that permitting pipelines cost-of-service
recovery for standardized interactive web sites provides a subsidy to
the users of the interactive web site. But the Commission does not find
an undue preference. The costs of implementing the EDI standards
currently are included in pipeline cost-of-service even though not all
shippers may use this approach. While, in theory, pipelines could
impose separate charges for EDI and interactive web sites, allocating
costs between the services could prove difficult, given the integrated
nature of communication systems. Thus, including all standardized
approaches in the pipelines' cost-of-service will permit shippers to
choose the communication approach that best fits their business needs.
(b) Third-party networks. In a related issue, several commenters
oppose the proposal that pipelines provide connections to third-party
networks. Enron argues that pipelines should not have to support value-
added-networks (VANs) that charge for connections. The K N Interstate
Group maintains that maintenance of third-party connections is
inconsistent with a commitment to standardization, would be expensive,
and is not needed for security concerns. NGPL asks for clarification of
the requirement, contending that issues need to be resolved such as
standards governing these networks, network obligations for interfacing
with pipelines, and network responsibility for failure to perform all
necessary tasks in a timely manner. TransCapacity and Altra support the
requirement, contending that third-party networks should be
accommodated as long as they are willing to pay all costs of the
interconnection. Altra contends that such connections can be made at
relatively low cost by means of a simple router where both the Internet
and third-party transactions go through the same system with the same
priority.
The Commission will require pipelines to provide third-party
connections as long as the third-party pays a reasonable fee, to be
included in the pipeline's tariff, reflecting the costs to the pipeline
of providing the connection.72 Third-parties would have to
use the same datasets and internet protocols as the EDI services. The
pipelines also must provide the same information handling and response
priority for those using the standard Internet services and third-party
networks. GISB should consider whether any additional standards are
necessary to ensure that third-party and Internet connections receive
equal priority.
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\72\ The Commission similarly has required electric utilities to
provide connections to third-party networks using the same protocols
as the connections to the Internet. Open Access Same-Time
Information System, Order No. 889, 61 FR 21737 (May 10, 1996), FERC
Stats. & Regs. Regulations Preambles [Jan. 1991-June 1996] para.
31,035, at 31,619 (Apr. 24, 1996).
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Pipelines will not have to pay VAN charges, as raised by Enron;
those charges would have to be paid by the third-party. Moreover, there
should be no added costs or burdens on the pipelines since under the
regulation, the third-party networks would have to communicate using
the same internet tools, protocols, and directory services as would be
used for the pipelines' Internet service.
(c) Transactions covered. Enron, while not disagreeing with the
regulation, maintains it is too broad. Enron argues that the use of
Internet communications should be limited to those functions now
conducted over EBBs, and not other electronic transactions, such as
funds transfers. All transactions provided on EBBs are covered by the
regulation. GISB should consider how to handle other electronic
transactions, such as funds transfers, in the most standardized fashion
possible.
(3) Implementation date. The final rule requires pipelines to
implement the requirement to move all communications to the Internet by
June 1, 1999. In the NOPR, the Commission stated that while the June 1,
1999 deadline should give GISB sufficient time to develop any needed
standards, the pipelines should be prepared to move to the Internet by
the June 1, 1999 deadline regardless of whether standards are
developed.
Several commenters argue that implementation should not precede the
development of standards even if implementation is
delayed.73 They contend that pipeline implementation prior
to standardization would be wasteful, since pipelines would have to
revise their systems after the standards are developed.
---------------------------------------------------------------------------
\73\ Comments by ANR/CIG, Columbia Gas/Columbia Gulf, Enron,
Koch, NGPL, NGSA, Southern.
---------------------------------------------------------------------------
The pipelines 74 and Latitude contend that June 1, 1999
is too aggressive a timetable for implementation. In particular, the
pipelines object to the deadline because such an effort would drain
resources from pipeline efforts to ensure that their computer systems
are not subject to the Year 2000 problem (the use of only two digits,
e.g. 98, to represent the year, causing problems if 00 is interpreted
as 1900 rather than 2000). Duke Energy Interstate Pipelines contend
that the June 1, 1999 deadline should require pipelines to do nothing
more than move their EBBs to the Internet. Any further standardization,
it recommends, should take place after 2000.
---------------------------------------------------------------------------
\74\ Comments by CNG, Columbia Gas/Columbia Gulf, Duke Energy
Interstate Pipelines, INGAA, Latitude, NGPL, Southern, WGP.
---------------------------------------------------------------------------
NGC and TransCapacity argue that the June 1, 1999 deadline is
achievable and should not be changed. TransCapacity maintains the
pipelines are using the Year 2000 issue as a pretext for delay and
there is no reason why pipelines could not implement additional EDI
standards by June 1, 1999. Other commenters argue the Commission should
require the pipelines to begin testing their Internet solutions at
least three months before the deadline and that GISB should be given an
interim
[[Page 20086]]
deadline of June 1, 1998 to develop standards.75
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\75\ Comments by NGC, NGSA, ProEnergy, SoCal Gas/SDG&E.
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The Commission agrees that the development of standards for moving
to the Internet is necessary and is encouraged by GISB's development of
task forces to begin this process. The June 1, 1999 implementation
date, however, should provide the industry with sufficient time to
develop appropriate standards prior to implementation and also permit
inauguration of the new system during the summer months, when pipelines
are not running at peak. With the wide-spread availability of
commercial Internet solutions, it does not appear developing a
standardized Internet communication system should represent a major
technological challenge. Maintaining the June 1, 1999 deadline will
give all parties an incentive to reach agreement on standards and
proceed with implementation expeditiously.
While the general issue of computer readiness for the Year 2000 has
received much publicity, the pipelines have not shown that this problem
is of such magnitude for them that implementation of the regulation
should be delayed across the board. The pipelines refer generally to
the problem, but do not provide any details about the scope of their
difficulties, such as by showing how many pipelines even have a
problem, how many systems are affected, or the extent of the resources
needed to address the problem. Moreover, the regulation adopted here
requires only that pipelines conduct transactions using EDI, and the
pipelines do not contend that implementing that requirement by June 1,
1999 creates a technological problem.
As discussed earlier, pipelines may not continue to use their EBBs
past the June 1, 1999 implementation deadline.76 For those
pipelines that choose to replace their EBBs with interactive web sites,
the ready availability of commercial Internet solutions suggests the
development of an interactive web site is not such a daunting
technological feat that it would unduly interfere with correcting a
particular pipeline's problem in accommodating the transition to the
Year 2000. In addition, as discussed earlier, pipelines can save
significant monetary and personnel resources as well as provide a more
standardized product if, instead of each pipeline developing a
proprietary solution, they collaborated on development of a
standardized Internet communication system, as was done in the electric
industry.
---------------------------------------------------------------------------
\76\ EBBs may be maintained only as back-up systems.
---------------------------------------------------------------------------
c. Regulations for posting information on web sites. In Order No.
587-C, the Commission adopted GISB standard 4.3.6 requiring pipelines
to post information relating to pipeline tariffs, affiliate
transactions, operationally available capacity, system notices, and an
Index of Customers for viewing in HTML format on pipeline Internet web
sites. The Commission is incorporating by reference standards 4.3.5 and
4.3.16 of GISB's Version 1.2, which will require that pipelines provide
for downloads of the posted documents either in hyper-text mark-up
language (HTML) or rich-text-format (RTF). Additionally, in
Sec. 284.10(c)(3)(ii), the Commission is adopting regulations requiring
pipelines to adhere to the following standards with respect to the
posted information: the documents must be accessible to the public over
the public Internet using commercially available web browsers, without
imposition of a password or other access requirement; users must be
able to search an entire document online for selected words and users
must be able to copy selected portions of the documents; and documents
on the Web site should be directly downloadable without the need for
users to first view the documents on the web site.
ECT contends more standards are necessary, for example, to
establish common methods of doing text searches. It also contends that
HTML should not be used for downloads as provided in GISB standard
4.3.16 because the printed version of HTML documents may lose
formatting features and because of the difficulty in printing entire
HTML documents if the documents are broken into separate linked
chapters or pages. It recommends that all downloads be provided solely
in RTF format. Altra contends that there should be a common URL or
Internet name for all standardized documents. Latitude contends the
Commission needs to protect against web sites that are specifically
tailored to a particular proprietary Internet browser. SGPC argues
pipelines should be able to rely upon the most recent software.
The Commission will adopt the proposed regulations as providing a
basic foundation for posting upon which GISB can improve. GISB has
established its own ``Look and Feel'' task force to develop a
consistent and uniform presentation for information posted on pipeline
web sites.
With respect to Latitude's concern, Sec. 284.10(c)(3)(ii)(A)
provides that web sites must be viewable using commercially available
browsers, which protects against a pipeline making its site accessible
to only one browser. In response to SGPC's comment about current
software versions, standards 4.3.6 and 4.3.16 require that all
information be posted in HTML and downloadable in HTML or RTF format.
Therefore, pipelines should not be requiring the use of other software
to view information on or download information from web sites. While
pipelines should accommodate reasonably current versions of web
browsers, they should not be required to accommodate browsers that have
been out-of-date for several years. GISB should consider the
development of standards reflecting the level of HTML coding that
should be supported. At this point, the Commission sees no reason to
depart from the industry consensus permitting pipelines to download
documents in HTML, as ECT suggests. That, along with other
standardization issues, such as the use of a common URL designation for
documents, should be examined by GISB as it continues its
deliberations.
d. Regulations requiring that pipelines provide a cross-reference
table for numeric designations. In many places in the standardized
datasets, GISB has used a common code to represent the shipper's name.
GISB has chosen to use the numeric designation provided by Dun &
Bradstreet (DUNS) as the means of identifying shippers. But there is no
requirement in the standards to provide a table cross-referencing the
numeric designation with the shipper's name. In Sec. 284.10(c)(3)(iii),
the Commission, therefore, is requiring pipelines to provide a table
cross-referencing any numeric designation with the applicable name or
other information being represented.
No party objects to this regulation. NGC asks the Commission to
clarify that the numeric representation is for the EDI datasets, used
for computer-to-computer interaction only. It maintains that numeric
designations are not useful for information provided on web sites for
human to computer interaction. NGSA maintains that a standardized
cross-reference table needs to be developed so that shippers can use
the format across all pipelines.
The regulation requiring that pipelines provide a cross-reference
table when using numeric designations is needed to ensure that the
Commission and shippers can identify parties to a transaction. For
instance, without a cross-reference table, neither the Commission nor
other shippers can identify what shipper is receiving capacity on a
capacity release
[[Page 20087]]
transaction, information which Commission regulations require to be
publicly available. When the Commission previously required pipelines
to use a common code to identify pipeline transaction points, it
similarly required the pipelines to provide a cross-reference table at
a cost not to exceed the expenses of shipping and
handling.77
---------------------------------------------------------------------------
\77\ See Standards For Electronic Bulletin Boards Required Under
Part 284 Of The Commission's Regulations, Order No. 563-A, 59 FR
23624 (May 9, 1994), III FERC Stats. & Regs. Regulations Preambles
para. 30,994, at 31,044-45 (May 2, 1994).
---------------------------------------------------------------------------
The GISB standards require the use of numeric representations only
for EDI, computer-to-computer communication. The Commission agrees with
NGC that numeric designations should not be used for information posted
on web sites for computer-to-human interaction. The Commission also
agrees with NGSA that GISB either should develop a single, central
cross-reference table or else establish standards governing the cross-
reference tables provided by the pipelines.
Altra contends that, rather than using DUNS numbers, GISB should
develop its own cross-reference table. Altra maintains that Dun &
Bradstreet will not agree to permit pipelines to provide a cross-
reference table and that, even if it did, the DUNS number is not a
precise enough designation, because the number is not distinctly
assignable to a particular party.
The Commission will continue to accept the industry consensus to
use DUNS numbers. However, if DUNS will not permit the development of a
cross-reference table, the industry either needs to develop its own
cross-reference table or cease using numeric designations and return to
using names.
e. Requirement that information be the same regardless of the
format in which it is provided. Under the Commission regulations
adopted here, pipeline customers can (or will be able to) obtain
information and transact business using a number of formats, EBBs
(until implementation of the Internet communication methods), EDI
datasets, or interactive web sites. In Sec. 284.10(c)(3)(iv), the
Commission is adopting a regulation requiring that the informational
content must be the same regardless of the format in which it is
provided.
Altra strongly supports this regulation to ensure that all
functions achievable on one format can be achieved through the other
formats, and no commenter has opposed it. Given the different methods
that pipelines can use to provide information, it is crucial that the
content be the same regardless of the format. For instance, information
about operationally available capacity is available currently on EBBs,
pipeline web sites, and EDI downloads. The information obtained using
each of these methods needs to be the same.
f. Regulation regarding the retention period for electronic
information. In the NOPR, the Commission had proposed to expand the
current three-year requirement for retention of electronic EBB data to
a five year period for retention of all electronically conducted
transactions. The pipelines oppose the extension as being unwarranted,
unjustified, and burdensome.78 ANR/CIG point out that they
conduct more than 6,000 nominations and confirmations each day and
that, on an industry-wide basis, this would amount to tens of thousands
of nominations and confirmations, figures which do not include the
requirement to maintain records of other transactions. ANR/CIG suggest
adoption of the GISB two-year requirement for maintenance of electronic
data.
---------------------------------------------------------------------------
\78\ Comments by ANR/CIG, Columbia Gas/Columbia Gulf, Enron (5
years unwarranted), INGAA, K N Interstate Group, Koch, NGPL (no
justification), NGT/MRT.
---------------------------------------------------------------------------
MGE, NGSA, and ProEnergy support the five year requirement.
TransCapacity contends there is no need to retain every electronic
transaction record for five years. It suggests the pipelines be
required to maintain only summary electronic records, such as the end
of day scheduled quantities dataset which summarizes the nomination
activity for the day.
After reviewing its need for information, the Commission has
determined not to change its current three year retention period for
electronic information. The current requirement to retain electronic
information in section 284.10(a) applies only to information maintained
on EBBs. This requirement, therefore, needs to be updated to encompass
all information and transactions conducted electronically regardless of
form, such as EDI or other Internet-based communication. In section
284.10(c)(3)(v), the Commission is adopting a regulation requiring that
pipelines retain for a period of three years records of all information
displayed and transactions conducted electronically and be able to
recover and regenerate all such electronic information and
documents.79
---------------------------------------------------------------------------
\79\ GISB standard 4.3.4 provides for two year retention of
transactional data, but states that this requirement does not
otherwise modify statutory, regulatory, or contractual record
retention requirements. Because the Commission is continuing its
current three year requirement for retention of electronic
information, it will not adopt GISB standard 4.3.4.
---------------------------------------------------------------------------
Koch maintains that the data archived under this section should not
be maintained on-line, but should be provided on disk or through other
electronic means. Section 284.10(c)(3)(v) requires pipelines to make
the information available in electronic form for a reasonable fee.
Pipelines, therefore, need not maintain the information on line, but
may make archived information available on disk or CD ROM.
g. Regulation requiring Internet notice for operational flow orders
and other critical notices. In Sec. 284.10(c)(3)(vi), the Commission is
adopting a regulation requiring pipelines to provide notice of
operational flow orders and other critical notices by posting the
notice on their web sites and by notifying the affected customers
directly either by Internet E-mail or notification to the customer's
URL or Internet address. The Commission will address below the comments
on the regulation as well as issues concerning the method of
implementing the requirement.
(1) The use of Internet notification. Three commenters oppose the
requirement to use Internet notification, contending that notice should
be made by telephone or facsimile, at the customer's
choice.80 Their concern is that customers may not be
available to check the Internet or read the notice.
---------------------------------------------------------------------------
\80\ Comments by Florida Cities (costs too much for shippers to
monitor Internet connections on a 24 hour basis), MGE (until
Internet is tested, facsimile and telephone should be used), NGSA
(mode of notification at shipper's choice).
---------------------------------------------------------------------------
The Commission concludes that, on balance, posting on the web site
together with Internet E-mail or direct notice to an Internet address
effects a reasonable balance between the shippers' need for notice and
the pipelines' need to create an efficient automated system for
communicating with all of their shippers. By permitting automated
notice to all shippers simultaneously, Internet notification speeds up
the notification process and removes any potential for disparate
treatment between shippers as to the time at which they receive
notice.81 The commenters preferred solution, notification by
telephone or fax, is not necessarily any more reliable than Internet
notification since telephones or fax machines also may not be monitored
and there would be no record that a notice was sent by the pipeline.
---------------------------------------------------------------------------
\81\ For example, one pipeline representative at the technical
conference stated that even calling in all available personnel,
about 24 people, it took them six hours to contact all affected
parties using telephonic communication. Transcript of December 13,
1996 technical conference at 37.
---------------------------------------------------------------------------
Even for after hours notice, Internet postings provide shippers
with a
[[Page 20088]]
significant amount of flexibility. Employees can check for critical
notices on the Internet at home. In addition, the requirement for
direct notice to E-mail and Internet addresses will enable those
shippers who want telephonic or pager notification to receive such
notice by purchasing software that automatically triggers telephones or
pagers when an Internet message is received.
(2) Implementation after development of standards. ECT, NGC, and
NGSA urge that prior to implementation of the Internet notice
requirement, standardization of definitions and format is needed to
differentiate types of notices so the notification software can
properly determine whether to trigger the phone or pager.
The Commission agrees that standards are needed for this
notification process to operate efficiently. In particular, a dataset
will be needed for those customers relying upon EDI communication with
the pipelines. Therefore, the Commission will defer implementation of
this requirement until the necessary standards are developed by GISB.
According to GISB's 1998 Annual Plan, no schedule has been set for
development of standards for OFO notification. However, during the
December 12-13, 1996 technical conference, members of the GISB Future
Technology Task Force stated that, if needed, such standards could be
developed and others pointed out that a similar dataset already exists
for general, as opposed to customer specific, notices.82
Modification of this dataset should not prove particularly difficult
and GISB should be able to add this to its agenda for 1998. The
Commission will expect GISB and others in the industry to propose such
standards by December 31, 1998. Until that time, pipelines should
continue to provide notice according to the provisions of their
tariffs.
---------------------------------------------------------------------------
\82\ Transcript of December 13, technical conference, at 32-31.
---------------------------------------------------------------------------
(3) Penalties and other implementation details. NGC, NGSA, and
Nicor Gas argue that penalties should not be imposed for E-mail
failures or if actual notice is not received. SoCal Gas/SDG&E contend
that the pipelines should seek to notify the shipper using an
alternative method if the pipeline is notified that the E-Mail was not
delivered. On the other hand, INGAA, K N Interstate Group, and NGPL
contend that E-mail should be the shippers' responsibility and not the
pipelines.
The Commission finds no reason for pipelines to waive penalties
except when the pipelines' notification system fails. Shippers are
responsible for maintaining a current E-Mail or Internet address, and
they should bear responsibility for failures by their chosen Internet
provider. Pipelines, however, have little reason to leave shippers
without notice in critical operational situations, since that could
lead to adverse consequences for the system. Thus, the Commission fully
expects the pipelines to try alternative methods in the event they have
specific notice that electronic notice has not been received.
INGAA maintains the pipelines should be responsible for notifying
only one E-Mail address. The Commission will not impose such an
absolute requirement. Given the ease of automatic notification,
shippers should be able to choose a reasonable number of addresses for
notification, for example, if they want a different notification
address for after-business-hours notification.
Columbia Gas/Columbia Gulf argue that pipelines should be able to
conform their current procedures to the regulation without concern
about shippers' arguments that a change constitutes a degradation of
service. Florida Cities, however, maintains that the new regulation
should not overturn a settlement on this issue on Florida Gas.
As a general matter, pipelines should be able to revise their
notification procedures to conform to the regulation. However, while
pipelines must comply with the regulation, they may also agree with
their shippers to provide additional methods of notification. If a
pipeline chooses to make a filing under section 4 of Natural Gas Act to
eliminate or revise their current procedures, the Commission will be
able to consider specific circumstances, such as settlements or rate
issues, bearing upon the proposed change.83
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\83\ A filing to change current procedures cannot be made as
part of a filing to comply with the requirements of this rule. Any
filing to change current procedures must be made as a separate
section 4 filing.
---------------------------------------------------------------------------
C. Issues on Which the Commission Determined Not to Adopt Requested
Regulations
In the NOPR, the Commission did not propose regulations as
requested by some industry members in other areas in which GISB could
not reach consensus--title transfer tracking, cross-contract ranking,
multi-tiered allocations, fuel reimbursement, and penalty
determinations. The Commission, however, did provide the industry with
guidance as to its general policies in these areas to help facilitate
GISB's consideration of standards in these areas.
1. Title Transfer Tracking
Title transfer tracking refers to the accounting for transfers of
title to gas at a nomination point when no transportation is involved.
Under Commission policy, shippers must have title to gas in order to
transport the gas on a pipeline. Pipelines, therefore, have always had
to perform some title transfer tracking to ensure that shippers have
title to gas.84
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\84\ For example, if shipper A on an upstream pipeline
transports gas to an interconnect with a downstream pipeline and
transfers the gas to shipper B on the downstream pipeline, the
pipelines would have to match those transactions as part of the
process of confirming the nominations.
---------------------------------------------------------------------------
However, with unbundling and the development of a more fluid gas
market, gas purchase and sale transactions at nomination points are
increasing dramatically. Thus, at an interconnect point, there may be
multiple transfers of title before the gas is nominated on the
downstream pipeline. In order for pipelines to confirm the gas
nominated on the upstream and downstream pipelines, they need to know
which upstream shipper(s) are delivering the gas to the shipper on the
downstream pipeline.
GISB had begun the process of trying to create standards for title
transfer tracking, but the industry segments differed over whether the
pipelines should be required to establish a computerized title transfer
tracking service. In the NOPR, the Commission stated that its policy
was not to require pipelines to establish a service to account for the
purchase and sale of gas between shippers independent of
transportation. The Commission found it should be the shipper's
responsibility to furnish sufficient information to the pipeline to
establish its title to the gas and its right to nominate on the
pipeline. The Commission noted that third-parties are now providing
title transfer tracking services and concluded that pipelines must be
willing to accept title transfer information from these third parties.
The Commission requested GISB to submit standards, by March 31, 1998,
governing pipeline obligations to accept confirmations by third-party
title transfer trackers.
The Commission will address below comments on the Commission's
determination not to propose a regulation requiring pipelines to
provide title transfer tracking service and on several issues relating
to the pipelines' processing of information
[[Page 20089]]
from third-party title transfer tracking service providers.
a. Pipeline obligations to provide title transfer tracking
services. The pipelines and LDCs generally agree with the Commission's
decision not to require pipelines to provide a title transfer tracking
service.85 NGC, NGSA, and ProEnergy oppose the decision.
They contend that due to the nature of title transfer tracking service,
it can be performed by only one party and that the pipelines are the
best positioned to perform the service. They contend that third-parties
have not emerged to provide this service.
---------------------------------------------------------------------------
\85\ Comments by El Paso, Enron, INGAA, Koch, NGPL, Nicor Gas,
Peoples/North Shore, SoCal Gas/SDG&E, TransCapacity.
---------------------------------------------------------------------------
NGC contends that having multiple parties provide title transfer
tracking is inefficient, because the pipeline would still have to track
title transfers running between the trackers. It suggests that the
Commission's approach may open the door to a plethora of title transfer
trackers each of which the pipeline would have to support. NGSA, while
recognizing that title transfer tracking is not an integral requirement
of natural gas transportation, contends the pipelines are the only
parties capable of providing the service. It states GISB is considering
an option under which pipelines would provide title transfer tracking
services and asks the Commission to defer a final ruling on this issue
until GISB has finished its considerations.
Altra agrees that only one party can efficiently perform the
service, but it argues that, rather than having the pipelines perform
the service, each pipeline should be required to choose the third-party
provider for its system. TransCapacity, on the other hand, contends
that monopoly provision of title transfer tracking service is not
necessary. TransCapacity argues that pipelines can implement several
provisions in their tariffs to ensure that they will deal with only
bona fide title transfer tracking services.
GISB should not necessarily short-circuit on-going discussions over
options for conducting title transfer tracking. If GISB reaches
consensus that pipelines should be required to provide this service,
the Commission will give that agreement great weight in later
considerations of the issue.
Absent a consensus position from GISB, however, the Commission
finds insufficient justification for proposing a regulation requiring
pipelines to perform title transfer tracking services. It should be the
shipper's responsibility to furnish the transporter with sufficient
information to establish its title to gas and its right to nominate
that gas on the pipeline. NGSA itself concedes that title transfer
tracking is not an integral part of providing transportation of natural
gas. While pipelines may wish to offer title transfer tracking as an
added service option to their shippers, the Commission is not convinced
at this juncture that the pipelines are the only possible or the best
provider of the service and, therefore, should be required to provide
it.
Rather than mandating that pipelines be the sole provider of title
transfer tracking service, the Commission is opening the market to the
force of competition from third-party service providers. The
competition between providers, including those pipelines that wish to
compete, should provide the proper incentive for firms to provide the
level of title transfer tracking services that customers desire and for
which they are willing to pay.86
---------------------------------------------------------------------------
\86\ When pipelines are the sole provider of title transfer
tracking, disputes have arisen as to the level of the service which
should be provided. See El Paso Natural Gas Company, 81 FERC para.
61,174 (1997) (complaints about the extent of title transfer
activity the pipeline should be required to process).
---------------------------------------------------------------------------
It is incorrect to assume, as do the commenters, that the absence
of third-party title transfer tracking services today means such
services will not develop in the future. Hub and storage operators
currently provide title transfer tracking services, and the pipelines
accept their confirmations.87 While independent third party
title transfer trackers do not exist currently, that is not surprising
since, as TransCapacity notes, until the NOPR, pipelines did not
recognize an obligation to support confirmations from independent
third-party title transfer tracking services. The provision of title
transfer tracking services by storage and hub operators suggests that a
market for this service exists and that parties other than pipelines
can provide the service. Once GISB develops the standards and pipelines
are required to support third-party title transfer trackers, firms will
have incentives to enter this market, particularly if the demand for
the service is as great as the commenters contend.
---------------------------------------------------------------------------
\87\See Moss Bluff Hub Partners, L.P., 80 FERC para. 61,181, at
61,475 (1997).
---------------------------------------------------------------------------
It also is not clear that pipelines must provide this service
because a monopoly provider of title transfer tracking services is
needed at each point or on each pipeline. The competitive market may
develop naturally so that only one or a few title transfer tracking
service exists at each point. The pipelines can propose tariff
provisions, if it becomes necessary, to protect against NGC's concern
that every shipper will designate itself as a title transfer tracking
service provider.88 Moreover, even if multiple title
transfer trackers do prove to be inefficient, there are competitive
solutions which would not require the Commission to mandate that
pipelines provide the service. Shippers, either alone or together with
pipelines, could solicit competitive bids for title transfer tracking
services on each pipeline and choose the firm offering the best
bid.89
---------------------------------------------------------------------------
\88\ For instance, TransCapacity notes pipelines could require
that title transfer tracking services provide non-discriminatory
service to anyone requesting the service and that they adhere to the
GISB standards.
\89\ Pipelines could even propose tariff provisions setting out
the requirements for submitting bids to provide the service.
---------------------------------------------------------------------------
In the NOPR, the Commission requested that GISB and others in the
industry submit, by March 31, 1998, business practices and electronic
communication standards for dealing with title transfer tracking. A
consensus of the industry supports the GISB 1998 Annual Plan which
provides for the development of such standards by the fourth quarter of
1998, and the Commission will therefore expect the submission of
standards by December 31, 1998.
b. Timing of pipeline processing of title transfer tracking
information. In the NOPR, the Commission stated that pipelines should
accept title transfer tracking information as part of its process for
confirming nominations. The pipelines point out that the GISB task
force has not completed work on title transfer tracking standards, and
the pipelines are not yet convinced title transfer tracking can be
accomplished through the confirmation process.90 Their
principal concern is that, if title transfer tracking can be performed
by any firm, multiple title transfer tracking services may develop and
that processing all those transactions during the confirmation process
would be burdensome. Most pipelines suggest title transfer tracking
should be part of the nomination process.91
---------------------------------------------------------------------------
\90\ Comments by Columbia Gas/Columbia Gulf, Enron, INGAA, NGPL,
Williston Basin.
\91\ Comments by Enron, NGPL.
---------------------------------------------------------------------------
On the other hand, Columbia Gas/Columbia Gulf and TransCapacity
maintain that title transfer tracking should be a part of the
confirmation, rather than the nomination process. They also agree that
title transfer tracking should take place earlier in the confirmation
cycle than the 3:30 p.m. confirmation from point operators.
While GISB should seek to work out the details for conducting title
transfer
[[Page 20090]]
tracking, the Commission does not want the timing of title transfer
tracking processing to inhibit standards development. To forestall
possible later disputes over this issue, the Commission generally
agrees with Columbia Gas/Columbia Gulf and TransCapacity that title
transfer tracking properly should be part of the confirmation process.
First, the purpose of title transfer tracking is to confirm that gas
nominated by a shipper will be at the nominated point. Physical point
operators provide title transfer tracking services and their
information generally is processed during the confirmation process. To
ensure non-discriminatory treatment, the same rules should apply to
independent third-party operators. Second, placing title transfer
tracking in the nomination cycle could reduce market liquidity and
comparability between physical and title transfer transactions. For
instance, a shipper may arrange for physical flows up until the 11:30
a.m. nomination deadline. But those who wish to arrange for paper
transactions would have to make earlier arrangements in order to permit
the title transfer tracker sufficient time to process the paper
transactions in time to meet the 11:30 a.m. deadline. Third, there is
no reason now to suspect that multiple independent title transfer
tracking services will arise or that the pipelines will be unable to
develop reasonable measures to ensure that title transfer tracking does
not unduly burden the confirmation process.
The compromise solution proposed by Columbia Gas/Columbia Gulf and
TransCapacity would seem to satisfy the need to include title transfer
tracking as part of the confirmation process while at the same time
providing pipelines with time to process the title transfer tracking
information and coordinate that information with the physical point
operators. GISB should further explore this potential solution in its
deliberations.
c. Other issues. In the NOPR, the Commission stated that pipelines
could, if they chose, provide a title transfer tracking service and
charge a fee for the service. TransCapacity requests clarification that
such fees cannot be charged for processing title transfer tracking
information from third-party service providers. The Commission agrees
with TransCapacity. Pipelines may not charge a fee for processing
nomination or confirmation information from point operators, other
pipelines, or third-party title transfer tracking service providers.
Pipelines may charge a separate fee only for tracking title transfers
between parties that are independent of transportation.
NGC maintains that pipelines providing a title transfer tracking
service should not be able to charge a separate fee, but should include
the costs in their reservation charges. The Commission's policy has
been to permit pipelines to charge a separate fee for title transfer
tracking.92 Charging a separate fee ensures that those using
the service are not subsidized by the firm shippers paying reservation
charges and can help to ensure that shippers will use the service only
to the point at which the shippers' value from the service equals or
exceeds the price charged.
---------------------------------------------------------------------------
\92\ Trunkline Gas Company, 75 FERC para. 61,003 (1996)
(approving a separate flat charge for title tracking service). But
see Williams Natural Gas Company, 79 FERC para. 61,096 (1997)
(permitting a separate fee, but rejecting a volumetric fee unrelated
to costs of providing the service).
---------------------------------------------------------------------------
ECT contends that, if pipelines do provide a title transfer
tracking service, they should be able to require that all shippers
submit their title transfer tracking information to the pipeline.
Shippers should not have to use a pipeline's title transfer tracking
service. If title transfer tracking is to develop as a competitive
service, shippers should be able to choose whether to use the
pipelines' title transfer tracking service or one provided by a third-
party. Pipelines providing their own title transfer tracking service
should enjoy no special advantages over third-party providers and must
process all title transfer tracking information in a comparable manner.
Koch maintains that pipelines should not bear liability for title
transfer tracking information provided by third-parties. The Commission
finds no reason to distinguish between pipeline responsibilities to
process title transfer tracking information and their responsibilities
and liabilities with respect to processing a confirmation from a point
operator or other connecting party.
K N Interstate Group maintains that pipelines should be able to
require agency agreements with title transfer tracking service
providers and shippers. As stated above, pipelines should be able to
impose reasonable tariff requirements for dealing with third-party
title transfer tracking services. GISB also can consider standards
delineating the type of agency or other business agreements that are
needed to facilitate the provision of title transfer tracking service.
2. Cross-contract ranking. Gas package ranking refers to the
designation by a shipper of the amount of gas that will be allocated to
particular markets or customers in the event the shipper's full
nomination is not accepted. The standards adopted by the Commission
already require pipelines to honor shipper ``rankings when making
reductions during the scheduling process when this does not conflict
with tariff-based rules.'' 93 For example, if a shipper
nominates 1,000 MMBtus under one contract for several markets, it can
specify how to divide gas between markets if the full 1,000 MMBtus is
not confirmed.
---------------------------------------------------------------------------
\93\ 18 CFR 284.10(b)(1)(i) (1997), Nominations Related
Standards 1.3.23.
---------------------------------------------------------------------------
Shippers had complained that, under this standard, pipelines were
not permitting them to rank gas supplies across contracts. In the NOPR,
the Commission concluded that pipelines should permit cross-contract
ranking so long as it does not affect the operational integrity of the
pipeline's system. The Commission asked GISB and the industry to submit
any additional standards necessary to facilitate cross-contract ranking
by March 31, 1998.
Shippers and NGPL support cross-contract ranking.94
TransCapacity, while supporting the requirement, suggests that
implementation may require some pipelines that handle nominations on a
contract basis to change systems so that they become point based. It
suggests that either the Commission provide further guidance on this
point or allow GISB to try to develop a way for pipelines to implement
the requirement without changing their systems. Most pipelines, with
the exception of NGPL, oppose cross-contract ranking, contending that
it adds too much complexity to the nominations process.95
---------------------------------------------------------------------------
\94\ Comments by Altra, MGE, NGC, NGSA, Nicor Gas, PG&E,
Piedmont, ProEnergy, SoCal Gas/SDG&E, TransCapacity.
\95\ Comments by K N Interstate Group (adds too much complexity
on web based systems), NGT/MRT (make pipeline allocations
unmanageable), SGPC (affects transportation priority rules and adds
complexity), Viking (requires computer system upgrades and dataset
revisions), Williston Basin (cause too many problems), WGP (should
only be permitted between contracts or family of contracts of like
priority and rate).
---------------------------------------------------------------------------
The Commission's policy is to provide shippers with the tools to
enable them most effectively to manage their capacity. Shippers today
may be shipping under a variety of contracts, including their own firm
and interruptible contracts as well as capacity release contracts which
have their own specific terms and conditions. Some pipelines permit
cross-contract ranking or have structured their pooling to permit such
ranking. The ability to allocate gas among these contracts gives
shippers additional flexibility. As with title transfer tracking, a
consensus of the industry supports the GISB 1998
[[Page 20091]]
Annual Plan in which cross-contract ranking standards will be developed
by the fourth quarter of 1998, and the Commission, therefore, will
expect the submission of such standards by GISB and others by December
31, 1998.
Several shippers and pipelines raise concerns about one aspect of
the NOPR dealing with whether shipper rankings across contracts should
apply when transportation constraints require pipelines to restrict
transportation based on tariff-based service priorities.96
For example, if a shipper has nominated 100 units of gas under an
interruptible contract and a 100 units under a firm contract, and the
pipeline can schedule only the 100 units of firm transportation, which
has a higher transportation priority, should the shipper be able to
allocate the 100 units to the interruptible contract.97
---------------------------------------------------------------------------
\96\ Comments by ECT, El Paso, Enron, NGPL, NGC, TransCapacity.
\97\ Even if the shipper in the example allocated the 100 units
to the interruptible contract, it still could not receive more than
the 100 units represented by its firm capacity contract. If the
shipper had nominated no firm service, it would be unable to
allocate any gas to the interruptible contract.
---------------------------------------------------------------------------
Those opposing cross-contract ranking in this situation contend
that permitting ranking in this case goes beyond what shippers were
seeking in GISB and would improperly override scheduling priorities in
pipeline tariffs. While the commenters recognize that permitting
ranking would not completely obviate contractual priorities, they
maintain it fudges the distinctions and priorities between contract
types. NGC, one of the original and strongest proponents of cross-
contract ranking, argues that ranking should not override
transportation priorities. It argues that permitting such ranking could
lead to gaming in which a shipper gains priority to a constrained point
under a firm contract and then changes to an interruptible contract,
thereby freeing up its firm capacity to gain access to another point,
perhaps using an intra-day nomination. El Paso contends that permitting
ranking to take precedence over scheduling allocations would cause
confusion over which service should be billed as well as create
confusion and problems during the confirmation process. On the other
side, Altra, although its comment is not altogether clear, appears to
contend that even when a cut occurs on the market side of the equation,
shippers should be able to rank all contracts flowing into the market
regardless of the contractual priority of the contract.
GISB should strive to develop mechanisms that provide shippers with
the maximum flexibility to rank contracts for both supply and market
cuts. GISB, however, should strive to develop a method for handling
ranking that will not compromise the transportation priorities
associated with firm and interruptible contracts.
3. Multi-Tiered Allocations
A pre-determined allocation is a set of instructions by owners of
gas as to how gas should be allocated amongst them when the actual
volumes do not match the scheduled volumes. The standards currently
require pipelines to accept one tier of allocations from the upstream
or downstream custody transfer party.98 Some shippers
requested the Commission to issue a regulation requiring pipelines to
support multi-tiered allocations from all owners of gas, including the
wellhead operator and each producer owner.
---------------------------------------------------------------------------
\98\ 18 CFR 284.10(b)(1)(ii) (1997), Flowing Gas Related
Standards 2.3.19.
---------------------------------------------------------------------------
In the NOPR, the Commission found, as it did for title transfer
tracking, that there was no basis for requiring pipelines to maintain
the accounting for allocations occurring at the wellhead or at
interconnections not affecting the pipeline. Since GISB had recognized
that tracking multi-tiered allocations was another aspect of title
transfer tracking, the Commission suggested that GISB work on standards
to permit third-parties to track multi-tiered allocations.
Pipelines generally support the Commission's
determination.99 Columbia Gas/Columbia Gulf agree that
pipelines should not be required to provide multi-tiered allocations,
but they point out the current standards are not usable for pipelines
or others who may wish to track multi-tiered allocations. They urge the
Commission to ensure that GISB follow through and develop datasets
appropriate for tracking multi-tiered allocations.
---------------------------------------------------------------------------
\99\ Comments by Columbia Gas/Columbia Gulf, K N Interstate
Group, NGPl, Williston Basin.
---------------------------------------------------------------------------
NGC, NGSA, and ProEnergy contend multi-tiered allocations are
needed for producers to accurately account for their transactions.
Pipelines should be required to perform the service, they assert,
because pipelines have traditionally been the clearinghouse for all
information related to gas transactions and are in a unique position to
track multi-tiered allocations. TransCapacity argues that GISB
currently is working on multi-tiered allocations and may have devised a
solution in which all allocations can be made through a single or a
series of levels.
The current regulations give those parties connecting with a
pipeline the right to determine how gas is to be allocated at the
interconnection with the pipeline system. The Commission fails to see
why this right needs to be extended so that pipelines become
responsible for maintaining the accounting records for allocations
occurring at the wellhead or at interconnections not affecting the
pipeline. The tracking of multi-tiered allocations should be no
different than the tracking of title transfers, and third-parties
tracking title transfers should also be able to account for allocations
back to the wellhead. GISB's Annual Plan recognizes the interrelation
between standards for title transfer tracking and multi-tiered
allocations and targets the development of standards for both by the
fourth quarter of 1998.
NGPL requests clarification about whether pipelines can charge a
separate fee for tracking multi-tiered allocations. Pipelines choosing
to provide a service tracking multi-tiered allocations may charge a
separate fee, as they are permitted to do for title transfer tracking.
Pipelines, however, cannot charge a separate fee for processing the
single tier of allocations required by the current regulations.
4. Paper Pooling
Pooling refers to the aggregation of gas from multiple physical or
logical points to a single physical or logical point.100 The
current standards provide shippers with the ability to both deliver gas
from receipt points into at least one pool and receive quantities at a
delivery point from at least one pool.101 Some pipelines
provide paper pools while others use physical pools in which shippers
have to pay transportation charges to move gas into the pools. GISB
could not reach a consensus on whether paper pooling should be
mandated, and shippers asked the Commission for a regulation requiring
that all pipelines establish paper pools into which shippers could
deliver gas without any additional transportation charge. In the NOPR,
the Commission declined to require pipelines to provide paper pooling,
finding that those advocating paper pools had not provided a sufficient
rationale for requiring the use of paper pools in all situations.
---------------------------------------------------------------------------
\100\ 18 CFR 284.10(b)(1)(i) (1997), Nominations Related
Standards 1.2.3.
\101\ 18 CFR 284.10(b)(1)(i) (1997), Nominations Related
Standards 1.3.17 and 1.3.18.
---------------------------------------------------------------------------
NGSA and ProEnergy maintain the Commission should require pipelines
to provide paper pooling. They assert that pooling is a critical aspect
of a competitive marketplace, because the
[[Page 20092]]
aggregation of gas volumes eliminates the need to link each gas volume
to a specific source and destination. They contend that no
transportation charge should be charged since no transportation is
provided.
The Commission agrees that pooling is an important aspect of the
marketplace and its regulations require pipelines to offer pooling. The
Commission, however, does not agree that for pooling to operate
efficiently each pipeline must offer paper pooling in which those
delivering gas into the pool are assessed no transportation charges.
Those requesting mandatory paper pooling have not demonstrated why
transportation charges must be assessed only on the outbound (out of
the pool) transportation component. When a pool exists in a rate zone,
a charge for transportation must be assessed either for gas coming into
the zone or for gas leaving the zone. In appropriate circumstances, the
Commission has recognized that pipelines may charge for transportation
into pools.102
---------------------------------------------------------------------------
\102\ See Northwest Pipeline Company, 80 FERC para. 61,361, at
62,240-41 (1997); Panhandle Eastern Pipeline Company, 78 FERC para.
61,283, at 62,215 (1997).
---------------------------------------------------------------------------
NGSA and NGC further contend that even if the Commission does not
mandate paper pooling, it should enact into regulation its current
policy that transportation into a pool is afforded the same
transportation priority as the transportation out of the pool. This
policy, however, is not sufficiently generic to be established through
regulation. In the circumstances of some cases, for instance, the
Commission has found that capacity should be allocated based on the
priority of the transportation into the pool, rather than the
transportation out of the pool.103
---------------------------------------------------------------------------
\103\ See Northwest Pipeline Company, 79 FERC para. 61,259, at
62,119-20 (1997) (where shipper pays for transportation into a pool,
the priority does not depend on the priority of the take-away
contract).
---------------------------------------------------------------------------
5. Reimbursement for Compressor Fuel
When shippers nominate gas on pipelines, they need to reimburse the
pipelines for the gas needed to run compressors. The typical form of
reimbursement is in-kind fuel reimbursement, where the shipper includes
additional gas to cover the needs for compressor fuel. Typically,
pipelines include the applicable percentages for fuel reimbursement in
their tariffs. The Commission has adopted GISB standards that simplify
the process of in-kind fuel reimbursement.104 Some pipelines
also have established tariff provisions under which the pipeline
provides the fuel and receives reimbursement from the shipper for the
cost, usually through a fuel cashout at an indexed price.
---------------------------------------------------------------------------
\104\ 18 CFR 284.10(b)(1)(i) (1997), Nominations Related
Standards 1.3.16, 13.3.28 through 1.3.30. The standards provide, in
part, that pipelines must adhere to a standard method for
calculating fuel, make fuel reimbursement percentages effective only
at the beginning of the month, not reject nominations due to fuel
differences of less than 5 Dth, and provide a fuel matrix for
receipt and delivery point combinations.
---------------------------------------------------------------------------
In the NOPR, the Commission found no need to adopt additional
standards regarding in-kind or alternative fuel reimbursement
mechanisms. The Commission, however, did find that pipelines should
permit shippers, which do not want to calculate their own fuel charges,
to contract with third-parties to provide the required fuel.
a. In-kind fuel reimbursement. Several commenters suggest that the
existing in-kind fuel reimbursement standards should be strengthened.
ECT maintains that the Commission often does not act on tariff filings
to revise fuel changes until the end of the month, which does not
provide sufficient time for shippers to reprogram their computers to
accommodate the change. ECT recognizes section 4 of the Natural Gas Act
(NGA) provides for 30-day notice prior to implementation of proposed
changes, but it, nevertheless, asks for a requirement that fuel rates
be made and accepted no later than the close of NYMEX trading, three
days before the end of the month. NGSA requests the adoption of a
regulation requiring fuel reimbursement to be calculated prospectively.
ProEnergy maintains that monthly fuel rate changes do not provide
sufficient predictability for parties to construct competitive gas
transactions. It argues that to improve the certainty of the process,
fuel changes should be made only once a year, with a mechanism to true-
up actual with projected fuel use.
The existing fuel standards represent a consensus agreement of the
industry, and the Commission does not find sufficient justification for
imposing the disputed standards suggested by the shippers. Given the
other risks that go into gas transactions, the change in cost
represented by a fuel change is not such a significant component of the
overall deal that it should dramatically affect shipper planning.
Pipelines may need to file for fuel rate changes under section 4 of the
NGA more frequently than the once a year recommended by the commenters.
For example, a yearly true-up would not deal with a continued
undercollection of fuel in individual months, which might require the
pipeline to purchase fuel, rather than relying on in-kind
reimbursement. The Commission also declines to restrict pipeline tariff
filings for changes in fuel rates so that the effective date is three
days prior to the end of the month, as ECT suggests. Even in those
cases where the filing happens to put the Commission's order on the
last day of the month, the shippers still have thirty days notice that
the fuel rates may change and can have their computer changes ready to
implement if the Commission approves the change.
b. Fuel nominations from agents. Most of the comments address the
Commission's policy that pipelines should accept fuel nominations from
shippers' agents. The pipelines maintain the requirement is too
burdensome, because it introduces a second nomination that must be
coordinated with the shipper's nomination, requires changes in fuel
nominations with each intra-day nomination change, as well as creates
other complexities such as establishing priorities for fuel nominations
and determining which gas should be first through the
meter.105 The pipelines contend shippers already have
sufficient flexibility for supplying fuel, since they can nominate fuel
gas from a pool and can use a marketer or agent to provide all of their
gas requirements. Nicor Gas agrees that permitting separate fuel
nominations would create unnecessary burdens.
---------------------------------------------------------------------------
\105\ Comments by CNG, Enron, INGAA, K N Interstate Group, Koch,
NGPL, NGT/MRT, Southern, Williston Basin, WGP.
---------------------------------------------------------------------------
Several shippers,106 and Tennessee Pipelines, support
giving shippers the ability to buy fuel from a third-party, but some of
the commenters raise issues that, they assert, should be considered by
GISB in devising standards covering fuel nominations. PG&E contends the
Commission should not require pipelines to support third-party fuel
nominations now, but should defer decision until GISB works on
appropriate standards. TransCapacity outlines a series of timing and
other issues that need to be considered, such as what fuel gas to cut
in the case of an unscheduled or bumped nomination, the need for
standards regarding the simultaneity of fuel receipts to
transportation, and the timing of fuel and related transportation
nominations.
---------------------------------------------------------------------------
\106\ Comments by NGC, NGSA, PG&E, SoCal Gas/SDG&E,
TransCapacity.
---------------------------------------------------------------------------
Throughout this proceeding, shippers have sought standards that
would obviate the need, and the risk, of having to calculate fuel
reimbursement across multiple pipelines. If a shipper wants 100 MMBtus
delivered, it may want the flexibility to arrange for 100 MMBtus to
[[Page 20093]]
be injected into the system without having to worry about accurately
calculating how much extra gas is needed to meet multiple pipeline fuel
percentages. While the Commission is not requiring pipelines to provide
an alternative to in-kind fuel reimbursement, the pipelines need to
provide shippers with the option of contracting with a third-party who
would be responsible for calculating and injecting the required amount
of fuel. The option, suggested by the pipelines, of shippers using a
marketer to purchase all their gas supplies is not a substitute for
being able to use a marketer or third-party to provide fuel only.
Shippers may want to use their own contracts to buy and transport their
own gas, but use a third-party to avoid the difficulties of attempting
to calculate accurately the extra fuel reimbursement across numerous
pipelines.
Indeed, some pipelines have recognized shippers' demand for an
alternative to in-kind fuel reimbursement and have included tariff
provisions allowing shippers to buy their fuel from the
pipeline.107 To create a more competitive market, the
Commission concludes that all pipelines should provide shippers the
option of nominating their fuel requirements from an agent separately
from their nomination of the gas used for transportation.
---------------------------------------------------------------------------
\107\ See Koch Gateway Pipeline Company, 73 FERC para. 61,375
(1995), reh'g denied, 74 FERC para. 61,212 (1996), reh'g denied, 75
FERC para. 61,096 (1996), aff'd, 108 F.2d 397 (D.C. Cir. 1997);
Natural Gas Pipeline Company of America, 64 FERC para. 61,295, at
63,072 (1993).
---------------------------------------------------------------------------
The Commission, however, will not require pipelines to honor fuel
nominations from third-parties until GISB has an opportunity to
consider the development of standards. The issues raised by third-party
fuel reimbursement do not seem so intractable that a reasonable set of
standards cannot be developed to cover this transaction. GISB has not
established a schedule for development of such standards. But these
issues seem related to the other issues relating to third-parties, such
as title transfer tracking and multi-tiered allocations, and adding
fuel standards to GISB's schedule for the fourth quarter of 1998 should
not appreciably complicate the issues being considered by GISB. The
Commission will, therefore, expect that proposed standards dealing with
third-party fuel reimbursement will be filed on December 31, 1998,
along with standards in these other areas.
6. Penalty Determinations
In the NOPR, the Commission declined to require pipelines to adopt
a disputed standard that would have required pipelines to determine
penalties on the basis of operational or actual data, whichever is
less. NGSA contends the Commission should adopt a standard basing
penalties on operational data. TransCapacity supports the Commission's
current policy of making individual determinations on this issue. For
example, it asserts that basing penalties on actual data is appropriate
when pipelines have small wells for which installing telemetering is
prohibitively expensive.
Going beyond the issue in dispute at GISB, NGC asks the Commission
to impose a requirement that pipelines cash out imbalances at the price
in effect in the month the imbalance occurred, rather than in the month
when a prior period adjustment is made.
The Commission finds no compelling justification for requiring
uniformity at this time on the limited issue of whether to base
penalties on operational or actual data. While the Commission's general
policy is that penalty categories should be determined based on the
data provided by the pipeline to the shipper,108 there may
be instances, as TransCapacity points out, in which this policy should
not be applied. Moreover, the issues raised by NGSA and NGC are only
small pieces of the penalty puzzle. Rather than attempting to resolve
these issues on a piecemeal basis, the Commission, and the industry,
needs to consider penalty issues on a more comprehensive basis.
---------------------------------------------------------------------------
\108\ See Algonquin Gas Transmission Company, 63 FERC para.
61,188, at 62,374 (1993); Texas Eastern Transmission Corporation, 63
FERC para. 61,100, at 61,486 (1993); Transcontinental Gas Pipe Line
Corporation, 55 FERC para. 61,446, at 62,369 (1991). Under the
Commission's policy, a shipper would be responsible only for the
penalty category it reasonably could have anticipated based on the
information provided by the pipeline. The cash out price, however,
should be based on the actual imbalance incurred.
---------------------------------------------------------------------------
D. Market-Based Rates for Pipeline Services
In several places in this preamble, the Commission has indicated
that pipelines may provide certain services--computerized imbalance
trading, title transfer tracking, and tracking of multi-tiered
allocations--and charge a separate fee for such services. WGP and Koch
contend that pipelines should be able to charge market-based rates for
such services, because they will be competing with third-party firms
providing comparable services. Under the Commission's Alternative Rate
Design Policy Statement,109 pipelines providing such
services may file a request for a Declaratory Order for market-based
rates if they can demonstrate that effective competition for the
service exists.
---------------------------------------------------------------------------
\109\ Alternatives to Traditional Cost-of-Service Ratemaking for
Natural Gas Pipelines (Request for Comments), 74 FERC 61,076 (1996).
---------------------------------------------------------------------------
E. Implementation Schedule and Schedule for Submission of Additional
Standards
To summarize, pipelines must comply with the following regulations
August 1, 1998: (1) adoption of Version 1.2 of the GISB standards in
section 284.10(b); 110 and (2) compliance with the
requirements in Sec. 284.10(c)(3)(ii) through (v) setting standards for
posting information on pipeline web sites, requiring that content be
the same regardless of the method of communication, requiring a cross-
reference table for numeric designations, and establishing a retention
policy for electronic information.
---------------------------------------------------------------------------
\110\ In filing to implement Version 1.2, pipelines need to
change all references to GISB standards in their tariffs to Version
1.2. The version number applies to all standards contained in GISB's
Version 1.2 Standards Manuals, including standards that have not
changed from prior versions.
---------------------------------------------------------------------------
Implementation of the regulations regarding intra-day nominations,
Sec. 284.10(c)(1)(i), operational balancing agreements,
Sec. 284.10(c)(2)(i), trading of imbalances, Sec. 284.10(c)(2)(ii), and
Internet notification of critical notices, Sec. 284.10(c)(3)(vi), will
take place on a date to be set in the order adopting standards relating
to these activities.
Pipelines must implement the regulation requiring the use of the
Internet for conducting transactions, Sec. 284.10(c)(3)(i), by June 1,
1999.
The Commission expects the submission of proposed standards in the
following areas by the dates specified:
June 30, 1998
Operational Balancing Agreements and Imbalance Trading
December 31, 1998
Title Transfer Tracking, Cross-Contract Ranking, Fuel
Reimbursement, and Critical Notice Notification
III. Information Collection Statement
OMB's regulations in 5 CFR 1320.11 require that it approve certain
reporting and recordkeeping requirements (collections of information)
imposed by an agency. Upon approval of a collection of information, OMB
shall assign an OMB control number and an expiration date. Respondents
subject to
[[Page 20094]]
the filing requirements of this Rule shall not be penalized for failing
to respond to these collections of information unless the collections
of information display valid OMB control numbers.
The collections of information related to the subject Final Rule
fall under the existing reporting requirements of FERC-545, Gas
Pipeline Rates: Rate Change (Non-Formal) (OMB Control No. 1902-0154)
and FERC-549C, Standards for Business Practices of Interstate Natural
Gas Pipelines (OMB Control No. 1902-0174). The following estimates of
reporting burden are related only to this Rule and include the costs
for pipelines to comply with Version 1.2 of the GISB standards and the
Commission's regulations regarding intra-day nominations, the use of
OBAs at pipeline interconnects, the trading of imbalances, and
communications using the Internet. The burden estimates are primarily
related to start-up and will not be on-going costs except for the
recordkeeping requirement.
Public Reporting Burden: (Estimated Annual Burden).
----------------------------------------------------------------------------------------------------------------
Total Estimated Estimated
Affected data collection Number of responses hours per total hours
respondents (annual) response (annual)
----------------------------------------------------------------------------------------------------------------
FERC-545........................................ 93 93 58 5,394
FERC-549C....................................... 93 93 4,483 416,919
---------------------------------------------------------------
Total....................................... 93 93 4,541 422,313
----------------------------------------------------------------------------------------------------------------
The total annual hours for collection (including recordkeeping) is
estimated to be 422,313. The average annualized cost for all 93
respondents is projected to be the following:
----------------------------------------------------------------------------------------------------------------
Annualized
Annualized costs Total
Affected data collection capital/ (operations annualized
startup costs and costs
maintenance)
----------------------------------------------------------------------------------------------------------------
FERC-545........................................................ $284,303 $0 $284,303
FERC-549C....................................................... 21,641,327 333,321 21,974,648
-----------------------------------------------
Total....................................................... 21,925,630 333,321 22,258,951
----------------------------------------------------------------------------------------------------------------
Koch questions the Commission's estimate of about $240,000 per
respondent, contending, in particular, that it underestimates the costs
of complying with the Internet requirements. Although Koch recognizes
the difficulty of estimating costs for services not yet offered, it
anticipates approximately $2 million in start-up costs for Internet
compliance alone.
Koch is the only commenter raising questions about the Commission's
cost estimates. From the context of Koch's comment, it appears to be
questioning the costs of establishing an interactive web site. But, as
discussed earlier, this rule does not require pipelines to establish an
interactive web site; they are required only to conduct Internet
communications using EDI files, which Koch itself claims are less
expensive. Moreover, from the Commission's experience, the costs for
pipelines to create standardized interactive web sites should not be
inordinate. The Commission strongly encourages pipelines to jointly
develop a standardized interactive web site, which should significantly
reduce the costs for developing such systems. As NGC points out,
electric utilities saved substantial sums by jointly developing their
standardized Internet communication system. In any event, even if
Koch's estimate were accurate, the cost would be a one-time expenditure
and the benefits to the entire industry from creating a standardized
communication system would be worth the cost.
The GISB standards and Commission regulations adopted in this Rule
are necessary to further the process begun in Order No. 587 of creating
a more efficient and integrated pipeline grid by standardizing the
business practices and electronic communications of interstate
pipelines. Requiring interstate pipelines to comply with these
standards and regulations will reduce the variations in pipeline
business and communication practices and will permit pipelines and
their customers to more efficiently obtain information from and
transact business across multiple pipelines.
The Commission has assured itself, by means of its internal review,
that there is specific, objective support for the burden estimates
associated with the information requirements. The information required
in this Final Rule will be reported directly to the industry users and
later be subject to audit by the Commission. This information also will
be retained for a three year period. The implementation of these data
requirements will help the Commission carry out its responsibilities
under the Natural Gas Act and conforms to the Commission's plan for
efficient information collection, communication, and management within
the natural gas industry.
Interested persons may obtain information on the reporting
requirements by contacting the Federal Energy Regulatory Commission,
888 First Street, N.E., Washington, DC 20426 [Attention: Michael
Miller, Information Services Division, 202-208-1415] or the Office of
Management and Budget [Attention: Desk Officer for the Federal Energy
Regulatory Commission, 202-395-3087].
IV. Environmental Analysis
The Commission is required to prepare an Environmental Assessment
or an Environmental Impact Statement for any action that may have a
significant adverse effect on the human environment.\111\ The
Commission has categorically excluded certain actions from these
requirements as not having a significant effect on the human
environment.\112\ The actions taken here fall within categorical
exclusions in the Commission's regulations for rules that are
clarifying, corrective, or procedural, for information gathering,
analysis, and dissemination, and for sales, exchange, and
transportation of natural gas that
[[Page 20095]]
requires no construction of facilities.\113\ Therefore, an
environmental assessment is unnecessary and has not been prepared in
this rulemaking.
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\111\ Order No. 486, Regulations Implementing the National
Environmental Policy Act, 52 FR 47897 (Dec. 17, 1987), FERC Stats. &
Regs. Preambles 1986-1990 para. 30,783 (1987).
\112\ 18 CFR 380.4.
\113\ See 18 CFR 380.4(a)(2)(ii), 380.4(a)(5), 380.4(a)(27).
---------------------------------------------------------------------------
V. Regulatory Flexibility Act Certification
The Regulatory Flexibility Act of 1980 (RFA) \114\ generally
requires a description and analysis of final rules that will have
significant economic impact on a substantial number of small entities.
The regulations adopted in this rule impose requirements only on
interstate pipelines, which are not small businesses, and these
requirements are, in fact, designed to reduce the difficulty of dealing
with pipelines by all customers, including small businesses. No
comments were submitted to the Commission alleging any significant
economic effect on small businesses. Accordingly, pursuant to section
605(b) of the RFA, the Commission hereby certifies that the regulations
proposed herein will not have a significant adverse impact on a
substantial number of small entities.
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\114\ 5 U.S.C. 601-612.
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VI. Effective Date
These regulations will become effective May 26, 1998. The
Commission has concluded, with the concurrence of the Administrator of
the Office of Information and Regulatory Affairs of OMB, that this rule
is not a ``major rule'' as defined in section 251 of the Small Business
Regulatory Enforcement Fairness Act of 1996.
List of Subjects in 18 CFR Part 284
Continental shelf, Natural gas, Reporting and recordkeeping
requirements; Incorporation by reference.
By direction of the Commission.
Linwood A. Watson, Jr.,
Acting Secretary.
In consideration of the foregoing, the Commission amends Part 284,
Chapter I, Title 18, Code of Federal Regulations, as set forth below.
PART 284--CERTAIN SALES AND TRANSPORTATION OF NATURAL GAS UNDER THE
NATURAL GAS POLICY ACT OF 1978 AND RELATED AUTHORITIES
1. The authority citation for Part 284 continues to read as
follows:
Authority: 15 U.S.C. 717-717w, 3301-3432; 42 U.S.C. 7101-7532;
43 U.S.C. 1331-1356.
2. In section 284.10, paragraph (a)(6) is added, paragraph (b)(1)
is revised, and paragraph (c) is added to read as follows:
Sec. 284.10 Standards for pipeline business operations and
communications.
(a) * * *
(6) A pipeline's obligation to provide information pursuant to this
paragraph will terminate when all relevant information is provided
pursuant to paragraph (c)(3)(i) of this section.
(b) Incorporation by reference of GISB standards. (1) An interstate
pipeline that transports gas under subparts B or G of this part must
comply with the following business practice and electronic
communication standards promulgated by the Gas Industry Standards
Board, which are incorporated herein by reference:
(i) Nominations Related Standards (Version 1.2, July 31, 1997),
with the exception of Standard 1.3.32;
(ii) Flowing Gas Related Standards (Version 1.2, July 31, 1997),
with the exception of Standards 2.3.29 and 2.3.30;
(iii) Invoicing Related Standards (Version 1.2, July 31, 1997);
(iv) Electronic Delivery Mechanism Related Standards (Version 1.2,
July 31, 1997), with the exception of 4.3.4; and
(v) Capacity Release Related Standards (Version 1.2, July 31,
1997).
* * * * *
(c) Business practices and electronic communication requirements.
An interstate pipeline that transports gas under subparts B or G of
this part must comply with the following requirements. The regulations
in this paragraph adopt the abbreviations and definitions contained in
the Gas Industry Standards Board standards incorporated by reference in
paragraph (b)(1) of this section.
(1) Nominations.
(i) Intra-day nominations.
(A) A pipeline must give scheduling priority to an intra-day
nomination submitted by a firm shipper over nominated and scheduled
volumes for interruptible shippers. When an interruptible shipper's
scheduled volumes are to be reduced as a result of an intra-day
nomination by a firm shipper, the interruptible shipper must be
provided with advance notice of such reduction and must be notified
whether penalties will apply on the day its volumes are reduced.
(B) An intra-day nomination submitted on the day prior to gas flow
will take effect at the start of the gas day at 9 a.m. CCT.
(2) Flowing gas.
(i) Operational balancing agreements. A pipeline must enter into
Operational Balancing Agreements at all points of interconnection
between its system and the system of another interstate or intrastate
pipeline.
(ii) Netting and trading of imbalances. A pipeline must establish
provisions permitting shippers and their agents to offset imbalances
accruing on different contracts held by the shipper with the pipeline
and to trade imbalances with other shippers where such imbalances have
similar operational impact on the pipeline's system.
(3) Communication protocols.
(i)(A) All electronic information provided and electronic
transactions conducted by a pipeline must be provided on the public
Internet. A pipeline must provide, upon request, private network
connections using internet tools, internet directory services, and
internet communication protocols and must provide these networks with
non-discriminatory access to all electronic information. A pipeline may
charge a reasonable fee to recover the costs of providing such an
interconnection.
(B) A pipeline must implement this requirement no later than June
1, 1999.
(ii) A pipeline must comply with the following requirements for
documents constituting public information posted on the pipeline web
site:
(A) The documents must be accessible to the public over the public
Internet using commercially available web browsers, without imposition
of a password or other access requirement;
(B) Users must be able to search an entire document online for
selected words, and must be able to copy selected portions of the
documents; and
(C) Documents on the web site should be directly downloadable
without the need for users to first view the documents on the web site.
(iii) If a pipeline uses a numeric or other designation to
represent information, an electronic cross-reference table between the
numeric or other designation and the information represented must be
available to users, at a cost not to exceed reasonable shipping and
handling.
(iv) A pipeline must provide the same content for all information
regardless of the electronic format in which it is provided.
(v) A pipeline must maintain, for a period of three years, all
information displayed and transactions conducted electronically under
this section and be able to recover and regenerate all such electronic
information and documents. The pipeline must make this archived
information available in electronic form for a reasonable fee.
[[Page 20096]]
(vi) A pipeline must post notices of operational flow orders,
critical periods, and other critical notices on its Internet web site
and must notify affected parties of such notices in either of the
following ways to be chosen by the affected party: Internet E-Mail or
direct notification to the party's Internet URL address.
[FR Doc. 98-10685 Filed 4-22-98; 8:45 am]
BILLING CODE 6717-01-P
