[Federal Register Volume 59, Number 66 (Wednesday, April 6, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8187]
[[Page Unknown]]
[Federal Register: April 6, 1994]
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DEPARTMENT OF ENERGY
[Docket No. RM94-12-000]
Interstate Natural Gas Pipeline Gas Supply Realignment Costs;
Public Conference
March 30, 1994.
Agency: Federal Energy Regulatory Commission, DOE.
ACTION: Notice of Public Conference.
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SUMMARY: The Federal Energy Regulatory Commission is issuing this
notice to establish a date for a public conference to discuss the use
of pricing differential mechanisms by interstate natural gas pipelines
to recover gas supply realignment costs.
DATES: The public conference will be held on May 26, 1994, in the
Commission Meeting Room. Persons wishing to make a formal presentation
to the Commission should submit a written request to the Secretary of
the Commission no later than May 2, 1994.
ADDRESSES: Office of the Secretary, Federal Energy Regulatory
Commission, 825 North Capitol Street, NE., Washington, DC 20426.
FOR FURTHER INFORMATION CONTACT: Mary Hain, (202) 208-0996.
Take notice that on May 26, 1994 at 10 a.m., the Commission will
convene a public conference in the above captioned proceeding to
examine the use of pricing differential mechanisms by interstate
natural gas pipelines to recover gas supply realignment costs.
In Order No. 6361 the Commission established policies for the
recovery of the costs incurred by pipelines in connection with the
transition required by that restructuring rule. One category of costs
recognized by the Commission were the costs the pipelines would incur
to realign the gas supplies they had under contract with producers in
order to make bundled sales. After unbundling, as required in the
restructuring rule, the Commission expected that pipelines would have
to reform their supply contracts to market levels or terminate the
contracts altogether. In Order No. 636 the Commission adopted the
policy that pipelines would be permitted full recovery of prudently
incurred gas supply realignment costs.2
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\1\Pipeline Service Obligations and Revisions to Regulations
Governing Self-Implementing Transportation; and Regulation of
Natural Gas Pipelines After Partial Wellhead Decontrol, 57 FR 13,267
(April 16, 1992), III FERC Stats. & Regs. Preambles 30,939 (April
8, 1992); order on reh'g, Order No. 636-A, 57 FR 36,128 (August 12,
1992), III FERC Stats. & Regs. Preambles 30,950 (August 3, 1992);
order on reh'g, Order No. 636-B, 57 FR 57,911 (December 8, 1992), 61
FERC 61,272 (1992).
\2\III FERC Stats. & Regs. Preambles at 30,458.
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Subsequently, in cases concerning the implementation of the
restructuring rule, the Commission decided that, in certain
circumstances, it would permit a pipeline to recover the difference
between the contract price and the market price as a gas supply
realignment cost for a two-year period.3 The premise underlying
the Commission's decision was that allowing the recovery of pricing
differentials for a two year period would be less costly than requiring
the pipeline to hastily arrange to buy out of the contract.
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\3\See, e.g., Texas Eastern Transmission Corp., 62 FERC 61,015
(January 13, 1993); order on reh'g 63 FERC 61,100 (April 22,
1993); and Southern Natural Gas Co., 64 FERC 61,274 (September 3,
1993).
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The Commission's recent experience with pipeline filings to recover
pricing differentials has raised questions about whether this method
for recovering gas supply realignment costs is an effective way to
minimize gas supply realignment costs--the Commission's original goal
in approving the use of such mechanisms. If it is not an effective
method for minimizing gas supply realignment costs, then the Commission
requests proposals for alternatives that are consistent with the
Commission's policy to permit pipelines the full recovery of their
prudently incurred gas supply realignment costs. The purpose of the
conference is limited to consideration of the pricing differential
mechanism. The Commission does not intend to reexamine its other
policies on the recovery of transition costs.
The public conference convened by this notice will be held at 10
a.m. on May 26, 1994, in the Commission Meeting Room, 825 N. Capitol
St., NE., Washington DC 20426.
Any person who wishes to make a formal presentation to the
Commission should submit a written request to the Secretary of the
Commission no later than May 2, 1994. Every effort will be made to
accommodate such requests. Members of the Commission intend to
participate in this public conference and will reserve time for
questions and answers. After the conference, participants and others
may file written comments by June 24, 1994.
By direction of the Commission: Commissioner Santa concurred
with a separate statement attached.
Lois D. Cashell,
Secretary.
Santa, Commissioner, concurring:
Issued March 30, 1994.
With this notice of Public Conference, the Commission is initiating
an inquiry into whether permitting the recovery of pricing differential
costs (PDC) is an ``effective way to minimize gas supply realignment
costs.'' The Notice includes the Commission's reassurance that, if PDC
recovery is not an effective method for minimizing gas supply
realignment (GSR) costs, we will limit ourselves to the consideration
of ``alternatives that are consistent with the Commission's policy to
permit pipelines full recovery of their prudently incurred gas supply
realignment costs.'' Notwithstanding this reassurance, I am troubled by
the prospect that the Commission would appear to be considering a mid-
stream change in its mechanism for the recovery of Order No. 636
transition costs.
In Texas Eastern Transmission Corp.,1 the Commission
authorized PDC recovery for a period of two years. The Commission made
clear that at the end of this period, the effectiveness of PDC recovery
as a means to minimize transition costs would be subject to
reexamination. In particular, the Commission has provided pipelines
with warnings that:
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\1\62 FERC 61,015 at 61,125 (1993).
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(1) the burden is on the pipeline to support the continuation of
PDC recovery beyond the initial period;2
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\2\Id.
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(2) a pipeline cannot prudently delay realigning its problem
contracts on the basis of the possibility of an extension;3 and
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\3\Southern Natural Gas Co., 64 FERC 61,274 at 62,932 (1993).
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(3) after the two-year period, the Commission may revisit the issue
of continuing the mechanism.4
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\4\Texas Eastern Transmission Corp., 64 FERC 61,305 at
63,307 (1993).
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The Commission already has established a procedure for determining
whether, ultimately, these costs will be recoverable. In addition to
examining the eligibility and prudence of PDCs, if raised by parties to
the proceedings, the Commission has stated that the burden will be on
the pipeline to demonstrate that the PDC methodology will minimize GSR
costs.5 Further, the pipeline will have the burden of
demonstrating that it made a bona fide effort to renegotiate the
contracts underlying the PDCs it has filed to recover.6 Filings to
recover PDCs have been set for hearing, and the records developed in
those proceedings will give the Commission a basis for determining
whether the PDC recovery procedure in fact minimizes Order No. 636
transition costs.
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\5\Texas Eastern Transmission Corp., 62 FERC at 61,125. Also, to
ensure cost minimization, the Commission required that Texas Eastern
maintain a list of above-market contracts (List A) and a list of
below-market contracts (List B) and credit net revenues from List B
gas sales against the pricing differential from List A gas sales.
\6\Id.
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Consequently, it is troubling that approximately nine months into
the two-year period7 the Commission is initiating a proceeding,
docketed as a rulemaking, to consider whether the PDC recovery
mechanism is ``an effective way to minimize gas supply realignment
costs'' and to consider proposals for alternatives. I would hope that
the end result of this proceeding is not a termination or modification
of the PDC recovery mechanism effective prior to the end of the two-
year period. Rather, I would hope that the record developed in this
proceeding, together with the case-specific records developed in the
section 4 GSR cost proceedings, will be used to inform the Commission's
decision whether to terminate, modify, or continue the PDC recovery
mechanism beyond two years.
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\7\ Texas Eastern was the first pipeline to file to recover PDC
costs, and approximately nine months of Texas Eastern's two-year
period has elapsed.
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Absent compelling evidence that the PDC recovery mechanism is not
minimizing GSR costs, I would be reluctant to modify the mechanism mid-
stream. I believe that regulatory certainty is important, and that
pipelines have relied on the two-year time horizon provided by the PDC
recovery mechanism. Therefore, I would urge my colleagues to consider
carefully the consequences of modifying this aspect of the Order No.
636 transition cost recovery procedure at this time.
Donald F. Santa, Jr.
Commissioner.
[FR Doc. 94-8187 Filed 4-5-94; 8:45 am]
BILLING CODE 6717-01-P
