[Federal Register Volume 63, Number 106 (Wednesday, June 3, 1998)]
[Rules and Regulations]
[Pages 30127-30131]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14676]
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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Part 284
[Docket Nos. RM91-11-007 and RM87-34-073]
Pipeline Service Obligations and Revisions to Regulations
Governing Self-Implementing Transportation Under Part 284 and
Regulation of Natural Gas Pipelines After Partial Wellhead Decontrol
Issued May 28, 1998.
AGENCY: Federal Energy Regulatory Commission.
ACTION: Order on Rehearing.
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SUMMARY: This order denies requests for rehearing of Order No. 636-C
published on March 6, 1997 (62 FR 10204). The Commission issued Order
No. 636-C to resolve six issues remanded by the decision of the United
States Court of Appeals for the District of Columbia Circuit in United
Distribution Cos. v. FERC, 88 F. 3d 1105 (D.C.Cir. 1996), cert. denied,
117 S.Ct. 1723 (1997), concerning the Commission's rule restructuring
services in the natural gas industry.
For Further Information Contact:
Richard Howe, Office of the General Counsel, Federal Energy Regulatory
Commission, 888 First St., NE, Washington, DC 20426, (202) 208-1274
Ingrid Olson, Office of the General Counsel, Federal Energy Regulatory
Commission, 888 First St., NE, Washington, DC 20426, (202) 208-2015
SUPPLEMENTARY INFORMATION: In addition to publishing the full text of
this document in the Federal Register, the Commission also provides all
interested persons an opportunity to inspect or copy the contents of
this document during normal business hours in the Public Reference Room
at 888 First Street, NE, Room 2A, Washington, DC 20426.
The Commission Issuance Posting System (CIPS) provides access to
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using the CIPS Link or the Energy Information Online icon. The full
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To access CIPS, set your communications software to 19200, 14400,
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This document is also available through the Commission's Records
and Information Management System (RIMS), an electronic storage and
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Finally, the complete text on diskette in WordPerfect format may be
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Corporation. La Dorn Systems Corporation is located in the Public
Reference Room at 888 First Street, NE, Washington, DC 20426.
Before Commissioners: James J. Hoecker, Chairman; Vicky A.
Bailey, William L. Massey, Linda Breathitt, and Curt Hebert, Jr.
On February 27, 1997, the Commission issued Order No. 636-
C,1 to comply with the Court's decision in United
Distribution Companies v. FERC (UDC).2 Timely requests for
rehearing of Order No. 636-C were filed by thirteen
parties.3 The requests for rehearing are denied, and
clarification is granted, as discussed below.
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\1\ 78 FERC para. 61,186 (1997).
\2\ 88 F.3d 1105 (D.C. Cir. 1996), cert. denied, 117 S.Ct. 1723
(1997).
\3\ These parties are American Public Gas Association and
Decatur Utilities, City of Decatur Alabama, and Huntsville
Utilities, City of Huntsville, Alabama (APGA); Coastal Companies
(ANR Pipeline Co., ANR Storage Co., Colorado Interstate Gas Company
and Wyoming Interstate Ltd.); East Tennessee Group; Interstate
Natural Gas Association of America (INGAA); Missouri Public Service
Commission (MoPSC); National Association of Gas Consumers (NAGC);
National Association of State Utility Consumer Advocates and the
Pennsylvania Office of Consumer Advocate; National Fuel Gas Supply
Corporation; Noram Gas Transmission Company and Mississippi River
Transmission Company; Pacific Gas Transmission Company; Tennessee
Valley Municipal Gas Association; Texas Eastern Transmission
Corporation, Panhandle Eastern Pipeline Company, Trunkline Gas
Company, and Algonquin Gas Transmission Company (PanEnergy
Companies); and Williams Interstate Natural Gas Company.
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[[Page 30128]]
I. Background
In Order No. 636,4 the Commission directed pipelines to
restructure their services in order to improve the competitive
structure of the natural gas industry. Specifically, the Commission
required pipelines to unbundle the transportation from the sale of gas,
to use a straight fixed variable rate design in developing their
transportation rates, and to permit firm shippers to resell their
capacity rights. In addition, the Commission took action to promote the
growth of market centers, and adopted policies to govern the pipeline's
recovery of the transition costs that would arise from the
restructuring. In UDC, the Court affirmed the major elements of the
Commission's restructuring rule, but remanded six issues to the
Commission for further consideration.5 In Order No. 636-C,
the Commission addressed the issues remanded by the Court.
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\4\ Pipeline Service Obligations and Revisions to Regulations
Governing Self-Implementing Transportation and Regulation of Natural
Gas Pipelines After Partial Wellhead Decontrol [Regs. Preambles Jan.
1991-June 1996] FERC Stats. & Regs. para. 30,939 (1992), order on
reh'g, Order No. 636-A, [Regs. Preambles Jan. 1991-June 1992] FERC
Stats. & Regs para. 30,950 (1992), order on reh'g, Order No. 636-B,
61 FERC para. 61,272 (1992), reh'g denied, 62 FERC para. 61,007
(1993).
\5\ Specifically, the Court remanded to the Commission issues
related to eligibility for no-notice transportation, the selection
of a twenty-year cap in the right of first refusal process, SFV rate
mitigation, eligibility of small customers on downstream pipelines
for a small customer rate, the requirement that pipelines allocate
10 percent of GSR costs to interruptible customers, and the decision
to exempt pipelines from sharing in GSR costs.
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The requests for rehearing of Order No. 636-C raise issues
concerning the term matching cap for the right of first refusal, the
eligibility date for no-notice service, the appropriate rates for small
customers of downstream pipelines who became direct customers of the
upstream pipeline as a result of restructuring, and GSR costs. The only
parties who sought rehearing of Order No. 636-C's holding that
pipelines need not absorb a share of the GSR costs have withdrawn their
rehearing requests. Therefore, that issue is now resolved. The requests
for rehearing on the other three issues are discussed below.
II. Right of First Refusal
A. Background
Order No. 636 authorized pre-granted abandonment of long-term firm
transportation contracts, subject to a right of first refusal for the
existing shipper. Under the right of first refusal, the existing
shipper can retain service by matching the rate and the term of service
in a competing bid. The rate is capped by the pipeline's maximum tariff
rate, and in Order No. 636, the Commission capped the term of service
at twenty years. In UDC, the Court approved the concept of a right of
first refusal with a term-matching cap as ``a rational means of
emulating a competitive market for allocating firm transportation
capacity,'' 6 but found that the Commission's explanation
for selecting a twenty-year cap, as opposed to some other term,
inadequate. The Court concluded that the Commission had failed to
explain why the twenty-year cap ``adequately protects against
pipelines' preexisting market power, which they enjoy by virtue of
natural monopoly conditions;'' 7 and why the twenty-year cap
will ``prevent bidders on capacity constrained pipelines from using
long contract duration as a price surrogate to bid beyond the maximum
approved rate to the detriment of captive customers.'' 8 The
Court accordingly remanded this issue for further consideration.
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\6\ UDC, 88 F.3d at 1140.
\7\ Id.
\8\ Id.
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On remand, in Order No. 636-C, the Commission reexamined the record
of the Order No. 636 proceedings, as well as data concerning contract
terms that had become available since restructuring. The Commission
found that this information suggested that since the issuance of Order
No. 636, the industry trend appeared to be contract terms of much less
than twenty years. The Commission noted that many of the commenters in
the Order No. 636 rulemaking had proposed a cap of five years, and
found that five years was approximately the median length of long term
contracts entered into since January 1, 1995. Therefore, in Order No.
636-C, the Commission established the contract matching term cap at
five years, and directed pipelines to amend their tariffs accordingly,
regardless of whether the issue was preserved in the individual
restructuring proceedings. The Commission thought that the five-year
cap would avoid customers' being locked into long-term arrangements
with pipelines that they do not really want, and therefore was
responsive to the Court's concerns, and that the five-year cap also has
the advantage of being consistent with the industry trend of short-term
contracts. The Commission stated that it would consider on a case-by-
case basis whether any relief is necessary in connection with contracts
that had been renewed since Order No. 636, and that it would entertain
requests to shorten a contract term if a customer renewed a contract
under the right-of-first-refusal process since Order No. 636, and can
show that it agreed to a longer term renewal contract than it otherwise
would have because of the twenty-year cap.
On rehearing, the pipelines object to the five-year cap. INGAA,
National Fuel, Noram and MRT, PanEnergy, PGT, and Williams argue that
the five year cap interferes with the market forces that Order No. 636
sought to encourage. They assert that because of the five year cap, it
is unlikely that any existing shipper will renew a contract for a term
longer than five years. Therefore, they argue, allocation will be
determined not by the market, but by regulatory controls and by the
status of a party as an existing customer or a new customer. They
further assert that existing customers will be shielded from
competition and given unwarranted control over pipeline capacity
rights. The pipelines also argue that the five year cap creates an
imbalance in the risks assumed by pipelines and shippers, and is too
short to meet the legitimate needs of the pipeline industry.
In addition, the pipelines argue that the five year cap is not
supported by substantial evidence, and that the Commission erred in
establishing the cap based on recent data showing that the median
length of contracts is five years. These parties argue that the use of
a median, based on less than two years experience since January 1995,
to determine the maximum contract length is not appropriate. They state
that the long term average term of previously effective long term
contracts is over 20 years, and the average term of all such contracts
is over ten years.
Several pipelines also argue that the order is procedurally infirm
because the Commission did not provide an adequate opportunity for
interested partes to comment and develop a complete record before
adopting this rule, and because the Commission failed to evaluate the
alternatives to a five year cap. Several of these parties also argue
that the five year renewal term conflicts with the Commission's
decision in Order No. 888-A, where the Commission adopted a ROFR
provision without a maximum renewal term. The pipelines also argue that
Order No. 636-C is not responsive to the Court's remand, and that the
twenty-year cap withstands the inquiries posited by the Court. They
argue that the Commission should return to the rationale that it
originally expressed in Order No. 636, i.e., that under the ROFR,
capacity rights should go to the party that values them most.
[[Page 30129]]
B. Discussion
The Commission has decided not to modify the five-year cap in this
proceeding. The record in the Order No. 636 proceeding consists of data
and arguments presented to the Commission in 1991 and 1992, before
restructuring had been implemented, and some limited information
regarding contract terms that became available after restructuring.
Based on that record, the five-year cap is responsive to the Court's
concern that a twenty year matching cap may not adequately protect
consumers against the exercise of the pipelines' monopoly power. As the
Court pointed out, most of the commenters in this proceeding advocated
a term of less than twenty years, such as five years.9
Further, the record in this case also shows that the trend in the
industry in the months after restructuring was toward shorter
contracts, and the five year cap is consistent with this industry
trend. As the Commission explained in Order No. 636-C, the selection of
a particular matching cap involves weighing several factors, and, as
the Court recognized, is necessarily somewhat arbitrary. The record in
this proceeding supports the finding that the five year cap reasonably
protects captive customers from having to match competing bids that
offer longer terms than the bidder would have to bid in a competitive
market without the pipeline's natural monopoly. Therefore, the requests
for rehearing are denied.
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\9\ Id. at 1141.
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Nevertheless, the pipelines have raised legitimate concerns about
the practical effects of the five year term matching cap on the
restructured market as it continues to evolve. Information subsequent
to the period covered in this record suggests that the five year cap
results in a bias toward short-term contracts, with possible adverse
economic consequences for both pipelines and captive customers. The
Commission is currently analyzing these and other issues related to
both short term and long term gas markets as part of a comprehensive
review of its gas policies. This ongoing review will develop a record
containing information on the pipeline industry in the post-
restructured environment, and will provide an opportunity for
interested parties to submit information and comments on future
regulatory policies, including whether the term matching cap in the
right of first refusal should be lengthened or removed altogether. In
contrast, the record in this proceeding contains no information
concerning current conditions in the natural gas industry. Therefore,
any change that may be made in the Commission's current policy
concerning the right of first refusal would be better addressed in the
context of a new gas policy initiative, where all long-term issues can
be considered and a new record can be developed concerning current
conditions in the natural gas industry.
Several parties seek clarification of the mechanism for providing
case-by-case relief to shippers who had already renewed their contracts
pursuant to the right of first refusal prior to the issuance of Order
No. 636-C. Coastal Companies asks the Commission to clarify that the
Commission will not shorten the term of an already renewed contract if
the renewal took place pursuant to a pipeline's tariff procedures that
were established in an order that is non-appealable.10 This
is particularly important, Coastal argues, where, as in the case of
CIG, the twenty year cap is part of a comprehensive settlement. If the
Commission denies clarification and rehearing, Coastal asks the
Commission to clarify that in addressing a shipper's request to shorten
the term of a contract, the Commission will consider all pertinent
factors, such as whether business decisions were made in reliance on
that provision. Similarly, Noram argues that the Commission should not
disturb matching caps established by individual pipelines. On the other
hand, NAGC asserts that the Commission properly reduced the cap to five
years, but erred in not requiring that all existing contracts under
Order No. 636 for 20 years could be modified at the request of the
adversely affected customers without the necessity of extensive
proceedings before the Commission.11
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\10\ Coastal states that the Commission took a similar approach
in Order No. 528, 53 FERC para. 61,163 at 61,594 (1990).
\11\ In addition, APGA and Cities ask the Commission to clarify
that those pipeline customers whose long term firm transportation
contracts expire before the end of the 180-day period for complying
with Order No. 636-C will not be required to match bids of longer
than five years to retain their capacity during the right-of-first
refusal process. Alabama-Tennessee Natural Gas Co. (now Midcoast
Interstate Transmission) filed an answer to APGA and Cities. Issues
concerning the exercise of the right of first refusal on Alabama-
Tennessee by these parties were addressed in several complaint
proceedings, and need not be addressed here. See, e.g., Decatur
Utilities v. Midcoast Interstate Transmission, 81 FERC para. 61,034
(1997).
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The problem of shippers exercising the right of first refusal
during the time period between the issuance of Order No. 636 and Order
No. 636-C has not been significant. The issue has been raised in only
three proceedings.12 The Commission clarifies that any case
specific relief from contract terms will be dependent on a factual
finding that the party entered into a longer term contract than it
otherwise would have because of the 20 year cap, consistent with the
Commission's approach in Horsehead Resource Development Co., Inc. v.
Transcontinental Gas Pipeline Co.,13 and Williams Natural
Gas Co.14 The Commission further clarifies that in
determining whether a contract term should be reduced under this
standard, the Commission will consider all pertinent factors, including
whether the term was part of a settlement package.
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\12\ Horsehead Resource Development Co., Inc. v.
Transcontinental Gas Pipeline Co., 81 FERC para. 61,293 (1997);
Williams Natural Gas Co., 81 FERC para. 61,350 (1997); and Utilicorp
United Inc., Docket No. RP98-189-000 (filed April 17, 1998).
\13\ 81 FERC para. 61,293 (1997). In Horsehead Resources, the
Commission found that the specific facts in that case supported a
finding that the shipper agreed to a longer term than it otherwise
would have because of the twenty year cap requirement, and
therefore, granted the requested relief subject to the outcome of
the requests for rehearing of Order No. 636-C. The Commission then
stated that it would be preferable to wait until it had acted on the
requests for rehearing of Order No. 636-C to reduce the term of the
contract. That term can now be reduced.
\14\ 81 FERC para. 61,350 (1997).
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III. Eligibility Date for No-Notice Service
The Commission held in Order No. 636 that pipelines were required
to provide no-notice service only to those customers that were bundled
sales customers on May 18, 1992, the effective date of Order No. 636.
In UDC, the Court held that the Commission had not adequately explained
why former bundled firm sales customers who had converted to
transportation before issuance of Order No. 636 should not also have a
right to receive no-notice service. Accordingly, the Court remanded the
issue to the Commission for a further explanation of which customers
should be eligible for no-notice service. In Order No. 636-C, the
Commission modified its no-notice policy on a prospective basis and
held that if a pipeline offers no-notice service, it must offer that
service on a non-discriminatory basis to all customers that request it.
The Commission explained that at the time of Order No. 636, there was
considerable uncertainty as to whether pipelines would be able to
perform no-notice service on a widespread basis, but that post-
restructuring experience had not realized these concerns.
No party seeks rehearing of the Commission's requirement that
pipelines offering no-notice service must do so on a nondiscriminatory
basis. Only NAGC requests rehearing, and only on the issue of
retroactivity.
[[Page 30130]]
NAGC asserts that the Commission erred in denying refunds to customers
who, in the past, were not eligible for no-notice service. NAGC argues
that, although the Commission's authority under section 5 of the NGA is
only prospective, the courts have held that refunds effective at the
time of the original error by the Commission are permissible in a case
like this where, NAGC asserts, the Commission's order never became
final and has been overturned by a reviewing court.15 NAGC
asks the Commission to revise Order No. 636-C insofar as it limits the
effectiveness of this ruling to prospective periods, and order refunds
to put petitioners in the same position they would have occupied had
the alleged error not been made.
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\15\ NAGC cites U.S. Improvement Co. v. Callery Properties, 382
U.S. 223, 229 (1985); Consumer Counsel, State of Ohio v. FERC, 826
F.2d 1136, 1138-39 (D.C.Cir. 1988); Mid-Louisiana Gas Co. v. FERC,
780 F.2d 1238, 1247 (5th Cir. 1986); and Tennessee Valley Municipal
Gas Ass'n. v. FPC, 470 F.2d 446, 452 (D.C.Cir. 1972).
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In Order No. 636-C, the Commission made a prospective change in its
policy on this issue based on then current circumstances in the gas
industry showing that early concerns about the pipelines' ability to
provide no-notice service to a broader group of customers were
unfounded. Order No. 636-C did not find, as NAGC suggests, that the
original holding in Order No. 636 was in error. Moreover, the
Commission explained in Order No. 636-C that it cannot retroactively
change Order No. 636's limitation on the pipeline's obligation to
provide no-notice service because it is impossible to change past
service. Because no notice service, as a premium service, is generally
more expensive than the alternatives, issues concerning refunds to
customers who did not receive no notice service before Order No. 636-C
should not arise in most instances.16
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\16\ The Commission is aware of only one pipeline where the
issue of refunds arose. Kansas Cities, one of the municipal
customers included in NAGC, filed a complaint against Williams
Natural Gas Company alleging that Williams was engaging in unlawful
discrimination by giving converting sales customers preferential
access to no-notice service. The Commission denied Kansas Cities'
complaint in large part because it was a collateral attack on Order
No. 636.65 FERC para. 61,221 (1993), reh'g, 66 FERC para. 61,315
(1994). Kansas Cities appealed the Commission's denial of its
complaint in Kansas Municipals v. FERC (D.C.Cir. No. 93-1656), and
argued to the Court that it should receive refunds. On May 12, 1998,
the Court found that the petition was not ripe for review and
remanded the case to the Commission for further consideration in
light of the decision in the instant proceeding. The Commission will
address the application of its ruling in this proceeding to Kansas
Municipals in the remanded proceeding in Williams Natural Gas Co.,
RS92-12-008, et al.
Also, in Williams Natural Gas Co., 80 FERC para. 61,158 (1997),
Kansas Cities argued that it had been harmed by its ineligibility to
receive no notice service because, Kansas Cities alleged, it was
required to pay more on an annual basis than it would have paid if
it had received no notice service. The Commission denied the request
for refunds, and Kansas Cities did not appeal the Commission's
decision.
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In any event, even if the Commission had erred in Order No. 636 by
limiting no notice service, refunds would not be an appropriate remedy
in these circumstances. Refunds would be difficult to determine because
if the class of no notice customers had been larger, both the no notice
and non-no notice rates would likely have been different, and it would
be impossible to determine what service choices other customers would
have made if the rates had been different. Further, unless the
Commission were to order surcharges to counterbalance the refunds, the
pipelines would suffer losses simply for complying with the
Commission's order. It is for this reason that the Commission does not
order refunds for rate design changes if the pipeline made a good faith
effort to implement the Commission's rate design goals.17
Nothing in the cases cited by NAGC suggests that refunds must be
ordered for a change in rate design directed by the Commission in a
rulemaking proceeding where pipelines complied with the Commission's
directive pending judicial review.18 No-notice service is
now available on a non-discriminatory basis to all shippers on any
pipeline that offers no-notice service. Refunds are a discretionary
remedy, and the Commission concludes that refunds are not appropriate
in these circumstances. The request for rehearing is therefore denied.
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\17\ Williams Natural Gas Co., 80 FERC para. 61,158 at 61,692
(1997); Opinion No. 369-A, Panhandle Eastern Pipe Line Co., 59 FERC
para. 61,244 at pp. 61,845, 61,849 (1990; ANR Pipeline Co., 50 FERC
61,091 at p. 61,257 (1990), reh'g denied, 51 FERC 61,038 at p.
61,075; Mississippi River Transmission Corp., 50 FERC para. 61,092,
reh'g denied, 51 FERC para. 61,111 at p. 61,259 (1990); Trunkline
Gas Co. 50 FERC para. 61,085 (1990).
\18\ Further, NAGC's characterization that in UDC, the Court
found that the restriction in Order No. 636-B on no-notice service
was unlawfully discriminatory, and that in Order No. 636-C, the
Commission agreed with the Court that its action in promulgating
that restriction was unlawful, is inaccurate. The Court remanded the
issue to the Commission for further consideration, and in Order No.
636-C, the Commission removed the restriction based on experience
with no-notice service.
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NAGC also asks the Commission to clarify Order No. 636-C by
expressly eliminating the language in Order No. 636 that limits the
eligibility to no-notice service. The Commission has clearly removed
the restriction on no-notice service and has held that no-notice
service must now be offered on a nondiscriminatory basis. Since there
is no regulation text at issue, nothing further is needed to effect
this change.
IV. Small Customer Rates for Customers of Downstream Pipelines
In Order No. 636, the Commission required pipelines to offer a one-
part small customer transportation rate to their customers that were
eligible for a small customer sales rate on the effective date of
restructuring. On rehearing of Order No. 636-A, the issue arose as to
whether the Commission should require upstream pipelines to offer their
small customer rate to the small customers of downstream pipelines who
became direct customers of the upstream pipelines as a result of
unbundling. In Order No. 636-B, the Commission held that this issue
should be considered on a case-by-case basis in the individual pipeline
restructuring proceedings. In UDC, the Court found that the Commission
had made an arbitrary distinction between former indirect small
customers of an upstream pipeline and small customers who were direct
customers of the upstream pipelines, and remanded this issue for
further explanation.
In Order No. 636-C, the Commission again concluded that downstream
customer eligibility for a one-part rate should be determined on a
pipeline-by-pipeline basis, rather than in a generic rulemaking. The
Commission explained that the determination of the small customer class
size and eligibility criteria requires consideration of the individual
circumstances present on each pipeline system because changes in the
eligibility requirements for the small customer rate upset the prior
cost allocation among the classes of customers. Order No. 636-C
discussed the circumstances on Tennessee Pipeline Co. (Tennessee) to
illustrate some of the factors that should be taken into account with
respect to determining small customer class and eligibility. In
Tennessee's restructuring proceeding,19 the Commission held
that the eligibility level for Tennessee's former downstream customers
should be 5,300 Dth/day or less,20 while the eligibility
level for its directly connected small customers would remain at
Tennessee's pre-existing eligibility level of 10,000 Dth/day or less.
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\19\ Tennessee Pipeline Co., 65 FERC para. 61,224 (1993), reh'g.
denied, 66 FERC para. 61,317 (1994)(Tennessee), remanded, TVMGA v.
FERC, (D.C. Cir. April 21, 1998).
\20\ The highest criteria used in the tariffs of Tennessee's
downstream pipelines was 5,300 Dth/day.
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The only parties seeking rehearing of Order No. 636-C on this issue
are the
[[Page 30131]]
East Tennessee Group (East Tennessee) and the Tennessee Valley
Municipal Gas Authority (TVMGA), downstream small customers of
Tennessee. This issue therefore has now been narrowed solely to the
treatment of downstream customers on Tennessee. On rehearing of Order
No. 636-C, East Tennessee and TVMGA argue that the Commission failed to
remove the arbitrary distinction between the two classes of small
customers or to support the distinction with substantial evidence.
Further, TVMGA argues that the Commission erred in Order No. 636-C by
using the Tennessee case as an example because the Commission
misapplied its own review standard in Tennessee. TVMGA asserts that
while Order No. 636-C states that the Commission should review the
economic impact and cost shift of granting small customer rate
treatment to newly qualifying small customers, in Tennessee, the
Commission considered only their contract demand entitlement as a
percentage of the total system. TVMGA alleges that this caused the
Commission to substantially overestimate the economic impact of
allowing the indirect downstream customers to qualify for small
customer status on Tennessee based on Tennessee's 10,000 Dth/day or
less standard. TVMGA asserts that if the Commission had actually
examined the economic impact of any cost shift of according equal
treatment to all small customers in Tennessee, as it states in Order
No. 636-C that it will do, it would have concluded that any effect
would be de minimis.
East Tennessee and TVMGA also appealed the Commission's decision on
this issue in the Tennessee restructuring case to the D.C.
Circuit.21 In their appeal, East Tennessee and TVMGA made
arguments very similar to their arguments on rehearing in this
proceeding. On April 21, 1998, the Court issued its decision in TVMGA
v. FERC,22 and remanded the portion of the Commission's
order in Tennessee dealing with the small customer rate to the
Commission. The Court recognized that the issues before it on appeal of
the Tennessee decision were essentially the same as those before the
Commission on rehearing of Order No. 636-C, and therefore directed the
Commission to consider this aspect of the case in light of the order on
rehearing of Order No. 636-C.
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\21\ Tennessee Valley Municipal Gas Ass'n v. FERC, (D.C. Cir.
No. 93-1566).
\22\ Id.
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The Commission continues to believe that the small customer issue
should be decided on a case-by-case basis for the reasons explained in
Order No. 636-C. The Commission can better address concerns regarding
eligibility and discrimination in the context of a proceeding that
takes into account the specific circumstances of the pipeline. The
requests for rehearing on this issue indicate that the parties' general
concerns cannot be adequately addressed without reference to the
specifics of the Tennessee proceeding. For example, a key issue raised
in the requests for rehearing involves the cost shifts that would
result from allowing indirect customers to qualify for Tennessee's
10,000 Dth/day limit. That issue is more appropriately addressed in the
Tennessee proceeding than in this generic rulemaking. Therefore, the
Commission upholds the general proposition that issues related to small
customer rates should be decided in specific rate proceedings. The
Commission will address the issues raised in the requests for rehearing
concerning downstream small customer on Tennessee, including the
allegations of discrimination, in its order on remand in the Tennessee
proceeding.
V. Recovery of GSR Costs
In UDC, the Court did not question the basic principle that
pipelines should be able to recover their GSR costs, but remanded two
aspects of the Commission's recovery policy for further consideration.
First, the Court found that the Commission had failed to explain
adequately its decision to allocate 10 percent of the GSR costs to the
pipeline's interruptible transportation customers. Second, the Court
held that the Commission had not adequately explained it decision to
exempt pipelines altogether from the absorption of any GSR costs.
In Order No. 636-C, the Commission provided a further explanation
of its conclusion that pipelines should be able to recover 100 percent
of prudently incurred GSR costs, and reaffirmed that conclusion. MoPSC
and NASUCA/POCA sought rehearing of this ruling, but subsequently
withdrew their requests for rehearing. This issue is therefore
resolved.
With regard to the issue of the recovery of GSR costs from IT
customers, in Order No. 636-C, the Commission determined not to require
that the percentage of GSR costs allocated to IT customers be 10
percent for all pipelines. Instead, the Commission required each
individual pipeline, whose GSR proceeding had not been resolved, to
propose the percentage of the GSR costs that its interruptible
customers should bear in light of the circumstances on its system.
Therefore, the Commission directed pipelines that had filed to recover
GSR costs before the date Order No. 636-C was issued, and whose GSR
recovery proceedings had not been resolved by settlement or final and
non-appealable Commission order, to file proposals for allocation of
costs to IT customers in their respective proceedings within 120 days
of the issuance of Order No. 636-C.
No party seeks rehearing of the basic policy that determination of
the appropriate allocation of GSR costs to IT customers should be done
on a case-by-case basis, but the Coastal Companies seek clarification
of the order. The Coastal Companies request the Commission to clarify
that where the provisions in a pipeline's tariff that set forth the
allocation of GSR costs to interruptible transportation were approved
by a final, non-appealable Commission order, any change from the
existing ten percent allocation will be applied prospectively from the
date of an order approving a subsequent tariff sheet that incorporates
the new allocation percentage. The Coastal Companies also ask the
Commission to clarify that the calculations 23 in Order No.
636-C were merely illustrative, and that the Commission will consider
all pertinent factors in determining the appropriate level of GSR costs
to allocate to IT. These clarifications are consistent with the intent
of Order No. 636-C and are therefore granted.
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\23\ In Order No. 636-C, the Commission provides examples to
comparing the percentage of interruptible throughput to overall
throughput for several pipelines. Order No. 636-C, slip op. at
76n.170.
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The Commission Orders
The requests for rehearing are denied, and the requests for
clarification are granted and denied, as set forth in this order.
By the Commission.
Linwood A. Watson, Jr.,
Acting Secretary.
[FR Doc. 98-14676 Filed 6-2-98; 8:45 am]
BILLING CODE 6717-01-P
