[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