[Federal Register Volume 62, Number 88 (Wednesday, May 7, 1997)]
[Proposed Rules]
[Pages 24853-24860]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11794]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 154

[Docket No. RM97-3-000]


Research, Development, and Demonstration Funding

April 30, 1997.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of Proposed Rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Federal Energy Regulatory Commission is amending its 
research, development, and demonstration (RD&D) regulations at 18 CFR 
154.401, to propose a new funding mechanism for the Gas Research 
Institute. The Commission is proposing a mechanism that would fund 
``core'' RD&D programs that benefit gas consumers through a 
nondiscountable, non-bypassable volumetric surcharge on all pipeline 
throughput. Voluntary funding would continue for all other GRI 
programs.

DATES: GRI's comments are due on or before May 30, 1997. All other 
comments are due on or before June 30, 1997.

ADDRESSES: File comments with the Office of the Secretary, Federal 
Energy Regulatory Commission, 888 First Street, N.E., Washington, DC 
20426.

FOR FURTHER INFORMATION CONTACT:
Mary E. Benge, Office of the General Counsel, Federal Energy Regulatory 
Commission 888 First Street, N.E., Washington, DC 20426, (202) 208-
1214;
Harris S. Wood, Office of the General Counsel, Federal Energy 
Regulatory Commission, 888 First Street, N.E., Washington, DC 20426, 
(202) 208-0224.

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 Commission Issuance Posting System (CIPS), an electronic 
bulletin board service, provides access to the texts of formal 
documents issued by the Commission. CIPS is available at no charge to 
the user and 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 5.1 format. CIPS user 
assistance is available at 202-208-2474.
    CIPS is also available on the Internet through the Fed World 
system. Telnet software is required. To access CIPS via the Internet, 
point your browser to the URL address: http://www.fedworld.gov and 
select the ``Go to the FedWorld Telnet Site'' button. When your Telnet 
software connects you, log on to the FedWorld system, scroll down and 
select FedWorld by typing: 1 and at the command line and type: /go 
FERC. FedWorld may also be accessed by Telnet at the address 
fedworld.gov.
    Finally, 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 also located in the Public 
Reference Room at 888 First Street, N.E., Washington, DC 20426.
    The Federal Energy Regulatory Commission is proposing to amend its 
Research, Development, and Demonstration (RD&D) regulations at 18 CFR 
154.401, to propose a new funding mechanism for the Gas Research 
Institute (GRI). For the reasons discussed below, the Commission is 
proposing a mechanism that would fund GRI ``core'' RD&D programs that 
benefit gas consumers through a nondiscountable, non-bypassable, 
volumetric surcharge on all jurisdictional pipeline throughput. 
Voluntary funding would continue for all other GRI programs.

I. Background

A. History of RD&D Funding

    The concept of a cooperative RD&D organization funded by the 
natural gas industry evolved during a time of uncertainty in the 
industry, when the excess of demand for natural gas over the supply 
became apparent in the late 1960s and progressively through the 
1970s.1 During that period, the industry's RD&D was 
initially conducted by individual jurisdictional companies, with some 
collective RD&D conducted under the auspices of the American Gas 
Association (AGA).
---------------------------------------------------------------------------

    \1\ Gas Research Institute, Opinion No. 11, 2 FERC para. 61,259 
(1978) (Approving GRI's initial RD&D program).
---------------------------------------------------------------------------

    In light of gas shortages and rapidly increasing gas prices, the 
Commission sought to reduce, or at least curb, the demand, and to 
augment the supply.2 The Commission began a series of 
initiatives to stimulate RD&D efforts by jurisdictional companies and 
to encourage jurisdictional companies to support RD&D organizations 
which, in turn, would be broadly supported by energy industry sectors.
---------------------------------------------------------------------------

    \2\ Id. at 61,616.
---------------------------------------------------------------------------

    The Commission recognized a lack of concentrated and coordinated 
RD&D effort by the natural gas industry to relieve the curtailment of 
service then being experienced by natural gas pipelines.3 
The Commission also cited the difficulty in reviewing research projects 
individually to test their reasonableness. Thus, in Order No. 
566,4 the Commission decided to clarify the Commission's 
review and accounting procedures and provide for simplified proceedings 
before the Commission by allowing advance approval of RD&D programs of 
organizations funded by jurisdictional companies.
---------------------------------------------------------------------------

    \3\ Id. at 61,617.
    \4\ Research, Development and Demonstration; Accounting; Advance 
Approval of Rate Treatment, Opinion No. 566, Order Prescribing 
Changes in Accounting and Rate Treatment for Research, Development 
and Demonstration Expenditures, 58 FPC 2238 (1977).
---------------------------------------------------------------------------

    In 1976, GRI was formed in response to the Commission's challenge 
in Order No. 566, with its purpose to serve the mutual interests of the 
gas industry and gas consumers. GRI is a nonprofit organization that 
sponsors RD&D in the fields of natural gas and manufactured

[[Page 24854]]

gas. GRI does not engage directly in RD&D activities. It is a planning 
and management organization which engages in such activities through 
RD&D project contracts with laboratories, universities and others. In 
Opinion No. 11, the Commission authorized GRI to undertake a program of 
RD&D with the objective of ameliorating the shortage of natural gas, 
improving the economics and operation of the gas industry, and 
developing improved conservation technology.5
---------------------------------------------------------------------------

    \5\ Opinion No. 11, 2 FERC at 61,616.
---------------------------------------------------------------------------

    GRI's program was designed to provide broad, widely dispersed 
benefits that could not be captured by individual companies, or even 
groups of companies within the gas industry.6 At its 
inception, GRI expected to become the principal organization for 
cooperative RD&D in the natural gas industry, and expected most of the 
major gas pipelines and utility systems to become its 
members,7 and these expectations were met. For this reason, 
the Commission believed that formation of GRI was the best way to 
achieve the Commission's RD&D objectives.
---------------------------------------------------------------------------

    \6\ See March 21, 1997 GRI Advisory Council Position, Docket No. 
RP97-149-000 at 1.
    \7\ Opinion No. 11, 2 FERC at 61,621.
---------------------------------------------------------------------------

    Because of the generalized benefits derived from cooperative RD&D 
programs sponsored by GRI, the Commission, in Opinion No. 
11,8 adopted the policy of:
---------------------------------------------------------------------------

    \8\ Id. at 61,635.
---------------------------------------------------------------------------

    * * *spreading the expenditures for [GRI's] RD&D program as 
evenly as possible and over the broadest possible base of 
jurisdictional and non-jurisdictional natural gas services in this 
country. Since consumers of natural gas in particular, and Federal 
taxpayers generally, are expected to benefit from the results of 
GRI's RD&D program, it is proper that they should pay for the 
program. But since producers, pipelines, and distributors also have 
a stake in the results of the program, it is proper that they too 
should pay for it * * *.

    The Commission reiterated that GRI funding is fair if costs are 
spread among those who will derive the benefits of GRI RD&D. The 
Commission indicated that it ``expect[ed] GRI to make every effort to 
obtain the broadest equitable funding.'' 9
---------------------------------------------------------------------------

    \9\ Id. at 61,635-6.
---------------------------------------------------------------------------

    The Commission has taken the position that gas consumers stand to 
gain from aggressive RD&D, and therefore should share in the costs of 
GRI funding. In Public Utilities Commission of Colorado v. 
FERC,10 the United States Court of Appeals for the District 
of Columbia Circuit affirmed the Commission's authority to take into 
account even nonjurisdictional RD&D activities in setting rates. In 
response to the argument that certain end-use RD&D concerning such 
products as gas appliances, furnaces, and water heaters, was not 
justified, the Court held that end-use research has as its goal the 
conservation of natural gas, and that such RD&D is ``a means of 
enhancing natural gas supplies and keeping consumer rates down,'' 
11 and that such RD&D was therefore ``within [the 
Commission's NGA] Section 4 authority to promote.'' 12 
However, the Commission is mindful that ratepayers required to pay for 
RD&D must receive tangible benefits from that RD&D. In Process Gas 
Consumers Group v. FERC (PGC I),13 the Court held that the 
Commission had inadequately addressed the issue of whether GRI's end-
use research projects had a reasonable chance of benefiting the 
ratepayer in ``a reasonable amount of time.'' 14 The Court 
instructed the Commission to use a balancing test to determine whether 
``the research, if successful, will work to the benefit of existing 
classes of ratepayers--those customers paying for the research in the 
first place.'' 15
---------------------------------------------------------------------------

    \10\ Pub. Util. Comm'n of Colo. v. FERC, 660 F.2d 821 (D.C. Cir. 
1981), cert. denied, 456 U.S. 944 (1982).
    \11\ Id. at 828.
    \12\ Id. at 828 n. 13.
    \13\ 866 F.2d 470 (D.C. Cir. 1989).
    \14\ 866 F.2d at 471, quoting the Commission's existing RD&D 
regulations.
    \15\ 866 F.2d at 474.
---------------------------------------------------------------------------

    As competition has increased in the natural gas market, it has 
become increasingly difficult to fund GRI in a manner that takes into 
account the diverse interests of the various industry sectors. From 
1978 through 1992, interstate pipeline members recovered their GRI 
funding costs entirely through a uniform volumetric surcharge applied 
to each unit of throughput. The Commission approved this method of 
funding GRI programs because it met the Commission's two original aims: 
to ensure stable GRI funding while spreading the costs of research as 
evenly as possible and over the broadest possible base of natural gas 
service.16 The use of a surcharge on a regulated price 
ensured that ratepayers ultimately paid GRI's research costs. Pipelines 
simply acted as conduits for funds from customers to GRI.17 
The addition of a volumetric surcharge to a pipeline's maximum rates 
did not affect the pipeline's revenue stream.
---------------------------------------------------------------------------

    \16\ Gas Research Institute, 60 FERC para. 61,203 at 61,702 
(1992), aff'd, 61 FERC para. 61,121 (1992).
    \17\ See In Re Columbia Gas Sys. Inc., 997 F.2d 1039, 1062 (3rd 
Cir. 1993).
---------------------------------------------------------------------------

    Beginning in the late 1980s, changes in the industry began to 
affect the viability of the uniform volumetric surcharge, by which 
pipelines recovered the GRI costs from ratepayers. In an era of 
competitive pricing, a pipeline might no longer be able to recover the 
entire surcharge from its customers since customers were able to demand 
a discounted rate. Under the original funding mechanism, each 
interstate pipeline member of GRI was allocated a portion of GRI's 
annual costs as an annual funding obligation that the pipeline was 
required to remit to GRI regardless of whether it actually collected 
that amount from its customers.
    Beginning in 1992, GRI sought to change its funding mechanism after 
two members of GRI, ANR Pipeline Company and United Gas Pipeline 
Company, resigned from GRI membership. These pipelines maintained that 
discounting had caused them to underrecover their GRI funding 
obligations, and that their stockholders were paying those 
underrecovered costs.18 GRI feared that other pipeline 
members would resign from GRI rather than fund the remainder of GRI's 
costs.
---------------------------------------------------------------------------

    \18\ See ANR Pipeline Co., 58 FERC para. 61,228 (1992), reh'g 
denied, 59 FERC para. 61,095 (1992); and unpublished letter order 
issued on December 31, 1991, in United Gas Pipe Line Co., Docket No. 
TM92-11-000.
---------------------------------------------------------------------------

    Ultimately, the Commission approved a settlement that put in place 
the current funding mechanism.19 The settlement funding 
mechanism originally was approved on a temporary basis, for pipeline 
recovery of GRI's 1994 and 1995 program funding.20 The 
funding mechanism was later extended for another two years, through the 
end of 1997, in order to give GRI and the industry sufficient time to 
develop a permanent funding mechanism.21
---------------------------------------------------------------------------

    \19\ Gas Research Institute (GRI), 62 FERC para. 61,280 (1993); 
reh'g denied, 63 FERC para. 61,316 (1993) (approving contested 
settlement).
    \20\ GRI, 63 FERC at 63,146.
    \21\ Gas Research Institute, 71 FERC para. 61,130 (1995).
---------------------------------------------------------------------------

    In approving the settlement, the Commission found that pipelines 
had been absorbing GRI costs and that the pipelines needed the 
flexibility to discount the GRI surcharge to compete with other sources 
of energy that do not carry the surcharge. Based upon these findings, 
as well as the fact that the Commission had rejected mandatory pipeline 
shareholder contributions in the past, the Commission accepted the 
proposal to allow pipelines to discount the GRI surcharge, to discount 
it first, and to remit to GRI only those GRI funds that they actually 
recovered.22 In these ways, the settlement funding mechanism 
differed from any that had

[[Page 24855]]

been in place previously. The new funding mechanism was, for the first 
time, ``voluntary'' in the sense that it permitted pipelines to 
discount without having to absorb GRI costs.
---------------------------------------------------------------------------

    \22\ GRI, 62 FERC at 62,805.
---------------------------------------------------------------------------

    The voluntary funding under the settlement raised the policy 
question whether responsibility for GRI funding would be shifted 
unfairly from discounted customers to captive customers that do not 
receive discounted service. In approving GRI's interim funding proposal 
for 1993, which also included voluntary funding, the Commission 
acknowledged that cost shifting would necessarily ensue, but 
nonetheless concluded that because of the mitigating factors built into 
the settlement, ``[t]he proposed funding mechanism balances the costs 
of GRI among all classes of service, localities, pipelines, producers 
and GRI. This is a fair result,'' the Commission concluded, ``given 
that all of these parties benefit from GRI programs.'' 23
---------------------------------------------------------------------------

    \23\ GRI, 60 FERC at 61,702.
---------------------------------------------------------------------------

    The United States Court of Appeals for the District of Columbia 
Circuit, in Public Utilities Commission of California v. 
FERC,24 upheld the Commission's approval of the settlement. 
In doing so, the Court addressed arguments that the Commission's 
approval constituted undue discrimination and amounted to an abdication 
of its duty to protect consumers. The Court concluded that given the 
underlying desirability of GRI itself, which had not been challenged, 
the Commission could not be expected to revisit its earlier 
determination that GRI inured to the benefit of all ratepayers, and 
that the question to be addressed then became ``how GRI could remain 
viable.'' 25 The Court held that the funding mechanism 
chosen was reasonably designed to achieve the valid purpose for which 
it was intended.
---------------------------------------------------------------------------

    \24\ Pub. Util. Comm'n of Cal. v. FERC, 24 F.3d 275 (D.C. Cir. 
1994).
    \25\ Id. at 281.
---------------------------------------------------------------------------

    Thus, for the past several years since the Commission's approval of 
the settlement funding mechanism, GRI has been funded through a 
temporary mechanism. The Commission's objective in this proceeding is 
to develop a permanent GRI funding mechanism that will provide GRI with 
sufficient stability to continue its RD&D with a view toward long-term, 
as well as short-term, goals. The Commission is also guided by the 
underlying objective of spreading the responsibility for funding the 
RD&D sponsored by GRI over the broadest possible base because the 
benefits go to gas consumers generally.

B. Problems With Voluntary Funding

    The problems raised with respect to voluntary funding, as approved 
in the settlement, continue to exert stress on the GRI funding 
mechanism. Essentially, funding for GRI has become less broad-based and 
less stable than ever. Pipelines, such as Koch Gateway Pipeline 
Company, continue to express a desire to resign from GRI.26
---------------------------------------------------------------------------

    \26\ Koch Gateway Pipeline Co., 77 FERC para. 61,348 (1996), 
reh'g pending.
---------------------------------------------------------------------------

    In a recent statement of its position on funding, GRI has indicated 
that the existing voluntary funding is no longer viable for long-term 
funding as competitive pressures continue to grow.27 GRI 
asserts that consumer needs for technology are no longer met at the 
currently reduced levels of spending in the industry. Furthermore, GRI 
contends that its annual evaluation of consumer benefit/cost of 
unfunded programs continues to show that many beneficial projects are 
unfunded at current GRI levels. GRI also contends that industry RD&D 
needs also are not fully met.
---------------------------------------------------------------------------

    \27\ GRI Position, filed March 19, 1997, in Docket No. RP97-149-
000.
---------------------------------------------------------------------------

    GRI recently submitted a new proposed funding mechanism for 1998-
1999 through which its pipeline members would collect amounts to be 
remitted to GRI to satisfy its research budget.28 GRI 
proposed a two-part funding mechanism, which would include a pipeline 
surcharge to be levied on each unit of gas transported or sold, and an 
LDC delivery charge, which would be levied on LDCs and intrastate 
pipelines. GRI's proposal met with considerable protests. Many of those 
protests raised the issue whether the delivery charge and the 
volumetric surcharge would unfairly shift GRI's costs to LDCs, 
intrastate pipelines, and the pipelines' captive customers.
---------------------------------------------------------------------------

    \28\ Docket No. RP97-149-000, filed December 2, 1996.
---------------------------------------------------------------------------

    The Commission decided to convene a public conference in that 
proceeding to discuss not only GRI's proposal, but to foster a more 
far-ranging public policy discussion of the future of GRI.

C. Public Conference

    The Commission convened a public conference on March 21, 1997, to 
discuss the future funding of RD&D in the natural gas industry. A 
number of participants spoke on the advisability of continuing a 
voluntary funding mechanism. Many participants, at the conference or in 
written comments, expressed a need for mandatory funding for a core 
program involving RD&D in the interest of gas consumers.
    While there were a few exceptions, such as the Pennsylvania Office 
of Consumer Advocate,29 and The Fertilizer 
Institute,30 the vast majority of conference participants, 
from all sectors of the industry, supported the continuation and 
vitality of GRI. The success of GRI's RD&D efforts was reflected in the 
American Gas Association's (AGA) comments. AGA's data showed natural 
gas' share of the new home heating market at 67 percent--the highest 
level in industry history.31 AGA attributed this continued 
growth, in part, to an increased awareness of the environmental 
advantages of natural gas. But, AGA maintained, this growth is mainly 
due to the technological advances that allow the gas industry to 
compete successfully on the cost of gas, as well as on the efficiency, 
comfort, and performance of end-use heating equipment. Similarly, 
appliance manufacturers contended that without GRI-funded programs, 
manufacturers could be forced into abandoning a gas product 
line.32 Participants such as the U.S. Environmental 
Protection Agency (EPA) pointed out that GRI continues to conduct 
important environmental RD&D that may be jeopardized if left solely to 
individual companies to support.33
---------------------------------------------------------------------------

    \29\ March 21, 1997 comments and Tr. 147-151.
    \30\ March 21, 1997 comments.
    \31\ March 25, 1997 comments at 2.
    \32\ Gas Appliance Manufacturers Association, March 21, 1997 
comments.
    \33\ United States Environmental Protection Agency, March 20, 
1997 comments.
---------------------------------------------------------------------------

    The GRI Advisory Council (Advisory Council), which was set up at 
the Commission's urging to ensure that GRI adequately utilizes the 
viewpoints of scientific, engineering, economic, consumer, and 
environmental interests, also submitted comments concerning the funding 
of GRI. The Advisory Council asserted that there is little evidence to 
suggest that the natural gas industry will voluntarily fund the level 
of RD&D required to provide for the availability of gas supplies, low 
cost, safe delivery, and efficient use of gas.34 Nor, the 
Advisory Council contended, does it appear that voluntary funding will 
sustain the high level of public benefit that has been received since 
the founding of GRI.35 The Advisory Council also stated its 
belief that the GRI program has already been reduced below the level 
that is justified based on consumer benefit to cost 
analysis.36
---------------------------------------------------------------------------

    \34\ March 21, 1997 position of the GRI Advisory Council in 
Docket No. RP97-149-000.
    \35\ Id.
    \36\ Id.

---------------------------------------------------------------------------

[[Page 24856]]

    Some participants continued to favor voluntary 
funding,37 but many participants concentrated on the 
problems associated with voluntary funding. One such problem was 
discussed by Professor William R. Hogan, a member of the GRI Advisory 
Council and a member of the GRI board of directors, who addressed the 
Commission on his own behalf.38 Professor Hogan explained 
that in this era of competition, voluntary funding renders GRI's 
program vulnerable to the classic ``free-rider problem.'' Professor 
Hogan explained that under voluntary funding, all those contributing to 
pay for the research realize that they will still receive the benefits 
that flow from the research, even if they do not pay their individual 
contribution. When everyone follows this strategy, Professor Hogan 
explained, there is no funding, and the research is not undertaken. 
Professor Hogan concluded that it would be unrealistic to think that 
GRI's widely dispersed benefits are going to be paid in any other way 
than through a mandatory program. These comments were echoed by Mr. 
Henry R. Linden, of the Illinois Institute of Technology.39
---------------------------------------------------------------------------

    \37\ See March 20, 1997 comments of the Wisconsin Distributor 
Group, the Northern Distributor Group, and PNM Gas Services.
    \38\ March 20, 1997 comments; Tr. at 39-40.
    \39\ Tr. at 46-47.
---------------------------------------------------------------------------

    While most participants were reacting to GRI's latest funding 
proposal, some participants proposed new funding mechanisms. For 
example, Mr. Leslie B. Enoch, speaking on behalf of the American Public 
Gas Association (APGA), spoke in favor of a return to the use of a 
volumetric surcharge to fund GRI. Mr. Enoch asserted that such funding 
accomplishes three objectives: it is simple; it is in the interest of 
all segments of the natural gas industry; and it is equitable. Mr. 
Enoch pointed out that the benefits of RD&D are unrelated to discounts, 
so, likewise, the funding should not be affected by discounts.
    It was also suggested that the Commission take the approach of 
funding GRI through a combination of mandatory and voluntary funding 
mechanisms. Mr. Warren Mitchell,40 representing Southern 
California Gas Company, suggested a combination of mandatory and 
voluntary funding. He spoke in support of the funding of consumer 
interest, or core, programs, through a volumetric, mandatory, 
nondiscountable usage charge assessed on all throughput as a stable, 
secure, and equitable funding for these programs. Mr. Mitchell also 
advocated a separate, discountable, voluntary mechanism for other 
programs.
---------------------------------------------------------------------------

    \40\ Tr. at 102-5.
---------------------------------------------------------------------------

II. Discussion

A. The Commission's Proposed GRI Funding Mechanism

    The industry has begun to veer from the objective of broad-based 
funding for RD&D as GRI is losing funding and pipelines are drawing 
away from supporting GRI economically. The public conference, while not 
resulting in a consensus on the appropriate mechanism for GRI funding, 
showed that there is a widely held view that RD&D continues to be in 
the best interests of natural gas consumers, and that cooperative RD&D 
through GRI continues to be the best means of approaching RD&D in the 
gas industry.
    It has been more than twenty years since the formation of GRI. The 
Commission continues to firmly hold the view that GRI's programs 
benefit natural gas consumers and that there is a need to ensure broad-
based and stable funding for consumer-oriented GRI programs. The 
natural gas technologies developed with GRI funding over the past 
decade have enabled the natural gas industry to reduce the costs of gas 
to all classes of consumers. Moreover, new end-use technologies have 
provided gas customers with improved energy efficiency, lower energy 
bills, and more productive ways of utilizing energy resources in 
residential and business applications.
    The Commission shares the concerns of those who believe that the 
continuation of voluntary funding threatens the RD&D efforts of GRI. 
The limits of voluntary funding for GRI, in the more than three years 
that the temporary voluntary funding mechanism has been in place, have 
been explored. The Commission agrees with the Advisory Council that 
there is little evidence to suggest that the natural gas industry will 
voluntarily fund the level of RD&D required to provide for 
availability, low cost, safe delivery, and efficient use of natural 
gas. Nor will voluntary funding sustain the high level of public 
benefit that has been received since the founding of GRI. The GRI 
program has already been reduced below the level that is justified 
based on an analysis of consumer benefit relative to cost.
    The Commission continues to be guided by the original goals of 
funding the generalized benefits of GRI's RD&D programs--to ensure 
stable GRI funding while spreading the responsibility for funding 
research as evenly as possible and over the broadest possible base of 
natural gas service. Rather than adopt GRI's post-1997 funding 
mechanism,41 the Commission proposes a new, permanent 
funding mechanism to spread the responsibility for funding RD&D widely 
in the natural gas industry.
---------------------------------------------------------------------------

    \41\ Filed December 2, 1996, in Docket No. RP97-149-000.
---------------------------------------------------------------------------

    The Commission is persuaded that the need for stable GRI funding 
requires that at least some of GRI's funding must be mandatory. In 
order for the responsibility for the funding to be as broadly-based as 
possible, the Commission believes that it should be secured, at least 
in part, through a volumetric surcharge, as in the past. However, the 
Commission also recognizes that in a competitive market, pipelines must 
have the flexibility to discount their rates.
    Thus the Commission proposes to fund RD&D that is of primary 
benefit to gas consumers as a group through a ``core'' RD&D program. 
The core RD&D program would be comprised of RD&D activities that 
produce broadly-dispersed benefits flowing predominantly to gas 
consumers, and that cannot be readily captured by industry sectors. The 
core program would be funded by a mandatory, non-bypassable, non-
discountable volumetric funding surcharge levied on all volumes 
transported by interstate pipelines, regardless of the pipelines' 
membership status in GRI. This surcharge would ensure stable and 
equitable funding for gas consumer-interest programs.
    GRI has proposed that other RD&D, that primarily benefits a 
specific industry sector, would be funded through voluntary 
funding.42 The voluntarily funded RD&D programs would 
consist of RD&D activities that produce less widely-dispersed benefits 
to more limited categories, such as individual consumers, groups of 
consumers, industries, or groups of companies within an industry. GRI 
proposed these programs to be funded by two means. One would be a 
separate charge in the pipelines' tariffs which shippers could choose 
to pay. Those shippers who chose to pay the charge to contribute to 
this fund, called a ``Technology Management'' fund, would be able to 
participate in governance over the management of the fund. It was 
suggested at the conference that it is appropriate to make such non-
core RD&D funding subject to Commission oversight, rather than to leave 
it to GRI to design its own funding mechanism or establish a voluntary 
RD&D contract

[[Page 24857]]

service.43 GRI's proposed Technology Management charge is 
consistent with this view. Accordingly, the Commission requests 
comments on GRI's proposal to fund non-core RD&D through a Technology 
Management charge, paid only by shippers that willingly elect to pay 
for GRI RD&D over-and-above the core program. The Commission also 
invites industry participants to comment on the need for any Commission 
involvement with the non-core program and the appropriateness of 
including any funding for the non-core program in pipeline rates.
---------------------------------------------------------------------------

    \42\ GRI Position, filed March 19, 1997, in Docket No. RP97-149-
000, at 2.
    \43\ At the conference, Mr. William Burnett, speaking on behalf 
of GRI, argued that the Commission's imprimatur as to the analysis 
of the benefits of Technology Management RD&D would assist state 
commissions in dealing with the passthrough of these costs by local 
distribution companies. Tr. at 131-4.
---------------------------------------------------------------------------

    As an alternative to GRI's proposal, shippers could make voluntary 
contributions to fund the Technology Management program by agreeing to 
make payments directly to GRI. Another possibility would be for 
shippers to arrange to pay a designated amount to the pipeline. The 
pipeline would then, acting as a conduit, remit the same amount to GRI. 
The pipeline could file with the Commission an amendment to its 
contract with such a shipper in order to specify the amount of the 
contribution.
    The other way GRI proposes to fund the Technology Management 
program is voluntary pipeline contributions. If a pipeline chooses to 
contribute to the voluntarily funded program, GRI proposes that the 
pipeline would be able to include those contributions in the pipeline's 
operating budget that is used in setting the pipeline's rates in a rate 
case.44 The Commission requests comment on whether to permit 
pipelines to obtain recovery in their rates of their own voluntary 
contributions as GRI proposes.
---------------------------------------------------------------------------

    \44\ GRI Position, filed March 19, 1997, in Docket No. RP97-149-
000, at 2.
---------------------------------------------------------------------------

    The Commission, at this time, can only estimate the budget 
requirements for the core RD&D program. GRI states in its March 19, 
1997 position paper that it has identified $90 million of its 1997 RD&D 
projects in the areas of environment, safety, basic research, and pro-
competitive research related to emerging gas supplies and energy 
efficiency. Projects of this type are examples of what the Commission 
would consider to be part of the core program.
    In order to identify which RD&D projects would be in the core 
program and which would be in the voluntary program, the Commission has 
looked to GRI's 1997-2001 Research and Development Plan. GRI has broken 
down its RD&D program into smaller groups called ``Business Units'', as 
shown in Exhibit 1 of its 1997-2001 Research and Development Plan. All 
of GRI's individual RD&D projects are distributed among these business 
units.
    GRI's twelve RD&D business units are as follows:
    (1) Basic Research,
    (2) Commercial,
    (3) Distribution,
    (4) Environment and Safety,
    (5) Industrial,
    (6) Market and Strategic Collaboration and Technology Transfer,
    (7) Natural Gas Vehicles,
    (8) Power Generation,
    (9) Residential,
    (10) Strategic Collaboration,
    (11) Supply, and
    (12) Transmission.
Certain RD&D activities within the individual business units would 
appear to fall easily into one of the two proposed RD&D programs. For 
example, RD&D within the Basic Research and Environment & Safety 
business units would likely belong in the core program, while RD&D 
within the Commercial, Industrial, Natural Gas Vehicles, and Power 
Generation business units would probably be more appropriately funded 
through the voluntary program. GRI estimates the budget for what 
appears to be non-core RD&D as ranging from $45-70 million.\45\
---------------------------------------------------------------------------

    \45\ In its position paper filed March 19, 1997, in Docket No. 
RP97-149-000, GRI indicates that a Technology Management surcharge 
is but one way of obtaining funding for the voluntary program. 
Specifically, GRI states that certain gas industry segments may not 
necessarily be shippers on interstate pipelines and consequently 
would not be positioned to pay the Technology Management surcharge. 
In these instances, GRI could be compensated for non-core RD&D in 
other ways. For example, pipelines could provide funding support for 
the non-core program by including the costs in their operating 
budgets, while producers (and others) could directly support the 
non-core program by cash or in-kind funding.
---------------------------------------------------------------------------

    Some RD&D might contain elements of both the core and voluntary 
programs, e.g., those activities in GRI's Distribution, Market & 
Strategic Collaboration and Technology Transfer, Residential, Strategic 
Collaboration, Supply and Transmission business units. For this reason, 
only activities within the business units which relate to environment, 
safety, basic research, and generic supply and energy efficiency 
efforts, would be included in the core program, with the remainder of 
the activities to be included in the voluntary program.
    The business unit approach is just one of many possible methods 
which may be used to identify elements of a core RD&D program. The 
Commission requests GRI to submit a proposed division of categories, 
and a description of the types of projects GRI would include in each 
category. Interested persons may then submit comments on the business 
unit approach and GRI's proposal, if different, and suggest other 
possible methods of determining how GRI's RD&D activities should be 
divided into the two proposed core and non-core RD&D categories. 
Commenters are requested to define commercialization, as distinguished 
from basic RD&D which may have no immediate commercial application, and 
comment on whether it is necessary or appropriate for GRI's 
commercialization of technology to be funded by pipeline rates.
    Regardless of the approach taken to classify projects for purposes 
of the proposed funding mechanism, once the two categories are in 
place, the Commission proposes to require GRI to file an annual 
application seeking approval for its core RD&D program. In this 
application, GRI would continue to file all of the detailed information 
necessary for advance approval and rate treatment as required by the 
Commission's existing regulations, and also show that its filing is 
consistent with Court and Commission precedent. In addition, GRI would 
be required to specifically identify which projects are to be included 
in the core program and which are in the voluntary program, along with 
the anticipated costs for each program broken down by individual 
project cost. Finally, GRI would have to state the surcharge proposed 
to support its program. The Commission intends to scrutinize individual 
core projects to ensure that gas consumers receive the benefits of such 
projects. Based upon such review, the Commission will determine the 
appropriate annual core program funding level.
    As indicated above, the funding surcharge for the core program 
would be applied to every volume of gas (or dekatherm equivalent) 
transported by all regulated pipelines, and not just GRI members. 
Accordingly, GRI would be required to support its core program 
surcharge derivation using documented transportation volumes from the 
preceding year.
    Contemporaneously with the issuance of this notice, the Commission 
is issuing an order in Docket No. RP97-149-000, extending the current 
GRI funding mechanism for one year, through 1998. Therefore, the 
funding mechanism the Commission is proposing here would become 
effective after 1998. Beginning with GRI's 1999 filing, the Commission 
will require GRI to file annually for

[[Page 24858]]

Commission approval of its programs. However, after the Commission, 
GRI, and the industry have gained sufficient experience with the 
proposed funding mechanism, the Commission will permit GRI to revert to 
the two-year planning cycle the Commission approved in Opinion No. 
384.46
---------------------------------------------------------------------------

    \46\ Gas Research Institute, Opinion No. 384, 65 FERC para. 
61,027 (1993) at 61,367-8.
---------------------------------------------------------------------------

B. Changes to Regulations To Reflect GRI Mandatory Funding and Rate 
Treatment of Pipelines' Contributions to GRI

    Section 154.401 of the Commission's regulations governing the rate 
treatment of RD&D expenditures 47 continues to reflect the 
Commission's initiatives in Order No. 566. The regulation contemplates 
RD&D projects by multiple jurisdictional companies although it does 
provide for RD&D conducted by organizations supported by more than one 
company. Since the advent of broadly funded RD&D projects that are 
centrally planned and managed by GRI, these regulations do not reflect 
actual practice. Consequently, the Commission proposes to replace 
Section 154.401(a).
---------------------------------------------------------------------------

    \47\ 18 CFR 154.401.
---------------------------------------------------------------------------

    Proposed Section 154.401(a) would require all natural gas companies 
to include in their tariffs a non-discountable, non-bypassable 
volumetric surcharge to be collected from shippers on their systems to 
fund the GRI core RD&D program. This charge will be required regardless 
of whether the natural gas company chooses to be a member of GRI or 
support non-core RD&D programs. In this manner, those programs which 
are primarily designed to benefit gas consumers will be assured of 
funding. Without such a mandatory funding mechanism for these core 
projects, the evidence is clear that funding of such projects is in 
jeopardy, and this is not acceptable to the Commission.
    Section 154.401(b)(1) of the Commission's regulations currently 
provides that individual natural gas companies may apply for advance 
approval of rate treatment for RD&D expenditures. It also provides that 
an RD&D organization, such as GRI, that is supported by more than one 
company may submit an application that covers the organization's RD&D 
program, and that the Commission's approval of that application 
constitutes approval of the individual companies' contributions to the 
organization. In recent years, there have been no filings by individual 
companies for advance approval of rate treatment for RD&D expenses. 
Rather, virtually all requests for advance approval of RD&D expenses 
have been filed by GRI. Therefore, to reflect actual practice, the 
Commission proposes to revise Section 154.401(b) of its regulations.
    Proposed Section 154.401(b)(1) would provide for the filing of 
applications for advance approval of RD&D expenditures only by GRI, or 
other RD&D organizations. Individual companies will be able to seek to 
recover other RD&D expenses beyond the amounts related to funding RD&D 
organizations as part of their general section 4 rate filings. Proposed 
Section 154.401(b)(2) would define ``core'' and ``non-core'' projects 
and would describe the requirements for funding core and non-core 
programs.

III. Information Collection Statement

    The following collections of information contained in this proposed 
rule are being submitted to the Office of Management and Budget (OMB) 
for review under Section 3507(d) of the Paperwork Reduction Act of 
1995.48 FERC identifies the information provided under 18 
U.S.C. Part 154 as FERC-545, Gas Pipeline Rates: Rate Change (non-
formal).
---------------------------------------------------------------------------

    \48\ 44 U.S.C. 3507(d).
---------------------------------------------------------------------------

    Pursuant to Sections 4, 5 and 16 of the Natural Gas Act (NGA) (15 
U.S.C. 717c-717o, P.L. 75-688) and Part 154 of the Commission's 
regulations, natural gas companies must file tariffs that comprise 
schedules of all rates or charges identifying transportation or sales 
activities conducted by natural gas pipelines. Pursuant to the proposed 
rules contained in the instant NOPR, all natural gas companies having 
tariffs on file with the Commission would be required to file new 
tariff provisions reflecting the mandatory GRI surcharge. Such filings 
would be required annually.
    The burden estimates for complying with this proposed rule are as 
follows:

----------------------------------------------------------------------------------------------------------------
                                                                                                        Total   
                       Data collection                         Number of    Number of    Hours per      annual  
                                                              respondents   responses     response      hours   
----------------------------------------------------------------------------------------------------------------
FERC-545....................................................           88           88         7.35         *647
----------------------------------------------------------------------------------------------------------------
* Rounded off.                                                                                                  

    Total Annual Hours for Collection (reporting + Recordkeeping, (if 
appropriate)) =647.
    These estimates reflect only the incremental burden on companies 
not presently members of GRI. Inasmuch as those companies presently 
members of GRI must reflect a GRI surcharge in their tariffs now, there 
would be no significant change in the burden on those companies 
resulting from adoption of the rules proposed in this NOPR.
    Comments are solicited on the Commission's need for this 
information, whether the information will have practical utility, the 
accuracy of the provided burden, estimates, ways to enhance the 
quality, utility and clarity of the information to be collected, and 
any suggested methods for minimizing respondent's burden, including the 
use of automated information techniques.
    The Commission also seeks comments on the costs to comply with 
these requirements. It has projected the average annualized cost for 
all respondents to be:
    Annualized Costs (Operations & Maintenance) $32,350.
    The currently valid OMB Control Number for the collection of 
information (i.e., tariff filings) that would be required by the 
proposed rules is 1902-0154. Applicants shall not be penalized for 
failure to respond to these collections of information unless 
collection(s) of information display a valid OMB control number.
    The Commission has assured itself, by means of its internal review, 
that there is specific, objective support for the burden estimates 
associated with the Commission requirements. The Commission's Office of 
Pipeline Regulation will use the data included in these filings to 
verify the costs proposed to be recovered are just and reasonable and 
assists the Commission in carrying out its regulatory responsibilities 
under the Natural Gas Act. These requirements conform 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

[[Page 24859]]

following: Federal Energy Regulatory Commission, 888 First Street, NE, 
Washington, DC 20426, [Attention: Michael Miller, Division of 
Information Services, Phone: (202) 208-1415, fax: (202) 273-0873, E-
mail: [email protected]
    For submitting comments concerning the collection of information(s) 
and the associated burden estimate(s) please send your comments to the 
contact listed above and to the Office of Management and Budget, Office 
of Information and Regulatory Affairs, Washington, DC 20503. 
[Attention: Desk Officer for the Federal Energy Regulatory Commission, 
phone: (202) 395-3087, fax: (202) 395-7285]

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.49 The 
Commission has categorically excluded certain actions from these 
requirements as not having a significant effect on the human 
environment.50 The action proposed here is procedural in 
nature and therefore falls within the categorical exclusions provided 
in the Commission's regulations.51 Therefore, neither an 
environmental impact statement nor an environmental assessment is 
necessary and will not be prepared in this rulemaking.
---------------------------------------------------------------------------

    \49\ Order No. 486, Regulations Implementing the National 
Environmental Policy Act, 52 FR 47897 (Dec. 17, 1987), FERC Statutes 
and Regulations, Regulations Preambles 1986-1990 para. 30,783 
(1987).
    \50\ 18 CFR 380.4.
    \51\ See 18 CFR 380.4(a)(2)(ii).
---------------------------------------------------------------------------

V. Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act 52 generally requires the 
Commission to describe the impact that a proposed rule would have on 
small entities or to certify that the rule will not have a significant 
economic impact on a substantial number of small entities. An analysis 
is not required if a proposed rule will not have such an 
impact.53
---------------------------------------------------------------------------

    \52\ 5 U.S.C. 601-612.
    \53\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    Pursuant to section 605(b), the Commission certifies that the 
proposed rules and amendments, if promulgated, will not have a 
significant adverse economic impact on a substantial number of small 
entities.

VI. Comment Procedures

    The Commission invites interested persons to submit written 
comments on the matters and issues proposed in this notice to be 
adopted, including any related matters or alternative proposals that 
commenters may wish to discuss. Because the Commission is seeking in 
the first instance comments from GRI on what will constitute ``core 
projects,'' GRI must submit its comments no later than May 30, 1997. 
All other comments, including replies to the comments of GRI concerning 
its concept of ``core projects,'' must be filed with the Commission no 
later than June 30, 1997. An original and 14 copies of comments should 
be submitted to the Office of the Secretary, Federal Energy Regulatory 
Commission, 888 First Street, NE, Washington, DC 20426, and should 
refer to Docket No. RM97-3-000. Additionally, comments should be 
submitted electronically. Participants can submit comments on computer 
diskette in WordPerfect 6.1 or lower format or in ASCII 
format, with the name of the filer and Docket No. RM97-3-000 on the 
outside of the diskette.
    Participants also are encouraged to participate in a Commission 
pilot project to test the use of the Internet for electronic filing 
either in conjunction with, or in lieu of, diskette filing. Comments 
should be submitted through the Internet by E-Mail to 
[email protected] in the following format: on the subject line, 
specify Docket No. RM97-3-000; in the body of the E-Mail message, 
specify the name of the filing entity and the name, telephone number 
and E-Mail address of a contact person; and attach the comment in 
WordPerfect 6.1 or lower format or in ASCII format as an 
attachment to the E-Mail message. The Commission will send a reply to 
the E-Mail to acknowledge receipt. Questions or comments on the pilot 
project itself should be directed to Marvin Rosenberg at 202-208-1283, 
E-Mail address [email protected], but should not be sent to 
the E-Mail address for comments on the NOPR.
    All written comments will be placed in the Commission's public 
files and will be available for inspection in the Commission's Public 
Reference Room at 888 First Street, NE, Washington, DC 20426, during 
regular business hours.

List of Subjects in 18 CFR Part 154

    Natural Gas Companies, Rate Schedules and tariffs.

    By direction of the Commission. Commissioner Santa concurred 
with a separate statement attached.
Lois D. Cashell,
Secretary.

    In consideration of the foregoing, the Commission gives notice of 
its proposal to amend Part 154, Chapter I, Title 18, Code of Federal 
Regulations, as set forth below.

PART 154--RATE SCHEDULES AND TARIFFS

    1. The authority citation for Part 154 continues to read as 
follows:

    Authority: 15 U.S.C. 717-717w; 31 U.S.C. 9701; 42 U.S.C. 7102-
7352.

    2. Sections 154.401(a), (b)(1) and (b)(2) are revised to read as 
follows:


Sec. 154.401  RD&D expenditures.

    (a) All natural gas companies must include in their tariffs a non-
discountable volumetric surcharge, as determined by the Commission upon 
approval of an application filed under paragraph (b)(1) of this 
section, to fund Research, Development, and Demonstration (RD&D) 
programs.
    (b) Applications for rate treatment approval. (1) An application 
for advance approval of an RD&D program to be funded by the rates of 
natural gas pipeline companies may be filed by the Gas Research 
Institute or other RD&D organization. Approval by the Commission of 
such an RD&D application will constitute approval of the individual 
company's rate surcharges to fund the RD&D programs of the Gas Research 
Institute or other RD&D organization. The rate surcharge required in 
paragraph (a) of this section will be limited to funding projects that 
produce broadly-dispersed benefits flowing predominantly to gas 
consumers that cannot be captured readily by industry sectors.
    (2) An application filed under paragraph (b)(1) of this section for 
advance approval of an RD&D program to be funded by the rates of 
natural gas pipeline companies must include:
    (i) a 5-year program plan that identifies ``core'' RD&D projects 
and ``non-core'' RD&D projects;
    (ii) the anticipated costs for the ``core'' program and the ``non-
core'' program broken down by individual project cost; and
    (iii) the respective surcharges proposed to fund the ``core'' 
program and the ``non-core'' program. ``Core'' projects are defined as 
those projects that produce broadly-dispersed benefits flowing 
predominantly to gas consumers that readily cannot be captured by 
industry sectors. ``Non-core'' projects are defined as all other RD&D 
projects. Such an application must be filed at least 180 days prior to 
the commencement of the 5-year period of the plan.
* * * * *

[[Page 24860]]

-----------------------------------------------------------------------


DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission

[Docket No. RM97-3-000]

Research, Development and Demonstration Funding

    Issued: April 30, 1997.

    SANTA, Commissioner, concurring:
    I concur in today's notice of proposed rulemaking to amend the 
Commission's research development and demonstration (RD&D) 
regulations to propose a new funding mechanism for the Gas Research 
Institute (GRI). Historically, GRI has served both consumers and the 
natural gas industry well as the planning and management 
organization for the coordination of collaborative natural gas RD&D 
projects. Nonetheless, as was made clear at the Commission's March 
21, 1997, public conference to explore the future funding of RD&D in 
the natural gas industry, the funding crisis that has plagued GRI 
for the past five years is unlikely to be resolved absent 
intervention by this Commission. Therefore, I support initiating 
this proceeding to provide a forum in which this issue might be 
resolved conclusively.
    Still, it concerns me that in proposing a mandatory volumetric 
surcharge on all interstate natural gas pipeline throughput to fund 
GRI's ``core'' RD&D program, the Commission is sidestepping several 
threshold questions that should be answered before taking this 
unprecedented step. As noted in the background discussion in today's 
NOPR, both GRI and the Commission's order in Opinion No. 11, 
authorizing GRI to undertake its RD&D program, are a product of the 
era of wellhead price controls and comprehensive regulation of the 
natural gas industry. Over the ensuing two decades, the natural gas 
industry has been restructured fundamentally. There now is a 
competitive commodity market for natural gas, interstate pipelines 
have left the merchant function and now provide unbundled open 
access transportation, and there now is the prospect for even 
greater competition and customer choice with the unbundling of local 
distribution company services. In sum, both the market conditions 
and the regulatory environment that gave rise to the need for this 
Commission's support for ratepayer-funded collaborative RD&D through 
GRI are part of the industry's increasingly distant past.
    In light of these fundamental changes, what is the policy 
rationale for continued Commission support of collaborative natural 
gas industry RD&D through the GRI surcharge on interstate pipeline 
transportation services? Furthermore, is this public policy 
rationale for Commission-supported collaborative RD&D so great as to 
justify converting GRI funding from the heretofore voluntary program 
into one which would mandate interstate pipeline participation 
notwithstanding the decision by an individual pipeline, or 
pipelines, not to be a member of GRI? In other words, before taking 
the unprecedented step of transforming the GRI surcharge into a 
nonbypassable ``tax'' on all interstate pipeline throughput, does 
the Commission need to re-establish the public interest basis for 
this program in view of today's natural gas market?
    I also believe that in deliberating on the future funding of 
RD&D in the natural gas industry, the Commission should consider 
this issue in the context of trends in the broader energy markets. 
With the convergence of natural gas and electricity markets, it is 
appropriate to compare the natural gas and electric power 
industries' mechanisms for funding collaborative RD&D. In 
particular, how is the experience of the Electric Power Research 
Institute (EPRI), which never has enjoyed the benefit of a 
Commission-authorized surcharge, instructive in evaluating the 
prospects for collaborative natural gas RD&D in the future? What, if 
anything, makes natural gas so different as to justify a Commission 
mandate that ratepayers fund GRI's ``core'' program when no such 
mandate exists for a comparable EPRI program?
    Finally, while it is reflected in the NOPR, I wish to emphasize 
the question concerning whether GRI's proposed ``non-core'' 
voluntary program should be authorized by the Commission. Given that 
this purportedly is a ``voluntary'' program, what useful purpose is 
served by Commission oversight? The NOPR recounts GRI's argument in 
favor of Commission oversight of the ``non-core'' program: ``[T]he 
Commission's imprimatur as to the analysis of the benefits of 
Technology Management RD&D would assist state commissions in dealing 
with the passthrough of these costs by local distribution 
companies.'' 1 Does this rationale support a finding that 
it is in the public interest for the Commission to oversee the 
``non-core'' program? In particular, do state commissions desire the 
Commission's ``assistance'' in dealing with the passthrough of 
``non-core'' program costs? Also, given the nature of the activities 
that would be funded under the ``non-core'' program (i.e., ``RD&D 
activities that produce less widely-dispersed benefits to more 
limited categories, such as individual consumers, groups of 
consumers, industries, or groups of companies within an industry''), 
2 how likely is it that in overseeing the ``non-core'' 
program the Commission easily could make generalized findings that 
``non-core'' RD&D projects would be appropriate for funding through 
a generally applicable charge stated in a pipeline's tariff?
---------------------------------------------------------------------------

    \1\ Supra, note 43.
    \2\ Supra, slip op. at p. 17.
---------------------------------------------------------------------------

    In raising these questions, I do not wish to leave the 
impression that there is not a case to be made for collaborative 
RD&D in the natural gas industry. Also, I view it as a positive 
development that GRI is now focusing more intently on a ``core'' 
program that is intended to capture RD&D projects with widely 
dispersed consumer benefits. Still, given GRI's seemingly chronic 
funding crisis and the unprecedented nature of the Commission's 
proposed solution, these fundamental threshold questions about the 
future of collaborative RD&D in the natural gas industry and the 
appropriate role of this Commission in supporting such RD&D should 
be answered before the Commission proceeds. If not now, when will be 
the appropriate time for such questions?
    While the Commission's March 21, 1997, technical conference 
touched on these questions, I do not believe that the record of that 
conference alone provides a sufficient basis for taking the steps 
proposed in today's NOPR. I sincerely hope that these questions 
contribute to a better developed record in this proceeding so that 
the Commission can make a fully informed decision when it issues a 
final rule.
Donald F. Santa, Jr.,
Commissioner.
[FR Doc. 97-11794 Filed 5-6-97; 8:45 am]
BILLING CODE 6717-01-P