[Federal Register Volume 63, Number 59 (Friday, March 27, 1998)]
[Notices]
[Pages 14910-14912]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-8010]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission
[Docket No. IN98-3-000]


Consumers Energy Company; Order Instituting Proceeding

Issued March 23, 1998.
    Before Commissioners: James J. Hoecker, Chairman; Vicky A. 
Bailey, William L. Massey, Linda Breathitt, and Curt Hebert, Jr.

    Consumers Energy Company (Consumers), a local distribution company 
in Michigan, holds firm transportation (FT) capacity on interstate 
natural gas pipelines. Consumers has a limited-jurisdiction blanket 
certificate of public convenience and necessity under section 7 of the 
Natural Gas Act (NGA).\1\ The blanket certificate is solely for the 
purpose of releasing FT capacity to replacement shippers pursuant to 
the Commission's capacity release regulations, 18 CFR 284.243 (1997).
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    \1\ 15 U.S.C. 717f (1994).
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    This order establishes a proceeding pursuant to sections 5 and 16 
of the NGA.\2\ The Commission is requiring Consumers to identify each 
transaction in which it released or is releasing capacity to a 
replacement shipper at the pipeline's applicable maximum tariff rate 
and also received or will receive a payment in excess of the pipeline's 
applicable maximum rate. For each such transaction, we are requiring 
Consumers to show why it has not violated, and is not violating, NGA 
sections 4(a), 4(b) \3\ and 5(a) and section 284.243(h)(1) of the 
Commission's regulations, as well as the section 284.243(g) blanket 
certificate Consumers holds.
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    \2\ 15 U.S.C. 717d and 717o (1994).
    \3\ 15 U.S.C. 717(a) and (b) (1994).
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    For each such transaction, we are also requiring Consumers to show 
why it should not refund to the replacement shipper any payment 
Consumers received in excess of the relevant pipeline maximum tariff 
rate.

I. Regulatory Background

    In Order No. 636,\4\ the Commission added section 284.243 \5\ to 
its regulations to require all open-access pipelines to provide a 
capacity release mechanism. Under capacity release, shippers ``can 
voluntarily reallocate all or a part of their firm transportation 
capacity rights to any person who wants to obtain that capacity by 
contracting with the pipeline.'' \6\ Shippers may allocate their 
capacity only under section 284.243.\7\ Section 284.243(g) grants 
shippers limited-jurisdiction blanket certificates of public 
convenience and necessity pursuant to section 7 of the NGA solely for 
the purpose of releasing firm capacity.
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    \4\ FERC Stats. & Regs., Regs. Preambles 1991-1996 para. 30,939 
(1992).
    \5\ 18 CFR 284.243 (1997).
    \6\ FERC Stats. & Regs. Regs. Preambles 1991-1996 at 30,418.
    \7\ Id.
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    Section 284.243(h)(1) authorizes firm shippers to release capacity 
at the maximum applicable pipeline tariff rate without prior notice.\8\ 
However, section 284.243(h)(1) also specifies that the release cannot 
exceed the maximum rate. Finally, section 284.243(h)(1) mandates that 
notice of a release at the maximum rate ``must be provided on the 
pipeline's electronic bulletin board * * * not later than forty-eight 
hours * * * after the release transaction commences.''
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    \8\ 18 CFR 284.243(h)(1).
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    In Order No. 636-A, the Commission stated that electronic bulletin 
board (EBB) postings of capacity releases are necessary to prevent 
abuse by releasing shippers, including requiring compensation ``outside 
of the reassignment process.'' \9\ Thus, the Commission requires that 
``all terms and conditions for capacity release must be posted. * * *'' 
\10\ In Order No. 636-B, the Commission expressly rejected a proposal 
that pipelines need not post on their EBBs release transactions 
involving designated, prearranged replacement shippers at maximum 
rates.\11\ Posting of releases at maximum rates, which are not subject 
to bidding, is nonetheless necessary to provide the industry and the 
Commission with the ability to review and monitor transactions at 
maximum rates.\12\
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    \9\ FERC Stats. & Regs., Regs. Preambles 1991-1996 para. 30,950 
at 30,559 (1992).
    \10\ Id. (Emphasis in original.)
    \11\ 61 FERC para. 61,272 at 61,994 (1992).
    \12\ Order No. 577, FERC Stats. & Regs., Regs. Preambles 1991-
1996 para. 31,017 at 31,316, n. 16 (1995).

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[[Page 14911]]

II. Factual Background

    Consumers is subject to the jurisdiction of the Michigan Public 
Service Commission (PSC) with respect to retail gas sales in the state 
of Michigan. In a gas cost reconciliation (GCR) proceeding pending 
before the PSC,\13\ a Consumers witness testified that Consumers 
``charge[d] more than the maximum pipeline rate for certain release 
transactions * * *.'' \14\ He also characterized the transactions as 
``capacity pricing transactions in which [Consumers] receives an 
increment over maximum pipeline rates * * *. \15\
    The Consumers witness was responding to evidence from the Michigan 
Department of Attorney General (Michigan AG) that, in six release 
transactions involving firm capacity on Panhandle Eastern Pipe Line 
Company (Panhandle) and ANR Pipeline Company (ANR), Consumers appears 
to have obtained release prices higher than the relevant pipeline's 
maximum tariff rate for the released capacity. In each instance, 
according to the Michigan AG witness, Consumers received a credit from 
the pipeline for a release at the maximum tariff rate, and the 
replacement shipper paid directly to Consumers additional consideration 
in excess of the pipeline's maximum tariff rate.\16\ The Michigan AG 
witness concluded that, through the six releases, Consumers collected a 
total of $486,911 in excess of the applicable pipeline maximum tariff 
rate, as follows:

------------------------------------------------------------------------
                                                                Excess  
      Replacement shipper            Pipeline        Month     revenue  
------------------------------------------------------------------------
Anadarko Trading Co...........  ANR..............      7/96       25,668
Anadarko Trading Co...........  Panhandle........     11/96      193,400
Howard Energy.................  Panhandle........      4/96      100,599
Tenaska Mktg. Ventures........  Panhandle........      4/96       68,044
TransCanada Gas Services......  Panhandle........      7/96       37,200
Valero Gas Mktg., L.P.........  ANR..............      7/96       62,000
                                                            ------------
      Total...................  .................  ........      486,911
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III. Discussion
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    \13\ Consumers Energy Company, PSC Case No. U-11060-R (1996-97 
GCR Reconciliation).
    \14\ Rebuttal Testimony of Michael J. Shore on Behalf of 
Consumers Energy Company (December 1997), p. 7.
    \15\ Id. at 8.
    \16\ Supplemental Testimony of Ralph E. Miller on Behalf of the 
Michigan Department of Attorney General (December 5, 1997), pp. 7-8; 
Michigan AG Exhibit I-____(REM-1).
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    With \17\ respect to the six releases, it appears that Consumers 
violated the Commission's rate ceiling applicable to capacity releases. 
It also appears that Consumers violated the regulations on providing 
notice of all the terms and conditions applicable to capacity release 
transactions.
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    \17\ Michigan AG Exhibit I-____ (REM-1); Michigan AG Exhibit I-
____ (REM-4), Bates Nos. 06010042-46.
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A. Violations of the Rate Ceilings on Capacity Releases

    In the PSC proceeding, Consumers stated that with respect to the 
six releases, it charged and collected a premium over the pipelines' 
maximum rates in return for releasing FT capacity. Nothing in the 
testimony of Consumers's witness or the Michigan AG's witness indicates 
that Consumers itself sold any gas in connection with the release 
transactions. For example, the release agreement between Consumers and 
Anadarko Trading Company (Anadarko) for capacity on Panhandle states 
that Consumers's payment will be based on Anadarko's price for 
Anadarko's gas sales.\18\ Therefore, all revenue that Consumers 
received in excess of the pipelines' applicable maximum rates appears 
to have been consideration solely for Consumers's release of pipeline 
capacity. Thus, Consumers appears to have violated the capacity release 
maximum rate ceiling in section 284.243(h)(1).
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    \18\ An October 1, 1996 ``Transaction Agreement'' between 
Consumers and Anadarko covering releases from November 1, 1996 
through March 31, 1997 is attached to Michigan AG Exhibit I-
____(REM-4), Bates Nos. 06010049-50.
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    If so, Consumers, a ``natural-gas company'' subject to the 
Commission's jurisdiction with respect to capacity releases, charged 
and received from replacement shippers unjust and unreasonable 
transportation rates and charges in violation of NGA sections 4(a) and 
5(a). If Consumers charged prices for releasing capacity in excess of 
the rate cap, it also appears to have violated NGA sections 4(b) and 
5(a) by subjecting the replacement shippers to an undue disadvantage 
(the premium above the applicable pipeline maximum rate).
    Section 16 of the NGA empowers the Commission to take any necessary 
or appropriate actions to carry out the provisions of the NGA. In Order 
No. 636, the Commission explained that the certificates it issued to 
releasing shippers under section 284.243(g) ``make it clear that the 
Commission has sufficient jurisdiction to take appropriate enforcement 
action if capacity is not released on a nondiscriminatory basis.''\19\ 
In other words, as a releasing shipper, Consumers is subject to the 
full scope of the Commission's authority under NGA section 16 with 
respect to all aspects of the release, including any violation of the 
section 284.243(h)(1) price ceiling. Section 16 thus authorizes the 
Commission to order Consumers to refund to the replacement shippers the 
excess over the just and reasonable rate (i.e., the excess over the 
applicable pipeline's maximum tariff rate).\20\
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    \19\ FERC Stats. & Regs., Regs. Preambles 1991-1996 at 30,421.
    \20\ C.f., 18 CFR 154.501 (1997) (refund obligation for natural-
gas companies); Coastal Oil & Gas Corp. versus FERC, 782 F.2d 1249, 
1253 (5th Cir. 1986), citing Mesa Petroleum Co. v. FPC, 441 F.2d 182 
(5th Cir. 1971) (Commission can require violators to cure the harm 
caused by violations).
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    Moreover, under NGA section 5(a), the Commission may require a 
natural-gas company to charge a just and reasonable rate if the 
Commission determines that the company is charging an unjust or 
unreasonable rate for transactions under the Commission's jurisdiction. 
Upon a finding that the company is engaging in an unduly discriminatory 
or preferential practice relating to such a transaction, NGA section 
5(a) also authorizes the Commission to order a natural-gas company to 
change its contracts or practices. Thus, upon a finding that Consumers 
is violating NGA sections 4(a), 4(b) and 5(a) with respect to its 
capacity releases, the Commission could require Consumers to cease any 
current violations by amending its current capacity release agreements 
and by requiring new agreements to state that Consumers may not collect 
rates in excess of the pipelines' applicable maximum rates.

[[Page 14912]]

B. Violation of the Commission's Notice Requirements

    As previously discussed, section 284.243(h)(1) requires that notice 
of a capacity release (at the maximum rate) must be provided on a 
pipeline's EBB not later than 48 hours after the release transaction 
commences. In Order No. 636-A, the Commission stated that it ``will not 
tolerate deals undertaken to avoid the notice requirements of the 
regulations.''\21\
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    \21\ FERC Stats. & Regs., Regs. Preambles 1991-1996 at 30,559.
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    With respect to the six transactions identified above, it is not 
clear whether Consumers disclosed to Panhandle or ANR that the 
replacement shippers had to share revenue (above the pipelines' maximum 
tariff rates) with Consumers. If Consumers did fail to notify the 
pipelines of this condition, the pipelines could not post the condition 
on their EBBs. Consumers would thus have violated the notice 
requirement of section 284.243(h)(1).
The Commission Orders
    (A) Within 30 days of the issuance of this order, Consumers shall:
    (1) File an answer to the allegations of violations that conforms 
to the requirements of Rule 213 of the Commission's Rules of Practice 
and Procedure, 18 CFR 385.213 (1997). In its answer, Consumers shall 
admit or deny, specifically and in detail, each allegation set forth in 
Part III of this order, and shall set forth every defense relied on. If 
an allegation is only partially accurate, Consumers shall specify that 
part of the allegation it admits and that part of the allegation it 
denies.
    (2) Show in this answer why it has not violated sections 4(a), 
4(b), and 5(a) of the NGA and section 284.243(h)(1) of the Commission's 
regulations. In addition, Consumers shall show why it has not violated 
its blanket certificate issued under section 7 of the NGA and section 
284.243(g) of the Commission's regulations.
    (3) For the period from January 1, 1996 through the date of its 
answer to this order, identify each transaction in which Consumers (a) 
released or is releasing capacity to a replacement shipper and (b) 
received or will receive any payment or other consideration in excess 
of the relevant pipeline's applicable maximum tariff rate.
    (4) For each of the six release transactions identified by the 
Michigan AG discussed herein, and for each transaction identified in 
response to Ordering Paragraph (A)(3):
    a. Identify the pipeline, the date(s) of the release and the 
replacement shipper, and calculate the amount in excess of the 
pipeline's applicable maximum tariff rate;
    b. Provide copies of all documents relating to the release 
transaction, including the release agreement (with all amendments), all 
billing statements submitted by Consumers to the replacement shipper, 
all records of payments or other consideration made by the replacement 
shipper, and all communications between Consumers and the relevant 
pipeline, and all communications between Consumers and the replacement 
shipper, concerning the transaction; and
    c. Show why Consumers should not refund to the replacement shipper 
any payment Consumers received in excess of the relevant pipeline's 
applicable maximum tariff rate; and
    d. If the transaction is ongoing, show why Consumers should not be 
required to limit its collections of rates or other consideration from 
the replacement shipper to the pipeline's applicable maximum tariff 
rate.
    (B) Notice of this proceeding will be published in the Federal 
Register. Interested parties will have 20 days from the date of 
publication of the notice to intervene.

    By the Commission.
David P. Boergers,
Acting Secretary.
[FR Doc. 98-8010 Filed 3-26-98; 8:45 am]
BILLING CODE 6717-01-M