[Federal Register Volume 63, Number 184 (Wednesday, September 23, 1998)] [Notices] [Pages 50895-50898] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 98-25374] ----------------------------------------------------------------------- DEPARTMENT OF ENERGY Federal Energy Regulatory Commission [Docket Nos. PR95-9-000 and PR95-9-001] Three Rivers Pipeline Company; Order Approving Settlement and Instituting Proceeding Issued September 17, 1998. On August 17, 1995, Three Rivers Pipeline Company (Three Rivers) filed an uncontested settlement of its rates for transportation service rendered under Sec. 311(a)(2) of the Natural Gas Policy Act of 1978 (NGPA). Subsequently, staff sent Three Rivers data requests concerning its transportation services and jurisdictional status. Based on our review of the settlement and the record in this proceeding, the Commission finds that the settlement is a reasonable resolution of the issues concerning Three Rivers' rates in effect between April 1, 1995, and the issuance of any future order approving superseding rates based on the outcome of the proceeding instituted by this order. The Commission also finds, however, that Three Rivers should be required to explain why the Commission should not find Three Rivers to be an interstate pipeline subject to the Commission's Natural Gas Act (NGA) jurisdiction. In the alternative, Three Rivers may produce evidence that it qualifies as a ``Hinshaw pipeline'' exempt from Commission jurisdiction under the provisions of section 1(c) of the Natural Gas Act. I. Background and Related Proceedings A. Facilities In 1946, Mobil Oil Company (Mobil) constructed a 300-mile long, 8- inch diameter oil-products pipeline extending from southwest Pennsylvania, at Midland, to the border of New Jersey. Mobil currently uses its pipeline east of Altoona, Pennsylvania, for the transportation of oil products. On August 29, 1991, Three Rivers purchased approximately 121 miles of Mobil's oil-products pipeline extending from Midland to Altoona in order to render natural gas service. Three Rivers, then owned by subsidiaries of GEMCO Gas Marketing, Inc. and Pentex Petroleum, Inc., converted the oil products pipeline to natural gas use. Subsequently, Three Rivers added compression on the eastern portion of its system, main line valves, and interconnections with National Fuel Gas Supply (National Fuel) at the Midland receipt point, and delivery points at downstream locations in Pennsylvania [[Page 50896]] with Columbia Transmission Corp. (Columbia),\1\ Texas Eastern Transmission Corp. (Texas Eastern), and Peoples Natural Gas (Co. (Peoples), a local distribution company, at McKeesport, Rager Mt., and Altoona, Pennsylvania. Three Rivers' system design capacity is 30,000 MMBtu/d, and its annual system design capacity is 10,950,000 MMBtu. --------------------------------------------------------------------------- \1\ On January 1, 1995, Three Rivers converted its interconnection with Columbia from a receipt point to a delivery point. --------------------------------------------------------------------------- On November 23, 1993, Parker & Paisley Gas Processing Co. purchased Three Rivers and certain producing properties, all of which were subsequently sold to Costilla Energy Inc. (Costilla). On January 1, 1997, Costilla sold Three Rivers to Equitable Resources, Inc. (Equitable), Three Rivers' current owner. Equitable purchased Three Rivers because of Three Rivers' ability to traverse major interstate pipelines serving the Northeast market and to access Appalachian gas supply through Equitrans, L.P., an affiliated interstate pipeline, which operates and manages Three Rivers. B. Three Rivers' Services 1. Intrastate Transportation/Sales Three Rivers states it commenced gas service on January 17, 1992, when it received intrastate (Pennsylvania-produced) gas from National Fuel and commenced firm intrastate bundled sales service to Peoples for its system supply. From January 17, through March 31, 1992, National Fuel delivered 396,595 MMBtu of Empire Production Co.'s (Empire) Pennsylvania production to Three Rivers for sale to Peoples. Empire's gas supply contract with Three Rivers was for a one year term. Three Rivers states that it has made no subsequent intrastate sales of Pennsylvania production.\2\ During January, 1997, Three Rivers received 45,000 Dth of Pennsylvania production from National Fuel, which it transported for two intrastate transportation customers, Howard Energy and Atlas Gas Marketing.\3\ --------------------------------------------------------------------------- \2\ Data responses (filed April 15, 1998). \3\ Data responses (filed April 15, 1998). --------------------------------------------------------------------------- 2. Interstate Transportation On April 1, 1992, Three Rivers, considering itself to be an intrastate pipeline not regulated by the Pennsylvania Public Service Commission, commenced interstate transportation service on an interruptible basis on behalf of National Fuel pursuant to NGPA Sec. 311(a)(2).\4\ Three Rivers transported under NGPA Sec. 311(a)(2) 456,876 MMBtu in 1994; 2,313,284 MMBtu in 1995; 1,930,673 MMBtu in 1996; and 3,336,983 MMBtu in 1997. Three Rivers currently receives all of this gas from National Fuel near Midland, pursuant to NGPA Sec. 311(a)(2) and 18 CFR Sec. 284.122, and transports the gas on a firm and interruptible basis for interstate shippers, such as National Gas Clearinghouse, Carnegie Natural Gas Co., and Duke Energy, for delivery at interconnections with Texas Eastern and Columbia.\5\ --------------------------------------------------------------------------- \4\ NPA Sec. 2(16) defines an intrastate pipeline as any person engaged in natural gas transportation (not including gathering) which is not subject to the jurisdiction of the Commission under the Natural Gas Act (other than any such pipeline which is not subject to the jurisdiction of the Commission solely by reason of section 1(c) of the Natural Gas Act). \5\ Three Rivers annually reports, pursuant to 18 C.F.R. Sec. 284.126(b), the identity and volumes transported under NGPA Sec. 311(a)(2). --------------------------------------------------------------------------- Three Rivers also purchases interstate gas from marketers for sale to Peoples. For example, between February and November, 1994, Three Rivers purchased interstate volumes from Meridian Marketing and Transportation Corp., which volumes Three Rivers resold to Peoples in unregulated sales for delivery at McKeesport.\6\ --------------------------------------------------------------------------- \6\ Data responses (filed October 10, 1995). --------------------------------------------------------------------------- C. Part 284 Rate Proceedings On January 28, 1992, Three Rivers filed a petition for rate approval in Docket No. PR92-9-000 for interruptible transportation service under NGPA Sec. 311(a)(2) to become effective on April 1, 1992. On May 12, 1992, the Secretary of the Commission issued a letter order approving a settlement in Three Rivers' last rate proceeding authorizing Three Rivers to charge, effective April 1, 1992, a maximum interruptible transportation rate of $0.284 cents per MMBtu plus a maximum 2.5 percent fuel charge.\7\ The settlement required Three Rivers to file an application for rate approval on or before April 1, 1995, to justify the current systemwide rate or to establish a new systemwide rate. --------------------------------------------------------------------------- \7\ See Three Rivers Pipeline Co., 59 FERC para.61,181 (1992) (NGPA Sec. 311(a)(2) rate settlement approved). --------------------------------------------------------------------------- On April 3, 1995, Three Rivers filed a petition for rate approval in Docket No. PR95-9-000 for authorization to charge, effective April 1, 1995, a maximum interruptible transportation rate of $0.2374 per MMBtu, a firm demand rate of $4.0514 per MMBtu, a maximum firm commodity charge of $.1042 per MMBtu plus a maximum fuel charge of 2.5 percent. The Commission extended the time for acting on Three Rivers' petition, pursuant to 18 C.F.R. Sec. 284.123(b)(2)(ii), to enable the Commission to determine whether the proposed rates are fair and equitable.\8\ Staff sent data requests to Three Rivers concerning its proposed rates. On June 2, 1995, Three Rivers responded to staff's data requests. Under the Part 284 regulations, Three Rivers is authorized to collect its proposed rates subject to refund upon the filing of its petition. --------------------------------------------------------------------------- \8\ Three Rivers Pipeline Co., 72 FERC para. 61,107 (1995). --------------------------------------------------------------------------- On August 17, 1995, Three Rivers filed an uncontested settlement that addressed staff's concerns. The settlement would authorize a maximum interruptible rate of $0.1648 per MMBtu, a firm demand rate of $3.08 per MMBtu, a maximum firm commodity charge of $.0635, and a maximum fuel charge of .9 percent. Under the settlement, Three Rivers agreed to refund, with interest, amounts previously collected above settlement rates. Three Rivers agreed to file, on or before April 1, 1998, an application for rate approval pursuant to 18 C.F.R. Sec. 284.123(b)(2) to justify the current systemwide rate or to establish a new systemwide rate. Three Rivers did not file the required rate application because of the pendency of its settlement. Discussion A. Rate Settlement The Commission's Part 284 regulations (Subpart C) require an intrastate pipeline to apply for Commission approval of its proposed Part 284 rates by filing its rates and information showing that the proposed rates are fair and equitable.\9\ On August 17, 1995, Three Rivers filed an uncontested settlement that purports to establish fair and equitable rates for interruptible and firm transportation by Three Rivers under NGPA Sec. 311(a)(2), effective on April 1, 1995. --------------------------------------------------------------------------- \9\ 18 C.F.R. Sec. 284.123(b)(2)(I). --------------------------------------------------------------------------- The settlement rates are based on calendar year 1994 costs, and volumes are based on design capacity. The projected throughput, proposed by Three Rivers, will place the burden of underutilization on Three Rivers. The settlement rates are less than the filed rates, and Three Rivers agrees in the settlement to refund the excess and to file a refund report with the Commission. No customer protests the settlement, which we find reflects a reasonable resolution of the issues raised. We find that Three Rivers' proposed settlement rates in Docket No. PR95-9-000 are fair and equitable for Part 284 services rendered between April 1, 1995, and any future [[Page 50897]] Commission order approving superseding rates based on the outcome of the proceeding instituted by this order. The proceeding does not affect the propriety of Three Rivers' rendition of Part 284 services or collection of Part 284 rates from April 1, 1995 until a future order of the Commission. The settlement is approved subject to one clarification. Article II(A)2 of the settlement requires Three Rivers to have filed, by April 1, 1998, a petition for rate approval pursuant to 18 C.F.R. Sec. 284.123(b)(2) to justify its settlement rates or to propose new Part 284 rates. As noted, Three Rivers did not make the required rate filing because of the pendency of its settlement. The outcome of this order's proceeding on Three Rivers' jurisdictional status could affect the rate design and thus the level of Three Rivers' transportation rates. Accordingly, Article II(A)(2) is clarified to defer the settlement's requirement that Three Rivers file a new petition for approval of Part 284 rates, subject to the outcome of the proceeding. B. Requirement for Further Proceeding Three Rivers' pending rate settlement and the Secretary's letter order approving Three Rivers' last rate settlement assume that Three Rivers is an intrastate pipeline. While no intervenor in Three River's pending rate proceeding disputed Three Rivers' status as an intrastate pipeline, Three Rivers' responses to staff's data requests suggest that Three Rivers transports natural gas exclusively in interstate commerce under NGPA Sec. 311(a)(2). Thus, Three Rivers' interstate transportation activities require us to scrutinize its status as an intrastate pipeline and to raise the issue whether Three Rivers has made itself subject to the Commission's NGA jurisdiction. If a bona fide intrastate pipeline, Three Rivers may continue to provide transportation service pursuant to NGPA Sec. 311(a)(2) subject to the Commission's regulation of Part 284 rates, but exempt from the Commission's NGA jurisdiction.\10\ Or, if Three Rivers is a Hinshaw Pipeline that is regulated by the Pennsylvania Public Utilities Commission it would be exempt from Commission regulation pursuant to section 1(c) of the NGA.\11\ In such a case, however, Three Rivers would be required to file an application for a certificate under section 284.224, 18 C.F.R. Sec. 284.224, of the Commission's regulations to conduct its interstate services. If Three Rivers is not exempt from the Commission's NGA jurisdiction as a bona fide intrastate pipeline, local gas distributor, or Hinshaw, Three Rivers would be subject to NGA Secs. 4, 5, and 7 as an interstate pipeline. --------------------------------------------------------------------------- \10\ 18 C.F.R. Sec. 284.123 and 18 C.F.R. Sec. 284.3(a). \11\ Midcoast Ventures I, order granting interventions and issuing certificates, 62 FERC para. 61,029 (1992); order disclaiming jurisdiction and terminating proceedings, 66 FERC para. 61,285 (1994) (Midcoast). --------------------------------------------------------------------------- Before an intrastate pipeline is eligible to provide open access transportation under NGPA Sec. 311(a)(2) on behalf of an interstate pipeline, it must first be a bona fide intrastate pipeline.\12\ The Commission looks to all the facts and circumstances of a particular case to determine if the pipeline is eligible to offer interstate services under NGPA Sec. 311. Essentially, an intrastate pipeline rendering intrastate service is constructed within the borders of one state and delivers gas produced in the same state to end-users or an LDC to be consumed within the same state. --------------------------------------------------------------------------- \12\ In Midcoast Ventures I, 61 FERC para. 61,029 at p. 61,158 (1992), the Commission stated that it has never ruled that a company could qualify as an intrastate pipeline without doing any intrastate business in the state where it claims intrastate status * * * The service provided by Midcoast's facilities in Kansas is intrinsically interstate in character, since the sole service performed on these facilities is the transportation of gas from another interstate pipeline [Williams Natural Gas Co] to an end-user. --------------------------------------------------------------------------- Based upon Three Rivers' data responses, Three Rivers has primarily transported out-of-state gas in interstate commerce and has not functioned predominately as an intrastate pipeline exempt from the Commission's NGA jurisdiction. Nor does it appear that Three Rivers provides local gas distribution service. To date Three Rivers has not represented that it qualifies for a Hinshaw exemption. Three Rivers states that it currently receives out-of-state gas, some volumes purchased for its system supply resale, and consumption in Pennsylvania and the rest transported and delivered to interconnecting pipelines for further transportation out-of-state in interstate commerce. Thus, in both situations, Three Rivers engages in interstate commerce because it receives out-of-state gas delivered by National Fuel operating in interstate commerce. The interstate nature of Three Rivers' operations is further supported by the fact that Three Rivers has added interconnections with Columbia and Texas Eastern to move gas owned by others beyond Three Rivers's system further downstream in interstate commerce. Three Rivers sold and delivered 396,595 MMBtu of exclusively Pennsylvania production to Peoples from the commencement of operations on January 17, 1992, until April 1, 1992, when Three Rivers because an open access transporter under NGPA Sec. 311(a)(2). In 1994, Three Rivers sold Peoples 1,491,467 MMBtu of interstate volumes purchased by Three Rivers from a marketer, delivered by National Fuel to Three Rivers, and commingled with the interstate gas stream. There is no indication in the record, however, that Three Rivers continues to purchase Pennsylvania production for resale to Peoples.\13\ In its April 15, 1998 data responses, Three Rivers identifies 45,000 Dth of intrastate transportation of Pennsylvania gas in January 1997 as the only intrastate service provided by Three Rivers since 1995. Yet Three Rivers data responses indicate that it receives out-of-state natural gas prior to transporting that gas to Columbia and Texas Eastern for delivery out of Pennsylvania. --------------------------------------------------------------------------- \13\ Data responses (filed October 10, 1995 and April 15, 1998). --------------------------------------------------------------------------- Three Rivers may be an interstate pipeline based on the apparent absence of any ongoing intrastate transportation service and its current receipt of exclusively out-of-state volumes from National Fuel for delivery to Pennsylvania customers and interconnection jurisdictional pipelines. Three Rivers was sold and acquired several times since its conversion in 1991 to natural gas service. Neither Three Rivers nor its owners/transferees sought NGA Sec. 7 authorization to acquire operate, or abandon Three Rivers, because it appears that they assumed that Three Rivers was an intrastate pipeline not regulated by the Commission.\14\ --------------------------------------------------------------------------- \14\ In a similar situation, the Commission required certification to operate existing interstate storage and connecting pipeline facilities, previously constructed under NGPA Sec. 311, where there were no intrastate customers and the facilities only provided interstate storage services to and from several interstate pipeline systems. See Egan Hub Partners, L.P., 72 FERC para.61,224 (1995), order on show cause, 73 FERC para.61,334 (1995), and order denying stay, 74 FERC para.61,021 (1996). See also Petal Gas Storage Co., 64 FERC para.61,190 (1993), as amended, 67 FERC para.61,135 (1994). --------------------------------------------------------------------------- The regulatory purpose of the NGA of ensuring consumers access to an adequate supply of gas at a reasonable price may have been frustrated because Three Rivers has not had to comply with Order No. 636. If Three Rivers were found to operate as an interstate pipeline, Three Rivers would be subject to Secs. 4, 5, and 7 of the NGA, and Three Rivers would be required to file initial rates and to comply with Order No. 636, including the filing of a pr forma FERC tariff stating its terms and conditions of service, and GISB requirements. [[Page 50898]] Accordingly, for these reasons, the Commission is instituting a proceeding pursuant to NGA Secs. 5, 7, and 16. The Commission is requiring Three Rivers, within 30 days after the issuance of this order, to establish why the Commission should not find it to be an interstate pipeline subject to the Commission's NGA jurisdiction. The Commission Orders (A) Three Rivers' settlement in Docket No. PR95-9-001 is approved, as clarified. (B) Three Rivers is directed to make refunds to its customers, within 30 days after the issuance of this order, and to file a refund report, consistent with its settlement. (C) A proceeding is institute concerning Three Rivers' transportation services and operations. Within 30 days after the issuance of this order, Three Rivers is directed to provide evidence concerning its jurisdictional status as discussed in the body of this order. (C) Notice of this proceeding will be published in the Federal Register. Interested persons will have 20 days from the date of publication to intervene. By the Commission. David P. Boergers, Secretary. [FR Doc. 98-25374 Filed 9-22-98; 8:45 am] BILLING CODE 6717-01-M