[Federal Register Volume 65, Number 144 (Wednesday, July 26, 2000)]
[Rules and Regulations]
[Pages 45856-45859]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-18499]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 157

[Docket No. RM00-5-000; Order No. 615]


Optional Certificate and Abandonment Procedures for Applications 
for New Service Under Section 7 of the Natural Gas Act

Issued July 14, 2000.
AGENCY: The Federal Energy Regulatory Commission, DOE.

ACTION: Final rule.

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SUMMARY: On September 15, 1999, the Commission issued a policy 
statement to provide the industry with guidance with respect to how the 
Commission will evaluate new proposals for pipeline construction 
projects to take account of changes in the natural gas industry in 
recent years (Policy Statement). In view of the new framework for 
analyzing pipeline certificate applications announced in the the Policy 
Statement, the Commission is removing the optional certificate 
regulations because it believes that a uniform regulatory scheme 
applicable to all certificate applications will best accomplish the 
Commission's goals, as set out in the Policy Statement, of assuring 
that all relevant interests and circumstances are considered and 
balanced in assessing the public convenience and necessity.

DATES: This rule is effective September 25, 2000.

FOR FURTHER INFORMATION CONTACT: William L. Zoller, Office of Energy 
Projects, Federal Energy Regulatory Commission 888 First Street, N.E., 
Washington, D.C. 20426, (202) 208-1203.
Joseph B. O'Malley, Office of the General Counsel, Federal Energy 
Regulatory Commission, 888 First Street, NE, Washington, D.C. 20426, 
(202) 208-0088.

SUPPLEMENTARY INFORMATION:

I. Introduction

    The Federal Energy Regulatory Commission is amending its 
regulations to remove its optional certificate regulations in Subpart E 
of Part 157 of the Commission's regulations.\1\ The policies embedded 
in these regulations have been overtaken by subsequent policy 
developments, most particularly the Commission's September 15, 1999 
statement of policy on certificating new pipeline construction (Policy 
Statement).\2\ The optional certificate regulations, promulgated in 
1985, established procedures whereby an eligible applicant may obtain, 
for purposes of providing new service, a certificate authorizing: the 
transportation of natural gas; sales of natural gas; the construction 
and operation of natural gas facilities; the acquisition and operation 
of natural gas facilities; and conditional pre-granted abandonment of 
such activities and facilities. The Commission's September 15, 1999 
Policy Statement provides the industry guidance with respect to how the 
Commission will evaluate new proposals for pipeline construction 
projects to take account of changes in the natural gas industry in 
recent years. The Policy Statement provides that pipelines may not rely 
on existing customers to subsidize new projects that will not benefit 
them and that construction projects will be approved only where the 
public benefits outweigh any adverse effects. The optional regulations 
do not provide for consideration and weighing of public interest 
factors, and are thus inconsistent with current Commission policy.
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    \1\ 18 CFR 157.100 et seq.
    \2\ Certification of New Interstate Natural Gas Pipeline 
Facilities, 88 FERC para. 61,227 (1999) (Policy Statement), order 
clarifying statement of policy, 90 FERC para. 61,128 (2000).
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II. Background

    Before a pipeline may construct any natural gas facilities subject 
to the Commission's Natural Gas Act (NGA) jurisdiction, it must obtain 
a certificate of public convenience and necessity authorizing such 
construction under section 7 of the NGA. In conjunction with the open 
access transportation

[[Page 45857]]

program that the Commission established in 1985 in Order No. 436, the 
Commission adopted the optional certificate regulations as an 
alternative to the conventional certificate process.\3\ A key goal of 
the optional certificate program was to provide the full benefits of 
competition to consumers by facilitating easier pipeline entry and exit 
from markets.\4\ The optional certificate regulations establish a 
rebuttable presumption that, subject to review under the National 
Environmental Policy Act, a project is required by the public 
convenience and necessity if the applicant is willing to assume all the 
economic risk of a new service.\5\ To assure that the applicant 
shoulders the project risk, the optional regulations prohibit shifting 
costs originally allocated to the new service or facility to any other 
service. The optional regulations also prohibit any reduction in the 
certificated level of billing determinants used to design the initial 
rates for a project or service.
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    \3\ See Order No. 436, Regulation of Natural Gas Pipelines After 
Partial Wellhead Decontrol, 50 FR 42408 (Oct. 18, 1985), 50 FR 45907 
(Nov. 5, 1985); FERC Stats. & Regs. para. 30,665 (1985).
    \4\ Id. at p. 31,570.
    \5\ Id. at p. 31,584.
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    In view of continuing changes in the natural gas industry, the 
Commission revisited its NGA section 7 certificate policy, and on 
September 15, 1999, the Commission issued its Policy Statement to 
provide the industry with guidance regarding the process and criteria 
the Commission will employ in evaluating future proposals for 
certificating new pipeline construction. Rather than adopting new rules 
for filing applications, the Policy Statement provides an analytical 
framework for determining when a particular pipeline project is 
required by the public convenience and necessity. The threshold 
requirement of the new policy is that the pipeline must be prepared to 
develop the project without relying on subsidies from its existing 
customers.\6\ The Policy Statement also encourages pipelines seeking a 
certificate to resolve potential issues very early in the process by 
submitting applications designed to avoid or minimize adverse effects 
on such groups as existing customers of the applicant, existing 
pipelines serving the market and their captive customers, and affected 
landowners and other community interests. After the applicant makes 
efforts to minimize adverse effects, the Commission will authorize 
construction projects that have residual unresolved issues only where 
it finds that the public benefits of the projects outweigh the adverse 
effects. The Policy Statement provides that an applicant may submit 
evidence of the public benefits to be achieved by the proposed project, 
such as contracts, precedent agreements, studies of projected demand in 
the market to be served, or other evidence of public benefit of the 
project.
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    \6\ Policy Statement, 88 FERC, at p. 61,750.
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    On February 9, 2000, the Commission issued a Notice of Proposed 
Rulemaking (NOPR) \7\ proposing in the instant docket to amend the 
Commission's regulations by removing the optional certificate 
regulations. The Commission stated that a uniform regulatory scheme 
applicable to all certificate applications will best accomplish the 
Commission's goals, as set out in the Policy Statement, of assuring 
that all relevant interests and circumstances are considered and 
balanced in assessing the public convenience and necessity.
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    \7\ Optional Certificate and Abandonment Procedures for 
Applications for New Service Under Section 7 of the Natural Gas Act, 
65 FR 7803 (Feb. 16, 2000), FERC Stats. & Regs. para. 32,551.
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    The Commission explained in the NOPR that its September 1999 Policy 
Statement established a core set of principles and considerations for 
evaluating new pipeline construction projects. By precluding 
subsidization of new projects, both the Policy Statement and the 
optional certificate program place the risk of a new project on the 
pipeline and the customers for the new project and protect existing 
customers from assuming the financial risk of a project that was not 
designed for their benefit. The Commission noted, however, that in 
other respects, current policy is inconsistent with the optional 
certificate program. The Commission explained that because the optional 
certificate program operates under a rebuttable presumption that 
proposals under which the pipeline applicant will assume the financial 
risks associated with the project are in the public interest, the 
Commission does not weigh the public benefits against the adverse 
effects in considering such applications. The Commission stated that it 
believes that it will be better to consider all certificate 
applications under the broader balancing criteria articulated in the 
Policy Statement.
    In its order clarifying the Policy Statement,\8\ issued 
contemporaneously with the NOPR, the Commission determined that, on an 
interim basis until issuance of a final rule in this rulemaking 
proceeding, the presumption in favor of an application filed under the 
optional certificate regulations will continue, but that the 
presumption will be considered rebutted if the adverse affects of the 
proposed project are found to outweigh its benefits.
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    \8\ 90 FERC para. 61,128 (2000), at p. 61,391.
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III. Discussion

    The Commission received only four comments in response to its NOPR, 
none of which disagreed with the proposal to eliminate the optional 
procedures. One commentor, El Paso Energy Corporation, believes that a 
uniform regulatory scheme employing the same standards and procedures 
for all certificate applications will improve the integrity and 
fairness of the regulatory process, and it supports the Commission's 
proposal to remove the optional certificate procedures. The other 
commentors, Sempra Energy Companies (Sempra), The Williams Companies, 
Inc. (Williams), and the Coastal Pipelines (ANR Pipeline Company, 
Colorado Interstate Gas Company, and Wyoming Interstate Company, Ltd.), 
express differing opinions regarding when removal of the optional 
certificate procedures should take effect. Williams also comments on 
the weight to be accorded an applicant's taking on the financial risk 
of a project.
    Sempra supports the Commission's proposal to remove the optional 
certificate rules, and it urges that all new and pending applications 
filed under the optional procedures be converted to conventional NGA 
7(c) applications and considered under the analytical framework set out 
in the Commission's Policy Statement. Sempra avers that, inasmuch as 
the Commission has determined that the optional procedures are 
inconsistent with the Policy Statement, the optional procedures should 
be eliminated as soon as possible. What it calls ``the accident of an 
early filing date'' should not result in applications filed under the 
optional procedures avoiding review under the interest balancing 
standards of the Policy Statement.
    Williams and the Coastal Pipelines, on the other hand, while 
stating that they have no objection to the Commission's elimination of 
the optional certificate procedures, argue that elimination of the 
regulations should be prospective only. That is, they aver that the 
Commission should apply the optional certificate rules to applications 
filed under those procedures prior to the issuance of the NOPR. 
Williams urges, moreover, that, after the optional procedures are 
removed, the Commission should consider an applicant's willingness to 
assume the financial risk of a project as a major factor in assessing 
the public convenience and necessity under the Policy Statement's 
balancing test. It

[[Page 45858]]

remains true today, asserts Williams, just as the Commission found when 
it adopted the optional certificate procedures, that an applicant's 
willingness to bear all the risk of a project's failure is strong 
evidence that there is a public need for a project inasmuch as a 
reasonable company would not invest in a project unless it believes 
that it will be able to attract sufficient business to recoup its 
investment.

Commission Response

    We find that all comparable pipeline projects should be evaluated 
under the same criteria, and we adopt our proposal set forth in the 
NOPR to remove the optional certificate regulations. As the Commission 
stated in the NOPR, a regulatory approach that determines the public 
convenience and necessity on a uniform basis for all project applicants 
will best assist the Commission in meeting its goal, as set forth in 
the Policy Statement, that all interests and circumstances that are 
relevant to a particular pipeline project will be accorded appropriate 
consideration and weight.
    The Commission agrees with Williams that an applicant's willingness 
to assume the financial risk of a project without subsidies from 
existing customers should be an important factor in determining the 
public convenience and necessity. We in fact explained in the Policy 
Statement that this is the threshold issue in that determination. 
However, analysis of the public convenience and necessity under the 
Policy Statement does not end with a determination that the project can 
proceed without subsidy from existing customers. The Policy Statement 
explained that the requirement that a project be able to stand on its 
own without subsidies ``will be the predicate for the rest of the 
evaluation of a new project by an existing pipeline.'' \9\ Thus, the 
Commission stated, ``if an applicant can show that the project is 
financially viable without subsidies, then it will have established the 
first indicator of public benefit.'' \10\ Once the applicant satisfies 
the threshold test, the Commission will proceed pursuant to the Policy 
Statement to evaluate and balance the public benefit from a proposed 
project against any residual adverse effects on existing customers, 
other pipelines and their captive customers, and landowners and 
communities affected by the route proposed for the pipeline. Because 
the optional certificate regulations undertake this interest balancing 
only if the presumption in favor of the application is challenged, they 
conflict with a significant goal under the Policy Statement, and we 
will remove them as an alternative means of certificating a project.
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    \9\ Policy Statement, 88 FERC, at p. 61,746.
    \10\ Id. at p. 61,747.
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    As noted above, in its order clarifying the Policy Statement, the 
Commission addressed the matter of the appropriate standard to be 
applied to applications filed under the optional certificate procedures 
pending a final determination in this rulemaking proceeding. The 
Commission announced that it would continue to apply the presumption in 
favor of financially viable proposals that did not rely on 
contributions from existing customers, but that it would consider the 
presumption successfully rebutted, pursuant to a Policy Statement 
analysis, if the adverse effects from the project outweigh the public 
benefits. We continue to believe that this is the appropriate approach 
to optional certificate applications filed prior to the effective date 
of this final rule, which will be 60 days after its date of issuance.
    The optional procedures' regulatory presumption has always been one 
that is subject to rebuttal. The Commission has now explained that the 
presumption favoring an optional certificate proposal may be addressed 
by applying a Policy Statement analysis. While procedurally this places 
the burden on those parties that find themselves adversely affected by 
a proposal, the Commission believes that, as a practical matter, the 
end result will be the same. We explained in the NOPR that this is an 
interim solution only until the optional certificate procedures are 
eliminated and all proposals are evaluated directly under the Policy 
Statement considerations.

IV. Environmental Analysis

    Commission regulations describe the circumstances where preparation 
of an environmental assessment or an environmental impact statement 
will be required.\11\ The Commission has categorically excluded certain 
actions from this requirement as not having a significant effect on the 
human environment.\12\ No environmental consideration is necessary for 
the promulgation of a rule that is clarifying, corrective, or 
procedural, or that does not substantially change the effect of 
legislation or regulations being amended.\13\
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    \11\ Regulations Implementing National Environmental Policy Act, 
52 FR 47897 (Dec. 17, 1987), codified at 18 CFR Part 380.
    \12\ 18 CFR 380.4(a)(2)(ii).
    \13\ 18 CFR 380.4.
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    This Final Rule merely eliminates optional procedures for the 
filing and processing of pipeline certificate applications; the Rule 
makes no substantive change to, or has any substantive effect on, the 
environmental requirements and conditions with respect to any pipeline 
project. Applicants for pipeline construction authority have had to 
satisfy the same environmental requirements under the optional or 
traditional procedures, as well as under the Policy Statement. Thus, 
issuance of this Final Rule does not represent a major federal action 
having a significant effect on the human environment under the 
Commission's regulations implementing the National Environmental Policy 
Act, and no environmental assessment or environmental impact statement 
is necessary for the action taken here.

V. Regulatory Flexibility Impact Statement

    The Regulatory Flexibility Act of 1980 (RFA) \14\ generally 
requires a description and analysis of final rules that will have 
significant economic impact on a substantial number of small entities. 
The Commission is not required to make such analysis if a rule would 
not have such an effect.\15\
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    \14\ 5 U.S.C. 601-612.
    \15\ 5 U.S.C. 605(b).
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    Removal of the optional certificate rules will not have such an 
impact on small entities. The proposed removal of regulations would 
have impact only on interstate pipelines, which generally do not fall 
within the RFA's definition of small entity.\16\ Accordingly, pursuant 
to section 605(a) of the RFA, the Commission certifies that the removal 
of regulations proposed here will not have a significant economic 
impact on a substantial number of small entities. Therefore, no 
regulatory flexibility analysis is required.
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    \16\ 5 U.S.C. 601(3), citing to section 3 of the Small Business 
Act, 15 U.S.C. 632. Section 3 of the Small Business Act defines a 
``small business concern'' as a business which is independently 
owned and operated and which is not dominant in its field of 
operations.
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VI. Information Collection Statement

    The Office of Management and Budget's (OMB) regulations require 
that OMB approve certain information collection requirements imposed by 
agency rule.\17\ Upon approval of a collection of information, OMB 
shall assign an OMB control number and an expiration date. Respondents 
subject to the filing requirements of this Final Rule shall not be 
penalized for failure to respond to this collection of information

[[Page 45859]]

unless the collection of information displays a valid OMB control 
number. The collection of information related to this Final Rule falls 
under FERC-537, Gas Pipeline Certificates: Construction, Acquisition, 
and Abandonment (OMB Control No. 1902-0060).\18\
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    \17\ 5 CFR 1320.11.
    \18\ The current burden estimate for FERC-537 is 138,264 hours. 
This number is based on an average of 50 respondents (companies 
making filings), 11.2 responses (filings per respondent), and 246.9 
hours of preparation time per response.
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    The Commission is not establishing a new information burden. 
Rather, under this Final Rule, the Commission is merely removing a 
heretofore little used alternative to the conventional NGA section 7(c) 
application process. All pipeline project applicants will file the same 
information that the overwhelming majority of applicants for 
construction authority already file. As a practical matter, our action 
should not have any appreciable effect on the collection of data from 
the pipeline industry.
    None of the comments received in response to the NOPR specifically 
addressed the reporting burden or cost estimates. As required under 
OMB's regulations, the Commission submitted the NOPR to OMB for review. 
OMB took no action on the NOPR.
    Interested persons may obtain information on the reporting 
requirements by contacting the Federal Energy Regulatory Commission, 
888 First Street, N.E., Washington, D.C. 20426, [Attention: Michael 
Miller, Office of the Chief Information Officer, Phone: (202)208-1415, 
fax: (202)208-2425, e-mail: [email protected]] or the Office of 
Management and Budget, Office of Information and Regulatory Affairs, 
Washington, D.C. 20503. [Attention: Desk Officer for the Federal Energy 
Regulatory Commission, phone: (202)395-3087, fax: (202)395-7285]

VII. Document Availability

    In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through FERC's Home Page (http://www.ferc.fed.us) and in 
FERC's Public Reference Room during normal business hours (8:30 a.m. to 
5 p.m. Eastern time) at 888 First Street, N.E., Room 2A, Washington, DC 
20426.
    From FERC's Home Page on the Internet, this information is 
available in both the Commission Issuance Posting System (CIPS) and the 
Records and Information Management System (RIMS).

--CIPS provides access to the texts of formal documents issued by the 
Commission since November 14, 1994.
--CIPS can be accessed using the CIPS link or the Energy Information 
Online icon. The full text of this document is available on CIPS in 
ASCII and WordPerfect 8.0 format for viewing, printing, and/or 
downloading.
--RIMS contains images of documents submitted to and issued by the 
Commission after November 16, 1981. Documents from November 1995 to the 
present can be viewed and printed from FERC's Home Page using the RIMS 
link or the Energy Information Online icon. Descriptions of documents 
back to November 16, 1981, are also available from RIMS-on-the-Web; 
requests for copies of these and other older documents should be 
submitted to the Public Reference Room. User assistance is available 
for RIMS, CIPS, and the Website during normal business hours from our 
Help line at (202) 208-2222 (E-Mail to [email protected]) or the 
Public Reference at (202) 208-1371 (E-Mail to 
[email protected]).

    During normal business hours, documents can also be viewed and/or 
printed in FERC's Public Reference Room, where RIMS, CIPS, and the FERC 
Website are available. User assistance is also available.

VIII. Effective Date

    This Final Rule will take effect September 25, 2000. The Commission 
has determined, with the concurrence of the Administrator of the Office 
of Information and Regulatory Affairs of the Office of Management and 
Budget, that this rule is not a ``major rule'' within the meaning of 
section 251 of the Small Business Regulatory Enforcement Fairness Act 
of 1996. \19\ The Commission will submit the Final Rule to both houses 
of Congress and the General Accounting Office. \20\
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    \19\ 5 U.S.C. 804(2).
    \20\ 5 U.S.C. 801(a)(1)(A).
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List of Subjects in 18 CFR Part 157

    Administrative practice and procedure, Natural gas, Reporting and 
recordkeeping requirements.
    By the Commission.

Linwood A. Watson, Jr.,
Acting Secretary.

    In consideration of the foregoing, the Commission is amending Part 
157 of Chapter I, Title 18, Code of Federal Regulations, as follows:

PART 157--APPLICATIONS FOR CERTIFICATES OF PUBLIC CONVENIENCE AND 
NECESSITY AND FOR ORDERS PERMITTING AND APPROVING ABANDONMENT UNDER 
SECTION 7 OF THE NATURAL GAS ACT

    1. The authority citation for part 157 continues to read as 
follows:

    Authority: 15 U.S.C. 717-717W, 3301-3432; 42 U.S.C. 7101-7352.


Secs. 157.100-157.106  Subpart E--[Removed and Reserved]

    2. Remove and reserve subpart E, consisting of Secs. 157.100 
through 157.106.

[FR Doc. 00-18499 Filed 7-25-00; 8:45 am]
BILLING CODE 6717-01-P