[Federal Register Volume 65, Number 152 (Monday, August 7, 2000)]
[Notices]
[Pages 48236-48238]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-19596]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. PL99-3-002]


Certification of New Interstate Natural Gas Pipeline Facilities; 
Order Further Clarifying Statement of Policy

Issued July 28, 2000.

    Before Commissioners: James J. Hoecker, Chairman; William L. 
Massey, Linda Breathitt, and Curt Hebert, Jr.

    On September 15, 1999, the Commission issued a Statement of Policy 
(Policy Statement) regarding its policy for certificating new pipeline 
construction.\1\ On February 9, 2000, in Docket No. PL99-3-001, the 
Commission issued an order clarifying the Statement of Policy.\2\ Six 
parties filed requests for rehearing, reconsideration, or clarification 
of the February 9 order.\3\ This order addresses those requests.
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    \1\ Certification of New Interstate Natural Gas Pipeline 
Facilities, Statement of Policy, 88 FERC para.61,227 (1999).
    \2\ Order Clarifying Statement of Policy, 90 FERC para.61,128 
(2000).
    \3\ American Public Gas Association (APGA); FPL Energy, Inc. 
(FPL Energy); KeySpan Gas East Corp. and The Brooklyn Union Gas Co., 
(Keyspan); Pennsylvania Office of Consumer Advocate (Pennsylvania 
OCA); Process Gas Consumers Group, American Iron and Steel 
Institute, Georgia Industrial Group, American Forest and Paper 
Association, Alcoa, Inc., and United States Gypsum Co. (Process 
Gas); and Texas Eastern Transmission Corp. and Algonquin Gas 
Transmission Co. (Texas Eastern).
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I. Background

    In the Policy Statement, the Commission explained the analytical 
steps it will use to evaluate proposals for certificating new 
construction. In this analysis, the threshold question applicable to an 
existing pipeline's proposal is whether the project can proceed without 
subsides from its existing customers. The next step is to determine 
whether the applicant has made efforts to eliminate or minimize any 
adverse effects the project might have on its existing customers, 
existing pipelines in the market and their captive customers, or the 
economic interests of landowners and communities affected by the route 
of the new pipeline. Where residual adverse

[[Page 48237]]

effects on the three interests remain after the pipeline makes an 
effort to minimize them, the Commission will evaluate the project by 
balancing the evidence of the project's public benefits against its 
residual adverse effects. The Policy Statement set forth in detail the 
considerations the Commission will apply to each of these steps. After 
analyzing the application based on these considerations, the Commission 
will approve an application for a certificate only if the public 
benefits outweigh any adverse effect.\4\
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    \4\ If there are no adverse effects on any of these interests, 
no balancing of benefits against adverse effects would be necessary 
and the Commission would proceed to a preliminary determination or a 
final order.
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    The Commission also stated that customers with a right of first 
refusal (ROFR) on pipelines with incrementally priced vintages of 
capacity can exercise their ROFR at their original contract rate except 
when the pipeline is fully subscribed and there is a competing bid for 
the capacity which is higher than the existing customer's maximum rate. 
In that case, the existing customer could be required to match the 
highest competing bid up to a maximum rate which could be either an 
incremental rate or a rolled-up rate in which costs for expansions are 
accumulated to yield an average expansion rate.
    In the February 9 order clarifying the Policy Statement, the 
Commission explained that, to adjust the maximum rate applicable to 
shippers exercising their ROFR, the pipeline must establish a mechanism 
for reallocating costs between the historic and incremental rates so 
that all rates remain within the pipeline's cost-of-service. This 
mechanism can be established either through a general section 4 rate 
case or through the filing of pro forma tariff sheets to provide the 
Commission and parties with an opportunity to review the proposal prior 
to implementation. Once the review is complete, the pipeline can then 
implement the mechanism through a limited section 4 rate filing.
    The Commission explained that when an existing customer's contract 
expires, and the conditions established in the Policy Statement exist 
(fully subscribed expansion subject to incremental rates, at least one 
bid above the existing rate, and a rate mechanism established in 
advance), the existing customer should be treated similarly to new 
customers for pipeline capacity, who face rates higher than the pre-
expansion historic rate. When there is insufficient capacity to satisfy 
all the demands for service on the system, a higher matching rate will 
improve the efficiency and fairness of capacity allocation by allowing 
new shippers who place greater value on obtaining capacity than the 
exiting shipper to better compete for the limited capacity that is 
available. Based on this rationale, the Commission further clarified 
that it would not mandate a one-time contract renewal for existing ROFR 
customers at their current maximum rate.
    Finally, the February 9 order clarified the effective date of the 
Policy Statement and the process applicable to a shipper's ROFR at the 
termination of its existing contract. The requests for rehearing 
reconsideration or clarification address the effective date and the 
ROFR pricing policy.
    Contemporaneously with the February 9 Order Clarifying Policy 
Statement, the Commission issued Order No. 637, the final rule in 
Docket Nos. RM98-10-000 and RM98-12-000. \5\ In Order No. 637, the 
Commission amended Part 284 of its open access regulations to among 
other things, narrow the ROFR to remove economic biases in the current 
rule, while still protesting captive customers' ability to resubscribe 
to long-term capacity. The Commission also discussed the interaction of 
the changes to the ROFR mechanism in Order No. 637 with the ROFR 
pricing policy set forth in the Policy Statement.
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    \5\ Regulation of Short-Term Natural Gas Transportation 
Services, and Regulation of Interstate Natural Gas Transportation 
Services, 63 FR 10156 (Feb. 25, 2000), III FERC Stats. & Regs. 
Preambles para.31,091 (February 9, 2000).
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II. Requests for Rehearing, Reconsideration and/or Clarification

A. The Effective Date of the Policy Statement

    Texas Eastern contends that the February 9 order was unresponsive 
to its request for clarification that the new policy applies to all 
certificate orders issued after September 15, 1999, regardless of the 
filing date of the underlying certificate applications. Texas Eastern 
states that its confusion arises due to the concurring opinion to the 
Policy Statement by three Commissioners which states that they would 
not apply the policy to certificate applications filed before July 29, 
1998, the date on which the Commission issued its Notice of Proposed 
Rulemaking (NOPR) proposing, among other things, to make changes to its 
policies with respect to certificating pipeline construction 
activities.\6\ Texas Eastern contends that a certificate application's 
filing date should not determine whether the Policy Statement is 
applicable; it should apply to all certificate orders issued after 
September 15, 1999. To do otherwise, it argues, would result in unduly 
discriminatory treatment of similarly situated certificate applicants.
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    \6\ Regulation of Short-term Natural Gas Transportation Services 
63 Fed. Reg. 42,982 (August 11, 1998), FERC Stats. & Regs., Proposed 
Regulations 1988-1998 para.32,533 (1998).
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B. The Right of First Refusal

    Because the February 9 order was issued contemporaneously with 
Order No. 637 and because both orders addressed the ROFR pricing 
policy, APGA, FPL Energy, Keyspan, and Process Gas filed their 
petitions in both the Order No. 637 proceeding and in this Policy 
Statement proceeding. Philadelphia OCA filed two separate requests for 
rehearing on the ROFR issue, one in this proceeding and the other, 
jointly with the National Association of State Utility Consumer 
Advocates and the Ohio Office of Consumers' Counsel, in the Order No. 
637 proceeding. Its arguments in the two rehearing requests are 
substantially the same. These petitioners argue that the ROFR pricing 
policy is inconsistent with the NGA, the Policy Statement, and 
Commission regulations. They also ask the Commission to clarify how the 
policy will work in specific factual situations.

III. Discussion

    The purpose of the Policy Statement is to provide the natural gas 
industry with guidance by stating the analytical framework the 
Commission will use to evaluate proposals for certificating new 
construction. In the Policy Statement, the Commission also explains the 
new pricing policy for capacity subject to the right of first refusal. 
A policy statement is not a rule, and generally objections to such a 
statement are not directly reviewable. Rather, such review must await 
implementation of the policy in a specific case.\7\ Therefore, the 
Commission declines to consider the issues raised in the requests for 
rehearing and reconsideration, but will consider such issues and 
arguments in the specific cases in which they arise.
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    \7\ See, e.g., Alternatives to Traditional Cost-of-Service 
Ratemaking for Natural Gas Pipelines, 75 FERC para. 61,026 (1996), 
citing American Gas Assoc. v. FERC, 888 F.2d 136, 151-2 (D.C. Cir. 
1989).
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    As to Texas Eastern request for clarification of the effective date 
of the Policy Statement, we note that Texas Eastern among others raised 
this issue on rehearing in Independence Pipeline Company, Docket Nos. 
CP97-315-000 et al., in which the certificate applications were filed 
prior to issuance of the

[[Page 48238]]

NOPR.\8\ The Commission found that it would be unfair to apply the new 
Policy Statement to the underlying certificate applications since the 
applicants had no notice that the Commission was considering a change 
in its certificate policy at the time they filed their applications. 
Thus, the issue raised by Texas Eastern in its rehearing request 
regarding the effective date of the Policy Statement in this proceeding 
was raised in a specific case, the appropriate forum for such review.
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    \8\ 91 FERC para. 61,102 (2000).
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    In Order No. 637-A, issued May 19, 2000, the Commission responded 
to the issues raised by the petitioners in this proceeding with respect 
to the ROFR pricing policy.\9\ Since the Commission addressed at length 
certain generally applicable concerns raised by the petitioners, we 
need not repeat our responses here. A number of the petitioner's 
questions about the ROFR pricing policy do not have general application 
but are specific to the factual circumstances on a particular pipeline 
system. As we stated in Order No. 637-A, such complex factual 
situations should be addressed as they arise in individual pipeline 
proceedings to implement the ROFR pricing policy.
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    \9\ Regulation of Short-term Natural Gas Transportation 
Services, Order No. 637-A, 65 Fed. Reg. 35,705 (June 5, 2000), III 
FERC Stats. & Regs. Regulations Preambles para. 31,099 (slip op. at 
234-254) (May 19, 2000).

    By the Commission.
Linwood A. Watson, Jr.,
Acting Secretary.
[FR Doc. 00-19596 Filed 8-4-00; 8:45 am]
BILLING CODE 6717-01-M