[Federal Register Volume 67, Number 128 (Wednesday, July 3, 2002)]
[Rules and Regulations]
[Pages 44529-44532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-16681]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 284

[Docket No. RM96-1-021; Order No. 587-P]


Standards for Business Practices of Interstate Natural Gas 
Pipelines

June 26, 2002.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Final rule; order denying rehearing.

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SUMMARY: This order denies rehearing of the final rule issued on March 
11, 2002 (67 FR 11906, March 18, 2002) requiring that interstate 
natural gas pipelines permit releasing shippers, as a condition of 
their capacity release, to recall released capacity and renominate that 
recalled capacity at each nomination opportunity. In particular, the 
order denies rehearing of the interim schedule for recalls implemented 
by the Commission in the final rule.

EFFECTIVE DATE: The regulations became effective April 17, 2002.

FOR FURTHER INFORMATION CONTACT:
Michael Goldenberg, Office of the General Counsel, Federal Energy 
Regulatory Commission, 888 First Street, NE., Washington, DC 20426, 
(202) 208-2294;
Marvin Rosenberg, Office of Markets, Tariffs, and Rates, Federal Energy 
Regulatory Commission, 888 First Street, NE., Washington, DC 20426, 
(202) 208-1283;
Kay Morice, Office of Markets, Tariffs, and Rates, Federal Energy 
Regulatory Commission, 888 First Street, NE., Washington, DC 20426, 
(202) 208-0507.

SUPPLEMENTARY INFORMATION:
Before Commissioners: Pat Wood, III, Chairman; William L. Massey, Linda 
Breathitt, and Nora Mead Brownell.

Order Denying Rehearing

    1. In Order No. 587-N,\1\ the Federal Energy Regulatory Commission 
(Commission) amended Sec. 284.12(b)(1)(ii) of its open access 
regulations to require that interstate pipelines permit releasing 
shippers to recall released capacity and renominate that recalled 
capacity at each nomination opportunity. The Commission established a 
two-phase implementation schedule: under the first phase, the 
Commission established an interim schedule under which recalls would be 
permitted at two (of the four) nomination cycles and for any 
unscheduled capacity; in the second phase, the Commission provided the 
Wholesale Gas Quadrant of the North American Energy Standards Board 
(NAESB) with six months in which to develop standards governing partial 
day or flowing day recalls.
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    \1\ Standards For Business Practices Of Interstate Natural Gas 
Pipelines, Order No. 587-N, 67 FR 11906 (Mar. 18, 2002), III FERC 
Stats. & Regs. Regulations Preambles, ]31,125 (Mar. 11, 2002).
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    2. Duke Energy Trading and Marketing LLC and Dynegy Marketing and 
Trade (DETM) seek rehearing of the interim schedule adopted by the 
Commission and seek clarification regarding the determination of when 
capacity is unscheduled for the purposes of allowing recalls of 
capacity. For the reasons discussed below, the Commission denies the 
request for rehearing and provides clarification regarding when 
capacity is deemed unscheduled for the purposes of allowing a recall.

Background

    3. In Order No. 636, the Commission adopted regulations permitting 
shippers (releasing shippers) to release their capacity to other 
shippers (replacement shippers).\2\ Under these regulations, releasing 
shippers were permitted to ``release their capacity in whole or in 
part, on a permanent or short-term basis, without restriction on the 
terms and conditions of the release.'' \3\ The regulation permits 
releasing shippers to impose terms for a release transaction under 
which the releasing shipper reserves the right to recall that capacity 
to use the capacity itself.\4\
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    \2\ 18 CFR 284.8 (2001).
    \3\ 18 CFR 284.8(b).
    \4\ As an example, a shipper might include a recall condition in 
the event that temperature drops below a pre-determined level. 
Pipeline Service Obligations and Revisions to Regulations Governing 
Self-Implementing Transportation Under Part 284 of the Commission's 
Regulations, Order No. 636, 57 FR 13267 (Apr. 16, 1992), FERC Stats. 
& Regs. Regulations Preambles [Jan. 1991-1996] ]30,939, at 30,418 
(Apr. 8, 1992).
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    4. Beginning with Order No. 587,\5\ the Commission has incorporated 
by reference consensus standards approved by the Wholesale Gas Quadrant 
of the North American Energy Standards Board (NAESB) (formerly the Gas 
Industry Standards Board) designed to standardize business practices 
and communication protocols of interstate pipelines in order to create 
a more integrated and efficient pipeline grid. NAESB is a private, 
consensus standards developer whose wholesale natural gas standards are 
developed by representatives from all segments of the natural gas 
industry. Although the Commission places great reliance on NAESB's 
development of consensus standards,\6\ the Commission has found it 
necessary to resolve disputes between industry segments when NAESB has 
been unable to reach consensus on issues concerning Commission policy, 
so that the standards development process can proceed in line with 
Commission policies.\7\
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    \5\ Standards For Business Practices Of Interstate Natural Gas 
Pipelines, Order No. 587, 61 FR 39053 (Jul. 26, 1996), FERC Stats. & 
Regs. Regulations Preambles [July 1996-December 2000] ] 31,038 (Jul. 
17, 1996).
    \6\ Order No. 587, 61 FR at 39057 (Jul. 26, 1996), FERC Stats. & 
Regs. Regulations Preambles [July 1996-December 2000] ] 31,038, at 
30,059
    \7\ Order No. 587-G, 63 FR at 20072 (Apr. 23, 1998), FERC Stats. 
& Regs. Regulations Preambles [July 1996-December 2000] ] 31,062, at 
30,668-72 (Apr. 16, 1998) (resolving dispute over bumping of 
interruptible service by firm service).
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    5. In 1996, in NAESB's first set of standards, it adopted standards 
providing that releasing shippers could recall capacity only if they 
provided notification to the pipeline by 8 a.m.

[[Page 44530]]

CCT \8\ and that releasing shippers could not engage in partial or 
flowing day recalls.\9\ At the time NAESB adopted these standards, its 
standards provided for one nomination, at 11:30 a.m. CCT for the next 
gas day and only one intra-day nomination at an indeterminate time. 
However, since that time, NAESB expanded its nomination opportunities 
to permit four nomination opportunities:
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    \8\ CCT refers to Central Clock Time, which includes an 
adjustment for day light savings time. See 18 CFR 
Sec. 284.12(b)(1)(i), Nominations Related Standards 1.3.1.
    \9\ A partial or flowing day recall refers to a recall condition 
that applies only to part of a gas day, rather than the full gas 
day. Under the NAESB standards, a gas day runs from 9 a.m. central 
clock time (CCT) on Day 1 to 9 a.m. CCT the next day (Day 2). 18 CFR 
284.12(b)(1)(i). Nominations Related Standards 1.3.1.

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                                                 Nomination  deadline                    Effective Time
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Timely Nomination.....................  11:30 a.m..........................  9 a.m. next gas day.
Evening Nomination....................  6 p.m..............................  9 a.m. next gas day.
Intra-Day 1...........................  10 a.m.............................  5 p.m. same gas day.
Intra-Day 2...........................  5 p.m..............................  9 p.m. same gas day
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NAESB, however, did not amend its capacity release recall standards to 
take into account this expansion of nomination opportunities, and when 
the recall issue was raised at NAESB, NAESB was unable to come to 
consensus on whether to expand releasing shippers' recall 
opportunities.
    6. In Order No. 587-N, the Commission determined that permitting an 
expansion of recall opportunities to match the enhanced nomination 
schedule adopted by NAESB was consistent with the original intent of 
the Commission's capacity release regulations and would foster greater 
efficiency by providing releasing shippers with the flexibility to 
structure capacity release transactions that best fit their business 
needs, providing greater incentives for releasing shippers to release 
capacity, and fostering greater competition for pipeline capacity by 
creating parity between scheduling of capacity release transactions and 
pipeline interruptible service. As a result, the Commission adopted 
Sec. 284.12(b)(1)(ii)(B) of its regulations which requires pipelines to 
permit releasing shippers, as a condition of a capacity release, to 
recall released capacity and renominate such recalled capacity at each 
nomination opportunity according to the notice and bumping provisions 
applicable to interruptible shippers. Under this regulation, recalls of 
released capacity will not be permitted to reduce (bump) volumes that 
are already scheduled for replacement shippers unless the replacement 
shippers are provided with at least one opportunity to reschedule any 
bumped volumes.\10\The use of recall rights under this provision is 
voluntary, and depends on the agreement between the releasing and the 
replacement shipper as to when recall conditions apply.
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    \10\ Under the regulation, the releasing shipper can recall 
scheduled capacity at the Evening Nomination Cycle because the 
replacement shipper has two opportunities to reschedule capacity 
(the Intra-Day 1 and Intra-Day 2 cycles). Similarly, a replacement 
shipper whose scheduled capacity is bumped at the Intra-Day 1 cycle 
has the opportunity to reschedule the bumped capacity at the Intra-
Day 2 cycle. Whether a partial day recall of scheduled volumes can 
be permitted at the Intra-Day 2 cycle depends on whether the 
notification schedule permits a replacement shipper sufficient time 
to reschedule its capacity. Order No. 587-N, at P. 37.
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    7. The Commission adopted a two-phase implementation for this 
regulation. This two-phase approach was designed to ensure an 
expeditious implementation of recalls that do not raise operational 
concerns, while at the same time providing time for NAESB to further 
consider standards to address the operational issues raised. Under this 
schedule, each pipeline is required to make a compliance filing, by May 
1, 2002, to be effective July 1, 2002, that will permit shippers to 
recall scheduled and unscheduled capacity at both the Timely Nomination 
Cycle and the Evening Nomination Cycle and to recall capacity at any 
nomination time if the capacity has not been previously scheduled by 
the replacement shipper. To ease the compliance and review process, the 
Commission established a standard tariff provision providing a 
notification schedule for these recalls. Second, the Commission 
provided NAESB, and the industry, six months in which to develop 
standards to apply to the operational details involved in allowing 
partial or flowing day recalls.
    8. The interim recall schedule adopted by the Commission is as 
follows:

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                                                                                                Pipeline notification to
 Nomination cycle (all times in    Receipt scheduled volumes       Recall notification to        replacement shipper of       Nomination to time (same
              CCT)               (from prior nomination cycle)            pipeline                       recall                         day)
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Timely.........................  NA...........................  8:00 a.m....................  9:00 a.m....................  11:30 a.m.
Evening........................  4:30 p.m CCT.................  5:00 p.m....................  6:00 p.m....................  6:00 p.m.
                                 same day.....................
Intra-Day 1....................  10:00 p.m CCT................  8:00 a.m....................  9:00 a.m....................  10 a.m.
                                 prior day....................
Intra-Day 2....................  2:00 p.m CCT.................  3:00 p.m....................  4:00 p.m....................  5:00 p.m.
                                 same day.....................
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    9. The Commission found that the fundamental precept underlying 
this schedule is to provide releasing shippers with sufficient time 
after receipt of scheduled quantities to inform the pipeline of a 
recall. The Commission found that releasing shippers, such as LDCs, 
need to be aware of the scheduled volumes for their systems prior to 
determining whether they will need to recall capacity. Thus, the 
advance notification period is designed to give releasing shippers the 
time to evaluate the scheduled quantities information before having to 
submit recall notices.\11\
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    \11\ For example, under the Timely Nomination cycle, scheduled 
volumes are provided at 4:30 p.m. Releasing shippers need sufficient 
time to evaluate this information before determining whether to 
recall capacity for the 6 p.m. Evening Nomination cycle.

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[[Page 44531]]

    10. On April 10, 2002, DETM filed a request for rehearing and 
clarification. It argues that the Commission's interim schedule for 
recalls makes it impossible for replacement shippers to acquire and 
nominate substitute release capacity for the upcoming nomination cycle. 
It requests that the Commission defer implementation of the interim 
timeline until NAESB adopts comprehensive guidelines governing partial 
day recalls. It also requests clarification as to the determination of 
the amount of a replacement shipper's unscheduled capacity that is 
subject to recall by the releasing shipper at all nomination 
cycles.\12\
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    \12\ On April 25, 2002, Keyspan Delivery Companies (Keyspan) 
filed a motion for leave to file an answer and answer to DETM's 
rehearing request and an answer to DETM's request for clarification, 
and Consolidated Edison Company of New York and Orange and Rockland 
Utilities filed an answer to DETM's request for clarification. Under 
Commission regulations, answers are not permitted to rehearing 
requests (Rules 213(a)(2) and 713 (d)(1)), and Keyspan's motion is 
accordingly denied. The answers to the request for clarification are 
accepted.
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Discussion

    11. The Commission denies rehearing with respect to the interim 
schedule and provides clarification as to the determination of the 
amount of a replacement shipper's unscheduled capacity, subject to 
recall.

A. Interim Schedule

    12. DETM maintains that the interim schedule developed by the 
Commission makes it impossible for replacement shippers whose capacity 
is recalled to renominate that capacity. It asserts, for example, that 
under Version 1.5 of NAESB's standards, a shipper must post a non-
biddable release at 5 p.m. for the Evening Cycle, but that under the 
Commission's interim schedule for recalls, the replacement shipper is 
not notified of a recall until 6 p.m. DETM argues that a replacement 
shipper is unable to arrange for a substitute capacity release 
transaction in time to submit a nomination for the 6 p.m. Evening 
Nomination Cycle. DETM maintains that the Commission should therefore 
defer implementation of the interim cycle until NAESB crafts 
comprehensive guidelines governing recalls and the acquisition of 
released capacity.
    13. The Commission denies the request for rehearing. The Commission 
adopted the interim schedule to provide releasing shippers with 
enhanced recall rights so that they will be able to use their capacity 
as flexibly as possible while the longer process of establishing 
procedures for flowing day recalls is underway. As the Commission found 
in Order No. 587-N, enhanced recall rights provide a greater incentive 
for releasing shippers to release capacity (which they otherwise might 
not release at all) and will create a more vibrant and competitive 
capacity market, with more released capacity available to compete with 
pipeline services.\13\ The interim schedule is a way to achieve these 
benefits immediately, while the industry considers standards to provide 
for flowing day recalls, and the Commission finds no basis to defer 
implementation of the interim recall schedule until NAESB's 
deliberations are complete.
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    \13\ Order No. 587-N, P. 27-29.
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    14. As DETM notes, the Commission's policy is that a recall cannot 
reduce (bump) volumes already scheduled for replacement shippers unless 
the replacement shippers are provided with at least one opportunity to 
reschedule any bumped volumes.\14\ The Commission adopted this policy 
so that replacement shippers receive protection against loss of 
scheduled service similar to that interruptible shippers currently 
receive.\15\
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    \14\ Order No. 587-N, P. 17. Under this standard, if a 
replacement shipper fails to nominate under a released capacity 
contract, then the releasing shipper can recall capacity at any of 
the nomination times.
    \15\ Order No. 587-N, P. 30.
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    15. The Commission's interim schedule fully achieves that goal. 
Using DETM's example of a recall for the 6 p.m. Evening Cycle, if a 
releasing shipper recalls capacity for the Evening cycle, the 
replacement shipper has two additional opportunities (Intra-Day 1 and 
Intra-Day 2 cycles) to reschedule any of its scheduled gas that has 
been bumped. This is the same right that an interruptible shipper has 
to reschedule gas that is bumped at the Evening cycle.\16\
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    \16\ See Order No. 587-G, 63 FR at 20078, FERC Stats. & Regs. 
Regulations Preambles [July 1996-December 2000] ] 31,062, at 30,671 
(interruptible shippers bumped at 6 p.m. Evening Nomination have two 
opportunities to renominate); 18 CFR 284.12(a)(1)(i), Nominations 
Related Standards 1.3.2. (Version 1.5) (interruptible shipper, whose 
gas has been bumped by a firm shipper's Evening Nomination, is 
notified of the bump at 9 p.m. and is able to renominate its gas for 
the next day at the Intra-Day 1 and Intra-Day 2 cycles).
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    16. DETM's example incorrectly assumes that, under the Commission's 
policy, the replacement shipper must have the opportunity to reschedule 
bumped gas at the same nomination cycle at which the bump notice is 
received. But the Commission's policy (and the current NAESB standards) 
do not assure that a bumped shipper will be able to renominate at the 
same nomination cycle at which the bump has taken place. Interruptible 
shippers, for example, that are bumped at the Evening Nomination Cycle 
cannot nominate until the next nomination cycle (Intra-Day 1 
Cycle).\17\ The interim recall schedule adopted by the Commission, 
therefore, provides replacement shippers with the same protection 
against bumping as interruptible shippers have, in accordance with 
Commission policy.
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    \17\ See note 17, supra. Similarly, interruptible shippers 
bumped at the Intra-Day 1 cycle have the opportunity to renominate 
at the Intra-Day 2 cycle; replacement shippers bumped by a recall at 
the Intra-Day 1 cycle will have the same ability to reschedule their 
gas at the Intra-Day 2 cycle.
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    17. In the alternative, DETM seeks a revision in the Commission's 
interim schedule. DETM's schedule provides, in its most relevant part, 
that a releasing shipper would receive scheduled volumes from the 
pipeline at 4:30 p.m., submit its recall notice at 4:30 p.m., with the 
pipeline notifying the replacement shipper of the recall at 4:30 p.m., 
so that the replacement shipper can post a new release at 5 p.m. and 
nominate under that release at 6 p.m.\18\
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    \18\ While DETM's proposed schedule also addresses recalls and 
notices of recalls at the Intra-Day 1 and Intra-Day 2 cycles, these 
provisions are of less importance, because under the Commission's 
interim schedule, replacement shippers' scheduled volumes cannot be 
bumped at the Intra-Day 1 and Intra-Day 2 cycles.

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                                   Receipt of scheduled                            Pipeline notification
 Nomination cycle (all times in    volumes (from prior    Recall notification to  to replacement shipper    Posting prearranged    Nomination time (same
              CCT)                  nomination cycle)            pipeline                of recall        releases (version 1.5)           day)
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Evening........................  4:30 p.m...............  4:30 p.m..............  4:30 p.m..............  5:00 p.m..............  6:00 p.m.
                                  same day..............
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[[Page 44532]]

    18. But DETM's proposed schedule fails to adhere to the fundamental 
precept adopted by the Commission in establishing its interim schedule: 
that releasing shippers must be provided with sufficient time after 
receipt of scheduled quantities to inform the pipeline of a recall.\19\ 
Under DETM's proposal, three actions must occur concurrently: The 
releasing shipper must receive scheduled quantities from the pipeline 
at 4:30 pm. CCT; immediately determine whether it needs to recall 
capacity and notify the pipeline by 4:30 p.m. CCT; and the pipeline, 
also by 4:30 p.m. CCT, must notify the replacement shipper. The 
schedule provides the releasing shipper with no opportunity to consider 
or process the scheduled quantity information provided by the pipeline. 
Further, DETM's proposed schedule fails to provide the pipelines with 
any opportunity to process the recall before sending out the notice to 
the replacement shipper, since, under DETM's schedule, the notification 
to the replacement shipper must be made simultaneously with the recall 
notice. Thus, the Commission finds that DETM's proposed schedule is not 
an adequate substitute for the interim schedule adopted by the 
Commission.
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    \19\ Order No. 587-N, P. 39.
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    19. NAESB is considering developing a timeline for partial day 
recalls. Until NAESB acts, however, the interim schedule adopted by the 
Commission fairly balances the interests of the releasing and 
replacement shippers by providing releasing shippers with enhanced 
recall rights immediately while ensuring that bumped replacement 
shippers are still provided with an opportunity to reschedule any 
scheduled capacity that is bumped.
    20. Moreover, the Commission finds no reason to defer or amend its 
interim schedule at this point, because DETM is not bound to accept 
recall conditions in its capacity release transactions. As the 
Commission made clear in Order No. 587-N, the Commission's regulation 
and interim schedule applies only to those situations in which a 
replacement shipper has agreed to purchase capacity subject to an 
intra-day recall. The Commission made clear that a releasing shipper's 
ability to recall capacity during the gas day is prospective only and 
is based on the terms of the capacity release agreement.\20\ Thus, DETM 
is fully able to protect against intra-day recalls by not purchasing 
released capacity unless a limitation on recall rights is included in 
the terms and conditions of the release. For example, DETM could enter 
into release contracts under which a releasing shipper is obligated to 
provide DETM with earlier notice of recalls than the notice provided by 
the Commission's interim schedule.
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    \20\ Order No. 587-N, P. 17 n. 26, P. 61.
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B. Determination of Unscheduled Capacity

    21. In Order No. 587-N, the Commission provided that releasing 
shippers could recall capacity at any of the four nomination cycles if 
the capacity has not been previously scheduled for the gas day by the 
replacement shipper. DETM requests clarification that a replacement 
shipper who has scheduled all or any portion of its acquired capacity 
during the gas day will be considered to have previously scheduled that 
capacity even if that capacity is not scheduled and flowing at the 
precise time the releasing shipper submits its recall notice. DETM 
maintains that this clarification is necessary because gas markets do 
not take gas on a predictable even-flow basis. DETM states, for 
example, that electric generation loads nearly always burn gas for only 
part of the gas day, and at flow rates exceeding a uniform-hourly flow 
of \1/24\ of contract demand. DETM maintains its clarification will 
better reflect these flexible load profiles.
    22. DETM's clarification request and example are not entirely 
clear, because they do not appear to reflect the way in which the 
scheduling standards operate. Under the scheduling standards, shippers 
are required to schedule gas for an entire gas day; they do not 
schedule gas for specific hourly flows.\21\ The scheduled quantity 
reflects the total quantity of gas the shipper will use that day, 
regardless of its flow rate. Determinations of flow rate are left to 
the determination of the interconnected parties, and whether a shipper 
can exceed a uniform hourly flow depends on the individual pipeline's 
tariff.\22\ Thus, even in the situation posited by DETM, where a 
market, such as electric generation, may have fluctuating hourly flow 
requirements, a daily quantity must be scheduled, and the replacement 
shipper cannot schedule different quantities for specific hours, as 
implied by DETM's example.
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    \21\ 18 CFR 284.12(a)(1)(i), Nominations Related Standards 
1.3.1, 1.3.9 (all nominations including intra-day nominations should 
be based on a daily quantity; thus an intra-day nominator need not 
submit an hourly nomination).
    \22\ 18 CFR 284.12(a)(1)(i), Nominations Related Standards 1.3.9 
(the interconnected parties should agree on the hourly flows of the 
intra-day nomination, if not otherwise addressed in the 
transporter's contract or tariff).
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    23. Although the predicate for DETM's requested clarification is 
unclear, the Commission will provide clarification as to how its 
unscheduled capacity should be determined based on the daily quantity 
scheduled. Under the Commission's policy, if a replacement shipper has 
not scheduled its full contract quantity for a gas day, the releasing 
shipper can recall and reschedule any portion of the unscheduled 
capacity at the next intra-day nomination opportunity. To provide a 
specific example, suppose a replacement shipper has a release contract 
for 1000 Dth/day of capacity, and has scheduled 500 Dth of that 
contract at the Evening Nomination Cycle for the next gas day. The 
releasing shipper can then recall, and renominate, the unscheduled 
quantity (500 Dth) at the first Intra-Day Nomination Cycle. Since the 
replacement shipper has not scheduled its released capacity, the 
replacement shipper is not having scheduled gas bumped by the releasing 
shipper's recall. In effect, the replacement shipper would be in no 
different position than an interruptible shipper which has not 
scheduled capacity for that day. The interruptible shipper cannot count 
on being able to submit an intra-day nomination to increase its daily 
scheduled quantity, since its intra-day nomination is lower in priority 
than that of a firm shipper. By the same token, a replacement shipper 
that has failed to schedule gas under a release contract should not be 
able to rely on its ability to submit an intra-day nomination to 
increase its scheduled quantity. If, however, DETM faces specific 
situations in which it needs to reserve the right to make an intra-day 
nomination (when it has not scheduled its full contract quantity), DETM 
can seek to have such a limitation on recall rights included as a term 
of the release agreement.\23\
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    \23\ See discussion in P. 20, supra.
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The Commission Orders

    The request for rehearing is denied, and clarification is provided 
as discussed in the body of the order.

    By the Commission.
Linwood A. Watson, Jr.,
Deputy Secretary.
[FR Doc. 02-16681 Filed 7-2-02; 8:45 am]
BILLING CODE 6717-01-P