[Federal Register Volume 70, Number 33 (Friday, February 18, 2005)]
[Rules and Regulations]
[Pages 8269-8289]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-3035]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 157

[Docket No. RM05-1-000; Order No. 2005; 110 FERC ] 61,095]


Regulations Governing the Conduct of Open Seasons for Alaska 
Natural Gas Transportation Projects

Issued: February 9, 2005.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Final rule.

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SUMMARY: The Federal Energy Regulatory Commission is amending its 
regulations to establish requirements governing the conduct of open 
seasons for proposals to construct Alaska natural gas transportation 
projects. This final rule fulfills the Commission's responsibilities to 
issue open season regulations under section 103 of the Alaska Natural 
Gas Pipeline Act (the Act), enacted on October 13, 2004. Section 
103(e)(1) of the Act directs the Commission, within 120 days from 
enactment of the Act, to promulgate regulations governing the conduct 
of open seasons for Alaska natural gas transportation projects, 
including procedures for allocation of capacity. As required by section 
103(e)(2) of the Act, these regulations include the criteria for and 
timing of any open season, promote competition in the exploration, 
development, and production of Alaska natural gas, and for any open 
seasons for capacity exceeding the initial capacity, provide for the 
opportunity for the transportation of natural gas other than from the 
Prudhoe Bay and Point Thomson units.

DATES: Effective Dates: The rule will become effective May 19, 2005.

FOR FURTHER INFORMATION CONTACT: Whit Holden, Office of the General 
Counsel, (202) 502-8089, [email protected]. Richard Foley, Office 
of Energy Projects, (202) 502-8955, [email protected]. Federal 
Energy Regulatory Commission, 888 First Street, NE., Washington, DC 
20426.

SUPPLEMENTARY INFORMATION:
Before Commissioners: Pat Wood, III, Chairman; Nora Mead Brownell, 
Joseph T. Kelliher, and Suedeen G. Kelly.

    1. The Federal Energy Regulatory Commission is amending its 
regulations to establish requirements governing the conduct of open 
seasons for capacity on proposals to construct Alaska natural gas 
transportation projects. This Final Rule fulfills the Commission's 
responsibilities to issue open season regulations under section 103 of 
the Alaska Natural Gas Pipeline Act (the Act), enacted on October 13, 
2004.\1\ Section 103(e)(1) of the Act directs the Commission, within 
120 days from enactment of the Act, to promulgate regulations governing 
the conduct of open seasons for Alaska natural gas transportation 
projects, including procedures for allocation of capacity. As required 
by section 103(e)(2) of the Act, these regulations (1) include the 
criteria for and timing of any open season, (2) promote competition in 
the exploration, development, and production of Alaska natural gas, and 
(3) for any open seasons for capacity exceeding the initial capacity, 
provide for the opportunity for the transportation of natural gas other 
than from the Prudhoe Bay and Point Thomson units.
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    \1\ Public Law 108-324, October 13, 2004, 118 Stat. 1220.
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    2. As Congress has recognized, construction of a natural gas 
pipeline from the North Slope of Alaska to markets in the lower 48 
states is in the national interest and will enhance national energy 
security by providing access to the significant gas reserves in Alaska 
to meet anticipated demand for natural gas. A successful Alaska natural 
gas transportation project will have to overcome a variety of 
significant logistical and procedural obstacles. The Commission 
strongly believes that it is in the mutual interest of the parties 
interested in such a project to reach a common understanding, in order 
to support a proposal that meets their needs and those of the Nation. 
To that end, the Commission urges the parties to expend their efforts 
in negotiation, compromise, and project development, such that this 
vital project can become a reality.

Background

    3. Under the Act, Congress mandated the expedited processing by the 
Commission of any application for an Alaska natural gas transportation

[[Page 8270]]

project, namely any natural gas pipeline that carries natural gas 
derived from that portion of Alaska lying north of 64 degrees north 
latitude to the border between Alaska and Canada. The Act specifically 
directs the Commission to prescribe the rules which will apply to any 
open season held for the purpose of acquiring capacity on any Alaska 
natural gas transportation project, including the criteria for 
allocating capacity among competing bidders.
    4. In response to the Act's directive, on November 15, 2004, the 
Commission issued in Docket No. RM05-1-000 a Notice of Proposed 
Rulemaking (NOPR) containing the Commission's proposed Alaska natural 
gas transportation project open season regulations as a new subpart B 
to part 157 of the Commission's regulations (69 FR 68106, Nov. 23, 
2004). The NOPR stated that comments were to be filed by December 17, 
2004, and that the Commission intended to issue the final regulations 
by February 10, 2005, in order to comply with the Act's 120-day 
deadline.
    5. The Commission held a public technical conference in Anchorage, 
Alaska on December 3, 2004 to develop a record in this proceeding. At 
the conference, speakers including Alaska elected officials, Alaskan 
Natives, representatives of potential project sponsors, representatives 
of potential shippers, and representatives from other agencies or 
affected enterprises or the general public presented their views on the 
NOPR and related issues. A transcript of the technical conference was 
filed in the record in this proceeding.\2\
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    \2\ The Commission received, on December 23, 2004, January 10, 
2005, and February 2, 2005, three motions to correct the transcript. 
The Commission approves the proposed corrections and incorporates 
them into the record of this proceeding. Commenters at the technical 
conference are listed in the Appendix.
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    6. Before the NOPR was issued, the Commission received comments and 
suggested open season requirements from several interested parties, 
including BP, ConocoPhillips, and ExxonMobil (North Slope 
Producers),\3\ other natural gas producers, potential project sponsors, 
and members of the Alaska legislature. In addition to the pre-NOPR 
comments and technical conference presentations, comments were filed by 
25 interested parties.\4\ One group of commenters, including the North 
Slope Producers, who together own the majority of proven gas reserves 
on Alaska's North Slope at Prudhoe Bay and Point Thomson, and several 
pipeline companies (TransCanada, MidAmerican/AGTA, and Enbridge) are 
potential sponsors of an Alaska natural gas transportation project. 
Another group of commenters is made up of entities with Alaska-based 
interests \5\, including elected officials. Yet another definable group 
consists of potential shippers, including explorers and producers other 
than the North Slope Producers, marketers, local distribution 
companies, power generators, and industrial end users.
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    \3\ The short-form names used for commenters and other 
abbreviations used in this order are listed in the Appendix.
    \4\ These commenters are also listed in the Appendix.
    \5\ This group includes AOGCC, ANGDA, Alaska, Alaska 
Legislators, Arctic Slope and Doyon.
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Overview of Regulatory Approach

    7. The comments filed in response to the NOPR are discussed at 
length below, broken down by specific issues. However, broadly 
speaking, several commenters, led by the North Slope Producers, 
MidAmerican/AGTA, and TransCanada, expressed general support for the 
Commission's approach in developing the proposed regulations in the 
NOPR.\6\ These commenters perceive the proposed regulations as being 
not overly prescriptive, yet providing a fair and open process to 
obtain capacity on an Alaska pipeline on a non-discriminatory, non-
preferential basis. As potential shippers, these commenters are 
encouraged that the proposed rules permit the sponsors the flexibility 
to design and conduct the initial and expansion open seasons. They 
claim that such flexibility is important in helping a project sponsor 
properly size the pipeline and satisfy the demands of financers.
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    \6\ AGA and Northwest Industrial Gas Users also stated general 
support for the NOPR's proposed rules.
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    8. A number of the commenters, however, fault the Commission for 
not proposing detailed rules regarding certain elements of the open 
season, including timing of the open season, and the criteria for 
evaluating bids and allocating capacity in the event capacity on the 
proposed project is oversubscribed. These commenters claim that the 
Commission has deferred to the project sponsors too much of the 
responsibility of establishing the criteria for and timing of open 
seasons for Alaska projects. In addition, commenters whose interests 
are tied to the State of Alaska claim that the proposed rules ignore 
the requirements of section 103(g) regarding in-state needs for natural 
gas.\7\ Potential project sponsors favor the flexibility they believe 
is provided in the proposed rules in order to appropriately develop an 
Alaska natural gas transportation project. Other interested parties 
express concern that the North Slope Producers, either as project 
sponsors or as producers whose reserves will support the initial 
development of the project, will use that flexibility to develop open 
season rules to accommodate their own interests, to the exclusion and 
detriment of other explorers, developers and producers of Alaska 
natural gas, as well as of those seeking access to the pipeline for in-
state natural gas demands.
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    \7\ This section of the Act requires a certificate holder for an 
Alaska project to demonstrate that it has conducted a study of 
Alaska in-state needs.
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    9. As explained in the NOPR, there are no current Commission 
regulations respecting open seasons. To date, the Commission's policy, 
developed through its orders and opinions, is that all new interstate 
pipeline construction be preceded by a non-discriminatory ``open 
season'' process through which potential shippers may seek and obtain 
firm capacity rights. Congress has determined that it is necessary to 
formalize this Commission policy with specific regulations governing 
the conduct of open seasons for an Alaska natural gas transportation 
project. Indeed, the tremendous size, scope, and cost of an Alaskan 
pipeline, the long lead-time needed for such a project, environmental 
sensitivities, and the competitive conditions that are unique to such a 
project warrant special consideration and oversight. In addition, 
Congress specifically required that the open season regulations promote 
competition in the exploration, development, and production of Alaska 
natural gas and, as to any open season for expansion of the initial 
capacity of any Alaska natural gas transportation project, the 
Commission's regulations are to specifically provide the opportunity 
for gas other than Prudhoe Bay and Point Thomson production to have 
access to the pipeline.
    10. As revealed in detail in the comments to the NOPR, there are 
complex, competitive conditions surrounding an Alaska natural gas 
transportation project, which are intensified by the generally agreed 
upon fact that there will be only one such pipeline for the foreseeable 
future. The North Slope Producers hold the proven reserves that may be 
able to support the initial construction of the project, and may now be 
in a position to make long-term capacity commitments to the project. 
Other producers and explorers, whose potential gas reserves are not yet 
commercially developed, may not currently be in a position to do so. 
Instead, they anticipate a need for capacity some time in the future, 
and express reluctance to make the large

[[Page 8271]]

investment required to explore for and develop Alaska gas without being 
reasonably assured that they will have access to pipeline capacity when 
their gas is ready to move to market. Shippers seeking to move gas only 
within the State of Alaska for in-state uses may also seek pipeline 
capacity. While the North Slope Producers anticipate paying rates 
covering the costs of transportation through the entire project, 
shippers planning to make deliveries in Alaska likely will seek 
mileage-based or zone rates.
    11. We have striven in this rule to balance the need to allow 
project sponsors the flexibility to develop and bring to market Alaska 
natural gas with the equally compelling needs to ensure fair 
competition in the transportation and sale of natural gas, promote the 
development of natural gas resources in addition to those in the North 
Slope, and consider Alaskan in-state requirements. As discussed in more 
detail below, we are not inclined to impose open season rules that 
prescribe such details as when open seasons must occur and precise 
criteria to be used in evaluating bids and allocating capacity. To do 
so could potentially unduly limit a prospective sponsor's ability to 
design and finance a viable project, and thereby add to the already-
daunting challenges that face an Alaska natural gas transportation 
project sponsor.
    12. At the same time, however, we are well aware of the risks to 
competition imposed by a project that is owned or primarily sponsored 
by a small group. Thus, we are imposing strict requirements on all 
proposals, and particularly on affiliate-owned projects, with respect 
to the public disclosure of information, to ensure that there is a 
level playing-field. As we discuss below, we will require applicants 
for an Alaska pipeline project to provide detailed information as to 
project design, how capacity is to be allocated, and proposed rates, 
terms and conditions. This will allow us to be in a position to monitor 
whether competition for capacity is fair. In addition, while we are 
permitting pre-subscription for ``anchor'' shippers,\8\ we are 
requiring that contracts with such shippers be made publicly available, 
and that all shippers seeking the same type of capacity be offered 
service on the same terms and conditions. We will keep these 
considerations in mind, not only during an open season, but also during 
our consideration of any application for an Alaska natural gas 
transportation project placed before us.
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    \8\ Anchor shipper(s) as used in the natural gas industry means 
one or a very few shippers with very large, significant volumes of 
natural gas that will financially support the initial design and 
cost of a project.
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    13. Furthermore, we will bear in mind the concerns expressed by the 
non-North Slope producers in considering expansion issues. Thus, we 
will look to see whether a proposed pipeline is designed not only to 
meet immediate needs, but also to provide a reasonable opportunity for 
access to low-cost expansion capacity. Also, as discussed below, we 
will look, with the constraints of the Act in mind, to determine that 
rates for expansion capacity are set at levels that will promote 
competition in exploration and development of Alaska natural gas, not 
just protect the interests of initial shippers.
    14. In addition to the careful scrutiny we will give to any Alaska 
pipeline proposal, the need to provide explorers and developers of 
Alaska natural gas with reasonable assurances that they will have 
access to capacity on any Alaska natural gas pipeline can be met 
through existing Commission oversight authority and certificate 
authorization authority, as supplemented, enhanced, and guided by the 
findings and requirements of this final rule, the NGA, and the Act. Any 
complaints regarding these Alaska project issues can be addressed 
through several ways, including the Commission's Dispute Resolution 
Service, the Enforcement Hotline, or the Commission's Fast Track 
complaint process which, under the final rule, will have automatic 
application to complaints involving any Alaska natural gas 
transportation open season.
    15. Moreover, under section 157.33, any application for a 
certificate of public convenience and necessity for a proposed Alaska 
natural gas transportation project must include a demonstration that 
the applicant has conducted an open season for capacity on its proposed 
project in accordance with the requirements of this subpart, and 
failure to provide the requisite demonstration will result in an 
application being rejected as incomplete. This provision will provide a 
strong disincentive to discriminatory or unduly preferential conduct. 
Finally, although not required, project sponsors have the option of 
seeking Commission pre-approval of a proposed notice of open season.
    16. The Commission stated in the NOPR that its goal was to design 
an open season process that provides non-discriminatory access to 
capacity on any Alaska natural gas transportation project and, at the 
same time, allows sufficient economic certainty to support the 
construction of the pipeline and thereby provide a stimulus for 
exploration, development, and production of Alaska natural gas. It has 
been suggested that the Commission's stated goal improperly emphasizes 
the importance of providing certainty to project sponsors to facilitate 
construction of the project, when instead the Commission should focus 
on providing as much regulatory certainty as possible to natural gas 
explorers.\9\ However, providing the economic certainty to support the 
building of an Alaska natural gas transportation project and promoting 
competition in the exploration and development and production of Alaska 
natural gas are not mutually exclusive goals. We conclude that 
emphasizing economic certainty to explorers, without balancing the 
similar needs of potential project sponsors, would overlook the Act's 
overall objective of facilitating the timely development of an Alaska 
natural gas transportation project, and to bring Alaskan natural gas to 
markets in Alaska and in the lower 48 states. Thus, we believe that the 
balanced approach we are taking here is appropriate.
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    \9\ See Comments of Shell USA, filed December 17, 2004, at 2. 
This belief is shared by a number of commenters aligned with the 
non-North Slope explorers and producers of Alaska gas.
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    17. In the Commission's view, exploration, development, and 
production of Alaska natural gas are best served by having a pipeline 
built and by ensuring that all potential initial and future shippers 
are able to obtain access on that pipeline under non-discriminatory, 
non-preferential terms. This rule will provide the framework for an 
open season process that will provide reasonable flexibility to 
pipeline sponsors, while ensuring sufficient exchange of information 
and regulatory oversight to ensure that the goal of fair, open 
competition in the transportation and sale of natural gas is met.

Section-by-Section Analysis of Final Rule

A. Purpose--Section 157.30

    18. Proposed Sec.  157.30 sets out the purpose of subpart B. That 
purpose is to establish rules for the conduct of any open season on any 
Alaska natural gas transportation project. Section 103(e)(2) of the Act 
provides that these regulations must include the criteria for and 
timing of any open season, promote competition in the exploration, 
development, and production of Alaska natural gas, and, for any open 
seasons for capacity exceeding the initial capacity, provide for the 
opportunity for the transportation of natural gas other

[[Page 8272]]

than from the Prudhoe Bay and Point Thomson units.\10\
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    \10\ The Prudhoe Bay and Point Thomson units are gas fields 
located on Alaska's North Slope with a total of approximately 35 Tcf 
of known gas reserves.
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    19. The Commission is adopting Sec.  157.30 with certain changes 
recommended by Alaska for purposes of clarity. Specifically, the 
revised section makes clear that the regulations apply to open seasons 
``for the purpose of making binding commitments for the acquisition of 
initial or voluntary expansion capacity'' on any Alaska natural gas 
transportation project. We see no need to change the description of the 
purpose of the subpart from being ``to establish the procedures for'' 
an open season to being to ``prescribe the rules,'' as recommended by 
Alaska.

B. Definitions--Section 157.31

    20. Proposed Sec.  157.31 defines the terms ``Alaska natural gas 
transportation project'' and ``Commission.'' ANGDA maintains that the 
definition of ``Alaska natural gas transportation project'' should be 
expanded to include a project involving ``a liquid natural gas project 
to transport liquefiable natural gas from Southcentral Alaska to the 
West Coast states.'' ANGDA bases its proposed amendment on a November 
18, 2004 amendment to section 116 of the Act whereby Congress included 
an entity determined to be qualified to construct and operate a 
liquefied natural gas project to transport liquefied natural gas from 
Southcentral Alaska to the West Coast states as a ``qualified 
infrastructure project'' for purposes of obtaining a loan guarantee. 
The amendment ANGDA relies on did not expand, much less refer to, the 
definition of an ``Alaska natural gas transportation project.'' 
Consequently, the Commission finds no basis to conclude that Congress 
intended to include any liquefied natural gas project within the 
meaning of ``Alaska natural gas transportation project.''
    21. While the NOPR's definition of ``Alaska natural gas 
transportation project'' is consistent with the Act's definition of 
that term, it does not fully define that term as it is defined in the 
Act. To be precise, the Commission is revising Sec.  157.31 at Sec.  
157.31(a) to adopt the full statutory definition of that term. 
Additionally, the Commission is including for clarity new Sec.  
157.31(c), defining the term ``voluntary expansion.''

C. Applicability--Section 157.32

    22. The NOPR proposes that the open season regulations are to apply 
to any application to the Commission for a certificate of public 
convenience and necessity or other authorization for an Alaska natural 
gas transportation project, whether filed pursuant to the Natural Gas 
Act, the Alaska Natural Gas Transportation Act of 1976, or the Alaska 
Natural Gas Pipeline Act, and to applications for expansion of such 
projects. The proposed regulation also provides that the open season 
regulations do not apply to involuntary expansions pursuant to section 
105, unless the Commission expressly so provides.
    23. Alaska proposes language in the final rule that provides that 
the open season regulations will apply ``to any Alaska Natural Gas 
Transportation Project for which a certificate of public convenience 
and necessity is sought pursuant to section 7 of the NGA and section 
103 of the Alaska Natural Gas Pipeline Act.'' \11\ However, Alaska does 
not explain the basis for its proposed definition.
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    \11\ See Comments of the State of Alaska regarding Sec.  157.32.
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    24. Section 102(2) of the Act defines an Alaska natural gas 
transportation project to include projects authorized under either the 
Alaska Natural Gas Transportation Act of 1976 or the Alaska Natural Gas 
Pipeline Act. Since the proposed regulation is consistent with this 
definition, the Commission sees no reason to amend it.

D. Requirement for Open Season--Section 157.33

    25. Proposed Sec.  157.33 requires that any application for a 
certificate of public convenience and necessity for a proposed Alaska 
natural gas transportation project include a showing that the applicant 
conducted an open season for capacity on its proposed project that 
fully complies with the requirements of this subpart. To ensure 
compliance with this requirement, proposed Sec.  157.33 provides that 
any application lacking such a showing will be dismissed as deficient.
    26. One of the questions that the Commission posed in its NOPR was 
whether the Commission should allow pre-subscribed, reserved capacity 
such as was allowed in connection with open seasons for certain new 
Outer Continental Shelf (OCS) pipeline facilities.
    27. Several commenters, including TransCanada, Alliance, the North 
Slope Producers, Enbridge, Doyon, and MidAmerican/AGTA state that the 
Commission should allow pre-subscribed capacity for an Alaska natural 
gas transportation project. TransCanada and the North Slope Producers 
state that the open season rules should allow for options such as pre-
subscription agreements that will encourage or facilitate the 
successful development of an Alaska pipeline project. They believe that 
pre-subscription might grant the flexibility to sponsors and shippers 
that is required in view of the size, expense, risk, and long lead time 
involved in an Alaska project. Enbridge is convinced that these factors 
call for pre-subscription.
    28. However, the supporters of pre-subscription also comment that 
steps can or should be taken in order to ensure that other shippers 
have the opportunity to obtain capacity on a non-discriminatory basis 
through an open season process. TransCanada, for instance, describes a 
situation where the sponsor enters into binding prearranged precedent 
agreements with ``backstop'' or ``transition'' shippers who commit to 
sign firm transportation agreements if no other shipper comes forward, 
but who agree to lower their capacity commitments to pre-agreed levels 
to allow the inclusion of other shippers who tender qualifying bids 
during the open season. In a similar fashion, MidAmerican/AGTA states 
that the open season rules should permit transportation commitments 
allowing pre-subscribed capacity to be prorated down to a minimum 
threshold level to allow others to obtain capacity in the event the 
total requested capacity exceeds design capacity.
    29. Enbridge is confident that, even with pre-subscription, an open 
season conducted under the safeguards and transparency provided by the 
Commission's proposed rules will result in a pipeline designed to 
enable every creditworthy shipper to obtain the long-term capacity it 
needs. However, Enbridge claims that there can be no Alaska natural gas 
transportation project without the full, binding commitment of the 
North Slope Producers. Alliance is also a strong believer in the 
potential usefulness of pre-subscribed capacity in facilitating the 
development of an Alaska pipeline. However, also recognizing that the 
open season rules must promote competition in the exploration, 
development and production of Alaska gas, Alliance claims that limits 
could be placed on the amount of capacity available for pre-
subscription, or that pre-subscription could be reserved for initial 
open seasons only.
    30. Another group of commenters prefers that the Commission not 
allow pre-subscription of capacity and asks that if it is permitted, 
limitations and conditions be imposed in order to

[[Page 8273]]

ensure that capacity is still available to prospective shippers which 
do not participate in pre-arranged agreements. These commenters include 
Anadarko, Alaska, Calpine and ChevronTexaco.
    31. Anadarko argues that if the final rule approves the use of pre-
subscription agreements, they must be subject to the outcome of the 
open season, and that potential bidders in the open season should be 
offered the same terms and conditions as the pre-subscribing shippers. 
Anadarko states that there are two distinct types of prospective 
shippers on an Alaska natural gas transportation project--the North 
Slope Producers and the explorers and producers of unproven or 
undeveloped Alaska natural gas--who are in long-term competition for 
the pipeline's capacity, and that pre-subscription favors the major 
producers to the detriment of those developing competing reserves. 
Second, Anadarko contends that there are circumstances that distinguish 
the situation in Alaska from that existing in the OCS cases cited in 
the NOPR, including the fact that the OCS cases involved the 
transportation of specific reserves and entailed unusual costs and 
risks, whereas the situation in Alaska calls for a pipeline that will 
access all Alaska gas, and that risk has been substantially reduced by 
a massive federal loan guarantee. Moreover, states Anadarko, the Act 
calls for mandatory open seasons for capacity on an Alaska natural gas 
transportation project. Consequently, Anadarko asserts that the final 
open season rules must require that pre-subscribed capacity must be 
subject to the outcome of the open season, and if the proposed project 
is oversubscribed, the project sponsors must either revise the 
project's capacity to accommodate all bids or fairly prorate all the 
capacity.
    32. Alaska would also prefer that the final open season rules 
prohibit pre-subscribed capacity because of its potential to limit the 
amount of capacity in the open season. If pre-subscription is 
permitted, Alaska, like Anadarko, states that all parties should be 
able to obtain capacity on the same terms and conditions, and if the 
project is oversubscribed, all capacity should be pro-rated equally. 
ChevronTexaco has a similar view, stating that so long as the pre-
subscription represents only a minimum commitment needed to construct a 
project, with the understanding that the project will be enlarged as a 
result of matching bids in the open season, and so long as pre-
subscribed capacity and open season capacity are allocated on the same 
basis, the Act's open season goals are met. Calpine points out the same 
circumstances as Anadarko did in distinguishing an Alaska natural gas 
transportation project from the OCS facilities referred to the NOPR. 
However, to facilitate the ultimate development of an Alaska natural 
gas transportation project, Calpine is agreeable to allowing pre-
subscribed capacity that will be subject to an allocation procedure in 
the event capacity is oversubscribed.
    33. Alaska Legislators and Arctic Slope oppose any pre-
subscription. Arctic Slope asserts that 100 percent of the capacity of 
an Alaska natural gas transportation project must be made available on 
a non-discriminatory, open access basis to all potential shippers; 
therefore, the open season rules should prohibit pre-subscriptions. 
Alaska Legislators state that the Act requires the Commission alone to 
establish the open season procedures for awarding initial and expansion 
capacity on an Alaska natural gas transportation project. Moreover, 
since Congress mandates that these open season regulations promote 
competition in the exploration, development, and production of Alaska 
natural gas, Alaska Legislators contend that the project must be 
developed in a manner that maximizes the number of exploration and 
production companies able to participate in an open season and compete 
for capacity on the pipeline. The only way this can be done, according 
to Alaska Legislators, is by requiring that 100 percent of the initial 
and expansion capacity be awarded solely through a public open season. 
Alaska Legislators support their view by stating, like Anadarko and 
Calpine, that the OCS cases cited in the NOPR involved specific 
instances of individual pipeline construction proposals, and citing 
cases in which the Commission disapproved procedures outside of an open 
season and required transparent open seasons as the vehicle by which 
new pipeline capacity is obtained.\12\
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    \12\ Wyoming-California Pipeline Co., 50 FERC ] 61,070 (1990); 
TransColorado Pipeline Co., 53 FERC ] 61,421 (1991); and Colorado 
Interstate Gas Co., 56 FERC ] 61,015 (1991).
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    34. The Commission recognizes that the expense, risk, and long lead 
time involved in developing an Alaska natural gas transportation 
project justify allowing project sponsors the flexibility to enter into 
pre-subscription agreements with the North Slope Producers and any 
other shippers who are currently in a position to support the project 
with long-term capacity commitments. We do not view the federal loan 
guarantees as reducing the risk of an Alaska project to a level where 
pre-subscription should not be allowed, nor do we see pre-subscription 
as inherently anti-competitive.
    35. Based on the foregoing, we will permit pre-subscription in 
order to facilitate the development of an Alaska natural gas 
transportation project. In order to ensure that all other potential 
shippers will have an equal opportunity to obtain access to capacity on 
the project in the open season, we are requiring in the final rule that 
any and all pre-subscription agreements be made public within ten days 
of their execution, and that capacity on the proposed project will be 
offered to all prospective qualifying shippers on the same rates, terms 
and conditions as contained in the pre-subscription agreements. In the 
event that there are pre-subscription agreements with varying rates, 
terms and conditions, all prospective qualifying shippers shall have 
the option of choosing among the several agreements which one they wish 
to accept. We note, however, that the justification for allowing pre-
subscription may not be as compelling in the case of any expansion, 
since the major hurdles to developing the project in the first instance 
will have been overcome. Therefore, we will limit our authorization to 
provide for pre-subscribed initial capacity only.\13\
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    \13\ Future requests and open seasons for voluntary expansion 
capacity after the pipeline is in service will be controlled by 
procedures spelled out in the Alaska pipeline's approved FERC gas 
tariff, while involuntary expansion capacity will be controlled by 
the requirements of section 105 of the Act and any rules that the 
Commission may issue in the future governing such expansions.
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    36. Much attention is given in the comments to concerns over 
potential discrimination and preference in allocating capacity in the 
event that the proposed Alaska pipeline project is oversubscribed, 
whether or not pre-subscription is allowed. While these concerns can 
best be addressed by designing a proposed project such that it meets 
the capacity needs of all shippers who are prepared to enter into 
binding agreements, we nonetheless will use our regulatory authority to 
protect against undue discrimination or undue preference in capacity 
allocation.
    37. As discussed below, the Commission is holding to the regulatory 
approach taken in the NOPR which allows project sponsors to (subject to 
our subsequent review) develop the methodology by which they will 
allocate capacity in the event of oversubscription of a project not 
supported by precedent agreements. However, in the case of pre-
subscribed capacity, the Commission will require

[[Page 8274]]

that the project sponsors must either revise the project's capacity to 
accommodate all qualified bids or prorate only the capacity that was 
subject to the pre-subscription agreements or was bid for in the open 
season on the same rates, terms and conditions as any of the pre-
subscription agreements. The Commission has chosen this solution for 
several reasons. First, the parties most certain to be pre-subscription 
shippers are the North Slope Producers, who will be in a position of 
control over the proposed project's design, either as project sponsors 
or as owners of the reserves that support the project. Second, by their 
own estimate, the North Slope Producers assert that the initial 
pipeline can be designed to accommodate all qualified bids.\14\ 
Consequently, the Commission believes that it is appropriate that 
entities involved in pre-subscription bear the risk that their capacity 
will be reallocated in the event that the project is undersized.
---------------------------------------------------------------------------

    \14\ As noted, infra, the North Slope Producers state that it 
will require 50 Tcf of gas to keep a 4 to 4.5 Bcf pipeline full for 
30 years, and any Alaska pipeline will be designed to be 
economically expandable to 6 Bcf/d, which would accommodate an 
additional 15 Tcf over 30 years.
---------------------------------------------------------------------------

    38. Anadarko proposes to add to this section a provision that, when 
read in the context of its other proposed rules, would prohibit any 
pre-subscription agreements. Alaska also proposes language that would 
lead to that result. As discussed herein, the Commission is, with 
appropriate limitations, allowing pre-subscription, and is amending 
Sec.  157.33 accordingly. Moreover, the Commission is satisfied that 
modifying Sec.  157.33 to provide that any application lacking a 
showing that the open season regulations have been fully complied with 
will be rejected as deficient will ensure compliance with the open 
season requirements. Alaska proposes to also include in this section a 
provision requiring that open seasons be conducted without undue 
discrimination or preference in the rates, terms, or conditions of 
service. The Commission is expanding Sec.  157.35 to include language 
similar to that suggested by Alaska.

E. Notice of Open Season--Section 157.34

    39. The criteria for and timing of Alaska natural gas 
transportation project open seasons are spelled out in proposed Sec.  
157.34. This proposed regulation received the most attention in 
comments. For clarity and convenience, the comments are broken down and 
grouped by the topics listed below.
i. Open Season Timing and Duration
    40. Proposed Sec.  157.34 sets forth the criteria for and timing of 
Alaska project open seasons. Proposed Sec.  157.34(a) provides for 
public notice of an open season at least 30 days prior to the 
commencement of the open season through methods including postings on 
Internet websites, press releases, direct mail solicitations, and other 
advertising. The Commission believes that such prior notice would serve 
several purposes. First, it would reduce, if not eliminate, any 
advantage that one potential shipper might have as a result of prior 
knowledge of the open season. Second, it would afford both project 
sponsors and prospective shippers a period of time prior to the actual 
open season period in which they could address and possibly resolve any 
questions or problems regarding the terms and conditions of the open 
season. Third, it would afford potential shippers time to prepare 
submissions in response to the open season.
    41. Proposed Sec.  157.34(c) provides that an open season for an 
Alaska natural gas transportation project must remain open for a period 
of at least 90 days. This minimum 90-day period for prospective 
shippers to examine the open season materials and make service requests 
to the pipeline is intended to establish some parity among shippers, 
given that certain shippers, primarily the ``anchor'' shippers, may 
have had advance information relating to the pipeline's proposed 
services, tariff provisions, and cost projections. Ninety days is 
proposed as an adequate amount of time in which to conduct a reasoned 
evaluation of the open season materials and to help level the playing 
field.
    42. Alaska Legislators state that the notice period established in 
the NOPR needs clarification. Specifically, they state that the 
proposed regulations are unclear whether the 30-day notice period 
precedes and is computed separately from the 90-day open season period. 
In any event and for several reasons, state Alaska Legislators, an 
initial open season will require a duration of a minimum of six months, 
and any subsequent open seasons should remain open for a minimum of 
four months. First, Alaska Legislators assert that this additional time 
is needed to offset the fact that shippers affiliated with the pipeline 
will have advance information. Second, the substantial capital 
commitment that will be required of any prospective shipper warrants a 
much longer period within which to evaluate whether to contract for 
capacity on the project.
    43. ANGDA agrees that a 180-day period to review and assess the 
open season information is required in order to account for the huge 
information gap between the information now available to potential 
intra-state shippers and the information they would need to make multi-
year commitments for capacity on an Alaska natural gas transportation 
project. ANGDA states that such a commitment would equal or exceed the 
asset base of potential shippers on a spur line. Moreover, public 
hearings and Regulatory Commission of Alaska (RCA) approval of contract 
terms is required for several potential shippers. The due diligence and 
expert advice required to make decisions of this magnitude require a 
minimum of 180 days, according to ANGDA. Additionally, ANGDA states 
that many shippers' contract terms require RCA approval, which could 
take one to two years. Anadarko also believes 180 days is required due 
to the magnitude of the commitment and to offset the informational 
advantages that the major producers have over other potential shippers. 
For example, Anadarko estimates that a 500 MMcf/d commitment for 20 
years' capacity on an Alaska natural gas transportation project 
translates into a $7 billion demand charge, and a 30-year contract 
would involve a $10 billion commitment.
    44. AOGCC, Shell, Pacific Star, Doyon, and Alaska share the belief 
that the NOPR's 90-day open season period should be extended. Pacific 
Star could support a 120-day open season, with a prior 90-day review 
period. Alaska recommends a ``safe harbor'' range of 90 to 120 days, 
with no preference given based on when bids are received.
    45. MidAmerican/AGTA, Alliance and Enbridge find the 30-day notice 
and 90-day open seasons to be adequate. In particular, Enbridge and 
MidAmerican/AGTA find these time frames to strike an appropriate 
balance between meeting prospective shippers' informational needs and 
the need to expedite the development of an Alaska natural gas 
transportation project. Enbridge states that because there have been 
years of developmental work on an Alaskan natural gas pipeline, with 
many prior public hearings and discussions on the subject having 
occurred and continuing dialog between potential sponsors and shippers 
taking place, it is unnecessary to lengthen the proposed open season 
period.\15\ Enbridge adds that extending

[[Page 8275]]

the open season could result in long delays in the project's overall 
schedule due to the narrow, seasonal windows associated with 
environmental studies and preliminary field work.
---------------------------------------------------------------------------

    \15\ As support for the reasonableness of the 90-day open season 
period, Enbridge compares it to the 30-day and 53-day open seasons 
held in Maritimes & Northeast Pipeline, LLC, 80 FERC ] 61,346 at 
62,174 (1997) and Alliance Pipeline L.P., 80 FERC ] 61,149 at 61,591 
(1997), both large, cross-border projects. Alliance too, refers to 
its own 53-day open season.
---------------------------------------------------------------------------

    46. Another timing issue raised in comments involves when any open 
seasons for an Alaska natural gas transportation project should be 
held. The NOPR has no requirements on the subject of when project 
sponsors must hold the open season. According to Anadarko, the 
Commission's silence on this issue will allow sponsors to hold open 
seasons early in the project's developmental process. As a result, 
explorers will be unable to commit to capacity on the project because 
of the present uncertainties surrounding their reserves. This sentiment 
is shared by others, including Arctic Slope, DOI, Doyon, and Shell. As 
a solution, these commenters state that the open season regulations 
should include a requirement that any open seasons must remain open 
until the last practical point in time, which according to Anadarko and 
Shell is the time when the sponsors must close on their financing 
arrangements. These commenters state that in this way, some potential 
shippers, other than the major producers who are in a better position 
to commit early in the process, might be able to resolve the 
uncertainties currently prohibiting them from participation. Shell also 
states that the open season regulations should preclude any open season 
for an expansion project prior to one calendar year after the in-
service date of the pipeline unless the open season is specifically 
requested by a shipper other than a major producer.
    47. In addition, some commenters urge the Commission to require 
that the study of in-state needs provided for in section 103(g) of the 
Act precede any open season. Although the language of the Act requires 
that ``the holder of the certificate'' demonstrate that it has 
conducted the required study, the Act does not state when such study 
should be conducted; nor does the Act require that the study be made 
public. Alaska states that contrary to the intent of the Act, the NOPR 
is silent on the subject of ensuring that in-state needs for gas are 
met.\16\ According to Alaska, the only logical way for this to be done 
is to require that the in-state study be conducted prior to the open 
season in order for the project sponsor to design the capacity, routing 
and expansibility of the project facilities to accommodate those needs. 
The Alaska Legislators argue that an in-state study is ``virtually 
meaningless unless concluded and the results made public by the 
pipeline operator prior to any open season.'' \17\ Chevron Texaco, 
TransCanada, and ANGDA agree that, in order to determine where tie-in 
points are needed to meet Alaska's domestic gas needs, the studies 
should precede any open season.
---------------------------------------------------------------------------

    \16\ Governor Murkowski also made this point at the technical 
conference.
    \17\ Joint Comments of the Legislative Budget and Audit 
Committee of the Alaska State Legislature and Indicated Alaska State 
Legislators at 48.
---------------------------------------------------------------------------

    48. The Alaska Legislators further argue that the Commission should 
spell out the type of study that the pipeline will be required to 
undertake. ANGDA's comments address the need for two major gas trunk-
line interconnect points in Alaska, most critically a spur line to make 
North Slope gas available to the Cook Inlet area, where two-thirds of 
the state's population resides, and which has less than a 10-year 
reserve life for current gas supply. United States Senator Murkowski, 
State Senator Therriault, and Mr. Izzo, representing Enstar, among 
others at the technical conference also stressed various in-state needs 
for natural gas. ChevronTexaco states that it could be a simple matter 
of identifying most logical tie-in points to address future needs and 
the most economic methods to expand the capacity to meet those needs 
when they arise. Alaska Legislators suggest that a January 2003 study 
conducted on behalf of Alaska's Department of Natural Resources might 
serve as a useful example to model in fashioning the requirements of 
the in-State study.\18\
---------------------------------------------------------------------------

    \18\ This study can be found at: http://www.dog.dnr.state.ak.us/oil/products/publications/otherreports/demand/instate gas v1.pdf.
---------------------------------------------------------------------------

    49. The Commission is adopting the NOPR's 30-day notice period and 
90-day open season period of ``at least 90 days'' for open seasons, and 
clarifies that the 30-day notice period will precede the 90-day open 
season and that the notice of open season is to contain all of the 
information detailed in Sec.  157.34(b). Therefore, all interested 
persons will have a period of a minimum of 120 days in total to examine 
the information pertaining to any open season in order to assess 
whether they are willing and able to participate in the process and 
proffer bids. The Commission understands that on day one of the open 
season process, any shippers affiliated with the pipeline or who have 
entered into pre-subscription agreements may have certain information 
not available to other entities. However, that information is required 
to be disclosed at the beginning of the minimum 120-day period.
    50. The Commission also appreciates that, due to the substantial 
capital commitment that will be required, any prospective shipper will 
need a sufficient period of time within which to evaluate whether to 
make multi-year commitments for capacity on the project. However, we 
also understand that in order to timely develop a pipeline proposal, 
size the facilities, secure financing and otherwise finalize the 
proposal in detail sufficient to file a certificate application, time 
is of the essence. This is accentuated by the fact that under section 
109 the Act, if an application for an Alaska natural gas transportation 
project is not filed within 18 months after the October 2004 enactment 
of the Act, the Secretary of Energy is required to conduct a study of 
alternative approaches to an Alaska natural gas transportation 
project.\19\ While the Act does not preclude the filing of an 
application after the 18-month period and the initiation of such a 
study, it is clear that the Act contemplates that an applicant will 
proceed with all deliberate speed.
---------------------------------------------------------------------------

    \19\ Congress' sense of urgency is demonstrated by a number of 
other provisions in the law, including those calling for expedited 
action in connection with the environmental review and the 
Commission's certificate approval processes, as well as expedited 
judicial review in connection with any environmental impact 
statement or final Federal agency order issued under the Act. 
Moreover, the Act establishes an independent Office of Federal 
Coordinator who is empowered to oversee and coordinate the 
expeditious federal permitting processes in connection with any 
Alaska natural gas transportation project.
---------------------------------------------------------------------------

    51. The minimum 120-day open season period we are establishing is 
substantially longer than any open season heretofore held for a major 
pipeline project. While no other project equals or nears the size and 
complexity of an Alaska natural gas transportation project, this will 
be a project with many years of evaluation, information-gathering and 
private and public debate behind it. While there may currently be some 
disparity in the amount of information various interested parties have, 
most have been assessing their situations, at least conceptually, for 
many years. The Commission, on balance, believes a 120-day period is 
adequate to substantially level the playing field, particularly given 
the extensive information requirements imposed in the open season 
regulations. We are not convinced that an open season lasting as long 
as six months is necessary.
    52. The Commission, for several reasons, will not impose a 
requirement that any open season must remain open

[[Page 8276]]

until a particular point in time tied to other project activities. This 
requirement was requested in order to allow as much time as possible 
for potential shippers to put themselves in a position to bid for 
capacity. The Commission is providing that the effective date of this 
final rule shall be 90 days from its publication in the Federal 
Register, which will prevent any open seasons for the first three 
months. Any specific point in time that the Commission might select 
(such as a year before an application was filed) might not be suitable 
under all circumstances, and could, therefore, frustrate efforts in 
planning project proposals. However, we are adding a new provision in 
the final rule, Sec.  157.34(d)(2), that a project sponsor must 
consider any bids tendered after the expiration of the open season by 
qualified bidders, and may reject them only if they cannot be 
accommodated due to economic, engineering, or operational constraints, 
in which case the project sponsor must provide a detailed explanation 
for the rejection. This requirement is designed to allow reasonable 
access to those shippers whose circumstances prohibit them from 
participating during the established open season period. Nonetheless, 
our expectation is that the pipeline can and will be designed and built 
to accommodate all qualified shippers who are ready to sign firm 
agreements. On balance, this should be of benefit to late-developing 
shippers and at the same time provide the sponsor with flexibility in 
the timing of its open season.
    53. In light of the concerns expressed by Alaska entities and 
Congress' mandate that Alaska in-state needs be given due 
consideration, we are adding to Sec.  157.34 of the regulations a 
requirement that open season information include an assessment of in-
state needs, based to the extent possible on any available study 
performed by Alaska, and a listing of prospective delivery points 
within Alaska. We are also adding a requirement that the open season 
information include a proposed in-state transportation rate, based on 
the costs of providing that service. This will give participants in an 
open season sufficient information to understand what capacity is 
proposed to be offered to entities within Alaska, where the project 
proponent proposes to make in-state deliveries, and what the rates for 
in-state service may be. To the extent possible, we intend that for 
this assessment to be made based on information provided by the state, 
so that we, project proponents, and other interested parties can have 
the benefits of the state's expertise.
    54. We do not propose to set aside a specific amount of capacity 
for in-state service, because we do not now know how much capacity will 
be sought for that purpose. Similarly, although, as stated immediately 
above, in-state transportation rates must be based on the costs of 
providing that service, we cannot at this point determine the 
appropriate allocation of costs between services for in-state 
deliveries and for deliveries to the lower 48 States. We will deal with 
cost allocation issues occasioned by these matters as they arise.
    55. We note that section 103(g) of the Act requires the holder of a 
certificate for an Alaska project to prepare a study of Alaska in-state 
needs. The open season information we are requiring does not obviate 
the need to comply with this provision, but the material provided 
during the open season could later be proffered as the post-certificate 
study, and, should we determine that there is sufficient agreement by 
interested parties that the open season information is sufficient, we 
may accept it as satisfying the statutory requirement.
ii. Open Season Technical Informational Requirements
    56. Proposed Sec.  157.34(b) lists the information that any notice 
of open season for an Alaska natural gas transportation project must 
contain. The listed information includes technical information such as 
the route, the proposed receipt and delivery points, the size and 
design capacity, estimated in-phase dates for expansion capacity, 
delivery pressure, projected in-service date, estimated unbundled 
transportation rate, estimated cost of facilities and estimated cost of 
service, expected return on equity, negotiated rates and other rate 
options under consideration, quality specifications, terms and 
conditions of service. In addition, the list includes a detailed 
methodology for determining the value of bids, the methodology by which 
capacity will be awarded in the case of over-subscription, a clear 
statement of all terms that will be considered, including price and 
contract term, and required bid information. Other listed information 
includes the form of a precedent agreement and time of execution of the 
precedent agreement, and definition and treatment of non-conforming 
bids.
    57. The Commission recognized in the NOPR that a potential 
applicant for an Alaska natural gas transportation project might find 
it necessary or appropriate to initiate an open season before some of 
the information can be determined. The NOPR also anticipated that in a 
given situation, such information cannot be reasonably determined until 
after an open season is held. As an example, the Commission described a 
situation where, for purpose of gathering information and assessing 
demand, a prospective project sponsor might first conduct a non-binding 
open season. Then, based on its evaluation of the response, the sponsor 
could conduct a second, binding open season containing information 
sufficiently detailed to permit prospective shippers to enter into 
binding precedent agreements.
    58. To accommodate these situations, the NOPR provided that the 
sponsor would be required to include the listed information in the 
notice of open season ``to the extent that such information is known or 
determined at the time the notice is issued.'' \20\ Additionally, in 
order to level the playing field for all potential open season 
participants, the NOPR required that the sponsor include in the open 
season notice ``[a]ll other information that may be relevant to the 
open season, including information pertaining to the proposed service 
to be offered, projected pipeline capacity and design, proposed tariff 
provision, and cost projections, made available to or in the hands of 
any potential shipper, including any affiliates of the project sponsor 
and any shippers with pre-subscribed capacity, prior to the issuance of 
the public notice of open season.'' \21\
---------------------------------------------------------------------------

    \20\ NOPR, proposed Sec.  157.34(b).
    \21\ Id., Sec.  157.34(b)(17).
---------------------------------------------------------------------------

    59. Several commenters, including Anadarko, MidAmerican/AGTA, the 
North Slope Producers, Alliance, and Enbridge found the NOPR's listed 
information to be generally sufficient to provide prospective shippers 
the information needed to decide whether they to make binding, long-
term commitments to purchase capacity on an Alaska natural gas 
transportation project. However, several aspects of the NOPR's 
informational requirements drew the attention of these commenters.
    60. Anadarko and Shell state that limiting the sponsor's obligation 
to provide the information listed in the NOPR only ``to the extent that 
such information is known or determined at the time the notice is 
issued'' creates a loophole, and this qualifying language should be 
deleted from the regulations. According to Anadarko and Shell, a 
pipeline could avoid providing certain vital information simply by 
claiming that the information was not yet known

[[Page 8277]]

or by holding the open season prematurely. These commenters state that 
the open season regulations should require that for any binding open 
season, pipelines include all the listed information in the notice. 
While certain physical characteristics of the pipeline will not be 
known until the pipeline is built, the pipeline can include in the 
notice the information upon which the open season proposal is based.
    61. Alliance suggests that the Commission could reduce the risk of 
any dispute over the adequacy of the information contained in the 
notice by making clear that the information contained in the notice 
does not have to reflect the finalized positions on all elements at the 
time of notice of open season, and that a notice will not be 
invalidated by the absence of certain information. Additionally, 
Alliance recommends that the sponsors should be allowed to modify and 
update elements of their open season proposal if such modification is 
acceptable to prospective shippers. Alliance claims that this approach 
was useful in its own open season. MidAmerican/AGTA, on the other hand, 
feels that the above-mentioned qualifying language was reasonable.
    62. However, MidAmerican/AGTA, together with the North Slope 
Producers and TransCanada, state that the catchall provision requiring 
``all other information that may be relevant * * *'' is too broadly 
written. These commenters fear that the provision might be abused by 
those seeking either to delay the process or to obtain proprietary 
information. The North Slope Producers are also concerned over 
protecting proprietary or commercially sensitive information. They 
contend that this catchall provision is not in line with the 
Commission's policy against burdensome disclosure of commercially 
sensitive information. The North Slope Producers state that a notice 
containing the other sixteen types of information listed in the 
proposed regulations already provides more information than has been 
historically shared with shippers.
    63. A number of comments on the proposed informational requirements 
focus on the need or desirability of including information that would 
inform all proposed shippers with respect to the expandability of the 
proposed project. Many commenters express, at one point or another in 
their comments, and all commenters implicitly agree, that it is 
extremely important to determine the original sizing and future 
expandability of an Alaska natural gas transportation project, as it 
will likely be the only pipeline built for the foreseeable future to 
transport Alaska natural gas for delivery to markets in the lower 48 
states. Alaska, Calpine, and the Alaska Legislators all state that more 
information in the open season is needed to achieve optimal project 
design parameters. Alaska has proposed language to be included in the 
final regulations which includes feasibility and estimated cost of 
pipeline expansions, either through compression or looping, including 
any physical limitations.\22\ Calpine also states that the notice of 
open season should contain information on the expandability of the 
project's design capacity, including the design capacity per stage of 
each expansion and method of achieving expansions, and that rate 
estimates should cover rates for expansion stages (calculated on a 
rolled-in basis).
---------------------------------------------------------------------------

    \22\ See Alaska's December 17 Comments, at Appendix, Proposed 
Open Season Regulations, Sec.  157.34(a)(5)(ix).
---------------------------------------------------------------------------

    64. The North Slope Producers request that the Commission clarify 
that proposed Sec.  157.34(b)(6) does not require that capacity must be 
awarded on an MMBtu basis. Their argument is that, because the gas 
transported may include higher-Btu components, such as ethanes, which 
will not ultimately show up as natural gas, Btu-based rates would be 
unfair. Instead, they state that capacity on an Mcf basis is typical 
for similar pipelines.
    65. ANGDA contends that the open season information should include 
design requirements for two major gas trunkline interconnect points in 
Alaska. ANGDA adds that a single tariff clearly would unduly 
discriminate against intrastate Alaska shippers.
    66. Looking beyond the initial open season, Alaska and Alaska 
Legislators address in their comments additional information 
requirements needed for potential shippers to evaluate either their own 
expansion needs or whether there is sufficient demand to support an 
economic expansion of an Alaska natural gas transportation project. 
Alaska asserts that in addition to the expanded information it proposes 
for initial expansions, a notice of open season for expansion capacity 
should also include specific information identifying the location of 
the natural gas reserves to which the pipeline relates, although Alaska 
would permit the pipeline to seek a waiver of any expansion information 
requirement it considers to be inapplicable. Alaska also states that 
the regulations should provide that any voluntary expansion design must 
either accommodate the capacity requests of all open season expansion 
bidders which are able to satisfy the Pipeline's creditworthiness 
requirements and willing to execute firm transportation agreements of 
reasonable duration at maximum recourse rates or demonstrate what 
technical or economic factors prevent such a design.
    67. Alaska Legislators claim that ongoing collection and 
publication by the pipeline of real-time information necessary for non-
pipeline owners to evaluate on an ongoing basis the potential for 
pipeline expansions is required. Alaska Legislators suggest alternative 
methods of accomplishing this. Either the pipeline should conduct 
periodic, non-binding open seasons, or it should maintain a publicly-
available log or queue of capacity requests. In all events, Alaska 
Legislators state that the Commission should also require that the 
pipeline keep a regularly-updated schedule on its website that 
includes: (1) Good faith estimates by the pipeline operator as to the 
possible and probable expansion increments to at least twice the 
original design capacity of the then-existing pipeline; (2) pipe 
characteristics of the then-existing pipeline, including wall 
thickness, diameter, and metallurgy; (3) compressor descriptions 
(manufacturer and model number, site rated horsepower and capacity, 
suction and discharge pressure and milepost locations of all existing 
and planned or prospective compressor stations); (4) an elevation 
profile of the then-existing pipeline; (5) known limitations on 
potential receipt and delivery points and a good-faith statement as to 
the bases for those limitations; (6) any other known limitations that 
would constrain or preclude expansions and a good-faith statement as to 
the bases for those limitations; and (7) any other expansion-related 
information of whatever nature which the pipeline owners or operators 
have made available to potential shippers (including any producing 
affiliates).
    68. DOI states that the Commission should not allow decisions 
regarding the timing of open seasons to be left to the sole discretion 
of the pipeline and its affiliates. Instead, DOI requests that the 
Commission establish procedures for conducting future non-
discriminatory open seasons that are reasonably responsive to ongoing 
exploration and development activities.
    69. The Commission did not intend to provide project sponsors with 
a reason not to provide necessary information by qualifying their 
obligation to provide information in the open season ``to the extent 
that such information is known or determined at the time the notice is

[[Page 8278]]

issued.'' As noted above, this qualification was intended to recognize 
that a potential Alaska pipeline project applicant might find it 
necessary or appropriate to initiate an open season before some of the 
information can be determined. As an example, the Commission described 
in the NOPR a situation where a prospective project sponsor first 
conducts a non-binding open season in order to gather information and 
assess demand, and thereafter, based on its evaluation of the response, 
conducts a second, binding open season containing information 
sufficiently detailed to permit prospective shippers to enter into 
binding precedent agreements.
    70. The Commission's thinking at that time was that the open season 
rules would apply to ``non-binding'' open seasons, and the above 
qualification would have utility in such a situation. However, we 
understand that it may be difficult to draw distinctions between a 
``non-binding'' open season and some other process of assessing 
interest in or need for capacity to assist the project sponsor in 
preparing a binding open season notice. Therefore, we are clarifying in 
the final rule that the open season regulations apply only to open 
seasons for binding commitments for capacity. The Commission sees no 
utility or need in imposing the full array of these open season 
regulations on activities leading up to a binding open season. There 
are adequate protections built into the open season rules, including 
the obligation to disclose information, to address any discriminatory 
and preferential practices through the Commission's oversight and 
enforcement capabilities.
    71. Nonetheless, we understand that optimal design requirements are 
achieved as a result of an open season and not in advance of it, and we 
still foresee the possibility that a potential project sponsor might 
find it necessary or appropriate to conduct an open season before all 
the information required to be contained in the open season notice can 
be determined. Therefore, we will clarify in the final rule that the 
notice of open season must contain at a minimum, a good faith estimate 
based on the best information available of all items of required 
information and that the project sponsor must identify the source of 
information relied on, explain why such information is not presently 
known, and update the information when and if it is later determined 
during the open season period.
    72. The Commission is also modifying proposed Sec.  157.34(b)(17) 
\23\ to address concerns that, as proposed, the regulations might be 
used to seek the disclosure of proprietary or commercially sensitive 
information. The purpose of the information-sharing requirement is to 
make sure that all interested parties are equally informed on matters 
essential to their decision whether to bid for capacity on the proposed 
project, with an eye toward leveling the playing field between 
affiliated shippers or others with prior knowledge of information to be 
contained in the open season notice and all other potential shippers. 
Between the specific information identified in proposed Sec.  
157.24(b)(17), namely, information pertaining to the proposed service 
to be offered, projected pipeline capacity and design, proposed tariff 
provision, and cost projections, and all the items of information 
enumerated in Sec.  157.34(b), the Commission has, in essence, defined 
the information that all shippers will need to participate in an open 
season for capacity on an Alaska natural gas transportation project. 
Accordingly, we will delete the reference to ``all of information that 
may be relevant.''
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    \23\ See Sec.  157.34(b)(18) of the final rule.
---------------------------------------------------------------------------

    73. However, following review of the comments, the Commission is 
concerned that the informational requirements of Sec.  157.34(b) alone 
might not be sufficient to prevent the possibility of discrimination by 
a project applicant in favor of an affiliate of that applicant. The 
Commission's goal is to prevent unduly discriminatory behavior and 
limit the ability of a project applicant to unduly favor its affiliate.
    74. Therefore, in order to further the Commission's goal of a non-
discriminatory open season, the Commission is applying certain of the 
Standards of Conduct requirements of Order No. 2004\24\ to all project 
applicants conducting open seasons for an Alaska natural gas 
transportation project because this will minimize the risk that an 
affiliate of a project applicant would have an advantage over non-
affiliates in obtaining capacity through the open season. The 
Commission is requiring project applicants to create/designate a unit 
or division to conduct the open season. The unit or division will be 
required to function independent of the other non-regulated divisions 
of the project applicant as well as the project applicant's Marketing 
and Energy Affiliates and subject to certain provisions of the 
Standards of Conduct. Specifically, the following provisions of Order 
No. 2004 will apply to project applicants conducting an open season: 
separation of functions (18 CFR 358.4(a)(1), (3), (4), (5) and (6) and 
(b)(e)(3),(5) and (6) (2004)); information access (18 CFR 358.5(a) 
(2004)); information disclosure (18 CFR 358.5(b) (2004)); prohibitions 
against discrimination (18 CFR 358.5(c)(5)(2004)) and discounts (18 CFR 
358.4(d)(2004).
---------------------------------------------------------------------------

    \24\ Standards of Conduct for Transmission Providers, Order No. 
2004, FERC Stats. & Regs., Regulations Preambles ] 31,155 (2003), 
order on reh'g, Order No. 2004-A, III FERC Stats. & Regs. ] 31,161 
(2004), 107 FERC ] 61,032 (2004), order on reh'g, Order No. 2004-B, 
III FERC Stats. & Regs. ] 31,166 (2004), 108 FERC ] 61,118 (2004), 
order on reh'g, Order No. 2004-C, 109 FERC ] 61,325 (2004) (Order 
No. 2004). Under Order No. 2004, for a natural gas pipeline 
Transmission Provider, the Standards of Conduct requirements do not 
apply until 30 days after the Commission issues a certificate 
allowing a project applicant to commence construction of an 
interstate natural gas pipeline.
---------------------------------------------------------------------------

    75. Under section 358.4(a)(1) of the Commission's regulations, the 
transmission function employees of a transmission provider must 
function independent of the transmission provider's Marketing affiliate 
or Energy Affiliates' employees. The employees who are part of the 
unit/division conducting the open season will be treated as 
transmission function employees and must function independently. 
Applying the separation of functions requirement would entail that 
employees of a project applicant who are involved in the open season 
may not also perform duties for the Energy Affiliates or Marketing 
Affiliates (as defined in 18 CFR 358.3(d) and (k) (2004)) of that 
project applicant. This would prevent Energy Affiliates of the project 
applicant who participate in the open season from having the advantage 
of information or strategy that non-affiliated open season participants 
do not have.
    76. The applicable exemptions from the separation of functions 
would also apply to permit the project applicant to share various 
categories of employees, including: Support, field and maintenance 
employees (section 358.4(a)(4)); senior officers and directors who are 
not ``Transmission Function Employees'' (as defined by 18 CFR 
358.3(j)), provided that they do not participate in directing, 
organizing, or executing transmission system operations or market 
functions or act as conduits for sharing prohibited information with a 
Marketing or Energy Affiliate (Sec.  358.4(a)(5)); and risk management 
employees who are not engaged in transmission functions or sales or 
commodity functions.
    77. Consistent with Sec.  358.4(e)(3) of the Standards of Conduct, 
the Commission

[[Page 8279]]

will require each project applicant to post on its Internet Web site 
its written procedures describing how it complies with the applicable 
provisions of Order No. 2004. The Commission also will require each 
project applicant to train its employees involved in the open season or 
part of the open season unit/division, officers, directors and 
employees with access to transportation information or information 
concerning gas purchases, sales or marketing functions under Sec.  
358.4(e)(5). The project applicant must also designate a Chief 
Compliance Officer who will be responsible for Standards of Conduct 
compliance, as required by Sec.  358.4(e)(6). In order to reduce the 
burden on project applicants, the Commission will not apply some of the 
posting requirements of Order No. 2004 to the open season (e.g., 
posting organizational charts and transfers of employees). However, 
project applicants must be able to verify that they have followed the 
organizational separation requirements.
    78. The application of the information access (18 CFR 358.5(a)) and 
disclosure (18 CFR 358.5(b)) requirements will ensure that employees of 
Marketing/Energy Affiliates participating in the Open Season would not 
have access to any transmission information that is not publicly 
available to non-affiliated participants and require that any 
disclosure of non-public transmission information to a Marketing/Energy 
Affiliate be immediately disclosed to all other actual and potential 
open season participants by posting that information on the project 
applicant's Internet Web site. See 18 CFR 358.5(b)(3). The requirements 
for written consent before releasing non-affiliated customer 
information to a Marketing or Energy Affiliate and posting that consent 
on the Internet would also apply for project applicants. See Sec.  
358.5(b)(4).
    79. The application of some of the non-discrimination requirements 
of Order No. 2004 will broadly prohibit discrimination by a project 
applicant conducting an open season and limiting its ability to unduly 
favor a Marketing/Energy Affiliate. The applicable non-discrimination 
provisions include: (1) Section 358.5(c)(3), which requires a 
Transmission Provider to process all similar requests for transmission 
in the same manner and within the same period of time; and (2) Sec.  
358.5(c)(5), which prohibits transmission providers from giving their 
Marketing or Energy Affiliates any preference over any other wholesale 
customer in matters relating to the sale or purchase of transmission 
service. In the context of an open season, these provisions ensure a 
project applicant will not provided any preferences to affiliated 
participants.
    80. Finally, the application of the discount provision of Sec.  
358.5(d), which requires a Transmission Provider to post an offer of a 
discount for transmission service at the time an offer is contractually 
binding, will ensure the transparency of the open season process and 
discourage undue preferences. We note that if an offer of a discount 
becomes contractually binding through the execution of a precedent 
agreement, the offer must be posted at that time, not at the time of 
the final agreement.\25\
---------------------------------------------------------------------------

    \25\ Order No. 2004-A, III FERC Stats. & Regs. ] 31,161 at p 
227.
---------------------------------------------------------------------------

    81. Applying many of the functional separation, information access, 
disclosure and non-discrimination provisions of Order No. 2004 to this 
open season process will ensure that it is conducted in a manner that 
is non-discriminatory and provides equal access to all participants, 
particularly those not affiliated with the project applicants. If 
during or following the open season the Commission determines that the 
project applicant has violated the terms of the Order No. 2004 
requirements that we are making applicable to the open season, the 
results of the open season with regard to the Energy Affiliates of that 
project applicant may be voided and a new open season held for that 
capacity.
    82. As noted above, a number of commenters discuss the need for or 
desirability of requiring disclosure of information relevant to the 
expandability of the project, both as proposed and on an ongoing basis. 
In overseeing the open season process and in processing and application 
for a certificate or other authority to construct and operate an Alaska 
natural gas transportation project, we will require that every 
reasonable effort be made to design a project that meets current needs 
for capacity, and accommodates future needs for capacity through low-
cost expansion. The information identified in Sec.  157.34(c)(2), 
together with the design and engineering information required as part 
of any application for a certificate, should be sufficient to 
reasonably inform all interested parties on matters involving the 
expandability of the project.
    83. As noted above, we are providing that the open season 
information include an assessment of in-state needs, based to the 
extent possible on any available study performed by Alaska, and a 
listing of prospective delivery points within Alaska. Moreover, we are 
requiring that a proposed in-state transportation rate, based on the 
costs of providing that service, also be included. This should address 
ANGDA's contention that the open season information should include 
design requirements for two major gas trunkline interconnect points in 
Alaska and that a single tariff clearly would unduly discriminate 
against intrastate Alaska shippers.
    84. Also as noted above, the North Slope Producers request that 
proposed Sec.  157.34(b)(6) clarify that it does not require that 
capacity must be awarded on an MMBtu basis. The Commission clarifies 
that this provision was intended to be a mandate that rates for an 
Alaskan pipeline will eventually have to be stated on a thermal basis, 
as is long-standing Commission policy. However, the Commission 
understands that at this stage of project development for an Alaskan 
pipeline, it will be significantly more complex for project sponsors to 
estimate rates and award capacity on that basis given the unique 
features of this project. Thus during the open season process, capacity 
may be described and rates may be estimated on a volumetric basis. 
However, as was the case in the two orders cited by the North Slope 
Producers,\26\ the Commission has found that pipelines can meet the 
Commission's objectives concerning the statement of rates on a thermal 
basis by proposing methods of rate adjustment at a later time. If 
during the open season process, a project sponsor chooses that capacity 
will be described and has its rates estimated on a volumetric basis, 
then it must notify bidders that final pro forma service agreements and 
the sponsors proposed tariff will have to be submitted with rate 
calculated on a thermal basis.
---------------------------------------------------------------------------

    \26\ Alliance Pipeline L.P., 84 FERC ]61,239 (1998); Kern River 
Gas Transmission Co., 79 FERC ]61,299 (1997).
---------------------------------------------------------------------------

iii. Open Season Bid/Capacity Allocation Methodology
    85. As stated above, the NOPR required that the notice of open 
season contain a detailed methodology for determining the value of 
bids,\27\ and the methodology by which capacity will be awarded in the 
case of over-subscription, clearly stating all terms that will be 
considered, including price and contract term.\28\ In addition, the 
NOPR required that capacity allocated as a result of any open season be 
awarded without undue discrimination or preference of any kind.\29\
---------------------------------------------------------------------------

    \27\ FERC Stats. & Regs., Proposed Regulations, ]32,577(2004), 
Sec.  157.34(b)(13).
    \28\ Id., Sec.  157.34(b)(14).
    \29\ Id., Sec.  157.35.
---------------------------------------------------------------------------

    86. The North Slope Producers contend that the combination of the

[[Page 8280]]

mandatory non-discrimination/undue preference standard contained in the 
NOPR's Sec.  157.35, the information disclosure requirements of Sec.  
157.34 (b), and Sec.  157.33's provision that any application for a 
certificate of public convenience and necessity for a proposed Alaska 
natural gas transportation project must show that the applicant has 
conducted an open season for capacity in accordance with the open 
season rules fulfills the Commission's responsibilities under the Act 
to establish the criteria for conducting an open season, including the 
procedures for the allocation of capacity. Northwest Industrials, 
TransCanada, MidAmerican/AGTA, and the AGA all agree that the NOPR's 
proposed rules are appropriately flexible and provide a reasonably fair 
and open process that is consistent with the Act's directives.
    87. The North Slope Producers stress that the most important, and 
first step to promoting competition in the exploration, development and 
production of Alaska natural gas is to get the Alaska natural gas 
transportation project built. They maintain that the Commission's 
current policies of allocating capacity in an open season to customers 
who value it most, and of favoring net present value (NPV) as a basis 
for awarding capacity will ensure that capacity will be awarded in a 
non-discriminatory and economically efficient manner. The North Slope 
Producers assert that through these policies, pipelines and shippers 
will also be assured that only capacity that is supported by the market 
and that is economically viable will be constructed.
    88. Additionally, the North Slope Producers assert that based on 
preliminary assessments, there will be enough initial pipeline capacity 
to accommodate all near-term production from other producers and 
explorers, in addition to all production from Prudhoe Bay and Point 
Thomson. Specifically, they state that it will require 50 Tcf of gas to 
keep a 4 to 4.5 Bcf pipeline full for 30 years. Moreover, the North 
Slope Producers expect that any Alaska pipeline will be designed to be 
economically expandable to 6 Bcf/d, which would accommodate an 
additional 15 Tcf over 30 years.
    89. At the same time, the North Slope Producers contend that while 
it is in a pipeline's interest to build a pipeline designed to carry 
all the gas shippers are willing to pay to transport, the costs of 
unused new capacity imposes certain limitations on just how much 
initial capacity the pipeline can build for a project to be 
economically viable. In response to suggestions made at the technical 
conference that, regarding capacity allocation in the event of 
oversubscription, small shippers should be favored, the North Slope 
Producers argue that any preferential capacity allocation methodology 
would be discriminatory, anti-competitive, and contrary to the NGA. The 
North Slope Producers state that shipper support for the project could 
be adversely affected if prospective shippers thought their commitments 
could be reduced. Moreover, they claim that any such undue preference 
or discriminatory treatment to particular shippers or sources of gas is 
unnecessary since an expansion under section 105 of the Act is 
available as a backstop for any shipper.
    90. On the other hand, a number of comments are critical of the 
Commission's approach to addressing bid evaluations and allocation of 
capacity as represented in the NOPR. Pacific Star, Alaska Legislators, 
Shell, ChevronTexaco, Anadarko, Alaska, Calpine, Arctic Slope, Alaska 
Venture Capital/Brook Range, and Doyon all fault the Commission for not 
taking a pro-active approach in developing the capacity allocation 
methodologies, and instead leaving it to the pipeline to develop them. 
These commenters contend that Congress specifically instructed the 
Commission to detail the criteria to be used in awarding capacity, and 
to do so in a manner which will promote competition in exploration, 
development and production of Alaska gas.
    91. In the NOPR, the Commission required that the notice of open 
season contain a detailed methodology for determining the value of 
bids,\30\ and that capacity allocated as result of any open season be 
awarded without undue discrimination or preference of any kind.\31\ We 
do not read section 103 of the Act to require that we define the 
methodology with the precision urged by those commenters who advocate a 
prescriptive regulatory approach. We remain confident, even more so now 
that we have the expanded scope of the regulatory text prohibiting 
undue discrimination and undue preference, that the regulations being 
promulgated in this order fully comply with the directives as well as 
the intent of the Act. Although the Commission is permitting 
prospective applicants the flexibility to establish the details of the 
bid evaluation methodology, any such methodology must meet the criteria 
imposed in this rule prohibiting undue discrimination, and it is the 
Commission, not the pipeline applicant who will apply that criteria to 
any open season claimed not to be in compliance with this rule. In this 
regard, the Commission notes that NPV has been the standard, but not 
required, methodology for evaluating bids in open seasons under current 
Commission policy. Although we are not mandating that methodology here, 
we will examine carefully any methodology that varies from those 
heretofore approved by the Commission to ensure that such variations 
respond to the unique circumstances of an open season for an Alaska 
project, and that they do not discriminate against any shipper or class 
of shippers in the evaluation of bids. We will now address specific 
issues.
a. Caps on Contract Terms
---------------------------------------------------------------------------

    \30\ Id., Sec.  157.34(b)(13).
    \31\ Id., Sec.  157.35.
---------------------------------------------------------------------------

    92. The Alaska Legislators, ChevronTexaco, Alaska, Anadarko, and 
Calpine all urge the Commission to establish some uniform cap on the 
term by which, under the NPV methodology, bids are evaluated. Calpine, 
for instance, proposes that the contract term for purposes of bid 
evaluation be 30 years. Anadarko states that any bid term or other 
terms and conditions that are difficult, if not impossible, for all but 
a few preferred shippers to meet, should be prohibited if they are not 
critically required to secure financing. Accordingly, Anadarko proposes 
a bid cap of 20 years or the length of the financing instrument. 
ChevronTexaco and Alaska concur that a 20-year cap would be 
appropriate.
    93. The Alaska Legislators also argue that a uniform cap should be 
placed on the term by which bids are evaluated. Although they do not 
have a specific cap term in mind, they claim that the Commission should 
impose some bid evaluation to prevent the major producers from bidding 
unduly long contract terms in order to squeeze out competitors. 
Recognizing that previous efforts by the Commission to limit the 
duration of contracts awarded in Tennessee Gas Pipeline Company's open 
season did not survive judicial scrutiny, Alaska Legislators state that 
the circumstances surrounding an open season for an Alaska natural gas 
transportation project are quite different from the circumstances 
associated with Tennessee, a pipeline in the lower 48 states. These 
distinctions, they assert, satisfy the concerns that the Court had in 
Process Gas Consumers Group v. FERC (Process Gas).\32\
---------------------------------------------------------------------------

    \32\ 177 F.3d 995 (DC Cir. 1999).
---------------------------------------------------------------------------

    94. The Alaska Legislators point out that in the case of an Alaska 
natural gas

[[Page 8281]]

transportation project open season, it would be the bid evaluation that 
is being limited, not the contract term itself, as was the case in 
Process Gas. Second, they assert that the parties in Process Gas were 
debating the duration of the cap, not the need for any cap to counter 
affiliates' attempts to obtain capacity through unjustifiably long 
bids. Third, they say, the Commission, on remand, concluded that open 
season caps in Tennessee's tariff were not required to protect captive 
customers because market forces dictate that pipelines have greater 
incentive to build new capacity to serve all demand, than to create 
scarcity by withholding capacity. On this point, Alaska Legislators 
contend that monopoly forces rather than market forces control the 
climate in Alaska, and that a producer-owned pipeline would indeed be 
disinclined to assist competing producers by affording them capacity on 
the pipeline.
    95. The Commission is not persuaded that any cap on contract term 
bids is necessary or appropriate at this time. Other than general 
concerns of affiliate abuse, the comments have provided no factual 
predicate which would warrant the Commission to deviate from current 
Commission policy, which is to not impose limits on bid terms. However, 
the Commission will be reviewing the results of any open season 
processes to determine the appropriateness of any unusually long 
contract terms (e.g., a term exceeding the projected life of the pipe) 
to determine whether shippers incorporated them in their bids to obtain 
capacity allocation. For example, it would be in a prospective 
shipper's economic interest to seek a contract term that would be 
sufficient to allow the recovery of its revenues. However, it would not 
be in a shipper's economic interest to bid for capacity beyond its 
projected reserve's life because it would expose the shipper to 
reservation charges it may not be able to recover.
b. In-state Capacity Bids
    96. The Alaska Legislators state that bids for in-state capacity, 
with lower NPV as a consequence of mileage-based rates, cannot fairly 
compete with bids for transportation over the full length of the 
pipeline. Consequently, in order for bids for Alaska deliveries to 
compete with deliveries to the lower 48 states, Alaska Legislators 
contend that the final open season rules should contain a mileage-based 
multiplier to bids for in-state capacity. Alaska Venture Capital also 
recognizes this potential problem, but offers no solution other than 
calling on the Commission to address the problem with specific rules.
    97. Concerns over length-of-the-pipe versus in-state bids are 
misplaced in the context of NPV for a new pipeline such as any Alaska 
natural gas transportation project. The primary purpose of the open 
season process is to determine the appropriate size of the initial 
pipeline. In-state capacity bids will not result in stranded capacity, 
as can be the case with capacity sales on an existing pipeline. We 
agree with the Alaska Legislators. The purpose of the in-state capacity 
bids will be to determine whether and to what extent there is interest 
in developing a telescoped pipeline to service Alaskan needs in the 
initial capacity allocation. The revised regulations require that the 
open season include an estimated transportation rate for in-state 
deliveries, as well as a methodology for determining the value of bids 
for in-state deliveries and for deliveries outside of the State of 
Alaska.
    98. Other topics raised in the comments include Anadarko's 
suggestion that prepayments are unnecessary since the pipeline sponsor 
may already be the recipient of an $18 billion loan guarantee. Anadarko 
also claims that since prepayments would be much less burdensome to the 
major North Slope producers than to others, they are unduly 
preferential and should be prohibited. ChevronTexaco requests that the 
regulations expressly provide that, in the event more than one sponsor 
group conducts an open season for an Alaska natural gas transportation 
project, bidders may bid on the competing proposals. Calpine adds that 
bids should not exceed the amount of the proposal's design capacity, 
and that affiliates should be prohibited from making multiple bids, so 
that there is only one bid from each entity.
    99. Although the loan guarantee under the Act will certainly 
facilitate the sponsor's ability to obtain financing, it cannot be said 
that such guarantee obviates the need for creditworthiness standards or 
prepayment requirements where reasonably necessary. Consequently, we 
will not prohibit prepayments as urged by Anadarko. Such standards must 
be included in the information contained in the notice, and as such, 
are subject to the requirement that there be no undue discrimination or 
undue preference in the terms or conditions of service. ChevronTexaco's 
request that the regulations expressly provide that, in the event more 
than one than one sponsor group conducts an open season for an Alaska 
natural gas transportation project, bidders may bid on the competing 
proposals is a reasonable one. We have included appropriate language in 
the regulations. Finally, the Commission takes note of Calpine's 
requests regarding limitations on the amount of capacity bid and 
multiple bids from affiliates. Although we are not prohibiting all such 
bids, we will examine closely any such bids to determine whether they 
are soundly based on satisfying the legitimate needs of the bidder, or 
whether they are made to ``game'' the open season process.
c. Capacity Allocation in Case of Oversubscription
    100. On the subject of allocating capacity in the event qualified 
bids for capacity exceed the amount of design capacity, a number of 
comments fault the Commission for not proposing requirements that will 
encourage exploration and development for yet to be discovered Alaska 
gas resources. This group includes Pacific Star, the Alaska 
Legislators, ChevronTexaco, Alaska Venture Capital/Brook Range, Alaska, 
Anadarko,. Shell and Doyon. Consistent with their view that the 
Commission must take a pro-active approach and adopt detailed rules 
regarding critical elements of open season, Alaska Legislators contend 
that the rules governing capacity allocation in the event of 
oversubscription must provide that small shippers will not be subject 
to proration. Alaska Legislators claim that a pro rata basis of 
capacity allocation is not appropriate for an Alaska pipeline, 
especially a producer-owned pipeline. They assert that the producers' 
control over the pipeline must be countered by regulations favoring 
access to capacity by multiple, smaller-volume shippers over single, 
large-volume shippers. Alaska Legislators state that by providing as 
many shippers as possible all of the capacity they request, those with 
market power will be encouraged to ensure that there is enough capacity 
for their requirements as well.
    101. ChevronTexaco claims that in order for any open season to be 
fairly and reasonably conducted, any project that is too small to 
accommodate all nominated volumes should be redesigned, if possible. 
ChevronTexaco states that if the project cannot be redesigned upward, 
the next step would require that the bidders prove their access to gas 
supply to support their bids. After that, any unsupported bids would be 
allocated on a pro rata basis. Doyon also recommends as a first step 
that the sponsor upwardly revise the project's proposed capacity to 
accommodate all, and if it cannot be done, all shippers would receive a 
pro rated minimum volume of capacity. Similarly, Anadarko suggests that 
in case of oversubscription, the sponsor should either revise upward 
the

[[Page 8282]]

proposed capacity to accommodate all shippers or the pipeline should be 
required to prorate capacity requests in a manner that does not 
disproportionately affect those shippers who do not have pre-subscribed 
capacity. Finally, Alaska states that the Commission should require 
that all bids for 20 or more years at the maximum rate be treated 
equally and pro rated if necessary. If all such bids can be 
accommodated but bids under 20 years cannot, then NPV should be applied 
to award capacity to those bidders.\33\
---------------------------------------------------------------------------

    \33\ See Alaska's comments, Appendix at Sec.  157.34(a)(3). As 
noted infra, Alaska also urges that the regulations include a 
requirement that a sponsor must justify in its application the 
technical or economic factors that prevented it from designing the 
project to accommodate all qualified bidders.
---------------------------------------------------------------------------

    102. Just as the Commission required that the notice of open season 
contain a detailed methodology for determining the value of bids, the 
Commission also required in the NOPR that the prospective applicant 
state the methodology by which capacity will be awarded, clearly 
stating all the terms that will be considered,\34\ and that capacity 
allocated as a result of any open season be awarded without undue 
discrimination or preference of any kind.\35\ Our justification and 
reasoning in support of our approach to establishing criteria for 
purposes of bid evaluation applies here as well. Moreover, to further 
meet the concerns expressed by parties who are worried about obtaining 
access to an Alaska pipeline, we have added new Sec. Sec.  157.36 and 
157.37, which make clear that the Commission will examine proposed 
pipeline designs, as well as expansion proposals, to ensure that all 
interested shippers are given a fair opportunity to obtain capacity 
both on an initial project and on any voluntary expansion. As stated 
elsewhere in this order, we believe it is in both the sponsor's and 
shippers' best interests to build the pipeline to accommodate all 
qualified shippers who are ready to sign firm agreements. We will 
carefully review project design and the documentation relating to the 
allocation of capacity, with the goal of promoting our open access and 
pro-competition policies.
---------------------------------------------------------------------------

    \34\ See FERC Stats. & Regs., Proposed Regulations, ] 
32,577(2004),Sec.  157.34(b)(14).
    \35\ Id., Sec.  157.35.
---------------------------------------------------------------------------

F. Prefiling Procedures

    103. Another specific issue on which the Commission sought comment 
was whether it should require that prospective applicants for Alaska 
natural gas transportation projects, before conducting open seasons, 
file with the Commission proposals for how the open seasons will be 
conducted. If so, the Commission asked whether the proposals be filed 
for notice and comment, or for a decision or pre-determination by the 
Commission that such proposals conform to the regulations. The 
Commission concluded its inquiry on this subject by inviting 
suggestions on what other procedures would be suitable to facilitate 
the expeditious resolution of objections or concerns regarding any open 
season for an Alaska natural gas transportation project.
    104. The majority of commenters who addressed the subject of 
requiring that all open season proposals be pre-filed with the 
Commission were of the opinion that such a requirement is unnecessary 
and could potentially delay or disrupt the whole open season process. 
MidAmerican/AGTA and TransCanada propose that, instead, the sponsor 
should have the option of requesting Commission preapproval, adding 
that such option should include a 45-day comment period. ChevronTexaco 
prefers that instead of mandatory prefiling requirements, sponsors 
should be free to seek informal guidance from the Commission. Neither 
Alliance, nor Anadarko, nor the North Slope Producers supports any 
advance pre-approval filing requirement or procedure.
    105. Alaska, on the other hand, believes that it is better to 
resolve any disputes involving the open season process beforehand. To 
accomplish this, Alaska proposes that the entire proposed open season 
package be filed with the Commission three months prior to opening 
date, and the Commission should notice the filing for comments prior to 
a Commission determination on the sufficiency of the open season 
notice.
    106. Anadarko, ChevronTexaco, Alliance, Enbridge, the North Slope 
Producers, and MidAmerican/AGTA all stress the need for some form of 
dispute resolution during the open season process. Anadarko states that 
the open season rules should specify that the Commission's Fast Track 
Processing (18 CFR 385.206(h)) will apply to all complaints regarding 
non-compliance with open season regulations. Moreover, Anadarko 
maintains that the open season process should be suspended during 
pendency of the fast track complaint procedures in order to preserve 
the complainant's rights to acquire capacity. MidAmerican/AGTA and 
Alliance also refer to the Commission's Fast Track procedures as well 
as the Enforcement Hotline as useful, available procedures for 
resolving open season complaints. In addition to expedited complaint 
procedures, ChevronTexaco states that open season disputes could be 
resolved by way of a declaratory order.
    107. ChevronTexaco also states that the Commission should consider 
imposing Standards of Conduct-like requirements, such as guidelines for 
interstate transporters in Order No. 2004. Enbridge and the North Slope 
Producers are also satisfied that the Commission's existing procedures 
are sufficient to expeditiously resolve any complaints or disputes over 
the open season process. Alliance asserts that the best way to address 
disputes is to minimize them through clear and unambiguous, yet 
flexible, rules.
    108. DOI believes that some form of oversight is needed and 
suggests that all proposals be filed and publicly reviewed by the 
Commission or other independent regulatory group. DOI states that the 
proposed rules are vague and some process should be developed to modify 
the rules to accommodate changing circumstances in the future as they 
may arise.
    109. On balance, we conclude that it is in the public interest to 
require pre-approval of open season procedures. This will allow issues 
to be identified and resolved at the earliest possible time, and, 
ideally, reduce the possibility of dissatisfaction with open seasons, 
as well as the risk that the Commission will have to require that 
deficient open seasons be conducted again. Therefore, the regulations 
will require that project proponents file open season plans for 
Commission approval.
    110. As detailed above, various approaches to resolving disputes 
over the open season process are suggested. On review, the Commission 
believes that its current processes and procedures, combined with the 
pre-approval requirement, are sufficient to resolve any disputes 
arising out of the open season process, and in light of the sense of 
urgency expressed in the provisions of the Act, the Commission is 
providing in the final rule that any complaints alleging non-compliance 
with this subpart shall be processed under the Commission's Fast Track 
procedures.\36\ However, the Commission does not find it necessary or 
appropriate as a rule to suspend the open season process during 
pendency of a Fast Track

[[Page 8283]]

complaint in order to preserve the complainant's rights to acquire 
capacity, as requested by Anadarko. The Commission anticipates that in 
most cases that might arise, the project sponsor will be able to comply 
with a Commission order directing that it provide the capacity 
requested by a prospective shipper who is found to be entitled to 
capacity. However, just as we will not require that the open season be 
suspended, nothing in this rule prohibits a complainant from 
requesting, or the Commission granting, such relief if necessary.
---------------------------------------------------------------------------

    \36\ See 18 CFR 385.206(h) (2004). Normally, Fast Track 
complaint processing must be requested and supported by an 
explanation why expedited processing is required. The Fast Track 
procedures include expedited filing of responsive pleadings, an 
order spelling out the schedule and procedures to be followed, 
including expedited action on the pleadings, an expedited hearing 
before an administrative law judge, or expedited action on any 
particular relief sought.
---------------------------------------------------------------------------

G. Rate Treatment for Expansions

    111. As noted above, one of the issues that received substantial 
attention in the pre-NOPR comments is whether the Commission should 
require rolled-in rate treatment for Alaska pipeline expansions. 
Although the NOPR's proposed regulations are silent on this subject, 
the NOPR requested comment on whether, in the event the Commission 
issues regulations with respect to the Commission's authority to 
require expansion of any Alaska natural gas transportation project, 
those regulations should address the rate treatment (rolled-in or 
incremental) of any such expansion.
    112. Other than the North Slope Producers and Alliance, there is 
much support for rolling-in the costs of both voluntary and involuntary 
expansions, although there is disagreement about when the issue should 
be resolved. ChevronTexaco states that the subject of appropriate rate 
treatment for expansions is a subject deserving of substantial, 
detailed consideration that should be addressed after dealing with the 
more pressing task of issuing the open season rules. Northwest 
Industrial Gas Users also believes that the issue can be addressed 
later. Alaska agrees that expansion pricing is a complex subject that 
should be examined thoroughly, and asserts that instead of addressing 
the issue in this rulemaking, the Commission should issue a notice 
regarding expansion rate treatment for Alaska natural gas 
transportation projects in early 2005. Alaska observes that the 
arguments in support of rolled-in pricing are strong, but suggests that 
rolled-in pricing might not be appropriate in all circumstances. 
Alliance believes that because the appropriateness of rolled-in or 
incremental rate treatment for any expansion should be made on a fact-
specific basis, and not by rule that predetermines, before the 
circumstances of a given expansion are even known, how that expansion 
should be priced.
    113. Pacific Star and Alaska Venture Capital state that the 
Commission should give an early indication that it will support rolled-
in rates for expansions of any Alaska natural gas transportation 
project. Pacific Star states that it agrees with the statement at the 
technical conference by TransCanada, ANGDA, Anadarko, BLM, and MMS that 
rate uncertainty will discourage exploration and development and that 
expansions of the pipeline could present widely varying rate 
consequences. Pacific Star also states that concerns over existing 
shippers' subsidizing rolled-in expansions should be weighed against 
the facts that initial shippers are benefiting from substantial 
subsidies through the $18 billion loan guarantee and a 7-year 
accelerated depreciation. Alaska Venture Capital/Brook Range similarly 
believes that the Commission should give an early indication that it 
will support rolled-in pricing under scenarios outside the Commission's 
existing policy, under which the Commission approves rolled-in rates 
only where the rolled-in rate is equal to or less than the existing 
recourse rate. According to Alaska Venture Capital/Brook Range, a 
policy calling for different rates for similar services would place 
explorers and smaller producers at a competitive disadvantage. This 
would, in turn, discourage exploration and development of Alaska 
natural gas, contrary to the mandate of the Act.
    114. TransCanada, MidAmerican/AGTA, and DOI encourage the 
Commission to adopt a rebuttable presumption favoring rolled-in rates. 
TransCanada states that any shippers concerned about the effect of such 
treatment can seek to avoid it through negotiated rates. MidAmerican/
AGTA qualifies its support for this presumption by stating that the 
presumption should apply only to reasonably-engineered increments of 
mainline expansions supported by long-term contracts similar to those 
supporting the initial project. DOI states that rolled-in rate 
treatment is more equitable to future shippers, and that, because 
Canada has adopted rolled-in rates for expansions, it would provide 
rate consistency for the entire system.
    115. Alaska Legislators, Anadarko, Shell, Calpine, Arctic Slope, 
and Doyon all contend that rolled-in pricing should be required for 
pipeline expansions. Alaska Legislators contend that incremental 
treatment for expansions would discriminate against expansion shippers 
who, merely because of the timing of their capacity needs, may pay 
higher rates than initial shippers. This, according to the Alaska 
Legislators, ignores the fact that the need for expansion is the 
consequence of the demands of all shippers. Alaska Legislators state 
that the Commission must balance the interests of the existing 
customers against interests of other stakeholders in determining 
whether or not pre-existing shippers should get the benefit of rate 
decreases for expansions that lower the average per unit cost of 
transportation, but face the possibility of rate increases that 
increase the average per unit cost of transportation. Alaska 
Legislators also note that the current Commission policy on expansion 
pricing was developed to address pipeline to pipeline competition, 
which will not arise in Alaska.
    116. In addition to arguing that incremental rates operate to 
discriminate against expansion shippers, Alaska Legislators argue that 
the prospect of incremental rates will also act to reduce competition 
and impede the development of Alaska natural gas. Alaska Legislators 
state that exploration and development of Alaska reserves requires a 
long lead-time due to seasonal restrictions and the remoteness of the 
resource.\37\ Alaska Legislators contend that this long lead time makes 
it difficult for an explorer to judge when it is feasible to commit to 
capacity on the pipeline. The result, state Alaska Legislators, is that 
the explorers and developers may be deterred from investing the large 
sums required to drill for Alaska natural gas, when they are unsure 
whether their future capacity needs will be met at a time when 
inexpensive expansion through increased compression will be available, 
or whether the expansion they require would involve costly looping. The 
Alaska Legislators also argue that Canada has a long-standing policy of 
requiring rolled-in rates for expansions which could make exploration 
in Canada much more attractive to exploration and production companies.
---------------------------------------------------------------------------

    \37\ Alaska Legislators refers to a statement made at the 
technical conference by Jeff Walker, of DOI's Mineral Management 
Service that it takes at least nine years for an exploration project 
to mature into production.
---------------------------------------------------------------------------

    117. Anadarko, also convinced that expansions under section 103 of 
the Act must be priced on a rolled-in basis, argues that this is 
critical to avoid a rate structure or policy that discriminates on the 
basis of time of entry onto the pipeline. Anadarko maintains that it is 
important to establish this requirement in the initial open season 
process in order to inform those prospective shippers that their rates 
might increase as expansions are rolled-in. Alaska Legislators provide 
a history of the

[[Page 8284]]

Commission's expansion rate policy, varying over time in order to 
address different goals as deemed necessary to address changing market 
dynamics. In short, Alaska Legislators assert that the current 
Commission policy favoring incremental expansion rates seeks to address 
issues of competing pipelines, competitive markets, optimal 
construction, and protecting captive customers, all valid 
considerations of the market setting in the lower 48 states, but wholly 
inapplicable to an Alaska natural gas transportation project or the 
Alaska market. According to Alaska Legislators, the Act instructs the 
Commission, through its open season regulations, to focus on reducing 
barriers, not to competitive markets, but rather, to entry in 
exploration and development of Alaska natural gas. Alaska Legislators 
conclude that to achieve this mandated goal, the open season 
regulations must be revised to include rolled-in pricing as one of the 
criteria for open seasons for pipeline expansions
    118. Shell and Calpine also argue that Commission's 1999 pricing 
policy for expansions has no application to the circumstances of an 
Alaska natural gas transportation project where there is no element of 
pipeline competition or preventing overbuilding. Shell is concerned 
that companies might not invest hundreds of millions in exploration and 
development costs if they may have to pay for expansions on an 
incremental basis, while competitors benefited from earlier, 
inexpensive expansion. Calpine stresses that since an Alaska natural 
gas transportation project will be called to transport all Alaska gas, 
not just gas from Prudhoe Bay and Point Thomson reserves, a larger 
picture is required in assessing any policy against subsidization. 
Calpine maintains that an Alaska pipeline should be viewed as a 10 Bcf/
d pipeline that will be built, in phases, over time, as opposed to a 
4.5 Bcf pipeline that might be expanded from time to time. Under this 
picture, shippers on the first phase facilities will benefit from lower 
initial rates due to the Act's loan guarantees, however the Act was not 
only concerned with facilitating the development of a project that 
carries Prudhoe Bay and Point Thomson production to market, but also 
the development and transportation of Alaska's unproven reserves.
    119. Arctic Slope is also concerned that unless rolled-in rates are 
mandated, there may never be an expansion of the pipeline beyond 
capacity created through infill compression and added compression 
horsepower. Arctic Slope estimates that rolled-in rates for expansions 
would probably be only a little higher than the initial rates since 
expansion costs would be borne by the entire pipeline throughput. 
However, the impact of incrementally-priced expansions on the 
incremental shippers, which would be based entirely on the incremental 
throughput quantities, would be very severe.
    120. Alliance and the North Slope Producers assert that rates for 
expansion should be determined on a fact-specific, case-by-case basis, 
not on a pre-determined, rolled-in basis under the open season rules. 
The North Slope Producers stress that absent information regarding 
design, timing, and other project attributes, it would be inappropriate 
either to require or to favor rolled-in rates. In addition, the North 
Slope Producers point to section 105(b)(1) of the Act wherein, they 
state, Congress identified either rolled-in or incremental rates as 
appropriate for mandatory expansions. They add that if rolled-in rates 
were made applicable to voluntary expansions in the final open season 
rule, the result would be that such expansions would become involuntary 
and they would be discouraged.
    121. Additionally, the North Slope Producers state that the 
Commission's existing, fact-specific policy recognizes the risks 
inherent in major infrastructure projects and seeks to prevent 
uneconomic pipeline expansions, as well as subsidization by existing 
customers, and should not be lightly discarded. Responding to the 
assertion that the NEB requires rolled-in rates for Canadian 
expansions, the North Slope Producers state that although NEB has 
adopted rolled-in rates in expansion cases, NEB addresses the issue on 
a case-by-case basis.
    122. Finally, the North Slope Producers claim that explorers do not 
require absolute rate certainty in order to decide whether to 
participate in open seasons; an anticipated range that supports future 
economics is sufficient. On the other hand, the North Slope Producers 
state that initial shippers who fear that they may be called on to 
subsidize future shippers may not bid for initial capacity. In this 
connection, the North Slope Producers contend that one of the 
Commission's goals is to protect captive customers from rate increases 
arising from costs unrelated to their service, resulting in rate 
uncertainty and increased contractual risk.\38\
---------------------------------------------------------------------------

    \38\ See, e.g., Transcontinental Gas Pipe Line Corp., 106 FERC ] 
61,299 (2004).
---------------------------------------------------------------------------

    123. In this rule, the Commission does not adopt a firm pricing 
policy for future expansions of an Alaska natural gas transportation 
project, but we do take this opportunity to provide guidance on this 
important issue, as it will assist participants in the initial open 
season. We conclude that there should be a rebuttable presumption in 
favor of rolled-in pricing for project expansions. Our existing lower-
48 states policy favoring incremental rates for expansions does not 
apply in the case of an Alaska natural gas transportation project. 
There is likely to be only one Alaska pipeline, so there will be little 
or no opportunity for competition between pipelines. Incremental 
pricing of expansion could put expansion shippers at a significant rate 
disadvantage compared with initial shippers, and accordingly could 
discourage exploration, development and production of Alaska natural 
gas. Having markedly different rates for similar service could be in 
conflict with one of the chief objectives of the statute, which is to 
encourage further exploration and development of Alaska natural gas. On 
the other hand, consistent with the arguments of a number of 
commenters, a presumption in favor of rolled-in pricing may spur 
investment in and development of Alaska reserves, and the ultimate 
delivery of that gas to the lower 48 states.
    124. We cannot at this point, without a specific project proposal 
or the facts surrounding a proposed expansion before us, define exactly 
what will be required to overcome the presumption. As a general matter, 
we have historically not favored requiring existing shippers to 
subsidize the rates of new shippers. We do not intend to discard this 
principle, but rather to indicate that we will not lightly authorize 
expansion rates that would have an unduly negative impact on the 
exploration and development of Alaska reserves. Witnesses at the 
technical conference acknowledged that defining subsidization is 
difficult without specific facts to review, and that fact was restated 
in several of the comments filed. We agree. But a basic observation may 
be useful here. For example, a rolled-in expansion rate that is less 
than or equal to the rate paid by the initial shippers would not be 
considered a subsidy. Whether a rolled-in expansion rate that is higher 
than original rates is a ``subsidy'' is a question that necessarily 
would have to be reviewed in the context of a future NGA section 7 
filing. At that time, Pacific Star's arguments relating to whether the 
Federal government's loan guarantees and accelerated depreciation 
amount to

[[Page 8285]]

a ``subsidy'' of initial shippers' rates may be raised.
    125. In conclusion, to provide guidance to potential shippers in 
advance of the initial open season that is the subject of this rule, 
the Commission intends to harmonize both objectives (rate 
predictability for initial shippers and reduction of barriers to future 
exploration and production) in designing rates for future expansions of 
any Alaska natural gas transportation project. It is consistent with 
our guiding principle that competition favors all of the Commission's 
customers, as well as with the objectives of the Act, to adopt rolled-
in rate treatment up to the point that would cause there to be a 
subsidy of expansion shippers by initial shippers, if any subsidy were 
to be found.
    126. Anadarko states that the open season regulations must prohibit 
pipelines from bundling ancillary services with transportation. In 
particular, Anadarko is concerned that sponsors might include in a 
tariff and an open season the bundled cost of a gas conditioning plant 
that would extract CO2 despite the fact that such extraction 
would not be required of gas from many new Alaska gas fields which 
likely will be of pipeline quality. MidAmerican/AGTA and Enbridge agree 
that the open season process should preclude applicants from tying 
receipt of capacity to taking ancillary services, such as gas 
conditioning, treating, or processing. TransCanada simply states that 
it has no objection to proscription of tying.
    127. DOI and MidAmerican/AGTA agree that rates for ancillary 
services should not be bundled with transportation rates. However, DOI 
contends that the State of Alaska should address the need for rules 
concerning non-discriminatory access to gathering and other production-
related facilities, whereas MidAmerican/AGTA claims that the Commission 
should assert and jurisdiction over gas treatment plants and require 
separate open seasons and cost-based tariff structures for gas 
processing. On the other hand, the North Slope Producers contend issues 
of tying or bundling of services can be dealt with through established 
Commission processes and policies at the appropriate time, and need not 
be addressed in the open season. Alliance views the tying issue in the 
context of requiring designated downstream capacity, and suggests that 
as a practical matter, that should not be prohibited.
    128. The Commission is stating in the final rule at Sec.  
157.34(c)(6) that the open season notice must contain an unbundled 
transportation rate. Moreover, Sec.  157.34(c)(10) prohibits a 
prospective applicant from requiring prospective shippers to process or 
treat their gas at any designated facility. The Commission is satisfied 
that it can address any other discriminatory conduct in connection with 
gas quality requirements or other ancillary services through the 
provisions of Sec.  157.35 in conjunction with existing Commission 
policies and procedures.

Information Collection Statement

    129. The Office of Management and Budget (OMB) regulations require 
that OMB approve certain reporting, recordkeeping, and public 
disclosure (collections of information) imposed by an agency.\39\ The 
following information collection requirements contained in this final 
rule are being submitted to the Office of Management and Budget (OMB) 
for review under section 3507(d) of the Paperwork Reduction Act of 
1995.\40\ The Commission identifies the information disclosed under 
part 157 as FERC-537. The Commission has submitted this information 
collection to OMB for review and clearance under emergency processing 
procedures.\41\
---------------------------------------------------------------------------

    \39\ 5 CFR 1320.11.
    \40\ 44 U.S.C. 3507(d).
    \41\ 5 CFR 1320.13.
---------------------------------------------------------------------------

    130. The Commission did not receive specific comments concerning 
its burden estimates and uses the same estimates here in the Final 
Rule. Comments on the substantive issues raised in the NOPR are 
addressed elsewhere in the Final Rule.

----------------------------------------------------------------------------------------------------------------
                                                 Number of        Number of        Hours per       Total annual
               Data collection                  respondents       responses         response          hours
----------------------------------------------------------------------------------------------------------------
FERC-537....................................               0                1               80            2,400
                                                                                                ----------------
    Totals..................................  ...............  ...............  ...............           2,400
----------------------------------------------------------------------------------------------------------------

    Total Annual Hours for Collection: 2400 hrs. These are mandatory 
information collection requirements.
    Information Collection Costs: The Commission sought comments on the 
cost to comply with these requirements. No comments were received. The 
Commission is projecting the average annualized cost for all 
respondents to be $139,000 (2400 x $58.00).
    Title: FERC-537 ``Gas Pipeline Certificates: Construction, 
Acquisition and Abandonment.''
    Action: Proposed Information Collection.
    OMB Control Nos.: 1902-0060. The applicant shall not be penalized 
for failure to respond to this collection of information unless the 
collection of information displays a valid OMB control number.
    Respondents: Business or other for profit.
    Frequency of Responses: One-time implementation.
    131. Necessity of Information: On October 13, 2004, Congress 
enacted the Alaska Natural Gas Pipeline Act. Section 103(e) (1) of the 
Act directs the Commission to issue regulations within 120 days from 
the enactment of the Act. Congress and the Commission consider the 
issuance of these regulations to be of critical importance to the 
construction and development of and access to Alaska natural gas 
transportation projects. The Commission must issue a final rule by 
February 10, 2005.
    132. Interested person may obtain information on the reporting 
requirements by contacting the following: Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426 (Attention: 
Michael Miller, Office of the Executive Director, (202) 502-8415, fax: 
(202) 273-0873), e-mail: [email protected]. For submitting 
comments concerning the collection of information and the associated 
burden estimate(s) including suggestions for reducing this burden, 
please send your comments to the contact listed above and to the Office 
of Management and Budget, Room 10202 NEOB, 725 17th Street, NW., 
Washington, DC 20503 (Attention: Desk Officer for the Federal Energy 
Regulatory Commission, (202) 395-4650, fax: (202) 395-7285).

Environmental Analysis

    133. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human

[[Page 8286]]

environment.\42\ No environmental consideration is raised by the 
promulgation of a rule that is procedural in nature or does not 
substantially change the effect of legislation or regulations being 
amended.\43\ The final rule establishes requirements governing the 
conduct of open seasons for proposals to construct Alaska natural gas 
transportation projects and does not substantially change the effect of 
the underlying legislation or regulations being revised.
---------------------------------------------------------------------------

    \42\ Order No. 486, Regulations Implementing the National 
Environmental Policy Act, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & 
Regs. Preambles 1986-1990 ] 30,783 (1987).
    \43\ 18 CFR 380.4(a)(2)(ii) (2004).
---------------------------------------------------------------------------

Regulatory Flexibility Act Certification

    134. The Regulatory Flexibility Act of 1980 (RFA) \44\ 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 an analysis if a rule would 
not have such an effect.
---------------------------------------------------------------------------

    \44\ 5 U.S.C. 601-612.
---------------------------------------------------------------------------

    135. The Commission concludes that this final rule would not have 
such an impact on small entities. Most companies regulated by the 
Commission do not fall within the RFA's definition of a small 
entity.\45\
---------------------------------------------------------------------------

    \45\ 5 U.S.C. 601(3), citing to section 3 of the Small Business 
Act, 15 U.S.C. 623. 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 
operation.
---------------------------------------------------------------------------

Document Availability

    136. 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.gov) 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, NE., Room 2A, Washington DC 20426.
    137. From FERC's Home Page on the Internet, this information is 
available in the Commission's document management system, eLibrary. The 
full text of this document is available on eLibrary in PDF and 
Microsoft Word format for viewing, printing, and/or downloading. To 
access this document in eLibrary, type the docket number excluding the 
last three digits of this document in the docket number field.
    138. User assistance is available for eLibrary and the FERC's Web 
site during normal business hours. For assistance, please contact FERC 
Online Support at 1-866-208-3676 (toll free) or (202) 502-6652 (e-mail 
at [email protected]), or the Public Reference Room at (202) 
502-8371, TTY (202) 502-8659 (e-mail at [email protected]).

Effective Date

    139. These regulations are effective May 19, 2005.
    140. The Commission has determined, with the concurrence of the 
Administrator of the Office of Information and Regulatory Affairs of 
OMB, that this final rule is not a major rule as defined in Section 351 
of the Small Business Regulatory Enforcement Fairness Act of 1996.

List of Subjects in 18 CFR Part 157

    Administrative practice and procedure, Natural gas, Reporting and 
recordkeeping requirements.

    By the Commission.
Magalie R. Salas,
Secretary.

0
In consideration of the foregoing, the Commission amends part 157, 
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

0
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; 
1331-1356.


0
2. Subpart B is added to part 157 to read as follows:
Subpart B--Open Seasons for Alaska Natural Gas Transportation Projects
Sec.
157.30 Purpose.
157.31 Definitions.
157.32 Applicability.
157.33 Requirement for open season.
157.34 Notice of open season.
157.35 Undue discrimination or preference.
157.36 Open season for expansions.
157.37 Project design.
157.38 Prefiling procedures.
157.39 Rate treatment for pipeline expansions.

Subpart B--Open Seasons for Alaska Natural Gas Transportation 
Projects


Sec.  157.30  Purpose.

    This subpart establishes the procedures for conducting open seasons 
for the purpose of making binding commitments for the acquisition of 
initial or voluntary expansion capacity on Alaska natural gas 
transportation projects, as defined herein.


Sec.  157.31  Definitions.

    (a) ``Alaska natural gas transportation project'' means any natural 
gas pipeline system that carries Alaska natural gas to the 
international border between Alaska and Canada (including related 
facilities subject to the jurisdiction of the Commission) that is 
authorized under the Alaska Natural Gas Transportation Act of 1976 or 
section 103 of the Alaska Natural Gas Pipeline Act.
    (b) ``Commission'' means the Federal Energy Regulatory Commission.
    (c) ``Voluntary expansion'' means any expansion in capacity of an 
Alaska natural gas transportation project above the initial 
certificated capacity, including any increase in mainline capacity, any 
extension of mainline pipeline facilities, and any lateral pipeline 
facilities beyond those certificated in the initial certificate order, 
voluntarily made by the pipeline. An expansion done pursuant to section 
105 of the Alaska Natural Gas Pipeline Act is not a voluntary 
expansion.


Sec.  157.32  Applicability.

    These regulations shall apply to any application to the Commission 
for a certificate of public convenience and necessity or other 
authorization for an Alaska natural gas transportation project, whether 
filed pursuant to the Natural Gas Act, the Alaska Natural Gas 
Transportation Act of 1976, or the Alaska Natural Gas Pipeline Act, and 
to applications for expansion of such projects. Absent a Commission 
order to the contrary, these regulations are not applicable in the case 
of an expansion ordered by the Commission pursuant to section 105 of 
the Alaska Natural Gas Pipeline Act.


Sec.  157.33  Requirement for open season.

    (a) Any application for a certificate of public convenience and 
necessity or other authorization for a proposed Alaska natural gas 
transportation project must include a demonstration that the applicant 
has conducted an open season for capacity on its proposed project, in 
accordance with the requirements of this subpart. Failure to provide 
the requisite demonstration will result in an application being 
rejected as incomplete.
    (b) Initial capacity on a proposed Alaska natural gas 
transportation project may be acquired prior to an open season through 
pre-subscription agreements, provided that in any open season as 
required in paragraph (a) of this section, capacity is offered to all 
prospective bidders at the same rates and on the

[[Page 8287]]

same terms and conditions as contained in the pre-subscription 
agreements. All pre-subscription agreements shall be made public by 
posting on Internet Web sites and press releases within ten days of 
their execution. In the event there is more than one such agreement, 
all prospective bidders shall be allowed the option of selecting the 
terms rates, terms and conditions contained in any one of the several 
agreements.


Sec.  157.34  Notice of open season.

    (a) Notice. A prospective applicant must provide reasonable public 
notice of an open season, at least 30 days prior to the commencement of 
the open season, through methods including postings on Internet Web 
sites, press releases, direct mail solicitations, and other 
advertising. In addition, a prospective applicant must provide actual 
notice of an open season to the State of Alaska and to the Federal 
Coordinator for Alaska Natural Gas Transportation Projects.
    (b) In-State Needs Study. A prospective applicant must conduct or 
adopt a study of gas consumption needs and prospective points of 
delivery within the State of Alaska and rely upon such study to develop 
the contents of the notice required in paragraph (a) of this section. 
Such study shall be identified in the notice and if practicable, shall 
include or consist of a study conducted, approved, or otherwise 
sanctioned by an appropriate governmental agency, office or commission 
of the State of Alaska. In its open season proposal, a prospective 
applicant shall include an estimate based upon the study, of how much 
capacity will be used in-state.
    (c) Contents of notice. Notice of the open season required in 
paragraph (a) of this section, shall contain at least the following 
information; however, to the extent that any item of such information 
is not known or determined at the time the notice is issued, the 
prospective applicant shall make a good faith estimate based on the 
best information available of all such unknown or undetermined items of 
required information and further, must identify the source of 
information relied on, explain why such information is not presently 
known, and update the information when and if it is later determined 
during the open season period:
    (1) The general route of the proposed project, including receipt 
and delivery points, and any alternative routes under consideration; 
delivery points must include those within the State of Alaska as 
determined by the In-State Study in paragraph (b) of this section.
    (2) Size and design capacity (including proposed certificate 
capacity at the delivery points named in paragraph (c)(1) of this 
section to the extent that it differs from design capacity), a 
description of possible designs for expanded capacity beyond initial 
capacity, together with any estimated date when such expansions designs 
may be considered;
    (3) Maximum allowable operating pressure and expected actual 
operating pressure;
    (4) Delivery pressure at all delivery points named in paragraph 
(c)(1) of this section;
    (5) Projected in-service date;
    (6) An estimated unbundled transportation rate for each delivery 
point named in paragraph (c)(1) of this section, stated on a volumetric 
or thermal basis, for each service offered, including reservation rates 
for pipeline capacity, interruptible transportation rates, usage rates, 
fuel retention percentages, and other applicable charges, or 
surcharges, such as the Annual Charge Adjustment (ACA); (if rates are 
estimated on a volumetric basis then the notice must inform bidders 
that final pro forma service agreements and the sponsor's proposed FERC 
tariff will have to be submitted with rates based on a thermal basis.)
    (7) The estimated cost of service (i.e., estimated cost of 
facilities, depreciation, rate of return and capitalization, taxes and 
operational and maintenance expenses), and estimated cost allocations, 
rate design volumes and rate design;
    (8) Based on the In-State Study and the delivery points within the 
State of Alaska identified in paragraph (c)(1) of this section, there 
must be an estimated transportation rate for such deliveries, based on 
the amount of in-state needs shown in the study. Such estimated 
transportation rate must be based on the costs to make such in-state 
deliveries and shall not include costs to make deliveries outside the 
State of Alaska;
    (9) Negotiated rate and other rate options under consideration, 
including any rate amounts and terms of any precedent agreements with 
prospective anchor shippers that have been negotiated or agreed to 
outside of the open season process proscribed herein;
    (10) Quality specifications and any other requirements applicable 
to gas to be delivered to the project; provided that a prospective 
applicant shall not require that potential shippers process or treat 
their gas at any designated plant or facility;
    (11) Terms and conditions for each service offered;
    (12) Creditworthiness standards to be applied to, and any 
collateral requirements for, prospective shippers;
    (13) The date, if any, by which potential shippers and the 
prospective applicant must execute precedent agreements;
    (14) A detailed methodology for determining the value of bids for 
deliveries within the State of Alaska and for deliveries outside the 
State of Alaska;
    (15) The methodology by which capacity will be awarded, in the case 
of over-subscription, clearly stating all terms that will be 
considered, including price and contract term. If capacity is 
oversubscribed and the prospective applicant does not redesign the 
project to accommodate all capacity requests, only capacity that has 
been acquired through pre-subscription or was bid in the open season on 
the same rates, terms, and conditions as any of the pre-subscription 
agreements shall be subject to allocation on a pro rata basis; no 
capacity acquired through the open season shall be allocated.
    (16) Required bid information, whether bids are binding or non-
binding, receipt and delivery point requirements, the form of a 
precedent agreement and time of execution of the precedent agreement, 
definition and treatment of non-conforming bids;
    (17) The projected date for filing an application with the 
Commission;
    (18) All information pertaining to the proposed service to be 
offered, projected pipeline capacity and design, proposed tariff 
provisions, and cost projections, made available to or in the hands of 
any potential shipper, including any affiliates of the project sponsor 
and any shippers with pre-subscribed capacity, prior to the issuance of 
the public notice of open season;
    (19) A list of the names and addresses of the prospective 
applicant's affiliated sales and marketing units and Energy Affiliates 
involved in the production of natural gas in the State of Alaska. 
Affiliated unit means ``Affiliate'' as applicably defined in Sec.  
358.3(b) of this chapter. Energy Affiliate means ``Energy Affiliate'' 
as applicably defined in Sec.  358.3(d) of this chapter;
    (20) A comprehensive organizational charts showing:
    (i) The organizational structure of the prospective applicant's 
parent corporation(s) with the relative position in the corporate 
structure of marketing and sales units and any Energy Affiliates 
involved in the production of natural gas in the State of Alaska.
    (ii) The job titles and descriptions, and chain of command for all 
officers and directors of the prospective

[[Page 8288]]

applicant's marketing and sales units and any Energy Affiliates 
involved in the production of natural gas in the State of Alaska; and
    (21) A statement that any officers and directors of the of the 
prospective applicant's affiliated sales and marketing units and Energy 
Affiliates involved in the production of natural gas in the State of 
Alaska named in paragraph (c)(19) of this section will be prohibited 
from obtaining information about the conduct of the open season or 
allocation of capacity that is not posted on the ``open season'' 
Internet website or that is not otherwise also available to the general 
public or other participants in the open season.
    (d) Timing.
    (1) A prospective applicant must provide prospective shippers at 
least 90 days from the date on which notice of the open season is given 
within which to submit requests for transportation services. No bid 
shall be rejected because a prospective shipper has submitted another 
bid in another open season conducted under this subpart.
    (2) A prospective applicant must consider any bids tendered after 
the expiration of the open season by qualifying bidders and may reject 
them only if they cannot be accommodated due to economic, engineering 
or operational constraints, and a detailed explanation must accompany 
the rejection.
    (3) Within 10 days after precedent agreements have been executed 
for capacity allocated in the open season, the prospective applicant 
shall make public on the Internet and through press releases the 
results of the open season, at least including the name of the 
prospective shipper, amount of capacity awarded, and term of agreement.
    (4) Within 20 days after precedent agreements have been executed 
for capacity allocated in the open season, the prospective applicant 
must submit copies of all such precedent agreements to the Commission 
and copies of any relevant correspondence with bidders for capacity who 
were not allocated capacity that identifies why such bids were not 
accepted (all documents identified in this paragraph (d)(4) may be 
filed under confidential treatment pursuant to Sec.  388.112 of this 
chapter if desired.


Sec.  157.35  Undue discrimination or preference.

    (a) All binding open seasons shall be conducted without undue 
discrimination or preference in the rates, terms or conditions of 
service and all capacity allocated as a result of any open season shall 
be awarded without undue discrimination or preference of any kind.
    (b) Any complaint filed pursuant to Sec.  385.206 of this chapter 
alleging non-compliance with any of the requirements of this subpart 
shall be processed under the Commission's Fast Track Processing 
procedures contained in Sec.  385.206(h).
    (c) Each project applicant conducting an open season under this 
subpart must create or designate a unit or division to conduct the open 
season that must function independent of the other divisions of the 
project applicant as well as the project applicant's Marketing and 
Energy affiliates as those terms are defined in Sec.  358.(d) and (k) 
of this chapter.
    (d) Each project applicant conducting an open season under this 
subpart that is not otherwise subject to the provisions of part 358 of 
this chapter must comply with the following sections of that part: 
Sections 258.4(a)(1) and (3); 358.4(e)(3), (4), (5), and (6); 358.5(a), 
(b), (c)(3) and (5); and 358.5(d). The exemptions from Sec.  
358.4(a)(1) and (3) set forth in Sec.  358.4(a)(4), (5), and (6) of 
this chapter also apply to each project applicant conducting an open 
season under this subpart.


Sec.  157.36  Open seasons for expansions.

    Any open season for capacity exceeding the initial capacity of an 
Alaska natural gas transportation project must provide the opportunity 
for the transportation of gas other than Prudhoe Bay or Point Thomson 
production. In considering a proposed voluntary expansion of an Alaska 
natural gas pipeline project, the Commission will consider the extent 
to which the expansion will be utilized by shippers other than those 
who are the initial shippers on the project and, in order to promote 
competition and open access to the project, may require design changes 
to ensure that all who are willing to sign long-term firm 
transportation contracts that some portion of the expansion capacity be 
allocated to new shippers or shippers seeking to transport natural gas 
from areas other than Prudhoe Bay and Point Thomson.


Sec.  157.37  Project design.

    In reviewing any application for an Alaska natural gas pipeline 
project, the Commission will consider the extent to which a proposed 
project has been designed to accommodate the needs of shippers who have 
made conforming bids during an open season, as well as the extent to 
which the project can accommodate low-cost expansion, and may require 
changes in project design necessity to promote competition and offer a 
reasonable opportunity for access to the project.


Sec.  157.38  Prefiling procedures.

    No later than 90 days prior to providing the notice of open season 
required by Sec.  157.34(a), a prospective applicant must file, for 
Commission approval, a detailed plan for conducting an open season in 
conformance with these regulations. Upon receipt of a request for such 
a determination, the Secretary of the Commission shall issue a notice 
of the request, which will then be published in the Federal Register. 
The notice shall establish a date on which comments from interested 
persons are due and a date, which shall be within 60 days of receipt of 
the prospective applicant's request unless otherwise directed by the 
Commission, by which the Commission will act on the plan.


Sec.  157.39  Rate treatment of pipeline expansions.

    There shall be a rebuttable presumption that rates for any 
expansion of an Alaska natural gas transportation project shall be 
determined on a rolled-in basis.

    Note: The following appendix will not appear in the Code of 
Federal Regulations.

Appendix

Technical Conference Commenters

Governor Frank H. Murkowski
U.S. Senator Lisa Murkowski
State Representative Ralph Samuels
State Senator Gene Therriault
Tony Palmer, TransCanada
Richard Guerrant, ExxonMobil
Ken Konrad, BP Alaska
Joe Marushack, ConocoPhillips
Ron Brintnell, Enbridge
Bill Corbus, Commissioner, Alaska Department of Revenue
Mark Handley/Dave Anderson, Anadarko
Tony Izzo, Enstar
Rick Mott, ConocoPhillips (as a shipper)
Tom Irwin, Commissioner, Alaska Department of Natural Resources
Jeff Walker, Minerals Management Service, Department of the Interior
Colleen McCarthy, Bureau of Land Management (BLM), Department of the 
Interior
David Houseknecht, U.S. Geological Survey
Harold Heinze, ANGDA
Jerry Isaac, Upper Tanana Intertribal Coalition
Bob Sattler, Tanana Chiefs Conference

Commenters in Response to NOPR

Alaska Natural Gas Development Authority (ANGDA)
Alaska Oil and Gas Conservation Commission (AOGCC)
Alaska Venture Capital Group LLC and Brook Range Petroleum
Corporation (Alaska Venture Capital/Brook Range)

[[Page 8289]]

Alliance Pipeline, LP (Alliance)
American Gas Association (AGA)
Anadarko Petroleum Corporation (Anadarko)
Nels Anderson, Jr. (individual)
Arctic Slope Regional Corporation (Arctic Slope)
Ken Baker \1\
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    \1\ New River Community and Technical College, Greenbrier Valley 
Campus.
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Alaska Representative Ethan Berkowitz
BP Exploration (Alaska) Inc., ConocoPhillips Company, and Exxon 
Mobil Corporation (North Slope Producers)
Calpine Corporation (Calpine)
ChevronTexaco Natural Gas, a Division of Chevron U.S.A. Inc. 
(ChevronTexaco)
Doyon Limited
Enbridge, Inc. (Enbridge)
Legislative Budget and Audit Committee and Indicated State 
Legislators (Alaska Legislators) \2\
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    \2\ Representative Ralph Samuels, Chairman of the Alaska 
Legislative Budget & Audit Committee (separately).
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MidAmerican Energy Holdings Company and Alaska Gas Transmission 
Company (MidAmerican/AGTA)
Northwest Industrial Gas Users (Northwest Industrials)
Pacific Star Energy LLC (Pacific Star)
B. Sachau, aka Jean Public (individual)
Shell USA (Shell)
State of Alaska (Alaska)
TransCanada Pipeline Limited (TransCanada)
U.S. Department of the Interior (DOI)
U.S. Geological Survey \3\
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    \3\ Brenda Johnson, Office of Environmental Affairs Program.

[FR Doc. 05-3035 Filed 2-17-05; 8:45 am]
BILLING CODE 6717-01-P