[Federal Register Volume 71, Number 120 (Thursday, June 22, 2006)]
[Notices]
[Pages 35893-35904]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-5582]


-----------------------------------------------------------------------

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. PL04-3-000]


Before Commissioners: Joseph T. Kelliher, Chairman; Nora Mead 
Brownell, and Suedeen G. Kelly; Natural Gas Interchangeability; Policy 
Statement on Provisions Governing Natural Gas Quality and 
Interchangeability in Interstate Natural Gas Pipeline Company Tariffs

Issued June 15, 2006.

I. Introduction

    1. In this proceeding, the Commission has been exploring natural 
gas quality and interchangeability issues and the impact of those 
issues on the natural gas companies subject to the Commission's 
jurisdiction, as well as on natural gas producers, shippers and end-
users. Based upon the information developed during this proceeding, 
which will be discussed below, the Commission today announces its 
policy on natural gas quality and interchangeability issues.
    2. The Commission's intention in issuing this statement of generic 
policy is to provide direction for addressing gas quality and 
interchangeability concerns, as well as to provide guidance to 
individual companies that have concerns about these issues. The 
Commission's policy embodies five principles: (1) Only natural gas 
quality and interchangeability specifications contained in a 
Commission-approved gas tariff can be enforced; (2) pipeline tariff 
provisions on gas quality and interchangeability need to be flexible to 
allow pipelines to balance safety and reliability concerns with the 
importance of maximizing supply, as well as recognizing the evolving 
nature of the science underlying gas quality and interchangeability 
specifications; (3) pipelines and their customers should develop gas 
quality and interchangeability specifications based on technical 
requirements; (4) in negotiating technically based solutions, pipelines 
and their customers are strongly encouraged to use the Natural Gas 
Council Plus (NGC+) interim guidelines filed with the Commission

[[Page 35894]]

on February 28, 2005 \1\ (discussed below) as a common reference point 
for resolving gas quality and interchangeability issues; and, (5) to 
the extent pipelines and their customers cannot resolve disputes over 
gas quality and interchangeability, those disputes can be brought 
before the Commission to be resolved on a case-by-case basis, on a 
record of fact and technical review.
---------------------------------------------------------------------------

    \1\ Report on Liquid Hydrocarbon Drop Out in Natural Gas 
Infrastructure (HDP Report) and Report on Natural Gas 
Interchangeability and Non-Combustion End Use (Interchangeability 
Report).
---------------------------------------------------------------------------

II. Background

    3. The Commission has seen interest in natural gas quality and 
interchangeability issues escalate for several years, and these issues 
have come before the Commission in complaints, proposed tariff 
provisions and certificate proceedings. Historically, gas quality is 
one of many terms and conditions of service stated in individual 
pipelines' FERC-jurisdictional tariffs. The Commission has no generic 
policy in this area, and individual pipelines have different standards, 
practices, and enforcement mechanisms.
    4. Principally methane, natural gas is commonly found in nature 
mixed with other hydrocarbons and varying amounts of contaminants.\2\ 
The exact composition of natural gas is chiefly dependent upon the 
geological source from which it is extracted. At typical interstate 
pipeline operating pressures and temperatures, ``pipeline quality'' 
natural gas remains in a gaseous state and pipelines, distribution 
facilities, and end-user equipment are all designed to handle and burn 
this gas. The term ``pipeline quality'' natural gas is defined in each 
individual pipeline's tariff, and these definitions vary widely from 
pipeline to pipeline.
---------------------------------------------------------------------------

    \2\ The hydrocarbon gases that can be found in natural gas are 
(and the number of carbon atoms in each): Methane (C1), 
ethane (C2), propane (C3), butanes 
(C4), pentanes (C5), hexanes (C6), 
heptanes (C7), octanes (C8) and nonanes plus 
(C9+). Non-hydrocarbons in natural gas can include 
nitrogen (N2), carbon dioxide (CO2), helium 
(He), hydrogen sulfide (H2S), water vapor 
(H2O), oxygen (O2), other sulfur compounds and 
trace gases.
---------------------------------------------------------------------------

    5. Depending on the relative prices of these hydrocarbon fractions, 
producers may have an economic incentive to process gas and deliver 
mostly pure methane as ``pipeline quality'' gas to interstate 
pipelines. However, when economics favor sales of natural gas over 
other hydrocarbons, producers may choose not to process.\3\ As it is 
transported and distributed, unprocessed natural gas may experience 
changes in temperature and pressure which cause the heavy hydrocarbons 
to assume a liquid form. When this happens, pipelines and other 
downstream equipment may experience inefficient operations and unsafe 
conditions. This problem is known as hydrocarbon liquid dropout, and 
the potential for this problem to occur can be measured in terms of 
cricondentherm hydrocarbon dew point (CHDP). Gas quality, as discussed 
in this policy statement, is concerned with the impact of non-methane 
hydrocarbons on the safe and efficient operation of pipelines, 
distribution facilities, and end-user equipment.\4\
---------------------------------------------------------------------------

    \3\ When delivered, natural gas is measured in terms of its 
thermal value, usually measured in British thermal units (Btus), and 
billed on that basis. When deciding whether to process natural gas, 
producers look to the relative thermal values of the different 
hydrocarbons that might be extracted in processing to determine 
which product will generate the most revenue.
    \4\ Other materials commonly found in natural gas, include 
contaminants, such as water, sand, sulfur compounds, oxygen, carbon 
monoxide, carbon dioxide, nitrogen, helium and other materials. 
While this policy statement does not address these materials, the 
Commission understands that jurisdictional pipeline tariffs already 
include specifications to control these elements within acceptable 
limits.
---------------------------------------------------------------------------

    6. Gas pipelines have taken different approaches to dealing with 
hydrocarbon liquid dropout, as reflected in a number of pipelines' 
tariffs. The HDP Report cites three examples.\5\ First, about one-third 
of interstate pipeline tariffs specify a maximum heating value, but 
this has proven to be an inadequate predictor of hydrocarbon liquid 
drop out.\6\ Second, some pipelines have addressed the potential for 
hydrocarbon liquid dropout by specifying concentration limits for heavy 
hydrocarbons (using C5+ gallons per standard cubic feet \7\ 
or C5+ GPM) to establish the concentration limits above 
which the heavy hydrocarbon level might be detrimental to pipeline 
operational integrity. This measure may in some instances indicate the 
potential for liquid hydrocarbon drop out, but it is not as reliable in 
isolation as it is in conjunction with hydrocarbon dew point. Third, a 
number of pipelines have elected to establish CHDP limits to control 
liquid dropout.
---------------------------------------------------------------------------

    \5\ HDP Report, at sections 3.1.2-3.1.3, at 16.
    \6\ The Report notes that maximum heating value alone is not a 
good predictor of whether hydrocarbon liquid drop out will occur 
because different gases with the same gross heating value may have 
different propensities for hydrocarbon liquid drop out. The paper 
notes the examples of a gas with a relatively low heating value but 
a high hexane concentration that may have a high probability of 
hydrocarbon liquid drop out in contrast to a gas with a high heating 
value due to a high ethane content with a very low probability of 
hydrocarbon liquid drop out.
    \7\ Gallons per Million cubic feet is abbreviated GPM. See, 
e.g., HDP Report at sections 1.2.7 and 3.1.
---------------------------------------------------------------------------

    7. Natural gas interchangeability is also a significant 
consideration in the discussion of tariff specification of ``pipeline 
quality'' gas. As used by the gas industry historically, 
``interchangeability'' means the extent to which a substitute gas can 
safely and efficiently replace gas normally used by an end-use customer 
in a combustion application.\8\ Much of the available science and 
research on interchangeability that exists today originated in the 
1930s and 1940s when the interstate transportation of natural gas began 
to supplant manufactured gas.\9\ Technological innovation since that 
time has created more efficient, more environmentally benign equipment, 
such as gas-fired turbines. Other technological innovations, such as 
liquefied natural gas (LNG) storage facilities, have inherent design 
limitations based on the quality of natural gas available at the time 
the facilities were originally designed. How well they will operate if 
future gas supply characteristics differ from those available today is 
unknown.
---------------------------------------------------------------------------

    \8\ See, e.g., Cove Point LNG Limited Partnership, 97 FERC ] 
61,043, at 61,197 (2001), order on reh'g, 97 FERC ] 61,276 (2001).
    \9\ Interchangeability Report, at section 3.1.1.
---------------------------------------------------------------------------

    8. Several indices have been developed over time to characterize 
the interchangeability of different natural gases. One widely accepted 
measure of interchangeability is the Wobbe Index, which is based on 
energy input and specific gravity. Other indices incorporate 
fundamental combustion phenomena in their calculations. Examples 
include the AGA Bulletin 36 Indices and the Weaver Indices. These 
indices were created using different measurable characteristics of 
natural gas and combustion experiments to measure and predict 
interchangeability. However, each index has limits to the predictive 
value of its application. The importance of measuring 
interchangeability, regardless of the index used, is that it provides a 
predictive correlation between the specific measurable physical 
characteristics of natural gas and burner tip performance.
    9. During the 2000/01 winter heating season, rising natural gas 
prices led producers to stop processing natural gas. As a result, 
pipelines began to receive a richer quality gas containing a higher 
proportion of liquid and liquefiable hydrocarbons, and a higher energy 
density, as measured in Btus per cubic foot of natural gas. A number of 
pipelines reacted by invoking tariff

[[Page 35895]]

provisions that authorize pipelines to issue operational flow orders 
(OFOs), which required the gas to be processed before being delivered 
to the pipelines. Producers objected, arguing that pipelines were 
attempting to impose more stringent quality standards on some 
producers, but not on others.
    10. Interchangeability issues have also been raised in proceedings 
to authorize the siting and operation of LNG import terminals. In 
September, 2001, the Commission issued an order reauthorizing the 
receipt of LNG imports at Dominion's Cove Point LNG facility.\10\ Among 
the issues raised was the interchangeability of this LNG with the 
historic quality of gas delivered to Washington Gas Light (WGL). 
Ultimately, the Commission approved a settlement between Dominion, WGL 
and others that specified a maximum Btu heating content.\11\
---------------------------------------------------------------------------

    \10\ Cove Point LNG Limited Partnership, supra n. 8.
    \11\ Cove Point LNG Limited Partnership, 102 FERC ] 61,227 
(2003). In the context of Dominion's proposal to expand the capacity 
at Cove Point, WGL now claims that the low heavy hydrocarbon content 
of LNG delivered by Cove Point led to drying and cracking seals in 
distribution facilities, which eventually led to gas leaks. See 
Dominion Cove Point LNG, L.P., Docket No. CP05-130-000.
---------------------------------------------------------------------------

III. Procedural History

    11. In September 2003, the National Petroleum Council (NPC) 
completed a report on the natural gas industry, which contained a 
number of findings and policy recommendations and highlighted the 
increased importance of LNG in meeting expected demand growth over the 
ensuing decade.\12\ The Commission explored the findings and 
recommendations of the NPC report in an October 14, 2003 technical 
conference. The Summary Report recommended that the natural gas 
interchangeability standards be updated: ``FERC and DOE should champion 
the new standards effort to allow a broader range of LNG imports. This 
should be conducted with participation from LDCs [local distribution 
companies], LNG purchasers, process gas users, and original equipment 
manufacturers (OEMs).'' \13\
---------------------------------------------------------------------------

    \12\ The National Petroleum Council (NPC) is an oil and natural 
gas advisory committee to the Secretary of Energy.
    \13\ National Petroleum Council, Balancing Natural Gas Policy: 
Fueling the Demands of a Growing Economy, Volume I, Summary of 
Findings and Recommendations, September 2003, at 64.
---------------------------------------------------------------------------

    12. By the time the NPC report was issued, the Commission already 
had pending before it a number of proceedings that raised natural gas 
quality or interchangeability issues. Since that time, other 
proceedings involving natural gas quality or interchangeability have 
been initiated. Procedurally, the gas quality and interchangeability 
issues have arisen in the context of complaint proceedings,\14\ 
certificate proceedings,\15\ and proposed tariff changes.\16\ Although 
each case involves unique circumstances, collectively, these cases 
reveal a growing tension between the desire of natural gas pipelines 
and distributors to ensure the quality of gas entering their 
facilities, and the desire of producers and shippers to have their 
product transported without onerous or unduly discriminatory processing 
requirements. Another recurring theme is the desire of end-use 
customers to receive gas that will not harm their gas-fueled equipment 
nor cause inefficient operations.
---------------------------------------------------------------------------

    \14\ See, e.g., The Toca Producers v. Southern Natural Gas Co., 
Docket No. RP03-484-001; Amoco Production Company, Docket No. RP01-
208-000; Southern Natural Gas Co., Docket No. RP04-42-000 
(collectively, the Toca Proceedings); Indicated Shippers v. 
Trunkline Gas Company, LLC, Docket No. RP04-64-000; Indicated 
Shippers v. ANR Pipeline Company, Docket No. RP04-65-000; ANR 
Pipeline Company, Docket No. RP04-216-000 and RP04-435-000 (the ANR 
Proceedings); Indicated Shippers v. Columbia Gulf Transmission 
Company, Docket No. RP04-98-000, Indicated Shippers v. Tennessee Gas 
Pipeline Company, Docket No. RP04-99-000; and, AES Ocean Express LLC 
v. Florida Gas Transmission Company, Docket No. RP04-249-000/-001.
    \15\ See, e.g., Dominion Cove Point LNG, L.P., Docket No. CP05-
130-000; Pearl Crossing Pipeline LP, Docket No. CP04-376-000.
    \16\ See, e.g., Natural Gas Pipeline Company of America, Docket 
Nos. RP01-503-002, -003, 102 FERC ]61,234 (2003) and 103 FERC ] 
61,322 (2003). A December 20, 2005 Initial Decision in this 
proceeding is pending before the Commission.
---------------------------------------------------------------------------

    13. The Commission held a public conference to discuss gas quality 
and interchangeability issues on February 18, 2004. Many industry 
participants, representing industry sectors from wellhead to burner 
tip, provided the Commission with information on the range of complex 
operational concerns and issues that the market was facing.
    14. Subsequent to the February 2004 technical conference the 
natural gas industry, under the auspices of the Natural Gas Council, 
initiated a collaborative effort to seek consensus on industry-wide 
standards for gas quality and interchangeability. This collaborative 
effort made tremendous progress in identifying the underlying science, 
identifying measurement techniques, and characterizing the different 
perspectives on the problems different sectors face with changing or 
uncertain natural gas quality and interchangeability.
    15. On February 28, 2005, the Natural Gas Council filed with the 
Commission two technical papers entitled: Natural Gas 
Interchangeability and Non-Combustion End Use and Liquid Hydrocarbon 
Drop Out in Natural Gas Infrastructure (collectively, NGC+ Reports). 
These papers represent the culmination of nearly a year of work by a 
large group of natural gas industry stakeholders--the NGC+ Group \17\--
which worked to reach a consensus understanding of these problems and 
recommendations about how they might be managed. Both Reports suggest 
interim recommendations and urge additional research.
---------------------------------------------------------------------------

    \17\ The Natural Gas Council is an organization made up of the 
representatives of the trade associations of the different sectors 
of the natural gas industry, such as the producers, pipelines, and 
local distribution companies. The NGC+ group included many industry 
volunteers from the member companies of the various trade 
associations as well as other industry participants interested in 
these issues.
---------------------------------------------------------------------------

    16. The Interchangeability Report defines interchangeability as:

    The ability to substitute one gaseous fuel for another in a 
combustion application without materially changing operational 
safety, efficiency, performance or materially increasing air 
pollutant emissions.\18\
---------------------------------------------------------------------------

    \18\ Interchangeability Report, (February 28, 2005; refiled on 
March 3, 2005, and resubmitted with appendices June 30, 2005), at 2. 
http://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=10644164.

    The paper goes on to provide background information on the history 
of the industry's experience with gas quality issues, and the changes 
it has experienced, and then reviews various measures that have been 
employed to measure interchangeability. After a review of the impacts 
of variable fuel quality on gas-fired appliances, the paper provides an 
overview of past industry efforts to measure, predict and monitor the 
interchangeability of natural gases, and examines several options for 
managing interchangeability.
    17. Recognizing that more research is needed, the NGC+ 
Interchangeability Work Group makes interim recommendations, to be 
implemented pending further study and deliberation. These interim 
guidelines provide for: (1) Use of the local average historical Wobbe 
Index average with an allowable range of variation of plus or minus 
four percent; (2) subject to a maximum Wobbe Index level of 1,400; (3) 
a maximum heating value limit of 1,110 Btu/scf; (4) a limit on butanes 
and heavier hydrocarbons (butanes+ or C4+) of 1.5 mole percent; and (5) 
an upper limit on the amount of total inert gases (principally nitrogen 
and carbon dioxide) of up to four mole percent. The Interchangeability 
Report also recommends an exception from these interim guidelines for 
service territories

[[Page 35896]]

that could demonstrate experience with supplies exceeding these Wobbe 
Index levels, Heating Value and/or Composition Limits. Companies in 
these service territories could continue to use non-conforming supplies 
as long as use of these supplies does not unduly jeopardize the safety 
of or create utilization problems for end use equipment.\19\
---------------------------------------------------------------------------

    \19\ Interchangeability Report at 26.
---------------------------------------------------------------------------

    18. NGC+ Group recommends that these guidelines be employed until 
research can be completed filling in major data gaps for modern end-use 
appliances and the industry forges a consensus on improved 
interchangeability requirements. The NGC+ Reports originally forecast 
that it would take 2 to 3 years to complete this additional work. The 
interim guidelines are for gases delivered to points in the gas 
transportation system most closely associated with end users: Gases 
delivered to local distribution companies (LDCs). The guidelines do not 
necessarily apply directly to points upstream in the transportation 
system where blending, gas processing, and other factors may be 
utilized to allow gases outside the ranges of the guidelines to satisfy 
the guidelines at LDC city gates. The NGC+ Group is continuing to 
investigate development of guidelines for points upstream.
    19. The second paper, Liquid Hydrocarbon Drop Out in Natural Gas 
Infrastructure, addresses the issue of controlling hydrocarbon drop out 
in natural gas pipeline and distribution facilities, and other gas 
industry infrastructure downstream of producing areas. The NGC+ interim 
recommendation on this issue is to adopt interim standards that 
translate historic experience into terms of CHDP or C6+ GPM 
methodologies,\20\ taking best available historical data into account. 
The NGC+ also recommends that additional research be conducted to 
better understand gas composition, and to develop improved analytic 
equipment suitable for daily operational use.
---------------------------------------------------------------------------

    \20\ The phrase ``C6+ GPM'' stands for hexanes and heavier 
hydrocarbons, as measured in gallons per million cubic feet of 
natural gas. Measuring and controlling for the amount of these 
heavier hydrocarbons in the natural gas stream is an alternative to 
the CHDP method.
---------------------------------------------------------------------------

    20. In addition to Commission action on gas quality and 
interchangeability, The North American Energy Standards Board (NAESB) 
has considered requests that it adopt Business Practice Standards to 
address natural gas quality and interchangeability. On September 20, 
2004, the Wholesale Gas Quadrant Executive Committee of NAESB adopted 
standards for electronic posting of certain gas quality parameters on 
pipeline websites. One month later, these standards were ratified by 
the NAESB membership. On May 9, 2005, the Commission issued an order 
amending its regulations governing standards for conducting business 
practices with interstate natural gas pipelines to incorporate by 
reference the NAESB standards related to gas quality, which are part of 
Version 1.7 of the NAESB consensus standards.\21\
---------------------------------------------------------------------------

    \21\ Order No. 587-S, Standards for Business Practices of 
Interstate Natural Gas Pipelines, 18 CFR part 284 (2005); FERC 
Statutes and Regulations ] 31,179.
---------------------------------------------------------------------------

    21. On May 16, 2005, the Natural Gas Supply Association (NGSA) 
filed a petition for rulemaking seeking a Commission notice of proposed 
rulemaking (NOPR) to establish natural gas quality and 
interchangeability standards. By order issued contemporaneously with 
this Policy Statement in Docket No. RM06-17-000, the Commission is 
denying this petition. Instead of proceeding to address gas quality and 
interchangeability issues through a rulemaking proceeding, the 
Commission instead establishes herein the regulatory policy it will 
apply in individual proceedings before the Commission.

IV. Summary of Comments

    22. The Commission solicited written comments on the NGC+ Reports 
and subsequently convened a technical conference on May 17, 2005 to 
allow for further public comment on and discussion of the issues raised 
by the Reports. In addition, the Commission solicited comments on the 
Natural Gas Supply Association's (NGSA) May 16, 2005 petition for 
rulemaking. Appendix A to this Policy Statement lists commenters on the 
Reports and comments received after the May 17 technical conference 
addressing issues in the Reports and the NGSA Petition.
    23. Appendix B to this Policy Statement is a summary of the 
comments received on the NGC+ Reports and the NGSA Petition. Briefly, 
commenters articulate conflicting views on whether mandatory nationwide 
standards are warranted, and if so, which standards should be adopted. 
While there is a great deal of consensus on how to articulate the 
problem in technical terms, opinion is divided among a number of 
preferred solutions. The Interstate Natural Gas Association of America 
(INGAA), for example, believes that there is no national problem with 
gas quality and interchangeability that warrants a rulemaking. While 
urging the Commission to address gas quality and interchangeability 
issues as they arise, INGAA favors a policy statement if the Commission 
decides to address the issues generically. There was no unanimity 
within the producer segment. The Independent Petroleum Association of 
America (IPAA) supports a rulemaking and the NGSA proposal, while the 
Appalachian Producers and the Independent Petroleum Association of 
Mountain States oppose mandatory national standards for gas quality. 
The American Gas Association (AGA), the American Public Power 
Association of America (APGA), and a number of LDCs ask that the 
Commission require pipeline tariffs to contain merchantability 
standards. The Process Gas Consumers endorse a rulemaking and the NGSA 
petition. The Edison Electric Institute and Siemens Westinghouse raise 
concerns about the impact of interchangeability standards on DLE 
turbines. Gas appliance manufacturers point out the importance of 
basing gas quality standards on local historical gas characteristics.

V. Discussion

A. The Problem in a Nutshell

    24. Most, if not all, interstate natural gas companies have 
provisions in their tariffs governing gas quality. But as the NGC+ 
Reports note, ``at no time has there ever been a common set of 
specifications for [hydrocarbon] components such as there has been for 
CO2, H2S, and water.'' \22\ Each pipeline 
established its own terminology, standards, controls, and conditions 
for waiver. Until relatively recently, this approach appears to have 
worked reasonably well. However, gas quality and interchangeability 
controversies have become more frequent.\23\ The Commission's policy 
guidance recognizes the importance of encouraging rather than impeding 
the development of natural gas infrastructure and the movement of gas 
to the grid and to ultimate consumers. Thus, the Commission believes 
that the policy adopted here achieves a balanced approach by providing 
certainty, ensuring the safety and reliability of the nation's gas 
grid, and recognizing concerns about natural gas quality and 
interchangeability, while providing pipelines and their customers the 
flexibility necessary to maximize the introduction of new supply into 
the grid.
---------------------------------------------------------------------------

    \22\ HDP Report at section 3.1.1.
    \23\ Supra note 13.

---------------------------------------------------------------------------

[[Page 35897]]

    25. The Commission believes that there are compelling reasons to 
provide policy guidance on these issues. Three factors suggest that 
there is a need to act now. First, processing economics can create 
hydrocarbon dew point problems whenever the economics shift to favor 
decisions not to process natural gas. Second, establishing a sound 
policy on gas quality and interchangeability issues now would lower a 
potential barrier to expected increases in LNG imports.\24\ Third, 
acting now will provide a firm regulatory policy basis for additional 
research and development on gas quality and interchangeability issues.
---------------------------------------------------------------------------

    \24\ The Energy Information Administration projects that by the 
year 2030, 4.4 trillion cubic feet equivalent (Tcf) of LNG will be 
imported to meet approximately 27 Tcf in annual demand for natural 
gas--an eight-fold increase over the roughly 0.5 Tcf of LNG imported 
in 2003. Energy Information Administration, Annual Energy Outlook 
2006, at 86 (February 2006). http://www.eia.doe.gov/oiaf/aeo/pdf/0383(2006).pdf.
---------------------------------------------------------------------------

    26. The natural gas industry, through the efforts of the NGC, has 
produced the NGC+ Reports that represent consensus on these topics. 
They offer interim approaches that can be put in place now, to the 
extent well-functioning gas quality and interchangeability provisions 
are not already in place in individual pipelines' tariffs. These 
interim recommendations provide a common language for discussion of 
these issues, and a reasonable framework to establish market-specific 
standards.
    27. However, these same consensus Reports highlight the need for 
additional research and development before any more permanent consensus 
may be forged.\25\ The Commission believes that a generic policy on gas 
quality and interchangeability would help guide the industry in the 
right direction. But given the areas of additional research that is 
required, it would be premature to take more prescriptive actions such 
as prescribing gas quality and interchangeability standards or 
prescribing specific levels of the constituent elements of, or the 
heating values for, the natural gas transported in pipelines.
---------------------------------------------------------------------------

    \25\ We are encouraged by the efforts of the Department of 
Energy in pursuing research and development in this area. Along with 
the efforts of the industry, and continued voluntary collaboration, 
we look forward to the improvements that will become possible with a 
better understanding provided by these research efforts.
---------------------------------------------------------------------------

    28. In the face of these challenges, the accomplishment of the NGC+ 
group in achieving consensus to submit two technical papers addressing 
hydrocarbon dew point and interchangeability is worthy of praise. The 
Commission commends those members of the natural gas industry who 
participated in these efforts. The Commission's policy statement is 
based in large part on the foundation of this group's work, and the 
comments filed in this generic proceeding.

B. Statement of General Policy Regarding Interstate Pipeline Tariff 
Provisions Governing Gas Quality and Interchangeability

    29. The Commission's policy on gas quality and interchangeability 
embodies five principles. First, only natural gas quality and 
interchangeability specifications contained in a Commission-approved 
gas tariff can be enforced. The Commission's authority to address 
questions about tariff provisions on gas quality and interchangeability 
arises under sections 4, 5 and 7 of the NGA. By law, the Commission is 
responsible for ensuring that rates, charges, rules and regulations of 
service are just, reasonable and not unduly discriminatory or 
preferential, and that initial rates, terms and conditions of service 
are required by the public convenience and necessity.\26\ Unless these 
specifications are stated in the tariff, the Commission will not be 
able to address gas quality and interchangeability concerns. Where gas 
quality and interchangeability issues are of concern to the 
transporting pipeline, tariff standards are essential terms and 
conditions of service.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 717c, 717d and 717f (2000).
---------------------------------------------------------------------------

    30. Second, pipeline tariff provisions on gas quality and 
interchangeability need to be flexible. Pipelines operate in dynamic 
environments that frequently require quick responses to rapidly 
changing situations. For example, a pipeline may be asked to transport 
gas that does not meet a particular gas quality or interchangeability 
specification in the pipeline's tariff. Nevertheless, if the pipeline 
has the ability to transport such out-of-spec gas without jeopardizing 
system operations, its tariff should be flexible enough to allow it to 
do so. The Commission believes that flexible tariff provisions on 
natural gas quality and interchangeability will allow pipelines to 
balance safety and reliability concerns with the importance of 
maximizing supply, while recognizing the evolving nature of the science 
underlying gas quality and interchangeability specifications.
    31. Third, pipelines and their customers should develop gas quality 
and interchangeability specifications. The Commission expects that 
specifications for natural gas quality and interchangeability will be 
based upon sound technical, engineering and scientific considerations. 
In addition, the Commission encourages pipelines and their customers to 
resolve gas quality and interchangeability issues on their own, either 
prior to or outside of formal Commission proceedings. This will 
facilitate mutually beneficial outcomes for all parties and should not 
have a detrimental impact on either current or prospective 
shippers.\27\
---------------------------------------------------------------------------

    \27\ In this regard, the Commission notes the ``Joint Statement 
of the American Gas Association and the Interstate Natural Gas 
Association of America,'' filed on June 2, 2006, which outlines 
their agreement on developing gas quality and interchangeability 
specifications on a pipeline-by-pipeline basis, where needed, within 
the next year. On June 8, APGA filed a response to the AGA-INGAA 
joint statement.
---------------------------------------------------------------------------

    32. Fourth, in negotiating technically based solutions, pipelines 
and their customers are strongly encouraged to use the NGC+ interim 
guidelines as a common scientific reference point for resolving gas 
quality and interchangeability issues. The interim guidelines suggest a 
process for applying scientific principles to individual markets but do 
not address the specifics of individual pipeline circumstances or 
tariff provisions. Furthermore, the interim guidelines recognize that 
additional research and development are needed to arrive at more 
clearly defined limits to interchangeability specifications and to 
address the need for better and more timely operational information on 
natural gas quality and pipeline operations. The Commission's policy 
will keep step with improved knowledge on gas quality and 
interchangeability.
    33. Finally, to the extent pipelines and their customers cannot 
resolve disputes over gas quality and interchangeability, those 
disputes can be brought before the Commission to be resolved on a case-
by-case basis, on a record of fact and technical review. In resolving 
any such disputes, the Commission will give significant weight to the 
NGC+ interim guidelines. In addressing disputes, the Commission will 
develop a factual record, with sound technical underpinnings, which 
will provide the Commission with a good foundation for resolving 
disputes. The Commission recognizes that regional variation and 
differing local needs cannot be accommodated with an inflexible generic 
policy on gas quality and interchangeability. Rigid gas quality and 
interchangeability requirements could unnecessarily restrict the 
introduction of new sources of supply, which is inconsistent with the 
Commission's policy of encouraging new supplies and the construction of

[[Page 35898]]

infrastructure to bring new supplies to market.\28\ The following 
discussion will elaborate on how we envision this general policy being 
applied in individual cases.
---------------------------------------------------------------------------

    \28\ See e.g., Northern Natural Gas Company, 108 FERC ] 61,083, 
at P. 24 (2004) (``* * * the Commission must ensure that proposals 
that are intended to address system integrity do not unnecessarily 
discourage new sources of supply or impose unreasonable costs on 
shippers and consumers.''), and Hackberry LNG Terminal, 101 FERC ] 
61,294 (2002).
---------------------------------------------------------------------------

1. Gas Quality
    34. The Reports' interim recommendations identify two valid methods 
that might be used to control hydrocarbon liquid dropout--the CHDP 
method, and the C6+ GPM method.\29\ As a matter of policy, the 
Commission believes that jurisdictional tariffs should contain 
provisions that govern the quality of gas received for transportation 
when necessary to manage hydrocarbon liquid dropout within acceptable 
levels. Pipelines with existing tariff provisions that adequately 
control hydrocarbon dropout may continue to rely on their existing 
tariff.\30\ Pipelines that wish to add provisions to their tariffs, or 
modify existing provisions, to control hydrocarbon dropout are strongly 
encouraged to use one of the two methods found by the NGC+ to be valid. 
If a pipeline wishes to propose a different method, the pipeline must 
provide an explanation of how the proposed method differs from the CHDP 
method described in the HDP Report. In addition, the pipeline will be 
required to include in any filing to revise its gas quality standards a 
comparison, in equivalent terms, of its proposed gas quality 
specifications and those of each interconnecting pipeline.
---------------------------------------------------------------------------

    \29\ For a technical description of either of these methods, see 
HDP Report, especially sections 4 through 6.
    \30\ To the extent a complaint is filed alleging that an 
existing pipeline tariff is not just and reasonable, the Commission 
will evaluate the complaint on its specific merits.
---------------------------------------------------------------------------

    35. In application, either of the two methods suggested by the NGC+ 
task group offers a process for arriving at appropriate gas quality 
specifications for natural gas accepted for transportation by a 
pipeline. However, the specifications themselves must be derived to fit 
the specific circumstances of each pipeline.\31\ The appropriate gas 
quality specifications for different pipelines may vary depending upon 
a number of factors, including pipeline configuration, geographic 
location of the pipeline, access to and location of processing 
facilities, flowing gas temperatures and pressures, average ambient and 
ground temperatures and source of gas supply.\32\ This is a fact-
intensive exercise, and is not one that lends itself to generic 
specifications. The Commission will examine the appropriate 
circumstances in each individual case. That being said, the Commission 
will give appropriate weight to the gas quality and interchangeability 
requirements of interconnecting pipelines as well as the requirements 
of markets directly served. The Commission wishes to ensure that 
natural gas wholesale trade across markets is not unduly impeded by the 
tariff requirements of individual pipelines. In addition, the tariff 
should state the natural gas quality specifications for gas that the 
pipeline will deliver to its customers.
---------------------------------------------------------------------------

    \31\ See HDP Report, Appendix A Parameters to be Considered in 
Establishing CHDP or C6+ GPM Based Limits, and Appendix B Process 
for Establishing a Cricondentherm Hydrocarbon Dew Point (CHDP) 
Limit.
    \32\ See, e.g., El Paso at 6 (``A policy statement would allow 
the Commission to tailor its approach to reflect the complexities 
that each pipeline faces in addressing HDP issues, including, for 
example, reticulated pipeline systems that have bidirectional flows 
and as such may not be able to easily engage in pairing, blending, 
or aggregation.''), and Questar at 3-4.
---------------------------------------------------------------------------

2. Interchangeability
    36. In its report, the NGC+ Interchangeability Work Group recommend 
interim guidelines based on a range of plus and minus four percent of 
the Wobbe number based on either local historical average gas or an 
established ``adjustment or target'' gas for the service territory at 
issue. This basic guideline was subject to additional parameters 
limiting: The maximum Wobbe number to 1,400; the maximum heating value 
to 1,110 Btu/scf; maximum butanes+ to 1.5 mole percent; and maximum 
total inert gases to four mole percent. These interim guidelines also 
included a specific exception for service territories with demonstrated 
experience with gas supplies exceeding any of the ``additional 
parameters.''
    37. The Interchangeability Report contains a methodology for 
arriving at an appropriate interchangeability specification, based in 
part on historical experience. Pipelines with existing tariff 
provisions which adequately characterize interchangeability limits may 
continue to rely on their existing tariff.\33\ Pipelines that wish to 
add provisions to their tariffs, or modify existing provisions, to 
characterize interchangeability specifications are encouraged to use 
the interim guidelines proposed by the NGC+ Interchangeability Task 
Group. To the extent a pipeline wishes to propose a different method, 
it must explain how the proposed method differs from the interim 
guidelines. In addition, the pipeline will be required to include in 
any filing to revise its interchangeability standards a comparison, in 
equivalent terms, of its proposed interchangeability specifications and 
those of each interconnecting pipeline.
---------------------------------------------------------------------------

    \33\ To the extent a complaint is filed alleging that an 
existing pipeline tariff is not just and reasonable, the Commission 
will evaluate the complaint on its specific merits.
---------------------------------------------------------------------------

    38. As is the case with gas quality specifications, selection of 
interchangeability limits is a fact-based exercise. In application, 
either of the two methods suggested by the NGC+ task group offers a 
process for arriving at appropriate limits for the interchangeability 
characteristics of natural gas that may be accepted for transportation 
by a pipeline. However, the limits themselves must be derived to fit 
within the specific circumstances of each pipeline.\34\ The appropriate 
interchangeability specifications for different pipelines may vary 
depending on a number of factors, including: The historic 
characteristics of natural gas delivered by the pipeline to the markets 
it serves; local market practices for the use of target or adjustment 
gases used to install and adjust equipment in that market; historic 
variability in the characteristics of gas delivered to the market; 
whether there are customer loads with special gas quality requirements, 
such as a large process gas user; the type and gas quality tolerances 
of the end-use equipment (including ``legacy'' equipment); and, the 
tariff requirements of downstream pipelines.\35\ This fact-intensive 
exercise does not lend itself to generic specifications. The Commission 
will examine the appropriate circumstances in each individual case. 
That being said, the Commission will give appropriate weight to the gas 
quality and interchangeability requirements of interconnected pipelines 
as well as the requirements of markets directly served. The Commission 
wishes to ensure that natural gas wholesale trade across markets is not 
unduly impeded by the tariff requirements of individual pipelines. In 
addition, the tariff should state the natural gas quality 
specifications for gas that the pipeline will deliver to its customers.
---------------------------------------------------------------------------

    \34\ See Interchangeability Report at 24-26.
    \35\ See, e.g., The Florida Utilities April 1, 2005 comments.
---------------------------------------------------------------------------

3. Blending
    39. Given the complexity of operating an interstate pipeline, there 
is substantial discretion given a pipeline to decide when and how much 
to allow

[[Page 35899]]

exceptions to gas quality and interchangeability specifications to 
accommodate production that may not have convenient access to gas 
processing. In addition, some pipelines will waive gas quality 
limitations when operating circumstances allow, enforcing strict 
compliance with the tariff only when necessary. For example, a pipeline 
may be able to accept rich gas containing more of the heavier 
hydrocarbons than its tariff would otherwise permit by blending that 
gas with leaner gas that contains very little of the heavier 
hydrocarbons. However, there may be more such lean gas available for 
blending on some parts of the pipeline's system than on other parts. 
Furthermore, a pipeline's ability to blend supplies of varying quality 
will depend on the supplies' proximity to market.
    40. Pragmatically, this discretion allows the pipeline to maximize 
the gas supply available to its customers while maintaining its ability 
to manage gas quality and interchangeability within acceptable limits. 
The Commission has found in at least one case that such actions are 
``not necessarily undue discrimination under the NGA [Natural Gas 
Act].'' \36\ Operational constraints in particular parts of a 
pipeline's system may justify treating shippers on those parts of the 
system differently than shippers on other parts of the system.\37\
---------------------------------------------------------------------------

    \36\ Natural Gas Pipeline Company of America, 102 FERC ] 61,234 
at P. 27, and see discussion at PP. 25-33 (2003).
    \37\ Consolidated Edison Company of New York v. FERC, 165 F.3d 
992, 1013 (D.C. Cir. 1999).
---------------------------------------------------------------------------

    41. The Commission continues to believe that it is appropriate to 
allow pipelines to exercise their discretion to waive strict gas 
quality limits when operating conditions allow, and to enforce such 
limits when operating conditions require stricter measures, as long as 
it is done in a not unduly discriminatory manner.\38\ The Commission 
wishes to encourage pipelines to allow blending, pairing,\39\ and other 
strategies, to the extent these can be implemented on a non-
discriminatory basis and in a manner that is consistent with safe and 
reliable operations. This is consistent with the Commission's policy of 
minimizing any unnecessary restrictions on the supplies available to 
the national gas market. Pipelines may consider ``safe harbor'' 
provisions and informational posting requirements as means of 
minimizing the potential for undue discrimination.\40\
---------------------------------------------------------------------------

    \38\ The Commission's regulations require that pipelines 
strictly enforce the provisions of their tariffs if those provisions 
do not permit the use of discretion. In instances where the tariff 
provides the pipeline with discretion, it must keep a written log 
detailing the circumstances and manner in which it has exercised 
discretion under its tariff, and this information must be posted on 
the pipeline's website within 24 hours of when the pipeline 
exercised its discretion. See 18 CFR 385.5(c)(1) and 385.5(c)(4).
    \39\ The HDP Report does not use the term ``pairing,'' but 
instead refers to the practice of ``contractual blending.'' It is a 
paper transaction allowing a producer of gas that does not meet a 
pipeline's gas quality requirements to contract to blend this gas 
with the gas of another producer whose gas is in compliance with the 
pipeline's gas quality specifications. These two producers' volumes 
may enter the gas stream at different points and thus may not blend 
directly in the pipeline. Section 3.2.5 describes contractual 
blending. See also comments of El Paso Corporation's Pipeline Group 
at 2 and 10; NGSA Petition at 4 n.2; and, Selected Processors at 2.
    \40\ See National Gas Pipeline Company of America, 102 FERC ] 
61,234 at PP. 43, 48 (2003).
---------------------------------------------------------------------------

4. Merchantability
    42. AGA urges the Commission to require pipelines to include a 
merchantability provision in their tariffs.\41\ AGA defines the term 
``merchantable'' as gas that is:
---------------------------------------------------------------------------

    \41\ See, e.g., AGA comments at 25-29.

consistently commercially free from objectionable matter including 
odors, bacteria, dust, gums, water, hydrocarbon liquids, other 
liquid or gaseous constituents that may preclude supply from being 
interchangeable with historically acceptable supplies delivered into 
a market area and will not cause injury or interference with 
operation of existing end use equipment, pipelines and the gas 
transmission and distribution infrastructure.\42\
---------------------------------------------------------------------------

    \42\ Id. at 27-8.

    43. The Commission will not require such provisions. We do not 
believe that mandating additional merchantability requirements would 
provide any additional value at this time.\43\ In addition, we are 
concerned that adoption of a general merchantability requirement could 
come into conflict with the specifications of gas quality and 
interchangeability that would be quantified under the interim processes 
recommended in the NGC+ Reports. Pipeline tariff provisions that 
contain detailed technical specifications for gas quality and 
interchangeability may be sufficient without the addition of a general 
merchantability provision; technical specifications and general 
descriptions, to the extent they are present, must work together if 
they are to function as intended. Neither of the NGC+ Reports included 
in their consensus recommendations the adoption of a merchantability 
clause. Some pipelines have merchantability provisions in their current 
tariffs and some do not. As a policy matter, the Commission will 
neither mandate nor prohibit such provisions.
---------------------------------------------------------------------------

    \43\ The Commission notes that AGA also suggested an alternative 
approach in its comments, stating that ``delivered gas will be 
`merchantable' gas and will meet certain specifications, such as 
those set out for interchangeability, CHDP and other constituent 
limits.'' AGA comments at 28. The Commission sees no value to adding 
the label ``merchantable'' to gas that otherwise meets the gas 
quality and interchangeability specifications set forth in the 
tariff.
---------------------------------------------------------------------------

C. Applicability to Section 311 Transporters

    44. The Commission intends to apply this policy to statements of 
operating conditions filed by entities which provide interstate 
transportation services pursuant to section 311 of the Natural Gas 
Policy Act of 1978 (NGPA). As a general principle, the Commission 
expects that each section 311 transporter will include specific 
provisions in its statement of operating conditions governing gas 
quality and interchangeability.\44\
---------------------------------------------------------------------------

    \44\ Section 284.224, subpart G, of the Commission's regulations 
authorizes LDCs and Hinshaw pipelines to perform the same types of 
transactions that intrastate pipelines are authorized to perform 
under section 311 of the NGPA and subpart C and D of Part 284 of the 
Commission's regulations. The Commission intends that the 
requirements imposed by this policy statement on section 311 
intrastate pipelines would also apply to Hinshaw pipelines.
---------------------------------------------------------------------------

D. New Companies Authorized Under Section 7 of the Natural Gas Act

    45. The Commission intends to apply this policy in its review of 
pro forma tariffs filed as part of section 7(c) certificate 
applications. Applicants should ensure that their Exhibit P pro forma 
tariff includes general terms and conditions addressing gas quality and 
interchangeability. Recognizing that new entrants do not have historic 
markets upon which to base their analysis of gas quality and 
interchangeability specifications, the Commission expects section 7 
applicants to include relevant information about the gas quality and 
interchangeability specifications of interconnecting pipelines, and of 
the competing pipelines serving customers to be served directly by the 
new entrant, as well as the relevant information about the gas supplies 
to be received by the new entrant for transportation or storage. 
Applicants must show how they derived their gas quality and 
interchangeability specifications stated in their pro forma tariffs.

E. New Companies Authorized Under Section 3 of the Natural Gas Act

    46. The Commission intends to apply this policy in its review of 
proposals to construct and operate new facilities for the importation 
of natural gas. Applicants should include information

[[Page 35900]]

in their application which demonstrates the compatibility of their 
imports with the gas quality and interchangeability requirements of all 
interconnecting pipelines. To the extent service is provided pursuant 
to Parts 157 or 284 of the Commission's regulations, the applicant 
should make specific reference to tariff or contract provisions 
governing gas quality and interchangeability and demonstrate their 
compliance with this policy statement.
    47. Some commenters ask the Commission to impose specific 
obligations on LNG project developers regarding merchantability, 
identification of adverse impacts, compensation for negative impacts, 
and mitigation.\45\ However, the Commission believes that these are 
issues that should be addressed, if and when problems are identified, 
in specific cases.
---------------------------------------------------------------------------

    \45\ See, e.g., AGA, APGA, Constellation at 3, and KeySpan's 
April 1 comments at 10-13.

    By the Commission.
Magalie R. Salas,
Secretary.

Appendix A

Commenters
American Gas Association (AGA)
American Public Gas Association (APGA)
Appalachian Producers:
    Kentucky Oil & Gas Association, Ohio Oil and Gas Association, 
and the Independent Oil & Gas Association of Pennsylvania
Aux Sable Liquid Products, L.P. (Aux Sable)
BHP Billiton LNG International (BHP Billiton)
Calpine Corporation (Calpine)
Consolidated Edison Company of New York, Inc. and Orange & Rockland 
Utilities, Inc.
Constellation Energy Group, Inc.
Devon Energy Corporation
Dow Chemical Company
Duke Energy Gas Transmission
Edison Electric Institute (EEI)
Electric Power Supply Association (EPSA)
El Paso Corporation's Pipeline Group
EMS Pipeline Services
Fertilizer Institute
Florida Power & Light
Florida Utilities:
    Tampa Electric Company; Peoples Gas System, a Division of Tampa 
Electric Company; the Associated Gas Distributors of Florida (AGDF); 
and the Florida Municipal Natural Gas Association (FMNGA). The AGDF 
consists of Florida Public Utilities Company; Central Florida Gas 
Company; Indiantown Gas Company; Sebring Gas Systems, Inc.; St. Joe 
Natural Gas Company, Inc.; and Florida City Gas. The FMNGA consists 
of the City of Chattahoochee; City of Clearwater Gas System; 
Crescent City Natural Gas; City of DeFuniak Springs; Geneva County 
Gas District; Lake Apopka Natural Gas District; City of Leesburg; 
City of Live Oak; City of Madison; Okaloosa Gas District; Palatka 
Gas Authority; City of Perry; Southeast Alabama Gas District; and 
City of Sunrise.
Gas Appliance Manufacturers Association (GAMA)
Gas Processors Association
General Electric Company (GE)
Gulf South Pipeline Company, LP (Gulf South)
Independent Petroleum Association of Mountain States (IPAMS)
Interstate Natural Gas Association of America (INGAA)
Independent Petroleum Association of America (IPAA)
KeySpan Corporation
Michigan Consolidated Gas Company
National Fuel Gas Supply Corporation and National Fuel Gas 
Distribution Corporation
Natural Gas Supply Association (NGSA)
NiSource, Inc.
Pacific Gas and Electric Company
Process Gas Consumers Group (PGC)
Producer Coalition:
    Devon Energy Corporation, Dominion Exploration & Production, 
Inc., Forest Oil Corporation, The Houston Exploration Company, Kerr-
McGee Oil & Gas Corporation, Newfield Exploration Company, Spinnaker 
Exploration Company, and TOTAL E&P U.S.A., Inc.
Progress Energy
Questar Pipelines
Selected Processors:
    Enterprise Products Operating L.P., Williams Midstream, Dynegy 
Midstream Services, Limited Partnership and Duke Energy Field 
Services, LLC
Sempra Global
Shell NA LNG LLC and Shell US Gas & Power, LLC
Siemens Westinghouse Power Corporation
South Carolina Electric & Gas Company, SCANA Energy Marketing, Inc. 
and Public Service Company of North Carolina, Inc. (SCANA)
South Carolina Pipeline Company and SCG Pipeline, Inc.
South Coast Air Quality Management District (SCAQMD)
Southeastern End Users Group:
    Florida Cities--City of Tallahassee, Florida Gas Utility, 
Gainesville Regional Utilities, JEA, Lakeland Electric, and Orlando 
Utilities Commission, Florida City Gas, Florida Municipal Natural 
Gas Association--Cities of Chattahoochee, DeFuniak Springs, 
Leesburg, Madison, Perry and Sunrise, City of Clearwater Gas System, 
Crescent City Natural Gas, Geneva County Gas District, Lake Apopka 
Natural Gas District, Okaloosa Gas District, Palatka Gas Authority, 
Southeast Alabama Gas District, Florida Power & Light Company, 
Florida Public Utilities Company, Progress Energy, Peoples Gas 
System, a Division of Tampa Electric Company, Seminole Electric 
Cooperative, Inc., Southern Cities--Georgia Cities of Cartersville, 
Cordele, Cuthbert, Dublin, Hawkinsville, LaGrange and Tallapoosa and 
the Florida City of Tallahassee, Tampa Electric Company
Southern California Gas Company and San Diego Gas & Electric Company
Suez Energy North America
TransCanada Pipelines Limited
Utah Department of Public Utilities (UDPU)
Williston Basin Interstate Pipeline Company
Wisconsin Distributor Group:
    Wisconsin Power & Light Company, City Gas Company, Madison Gas & 
Electric Company, Wisconsin Gas LLC, and Wisconsin Electric Power 
Company--Collectively, We Energy, and Wisconsin Public Service 
Corporation

Appendix B

Summary of Comments

A. Natural Gas Producers

    1. NGSA urges the Commission to move quickly to initiate a 
rulemaking to adopt its proposals. NGSA also would establish a 
presumption of interchangeability (with historical gas supplies) for 
all gas that meets the interchangeability specifications in the NGSA 
rulemaking proposal. In addition, NGSA does not support efforts by 
local distribution companies (LDCs) to require pipelines to include 
merchantability clauses \46\ in their tariffs.
---------------------------------------------------------------------------

    \46\ Several LDC commenters, including the American Gas 
Association (AGA), urge the Commission to require pipelines to 
include merchantability provisions in their tariffs. The issue of 
merchantability is discussed in the context of LDC comments 
beginning at P 37.
---------------------------------------------------------------------------

    2. Among independent producers, the Independent Petroleum 
Association of America (IPAA) supports the NGSA proposal for a NOPR, 
including the CHDP safe harbor and the interchangeability levels. In 
addition, IPAA advocates a de minimis exemption for production from 
small wells, where such exceptions will not affect pipeline 
operations. Devon Energy, a small producer and processor, supports 
the NGSA petition and supports the de minimis exemption for small 
volumes, so long as the quality of delivered gas remains within the 
tariff limits.\47\
---------------------------------------------------------------------------

    \47\ Devon at 4.
---------------------------------------------------------------------------

    3. The Independent Petroleum Association of Mountain States 
(IPAMS), an association of small producers in the Rocky Mountains, 
opposes any rigid national standard for gas quality, citing the 
different needs of customers in Salt Lake City and Denver, where its 
members' gas is delivered. IPAMS also supports a small producer de 
minimis exemption. However, it does not address the NGSA proposal 
directly. The Appalachian Producers oppose the NGSA proposal and 
assert that the presumption of interchangeability, for example, 
``could easily be transformed into a requirement that natural gas 
must meet those standards * * * changing the presumptive 
specifications into prescriptive ones.'' \48\
---------------------------------------------------------------------------

    \48\ Appalachian Producers comments at 2.
---------------------------------------------------------------------------

    4. Finally, the Producer Coalition \49\ supports adoption of 
natural gas quality and interchangeability standards through a 
formal

[[Page 35901]]

rulemaking proceeding rather than through a policy statement. The 
Producer Coalition asserts that much of the controversy in setting 
gas quality standards ``would be eliminated if the Commission, by 
rule or policy statement, would (i) establish a uniform method for 
determining CHDP limits for interstate pipelines; and (ii) determine 
who pays--producers or downstream customers--for conditioning or 
handling gas to accommodate the downstream temperature and pressure 
cuts between the interstate pipeline grid and the gas burner tip.'' 
\50\
---------------------------------------------------------------------------

    \49\ The Producer Coalition is an ad hoc group of natural gas 
producers consisting of Devon, Dominion E&P, Forest Oil, Houston 
Exploration, Kerr-McGee, Newfield Exploration, Spinnaker Exploration 
and TOTAL E&P.
    \50\ Producer Coalition at 6.
---------------------------------------------------------------------------

B. LNG Operators

    5. Four LNG facility operator/developer companies filed comments 
on the NGSA proposal. Both Shell and Sempra urge the Commission to 
move quickly to adopt standards in order to maintain momentum from 
the NGC+ efforts. Shell favors a Commission policy statement, while 
Sempra supports action via a NOPR, along the lines advocated by 
NGSA. Both support the interchangeability interim guidelines in the 
Report instead of the NGSA proposal, because NGSA does not adopt the 
 4% range in the Report or the 1,110 Btu limit. In 
addition, Sempra opposes a mandate for pipeline blending, 
aggregation and other operational techniques for dealing with non-
standard gas. Both favor requiring pipelines to adopt gas quality 
and interchangeability standards in their tariffs. Suez Energy North 
America (Suez) supports a rulemaking based on the proposals in the 
Reports, and it asserts that the Commission should ``craft rules 
that will encourage some degree of standardization while also 
leaving distinct pipeline service territory issues for determination 
on each pipeline system.'' \51\
---------------------------------------------------------------------------

    \51\ Suez at 5.
---------------------------------------------------------------------------

    6. The issue of federal--state cooperation in standard-setting 
is the focus of comments by BHP Billiton LNG International (BHP 
Billiton), an Australian energy company that plans to build a 
floating storage and regasification unit for LNG imports offshore 
California to bring gas into California. BHP Billiton opposes a 
proposal pending before the California Public Utilities Commission 
(CPUC) \52\ in the CPUC's ongoing proceeding examining gas quality 
issues. In that proceeding, a California utility has proposed that 
LNG suppliers be subject not only to the quality specifications in 
utility tariffs but also to the quality specifications of any other 
Federal, state or local agency having ``subject matter'' 
jurisdiction over natural gas quality. BHP states that gas quality 
and interchangeability ``should not be subject to the whim or 
caprice of governmental agencies that do not have direct regulatory 
authority over utilities.'' \53\
---------------------------------------------------------------------------

    \52\ CPUC Docket No. 04-01-025.
    \53\ BHP Billiton at 4.
---------------------------------------------------------------------------

C. Gas Processors

    7. The Selected Processors \54\ support a NOPR that considers 
three issues: Uniform CHDP standards across interconnecting 
pipelines; CHDP specifications in pipeline tariffs; and fair and 
non-discriminatory application of the CHDP standards for all gas 
supplies. The Selected Processors would exempt interstate pipelines 
that do not directly serve an end-use market from the CHDP 
standards. It believes that the NGSA proposal is ``vague,'' and may 
not resolve the need for uniform CHDP standards across 
interconnecting pipelines, long-term certainty through clear CHDP 
standards in pipeline tariffs and the fair and non-discriminatory 
application of gas quality standards for all gas supplies. \55\ The 
Selected Processors advocate a formal rulemaking proceeding and 
mandatory measures for pipeline blending or pairing of non-compliant 
gas. They are concerned that discretionary blending and pairing by 
pipelines pose the potential for discrimination.
---------------------------------------------------------------------------

    \54\ The Selected Processors consist of Enterprise, Williams 
Midstream, Dynegy Midstream and Duke Energy Field Services.
    \55\ Selected Processors at 1.
---------------------------------------------------------------------------

    8. Aux Sable Liquid Products (Aux Sable), which operates a gas 
processing plant at the terminus of the Alliance Pipeline near 
Chicago, Illinois, supports the adoption of gas quality and 
interchangeability standards through a rulemaking proceeding, but it 
disagrees with the detailed regulatory text contained in the NGSA 
proposal. Nevertheless, Aux Sable supports the Report 
recommendations, including a CHDP safe harbor, \56\ and the 
establishment of the Wobbe Index as the basic means of determining 
interchangeability.
---------------------------------------------------------------------------

    \56\ While Aux Sable states that it supports the ``minimum safe 
harbor'' CDHP method of controlling liquid drop out, the Report 
itself does not include a ``safe harbor'' recommendation.
---------------------------------------------------------------------------

    9. In an October 27, 2005 letter to the Chairman, the Gas 
Processors Association (GPA) encourages swift resolution of the 
issues involved in setting gas quality specifications to ease 
uncertainty in the industry with respect to the outcome of these 
proceedings. Citing the loss of infrastructure that occurred in the 
Gulf following last year's hurricanes, GPA states that regulatory 
uncertainty adversely affects decisions on new investment to rebuild 
damaged infrastructure. ``The gas processing industry desperately 
needs to know that fair, consistent application of gas quality 
specifications will be applied for the long-term.'' \57\
---------------------------------------------------------------------------

    \57\ Letter from Mark F. Sutton, Executive Director of GPA to 
Chairman Kelliher and officials at the Energy Information 
Administration and the Minerals Management Service, at 2 (October 
27, 2005).
---------------------------------------------------------------------------

D. Interstate Pipelines

    10. The Interstate Natural Gas Association of America (INGAA) 
opposes NGSA's NOPR proposal, stating that gas quality and 
interchangeability issues are not a nationwide problem. Rather, 
problems with gas quality and interchangeability can be addressed on 
a pipeline-specific basis as problems arise. \58\ However, if the 
Commission is going to address these issues in a generic proceeding, 
INGAA believes it should do so through a policy statement. It 
supports a presumptive 15 degree CHDP safe harbor but wants 
pipelines to have the flexibility to accept gas at receipt points at 
different CHDP levels (higher or lower than the NGSA proposal). 
INGAA would apply the CHDP standards at pipeline receipt points 
rather than at delivery points. The 1,400 Wobbe Index level standard 
proposed by NGSA is missing critical technical parameters (heating 
value, use of historical average gas supply, and the plus or minus 
4% Wobbe Index range). INGAA would evaluate the need for a de 
minimis exemption for small producers on a pipeline-by-pipeline 
basis. Finally, INGAA opposes a requirement for merchantability 
provisions, saying that these could be used to ``trump'' pipeline 
gas quality and interchangeability tariff provisions.
---------------------------------------------------------------------------

    \58\ In this regard, the Commission notes the ``Joint Statement 
of the American Gas Association and the Interstate Natural Gas 
Association of America,'' filed on June 2, 2006, which outlines 
their agreement on developing gas quality and interchangeability 
specifications on a pipeline-by-pipeline basis, where needed, within 
the next year. On June 8, APGA filed a response to the AGA-INGAA 
joint statement. Subsequent comments on the joint statement were 
filed by NGSA (on June 12) urging the Commission to establish a 
policy for developing natural gas quality and interchangeability 
standards, and by Washington Gas Light (June 13), who urged the 
Commission to recognize the infrastructure impacts of changes in 
supply compositions in addressing interchangeability issues.
---------------------------------------------------------------------------

    11. Several pipeline companies filed individual comments on the 
Reports and the NGSA proposal. Pipeline commenters oppose 
merchantability requirements, and, to the extent any procedural tool 
is favored, the pipeline commenters oppose a generic rulemaking 
along the lines proposed by NGSA. Instead, most support the 
development of a policy statement governing gas quality and 
interchangeability issues. Duke Energy Gas Transmission takes 
another view, arguing that these issues should be handled on a 
complaint-driven basis and not through generic national standards. 
On providing an exemption for small producers advocated by some 
producers, ANR, Southern Natural and El Paso all assert that they 
have such exceptions in their gas quality tariff provisions.
    12. Other pipelines point to specific constraints or supply 
issues on their systems that would make a generic approach 
particularly difficult. For example, Gulf South Pipeline states 
that, due to its reticulated nature, gas cannot be pathed on its 
system, nor can gas molecules be traced. This would make it very 
difficult for Gulf South to apply a single CHDP minimum standard to 
its entire system.\59\
---------------------------------------------------------------------------

    \59\ Gulf South at 11-12.
---------------------------------------------------------------------------

    13. Questar and Williston Basin both cite their ability to 
transport high HDP gas or coal bed methane as being essential to 
meeting the requirements of downstream markets. In Questar's case, 
some of the gas it treats is delivered to its affiliated LDC. 
Questar has made significant investment in liquid handling 
facilities and processing plants in order to provide transportation 
service for gas coming from growing supply sources in the Green 
River, Uinta and Piceance basins. Although the question of who 
should pay for these facilities is the subject of an ongoing dispute 
with the Utah Division of Public Utilities, Questar asserts that its 
ability to

[[Page 35902]]

transport high HDP gas on its system would be adversely affected by 
the CHDP safe harbor proposed in the NGSA petition.\60\ Similarly, 
Williston Basin states that the gas it has transported on its system 
historically exceeds the levels in both the Reports and the NGSA 
petition. In addition, Williston Basin states that applying an 
inflexible gas quality standard at delivery points would impose a 
tremendous hardship on the pipeline, which has 53 receipt points but 
over 3,100 delivery points.\61\
---------------------------------------------------------------------------

    \60\ Questar at 3-4.
    \61\ Williston Basin at 4.
---------------------------------------------------------------------------

E. LDCs

    14. AGA and the American Public Gas Association (APGA), the 
major LDC trade associations, oppose the NGSA petition. AGA's 
original position on the NGSA petition supported a NOPR mandating 
pipeline tariff provisions on gas quality and interchangeability. 
AGA pointed to many flaws in the NGSA proposal, most of which stem 
from the differences between the NGSA proposal and the Reports' 
proposed interim guidelines. AGA believes that the Commission should 
allow pipelines to require gas to be processed, and it believes the 
CHDP should be set at the receipt points on the pipeline system 
instead of at delivery points as proposed by NGSA.
    15. AGA proposed an alternative to the NGSA rulemaking proposal, 
outlining its own rulemaking procedure: pipelines would amend their 
tariffs to adopt a CHDP level or safe harbor CHDP developed through 
a pipeline-by-pipeline consensus process initiated by the 
Commission's NOPR and modeled on the collaborative process that led 
to the development of the Report. AGA would rely on the 
Interchangeability Report's interim guidelines implemented in a 
Commission-mandated consensus process in setting interchangeability 
standards.\62\ Since filing its comments on the NGSA petition, AGA 
has collaborated with INGAA to develop an agreement on how industry 
stakeholders could negotiate natural gas quality and 
interchangeability specifications on a pipeline-by-pipeline basis, 
where needed, within the next year. This proposal, styled as a 
``joint statement,'' was filed on June 2, 2006.\63\
---------------------------------------------------------------------------

    \62\ AGA at 32-36.
    \63\ Supra at n.57. On June 8, AGPA filed a response to the AGA-
INGAA joint statement essentially agreeing with the process but 
opining that the parties should be able to complete their 
negotiations within six months.
---------------------------------------------------------------------------

    16. Both AGA and APGA support requiring pipelines to include a 
merchantability provision in their tariffs to protect pipeline 
customers from the effects of gas that is not in compliance with 
tariff standards gas. This will provide pipelines flexibility to 
accept gas that is not in compliance with the tariff but through 
blending or other means is ``merchantable'' when delivered to LDCs 
and other end-use customers. KeySpan also strongly endorses a 
requirement that pipeline tariffs include a merchantability 
provision.
    17. A significant number of LDCs filed comments on the Reports, 
the May 17 technical conference and the NGSA proposal, which most 
LDC commenters explicitly oppose. Their comments are largely 
encompassed in the comments of AGA and APGA, and most LDC commenters 
explicitly endorsed the trade association comments. Constellation, 
for example, endorsed the comments of AGA and EEI. Standards based 
on historical gas quality and mandatory merchantability requirements 
in pipeline tariffs are supported by most LDCs. Most favor a 
rulemaking procedure, although NiSource favors a policy statement 
for gas quality and interchangeability standards.
    18. National Fuel Gas Distribution Corporation, which has a 
pipeline affiliate that receives substantial quantities of 
Appalachian production, expresses concern about the proposal for 
exempting de minimis production from gas quality standards. National 
Fuel points out that the location along the pipeline and 
availability of blending are also important considerations when 
determining whether de minimis production volumes should be exempt 
from gas quality standards. ``Processing requirements should be 
imposed on de minimis producers as necessary, on a pipeline-by-
pipeline, market-by-market basis to maintain the historical content 
of gas introduced into commerce and minimize liquid dropout.'' \64\
---------------------------------------------------------------------------

    \64\ National Fuel at 3.
---------------------------------------------------------------------------

    19. SCANA opposes the NGSA petition and proposes another process 
for developing gas quality and interchangeability standards. 
Additional research would focus on developing a nationwide baseline 
gas quality specification, and the industry should have a 10 to 15 
year transition period to accommodate a new nationwide baseline gas 
standard. Additional focus should also be given on providing 
guidance to equipment manufacturers for complying with the new 
nationwide baseline gas standard. SCANA asserts that pipeline 
tariffs should be required to contain merchantability provisions, 
which would supersede any CHDP level in the tariff. CHDP levels 
would be set on a pipeline-by-pipeline basis.
    20. The Wisconsin Distributors Group \65\ states that the NGSA's 
proposed 15 degree CHDP safe harbor minimum might not work in the 
service territories of their members. The NGSA proposal is based on 
average ambient ground temperatures, and in Wisconsin, a 15 degree 
safe harbor might not be low enough to prevent liquid drop out. In 
its comments on the Reports, the Wisconsin Distributors Group points 
out that much of Wisconsin is served by Canadian gas, which has a 
CHDP of minus 30 degrees. However, recognizing the 
interconnectedness of the interstate pipeline grid, more gas now is 
coming into Wisconsin from sources other than Canada. The onus 
should be on each pipeline, and its tariff should prescribe the CHDP 
and other gas quality criteria. Each pipeline should ensure 
uniformity across its system, and each tariff should include a 
merchantability provision.
---------------------------------------------------------------------------

    \65\ The Wisconsin Distributors Group (WDG) is an ad hoc group 
of LDCs serving natural gas customers in Wisconsin. For purposes of 
this proceeding, the Wisconsin Distributors Group comprises the 
following: Alliant Energy--Wisconsin Power & Light Company, City Gas 
Company, Madison Gas & Electric Company, Wisconsin Gas LLC and 
Wisconsin Electric Power Company (collectively doing business as We 
Energies) and Wisconsin Public Service Corporation.
---------------------------------------------------------------------------

    21. The importance of interchangeability issues in the context 
of LNG project development was raised by several LDC commenters. AGA 
asserts that the Commission should require that LNG terminal 
developers be responsible for ensuring that their product meets 
standards for interchangeability and that this responsibility should 
be incorporated as part of the NGA section 3 or section 7 
certificate processes for the review of individual applications. 
APGA states that the Commission should require pipelines that 
utilize LNG in their supply mix to develop tariff provisions for 
monitoring and compensating for the costs incurred by communities 
that are near the injection of vaporized LNG into the pipeline 
system. However, a couple of individual LDCs raised issues on LNG 
and interchangeability that were not mentioned by the trade groups. 
For example, Constellation states that it should not have to bear 
the cost of any modifications to its LNG peak shaving facility that 
are necessary to accommodate elevated ethane content from LNG 
imported into Dominion's Cove Point LNG facility.\66\
---------------------------------------------------------------------------

    \66\ Constellation at 3.
---------------------------------------------------------------------------

    22. KeySpan proposes that the Commission require a new Gas 
Supply Resource Report be included in each NGA section 3 and section 
7 application, \67\ a proposal endorsed by SCANA and SCANA's 
pipeline affiliates. This resource report would identify all gas 
composition changes associated with the introduction of new gas 
supplies from the proposed facilities and all adverse impacts on 
end-users associated with the change in gas quality. In addition, 
the report would consider whether specific mitigation measures would 
be required to address potential adverse impacts from the new gas 
stream on such facilities as LNG peak shaving facilities and dry-
low-emissions (DLE) natural gas turbines.
---------------------------------------------------------------------------

    \67\ KeySpan April 1 comments at 10-13.
---------------------------------------------------------------------------

F. Industrial Gas Users

    23. Among industrial gas users, Process Gas Consumers (PGC), Dow 
Chemical and the Fertilizer Institute filed comments. PGC and Dow 
Chemical approached the NGSA petition from completely different 
perspectives. PGC endorses virtually every aspect of the proposal. 
It would condition its support of the 15 degree CHDP on the 
Commission not ``grandfathering'' existing pipeline CHDP standards 
without additional opportunity for comment, and it would subject 
``grandfathered'' pipelines to the same complaint process NGSA 
proposes for all other pipeline tariff standards. It also advocates 
a 15 to 18 month ``reopener'' to evaluate how the standards have 
worked. PGC avers that its members ``are prepared to shoulder the 
burden'' of system modifications to accommodate a 1,400 Wobbe Index 
level ``to increase gas supplies.'' \68\
---------------------------------------------------------------------------

    \68\ PGC at 7.
---------------------------------------------------------------------------

    24. By contrast, Dow Chemical urges the Commission to be 
cautious in moving

[[Page 35903]]

forward on the NGSA proposal. It points to the severe economic 
consequences for petrochemical plants when producers bypass 
processing their gas in order to ``preserve their entrained 
liquefiables for sale to downstream gas markets,'' thereby depriving 
petrochemical plants of critical feedstocks, such as ethane and 
propane.\69\ The Fertilizer Institute takes no position on the NGSA 
proposal but states that the determination as to where on the 
pipeline system gas quality standards are imposed, whether at 
pipeline delivery points, as advocated by NGSA or at pipeline 
receipt points, as advocated by INGAA, will have significant 
consequences for members of the Fertilizer Institute. Many members 
of the Fertilizer Institute are directly connected to interstate 
pipelines upstream of LDC city gates. If gas quality standards are 
imposed on gas at the LDC city gate, these customers would not be 
protected.
---------------------------------------------------------------------------

    \69\ Dow at 3.
---------------------------------------------------------------------------

G. Electric Utilities, Generators and Power Marketers

    25. The Edison Electric Institute (EEI) and the Electric Power 
Supply Association (EPSA) filed extensive comments in support of a 
NOPR process. However, both express fundamental disagreement with 
NGSA's petition and proposals for CHDP and interchangeability 
standards. Both disagree with the 15 degree CHDP minimum and the 
1,400 Wobbe Index level for reasons expressed by other commenters. 
EPSA observes that NGSA's proposed complaint process is tilted 
against those filing complaints and states that the Commission 
already has in place regulations for filing complaints under section 
5 of the NGA.
    26. EEI supports the establishment of natural gas quality and 
interchangeability standards through a Commission rulemaking, but it 
asserts that the NGSA CHDP and Wobbe levels are ``not workable.'' 
\70\ Although EEI agrees with NGSA that a NOPR is the preferable 
procedural framework for setting standards, it believes that natural 
gas composition requirements must be based on historical deliveries, 
and that gas composition requirements must be set regionally or on a 
pipeline-by-pipeline basis and not nationally, as proposed by NGSA. 
EEI's comments also included a lengthy study by Combustion Science & 
Engineering, ``Effect of Fuel Composition on Gas Turbine Operability 
and Emissions.'' Among its conclusions is that turbine operators 
have reported numerous operational difficulties attributed to 
changes in gas composition. Because there is an inherent trade-off 
between NOX and combustion dynamics for the latest 
generation of gas turbines, when changes in gas composition lead to 
increases in NOX emissions, turbine operators will have 
to make operational changes to remain in compliance with air 
permits.
---------------------------------------------------------------------------

    \70\ EEI at 3.
---------------------------------------------------------------------------

    27. The Southeastern End Users Group, an ad hoc group of LDCs 
and users of gas turbines in Florida and Georgia,\71\ opposes the 
NGSA petition and endorses AGA's proposed process for developing gas 
quality and interchangeability standards. Of particular concern is 
the impact of gas quality and interchangeability parameters on 
operators of DLE natural gas turbines. The Southeastern End Users 
Group is concerned about whether DLEs can accept wide variations in 
gas quality and yet remain in compliance with emissions requirements 
without having to add expensive automatic tuning and heating 
controls. The Southeastern End Users Group also expresses concern 
about ``legacy'' gas equipment and asserts that any gas quality and 
interchangeability standards ultimately adopted must ensure that 
``legacy'' equipment will not be adversely affected. They request 
that any generic policy adopted by the Commission not replace case-
specific decisions, such as the ongoing AES proceeding (Docket No. 
RP04-249-000 et al.) \72\
---------------------------------------------------------------------------

    \71\ The members of the Southeastern End Users Group are listed 
in Appendix A.
    \72\ Southeastern End Users Group at 8.
---------------------------------------------------------------------------

    28. Calpine and Florida Power & Light oppose the NGSA petition. 
Progress Energy opposes implementation of the interim guidelines in 
the Reports and expresses concern that the fuel constituent values 
in the interim guidelines on interchangeability could have an 
adverse effect on DLE turbines. Progress Energy also believes that 
EPA should be brought into the process of developing gas quality and 
interchangeability standards.

H. Gas Equipment Manufacturers

    29. The Gas Appliance Association of America (GAMA) and Siemens 
Westinghouse represent consumer appliance manufacturers and turbine 
manufacturers, respectively. Neither supports the specific Wobbe 
levels advocated by NGSA, supporting instead the interim measure 
recommended in the report. GAMA points out that the report cited a 
1992 GRI study that showed an average Wobbe Index of 1,345, and it 
urges the Commission to adopt the Report's interchangeability 
guidelines and its  4% Wobbe Index range, instead of 
NGSA's. GAMA also points out that the lack of a heating value 
standard in the NGSA proposal as another critical flaw. Other than 
to oppose NGSA's petition, GAMA takes no position on what procedural 
vehicle the Commission should employ.
    30. Siemens Westinghouse requests that several of the 
interchangeability criteria set forth in the Report interim 
guidelines be modified: (1) Siemens Westinghouse would set a limit 
of 2.5 percent for propanes and one percent for butanes+ (compared 
with the interim guideline of 1.5 percent for butanes+); (2) it 
requests that an additional limit be set on the rate of change in 
the Wobbe Index of gas delivered to no more than two percent per 
minute; (3) Siemens Westinghouse suggests that tariff provisions 
take into account changes in gas quality that affect air quality; 
and, (4) it asks the Commission to consider a mechanism to provide 
for cost recovery related to equipment failure caused by gas quality 
or interchangeability issues. Finally, Siemens Westinghouse states 
that the levels in NGSA's proposal may be ``too narrow'' for certain 
end users, such as fuel cell applications or natural gas 
vehicles.\73\
---------------------------------------------------------------------------

    \73\ Siemens Westinghouse at 3.
---------------------------------------------------------------------------

    31. GE states that the heavy-duty turbines it manufactures have 
a gas fuel specification that defines the allowable ranges for fuel 
physical properties, constituents, and contaminants, but this 
specification ``was not written with the intent of addressing 
continuous fuel variability within the allowable ranges.'' \74\ GE 
states that fuel variations of more than 5 percent from the Wobbe 
Index level established for the particular gas turbine may result in 
the need to re-tune the combustion system. Because significant or 
frequent variability may require constant monitoring with manual 
intervention (i.e., re-tuning), GE is working on turbine upgrade 
packages that allow turbines to operate with automatic combustion 
tuning for acoustic dynamics and emissions. This effort has been 
spurred in part by GE's support for LNG and the desire to develop 
retro-fit equipment that will allow continuous operation by gas 
turbines over a range of Wobbe Index levels ``consistent with GE 
expected ranges for [natural gas] and LNG for the North American 
Market.'' \75\
---------------------------------------------------------------------------

    \74\ GE comments (May 12, 2005) at 1.
    \75\ Id. at 2.
---------------------------------------------------------------------------

I. Governmental Entities

    32. The Utah Department of Public Utilities (UDPU) and the South 
Coast Air Quality Management District (SCAQMD) filed comments on the 
Reports. UDPU's focus is on the quality of gas being transported by 
Questar Pipeline, the measures and facilities employed by Questar to 
render the high HDP gas suitable for downstream customers (including 
its affiliated LDC), and who should pay these costs. It complains 
that Questar's tariff requirements are set so broadly as to 
accommodate transporting as much gas as possible. UDPU's solution is 
for pipeline tariffs to specify quality standards for gas that is 
delivered onto the system and to require the pipeline to ensure ``a 
constant quality'' that meets the needs of the end users. UDPU would 
require the pipeline to control the quality of gas entering its 
system.
    33. SCAQMD characterizes the Report on interchangeability as ``a 
good start'' to understanding the issues, and it agrees that there 
are significant data gaps that must be investigated. In this vein, 
SCAQMD recommends expedited research in these areas:
    a. Emission studies of the impacts of high Btu gas on combustion 
equipment, particularly larger combustion and power generation 
sources.
    b. Effects of inert gas addition on large and small equipment.
    c. Regional air quality impact analysis of LNG imports.
    d. Cost analysis of different mitigation measures.

SCAQMD states that the natural gas quality standards that apply in 
its area are inadequate. They allow a heating value of up to 1,150 
Btu/scf and indirectly a Wobbe Index of approximately 1,433. In 
addition, SCAQMD is concerned about the air quality impacts of high 
Btu LNG.\76\
---------------------------------------------------------------------------

    \76\ SCAQMD at 3-4.

---------------------------------------------------------------------------

[[Page 35904]]

J. Pipeline/LNG Industry Service Providers

    34. EMS Pipeline Services provides a broad array of pipeline 
operations and maintenance services, including field measurement, 
pipeline integrity testing, asset management, communications, and 
web-based data management. EMS is the only provider of pipeline 
services that filed comments, which generally support the Reports' 
approaches on both gas quality and interchangeability. EMS asserts 
that the Commission should encourage the industry to develop better 
and more comprehensive ways of measuring gas quality and 
interchangeability.

[FR Doc. 06-5582 Filed 6-21-06; 8:45 am]
BILLING CODE 6717-01-P