[Federal Register Volume 73, Number 1 (Wednesday, January 2, 2008)]
[Rules and Regulations]
[Pages 38-41]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-25121]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 38 and 284

[Docket Nos. RM96-1-028 and RM05-5-004; Order No. 698-A]


Standards for Business Practices for Interstate Natural Gas 
Pipelines; Standards for Business Practices for Public Utilities

Issued December 20, 2007.
AGENCY: Federal Energy Regulatory Commission, Department of Energy.

ACTION: Order on clarification and rehearing.

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SUMMARY: This order denies requests for rehearing, and provides 
clarification of the final rule issued on July 16, 2007 that 
incorporated by reference standards dealing with coordination of 
scheduling between electric utilities and natural gas pipelines that 
were promulgated by the Wholesale Gas Quadrant (WGQ) and the Wholesale 
Electric Quadrant (WEQ) of the North American Energy Standards Board 
(NAESB), and provided policy guidance on issues relating to such 
coordination.

DATES: Effective Date: January 2, 2008.

FOR FURTHER INFORMATION CONTACT: Eric Winterbauer (Legal), Office of 
the General Counsel, Federal Energy Regulatory Commission, 888 First 
Street, NE., Washington, DC 20426, 202-502-8329.
    Susan Pollonais (Technical), Office of Energy Market Regulation, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, 202-502-6011.
    Kay Morice (Technical), Office of Energy Market Regulation, Federal 
Energy Regulatory Commission, 888 First Street, NE., Washington, DC 
20426, 202-502-6507.

Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G. Kelly, 
Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff.

[[Page 39]]

    1. On June 25, 2007, the Federal Energy Regulatory Commission 
(Commission) issued Order No. 698,\1\ in which the Commission amended 
parts 38 and 284 of its open access regulations governing standards for 
business practices and electronic communications with public utilities 
and interstate natural gas pipelines. The Commission incorporated by 
reference certain standards promulgated by the North American Energy 
Standards Board (NAESB) \2\ in order to improve coordination between 
the electric and gas industries. Specifically, the Commission sought to 
improve communications about scheduling of gas-fired generators.
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    \1\ Standards for Business Practices for Interstate Natural Gas 
Pipelines; Standards for Business Practices for Public Utilities, 
Order No. 698, 72 FR 38757 (July 16, 2007) FERC Statutes and 
Regulations ] 31,251 (June 25, 2007).
    \2\ The standards for the Wholesale Electric Quadrant are: Gas/
Electric Coordination Standards WEQ-011-0.1 through WEQ-011-0.3 and 
WEQ-011-1.1 through WEQ-011-1.6. The standards for the Wholesale Gas 
Quadrant are: Additional Standards, Definitions 0.2.1 through 0.2.3 
and Standards 0.3.11 through 0.3.15.
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    2. In addition, the Commission provided policy guidance on issues 
raised by NAESB relating to scheduling coordination and to the possible 
development of additional standards by NAESB. First, the Commission 
discussed the use of gas indices for pricing capacity release 
transactions, stating that the Commission's regulations permit 
releasing shippers to use price indices or other formula rates on all 
pipelines, regardless of whether the pipeline has a provision allowing 
the use of indices as part of its discounting provisions, so long as 
the prices are less than the maximum rate in the pipeline's tariff.\3\ 
Second, the Commission discussed, but did not modify, the shipper's 
ability to choose alternate delivery points, stating that the ability 
to shift a delivery point when a pipeline constraint occurs upstream 
would make it easier for shippers to redirect gas supplies to 
generators when capacity is scarce. Lastly, the Commission discussed 
possible changes to the gas intraday nomination schedule, clarifying 
that NAESB should actively consider whether changes to existing intra-
day schedules would benefit all shippers.
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    \3\ Order No. 698, FERC Statutes and Regulations ] 31,251 at P 
55.
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I. Requests for Rehearing

    3. The Interstate Natural Gas Association of America (INGAA) 
requests clarification, or in the alternative rehearing, on the date 
pipelines are required to implement changes with regard to the three 
issues on which the Commission provided guidance. INGAA notes that 
industry participants were required to implement the NAESB standards by 
November 1, 2007, and requests that the Commission clarify that it 
would be appropriate for NAESB to propose additional standards and then 
for the Commission to have another rulemaking proceeding before 
pipelines are required to implement changes.
    4. Specifically, with regard to capacity release, INGAA notes that 
in the Final Rule the Commission acknowledges that NAESB may need to 
develop standards to ensure that the terms and conditions of a release 
and the means of implementing a formula rate are clearly set out.\4\ 
INGAA contends that prior to Order No. 698, the Commission's 
regulations were never interpreted to allow unrestricted pricing in 
capacity release transactions. INGAA argues that while pipelines had 
the ability to file non-conforming agreements, there was never a policy 
in place for releasing shippers to file non-conforming capacity release 
agreements based on index-based rates. INGAA further contends that 
pipelines are not currently equipped to allow unrestricted pricing in 
capacity release transactions, and that requiring them to do so raises 
implementation issues concerning bid evaluation and awards, scheduling 
and billing.
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    \4\ Id. at P 56.
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    5. INGAA further contends that unrestricted pricing in releases 
raises scheduling priority issues. It argues that index-based or other 
formula prices raise the issue of how such prices can be compared to a 
fixed, discounted rate for scheduling purposes. INGAA adds that the 
Commission should be aware that, depending on the rate formula 
utilized, there may be several methodologies that can be used to 
determine a rate for scheduling purposes and that one methodology may 
favor some shippers over others.
    6. INGAA requests that the Commission clarify the procedures needed 
for pipeline billing of capacity release transactions that use index-
based or formula rates. INGAA argues that pipelines should not be 
required to calculate the rates under such pricing mechanisms, nor 
should pipelines be placed in the position of arbitrating disputes 
between a releasing shipper and a replacement shipper about the rate to 
be charged under the formula used. INGAA requests that the Commission 
clarify that (1) in any release that does not utilize a fixed stated 
rate, the releasing shipper must inform the pipeline of the rate to be 
charged to the replacement shipper in time for the pipeline to bill 
such rate; and (2) the pipeline is entitled to rely on the rate 
provided by the releasing shipper such that the only recourse a 
replacement shipper has if it disagrees with such rate is against the 
releasing shipper. INGAA adds that pipelines should not be required to 
determine the rate to be charged under such releases or be placed in 
the middle of disputes between its shippers and their replacement 
shippers over such rates.\5\
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    \5\ INGAA Request for Rehearing at 6.
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    7. INGAA also requests that the Commission clarify when pipelines 
are required to implement changes regarding intra-day scheduling, and 
that, rather, it is appropriate to wait for NAESB to consider any 
industry-wide standards.\6\
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    \6\ Id. at 7.
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    8. INGAA requests that the Commission clarify that Order No. 698 
does not require pipelines to convey any non-public information. As an 
example, INGAA states that information concerning a pipeline's methods 
for dealing with hourly flow variances, the administration of 
operational balancing agreements, the operation of compressor units, 
and the operation of meter stations, all on a real-time or nearly real-
time basis, may be implicated by or be part of, the required 
communications discussed in the Order No. 698. INGAA states that this 
information is not public information, which pipelines do not usually 
communicate.
    9. The American Gas Association (AGA) filed an answer.

II. Discussion

A. Procedural Matters

    10. We reject AGA's answer. Rule 713 of the Commission's Rules of 
Practice and Procedures does not allow answers to requests for 
rehearing.\7\
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    \7\ 18 CFR 385.713(d) (2007).
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Indexed Releases

Relation to NAESB Standards Development
    11. INGAA requests clarification or in the alternative rehearing, 
arguing that pipelines should not have to permit shippers to use gas 
price indices as part of released transactions until NAESB develops 
standards for using price indices and they are adopted by the 
Commission. The Commission denies the clarification and the alternative 
rehearing request.
    12. As we explained in Order No. 698, our existing regulations 
already permit releasing shippers to use price indices

[[Page 40]]

or other formula rates on all pipelines, regardless of whether the 
pipeline has included a provision allowing the use of indices as part 
of its discounting provisions, so long as the prices are less than the 
maximum rate in the pipeline's tariff.\8\ Section 284.8(b) \9\ of the 
Commission's regulations states that ``firm shippers must be permitted 
to release their capacity, in whole or in part, on a permanent or 
short-term basis, without restrictions on the terms or conditions of 
the release,'' and section 284.8(e) \10\ mandates that such a release 
may not be ``over the maximum rate.'' Releasing shippers are permitted 
under these regulations to set the appropriate price governing the 
release. In Order No. 698, we did not impose any additional regulatory 
requirements on the pipelines, and therefore we find no basis to delay 
implementation of our existing regulations.
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    \8\ In a Notice of Proposed Rulemaking, the Commission has 
proposed to lift the price ceiling for short-term capacity releases. 
Promotion of a More Efficient Capacity Release Market, Notice of 
Proposed Rulemaking, 121 FERC ] 61,170 (2007).
    \9\ 18 CFR 284.8(b) (2007).
    \10\ 18 CFR 284.8(e) (2007).
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    13. INGAA maintains that the Commission's regulations were never 
previously interpreted to permit unrestricted pricing in capacity 
release transactions. INGAA cites no support for the proposition that 
the Commission did not interpret its regulations to permit pricing 
flexibility. In fact, in Order No. 636-A, the Commission explained that 
releasing shippers are not required to rely on default provisions in 
the pipeline's tariff, but can structure their own pricing terms:

    Due to the variety of releasing conditions that may exist, the 
Commission will not establish only one methodology for evaluating 
best bids, but will use the following approach. The pipeline's 
tariff must include an objective and non-discriminatory economic 
standard for determining best bids. Releasing shippers may rely upon 
this standard in structuring their capacity releases, but are not 
required to do so. If a releasing shipper does not specify a 
standard, the standard in the pipeline's tariff will apply. 
Releasing shippers may include in their offers to release capacity 
reasonable and non-discriminatory terms and conditions to 
accommodate individual release situations, including provisions for 
evaluating bids.\11\
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    \11\ Pipeline Service Obligations and Revisions to Regulations 
Governing Self-Implementing Transportation, Order No. 636-A, 57 FR 
36128 (Aug.12, 1992), FERC Statutes and Regulations January 1991--
June 1996 ] 30,950, at 30,557 (Aug. 3, 1992). See El Paso Natural 
Gas Co., 61 FERC ] 61,333, at 62,289 (1992).

The Commission also has explained that these regulatory provisions 
provide releasing shippers with the flexibility to price using gas 
price indices.\12\
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    \12\ See Panhandle Eastern Pipe Line Co., 106 FERC ] 61,194, P 6 
(2006);
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    14. Contrary to INGAA's implication, the Commission did not ask 
NAESB to develop standards for indexed releases because such releases 
were not previously permitted. In this proceeding, due to the interest 
by shippers in such releases, the Commission requested NAESB to 
consider developing standards to make these releases quicker and more 
efficient.\13\ The existing WGQ NAESB standards recognize that non-
standard pricing terms may be included in release transactions, but do 
not necessarily permit such releases to be accorded the same processing 
timeline as standard releases.\14\ The Commission requested NAESB to 
consider standards that would create a standardized indexing 
methodology so that the use of indexed releases could become faster and 
could compete on a more equal footing with pipeline discounts and 
negotiated rate transactions.
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    \13\ Order No. 698, FERC Statutes and Regulations ] 31,251 at P 
56.
    \14\ Standards 5.3.1 and 5.3.3 (18 CFR 284.12(a)((1)(vi)) 
provide that as long as releasing shippers use defined, standard bid 
methodologies, the pipelines are required to adhere to the NAESB 
timelines in processing such bids. However, these standards 
recognize that the releasing shipper might elect other bid 
evaluation methodologies for which pipeline processing can take 
longer than the standard timelines.
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    15. INGAA suggests that permitting index pricing prior to the 
development of the NAESB standards may create difficulty in evaluating 
competing bids or completing the bid evaluation process in the time 
needed to implement the release. We do not find this to be a sufficient 
basis to delay shippers' ability to implement indexed releases to 
compete with the pipeline's use of such practices. The Commission 
required in Order No. 636 that the terms and conditions of all 
releases, including the methods for evaluating competing bids, must be 
objective, applicable to all shippers, and non-discriminatory.\15\ The 
releasing shipper has the burden of ensuring that the bid evaluation 
method is clear enough for the pipeline to administer. Further, the 
standard capacity release timelines do not apply to bid evaluation 
methods that are out of the ordinary or difficult to apply. Releasing 
shippers that want indexed deals implemented expeditiously therefore 
have an incentive to ensure that their bid evaluation methodologies are 
relatively simple to apply.
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    \15\ Order No. 636-A, FERC Statutes and Regulations January 
1991-June 1996 ] 30,950, at 30,557.
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    16. INGAA also maintains that allowing unrestricted pricing 
discretion may cause problems for some pipelines that use price to 
prioritize the scheduling of secondary firm transportation.\16\ 
However, the Commission does not require that pipelines employ such a 
method for scheduling firm transportation, and we find that a possible 
inconvenience to some pipelines does not justify prohibiting releasing 
shippers from choosing pricing methods permitted by the regulations. 
Those pipelines that may have such provisions would either need to 
apply their priced-based scheduling provisions to those capacity 
release transactions that use index pricing or file under section 4 of 
the Natural Gas Act to amend their tariffs to provide for such 
scheduling.\17\
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    \16\ The Commission requires pipelines to permit shippers, 
including replacement shippers, the flexibility to temporarily 
schedule the receipt and delivery of gas at points other than those 
listed in their contracts if capacity is available.
    \17\ INGAA does not explain why the same procedures used to 
schedule pipeline index discount transactions and negotiated rate 
transactions, which employ a variety of pricing techniques, cannot 
be applied to capacity release transactions.
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1. Billing Under Index-Priced Releases
    17. INGAA requests that we clarify that in any release that does 
not utilize a fixed stated rate, the releasing shipper must inform the 
pipeline of the rate to be charged to the replacement shipper in time 
for the pipeline to bill such rate; and the pipeline is entitled to 
rely on the rate provided by the releasing shipper such that the only 
recourse a replacement shipper has if it disagrees with such rate is 
against the releasing shipper.
    18. We will not permit pipelines to delay acceptance of index price 
deals on this basis. Pipelines ought to be able to calculate prices 
under index releases, because, as the Commission required in Order No. 
636, the terms and conditions of such releases must be objective and 
clearly stated. Many pipelines also currently bill shippers under their 
own negotiated rate and index price transactions, and, therefore, 
should be able to calculate the rates under released transactions in 
the same way. However, if after experience with index releases, a 
pipeline believes that the volume of such releases or other conditions 
warrants revisions in the method used to bill for index releases, the 
pipeline may file under section 4 of the Natural Gas Act to propose 
such revisions, and the Commission will consider those changes after 
evaluating the position of the pipeline's shippers.

[[Page 41]]

B. Intra-Day Scheduling

    19. INGAA also requests that we clarify that any changes regarding 
intra-day scheduling need not be implemented by November 1, 2007, and 
that instead it is appropriate for NAESB to consider and propose any 
industry-wide standards. We agree with INGAA. Order No. 698 did not 
adopt changes in the intra-day nomination timeline, so the November 1, 
2007 deadline does not apply to any such change. While the Commission 
did not require the pipelines to make any changes in nomination 
schedules, we did indicate that such standards could be very beneficial 
to the industry and that pipelines with gas-fired generators should, on 
their own, consider the addition of other intra-day nomination 
opportunities that would be of benefit to the shippers.\18\ Pipelines 
are free to propose additional intra-day nomination opportunities prior 
to any proposal by NAESB if they so choose.
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    \18\ Order No. 698, FERC Stats. & Regs. [Regulations Preambles] 
] 31,251 at P 69.
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C. Non-Public Information

    20. INGAA maintains that the Commission should clarify that Order 
No. 698 does not require pipelines to convey any non-public information 
as a result of the standards incorporated by reference in the Final 
Rule. In particular, INGAA points to information concerning a 
pipeline's methods for dealing with hourly flow variances, the 
administration of operational balancing agreements, the operation of 
compressor units, and the operation of meter stations.
    21. INGAA does not point to which, if any, standards it believes 
would require the dissemination of this information, so we cannot 
provide a definitive answer. The standards themselves do not generally 
detail the type of information that should be provided. For example, it 
appears from the examples that INGAA may be referring to standard 
0.3.12, which states that: ``The Power Plant Operator (PPO) and the 
Transportation Service Provider(s) (TSP) that is directly connected to 
the PPO's Facility(ies) should establish procedures to communicate 
material changes in circumstances that may impact hourly flow rates.'' 
This standard does not require the dissemination of detailed 
information about why the hourly flow rates are affected; it requires 
only that the pipeline establish communication procedures so that the 
power plant operator and the pipeline are made timely aware that such 
hourly flow changes may occur. Without a more detailed explanation of 
which other standards would require the disclosure of information that 
INGAA wishes to keep non-public, we cannot address this issue further. 
INGAA and the pipelines may bring any specific issue to the 
Commission's attention.
    The Commission orders:
    The requests for rehearing and clarification are resolved as 
discussed in the body of the order.

    By the Commission.
Kimberly D. Bose,
Secretary.
[FR Doc. E7-25121 Filed 12-31-07; 8:45 am]
BILLING CODE 6717-01-P