[Federal Register Volume 73, Number 125 (Friday, June 27, 2008)]
[Rules and Regulations]
[Pages 36414-36420]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-14463]



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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 158 and 260

[Docket No. RM07-9-001; Order No. 710-A]


Revisions to Forms, Statements, and Reporting Requirements for 
Natural Gas Pipelines

Issued June 20, 2008.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Order Granting in Part and Denying in Part Rehearing and 
Granting Request for Clarification.

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SUMMARY: In this order on rehearing, the Commission affirms its basic 
determinations in Order No. 710, grants in part and denies in part 
rehearing and grants clarification regarding certain revisions to its 
forms and reporting requirements for natural gas pipelines.

DATES: Effective Date: This Rule will become effective July 28, 2008. 
The revisions to FERC Form Nos. 2, 2-A, and 3-Q are applicable January 
1, 2008, and February 28, 2009 for the termination of FERC Form No. 11.

FOR FURTHER INFORMATION CONTACT:
Michelle Veloso (Technical Information), Division of Financial 
Regulation, Office of Enforcement, Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426, Telephone: 
(202) 502-8363, E-mail: [email protected].
Scott Molony (Technical Information), Chief Accountant, Division of 
Financial Regulation, Office of Enforcement, Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426, Telephone: 
(202) 502-8919, E-mail: [email protected].

SUPPLEMENTARY INFORMATION:

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

    1. This order addresses requests for rehearing and clarification of 
Order No. 710, a Final Rule issued on March 21, 2008, adopting 
revisions to the Commission's financial reporting requirements for 
natural gas pipelines, FERC Form Nos. 2, 2-A and 3-Q.\1\
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    \1\ Revisions to Forms, Statements, and Reporting Requirements 
for Natural Gas Pipelines, Order No. 710, 73 FR 19389 (Apr. 10, 
2008), FERC Stats. & Regs. ] 31,267 (2008) (Final Rule).
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I. Background

    2. On September 20, 2007, the Commission issued a Notice of 
Proposed Rulemaking (NOPR) proposing changes to the financial forms and 
reporting requirements for natural gas pipelines.\2\ The NOPR was 
issued following an in-depth review of financial reporting requirements 
for the natural gas, electric utility and oil pipeline industries in 
the fall of 2006. The staff's review, including outreach meetings with 
both form filers and users, culminated in the issuance of a Notice of 
Inquiry seeking comment on the need for changes or additions to the 
financial information reported in the Commission's quarterly and annual 
financial reports.\3\
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    \2\ Revisions to Forms, Statements, and Reporting Requirements 
for Natural Gas Pipelines, Notice of Proposed Rulemaking, 72 FR 
54860 (Sept. 27, 2007), FERC Stats. & Regs. ] 32,623 (2007) (NOPR).
    \3\ Assessment of Information Requirements for FERC Financial 
Forms, Notice of Inquiry, FERC Stats. & Regs. ] 35,554 (2007).
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    3. The changes adopted in the Final Rule were designed to enhance 
the transparency of financial reporting by interstate natural gas 
pipelines and better reflect the current market and cost information 
needed for the Commission's oversight of interstate natural gas 
pipeline rates. The Final Rule requires the forms' filers to provide 
additional information on costs and revenues related to the disposition 
of shipper-supplied gas, affiliate transactions, discounted and 
negotiated rate services, and deferred income tax and state tax issues. 
The Final Rule eliminated FERC Form No. 11 and incorporated the 
information contained in that form into Form Nos. 2 and 3-Q. The 
revisions to Form Nos. 2, 2-A and 3-Q are applicable January 1, 2008. 
The revised Form Nos. 2 and 2-A are required to be filed on April 30, 
2009. The termination of FERC Form No. 11 is effective February 28, 
2009.

II. Requests for Rehearing and Clarification

    4. Timely requests for clarification and/or rehearing were filed by 
the American Gas Association (AGA), Dominion Resources, Inc. 
(Dominion), the Interstate Natural Gas Association of America (INGAA), 
and the Kansas Corporation Commission (KCC).

A. Other Gas Revenues

    5. INGAA and Dominion filed requests for clarification or rehearing 
of the elimination of an instruction on page 308 of Form Nos. 2 and 2-
A. The Final Rule revised page 308 to provide more detail regarding 
revenues recorded in Account 495, Other Gas Revenues. Previously, 
pipelines were required to report this information in the aggregate and 
not required to include detailed information about the nature of the 
business activities from which the revenues are derived. The Commission 
determined that it was important for users of the data to understand 
which customer classes or groups are affected by the miscellaneous gas 
revenues reported in Form Nos. 2 and 2-A.\4\ Accordingly, page 308 was 
revised to include a breakdown of the types of revenues in Account No. 
495 to be separately reported on that schedule.\5\
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    \4\ See Order No. 710 at P 19.
    \5\ Id.
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    6. Prior to the revisions adopted in the Final Rule, the 
instructions for page 308 did not require the revenue information to be 
broken down but simply stated that transactions (identified in the 
instructions) with annual revenues of $250,000 or more were to be 
reported in the aggregate. In the Final Rule, miscellaneous revenue was 
broken out into ten separate categories and the instructions for page 
308, including the $250,000 threshold, were eliminated.\6\
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    \6\ Id. at App. C, p. 308.
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    7. INGAA and Dominion request that the Commission reinstate the 
$250,000 minimum threshold contained in the instructions to page 308 
prior to revision of the forms. INGAA notes that in the Final Rule, the 
Commission reinstated a similar minimum threshold reporting requirement 
for one existing schedule and inserted the same threshold reporting 
requirement for another.\7\ The Commission agreed with commenters who 
argued that the absence of such minimum thresholds could add a 
substantial burden to the forms' filers.\8\ We grant rehearing. We 
agree that a similar burden could be imposed on filers absent the 
change sought by INGAA and Dominion. Accordingly, we will reinstate a 
minimum reporting threshold for page 308 and clarify that the reporting 
requirements for the ten categories of discrete miscellaneous revenues 
listed thereon be limited to transactions with annual revenues of 
$250,000 or greater.
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    \7\ Id. P 22 (pages 357-8 of Form 2).
    \8\ Id.
    \9\ Id. P 16.
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B. Shipper-Supplied Gas

    8. The Final Rule adopted two new schedules to require natural gas 
companies to provide detailed information regarding the acquisition and 
disposition of shipper-supplied gas.\9\ The Commission noted that, 
despite existing accounting and reporting requirements for gas used in

[[Page 36415]]

operations, gas lost, and gas sold, Form Nos. 2 and 2-A users are 
unable to readily determine the disposition and value of shipper-
supplied gas that exceeds the pipelines' operational needs or the 
source and cost of any gas acquired to meet deficiencies in shipper-
supplied gas.\10\ Given the rising cost of gas and a lack of detailed, 
current information, the Commission adopted new schedules for Form Nos. 
2, 2-A and 3-Q to require the following information: (1) The difference 
between the volume of gas received from shippers and the volume of gas 
consumed in pipeline operations each month; (2) the disposition of any 
excess and the accounting recognition given to such disposition 
including the basis of valuing the gas and the specific accounts 
charged or credited; and (3) the source of gas used to meet any 
deficiency and the accounting recognition given to the gas used to meet 
the deficiency, including the accounting basis of the gas and the 
specific account(s) charged or credited.\11\
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    \10\ See NOPR at P 37.
    \11\ Id. P 39.
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    9. The Final Rule declined to adopt additional information 
requirements related to shipper-supplied gas and concluded that the 
requested information was already available to the forms' users or that 
adding requirements might upset the delicate balance between burden and 
benefit.\12\ On rehearing, AGA argues that the Commission erred by 
failing to adopt AGA's suggestion that the new information reported on 
pages 521a and 521b of Form Nos. 2, 2-A and 3-Q should be broken down 
by function and include, by function, the amount of fuel that has been 
waived, discounted, or reduced as part of a negotiated rate 
agreement.\13\ The Commission declined to adopt the additional detail 
requested by AGA, pointing out that certain fuel information, broken 
out by function, is already available on page 520 of Form Nos. 2 and 2-
A.\14\
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    \12\ Order No. 710 at P 16.
    \13\ AGA Request for Rehearing at 2.
    \14\ Order No. 710 at P 16.
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    10. AGA's request for rehearing argues that, while page 520 of the 
form provides certain fuel information by function, the information is 
not adequate to enable a form user to determine where on the pipeline 
system fuel costs are being incurred and how they are being 
allocated.\15\ As stated in the Final Rule, Page 520 of Form Nos. 2 and 
2-A provides fuel losses by function (unaccounted for gas is broken out 
by function at lines 30-34).\16\ AGA argues that additional detail 
regarding fuel costs is required for schedules 521a and 521b to ensure 
that the Commission and pipeline customers have the information 
required to assess the justness and reasonableness of pipeline 
rates.\17\ The Final Rule approved extensive revisions to Form Nos. 2, 
2-A and 3-Q with respect to the disposition of shipper supplied gas, 
adding two new schedules to the forms to accommodate the information 
collection.\18\ INGAA and other pipeline commenters objected to the 
changes as burdensome, but the Commission deemed the collection of this 
information critical in light of the increased impact on the pipeline's 
cost of service as a result of rising gas prices.\19\ At the same time, 
the Commission noted that the need to provide greater transparency with 
regard to fuel costs had to be balanced with the additional reporting 
burdens placed on the pipeline, and the Commission approved the new 
schedules as a fair reflection of this balance.\20\ In addition, the 
Commission stated that some of the information sought by AGA, i.e., 
certain data broken out by function, is already available on page 520 
of Form Nos. 2 and 2-A and the Final Rule added page 520 to Form No. 3-
Q as well. While the detail sought by AGA might provide additional 
clarity with respect to fuel costs, we do not believe its exclusion 
will preclude the Commission's or customers' ability to assess the 
justness and reasonableness of pipeline rates.
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    \15\ AGA Request for Rehearing at 5.
    \16\ Order No. 710 at P 16.
    \17\ See AGA Request for Rehearing at 5-6.
    \18\ See Order No. 710 at P 16.
    \19\ Id. See also Public Service Commission of New York, 
Pennsylvania Public Utility Commission and Pennsylvania Office of 
Consumer Advocate v. National Fuel Gas Supply Corp., 115 FERC ] 
61,299 (2006), order approving uncontested settlement, 118 FERC ] 
61,091 (2007).
    \20\ Order No. 710 at P 16.
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    11. We also deem unnecessary and burdensome AGA's request that 
pipelines provide information regarding the amount of fuel that a 
pipeline has waived, discounted or reduced as part of a negotiated rate 
agreement. AGA argues that some pipelines currently provide information 
in periodic fuel reports regarding fuel that has been waived, 
discounted, or reduced as part of a negotiated rate agreement. In 
support, AGA cites a fuel report filed by Dominion Transmission, Inc. 
(Dominion Transmission).\21\ The report cited by AGA is a 20-page 
annual fuel report filed by Dominion Transmission pursuant to a rate 
settlement agreement, and exceeds, in significant detail, the type of 
financial and rate information the Commission deems appropriate for 
Forms 2, 2-A and 3-Q. It is unlikely that all pipelines would have this 
information readily available since many pipelines do not periodically 
file to adjust fuel rates and may not keep records of this type of 
information. Further, it is not apparent that the level of fuel 
associated with these types of transactions is significant enough to 
warrant additional reporting requirements. Customers of pipelines that 
use fuel tracking mechanisms and file periodic true-up reports may 
explore these issues in the context of the pipeline's periodic fuel 
filings. For these reasons, we deny AGA's request for rehearing.
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    \21\ See AGA Request for Rehearing at 3, citing Dominion 
Transmission, Inc., Docket No. RP00-632-023.
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C. Reinstatement of Periodic Rate Filing Requirement

    12. The KCC's request for rehearing argues that the Final Rule did 
not address its proposal to reinstate a periodic rate-refiling 
requirement as a condition to issuance of a blanket certificate for 
open access transportation service under Part 284 of the Commission's 
regulations.\22\ The KCC states that the Commission has the ability to 
impose conditions under section 7(c) of the Natural Gas Act (NGA) and 
that conditioning blanket certificate authority on periodic filing of 
general section 4 rate cases would be within the Commission's 
authority.\23\ Further, the KCC argues that imposing such a condition 
would not violate the distinction between sections 4 and 5 of the NGA 
any more than when the Commission imposed a triennial rate filing 
requirement as a condition to receipt of a purchased gas adjustment 
(PGA) clause in pipeline tariffs.\24\
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    \22\ KCC Request for Rehearing at 8.
    \23\ Id.
    \24\ Id.
    \25\ See Order No. 710 at P 12.
    \26\ Public Service Commission of New York v. FERC, 866 F.2d 
487, 489 (D.C. Cir. 1989) (PSNY v. FERC); see also United 
Distribution Companies v. FERC, 88 F.3d 1105 (D.C. Cir. 1996).
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    13. Contrary to KCC's claim, the Final Rule addressed its request 
that the Commission reinstate a periodic rate-refiling requirement.\25\ 
It is well settled that the Commission may not compromise the limits of 
section 5 of the NGA on the Commission's power to revise rates.\26\ The 
KCC's proposal is inconsistent with that limitation on the Commission's 
powers. In PSCNY v. FERC, the court reviewed the Commission's orders in 
a pipeline's first NGA section 4 rate case after it had received a 
certificate of public

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convenience and necessity pursuant to section 7 of the NGA. In those 
orders, the Commission approved the pipeline's proposed rates. However, 
because the pipeline's rate base was expected to continue declining, 
the Commission required that the pipeline file a new section 4 rate 
case every three years so as to minimize the possibility of the 
pipeline recovering an excessive return on equity.\27\ The court 
rejected the Commission's decision and held that the Commission's 
action would destroy the balance struck by the NGA in sections 4 and 5 
of the act.\28\ The court further admonished the Commission that it had 
considered earlier efforts by the Commission to ``escape the 
inconveniences of Sec.  5,'' citing Panhandle Eastern Pipe Line Co. v. 
FERC, 613 F.2d 1120 (D.C. Cir. 1979) (Panhandle). In Panhandle, the 
Commission had issued a section 7 certificate and conditioned the 
certificate on the pipeline's crediting revenues from the new service 
to customers of other pipeline services. The court labeled the 
condition as ``a de facto reduction in existing rates,'' and concluded 
that ``in light of the distinctions between Sec. Sec.  4 and 5, FERC's 
proposed tinkering with existing rates would `effectively emasculate 
the role of section 5 in the ratemaking scheme'.'' \29\
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    \27\ PSNY v. FERC, 866 F.2d at 490.
    \28\ Id.
    \29\ PSCNY v. FERC, 866 F.2d at 490. See also Northern Natural 
Gas Co. v. FERC, 780 F.2d 59 (D.C. Cir. 1985).
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    14. Along the same lines, in United Distribution Companies v. FERC, 
the court affirmed the Commission's refusal in Order No. 636 to impose 
a three-year rate review on open access pipelines with blanket 
certificates.\30\ The court rejected the claim of those in favor of 
retaining triennial rate review that the market-based sales authority 
granted to pipelines in Order No. 636 and Straight Fixed Variable (SFV) 
transportation rate design required by that order are benefits to which 
a periodic rate filing requirement may be attached.\31\ The court 
pointed out that pipelines were leaving the sales business, and 
``whatever the benefits of SFV rate design to pipelines, they are not 
benefits voluntarily accepted by the pipelines and so cannot be the 
basis for imposition of periodic rate review.'' \32\ The court also 
cited the decision in PSCNY v. FERC ``noting that FERC's authority to 
impose a periodic rate review in the PGA context `obviously rests on 
pipeline consent' to triennial rate review in exchange for automatic 
PGA adjustment authority.'' \33\
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    \30\ United Distribution Cos. v. FERC, 88 F.3d 110, 1175-6.
    \31\ Id. at 1176.
    \32\ Id. at 1176.
    \33\ Id. at 1176, citing PSCNY v. FERC, 866 F.2d at 492.
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    15. The relief requested by KCC in this proceeding is the same and 
must be rejected for the same reasons. As the court has pointed out, 
the rate refiling requirement that was once imposed in exchange for the 
pipeline's ability to recover purchased gas costs through a tracker was 
based upon the voluntary acceptance by the pipeline of a rate refiling 
condition. In addition, allowing pipelines to track gas costs through a 
PGA was an exception to the Commission's general ratemaking policy that 
pipelines may not change individual components of their cost of service 
without filing a general section 4 rate case. Therefore, if a pipeline 
chose not to accept the option of PGA recovery of gas costs, its 
alternative was to adjust its rates for changes in its gas costs in a 
general section 4 rate case. Because that alternative was consistent 
with the Commission's general ratemaking policy, it was as consistent 
with the public interest as the PGA recovery option. KCC's proposal is 
dissimilar in both respects. In today's natural gas market, open access 
transportation is so fundamental to the manner in which pipelines 
conduct business that there is no realistic option for a pipeline not 
to retain its blanket certificate. The alternative would require a 
return to the pre-open access past when pipelines provided only 
individually certificated service requiring abandonment proceedings 
under section 7 of the NGA and would deprive the pipeline's customers 
and the public at large of the many benefits of open access 
transportation service. It is unlikely that a pipeline would 
``voluntarily'' consent to such a condition and, in any event, the 
pipeline's alternative of discontinuing open access transportation 
service would not be in the public interest.
    16. The revisions to Form Nos. 2, 2-A and 3-Q adopted in the Final 
Rule were designed to provide a level of information that would enhance 
the ability of the Commission and pipeline customers to assess the 
justness and reasonableness of pipeline rates. As we stated in the 
Final Rule, the Commission cannot compel a pipeline to file a rate case 
under section 4, nor can it preclude it from filing under section 4 for 
any reason.\34\ The Commission's efforts in this regard reflect its 
awareness that pipeline customers need additional information to make a 
reasonable assessment of a pipeline's cost of service, and we believe 
that the Final Rule accomplishes that goal. Accordingly, we deny the 
KCC's request for rehearing.
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    \34\ Order No. 710 at P 12.
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D. Miscellaneous

    17. Following the issuance of the Final Rule, staff discovered a 
few inadvertent errors in two of the revised schedules, pages 278 and 
299. These revisions are for purposes of clarification and do not 
affect the level of information requested in the forms.
    18. Column (a) on page 278 is revised to reference liabilities 
rather than assets. The column labeled ``Written off During Quarter/
Year Account Charged'' replaces the word ``charged'' with ``credited.'' 
The column labeled ``Debits'' is revised to read ``Credits.''
    19. The instructions to page 299, Monthly Quantity & Revenue Data 
by Rate Schedule are revised as reflected on the attached schedule.
The Commission Orders
    The requests for clarification and/or rehearing are granted in part 
and denied in part as discussed in the body of this order.

    By the Commission. Commissioner Wellinghoff dissenting in part 
with a separate statement attached.
Kimberly D. Bose,
Secretary.
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WELLINGHOFF, Commissioner, dissenting in part:

    On rehearing, the American Gas Association (AGA) continues to 
recommend that the Commission require pipelines to provide shipper-
supplied gas information reported on Sheets 521a/b by function and to 
include, by function, the amount of fuel that has been waived, 
discounted or reduced as part of a negotiated rate agreement. The 
Commission rejects AGA's proposals. I disagree.
    In denying the request for shipper-supplied gas information 
reported on Sheets 521a/b by function, the majority acknowledges that 
the detail sought by AGA would bring additional clarity to fuel costs. 
However, the majority states that the additional information is not 
needed to assess the justness and reasonableness of the pipeline's 
rates. The majority further states that the additional reporting would 
be too burdensome.
    The Commission recognizes that shipper-supplied gas information is 
critical to the clarity and transparency needed to support a reasonable 
analysis of fuel gas costs.\35\ Sheets 521a/b operate in tandem with 
Sheet 520. Sheet 520 provides fuel gas costs by function. A shipper 
pays for fuel costs by function whether the fuel rate is fixed or 
tracked. Sheets 521a/b provide the volume and revenue from the 
disposition of excess shipper-supplied gas. However, unless Sheets 
521a/b are broken out by function, a shipper cannot match the revenues 
generated by the sale of excess fuel with the functionalized costs. 
Thus, because the fuel rate would include both gas costs and excess gas 
revenues, the information sought by AGA is critical to assessing the 
justness and reasonableness of the pipeline's fuel rates.
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    \35\ Revisions to Forms, Statements, and Reporting Requirements 
for Natural Gas Pipelines, Order No. 710, 73 FR 19389 (Apr. 10, 
2008), FERC Stats. & Regs. ] 31,267 (2008).
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    In denying the request for the amount of fuel by function that has 
been waived, discounted or reduced as part of a negotiated rate 
agreement, the majority states that it is unlikely that all pipelines 
would have this information readily available. The majority also 
asserts that it is not apparent that the level of fuel associated with 
these types of transactions is significant enough to warrant additional 
reporting.
    With most pipeline expansions backstopped with negotiated rate 
contracts, I believe that the fuel associated with these types of 
transactions is not insignificant. Regardless of the level of fuel, the 
Commission has a strict policy that existing shippers must not 
subsidize the negotiated rate program.\36\ In fact, in this proceeding, 
the Commission has stated that because pipelines may provide services 
from the same facilities using different rates--negotiated, discounted 
or recourse rates--it is important to know the level of services 
provided under each rate structure in order to protect against cross-
subsidization. Therefore, fuel costs and revenues of the different 
types of rate structures broken down by function are critical to 
assessing the justness and reasonableness of a pipeline's fuel rates.
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    \36\ See Alternative Rate Policy Statement, 74 FERC ] 61,076 at 
61,242 (1996), and NorAm Gas Transmission Company, 77 FERC ] 61,011 
(1996).
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    With regard to the reporting burden, the information requested by 
AGA is readily available. The pipeline maintains this information by 
function in order to change its fuel rate either in a tracking 
mechanism or its next section 4 rate filing, and to assure that its 
existing customers are not subsidizing the negotiated rate program.\37\ 
The increased burden is related solely to inputting the data in the 
Form 2. I believe that the increased burden is justified by the utility 
of the information.
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    \37\ See Alternative Rate Policy Statement, 74 FERC ] 61,076 at 
61,241 (1996).
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    For these reasons, I respectfully dissent in part from today's 
order.

Jon Wellinghoff,
Commissioner.
[FR Doc. E8-14463 Filed 6-26-08; 8:45 am]
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