UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners: Joseph T. Kelliher, Chairman;

Nora Mead Brownell, and Suedeen G. Kelly.

Dominion Transmission, Inc. Docket No. RP06-316-000

ORDER ON TARIFF SHEETS

(Issued May 19, 2006)

1.  On April 20, 2006, Dominion Transmission, Inc., (Dominion) filed
    revised tariff sheets[^1] reflecting new tariff language it states
    is to clarify the liability for any loss of gas in storage, and to
    provide that its customers' are responsible to insure gas that they
    own. For the reasons discussed below, the Commission will accept
    Dominion's tariff sheets for filing and will suspend them, to become
    effective subject to refund the earlier of a date set by subsequent
    Commission order or October 22, 2006, subject to the outcome of a
    technical conference and further Commission orders.

    **[Background]{.underline}**

2.  Dominion proposes to add a new section 10 entitled "LOSS OF GAS" to
    Rate Schedules GSS (General Storage Service), GSS (General Storage
    Service, section 7(c)) and ISS (Interruptible Storage Service).
    Specifically, the proposed tariff language states:

    Pipeline shall be responsible for any loss, cost, or expense arising
    from any loss of Customer's gas in Pipeline's storage that results
    from Pipeline's negligence or failure to exercise due diligence.
    Customer shall be responsible for obtaining its own insurance for
    any gas in storage, and shall hold Pipeline harmless from any loss,
    cost, or expense arising from any loss of storage gas that results
    from a force majeure event or that is not the result of Pipeline's
    negligence or failure to exercise due diligence.

3.  Dominion states that the new language is consistent with the
    existing terms of its tariff, and serves only to make more explicit
    Dominion and its customers' liability for loss of gas in storage and
    to require customers to insure their storage quantities against
    losses for which they are responsible. Dominion states that existing
    section 10 of its General Terms and Conditions (GT&C), Force Majeure
    and Limitation of Obligation to Provide Service, provides that
    Dominion is not liable for any act, omission, or circumstances
    arising from force majeure, and defines force majeure so as to
    encompass any cause of destruction of gas in storage not reasonably
    within Dominion's control. Section 11.1 of its GT&C requires
    customers to indemnify Dominion for all losses, damages, or expenses
    resulting from curtailment, interruption, or discontinuance of
    service, except to the extent of Dominion's own negligence, willful
    misconduct, or fraud in causing such damage or liability. Dominion
    adds that the effect of these provisions is to place the risk of
    loss of a customer's gas in storage on that customer except where
    Dominion is at fault.

4.  Dominion contends that the Commission has recently approved similar
    tariff provisions requiring storage customers to obtain insurance
    for their volumes of gas in storage.[^2]

5.  With respect to the liability for loss of gas, Dominion asserts that
    many recently certificated storage projects have included a
    provision in their *pro forma* tariffs explicitly defining the risk
    of loss for stored gas instead of relying on a force majeure clause
    to define liability.[^3] Dominion contends that most force majeure
    clauses like Dominion's imply, rather than affirmatively state, that
    the pipeline is liable for losses resulting from pipeline's own
    negligence or failure to exercise due diligence. Dominion contends
    that the "loss of gas" clause it proposes to incorporate into its
    tariff affirmatively states its liability for such losses.

    **[Notice, Interventions, and Protests]{.underline}**

6.  Interventions and protests were due as provided in section 154.210
    of the Commission\'s regulations. Pursuant to Rule 214, 18 C.F.R.
    §385.214 (2005), all timely filed motions to intervene and any
    motions to intervene out-of-time filed before the issuance date of
    this order are granted. Granting late intervention at this stage of
    the proceeding will not disrupt this proceeding or place additional
    burdens on existing parties. Protests were filed by: Baltimore Gas
    and Electric Co. (BG&E) and Constellation New Energy-Gas Division,
    LLC, (CNE-Gas), Consolidated Edison Co. of New York, Inc. and
    Philadelphia Gas Works (Con Ed/PGW), Doswell Limited Partnership and
    Northeast Energy Associates (jointly referred to as Doswell), The
    Dominion LDC's (The East Ohio Gas Co. d/b/a Dominion East Ohio, the
    Peoples Natural Gas Co. d/b/a Dominion Peoples, and Hope Gas, Inc.
    d/b/a Dominion Hope), KeySpan (The Brooklyn Union Gas Co., d/b/a
    KeySpan Energy Delivery NY; KeySpan Gas East Corp., d/b/a KeySpan
    Energy Delivery LI; Boston Gas Co., Colonial Gas Co., Energy North
    Natural Gas, Inc., and Essex Gas Co.), New Jersey Natural Gas Co.
    (NJNG), NiSource Distribution (Bay State Gas Co., Columbia Gas of
    Ohio, Inc., Columbia Gas of Pennsylvania, Inc., and Columbia Gas of
    Virginia, Inc.), PSEG Energy Resources & Trade, LLC (PSEG),
    Transcontinental Gas Pipe Line Corp. (Transco) and Washington Gas
    Light Co. (Washington Gas). Atlanta Gas Light Co. (AGLC), Virginia
    Natural Gas, Inc. (VNG) and Pivotal Utility Holdings Inc. d/b/a
    Elizabethtown Gas Co., (Elizabethtown) filed a motion to intervene
    and for an extension of time to file comments. PECO Energy Co.
    (PECO) and UGI Utilities, Inc. (UGI) filed protests out of time.[^4]
    Piedmont Natural Gas Co. and the City of Richmond, Virginia filed to
    intervene out of time. On May 12, 2006, Dominion filed a motion for
    leave to answer protests.[^5] The protests and Dominion's answer are
    discussed below.

    **[Protests]{.underline}**

7.  Protesting parties contend that Dominion's characterization of its
    proposal as a mere "clarification" is disingenuous as it is actually
    a new requirement which represents a significant change in the
    allocation of risk between the pipeline and its customers. BG&E and
    CNE-Gas, Con Ed/PGW, KeySpan, NJNG, PECO, PSEW, UGI, and Washington
    Gas allege that Dominion has not explained or demonstrated that its
    proposal is necessary or just and reasonable and, thus, should be
    rejected. If the Commission does

    not reject Dominion's proposed tariff modification, AGLC, VNG,
    Elizabethtown, BG&E, CNE-Gas, KeySpan, PECO and UGI request that the
    tariff sheets be suspended and that the Commission establish a
    technical conference.

8.  The protesting parties state that Dominion's existing tariff
    provisions do not support Dominion's interpretation that its new
    "loss of gas" section merely clarifies the liability for losses
    under its existing FERC Gas Tariff. Section 8.2, Possession of Gas,
    of Dominion's GT&C provides that Dominion is deemed responsible for
    gas from the time it is received into Dominion's system until the
    time it is delivered to the customer at the delivery point. NJNG
    states that the interpretation of this provision is that Dominion
    bears the risk of loss with respect to customers' gas, whether for
    transportation or storage, once that gas is delivered into the
    pipeline's system and until the pipeline delivers it back to the
    customer. NJNG states that this interpretation is consistent with
    Commission policy.[^6] NJNG adds that Dominion, in its transmittal
    letter, defines force majeure to encompass "any cause of destruction
    of gas in storage not reasonably within Dominion's control." NJNG
    contends that nowhere in section 10 of Dominion's GT&C is there a
    reference to "destruction of gas," much less to "destruction of gas
    in storage." Thus, NJNG contends that it is unreasonable and
    inconsistent with the language of Dominion's tariff to construe that
    Dominion is permanently absolved of its responsibility for gas in
    its possession in circumstances where a loss was the result of an
    event of force majeure. Con Ed/PGW also contends that Dominion's
    proposal is contrary to other provisions of Dominion's tariff and is
    a significant misallocation of liability.

9.  KeySpan contends that under Dominion's current force majeure clause,
    Dominion would bear the burden of proving that the force majeure
    event was beyond its control and was not the result of its own fault
    or negligence.[^7] Dominion's "loss of gas" proposal, would change
    Dominion's obligation from one in which it would be required to
    demonstrate that any particular loss of gas arose from an event of
    force majeure that could not be overcome by the exercise of
    reasonable diligence, to one in which Dominion would be required
    only to defend itself from a charge that it was negligent or failed
    to exercise due diligence. Further, KeySpan states that Dominion
    should not be permitted to revise its own force majeure clause to
    require customers to protect Dominion from circumstances related to
    losses of gas that are neither the customers' fault, nor within the
    customers' control. KeySpan contends that the Commission has
    consistently and explicitly rejected the use of a strict liability
    standard when considering liability for the loss of gas.[^8]
    Finally, KeySpan states that Dominion should not be permitted to
    shift its responsibility to exercise due diligence to its customers.

10. NJNG and PSEG allege that Dominion's proposal will have immediate
    and significant cost consequences for Dominion and its customers in
    that customers would have the responsibility to insure against such
    losses, and Dominion would be relieved of this insurance cost
    responsibility. NJNG further contends that the proposal would not
    only shift the risk of storage gas losses, it would require its
    storage customers to hold Dominion harmless against third party
    liabilities the pipeline might suffer in other instances of gas
    loss.

11. PSEG, NJNG and Washington Gas contend that the issue of assigning
    risks for gas losses in storage should be considered in a general
    rate proceeding where it can be examined along with all other cost
    issues. UGI states that the topic of Dominion's losses from storage
    service has been contentious and disputed in prior rate proceedings,
    and that the current storage loss provisions in Dominion's tariff
    resulted from carefully crafted compromises in settlement. Thus, the
    protestors allege that Dominion's proposal would unfairly reallocate
    cost responsibility during Dominion's settlement moratorium, and
    that the Commission should not entertain such a change in cost
    responsibility outside a general NGA section 4 rate case.

12. The Dominion LDCs and PECO state that Dominion fails to explain how
    the proposed language affects the allocation of risk of storage
    losses as agreed to in the settlement approved in Docket No.
    RP00-632-000[^9] or as set forth in section 27 of Dominion's GT&C
    relating to Extraordinary Gas Losses. The Dominion LDCs request that
    the Commission direct Dominion to explain the interaction of this
    new tariff provision and the limits on additional recoveries of
    storage losses pursuant to currently effective settlements and
    tariff provisions. NJNG states that the issue of responsibility for
    losses of customer storage gas was not raised during the 2005 rate
    settlement

    proceeding in Docket Nos. RP05-267-000 *et al*., which was designed
    as a limited amendment to the Docket No. RP00-632-000 Settlement,
    and establishes a five year moratorium on the effective date for
    general rate changes.[^10]

13. KeySpan further states that many of Dominion's current tariff
    provisions are the product of settlements that were agreed to after
    extended negotiations as part of Order Nos. 636 and 637 compliance
    processes. While these provisions may have been agreed to as part of
    an overall compromise, they may no longer be just and reasonable in
    light of the shifting of gas loss risk that Dominion's proposed
    tariff language appears to require. For example, KeySpan states that
    existing section 11, Curtailment and Interruption, of Dominion's
    GT&C requires customers to indemnify Dominion for any losses that
    Dominion may suffer as a result of Dominion's curtailment.[^11]
    KeySpan contends that this provision violates the Commission policy
    that prohibits the imposition of liability without fault. Further,
    it asserts, Dominion's existing GT&C in section 27, Extraordinary
    Gas Losses, contains a provision that permits Dominion to seek
    retroactive recovery of extraordinary gas losses.[^12] Con Ed/PGW
    contends that section 27 does not purport to place customers on
    notice that Dominion may seek rate recovery for costs other than the
    cost of gas itself, arising from extraordinary losses. KeySpan
    contends that if its customers are to be required to bear the risk
    of their own losses, then Dominion should be subject to the same
    risk. Thus, KeySpan concludes that if Dominion's tariff proposal is
    accepted, the Commission should establish separate procedures under
    section 5 of the NGA to permit parties to examine whether other
    complementary provisions of Dominion's tariff may be unjust and
    unreasonable in light of Dominion's proposed "loss of gas"
    provision.

14. NJNG provides that since Dominion operates its entire system on an
    integrated basis, it cannot determine whether gas in any particular
    storage facility is Dominion's or its customers', transportation,
    balancing, or storage gas. NJNG adds that the Commission, in its
    order on Dominion's Order No. 627 Settlement, described Dominion's
    system as a "highly complex web or grid, where gas flows are highly
    variable and depend on the nominations made by multiple shippers
    each day and season at myriad receipt and delivery points
    distributed throughout the pipeline grid."[^13] Given the integrated
    nature of Dominion's contract storage service, the protesting
    parties contend that it would be difficult for a shipper to purchase
    insurance for storage gas unless the shipper is able to guarantee in
    which reservoir its storage gas resides.

15. Doswell states that its service agreement with Dominion does not
    allocate its gas to any particular field in Dominion's storage
    system, but states that Doswell's gas will be received "for storage
    in Dominion's underground storage properties." Doswell adds that its
    service agreement only specifies delivery and receipt points.
    Because Dominion has numerous storage reservoirs and operates them
    in the aggregate, Doswell asserts that shippers are not told in
    which reservoir their gas supplies reside, making it hard for
    storage customers to purchase insurance without specific details.
    Doswell contends that the burden to insure gas in storage should
    fall on Dominion who can in turn allocate the cost through its
    rates. PSEG states that the "loss of gas" provision would require
    shippers to not only take out insurance coverage on the gas held by
    Dominion in storage, but also to take on the financial
    responsibility for all other costs or expenses suffered by Dominion
    relating to storage gas loss that are not the result of Dominion's
    negligence.

16. NJNG also states that under the new proposal Dominion's customers
    will now have an incentive to litigate over events that cause lost
    storage gas and the quantification and allocation of customer versus
    pipeline gas.

17. Con Ed/PGW provides that it has been in contact with Dominion
    regarding its proposed tariff modification, and states that it will
    only summarize its concerns in its protest. Con Ed/PGW states that
    the second sentence of Dominion's proposed tariff language is
    overbroad in its reference to "any gas in storage" and "storage
    gas." Con Ed/PGW contends that customers should not be responsible
    for insuring base or cushion gas owned by Dominion, nor should
    customers be required to indemnify Dominion for events arising from
    a loss of base gas. NiSource requests that Dominion be required to
    clarify that proposed section 10 does not apply to losses of base
    gas or other gas owned by Dominion, nor should it apply to storage
    migration losses, and that losses of gas in storage should be
    allocated ratably between base gas and working gas. NiSource also
    requests that the second sentence of proposed section 10 be
    clarified to state that customers are not required to purchase
    insurance from third-party carriers. Transco requests that Dominion
    be directed to clarify how the proposed tariff provision will modify
    the existing responsibility and liabilities of the pipeline and its
    customers under Dominion's tariff, and how the proposed tariff
    provision will operate consistent with those existing tariff
    provisions.

18. NJNG states that Dominion's proposal only addresses responsibility
    for losses of storage gas owned by GSS and ISS customers, but is
    silent on how Dominion views risk of loss for gas it transports, or
    the service it provides under its park and loan Rate Schedule MCS.
    NJNG submits that there is no rational basis to distinguish
    transport or "parked" gas from storage gas on Dominion's system.
    Accordingly, NJNG contends that it would be unduly discriminatory to
    allocate risk of loss to one group of customers while maintaining
    the pipeline's responsibility for gas losses for the other.

19. KeySpan, NJNG, UGI, and other parties have raised numerous questions
    regarding Dominion's proposal. Some parties have offered suggestions
    on how to revise Dominion's tariff to further clarify its proposal
    while other parties set forth specific questions that Dominion would
    need to answer. Specifically, some of the questions parties raise
    include: 1) Does Dominion carry its own insurance on gas in storage?
    Is the cost of such insurance currently reflected in Dominion's
    rates?; 2) How would Dominion account for a storage loss? Would the
    first gas lost in any instance be Dominion's base gas or customer's
    gas or some combination of both? How would the location of losses be
    determined, and then apportioned among customers?; 3) How would
    Dominion's recovery of storage fuel offset gas losses? Are there
    other sources of potential offsets? 4) What is Dominion's gas loss
    experience at various fields? Are certain fields prone to
    extraordinary storage gas migration? Will customers have a choice to
    avoid having their gas stored in certain fields that might be
    characterized as "high risk" by insurers? What rights would
    customers and their insurers have to require Dominion to improve the
    loss performance of its fields? Finally, parties assert that
    Dominion should clarify and define the types of risk it is assigning
    to shippers, *i.e*., risks arising from a gas explosion, gas
    migration gas contamination, etc.

    **[Dominion's Answer]{.underline}**

20. On May 12, 2006, Dominion filed a motion for leave to answer
    protests. In its answer, Dominion continues to state that the
    proposed tariff revisions serve only to clarify the risk and
    liability for loss storage gas in a way consistent with its existing
    tariff and Dominion's past practice, do not impose new obligations
    on the customers and are not inconsistent with any existing
    settlement obligations Dominion has with its customers. Dominion
    also states that it is willing to add the "loss of gas" provision to
    Rate Schedule MCS. Finally, Dominion offers clarifications to its
    proposed tariff language.

    **[Discussion]{.underline}**

21. The parties have raised numerous questions about Dominion's
    proposal, as described above. Although Dominion, in its May 12
    answer to protests, submitted revised tariff language to further
    clarify its proposal, the Commission finds that the issues raised by
    the protesting parties and the revised tariff language filed by
    Dominion warrant further examination and discussion. A technical
    conference will provide an appropriate

    forum to address the issues raised by the filing and Dominion's
    answer. The Commission will, therefore, accept Dominion's tariff
    sheets for filing and suspend them, to become effective subject to
    refund the earlier of a date set by subsequent Commission order or
    October 22, 2006, subject to the outcome of a technical conference
    and further Commission orders.

    **[Suspension]{.underline}**

22. Based upon a review of the filing, the Commission finds that the
    proposed tariff sheets have not been shown to be just and reasonable
    and may be unjust, unreasonable, unduly discriminatory, or otherwise
    unlawful. Accordingly, the Commission shall suspend the tariff
    sheets for the period set forth below, subject to the outcome of the
    technical conference established in this proceeding.

23. The Commission\'s policy regarding tariff suspensions is that tariff
    filings generally should be suspended for the maximum period
    permitted by statute where preliminary study leads the Commission to
    believe that the filing may be unjust, unreasonable, or that it may
    be inconsistent with other statutory standards. *See Great Lakes Gas
    Transmission* *Co.*, 12 FERC & 61,293 (1980) (five-month
    suspension). It is recognized, however, that a shorter suspension
    period may be warranted in the circumstances where suspension for
    the maximum period may lead to harsh and inequitable results*. See
    Valley Gas* *Transmission, Inc.,* 12 FERC & 61,197 (1980) (one-day
    suspension). No such circumstances are present here. Accordingly,
    the Commission will accept Dominion's tariff sheets for filing and
    will suspend their effectiveness until the earlier of a date set by
    subsequent Commission order or October 22, 2006, subject to refund
    and subject to the outcome of the technical conference established
    herein and further orders of the Commission.

[The Commission orders]{.underline}:

\(A\) The tariff sheets set forth in footnote 1, *supra*, are accepted
for filing and suspended, to become effective subject to refund the
earlier of a date set by subsequent Commission order or October 22,
2006, subject to the outcome of the technical conference established
herein and further orders of the Commission.

\(B\) A technical conference is established in the instant proceedings
to address the issues raised by Dominion's filing. The Commission Staff
is directed to report the results of the Technical conference to the
Commission within 150 days of this order.

By the Commission.

( S E A L )

Magalie R. Salas,

Secretary.

[^1]: **^?^** Second Revised Sheet No. 309, First Revised Sheet No. 359,
    Third Revised Sheet No. 508 to FERC Gas Tariff, Third Revised Volume
    No. 1.

[^2]: **^?^** *Citing, Columbia Gas Transmission Corp. and Hardy Storage
    Co., LLC,* 113 FERC ¶ 61,118 at PP 57-59 (2005); *Williams Natural
    Gas Co.,* 71 FERC ¶ 61,412, *reh'g*. 73 FERC ¶ 61,285 (1995); and
    *Caledonia Energy Partners, L.L.C.,* 111 FERC ¶ 61,095 (2005).

[^3]: **^?^** *Citing, e.g., Egan Hub Partners, L.P.,* 103 FERC ¶ 61,014
    (2003) (GT&C section 12.2 (Title and Risk of Loss)).

[^4]: **^?^** The late-filed protests are accepted as the protests may
    aid in the disposition of issues raised by the filing.

[^5]: Pursuant to Rule 213(a)(2) of the Commission's Rules of Practice
    and Procedure, 18 C.F.R. §385.213(a)(2) (2005), an answer may not be
    made to a protest unless otherwise ordered by the decisional
    authority. However, the Commission will waive Rule 213(a)(2) and
    accept Dominion's Answer as it may aid in the disposition of the
    issues raised by the filing.

[^6]: **^?^** *Citing, e.g., Overthrust Pipeline Co.,* 58 FERC ¶ 61,104
    at 61,364 (1992) (*citing Colorado Interstate Gas Co.,* 42 FERC ¶
    61,380 (1988)), where the Commission determined that CIG and the
    shipper are deemed to be responsible for the gas while it is in
    their respective control and possession; *Wyoming Interstate Co.,
    Ltd.,* 57 FERC ¶ 61,328 at 62,049 (1991).

[^7]: **^?^** *Citing, Gulf Oil Corp. v. FPC,* 706 F. 2d 444, 452 (3^rd^
    Cir. 1983), *cert. denied,* 646 U.S. 1038 (1984).

[^8]: **^?^** *Citing, ANR Pipeline Co.,* 98 FERC ¶ 61,218 at 61,862
    (2002), *Arkla Energy Resources Co.,* 64 FERC ¶ 61,166 at 62,490
    (1993).

[^9]: **^?^** *Dominion Transmission, Inc.,* 96 FERC ¶ 61,288 (2001).

[^10]: **^?^** *Dominion Transmission, Inc.,* 111 FERC ¶ 61,285 (2005).

[^11]: **^?^** *Citing,* Sheet No. 1041 to FERC Gas Tariff, Third
    Revised Volume No. 1.

[^12]: **^?^** *Citing,* Sheet No. 1169 to FERC Gas Tariff, Third
    Revised Volume No. 1.

[^13]: **^?^** *Citing, Dominion Transmission, Inc.,* 95 FERC ¶ 61,316
    at 32,078 (2001).