UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners: Joseph T. Kelliher, Chairman;

Nora Mead Brownell, and Suedeen G. Kelly

Florida Gas Transmission Company Docket No. RP06-255-000

ORDER ACCEPTING AND SUSPENDING TARIFF SHEET

SUBJECT TO REFUND AND CONDITIONS

(Issued March 31, 2006)

1.  On February 28, 2006, Florida Gas Transmission Company (Florida Gas)
    filed a revised tariff sheet[^1] to establish its initial capital
    reservation surcharge at \$.01 per MMBtu for Rate Schedule FTS-1 and
    its initial capital volumetric surcharge at \$.02 per MMBtu for Rate
    Schedule SFTS pursuant to Article IX of a stipulation and agreement
    (settlement)[^2] and section 26 of the General Terms and Conditions
    (GT&C) of its tariff. Florida Gas requests that the Commission
    permit an effective date of April 1, 2006. The Commission accepts
    and suspends the proposed tariff sheet, permitting it to become
    effective April 1, 2006, subject to refund and to the conditions set
    forth below.

    **[Background]{.underline}**

2.  Section 26 of the GT&C of Florida Gas' tariff provides that during
    the term of the settlement, Florida Gas shall have the right to
    recover, through a limited Natural Gas Act (NGA) section 4 rate
    filing, capital costs resulting from capital additions placed into
    service and retirements of facilities removed from service for those
    expenditures necessary to: (i) enhance system security (Security
    Costs); (ii) comply with the provisions of the Pipeline Safety
    Improvement Act of 2002 and regulations issued thereunder (Safety
    Costs); and (iii) relocate or replace portions of Transporter\'s
    system to accommodate expansions or improvements to the Florida
    Turnpike, as required by the Florida Department of Transportation
    (Turnpike Costs, collectively, Capital Costs).

3.  Pursuant to the settlement and section 26 of its tariff, Florida Gas
    may recover the depreciation and pretax return on certain defined
    capital expenditures or Capital Costs through a reservation or a
    volumetric surcharge (Capital Surcharge). Florida Gas shall record
    Security Costs, Integrity Costs, Turnpike Costs in Account Nos. 101
    and 106, separately for the incremental system and the
    non-incremental system.[^3]

4.  Specifically, section 26A of Florida Gas' tariff defines Security
    Costs to include costs associated with: improvements to the pipeline
    system to prevent damage from terrorist actions or sabotage,
    improvements to rights-of-way and office structures to prevent
    unauthorized entry or damage from terrorist actions or sabotage, and
    improvements to fencing and physical barriers, or other means of
    preventing unauthorized entry or access to the pipeline right-of-way
    facilities (such as gates with various controls, cameras, or card
    readers), including remote-controlled facilities, motion-activated
    or thermal-activated sensors, alarms, or other facilities, or
    facilities to provide a local indication or notification to
    Transporter\'s management when there has been unauthorized access.

5.  Section 26A further defines Integrity Costs to include costs
    incurred: (a) to identify and assess the integrity of the pipeline
    in high consequence areas on its pipeline, including performing
    in-line inspections of the pipeline (commonly referred to as \"smart
    pigging\", which requires pig launchers and receivers not already
    installed at certain points along the system, the removal of any
    restrictions or obstructions that would impede the pig, such as
    certain types of valves, and dents or bends in the pipeline),
    hydrostatic testing, or other assessment, and (b) to take specific
    actions to assure the integrity of the pipeline in those areas, and
    remediate any conditions that exceed the allowable limits (such as
    re-coating, repairing, or replacing line or equipment).

6.  Lastly, section 26A defines Turnpike Costs to include costs such as
    those associated with the FDOT\'s ten-year program (which commenced
    in 2002) to expand or extend the Florida Turnpike.

7.  Section 26(B)(1) of Florida Gas' tariff provides that Florida Gas
    must incur a threshold capital cost expenditure of \$20 million in
    order to implement a capital surcharge. Section 26(B)(1) also states
    that "in any capital surcharge filing, transporter shall file
    detailed workpapers and appropriate support for the capital costs
    expended, separately stating such costs for the applicable system
    (incremental or non-incremental)." Section 26(B)(2) sets forth the
    timing requirements of its capital surcharge filings. Section
    26(B)(3)(a) provides the methodology for calculating the capital
    surcharge and describes the cost components that are recovered in
    the capital surcharge. Further, section 26(B)(3)(b) states that in
    the event Florida Gas makes a capital surcharge filing, it must make
    subsequent annual filings to be effective on April 1 to reflect
    relevant cost adjustments recorded by the preceding December 31.
    Lastly, section 26(B)(3)(c) establishes the capital surcharge limits
    for the Florida Gas' initial and subsequent capital surcharge
    filings.

8.  Section 26(B)(4) establishes the criteria by which a shipper may
    challenge Florida Gas' capital surcharge: stating that Shippers
    shall have the right to challenge the capital surcharge only with
    respect to: (a) whether the capital expenditures included in such
    capital surcharge are eligible capital costs, (b) whether such
    eligible capital costs have been incurred prudently, (c) whether the
    proposed capital surcharge is properly calculated, and (d) whether
    the capital costs have been properly allocated and/or assigned to
    the incremental and non-incremental systems. Further, section
    26(B)(5) provides for discounts of the capital surcharge to certain
    shippers under the settlement. Finally, section 26(B)(6) sets forth
    the capital project information that Florida Gas will provide to
    settling parties which have executed confidentiality agreements.

    **[The Instant Filing]{.underline}**

9.  Florida Gas proposes to establish an initial reservation capital
    surcharge of \$.01 per MMBtu applicable to Rate Schedule FTS-1, and
    an initial volumetric or usage surcharge of \$.02 per MMBtu for Rate
    Schedule SFTS. Florida Gas states that it is not proposing to
    establish a capital surcharge applicable to Rate Schedule FTS-2 in
    the instant filing because there were no capital cost expenditures
    for its incremental system through December 31, 2005 that were
    eligible for recovery through a capital surcharge. Florida Gas
    states that it reserves the right to make future capital filings if
    its cumulative capital surcharge expenditures for its incremental
    system exceeds the \$20 million threshold level pursuant to section
    26(B)(1) of its tariff.

10. Schedule 1, Attachment A of Florida Gas' filing shows what it
    asserts are eligible capital costs for projects completed and closed
    to gas plant-in-service for its non-incremental system for the
    period March 1, 2004 through December 31, 2005 totaling
    \$24,887,268.31. Florida Gas states that this amount for its
    non-incremental system exceeds the \$20 million capital cost
    expenditure threshold level as required by section 26(B)(1) of its
    tariff to implement a capital surcharge. Also, Schedule 1,
    Attachment A provides other information on the 56 projects that
    Florida Gas performed to comply with the provisions of Pipeline
    Safety Improvement Act of 2002. Florida Gas also states that
    Schedule 2, Attachment A summarizes the eligible capital costs by
    FERC accounts.

11. Finally, Florida Gas states that Schedule 3, Attachment A sets forth
    the calculation of the pretax return and depreciation expense
    applicable to the eligible capital costs for Florida Gas'
    non-incremental system. Florida Gas states that the calculation
    results in an FTS-1 reservation surcharge of \$.0126 per MMBtu.
    Florida Gas states that pursuant to the provisions of section
    26(B)(3)(c) of Florida Gas' tariff, the amount of the initial
    surcharge applicable to Rate Schedule FTS-1 and FTS-2 may not exceed
    \$.01 per MMBtu. Florida Gas states that the volumetric surcharge
    for Rate Schedule SFTS is \$0.02 per MMBTU, which is calculated at a
    fifty percent (50%) load factor of the FTS-1 capital surcharge in
    accordance with section 26(B)(3)(a) of its tariff.

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

12. Public notice of Florida Gas' filing was issued March 8, 2006, with
    interventions and protests due as provided in section 154.210 of the
    Commission's regulations (18 C.F.R. § 154.210 (2005)). 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 the proceeding or
    place additional burdens on existing parties. Seven parties filed
    motions to intervene.[^4] Florida Municipal Natural Gas Association
    (Florida Municipal) and Seminole Electric Cooperative, Inc.
    (Seminole) filed protests which are discussed below. Florida Gas
    filed an answer to the protests and comments. Pursuant to 18 C.F.R.
    § 385.213 (2005), answers to protests are not permitted. In the
    instant circumstance, the Commission finds that the answer provides
    information useful in the examination of Florida Gas' filing and
    therefore, the Commission accepts Florida Gas' answer.

13. Florida Municipal states that the tariff filing does not provide
    detailed information on each item that is required by section 26 of
    Florida Gas' tariff. Florida Municipal claims that the information
    provided by Florida Gas in Appendix A is inadequate and provides no
    basis to determine if the costs fit the definition of capital costs
    stated in Florida Gas' tariff, and whether they were prudently
    incurred or properly assigned or allocated to the non-incremental
    facilities.

14. Further, Florida Municipal states that Florida Gas did not provide
    any information for the costs that were incurred on its incremental
    system. Florida Municipal states that the statement made by Florida
    Gas that "there were no capital costs expenditures for Florida Gas'
    incremental system through December 31, 2005 that were eligible for
    recovery through a capital surcharge" is ambiguous. Florida
    Municipal asserts that this could mean that Florida Gas incurred no
    costs to date with respect to its incremental facilities or that it
    incurred, perhaps significant costs, but that those costs did not
    meet the \$20 million threshold level required in section 26(B)(1)
    to be eligible for recovery through the capital surcharge.

15. Florida Municipal claims that if the latter scenario occurred,
    section 26 of Florida Gas' tariff explicitly requires it to provide
    a detailed description of such costs. Florida Municipal states that
    detailed descriptions of both incremental and non-incremental costs
    are essential to determine whether Florida Gas has correctly
    assigned or allocated the eligible costs between the incremental and
    non-incremental facilities. Florida Municipal requests that Florida
    Gas be required to provide a detailed description of incremental
    costs as well as non-incremental costs to demonstrate that the costs
    meet the definition of eligible costs and that they were prudently
    incurred.

16. Further, Florida Municipal requests that the Commission require
    Florida Gas to state whether the costs applied to incremental or
    non-incremental facilities and if the costs applied to both
    facilities, Florida Gas must provide sufficient detail to show how
    and why the costs were allocated or directly assigned. Florida
    Municipal states that it would not object to Florida Gas providing
    the detailed information for any claimed eligible incremental or
    non-incremental costs that in total exceed \$50,000 consistent with
    Commission precedent.[^5]

17. Also, Florida Municipal states that the Commission's *Order on
    Accounting for Pipeline Assessment Costs,*[^6] regarding the costs
    pipelines incurred to comply with new federal safety pipeline
    requirements, the Commission ruled that a pipeline could not change
    from expensing to capitalizing any such costs that the pipeline
    incurred prior to December 31, 2005. Florida Municipal states that
    Florida Gas proposes to recover claimed capital expenses incurred
    for the period from March 1, 2004 to December 31, 2005, noting that
    most of these costs appear to be pipeline safety costs which are the
    subject of the Accounting Order. Florida Municipal states that
    Florida Gas is silent on this issue and requests that Florida Gas be
    required to eliminate the pipeline safety costs, if any, underlying
    the proposed capital surcharge that were treated as an expense item
    prior to December 31, 2005.

18. Seminole states that Florida Gas has not provided sufficient
    detailed information that is required by the settlement and its
    tariff in order to properly scrutinize the capital surcharge
    expenditures. Specifically, Seminole states that Florida Gas' entire
    capital cost filing was based on the category of pipeline integrity
    costs (*i.e.,* expenditures to comply with the provisions of the
    Pipeline Safety Improvement Act of 2002 (PSIA)) and Florida Gas does
    not explain in enough detail the nexus between the PSIA and the
    particular expenditures.

19. Seminole states that Article IX, section 8 of the settlement and
    section 26(B)(4) of Florida Gas' tariff sets forth the shippers'
    rights to challenge Florida Gas' surcharge filing and that the
    information provided by Florida Gas is insufficient to allow Florida
    Gas' customers to exercise their rights under the settlement and its
    tariff. Also, Seminole claims that since all costs were incurred on
    Florida Gas non-incremental system, such costs were presumably
    directly assigned to the FTS-1 Rate Schedule and that there was no
    allocation of such costs between Florida Gas' incremental and
    non-incremental systems. Seminole states that the settlement
    requires that the costs which cannot be directly assigned be
    allocated among incremental and non-incremental services and without
    more detailed information, the parties and the Commission are can
    not determine whether the conditions of the settlement and Florida
    Gas' tariff are being met.

20. Seminole also states that the Commission has ruled in previous
    settlement-based cost tracking filings that the pipeline is required
    to provide additional detailed information regarding costs it seeks
    to track through a limited section 4 filing.[^7] Seminole states
    that a similar requirement which would require Florida Gas to
    provide detailed information and descriptions of the costs "in
    excess of a \$50,000 threshold level" would add substantiation and
    detail for nearly all the expenditures for which Florida Gas has
    sought recovery in its instant filing.

21. Seminole asserts that additional information is necessary for the
    parties and the Commission to scrutinize the capital expenditures
    and permit Florida Gas' customers to object to recovery of costs by
    exercising its rights under the settlement. Seminole requests that
    the Commission require Florida Gas to do the following: (1) provide
    a detailed explanation of how each claimed expenditures were
    required to comply with the PSIA, (2) determine whether and how
    Florida Gas directly assigned the expenditures to the
    non-incremental services, (3) explain the manner in which Florida
    Gas undertook the work and ensured that such work was done on a
    least-cost basis, and (4) provide a showing that the work and
    expenditures were prudent. Seminole requests that after the
    information is submitted, the Commission should convene a technical
    conference to discuss the information.

22. Finally, Seminole notes that Florida Gas provided no guidance
    regarding its accounting treatment of the expenditures prior to the
    submission of its filing and its compliance with the Accounting
    Order. Seminole states that scrutiny of the accounting treatment of
    inspection and testing costs is especially important given the small
    margin by which Florida Gas exceeded the capital cost filing
    threshold limit. Seminole points out that Florida Gas is only
    permitted to recover capital expenditures for capital costs from
    identified accounts that are closed to plant during the period
    ending December 31, 2005 and to extent that expense items are
    included in Florida Gas' filing, such a result could falsely justify
    the imposition of the capital surcharge. Therefore, Seminole
    requests that the Commission direct Florida Gas to explain whether
    any of the PSIA compliance costs were treated as expense items prior
    to their inclusion in the Florida Gas filing, and to the extent any
    such costs were previously expensed, these costs should be
    eliminated from its capital surcharge filing.

23. In its answer, Florida Gas includes a narrative response addressing
    the protestors concerns and an appendix adding further descriptions
    of all the claimed capital costs items. Florida Gas asserts that the
    information provided in its initial filing, as further detailed in
    its answer, complies with both the provisions of its tariff and the
    settlement. Florida Gas states that neither Florida Municipal nor
    Seminole suggest that the Commission should disregard Florida Gas'
    tariff or the settlement and that the protestors and Florida Gas are
    bound by the provisions of the Commission-approved tariff and
    settlement. Finally, Florida Gas states that the protestors concerns
    regarding compliance with the Accounting Order are a non-issue
    because none of the costs included in the capital surcharge filing
    were previously treated as expense items.

    **[Discussion]{.underline}**

24. Section 26(B)(1) of Florida Gas' tariff and Article IX, section 3 of
    the settlement requires Florida Gas to "file detailed workpapers and
    appropriate support for the capital costs expended, separately
    stating such costs for the applicable system (incremental or
    non-incremental)." The Commission finds that Florida Gas' initial
    filing was deficient in that Florida Gas did not provide
    sufficiently detailed information to meet the information
    requirements set forth in its tariff and the settlement. In its
    answer, Florida Gas provided in Appendix A, additional detailed
    information on each of the items that are included in the capital
    surcharge calculation. The detailed information provided by Florida
    Gas' in its answer should have been filed in its initial filing, and
    such information should be included in all future Florida Gas
    capital surcharge filings.

25. However, although Florida Gas' answer purports to address all issues
    raised by the parties, before we respond to any remaining issues
    raised in this proceeding, we will provide the parties with the
    opportunity to respond to Florida Gas' answer within twenty (20)
    days of this order. Therefore, the Commission accepts the proposed
    tariff sheet, subject to the conditions of this order and subject to
    further orders of the Commission upon further review.

    **[Suspension]{.underline}**

26. Based upon a review of the filing, the Commission finds that the
    proposed tariff sheet has not been shown to be just and reasonable,
    and may be unjust, unreasonable and unduly discriminatory or
    otherwise unlawful. Accordingly, the Commission shall accept the
    tariff sheet for filing and suspend its effectiveness for the period
    set forth below, subject to the conditions set for in this order.

27. The Commission's policy regarding suspensions is that 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 inconsistent with other
    statutory standards.[^8] It is recognized, however, that shorter
    suspensions may be warranted in circumstances where suspension for
    the maximum period may lead to harsh and inequitable results.[^9]
    Such circumstances exist here where the pipeline is filing to
    establish a surcharge pursuant to a settlement. Accordingly, the
    Commission exercises its discretion to suspend the effectiveness of
    the proposed tariff sheet for a shorter period

    and permits the rates to be effective April 1, 2006, subject to
    refund and the conditions of this order.

    [The Commission orders:]{.underline}

    \(A\) The Commission accepts and suspends the tariff sheet, to be
    effective April 1, 2006, subject to refund, and subject to further
    orders of the Commission upon further review.

    \(B\) The parties are permitted to file a response to Florida Gas'
    answer within twenty (20) days of the date of this order.

    By the Commission.

( S E A L )

Magalie R. Salas,

Secretary.

[^1]: Seventy Fifth Revised Sheet No. 8A to Florida Gas's FERC Gas
    Tariff, Third Revised Volume No. 1.

[^2]: The settlement was filed on August 13, 2004 in Docket Nos.
    RP04-12-000 and RP00-387-000 and was approved by Commission order
    dated December 21, 2004.

[^3]: The Phase III Expansion facilities first established Florida Gas'
    incremental system and created capacity through which Florida Gas
    provides service under Rate Schedule FTS-2. The Rate Schedule FTS-2
    rates became effective March 1, 1995. The FTS-1 rates apply to
    service on Florida Gas' pre-1995 system (Pre-Expansion or
    non-incremental system). *See Florida Gas Transmission Co.,* 105
    FERC ¶ 61,171 (2003).

[^4]: The seven parties that filed motions to intervene are Florida
    Cities, Florida Power Corporation, Florida Power and Light Company,
    Peoples Gas System, a Division of Tampa Electric Company, Pivtoal
    Utility Holdings, Inc. d/b/a Florida City Gas, ProLiance Energy, LLC
    and Tampa Electric Company.

[^5]: *See Southern Natural Gas Co.,* 113 FERC ¶ 61,112 (2005) and 114
    FERC ¶ 61,227 (2006).

[^6]: 111 FERC ¶ 61,501 (2005), *order on reh'g,* 112 FERC ¶ 61,309
    (2005) (Accounting Order).

[^7]: *See Southern Natural Gas Co.,* 113 FERC ¶ 61,112 (2005) and 114
    FERC ¶ 61,227 (2006).

[^8]: *See Great Lakes Gas Transmission Co.*, 12 FERC & 61,293 (1980)
    (five-month suspension).

[^9]: *See* *Valley Gas Transmission, Inc*., 12 FERC & 61,197 (1980)
    (one-day suspension).