UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

18 CFR Part 157 

(Docket No. RM06-7-000) 

Revisions to the Blanket Certificate Regulations and Clarification Regarding Rates 

(June 16, 2006) 

AGENCY: Federal Energy Regulatory Commission. 

ACTION: Notice of Proposed Rulemaking. 

SUMMARY: The Federal Energy Regulatory Commission (Commission) proposes to 

amend its Part 157, Subpart F, blanket certification regulations to expand the scope and 

scale of activities that may be undertaken pursuant to blanket authority. The Commission 

proposes to expand the types of natural gas projects permitted under blanket authority 

and to increase the cost limits that apply to blanket projects. In addition, the Commission 

will clarify that a natural gas company is not necessarily engaged in an unduly 

discriminatory practice if it charges different customers different rates for the same 

service based on the date that customers commit to service. 

DATES: Comments are due [insert date 60 days after publication in the FEDERAL 

REGISTER]

ADDRESSES: You may submit comments, identified by Docket No. RM06-7-000, by 

one of the following methods: 
Docket No. RM06-7-000 

- 2 -

• Agency Web Site: http://www.ferc.gov. Follow the instructions for submitting 

comments via the eFiling link found in the Comment Procedures Section of the 

preamble. The Commission encourages electronic filing. 

• Mail: Commenters unable to file comments electronically must mail or hand 

deliver an original and 14 copies of their comments to: Federal Energy 

Regulatory Commission, Office of the Secretary, 888 First Street N.E., 

Washington, DC, 20426. Please refer to the Comments Procedures Section of the 

preamble for additional information on how to file paper comments. 

FOR FURTHER INFORMATION CONTACT: 

Gordon Wagner 

Office of the General Counsel 

Federal Energy Regulatory Commission 

888 First Street, N.E. 

Washington, D.C. 20426 

gordon.wagner@ferc.gov 

(202) 502-8947 

John Leiss 

Office of Energy Projects 

Federal Energy Regulatory Commission 

888 First Street, N.E. 

Washington, D.C. 20426 

john.leiss@ferc.gov 

(202) 502-8058 

SUPPLEMENTARY INFORMATION:
UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Revisions to the Blanket Certificate ) Docket No. RM06-7-000 

Regulations and Clarification 

Regarding Rates 

NOTICE OF PROPOSED RULEMAKING 

(June 16, 2006) 

1. The Federal Energy Regulatory Commission (Commission) proposes to amend its 

Part 157, Subpart F, blanket certification regulations to expand the scope and scale of 

activities that may be undertaken pursuant to blanket authority.1

 The Commission 

proposes to expand the types of natural gas projects permitted under blanket authority 

and to increase the cost limits that apply to blanket projects. In addition, the Commission 

will clarify that a natural gas company is not necessarily engaged in an unduly 

discriminatory practice if it charges different customers different rates for the same 

service based on the date that customers commit to service. 

2. A natural gas company must obtain a certificate of public convenience and 

necessity pursuant to section 7 of the Natural Gas Act (NGA) to construct, acquire, alter, 

abandon, or operate jurisdictional gas facilities or to provide jurisdictional gas services. 

Natural gas companies holding an NGA section 7(c) certificate may also obtain blanket 

 

1

 18 CFR §§ 157.201-157.218 (2005).
Docket No. RM06-7-000 - 2 -

certificate authority under Part 157, Subpart F, of the Commission’s regulations to 

undertake certain types of activities without the need to obtain case-specific certificate 

authorization for each project. Activities undertaken pursuant to blanket certificate 

authority are not subject to the longer and more exacting review process associated with 

individual authorizations issued on an application-by-application basis.2

3. Natural gas facilities that may be constructed, acquired, altered, or abandoned 

pursuant to blanket authority are currently constrained by a cost limit of $8,200,000 for 

projects which can be undertaken without prior notice (also referred to as selfimplementing or automatic authorization projects) and $22,700,000 for projects for 

which prior notice is required.3

 In addition, the blanket certificate provisions apply only 

to a restricted set of eligible facilities;4

 ineligible facilities currently include mainlines, 

 2

 Certain activities are exempted from the certificate requirements of NGA section 

7(c). For example, § 2.55 of the Commission’s regulations exempts auxiliary 

installations and the replacement of physically deteriorated or obsolete facilities; Part 

284, Subpart I, of the regulations provides for the construction and operation of facilities 

needed to alleviate a gas emergency. 

3

 See 18 CFR § 157.208(d), Table I (2006), as updated. In November 2005, in 

response to the impacts of hurricanes Katrina and Rita on gas production, processing, and 

transportation in and along the Gulf of Mexico, these cost limits were temporarily raised 

to $50,000,000 for prior notice projects and $16,000,000 for self-implementing projects, 

provided the projects increase access to gas supply and will be completed by October 31, 

2006. See Expediting Infrastructure Construction To Speed Hurricane Recovery, 

113 FERC ¶ 61,179 (2005). The October 31, 2006 deadline was subsequently extended 

to February 28, 2007. 114 FERC ¶ 61,186 (2006). 

4

 See § 157.202(b)(2)(i) of the Commission’s regulations, defining “eligible 

facilities,” and § 157.202(b)(2)(ii)(2005) of the regulations, describing facilities excluded 

from the definition of “eligible facilities.” 
Docket No. RM06-7-000 - 3 -

storage field facilities, and facilities receiving gas from a liquefied natural gas (LNG) 

plant or a synthetic gas plant.5

4. In this notice of proposed rulemaking (NOPR) the Commission proposes to 

expand the scope of activities that can be undertaken pursuant to blanket authority by 

(1) increasing the project cost limit to $9,600,000 for an automatic authorization project 

and $27,400,000 for a prior notice project and (2) expanding the category of facilities 

eligible for construction under blanket certificate authority to include mainline facilities, 

certain LNG and synthetic gas facilities, and certain storage facilities. In addition, the 

Commission will clarify that a natural gas company is not necessarily engaged in an 

unduly discriminatory practice if it charges different customers different rates for the 

same service based on the date that customers commit to service. 

Background

 Petition to Expand the Blanket Certificate Program 

 and Clarify Criteria Defining Just and Reasonable Rates

5. On November 22, 2005, the Interstate Natural Gas Association of America 

(INGAA) and the Natural Gas Supply Association (NGSA) jointly filed a petition under 

§ 385.207(a) of the Commission’s regulations proposing that the blanket certificate 

provisions be expanded “to improve the industry’s ability to ensure the adequacy of 

 5

 The November 2005 Order cited in note 3 also temporarily extended blanket 

certificate authority to include what would otherwise be ineligible facilities, namely, an 

extension of a mainline; a facility, including compression and looping, that alters the 

capacity of a mainline; and temporary compression that raises the capacity of a mainline.
Docket No. RM06-7-000 - 4 -

infrastructure, without impairing any legitimate rights of any party and without 

frustrating any public-policy objectives.”6

 Petitioners point to natural gas prices and tight 

gas supply and demand, and stress the need to ensure that natural gas facilities are 

adequate to reliably move available gas supplies to consuming markets. By way of 

example, Petitioners observe that natural gas producers faced with takeaway constraints 

can experience shut-ins, the depression of wellhead prices, and uncertainty as to when 

and where to drill new wells. Petitioners add that companies faced with an inability to 

build new facilities when and where they are needed can experience a lack of growth, 

operational problems, and constraints on system flexibility. Petitioners argue that 

implementing their requested regulatory revisions will diminish the likelihood of 

experiencing such adverse events.7

 Expanded Blanket Certificate Authority

6. Petitioners observe that the natural gas industry has undergone fundamental 

change since the blanket certificate provisions were put in place in 1982,8

 and believe 

 6

 INGAA/NGSA Petition at 2 (Nov. 22, 2005). 

7

 While Petitioners have “determined that there is little to be improved in the 

Commission’s processing of certificate applications,” and that “there are few changes to 

the current authorization process that would accelerate the process beyond its current, 

efficient state,” they nevertheless contend that adopting the proposed revisions will 

“further enhance the authorization process” and provide additional certainty regarding 

regulatory treatment. INGAA/NGSA Petition at 2 and 4 (Nov. 22, 2005). 

8

 Interstate Pipeline Certificates for Routine Transactions, Order No. 234, 47 FR 

24254 (June 4, 1982), FERC Stats. & Regs. ¶ 30,368 (1982); Order No. 234-A, 47 FR 

38871 (Sept. 3, 1982), FERC Stats. & Regs. ¶ 30,389 (1982). 
Docket No. RM06-7-000 - 5 -

that the rationale for certain of the limitations imposed when the blanket certificate 

program was implemented should no longer apply. Petitioners request that blanket 

certificate authority be expanded to include mainline facilities, LNG takeaway facilities, 

and certain underground storage field facilities which are currently excluded from the 

blanket certificate program, and request that the cost limits for blanket projects be raised. 

 Blanket Project Cost Limits 

7. Petitioners comment that “in the Commission’s original justification for the 

[blanket certificate program] restrictions in Order No. 234, the primary reason given was 

the impact on ratepayers, not environmental impact or safety.”9

 In 1982, the blanket 

project cost limits were set at $4,200,000 for automatic projects and $12,000,000 for 

prior notice projects; presently, these cost limits stand at an inflation adjusted $8,200,000 

and $22,700,000, respectively. Petitioners assert that the current blanket project cost cap 

is “sufficiently small” to render any rate impacts de minimis and state their belief in “the 

likelihood that new investments will produce new revenue that covers the cost of the 

investments.”10

8. Petitioners claim that natural gas project costs have escalated faster than inflation, 

citing costs attributable to more extensive public outreach, greater agency involvement, a 

more complex permitting process, additional environmental remediation requirements, 

 9

 INGAA/NGSA Petition at 8 (Nov. 22, 2005). 

10 Id.
Docket No. RM06-7-000 - 6 -

and the use of technologically advanced construction equipment. In view of this, 

Petitioners ask the Commission to reassess project costs and raise the blanket project cost 

limits in § 157.208(d), Table I, of the regulations. Petitioners do not characterize this as 

enlarging the scale of projects permitted under blanket authorization,11 but as 

recalibrating the cost limits to permit a project that could have been constructed within 

the cost limit in effect in 1982 to be built again today within today’s updated cost limit. 

 Request to Clarify Criteria Defining Just and Reasonable Rate

9. Petitioners state that a natural gas company’s decision to go forward with a 

proposed project can turn on whether there are customer service commitments in hand 

sufficient to demonstrate the proposal’s economic viability. Petitioners request that the 

Commission allow preferential rate treatment for “foundation shippers,” i.e., customers 

that sign up early for firm service and thereby establish the financial foundation for a new 

project. Doing so, Petitioners claim, will “provide a strong incentive for more potential 

shippers to become foundation shippers, thus allowing needed infrastructure projects to 

get underway earlier.”12 Petitioners seek assurance that offering customers that commit 

early to a proposed project a more favorable rate than customers that seek service later 

will not be viewed as unduly discriminatory. 

 11 “[I]t is not contemplated that an increase in the dollar limits will cause blanket 

projects to be larger, in terms of the project foot print or right of way needed, than they 

would have been” in 1982. INGAA/NGSA Petition at 16 (Nov. 22, 2005). 

12 Id. at 20. 
Docket No. RM06-7-000 - 7 -

Notice And Comments

10. Notice of the INGAA/NGSA petition was published in the Federal Register on 

December 9, 2005.13 The Commission sought comments on whether it should take 

further action on the petition. Responses were filed by: American Gas Association 

(AGA); American Public Gas Association (APGA); Anadarko Petroleum Corporation 

(Anadarko); Devon Energy Corporation (Devon); Duke Energy Gas Transmission 

Corporation (Duke); Enstor Operating Company, LLC (Enstor); Honeoye Storage 

Corporation (Honeoye Storage); Illinois Municipal Gas Agency (Illinois Municipal); 

Independent Petroleum Association of America (IPAA); Kinder Morgan Interstate Gas 

Transmission, LLC (Kinder Morgan); NiSource Inc. (NiSource); Process Gas Consumers 

Group (Process Gas Consumers); Public Service Commission of New York (PSCNY); 

and Sempra Global (Sempra). 

11. Duke, Enstor, Honeoye Storage, IPAA, and Process Gas Consumers 

unequivocally support the petition, and the majority of the remaining comments support 

aspects of the proposal. Several comments question and/or oppose the petition’s 

proposals. The comments are discussed below. 

 Request for Technical Conference and Commission Response

12. AGA requests the Commission convene a technical conference to consider 

whether the proposal could adversely impact rates or degrade service, and thus be 

 13 70 FR 73,232 (2005). 
Docket No. RM06-7-000 - 8 -

inconsistent with Commission policy which requires weighing the impact of new 

facilities on existing customers.14 AGA is concerned expanding blanket certificate 

authority would undermine the Commission’s rationale for initiating the blanket 

certificate program, which rests on the premise that blanket activities are minor in scope 

and “so well understood as an established industry practice that little scrutiny is required 

to determine their compatibly with the public convenience and necessity.”15

13. AGA raises legitimate issues relevant to the outcome of this proceeding. That 

said, the Commission expects all interested persons will have an adequate opportunity to 

express their views in comments in response to this NOPR. Given that comments have 

yet to be submitted on the merits of the regulatory revisions proposed herein, the 

Commission will dismiss AGA’s request for a technical conference as premature. 

Following a review of the comments received in response to this NOPR, the request will 

be reassessed.

 14 See Certification of New Interstate Natural Gas Pipeline Facilities (Policy 

Statement on New Facilities), 88 FERC ¶ 61,227 (1999), orders clarifying statement of

policy, 90 FERC ¶ 61,128 and 92 FERC ¶ 61,094 (2000), order further clarifying

statement of policy, 92 FERC ¶ 61,094 (2000). 

15 Interstate Pipeline Certificates for Routine Transactions, Order No. 234, FERC 

Stats. & Regs. ¶ 30,368 at 30,200 (1982). See also, Distrigas of Massachusetts Corp., 

60 FERC ¶ 61,274 at 61,931 (1992), in which the Commission stated that “[t]he blanket 

procedures were intended to apply only to proposals which by their very nature require 

limited Commission involvement.” 
Docket No. RM06-7-000 - 9 -

 Proposed Regulatory Revisions

 Rationale for the Blanket Certificate

14. The blanket certificate program was designed to provide an administratively 

efficient means to authorize a generic class of routine activities, without assessing each 

prospective project on a case-by-case basis. In 1982, in instituting the blanket certificate 

program, the Commission explained the new program as follows: 

[T]he final regulations divide the various actions that the Commission 

certificates into several categories. The first category applies to certain 

activities performed by interstate pipelines that either have relatively little 

impact on ratepayers, or little effect on pipeline operations. This first 

category also includes minor investments in facilities which are so well 

understood as an established industry practice that little scrutiny is 

required to determine their compatibility with the public convenience and 

necessity. The second category of activities provides for a notice and 

protest procedure and comprises certain activities in which various 

interested parties might have a concern. In such cases there is a need to 

provide an opportunity for a greater degree of review and to provide for 

possible adjudication of controversial aspects. Activities not authorized 

under the blanket certificate are those activities which may have a major 

potential impact on ratepayers, or which propose such important 

considerations that close scrutiny and case-specific deliberation by the 

Commission is warranted prior to the issuance of a certificate.16

15. The Commission continues to apply the above criteria in an effort to distinguish 

those types of activities that may appropriately be constructed under blanket certificate 

authority from those projects that merit closer, case-specific scrutiny due to their 

potentially significant impact on rates, services, safety, security, competing natural gas 

companies or their customers, or on the environment.

 16 47 FR 24254 (June 4, 1982).
Docket No. RM06-7-000 - 10 -

16. “Under section 7 of the NGA, pursuant to which the blanket certificate rule is 

promulgated,” the Commission has “an obligation to issue certificates only where they 

are required by the public convenience and necessity. The blanket certificate rules set 

out a class of transactions, subject to specific conditions, that the Commission has 

determined to be in the public convenience and necessity.”17 To the extent this class of 

transactions is enlarged, there must be an assessment, and assurance, that each added 

class of transactions is similarly required by the public convenience and necessity.

17. In this NOPR, the Commission proposes to expand the scope of blanket certificate 

activities to include mainlines, storage facilities, and certain facilities carrying regasified 

LNG and synthetic gas, and to expand the scale of blanket certificate activities by raising 

the project cost limits. The Commission seeks comments on whether this can be 

accomplished without compromising the rationale upon which the blanket certificate 

program is founded.

Comments and Commission Response

18. APGA questions the rationale for revising the blanket certificate program. Unlike 

Petitioners, APGA sees no cause to attribute current high natural gas prices and recent 

price volatility to inadequate gas transportation or storage facilities. Instead, APGA 

 17 Regulation of Natural Gas Pipelines After Partial Wellhead Decontrol, Order 

No. 436, 50 FR 42408 (Oct. 18, 1985).
Docket No. RM06-7-000 - 11 -

contends prices reflect tight supplies and a relatively inelastic demand.18 Consequently, 

APGA does not expect the proposed regulatory revisions to result in lower gas prices or 

less price volatility. APGA contends the proposed changes will eliminate protections 

mandated by the NGA and will be contrary to Commission’s Policy Statement on New 

Facilities.19

19. The regulatory revisions proposed herein are not intended to drive down current 

gas costs; rather, the Commission seeks to provide a streamlined means for natural gas 

companies to make infrastructure enhancements in a timely manner. Nevertheless, to the 

extent prices reflect capacity constraints that might be alleviated by adding or upgrading 

facilities, then expanding the blanket certificate program, which offers companies an 

expedited means to obtain construction authorization, may indirectly drive prices down 

by allowing companies to address system bottlenecks expeditiously through use of their 

blanket certificate authority. The Commission recognizes that the proposed revisions, by 

expanding blanket certificate authorization, would modify the nature of the blanket 

program; however, for the reasons discussed below, the Commission believes the 

 18 APGA adds that the municipal and publicly-owned local distribution systems it 

represents, and the retail customers they serve, are “extremely sensitive” to increases in 

the cost of natural gas and it urges the Commission to “take all reasonable actions to 

ensure the lowest natural gas prices and to minimize price volatility.” APGA’s 

Comments at 4 (January 17, 2006). 

19 See note 14. 
Docket No. RM06-7-000 - 12 -

proposed revisions comport with the Commission’s mandate under the NGA and are 

consistent with current Commission policy. 

20. APGA observes that in the past, the Commission has temporarily altered 

provisions of the blanket certificate program in response to natural gas emergencies, and 

states that these temporary measures have proved effective. In view of the Commission’s 

success in making temporary adjustments, APGA sees no need to permanently expand 

blanket certificate authority. APGA contends that but for the electric crisis in the 

Western United States in 2000-2001, Petitioners have not cited any instance of mainline 

pipeline capacity constraint that would justify lifting the prohibition on adding mainline 

capacity under blanket certificate authority. APGA states that the Commission’s 

response to the 2005 Gulf Coast hurricanes is designed to expedite rebuilding 

infrastructure to restore lost services, and does not reflect a need to permanently alter the 

blanket certificate regulations in order to promote a nationwide expansion of facilities 

and services. 

21. The Commission concurs with APGA that flexibility afforded by the NGA, and 

the intermittent use of provisional waivers of certain Commission regulations, have 

proved effective in accelerating the industry’s recovery from natural gas emergencies. 

However, the Commission does not view the result of a temporary waiver of compliance 

with certain blanket certificate requirements – whether the result be deemed a success or 

not – as a reason to adopt or reject the blanket certificate program expansion as 

Petitioners propose. The Commission believes the emphasis of the blanket certificate 
Docket No. RM06-7-000 - 13 -

program should remain, as it always has, on expediting the process of adding and 

improving gas facilities and services, while ensuring that there are no adverse impacts on 

existing rates, services, or the environment. The immediate crisis in the aftermath of the 

hurricanes has eased. However, the need to restore and add infrastructure remains 

critical: (1) to attach new supplies to offset the continuing decline from existing gas 

sources; (2) to add interconnections, extensions, and other new facilities to enhance the 

flexibility and responsiveness of the grid; and (3) to accommodate anticipated increases 

in imports of LNG. It is with these objectives in mind that the Commission proposes to 

expand its blanket certificate program.

22. The Commission seeks comment whether allowing project sponsors the option of 

requesting an incremental rate for a particular project20 will provide additional flexibility 

to expedite the process of adding and improving gas facilities and services, while 

ensuring that there are no adverse impacts on existing rates, services, or the 

environment. Further, the Commission seeks comment regarding what additional or 

alternative revisions to the blanket certificate regulations would be necessary to establish 

the appropriate procedures.

 20 See, e.g., Tennessee Gas Pipeline Company, 110 FERC ¶ 61,047, order denying 

reh’g, 111 FERC ¶ 61,094 (2005), discussing the Commission’s rejection of a pipeline’s 

proposal to construct a five-mile lateral line under blanket authority and charge an 

incremental rate. 
Docket No. RM06-7-000 - 14 -

 Facilities Subject to Blanket Certificate Authority

23. To meet the above stated objectives, the Commission proposes to expand the 

scope of the blanket certificate program by including certain facilities associated with 

LNG and synthetic gas plants, storage facilities, and mainlines – all of which have 

heretofore been excluded from the blanket certificate program.21 In 1982, these facilities 

were excluded principally due to their perceived potential to adversely impact existing 

customers’ rates and services. With respect to rates, a presumption that blanket 

certificate project costs will qualify for rolled-in rate treatment will continue to apply, 

subject to rebuttal by showing adverse impacts in a NGA section 4 rate case proceeding. 

With respect to facilities and services, the proposal discussed below to require prior 

notice for projects undertaken as a result of expanded blanket certificate authority, in 

conjunction with the proposal to lengthen the prior notice period, should provide a 

reasonable opportunity to review the potential system impacts of a proposed blanket 

project prior to its construction. 

 Facilities Receiving LNG and Synthetic Gas

24. The blanket certificate regulations exclude facilities used to take gas away from 

plants regasifying LNG and manufacturing synthetic gas, a restriction imposed in 1982, 

 

21 Certain limited underground storage field testing and development is permitted 

under § 157.215; this NOPR proposes a significant expansion of blanket-eligible storage 

field activities. Also, as noted above, blanket certificate authority has been extended to 

otherwise ineligible facilities on a temporary basis in order to respond to a natural gas 

emergency. 
Docket No. RM06-7-000 - 15 -

in part, to protect customers from the impact of paying the high commodity cost of LNG 

and synthetic gas.22 Such rate protection is now little more than an artifact of the era 

when jurisdictional pipelines provided merchant service, charging customers a bundled 

rate that combined a transportation charge for delivering natural gas plus the cost to 

purchase gas. In 1992, in Order No. 636,23 the Commission undertook a process of 

restructuring the gas industry, resulting in the itemization and separate billing of 

previously bundled gas services. As a result, today’s jurisdictional rates no longer 

include the commodity cost of gas purchased by the pipeline and sold to the customer. 

Further, over the last several years, the cost differential between non-traditional energy 

sources, particularly imported LNG, and traditional domestic, Canadian, and Mexican 

gas supplies has narrowed. In view of recent and anticipated market conditions, barring 

 22 As stated in the 1982 order promulgating the blanket certificate regulations, 

because LNG and synthetic gas “facilities may have a significant impact on ratepayers, 

the Commission believes they should not be authorized under a blanket certificate, but 

should be subjected instead to the scrutiny of a case-specific determination.” 47 FR 

24254 (June 4, 1982). 

23 Pipeline Service Obligations and Revisions to Regulations Governing SelfImplementing Transportation Under Part 284 of the Commission's Regulations, and 

Regulation of Natural Gas Pipelines After Partial Wellhead Decontrol, Order No. 636, 

FERC Stats. & Regs. ¶ 30,939 (1992), order on reh'g, Order No. 636-A, FERC Stats. & 

Regs. ¶ 30,950 (1992), order on reh'g, Order No. 636-B, 61 FERC ¶ 61,272 (1992), aff'd 

in part, rev'd in part sub nom. United Distribution Cos. v. FERC, 88 F.3d 1105 (D.C. Cir. 

1996), cert. denied sub nom. Associated Gas Distributors v. FERC, 520 U.S. 1224 

(1997), on remand, Order No. 636-C, 78 FERC P 61,186 (1997), order on reh'g, Order 

No. 636-D, 83 FERC ¶ 61,210 (1998). 
Docket No. RM06-7-000 - 16 -

facilities receiving LNG and synthetic gas from the blanket program may be hindering 

consumers’ access to competitively-priced gas supplies. 

25. The Commission believes that increasing access to LNG and synthetic gas is 

consistent with the public interest. Accordingly, the Commission proposes to revise its 

regulations to permit certificate holders to rely on blanket authority to add, alter, or 

abandon certain pipeline facilities used to carry gas away from an LNG terminal, a 

deepwater LNG port, an inland LNG storage facility, or a synthetic gas manufacturing 

plant. 

26. The Commission proposes to add § 157.212, to read as follows: 

§ 157.212 Synthetic and liquefied natural gas facilities. 

Prior Notice. Subject to the notice requirements of §§ 157.205(b) and 

157.208(c), the certificate holder is authorized to acquire, abandon, 

construct, modify, replace, or operate natural gas facilities that are used to 

transport exclusively either synthetic gas or revaporized liquefied natural 

gas and that are not “related jurisdictional natural gas facilities” as defined 

in § 153.2(e). The cost of a project may not exceed the cost limitation set 

forth in column 2 of Table I of § 157.208(d). The certificate holder must 

not segment projects in order to meet this cost limitation. 

27. This approach is intended to provide advance notice of proposed blanket 

certificate projects involving facilities carrying exclusively LNG or synthetic gas to allow 

the public, or Commission staff, to comment or protest, and thereby possibly compel 

case-specific consideration of a proposal.24 The Commission views “facilities that are 

 24 A protest may be filed in response to a prior notice of a proposed blanket 

project. 18 CFR § 157.205(e) (2005). If the protest is not withdrawn or dismissed within 

the time allotted, the prior notice proceeding is then treated as an application for a casespecific NGA section 7 certificate authorization. 18 CFR §§ 157.205(f) and (g) (2005). 
Docket No. RM06-7-000 - 17 -

used to transport exclusively either synthetic gas or revaporized liquefied natural gas” as 

pipelines interconnected directly to an LNG or synthetic gas plant and downstream 

laterals; the facilities extend from an LNG or synthetic gas source to the first junction 

with a line carrying natural gas drawn from the ground. Once gas supply sources are 

commingled, § 157.212 becomes inapplicable. Pursuant to § 153.2(e), blanket certificate 

authority will not apply to the outlet pipe of an LNG or synthetic gas plant, but only to 

those facilities that attach to the directly interconnected pipe. 

28. The Commission acknowledges that there may be no objections presented to 

certain LNG and synthetic gas takeaway pipeline projects, e.g., a meter at a line leading 

from an inland LNG peaking plant. Nevertheless, the Commission believes it is prudent 

to provide prior notice of all LNG and synthetic gas takeaway pipeline projects to give 

end users, local distribution companies, the Commission, and others the opportunity to 

review the potential impacts of a proposal and the option to comment or protest. 

29. The blanket certificate provisions do not apply to LNG plant facilities,25 and this 

proposed regulatory revision will not change that. LNG plant facilities are not within the 

class of minor, well-understood, routine activities that the blanket certificate program is 

intended to embrace; LNG plant facilities necessarily require a review of engineering, 

 

25 LNG facilities’ construction and operation remain subject to separate regulatory 

requirements, either NGA section 3 approval for import or export plant facilities, or NGA 

section 7 case-specific certificate authorization for LNG storage facilities. The 

Commission’s jurisdiction over the transportation and sale of natural gas in interstate 

commerce does not apply to synthetic gas manufacturing plant facilities. 
Docket No. RM06-7-000 - 18 -

environmental, safety, and security issues that the Commission believes only can be 

properly considered on a case-by-case basis. Similarly, the proposed blanket certificate 

provisions will be inapplicable to jurisdictional natural gas facilities directly attached to 

an LNG terminal, since such facilities are subject to the mandatory 180-day pre-filing 

process specified in § 157.21 of the Commission’s regulations.26 

30. The mandatory 180-day pre-filing process for jurisdictional natural gas facilities 

that directly interconnect with the facilities of an LNG terminal was put in place last year 

pursuant to section 311(d) of the Energy Policy Act of 2005 (EPAct 2005).27 Petitioners 

ask that the Commission revise these recently enacted regulations so that “the pipeline 

lateral receiving LNG is not subject to the Commission’s mandatory pre-filing process,” 

asserting that a “lateral to hook up to existing LNG facilities should cause no additional 

issues regarding safety and environmental concerns.”28 The Commission disagrees. 

Because an LNG terminal and the facilities that attach directly to it are interdependent – 

 26 Section 153.2 of the Commission’s regulations states that the construction of 

any pipelines or other natural gas facilities subject to section 7 of the NGA which will 

directly interconnect with the facilities of an LNG terminal, and which are necessary to 

transport gas to or regasified LNG from a proposed or existing authorized LNG terminal, 

are subject to a mandatory minimum six-month pre-filing process. 18 CFR § 153.2 

(2006). See Regulations Implementing Energy Policy Act of 2005; Pre-Filing 

Procedures for Review of LNG Terminals and Other Natural Gas Facilities, Order No. 

665, 113 FERC ¶ 61,015 (2005). 

27 Pub. L. No. 109-58, 119 Stat. 594 (2005). 

28 INGAA/NGSA Petition at 14 (Nov.22, 2005). 
Docket No. RM06-7-000 - 19 -

inextricably bound in design and operation – a terminal and its takeaway facilities must 

be evaluated in tandem; both merit a similar degree of regulatory scrutiny. 

31. Petitioners argue that rules “that make it considerably more difficult to hook up 

LNG to the interstate grid . . . differentiate between facilities for different types of 

supply” which “appears unduly discriminatory.”29 Again, the Commission disagrees. 

The different rules applicable to different natural gas supply sources reflect the different 

technology involved in importing, storing, and regasifying LNG. In addition, different 

public policy considerations apply to LNG, e.g., safety and reliability concerns and issues 

related to gas quality and interchangeability. In view of this, the Commission finds 

legitimate cause to draw a regulatory distinction between LNG imports and traditional 

gas supplies, and will decline the request to revisit the provisions put in place in last 

year’s Order No. 665.

 Comments and Commission Response 

32. Devon is apprehensive that expanding blanket certificate authority to include 

certain LNG pipelines could give LNG imports a competitive advantage over domestic 

gas supplies. The Commission is not in a position to address this, as it is not charged 

with or conducting a comparative analysis of types of energy, or with promoting one 

source or type of energy over another, or with determining whether the national interest 

lies with obtaining energy independence or foreign energy supplies. More to the point, 

 29 Id.
Docket No. RM06-7-000 - 20 -

LNG import terminals and the pipelines directly interconnected to them need to be 

constructed, or expanded, in tandem before additional volumes of LNG can be brought 

into the United States, and the proposed expansion of blanket certificate authority will 

not apply to either LNG terminals or the facilities that are directly interconnected with 

them.30 Thus, the construction, expansion, or modification of facilities capable of 

boosting LNG imports will remain subject to case-specific NGA section 7 certificate 

authorization and case-specific NGA section 3 approval. 

33. Devon and APGA observe that LNG imports can have characteristics different 

from traditional gas supplies and assert that the changed character of the gas could result 

in adverse impacts on pipelines carrying imported LNG and end users consuming it. The 

Commission’s Policy Statement on Provisions Governing Natural Gas Quality and 

Interchangeability in Interstate Natural Gas Pipeline Company Tariffs (Policy Statement 

on Gas Quality) in Docket No. PL04-3-000, issued concurrently with this NOPR, 

provides direction for addressing gas quality and interchangeability concerns. Assuming 

LNG supplies conform to the gas quality standards of jurisdictional pipelines’ tariffs, and 

the tariffs are in accord with the Policy Statement on Gas Quality, the Commission 

believes that objections that concern the character of particular volumes of gas are best 

presented to parties buying and reselling the gas. However, if there are indications that 

gas volumes – regardless of their source – may have characteristics incompatible with 

 30 See 18 CFR § 153.2(e) (2006). 
Docket No. RM06-7-000 - 21 -

pipelines’ tariff provisions, or inconsistent with the Policy Statement on Gas Quality, 

then it would be appropriate to inform the Commission either by a protest to a proposed 

blanket certificate project or by presenting an NGA section 5 complaint. 

34. Devon suggests that LNG imports could interfere with pipelines’ operations by 

creating capacity constraints. A pipeline would not agree to accept LNG imports – or, 

indeed, additional quantities of gas from any source – if doing so could compromise its 

ability to continue to reliably meet its commitments to its existing customers, since doing 

so would conflict with the pipeline’s certificate obligation to meet its customers’ firm 

service requirements. If there is an indication that a change in a natural gas company’s 

operations, be it due to receipt of LNG or any other cause, may interfere with the 

company’s capability to continue to provide certificated services, allegations to this effect 

may be presented in a protest to a proposed blanket certificate project or in an NGA 

section 5 complaint. The Commission will act as necessary to prevent and remedy 

improper practices; as appropriate, the Commission will employ its NGA enforcement 

authority, under which it may impose a civil penalty of up to $1,000,000 per day for the 

violation of any provision of the NGA “or any rule, regulations, restriction, condition, or 

order made or imposed by the Commission under authority of” the NGA.31 

35. AGA and Petitioners concur that the motive for excluding LNG takeaway 

facilities from blanket certificate projects – i.e., the concern that high-priced LNG 

 31 See EPAct 2005 section 314, amending the Commission’s civil penalty 

authority under NGA section 22. 
Docket No. RM06-7-000 - 22 -

imports would raise gas costs for the customers of merchant pipelines – is now no more 

than an artifact of the bundled era, and is thus no longer relevant. Nevertheless, AGA 

urges that LNG takeaway lines continue to be excluded from the blanket certificate 

program due to the public safety and operational issues raised by the import of additional 

LNG supplies. AGA suggests awaiting the outcome of the proceeding in Docket No. 

PL04-3-000 prior to applying any expanded blanket certificate authority to LNG pipeline 

facilities. Similarly, APGA maintains that modifications to LNG takeaway facilities 

raise technical issues that merit examination prior to implementation. APGA adds that 

the compatibility of LNG supplies with existing transmission equipment and with end 

users’ facilities and processes is an issue that should be considered, yet might not receive 

the attention deserved if LNG takeaway facilities were expanded under blanket certificate 

authority.

36. First, pursuant to Order No. 665, the blanket certificate provisions do not apply to 

facilities attached directly to an LNG terminal. With respect to LNG and synthetic gas 

takeaway facilities to which the blanket certificate provisions will apply, all proposed 

§ 157.212 projects will require prior notice, which should permit the public an adequate 

opportunity to identify, address, and resolve issues before construction can commence. If 

there is an interest in exploring gas quality and interchangeability issues, or any issues 

related to the operational characteristics of LNG and synthetic gas plants, an interested 

person may protest, and by doing so, potentially convert the blanket proceeding to a casespecific NGA section 7 certificate authorization proceeding. Finally, as noted, in Docket 
Docket No. RM06-7-000 - 23 -

No. PL04-3-000 a Policy Statement on Gas Quality is issued concurrently with this 

NOPR and will apply to all blanket certificate projects. 

Underground Storage Field Facilities

37. Currently, the blanket certificate program excludes a “facility required to test or 

develop an underground storage field or that alters the certificated capacity, 

deliverability, or storage boundary, or a facility required to store gas above ground . . . 

or wells needed to utilize an underground storage field.”32 Petitioners request these 

restrictions be removed, provided blanket certificate activities do not result in 

inappropriate changes to the physical characteristics of an underground storage field. 

Specifically, Petitioners seek to expand the blanket certificate program to include: 

(1) facilities that provide deliverability enhancements (e.g. aboveground piping or 

compression); (2) infill wells that increase injection or withdrawal capability; (3) the 

development of new caverns or storage zones within a previously defined project area or 

field, as long as there is no change in the certificated boundaries or pressure of the field. 

38. As a general proposition, it is easier to track gas volumes moving through a 

pipeline than gas volumes moving in and out of an underground reservoir. The 

boundaries, integrity, and operational characteristics of a segment of pipe are known and 

fixed, but these characteristics are neither obvious nor immutable for an underground 

storage facility. In view of the operational and engineering ambiguities inherent in 

 

32 18 CFR § 157.202(b)(2)(ii)(D) (2005). 
Docket No. RM06-7-000 - 24 -

managing underground storage facilities, these facilities (but for a limited § 157.215 

exception for facilities for testing and development) have been excluded from the blanket 

certificate program. 

39. Underground storage fields are designed, constructed, developed, and operated 

based on initial available data, and as additional data are obtained over the course of a 

storage field’s operation, the facilities’ design and the operational parameters may be 

modified to optimize the field’s development and productivity. Because storage design 

and development is not an exact science, it typically takes three to ten years of full 

operation to understand and incorporate engineering, geological, and related data to 

obtain optimal storage field functioning. 

40. The Commission seeks to ensure that storage facilities are operated in a manner 

that will maintain their long-term integrity while meeting day-to-day performance 

requirements. Because certain modifications may affect operational parameters such as 

total storage capacity and working and cushion gas volumes, the Commission believes it 

would be imprudent to expand blanket certificate authority to activities that could impact 

the operating pressures, reservoir or buffer boundaries, or the certificated capacity of a 

storage facility. Nevertheless, the Commission believes the administrative advantages of 

construction under blanket certificate authority can be prudently extended to certain 

storage field activities provided there is sufficiently detailed prior notice of a proposed 

project. This will allow companies, under blanket certificate authority, to utilize reengineering to enhance the capability of existing storage facilities while permitting the 
Docket No. RM06-7-000 - 25 -

Commission and the public to assess whether a proposal might compromise a storage 

field’s integrity or alter its physical characteristics or certificated capacity. 

41. The Commission proposes to add § 157.213, specifying information to be 

included in a prior notice of a proposed project affecting underground storage field 

facilities.33 Under these proposed regulatory revisions, if a certificate holder is able to 

demonstrate, by theoretical or empirical evidence, that a proposed project will improve 

storage operations without altering an underground storage facility’s total inventory, 

reservoir pressure, or reservoir or buffer boundaries, and will comply with environmental 

and safety provisions, then blanket certificate authority may be used to re-engineer an 

existing storage facility to decrease cushion gas, increase working gas, improve injection 

and withdrawal capabilities, and add more cycles per season. Storage field facilities can 

include gathering lines, wells (vertical, horizontal, directional, observation, and injection 

and withdrawal), pipelines, compression units, and dehydration and other gas treatment 

facilities. This proposed expanded blanket certificate authority might be used to maintain 

and enhance deliverability in existing fields with lagging performance due to deteriorated 

wells or flow strings, damage to well bore drainage areas, water encroachment, and other 

operational and facility problems, and to make field enhancements, such as converting a 

nonjurisdictional observation well to withdrawal or injection/withdrawal status. These 

 33 The information to be included in prior notice should satisfy APGA’s request 

for an opportunity to review blanket project storage field modifications before 

construction. 
Docket No. RM06-7-000 - 26 -

enhancements can serve to improve peak, daily, and/or seasonal deliverability by 

decreasing cushion gas, increasing working gas, improving injection and withdrawal 

capabilities, or adding more cycles per season – all without affecting overall operating 

limits. 

42. Petitioners promote expanding blanket certificate authority to encompass the 

development of new caverns or storage zones within a previously defined and certificated 

project area or field. The Commission, however, views the blanket certificate program as 

ill suited to construction that would create new storage zones, because impacts associated 

with such projects are wide ranging and go beyond the limited impact that increases in 

deliverability are expected to have on existing fields. The development of new storage 

zones within a previously defined and certificated field is no different than the 

development of an entirely new storage field and thus deserves the same level of 

scrutiny. The issues to be considered in establishing new underground gas reservoirs 

require a close review of technical characteristics and test results, among other criteria, 

that go far beyond the project description, and limited assessment thereof, available in 

prior notice proceeding.34

 34 This also applies to the development of new salt caverns. The safety parameters 

of a salt cavern within a salt dome or salt formation are more complicated and require 

more detailed studies and analysis than depleted gas or oil fields. The development of 

salt caverns, even if within a previously studied and certificated dome or bedded salt 

formation, calls for exacting step-by-step procedures to verify the validity of the original 

and modified design. 
Docket No. RM06-7-000 - 27 -

43. Similarly, the proposed expanded blanket certificate authority is not intended to 

include storage reservoirs that are still under development or reservoirs which have yet to 

reach their inventory and pressure levels as determined from their original certificated 

construction parameters. Such reservoirs may or may not have reliable information 

available on geological confinement or operational parameters via data gathered 

throughout the life of a storage field, whereas new storage zones lack data collected over 

time on physical and operational aspects of a field. Therefore, for such facilities, the 

Commission finds it necessary to individually examine each reservoir to determine its 

potential operating parameters (capacity, cushion and working gas, operational limits, 

well locations, etc.) and to review data essential to understand and predict how 

modifications might affect the integrity, safety, and certificated parameters of the facility. 

44. The Commission proposes to expand the blanket certificate program to permit 

additional storage field activities subject to the §§ 157.205 and 157.208(c) prior notice 

provisions and the submission of information pertinent to the proposed project, as 

specified below. The current § 157.215 automatic authorization remains in effect for 

limited storage testing and development. The Commission proposes to add a new 

§ 157.213 for prior notice storage projects, as follows: 

§ 157.213 Underground storage field facilities. 

 (a) Prior Notice. Subject to the notice requirements of §§ 157.205(b) and 

157.208(c), the certificate holder is authorized to acquire, abandon, construct, 

modify, replace, or operate natural gas underground storage facilities, provided 

the storage facility’s total inventory, reservoir pressure, reservoir and buffer 

boundaries, certificated capacity, and compliance with environmental and safety 

provisions remain unaffected. The cost of a project may not exceed the cost 
Docket No. RM06-7-000 - 28 -

limitation set forth in column 2 of Table I of § 157.208(d). The certificate holder 

must not segment projects in order to meet this cost limitation. 

 (b) Contents of request. In addition to the requirements of §§ 157.206(b) 

 and 157.208(c), requests for activities authorized under paragraph (a) must 

 contain: 

 (1) A description of the current geological interpretation of the storage 

reservoir, including both the storage formation and the caprock, including 

summary analysis of any recent cross-sections, well logs, quantitative porosity 

and permeability data, and any other relevant data for both the storage reservoir 

and caprock; 

 (2) The latest isopach and structural maps of the storage field, showing the 

storage reservoir boundary, as defined by fluid contacts or natural geological 

barriers; the protective buffer boundary; the surface and bottomhole locations of 

the existing and proposed injection/withdrawal wells and observation wells; and 

the lengths of open-hole sections of existing and proposed injection/withdrawal 

wells; 

 (3) Isobaric maps (data from the end of each injection and withdrawal 

cycle) for the last three injection/withdrawal seasons, which include all wells, 

both inside and outside the storage reservoir and within the buffer area; 

 (4) A detailed description of present storage operations and how they may 

change as a result of the new facilities or modifications. Include a detailed 

discussion of all existing operational problems for the storage field, including but 

not limited to gas migration and gas loss; 

 (5) Current and proposed working gas volume, cushion gas volume, native 

gas volume, deliverability (at maximum and minimum pressure), maximum and 

minimum storage pressures, at the present certificated maximum capacity or 

pressure, with volumes and rates in MMcf and pressures in psia; 

 (6) The latest field injection/withdrawal capability studies including curves 

at present and proposed working gas capacity, including average field back 

pressure curves and all other related data; 

 (7) The latest inventory verification study for the storage field, including 

methodology, data, and work papers; 

 (8) The shut-in reservoir pressures (average) and cumulative gas-in-place 

(including native gas) at the beginning of each injection and withdrawal season 

for the last 10 years; and 

 (9) A detailed analysis, including data and work papers, to support the need 

for additional facilities (wells, gathering lines, headers, compression, dehydration, 

or other appurtenant facilities) for the modification of working gas/cushion gas 

ratio and/or to improve the capability of the storage field. 
Docket No. RM06-7-000 - 29 -

 Comments and Commission Response

45. APGA argues that making modifications to underground storage facilities raises 

technical issues that should be reviewed in advance of any construction activity, and that 

the blanket certificate program does not provide for adequate advance oversight. The 

Commission believes adequate oversight will be assured because prospective storage 

field projects will be subject to prior notice, which notice must include the detailed 

information descried above. 

46. Honeoye Storage contends that there is no reason to subject storage field 

construction to greater scrutiny than other construction activities as long as additional 

well construction or other activities do not alter the certificated parameters of existing 

storage facilities. For the reasons discussed above, the Commission believes that 

activities that alter certain characteristics of a storage field merit close scrutiny. 

However, provided there is adequate advance study and documentation of the proposed 

construction, the Commission finds no reason to bar every activity that might alter a 

certificated parameter from the blanket certificate program.35 The information a project 

sponsor is required to submit pursuant to proposed § 157.213 is intended to give the 

Commission and interested persons a sufficient basis upon which to assess the prudence 

of proposed storage field activities. 

 35 See Texas Eastern Transmission Corporation, 62 FERC ¶ 61,196 (1993). 
Docket No. RM06-7-000 - 30 -

 Mainline Facilities 

 

47. The Commission proposes to extend blanket certificate authority to mainline 

facilities. Heretofore, the blanket certificate provisions have excluded mainline facilities, 

in part out of concern that mainline project costs could be large enough to adversely 

impact existing rates. Without this exclusion, it might be possible for a natural gas 

company to break a costly mainline project into several blanket-sized segments. This 

remains a valid concern, and as stressed in comments, this concern is rendered more 

acute as blanket project cost limits increase. 

48. To allay this concern, the Commission proposes to require that all blanket 

certificate projects involving mainline facilities be subject to prior notice to give the 

Commission and interested persons a means to assess a proposal and express objections 

before construction begins. Section 157.208(b) of the Commission’s regulations states 

that a blanket certificate holder “shall not segment projects in order to meet the cost 

limitation set forth in column 2 of Table I,” i.e., the prior notice project cost cap. The 

Commission intends to continue to closely monitor blanket certificate projects, and in 

cases when a project sponsor relies on blanket certificate authority for multiple projects, 

to review blanket activities to verify that individual projects are not piecemeal portions of 

a larger integrated undertaking. If the Commission determines segmentation has 

occurred, it may impose sanctions, which can include precluding a natural gas company 
Docket No. RM06-7-000 - 31 -

from acting under blanket certificate authority36 and penalties of up to $1,000,000 per 

day per violation.

49. The Commission proposes to add § 157.210, to read as follows: 

§ 157.210 Mainline natural gas facilities. 

Prior Notice. Subject to the notice requirements of §§ 157.205(b) and 157.208(c), 

the certificate holder is authorized to acquire, abandon, construct, modify, 

replace, or operate natural gas mainline facilities. The cost of a project may not 

exceed the cost limitation set forth in column 2 of Table I of § 157.208(d). The 

certificate holder must not segment projects in order to meet this cost limitation. 

 Comments and Commission Response

50. Petitioners observe that one of the reasons for excluding mainline capacity 

expansion projects in the past was the worry that the new capacity might be inequitably 

allocated, and reply that the regulations instituted since the industry restructuring 

following Order No. 636 have reduced the potential to allocate existing or new capacity 

inequitably. The Commission believes its current capacity allocation requirements, e.g., 

posting and bidding, which apply to capacity made available as a result of blanket 

projects, will act as a check on discrimination in capacity allocation. If a party suspects a 

request for service has been improperly awarded, it may seek redress by submitting a 

 36 See, e.g., Destin Pipeline Company, L.L.C., 90 FERC ¶ 61,270 (2000), in which 

the Commission responded to construction costs that greatly exceeded the project cost 

limit by suspending the natural gas company’s blanket certificate authority. 
Docket No. RM06-7-000 - 32 -

complaint to the Commission under NGA section 5. The Commission will act as 

necessary to prevent, remedy, and penalize improper practices.

51. AGA is apprehensive that expanding blanket authority to include mainline 

facilities could lead to insufficient scrutiny of environmental or operational impacts, 

particularly in the case of automatic authorization projects. First, the Commission does 

not propose to permit automatic authorization for projects involving mainline facilities, 

regardless of cost. Second, blanket certificate projects are subject to the § 157.206(b) 

environmental compliance conditions to ensure that actions that could cause a significant 

adverse impact on the human environment are not conducted under blanket certificate 

authority, but are instead subject to case-specific review. If the blanket certificate 

program is enlarged to include mainline facilities as proposed, the § 157.206(b) 

conditions will apply. In view of this, and the proposal herein to fortify prior notice and 

environmental compliance provisions, the Commission concludes that proposals 

involving mainline facilities will receive sufficient scrutiny. 

52. Anadarko is apprehensive the proposed revisions could undermine the 

Commission’s authority to ensure that the legislative goals and requirements of the 

Alaska Natural Gas Transportation Act of 1976 (ANGTA)37 and the Alaska Natural Gas 

Pipeline Act (ANGPA)38 are met. Anadarko states that the Commission’s consideration 

of a case-specific certificate application, and the attendant open season allocation 

 37 15 U.S.C. 719, et seq. (2000). 

38 15 U.S.C. 720, et seq. (2000). 
Docket No. RM06-7-000 - 33 -

requirement, provides “the first, and perhaps the only, opportunity for objections to be 

raised to the size of the proposed expansion, the allocation of capacity, or the rate to be 

charged, and it is the first opportunity for discrimination claims to be raised.”39 Anadarko 

argues that allowing “any mainline expansion of an Alaskan natural gas pipeline” without 

“all of the protections afforded by a complete NGA section 7(c) certificate proceeding” 

could conflict with the ANGTA and ANGPA rate and the open season regulatory 

requirements recently articulated in the Commission’s Order No. 2005.40 Anadarko asks 

that the Commission specifically exempt an Alaska natural gas transportation project 

from any expanded blanket certificate authority. 

53. The Commission, in implementing its regulatory authority under ANGPA, 

explained that “a number of existing Commission policies predicated on competitive 

conditions in the lower 48 states are ill-suited for application in the case of an Alaska 

natural gas transportation project;” therefore, there is a “need in certain instances to 

accommodate existing Commission policy to the unique circumstances surrounding the 

exploration, production, development, and transportation to market of Alaska natural 

gas.”41 Consequently, the Commission will consider the need to accommodate the 

 

39 Anadarko’s Comments at 4 (Jan. 17, 2005). 

40 Regulations Governing the Conduct of Open Seasons for Alaska Natural Gas

Transportation Projects, Order No. 2005, 70 FR 8269 (February 9, 2005) 110 FERC 

¶ 61,095 (2005). 

41 Order No. 2005-A, 70 FR 35011, 35016 (June 16, 2005); 111 FERC ¶ 61,332, P 

36 (2005). 
Docket No. RM06-7-000 - 34 -

blanket certificate program to the unique circumstances of an Alaska project in any future 

proceedings authorizing such a project. 

54. Kinder Morgan states its intention to extend or expand mainlines in order to bring 

natural gas to new ethanol production plants. Kinder Morgan cites public policy 

initiatives intended to promote the production and consumption of ethanol and expresses 

the concern that the current blanket certificate program’s exclusion of mainline facilities 

may hinder the timely construction of facilities necessary to supply gas to new ethanol 

plants. The Commission expects the proposal to expand the blanket certificate provisions 

to include mainlines will provide Kinder Morgan with the additional authority it seeks. 

Kinder Morgan describes requests it has received from a developer of two new ethanol 

plants: one to extend a mainline by adding 2 to 3 miles of 8-inch pipe, the other to loop a 

mainline with 14 miles of 12-inch pipe. Under the proposed revised regulations, both 

projects would fall well within the parameters of the expanded blanket certificate 

program.

 Blanket Project Cost Limits

55. Blanket certificate projects are constrained (1) by cost caps, (2) by compliance 

with the § 157.206(b) environmental requirements, and (3) by being limited to a 
Docket No. RM06-7-000 - 35 -

restricted set of facilities.42 The Commission proposes to raise the cost caps for blanket 

certificate projects. 

56. The blanket certificate project cost limits were initially set at $4,200,000 for an 

automatic authorization project and $12,000,000 for a prior notice project. Since 1982, 

the Commission has used an inflation tracker (the gross domestic product implicit price 

deflator as determined by the Department of Commerce) that has resulted in 

incrementally ratcheting up blanket project cost limits to the current level of $8,200,000 

for an automatic authorization project and $22,700,000 for a prior notice project. 

Petitioners contend these inflation-adjusted cost caps fail to take into account additional 

costs, such as regulatory compliance requirements and the use of more expensive 

construction technology, which did not play as prominent a part in 1982 as they do today, 

and request the Commission initiate a study to analyze and compare costs in 1982 to 

costs today. 

57. There is no question that construction costs vary over time, and do so in a manner 

that is not easily predicted. Recently, for example, certain project components – notably 

the price of steel pipe – have risen far faster than any measure of overall inflation. 

 42 Further, as a prerequisite for a blanket certificate, the Commission requires a 

company to first obtain a case-specific certificate, because it is in the context of 

evaluating an application for an NGA section 7 certificate authorization that the 

Commission establishes a “jurisdictional and informational base . . . concerning such 

matters as rates, system supplies and certificated customers.” Interstate Pipeline

Certificates for Routine Transactions, Order No. 234, 47 FR 24254 (June 4, 1982); 47 FR 

30724 (July 15, 1982), Reg. Preambles 1982-1985 P 30,200 (1982). 
Docket No. RM06-7-000 - 36 -

However, although steel prices have run up over the past several years, in looking back to 

1982, there were periods during which steel prices fell substantially. Further, changing 

regulatory requirements and construction techniques, to which Petitioners attribute cost 

increases, do not always add to project costs, and may well contribute to cost reductions 

and efficiencies. 

58. Petitioners request the Commission reassess construction costs to determine if a 

project constructed within 1982 cost limits could be replicated within today’s cost limits. 

The Commission is concerned that a focus on changes in construction costs over time 

risks losing sight of the fundamental premise of the blanket certificate program, namely, 

that blanket authorization be restricted (1) to projects that are modest in scale and routine 

in nature, i.e., projects that are sufficiently well understood so as to permit them to 

proceed with a lesser level of regulatory scrutiny, and (2) to projects that will not result in 

unjustified increases in existing customers’ rates. With respect to the latter, comparing 

construction costs over time is irrelevant; the relevant question is whether the project cost 

caps have served to adequately insulate existing rates from increases attributable to 

blanket program costs. The Commission cautions that even if it were possible to mirror 

1982 costs to costs today, the dollar amounts would not reflect proportionate impacts on 

existing rates, since in 1982 the commodity cost of gas was a significant portion of 

pipeline customers’ merchant service rate, whereas today, gas costs are no longer a 

component of pipeline customers’ transportation service rate. In view of this, the 
Docket No. RM06-7-000 - 37 -

Commission questions the utility of undertaking a formal inquiry to try to true up 

construction costs from 1982 to today, and so declines Petitioners’ invitation to do so. 

59. Nevertheless, in an effort to gauge whether the inflation tracker employed by the 

Commission over the past quarter century has functioned as a reliable indicator of the rise 

in construction costs, the Commission has reviewed changes in gas utility construction 

materials costs. Between 1982 and 2005, such costs have risen by a factor of 

approximately 2.29,43 compared to a factor of approximately 1.90 using the inflation 

tracker employed by the Commission. To account for this divergence, the Commission 

proposes to raise blanket cost limits to $9,600,000 for a no-notice project and to 

$27,400,000 for a prior notice project. In view of the relatively small disparity 

demonstrated between utility construction materials costs and the Department of 

Commerce’s GDP implicit price deflator, the Commission proposes to continue to rely 

the latter, a commonly used and generally accepted measure of overall inflation levels, as 

the measure for making annual adjustments to the project cost limits. The Commission 

 43 The gas utility construction materials cost factor is derived by averaging 

regional costs throughout the 48 contiguous states, as estimated in the Handy-Whitman 

Index of Public Utility Construction Costs, Trends of Construction Costs, Bulletin No. 

162, 1912 to July 1, 2005. In initiating the blanket certificate program, “[m]any 

commenters argued against the use of the ‘GNP implicit price deflator’ for adjusting . . . 

[project cost] limits and recommended using the Handy-Whitman Index, a pricing index 

of various utility and utility-type equipment, updated semi-annually, for this purpose. 

The Commission believes that it is preferable to use the ‘GNP implicit price deflator’ 

instead of an index based on a private collection of data not easily susceptible to 

governmental verification.” (Footnote omitted.) 47 FR 24254 (June 4, 1982). The 

Commission reaffirms this preference. 
Docket No. RM06-7-000 - 38 -

declines to tie the blanket cost limit adjustment to commodity prices (such as steel), labor 

rates, or other potentially subjective and varying project cost components out of a 

concern that this could result in volatile or inappropriate cost limit adjustments. 

60. The Commission requests comments on (1) the merits of this proposed boost in 

the blanket project cost limits, (2) whether the inflation tracker mechanism currently 

employed by the Commission accurately reflects changes in blanket project costs, and 

(3) whether another means of accounting for changes in project costs may be preferable. 

With respect to prospective comments, the Commission notes that the blanket certificate 

program was implemented to allow a generic class of minor projects to go forward 

without case-specific review, based on the expectation that the cumulative effect of such 

construction would neither raise existing rates nor degrade existing services. Thus, the 

pertinent question is not the extent to which construction costs may have changed over 

the last quarter century, but whether blanket certificate activities can be expanded 

without compromising the program’s premise that there be no significant adverse impacts 

on existing ratepayers, services, or the environment. 

 Comments and Commission Response

61. Commentors did not argue for either particular new cost limits or any means to 

calculate such limits, although AGA did ask as an initial matter to establish “whether the 
Docket No. RM06-7-000 - 39 -

initial purpose of the blanket construction certificate regulations is being frustrated by the 

current dollar limits.”44 The Commission welcomes comments on this question. 

62. Several commentors caution that increasing the blanket certificate project cost 

limits will put exiting customers at risk for rising rates. Currently, blanket certificate 

project costs are afforded a presumption that they will qualify for rolled in rate treatment 

in a future NGA section 4 rate proceeding.45 Commentors are apprehensive that if the 

blanket certificate program is expanded as proposed, additional construction will take 

place under blanket certificate authority, and the costs of this additional construction 

subsequently will be rolled into a natural gas company’s existing rate base, and thereby 

raise systemwide rates. The Commission believes that the proposed measured increase in 

blanket certificate project cost caps, in conjunction with the proposal to require prior 

notice for projects that rely on the expanded blanket certificate authority proposed herein, 

will provide interested persons a preview of and opportunity to comment on the rate 

impact of proposed blanket certificate projects. As noted, persons that object to a blanket 

 44 AGA’s Comments at 12 (Jan. 17, 2005). 

45 The Commission has routinely allowed blanket certificate project costs to be 

rolled into a natural gas company’s existing rate base. See, e.g., Pricing Policy for New 

and Existing Facilities Constructed by Interstate Natural Gas Pipelines, 71 FERC 

¶ 61,241, 61917 (1995), stating that blanket “projects will be presumed to qualify for the 

presumption in favor of rolled-in pricing upon a showing of system-wide benefits,” and 

Destin Pipeline Company, L.L.C., 83 FERC ¶ 61,308, 61,308 (1988), further clarifying 

“the Commission has determined that such facilities qualify for the presumption of 

rolled-in rate treatment without a case-specific analysis of system-wide benefits because 

the resulting rate impact in such situations is usually de minimis.”
Docket No. RM06-7-000 - 40 -

project subject to prior notice can file a protest, which if not withdrawn or dismissed 

within the allotted time, will result in the proposed blanket certificate project being 

treated as a case-specific NGA section 7 certificate application. 

63. Commentors suggest the proposed revisions could alter the nature of the blanket 

certificate program and undermine the premise of the program: that the impacts of 

projects constructed under blanket certificate authority will be insignificant. The 

Commission seeks comments on what additional measures, if any, it should consider to 

limit any potentially adverse impacts which might be associated with its proposed 

expansion of the blanket certificate program.46 

64. NiSource supports the petition, but cautions the Commission to guard against 

segmentation, i.e., a series of small projects, each of which is within the blanket 

certificate cost limit, but each of which is also an integral part of a larger project that 

would otherwise exceed the cost limit. NiSource contends that when blanket certificate 

costs are afforded a presumption that they will receive rolled-in rate treatment, 

segmentation could result in existing customers subsidizing expansion costs. The 

Commission has previously cautioned against segmenting a large project into a daisy 

 46 For example, in 1982, in promulgating the blanket program, the Commission 

considered shielding existing customers from the impact of the costs of blanket certificate 

projects by imposing both a per-project cost cap and an annual cost cap, the latter at a 

suggested maximum of three percent of the certificate holder’s net plant. In the end, the 

Commission elected not to impose any annual limit, reasoning that “[g]iven the high 

costs of purchased gas relative to the customer’s total gas bill, it is unlikely that the 

cumulative effect of the activities approved under this section will have any significant 

effect on ratepayers.” 47 FR 24254 (June 4, 1982). 
Docket No. RM06-7-000 - 41 -

chain of smaller blanket-sized projects, and reiterates its intention to exercise close 

oversight when a certificate holder presents a series of potentially interrelated blanket 

certificate proposals. To the extent any person suspects a natural gas company is 

employing its blanket certificate authority to put in place projects that are not only 

interrelated but interdependent, such an abuse of the blanket certificate program should 

be brought to the Commission’s attention.

65. APGA notes the Commission’s Policy Statement on New Facilities declares that 

the threshold criterion for a proposed project is that revenues meet or exceed costs so that 

there will be no subsidization, and cautions this threshold calculation, and the 

Commission’s assessment of the remaining public interest criteria articulated in its policy 

statement, are not considered when the costs of facilities added under blanket certificate 

authority are presumed to merit rolled-in rate treatment. To date, the Commission has 

not found cause to apply its Policy Statement on New Facilities to blanket certificate 

facilities,47 and invites comments on whether this approach merits reconsideration in light 

of the proposed expansion of the blanket certificate program. 

66. AGA observes that cost limits were imposed to ensure projects constructed under 

blanket authorization would have a de minimis impact on existing rates, and argues that 

if cost limits are raised, then rolled-in rate treatment for blanket certificate costs should 

be reconsidered. AGA suggests it may be prudent to require that all blanket certificate 

 47 88 FERC ¶ 61,227, 61,737, note 3 (1999). 
Docket No. RM06-7-000 - 42 -

projects be subject to prior notice, in order to provide an opportunity to review the 

potential rate, service, and environmental impacts.

67. The Commission does not anticipate the relatively modest proposed increase in 

blanket certificate project cost limits will significantly shift the impact that costs of 

construction under blanket certificates now have on existing rates. However, recognizing 

that expanding blanket certificate authority to include types of projects heretofore 

excluded from the blanket certificate program may lead to additional expenditures on 

blanket certificate construction, the Commission is proposing all newly enfranchised 

blanket certificate projects be subject to prior notice. As noted above, concerns regarding 

rate impacts may be raised in response to a prior notice or in an NGA section 4 rate 

proceeding. To the extent the AGA has remaining concerns regarding rate impacts, the 

Commission welcomes comments on whether additional or alternative revisions to the 

blanket certificate regulations are necessary to ensure that projects constructed pursuant 

to blanket certificate authority will have no more than a de minimis impact on existing 

rates.

 Notification Requirements 

68. The Commission has previously emphasized the “need for advance notification of 

landowners for blanket certificate activities” so that landowners are able to air their views 

and concerns “to make sure that our regulations provide for similar protections for 
Docket No. RM06-7-000 - 43 -

similar activities.”48 If the scale or scope of blanket certificate-eligible activities is 

expanded, the Commission believes additional notice and compliance provisions are 

needed to guarantee that protections under the blanket certificate program remain 

comparable to those applicable to case-specific applications. 

69. Section 157.203(d) describes the procedures for notice to landowners affected by a 

proposed project, and §157.205 describes the public prior notice procedure applicable to 

blanket certificate projects that exceed the automatic authorization cost limit. Currently, 

§ 157. 203(d)(1) requires that project sponsors must notify landowners affected by an 

automatic authorization project at least 30 days prior to construction.49 The Commission 

proposes to extend this to 45 days. In view of the proposed expanded scope and scale of 

blanket certificate authority, which can be expected to increase number of automatic 

authorization projects undertaken and the number of people impacted, an additional 15 

days offers greater assurance that there will be adequate time for landowners to state their 

concerns and for project sponsors and the Commission to respond. 

70. In addition, the Commission proposes to modify §§ 157.203(d)(2)(iv) and 

157.205(d) to extend the deadline to protest a proposed prior notice project from 45 to 60 

 48 Landowner Notification, Expanded Categorical Exclusions, and Other 

Environmental Filing Requirements, Order No. 609, 64 FR 57374, 57383 (Oct. 25, 

1999). 

49 A project sponsor’s contact with a landowner to initiate easement negotiations 

qualifies as notice. A landowner may waive the 30-day notice requirement in writing, 

provided notice has been provided. For activity required to restore service in an 

emergency, the 30-day prior notice period is satisfied if a natural gas company obtains all 

necessary easements. These aspects of § 157. 203(d)(1) are unaffected by this NOPR. 
Docket No. RM06-7-000 - 44 -

days. This additional time will offer greater certainty that public notice of a proposed 

project reaches all potentially interested persons and that they have an adequate interval 

to reply. Further, the additional time will provide the Commission with a more 

reasonable period of time to conduct and conclude its environmental assessment (EA) of 

a proposal. This NOPR contemplates an increase the number, extent, kind, and 

complexity of facilities subject to blanket certificate authority, yet even for the types of 

projects currently permitted, 45 days has proved to be, on occasion, an unrealistically 

short time for the consultation and analysis required to complete an EA. The additional 

time will ensure the Commission is not forced to protest a prior notice project merely as a 

means to gain time to finish an EA. The Commission does not expect the extended 

landowner and public notice periods to unduly delay blanket certificate projects, since 

natural gas companies, in large part, can dictate when a blanket certificate project may 

begin construction by when the company elects to initiate the notice process. 

71. To provide landowners with a more complete understanding of the blanket 

certificate program and the potential impacts of a particular blanket certificate project, 

the Commission proposes to expand the description of the program and project that is 

provided in the notice to landowners. The proposed new landowner notification 

requirements at §§ 157.203(d)(1)(iii) and 157.203(d)(2)(vii) will require the notice to 

include: a general map; a statement of the proposed project’s purpose and timing; a 

discussion of what the project sponsor will need from the landowner and how to contact 

the project sponsor; a Commission pamphlet addressing basic concerns of landowners; a 
Docket No. RM06-7-000 - 45 -

brief summary of the landowner’s rights under the eminent domain rules of the relevant 

state; and the project sponsor’s environmental complaint resolution procedure. While 

this suggested change will require that future notices include more information than they 

currently do, the more detailed new notice will still require a project sponsor to present 

considerably less information than would be necessary for a case-specific application. 

The Commission notes that all the activities this NOPR contemplates placing under the 

proposed expanded blanket certificate authority, but for the expanded blanket certificate 

authority, would require case-specific NGA section 7 certificate authorization. 

 Environmental Conditions

72. Commenters note, and the Commission concurs, that as the scope and scale of the 

blanket certificate program grows, so does the potential for a blanket certificate project to 

constitute a major federal action likely to have a significant impact on the quality of the 

human environment. A blanket certificate project must continue to meet the 

environmental conditions set forth in § 157.206(b) of the Commission regulations, and 

compliance with these conditions serves to reduce the potential adverse environmental 

impacts of a project to acceptable levels. To ensure that this continues to be the case with 

larger and more varied types of blanket certificate projects, the Commission proposes to 

modify the blanket certificate program’s environmental compliance conditions as 

follows. 

73. Section 157.6(d)(2)(i) will be revised to clarify that “facility sites” include wells 

and all other aboveground facility sites. Section 157.206(b)(5), describing noise 
Docket No. RM06-7-000 - 46 -

attributable to compressor stations, will be revised to specify that the noise level is to be 

measured at the site property boundary. Also in §157.206(b)(5), a goal is established that 

horizontal directional drilling (HDD) and well drilling noise not exceed a day-night level 

(Ldn) of 55 decibels (dBA) at the nearest noise sensitive area (NSA). In turn, 

§ 157.208(c)(9) will be revised to require a description of the steps to be taken to comply 

with the revised § 157.206(b)(5) HDD and well drilling noise levels, or a description of 

the mitigation to be employed. Finally, the Commission proposes to revise 

§ 157.208(e)(4) to require a noise survey verifying compliance with § 157.206(b)(5) for 

new or modified compression. 

74. The Commission proposes to add a new § 157.208(c)(10), directing the certificate 

holder to include a statement committing to have the environmental inspector(s) report – 

as currently required by § 157.206(b)(3)(iv) under the Upland Erosion Control, 

Revegetation and Maintenance Plan – filed with the Commission on a weekly basis. This 

is necessitated by the proposed wider scope of prior notice projects, which present a 

greater potential for environmental harm, and consequently require a heightened 

vigilance to ensure environmental safeguards are not inadvertently overlooked. 

Moreover, this will allow the Commission, through its staff, to more efficiently monitor 

compliance; this may also reduce the need for the natural gas company to assist in routine 

staff field investigations. 

75. Recently, in certain regions, the United States Fish and Wildlife Service has 

adopted a practice of not responding in writing if a determination of no effect on 
Docket No. RM06-7-000 - 47 -

endangered or threatened species is reached; yet the Commission’s current regulations 

require the certificate holder to provide copies of the agency’s determination. To 

reconcile this regulatory incompatibility, the Commission proposes to modify 

§ 157.208(c)(9) to allow the certificate holder to present substitute documentation of 

agency concurrence if no written concurrence is received. This substitute documentation 

may consist of telephone logs, copies of e-mails, or any other reliable means of 

identifying the agency personnel contacted from whom confirmation of the agency’s 

determination is received. 

76. In anticipation of an increase in the number and type of automatic authorization 

projects, and in view of the fact that automatic authorization projects are not identified by 

a docket number, the Commission proposes to modify § 157.208(e)(4) by adding new 

paragraphs (ii) and (iii) to require the annual report for automatically authorized projects 

to document the progress toward restoration, and a discussion of problems or unusual 

construction issues – including those identified by affected landowners – and corrective 

actions taken or planned. 

 Comments and Commission Response

77. Sempra contends that expanded blanket certificate authority could induce 

competitive inequities because a potential new entrant would have to undergo a de novo

environmental review, whereas an incumbent could construct identical facilities as long 

as it is able to satisfy the § 157.206((b) environmental compliance conditions. This 

purported inequity is likely to be tempered by the additional notice and environmental 
Docket No. RM06-7-000 - 48 -

compliance conditions proposed above. Moreover, a new entrant submitting an NGA 

section 7 application and a certificate holder relying on blanket authority for equivalent 

projects must both comply with the same set of environmental requirements.

78. Nevertheless, Sempra’s objection to the blanket certificate environmental 

provisions remains, and in effect constitutes a collateral attack on the entire blanket 

certificate program. The Commission concedes that in terms of procedural efficiency, a 

new market entrant can be at a competitive disadvantage when pitted against a certificate 

holder able to act under blanket certificate authority. This disparity is inherent in the 

blanket certificate program, as the blanket certificate program provides for expedited 

authorization when compared to having to obtain case-specific section 7 authorization. 

The Commission is unaware of any systematic distortion of infrastructure development 

due to its blanket certificate program’s providing incumbent certificate holders with this 

advantage over prospective, but as yet uncertificated, competitors. Comments on this are 

requested.

 Clarification of Criteria Defining Just and Reasonable Rates

 Rate Treatment for Foundation Shippers

79. Turning from requested revisions to the blanket certificate program and to NGA 

section 7 applications in general, Petitioners request clarification that it is not undue 

discrimination for a natural gas company to offer rate benefits to prospective customers 

who commit to a project before the company makes a public statement of its intent to 

build the project. Petitioners state that reaching bilateral agreements with as many of a 
Docket No. RM06-7-000 - 49 -

project's potential customers as early as possible may be the most significant variable 

affecting the timing of infrastructure additions. Petitioners argue that project sponsors 

must have a critical mass of customers willing to commit early as ‘foundation shippers’ 

to provide the financial support for a project before project sponsors commit to go 

forward with the project. 

80. However, Petitioners state that there is an economic incentive for a potential 

customer to “sit in the wings,” and bet that the critical mass of support will evolve, and 

the project go forward, at which point the customer may then make a choice as to 

whether to take service. Petitioners assert that if enough potential customers adopt this 

“wait and see” approach, project sponsors may not be able to justify spending the capital 

required to initiate the environmental review and certificate application process. 

Petitioners desire to encourage early commitments by offering rates to customers that 

commit early which are more favorable than the rates that will be available to those that 

seek service later. 

81. Petitioners propose to divide the foundation shippers eligible for such favorable 

rates into two groups. “Group I Foundation Shippers” would receive the most favorable 

rates; this group includes all shippers who execute a binding precedent agreement by the 

deadline established in the open season for the project. 50 Petitioners subdivide Group I 

 50 To date, it has been the Commission’s policy, developed through its orders and 

opinions, that all new interstate pipeline construction be preceded by a 

nondiscriminatory, nonpreferential public “open season” process through which all 

potential shippers may seek and obtain firm capacity rights. 
Docket No. RM06-7-000 - 50 -

into three different types of shippers. First, those typically large shippers that reach 

agreements with the project sponsor through one-on-one negotiation in formulating the 

project and come forward hand-in-hand with the project sponsor when the project is 

announced. Second, shippers of multiple sizes that bid successfully in the public open 

season and execute binding precedent agreements by the deadline established by the 

project sponsor. Third, shippers that make their first contractual commitment to the 

project by the deadline established in the open season by the project’s sponsor. 51 

Petitioners state that such shippers, large and small, ultimately provide the critical mass 

of support for the project. 

82. “Group II Foundation Shippers” would consist of shippers that do not execute 

binding commitments until after the deadline set in the open season, but do commit to the 

project prior to the point at which the project sponsor commits publicly to its willingness 

to build the project. Petitioners state that such shippers also provide essential support for 

a project, but should not necessarily be considered similarly situated with the Group I 

shippers because they did not commit to the project by the open-season deadline. 

 51 INGAA/NGSA Petition at 18-19 (Nov. 22, 2005). However, at page 21, 

Petitioners describe their proposal somewhat differently, stating that the common 

defining criterion for Group I shippers is their execution of a binding commitment by the 

point at which a project sponsor makes the "go/no go" decision for the project. The 

Commission assumes that the point at which the project’s sponsors make the "go/no go" 

decision is approximately the same time as the deadline established by the open season 

for a binding agreement to be signed. 
Docket No. RM06-7-000 - 51 -

83. Petitioners assert that project sponsors and the foundation shippers currently risk 

their bargain being undone by the Commission, either by disallowing the preferential rate 

treatment afforded to shippers that signed up early or by extending the preferential rate to 

shippers seeking service later in time. Petitioners request the Commission confirm that it 

is not undue discrimination to provide rate benefits to foundation shippers and withhold 

the same benefits from later-generation shippers. Similarly, Petitioners request the 

Commission confirm that it is not undue discrimination to provide rate benefits to Group 

I shippers that are not available to Group II shippers. Petitioners state that their proposal 

does not address distinctions among foundation shippers within Group I, thus Petitioners 

do not ask the Commission to address whether rate preferences among the different 

categories of Group I shippers would be unduly discriminatory. 

84. Petitioners assert that a Commission statement affirming the legitimacy of 

disparate rate offerings will allow project sponsors and foundation shippers to negotiate 

bilateral commitments confident that their agreements will be neither overturned nor 

conferred on later shippers. Petitioners argue that such a confirmation will provide a 

strong incentive for more potential shippers to become foundation shippers, thus enabling 

needed infrastructure projects to get underway earlier. 

 Comments 

85. The AGA finds the proposal worthy of discussion and believes that shippers that 

commit early to new projects should be recognized for the risks they take. The AGA also 

states that it is important to clarify that all shippers should have the ability to become 
Docket No. RM06-7-000 - 52 -

foundation shippers and that existing customers should not be made to subsidize the 

foundation shippers. 

86. Duke endorses a policy to encourage relatively early commitments by potential 

shippers. In particular, Duke contends that shippers willing to sign up for capacity prior 

to a project’s development should be able to rely on their contracted-for capacity without 

the risk of pro rata reallocation if additional shippers request capacity at a later time. 

Duke asserts that unless foundation shippers are protected against reallocations resulting 

from open seasons, there is little incentive to make an early commitment to a project. 

NiSource asserts that the Commission should not view the proposed differential rates as 

undue discrimination, but as a positive practical benefit that will prompt the development 

of needed infrastructure. 

87. Illinois Municipal seeks assurance that if the foundation shipper proposal is 

accepted, the Commission will still continue to prohibit discount adjustments for 

discounts given on expansion capacity.52 Illinois Municipal asserts that the 

Commission’s discount policies do not prohibit project sponsors from granting special 

lower negotiated rates to foundation shippers. However, there should be no attempt to 

impose a discount adjustment on the rate to the pre-expansion shippers. 

88. PSCNY asserts that the proposal is overly complicated and may cause more 

problems than it solves, but should be explored. PSCNY asserts that the qualifications 

 52 Illinois Municipal at 3, citing, Policy For Selective Discounting By Natural Gas

Pipelines, 113 FERC ¶ 61,173 (2005). 
Docket No. RM06-7-000 - 53 -

for membership in the two groups of foundation shippers appear to be based upon 

arbitrary deadlines, which leads to concern over the criteria used to define a bid as 

binding and how project sponsors will designate deadlines. PSCNY states that the 

creation of rate distinctions will complicate Commission policies regarding the pricing of 

pipeline expansions and produce additional issues for litigation in subsequent rate cases. 

PSCNY also argues that it is not clear why customers that commit in a later open season 

should receive less favorable treatment than customers that commit in an earlier open 

season, especially when the reason or cause of a subsequent open season is within the 

control of the pipeline. Further, PSCNY argues that there is no assurance that this 

proposal will achieve its objective of providing an incentive for customers to make an 

early commitment to a new project. Finally, PSCNY claims that forcing shippers to 

commit early to a project may conflict with the public interest, since having binding 

commitments in hand might discourage the development of competing project proposals. 

89. PSCNY states that the preferential rates given to the Group I Foundation Shippers 

may provide such shippers with a competitive advantage over later-committing shippers, 

and that this competitive advantage may discourage smaller marketers from entering 

retail open access markets. PSCNY asserts that policies that promote nondiscriminatory 

pricing are more likely to achieve the desired objective of establishing competitive retail 

as well as wholesale markets. 

90. PSCNY appreciates the need for project sponsors to obtain binding commitments 

from prospective customers in order to obtain financial backing for projects, but argues 
Docket No. RM06-7-000 - 54 -

that issues associated with the difficulties in obtaining such commitments go far beyond 

rate treatment. PSCNY insists that the way to keep the process as transparent and 

nondiscriminatory as possible is to establish clear guidelines for implementing a 

transparent open-season process that define the criteria for eligible bids and the binding 

nature of such bids. PSCNY claims this will ensure that all shippers, including those that 

commit in a secondary open season, have equal access to new capacity. Potential 

customers will have a built-in incentive to make binding bids before the end of an open 

season, because if they delay, they risk the capacity being fully subscribed. 

91. Sempra states that preferential rate treatment for foundation shippers may pose no 

undue discrimination in most cases. However, it prefers for the Commission to develop 

undue discrimination policies through individual natural gas company adjudications 

because such determinations are necessarily fact specific, and a case-by-case approach 

allows the Commission to fully consider the implications of each individual proposal, 

including public interest considerations particular to a proposed project. Accordingly, 

Sempra rejects Petitioners’ contention that the Commission issue a rulemaking or policy 

statement to address the foundation shipper rate issue on a generic basis. 

92. Anadarko requests that the Commission clarify that its action regarding foundation 

shippers will have no effect on or application to an Alaska project authorized under 

ANGTA or the NGA. 
Docket No. RM06-7-000 - 55 -

Discussion

93. The Commission does not dispute the premise that a project sponsor is best 

positioned to secure financial backing and perfect an application if it has customer 

commitments in hand. Accordingly, the sooner a project sponsor can induce customers 

to sign up for firm service, the sooner a project can be expected to go forward. For the 

reasons discussed below, the Commission finds that its existing policies can 

accommodate the Petitioners’ desire to offer rate incentives to obtain such early project 

commitments, and pursuant to these existing policies, rate incentives do not constitute 

undue discrimination. 

94. The NGA contemplates individualized contracts for service.53 Under the NGA, 

the Commission's role is to ensure that the rates offered and accepted as a result of 

individual negotiations are just and reasonable and not unduly discriminatory.54 Further, 

the Supreme Court has held that the purpose of the NGA was not to “abrogate private 

contracts to be filed with the Commission” and that the NGA “expressly recognized that 

rates to particular customers may be set by individual contracts.”55 Therefore, not all 

 53 United Gas Pipe Line Co. v. Mobile Gas Service Corp. (Mobile), 350 U.S. 332 

at pp. 338-9 (1956); FPC v. Sierra Pacific Power Co. (Sierra), 350 U.S. 348 (1956). 

54 Id. NGA section 4 prohibits natural gas companies subject to the Commission's 

jurisdiction from: (1) making or granting any undue preference or advantage to any 

person or subjecting any person to any undue prejudice or disadvantage, or 

(2) maintaining any unreasonable difference in rates, charges, service, facilities or in any 

other respect, either as between localities or as between classes of service. 

55 Mobile, 350 U.S. 332 at pp. 338-339. 
Docket No. RM06-7-000 - 56 -

differentiations in rate treatment are unreasonable or illegal. Rather, “[it] is only when a 

preference or advantage accorded to one customer over another is undue or a difference 

in service as between them is unreasonable that . . . [the undue discrimination provisions] 

of the Act come [ ] into play.”56

95. Moreover, in Cities of Bethany, et al v. FERC,

57 the Court of Appeals found that 

the “mere fact of a rate disparity [between customers receiving the same service] does not 

establish unlawful rate discrimination” under the NGA, and that “rate differences may be 

justified and rendered lawful by facts – cost of service or otherwise.”58 Relying on the 

Supreme Court's decisions in Mobile and Sierra, the court held that the antidiscrimination mandate of NGA section 4(b) should not be interpreted as “obliterating 

the public policy supporting private rate contracts” between natural gas pipelines and 

their customers.59 Therefore, it is clear that pipelines may provide different rates to 

different customers based upon different circumstances. 

 56 Michigan Consolidated Gas Co. v. FPC, 203 F.2d 895, 901 (3d Cir. 1953).

57 727 F.2d 1131 (D.C. Cir. 1984). 

58 Id. at 1139. Thus, the court observed that fixed rate contracts between the 

parties may justify a rate disparity, citing Town of Norwood v. FERC, 587 F.2d 1306, 

1310 (D.C. Cir. 1978); Boroughs of Chambersburg, et al. v. FERC, 580 F.2d 573, 577 

(D.C. Cir. 1978) (per curium)). See also, United Municipal Distributors Group v. FERC, 

732 F.2d 202 (D.C. Cir. 1984). 

59 Id. 
Docket No. RM06-7-000 - 57 -

96. Consistent with this statutory scheme, in both its discounted rate and negotiated 

rate programs, the Commission has authorized natural gas companies to negotiate 

individualized rates with particular customers. Section 284.10(c)(5) of the Commission’s 

open access regulations permits a pipeline to offer discounted rates in a range between its 

maximum and minimum tariff rate; discounted rates must reflect the same rate design as 

the tariff rate. In its 1996 negotiated rate policy statement,60 the Commission allowed 

pipelines to negotiate individualized rates that are not constrained by the maximum and 

minimum rates in the pipeline’s tariff and need not reflect the same rate design.61 

97. The Commission has permitted pipelines to use both discounted and negotiated 

rates in establishing rates for the participants in new projects. In fact, in the 

Commission’s Policy Statement on New Facilities, the Commission encouraged pipelines 

to negotiate risk sharing agreements with shippers participating in a new project 

regarding the effect of cost overruns and underutilized capacity on rates for the proposed 

facilities.62 Negotiated rates that will remain fixed regardless of actual construction costs 

 60 Alternatives to Traditional Cost-of-Service Ratemaking for Natural Gas

Pipelines, Regulation of Negotiated Transportation Services, Statements of Policy and

Comments, 74 FERC ¶ 61,076 (1996), order on clarification, 74 FERC ¶ 61,194 (1996), 

order on reh'g, 75 FERC ¶ 61,024 (1996). 

61 See Northern Natural Gas Co., 105 FERC ¶ 61,299 at P12-16 (2003) (discussing 

the distinction between discounted and negotiated rates). 

62 88 FERC ¶ 61,128 at 61,747 (1999), stating “should reach such agreements with 

new shippers concerning who will bear the risks of underutilization of capacity and cost 

overruns.” 
Docket No. RM06-7-000 - 58 -

are an obvious way of accomplishing such risk sharing. In recent years, many project 

sponsors have entered into such negotiated rate agreements with their foundation 

shippers, and the Commission has approved the rates. 63

98. It is within this regulatory framework that the Commission considers whether to 

confirm that it is not unduly discriminatory to provide rate benefits to foundation 

shippers and withhold the same benefits from later-generation shippers64 or to provide 

rate benefits to Group I shippers and withhold the same benefits from Group II shippers. 

The Commission finds, as a general matter, that rate differentials between foundation 

shippers that sign up for service early and shippers that sign up for service later are not 

unduly discriminatory,since the later shippers are not similarly situated to the foundation 

shippers. However, integral to this finding is the concept discussed below, that all 

potential shippers have an equal and open opportunity to become foundation shippers. 

The contractual commitments by the foundation shippers to purchase capacity on the new 

 63 In some instances, the negotiated rates have been lower than the ultimate 

recourse rate for the service provided. See e.g. Natural Gas Pipeline Co. of America, 

110 FERC ¶ 61,341 (2005) (“Natural executed three precedent agreements with shippers 

for the full capacity of the proposed project. The $4,911,988 in revenue generated by the 

fixed $3.07 per Dth monthly negotiated rate under the precedent agreements will not 

fully recover the estimated $6.6 million cost of service for the project. Thus, Natural will 

be at risk for any revenue shortfall due to the lower negotiated contract rates with the 

incremental shippers.”) (Footnote omitted.) Id. at P 23-25.

64 As discussed above, Petitioners do not ask the Commission to address 

distinctions among foundation shippers within the same group; thus, the Commission 

does not do so. 
Docket No. RM06-7-000 - 59 -

projects provide essential support for the sponsor to proceed with the project. For 

example, these contractual commitments help the project sponsor to obtain financing for 

the construction of the project, and may reduce the cost of that financing by reducing the 

perceived risk of the investment in the new facilities. Moreover, by committing to a 

particular project, foundation shippers may be giving up other competitive alternatives to 

obtain their needed capacity, either on an existing pipeline or by participating in a 

different new project. An essential component of the Commission’s certificate policy has 

been to provide both the project sponsor and project participants the opportunity to obtain 

greater certainty concerning the rate that the participants will pay, so that all parties can 

make an informed decision as to whether to go forward. Approving negotiated rates that 

will remain fixed regardless of subsequent developments is consistent with this policy.65

99. The Commission’s policies contain adequate safeguards to minimize the 

possibility of undue discrimination in permitting the use of rate incentives to obtain early 

commitments for construction projects. First, under the Commission’s policies, all new 

interstate pipeline construction must be preceded by a nondiscriminatory, 

nonpreferential, open-season process through which potential shippers may seek and 

obtain firm capacity rights. The instant proposal contemplates the use of such an open 

season. Therefore, under the instant proposal all potential shippers would have an 

 65 However, rate distinctions based on the timing of a customers’ commitment are 

inapplicable to the blanket certificate program. The streamlined blanket certificate 

process is intended for relatively small projects; financing such small scale projects 

should not entail finding customers willing to provide an economic incentive. 
Docket No. RM06-7-000 - 60 -

opportunity to become foundation shippers in a nondiscriminatory, nonpreferential openseason process, consistent with Commission policy. Second, as part of the open season, 

the project sponsor must offer a maximum recourse rate so that the bidder in the open 

season may have the option to choose between the recourse rate or a negotiated rate.66 

This recourse rate may be based upon an estimated cost of service for the proposed 

project where actual construction costs are not yet known.67 

100. PSCNY raises various concerns about the procedures to be used in open seasons 

in which the proposed rate incentives are offered. The Commission believes such issues 

are best addressed on a case-by-case basis. Petitioners do not propose the Commission 

modify any aspect of its open-season policies, which require that pipelines conduct 

nondiscriminatory, nonpreferential open seasons for new projects.68 To the extent any 

 66 Natural Gas Pipeline Co. of America, 101 FERC ¶ 61,125 (2002). 

67 Id. at P 39. “In the certificate proceeding for any such project the Commission 

will approve an initial recourse rate for the project which the pipeline must file before the 

project goes into service. Moreover, in this proceeding, the Commission may ensure that 

pre-expansion shippers on a pipeline will not subsidize a proposed expansion project. 

However, the Commission will permit a newly constructed pipeline to employ the same 

discounting policies as an existing pipeline.” See Policy for Selective Discounting By

Natural Gas Pipelines, 113 FERC ¶ 61,173 P 96-99 (2005). The pipeline will have to 

offer available capacity for sale to new shippers that offer to pay the maximum just and 

reasonable recourse rate, and this rate may change from time to time pursuant to sections 

4 and 5 of the NGA. 

68 The Commission endorses the Petitioners’ clarification of this policy as follows: 

“As long as potential shippers received the same notice and ability to acquire capacity 

created by a . . . [new] expansion as they do on any existing capacity that becomes 

available, any risk of undue discrimination should be avoided” INGAA/NGSA Petition 

at 8 (Nov. 22, 2005). 
Docket No. RM06-7-000 - 61 -

potential shipper believes that a pipeline’s open season did not comply with this policy, it 

may raise that issue in the certificate proceeding or in an NGA section 5 complaint. The 

Commission will act as necessary to prevent, remedy, and penalize improper practices. 

101. Here, Petitioners posit an open-season process that will produce in two distinct 

sets of foundation shippers. Group I shippers sign a binding agreement either by the date 

established in the open season for executing contracts or by the date the project sponsor 

makes a “go/no go” decision for the project; Group II shippers sign a binding agreement 

prior to the time the project sponsor commits publicly to build the project. Under the 

Petitioners’ proposal, the rate incentives a project sponsor offers to obtain early 

commitments to a project will be based solely on the timing of each shipper’s contractual 

commitment to the project. However, the Commission can envision that different project 

sponsors may prefer to offer rate incentives based on something other than the timing of 

contractual commitments. Because Commission policies permit rate differentials among 

customers based on a number of grounds69 – including differing elasticities of demand, 

volumes to be transported, and length of service commitments – a project sponsor might 

wish to offer preferential rates to shippers who contract for larger volumes of service. 

102. Given the variety of rate incentives that might be offered consistent with 

Commission policy, the Commission believes it would be premature to go beyond our 

 69 Policy For Selective Discounting By Natural Gas Pipelines, 113 FERC ¶ 61,173 

(2005). 
Docket No. RM06-7-000 - 62 -

general finding above and seek to itemize every rate incentive that might be offered in an 

open season without risk of undue discrimination. Instead, the Commission prefers to 

review different rate incentives on a case-by-case basis. The Commission observes that 

the risk of undue discrimination would be reduced to the extent that the rate incentives 

offered are clearly defined in the announcement of the open season, publicly verifiable, 

and equally available to all potential shippers. For example, Petitioners have described 

the eligibility standard for Group I foundation shippers variously as (1) the date 

established in the open season for executing contracts or (2) the date the project sponsor 

makes a “go/no go” decision for the project. The first date would appear to involve less 

risk of discrimination, since it would be publicly available from the start of the open 

season, whereas the second date appears to give the project sponsor considerable 

discretion as to when to terminate eligibility for Group I. 

103. AGA and Illinois Municipal are concerned that existing customers not subsidize 

the foundation shippers. We find these concerns are adequately addressed by our Policy 

Statement on New Facilities, which requires that existing pipelines proposing new 

projects must be prepared to financially support the project without relying on subsidies 

from existing customers. Moreover, the Commission has stated that when an expansion 

project is incrementally priced, there will be no discount adjustment for service on the 
Docket No. RM06-7-000 - 63 -

expansion that affects the rates of the current shippers, since rates for the expansion 

service will be designed incrementally.70

104. Duke submits that shippers willing to sign up for capacity prior to pipeline 

development (when the project is being sized) should be able to rely on their contractedfor capacity without the risk of pro rata reallocation if additional shippers request 

capacity at a later time. As Petitioners state, the instant proposal does not apply to nonrate issues such as capacity allocation. The Commission requires that capacity be 

allocated on a basis that is not unduly discriminatory, but the Commission has not 

prescribed any particular capacity allocation method that must be used. Thus, the 

Commission has permitted pipelines to use a first-come first-served allocation method, 

and has not required the use of a pro-rata allocation method. For example, in approving 

certain new projects, the Commission found that the finite nature of capacity and the 

anchor shippers’ reliance on receiving the full capacity for which they had bargained 

justified giving the anchor shippers their required capacity, while open-season shippers 

were subject to an allocation of available capacity.71 The instant proposal does not 

contemplate any change from existing Commission policy and precedent in these nonrate areas. 

 70 Id. at P 98. 

71 See, e.g., Garden Banks Gas Pipeline, LLC, 78 FERC ¶ 61,066 (1997); Green

Canyon Pipe Line Co., 47 FERC ¶ 61,310 (1989); Destin Pipeline Co. L.L C., 81 FERC 

¶ 61,211(1997); Maritimes & Northeast Pipeline, L.L.C., 76 FERC ¶ 61,124 (1996), 

order on reh’g, 80 FERC ¶ 61,136 (1997). 
Docket No. RM06-7-000 - 64 -

105. APGA claims that by far the largest group of potential new customers that may 

seek rate inducements to contract for capacity on new projects, if not the only potential 

new customers of any size, are electric generators.72 APGA sees no justification for a 

policy that would act as an incentive to increase demand during a period of supply 

constraints. PSCNY and Sempra also question whether rate incentives based on timing 

might distort infrastructure development. Petitioners and commentors supporting the 

petition argue the opposite. 

106. The Commission seeks to promote new infrastructure in order to help relieve 

existing supply constraints. The Commission agrees that new facilities should not be 

added unless they fulfill a demonstrated need. However, in the Commission’s view, this 

showing of need is satisfied by the willingness of companies and customers to take on the 

economic risk of the cost of constructing and operating new facilities. The Commission 

proposes no changes in its existing policy that pipelines must be willing to financially 

support a project without subsidies from its existing customers. 

107. Anadarko requests that the Commission clarify that its action regarding foundation 

shippers will have no effect on or application to an Alaska project. The Commission 

recognizes the unique nature of an Alaska natural gas pipeline project and will consider 

 72 APGA’s Comments at 11. APGA adds that there is no need to offer rate 

inducements to local distribution companies, as they are captive customers subject to a 

public interest mandate to contract for capacity as necessary to meet demand. 
Docket No. RM06-7-000 - 65 -

the applicability of its rate policies, both in general and with respect to blanket facilities, 

to an Alaska project in any future proceeding authorizing such a project. 

Information Collection Statement

108. The Office of Management and Budget (OMB) regulations require that OMB 

approve certain reporting, record keeping, and public disclosure requirements 

(collections of information) imposed by an agency.73 Therefore, the Commission is 

providing notice of its proposed information collections to OMB for review in 

accordance with section 3507(d) of the Paperwork Reduction Act of 1995.74 Upon 

approval of a collection of information, OMB will assign an OMB control number and an 

expiration date. The only entities affected by this rule would be the natural gas 

companies under the Commission’s jurisdiction. 

109. FERC-537, "Gas Pipeline Certificates: Construction, Acquisition and 

Abandonment," identifies the Commission's information collections relating to part 157 

of its regulations, which apply to natural gas facilities for which authorization under 

NGA section 7 is required, and includes all blanket certificate projects. FERC-577, "Gas 

Pipeline Certificates: Environmental Impact Statement," identifies the Commission's 

information collections relating to Part 380 of its regulations implementing the National 

 73 5 CFR § 1320.11 (2005). 

74 44 U.S.C. 3507(d) (2000). 
Docket No. RM06-7-000 - 66 -

Environmental Policy Act of 1969 (NEPA),75 which include the environmental 

compliance conditions of § 157.206(b). 

110. The proposed revisions to the Commission’s regulations, as contained in the 

NOPR, and the resulting change in collections of information burdens, are as follows. 

111. The NOPR proposes to provide an additional 15 days for notice to landowners and 

the public. This will have no impact on the collections of information. 

112. The NOPR proposes specific additional information to be included in the notice to 

landowners located along the route of a proposed blanket certificate project and in the 

prior notice to the public of a proposed project. This should have a minor impact on 

blanket certificate project sponsors, since the additional information is already required 

for the landowner notification for case-specific NGA section 7 applications. Expanding 

the blanket certificate program to include mainline, certain LNG and synthetic gas 

facilities, and storage facilities is expected to allow approximately 62 projects per year to 

proceed under blanket certificate authority that would otherwise be required to obtain 

case-specific NGA section 7 certificate authorization. Thus, these 62 projects will be 

removed from FERC-577 and shifted to FERC-537. Project sponsors permitted to rely 

on the proposed expanded blanket certificate authority to undertake projects that 

currently require case-specific NGA section 7 certificate authorization will not need to 

submit any additional information to meet the proposed blanket certificate notice 

 75 42 U.S.C. 4321, et seq. (2000). 
Docket No. RM06-7-000 - 67 -

requirements. The exception to this is the proposal to require a description of a natural 

gas company’s environmental complaint resolution procedure in the blanket certificate 

program notice. However, this information is also frequently required for case-specific 

NGA section 7 projects and may be satisfied by a generic description of the complaint 

resolution process applicable to all projects along with individual contact information 

applicable to each project. 

113. The NOPR proposes to specify additional information to be included in the prior 

notice to the public and in the annual report. This should result in a minor increase in the 

existing burden. Only proposed prior notice blanket certificate projects that involve 

HDD and well drilling will be required to include a description of how noise limits will 

be achieved. Prior notice projects will also need to commit to file weekly environmental 

inspector reports. The annual reports covering projects subject to automatic blanket 

certificate authority will require discussions of the progress of restoration efforts, 

problems, and corrections. Where applicable, noise surveys are also required in annual 

reports, but such surveys are normally done to verify compliance with the standard 

environmental conditions, so this requirement adds only a minimal burden. 

114. The NOPR proposes to revise the environmental compliance conditions to apply 

the noise standard to the site property boundary instead of the noise-sensitive areas, and 

as a goal, to apply the noise standard to drilling. Neither of these changes involves a 

change in the reporting burden. 
Docket No. RM06-7-000 - 68 -

115. Because the proposed expansion of the blanket certificate program will permit 

projects that are now processed under the case-specific NGA section 7 procedures to go 

forward under the streamlined blanket certificate program, while the burden under the 

expanded blanket certificate program will increase, the overall burden on the industry 

will decrease. The Commission estimates that the total annual hours for the blanket 

certificate program burden will increase by 7,727, whereas the total annual hours 

associated with case-specific application projects will decrease by 11,997. This 

represents an overall reduction of 4,270 hours. 

Data Collection No. of 

Respondents 

No. of 

Responses/Filings 

No. of Hours 

per Response 

Total 

Annual 

Hours 

FERC-537 

(Part 157) 

76 206 – 42.02 7,727 

FERC-577 (Part 380) 76 – 62 193.50 -11,997 

Information Collection Costs: The above reflects the total blanket certificate program 

reporting burden if expanded as proposed. Because of the regional differences and the 

various staffing levels that will be involved in preparing the documentation (legal, 

technical and support) the Commission is using an hourly rate of $150 to estimate the 

costs for filing and other administrative processes (reviewing instructions, searching data 

sources, completing and transmitting the collection of information). The estimated cost 

is anticipated to be $2,748,900, an amount that is $640,500 less than the current 

estimated cost. 
Docket No. RM06-7-000 - 69 -

Title: FERC-537 and FERC-577. 

Action: Proposed Data Collection. 

OMB Control Nos.: 1902-0060 and 1902-0128. 

Respondents: Natural gas pipeline companies. 

Frequency of Responses: On occasion. 

Necessity of Information: Submission of the information is necessary for the 

Commission to carry out its NGA statutory responsibilities and meet the Commission’s 

objectives of expediting appropriate infrastructure development to ensure sufficient 

energy supplies while addressing landowner and environmental concerns fairly. The 

information is expected to permit the Commission to meet the request of the natural gas 

industry, as expressed in the INGAA and NGSA petition to improve industry’s ability to 

ensure the adequacy of the infrastructure to meet increased demands from consuming 

markets, to expand the scope and scale of the blanket certificate program to provide a 

streamlined means to build and maintain infrastructure necessary to ensure all gas 

supplies are available to fulfill market needs. 

116. The Commission requests comments on the accuracy of the burden estimates, how 

the quality, quantity, and clarity of the information to be collected might be enhanced, 

and any suggested methods for minimizing the respondent's burden. Interested persons 

may obtain information on the reporting requirements or submit comments by contacting 

the Federal Energy Regulatory Commission, 888 First Street, N.E., Washington, D.C. 

20426 (Attention: Michael Miller, Office of the Executive Director, 202-502-8415 or 
Docket No. RM06-7-000 - 70 -

e-mail michael.miller@ferc.gov). Comments may also be sent to the Office of 

Management and Budget (Attention: Desk Officer for the Federal Energy Regulatory 

Commission, fax: 202-395-7285 or e-mail: oira_submission@omb.eop.gov.) 

Environmental Analysis

117. The Commission is required to prepare an Environmental Assessment (EA) or an 

Environmental Impact Statement (EIS) for any action that may have a significant adverse 

effect on the human environment.76 In 1982, in promulgating the blanket certificate 

program, the Commission prepared an EA in which it determined that, subject to 

compliance with the standard environmental conditions, projects under the blanket 

program would not have a significant environmental impact. As a result, the 

Commission determined that automatic authorization projects would be categorically 

excluded from the need for an EA or (EIS) under § 380.4 of the Commission’s 

regulations. However, the Commission specified that prior notice projects should be 

subject an EA to ensure each individual project would be environmentally benign. For 

the reasons set forth below the Commission continues to believe this would be the case 

under the blanket certificate program as modified in this NOPR. 

118. First, the monetary limits on projects are simply being adjusted to account for 

inflationary effects which were not completely captured under the mechanism specified 

 

76 Order No. 486, Regulations Implementing the National Environmental Policy

Act, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs. Preambles 1986-1990 ¶ 30,783 

(1987). 
Docket No. RM06-7-000 - 71 -

in the regulations (the gross domestic product implicit price deflator as determined by the 

Department of Commerce). As a result, the scale of projects which will be within the 

new cost limits will be comparable to those projects that were allowed when the blanket 

program was first created. Second, the proposed additions to the types of projects which 

are acceptable under the blanket program will be subject to the prior notice provisions 

and will be subject to an EA. Finally, the Commission is proposing to strengthen the 

standard environmental conditions applicable to all blanket projects. Therefore, this 

proposed rule does not constitute a major federal action that may have a significant 

adverse effect on the human environment.

Regulatory Flexibility Act Analysis

119. The Regulatory Flexibility Act of 1980 (RFA)77 generally requires a description 

and analysis of proposed regulations that will have significant economic impact on a 

substantial number of small entities. The Commission is not required to make such an 

analysis if proposed regulations would not have such an effect.78 Under the industry 

standards used for purposes of the RFA, a natural gas pipeline company qualifies as "a 

 77 5 U.S.C. 601-612 (2000). 

78 5 U.S.C. 605(b) (2000). 
Docket No. RM06-7-000 - 72 -

small entity" if it has annual revenues of $6.5 million or less. Most companies regulated 

by the Commission do not fall within the RFA's definition of a small entity.79

120. The procedural modifications proposed herein should have no significant 

economic impact on those entities – be they large or small – subject to the Commission’s 

regulatory jurisdiction under NGA section 3 or 7, and no significant economic impact on 

state agencies. Accordingly, the Commission certifies that this notice's proposed 

regulations, if promulgated, will not have a significant economic impact on a substantial 

number of small entities. 

Public Comments

121. The Commission invites interested persons to submit comments on the matters 

and issues proposed in this notice to be adopted, including any related matters or 

alternative proposals that commenters may wish to discuss. Comments are due by 

[insert date 60 days from publication in the Federal Register]. Comments must refer 

to Docket No. RM06-7-000, and must include the commenter's name, the organization 

represented, if applicable, and address in the comments. Comments may be filed either 

in electronic or paper format. The Commission encourages electronic filing. 

122. Comments may be filed electronically via the eFiling link on the Commission's 

web site at http://www.ferc.gov. The Commission accepts most standard word 

 79 5 U.S.C. 601(3), citing to section 3 of the Small Business Act, 15 U.S.C. 623 

(2000). Section 3 of the Small Business Act defines a "small-business concern" as a 

business which is independently owned and operated and which is not dominant in its 

field of operation. 
Docket No. RM06-7-000 - 73 -

processing formats and requests commenters to submit comments in a text-searchable 

format rather than a scanned image format. Commenters filing electronically do not need 

to make a paper filing. Commenters unable to file comments electronically must send an 

original and 14 copies of their comments to: Federal Energy Regulatory Commission, 

Office of the Secretary, 888 First Street, N.E., Washington, DC, 20426. 

123. All comments will be placed in the Commission's public files and may be viewed, 

printed, or downloaded remotely as described in the Document Availability section 

below. Commenters on this proposal are not required to serve copies of their comments 

on other commenters. 

Document Availability

124. In addition to publishing the full text of this document in the Federal Register, the 

Commission provides all interested persons an opportunity to view and print the contents 

of this document via the Internet through FERC's Home Page (http://www.ferc.gov) and 

in FERC's Public Reference Room during normal business hours (8:30 a.m. to 5:00 p.m. 

Eastern time) at 888 First Street, N.E., Room 2A, Washington D.C. 20426. 
Docket No. RM06-7-000 - 74 -

List of subjects

18 CFR Part 157 

Administrative practice and procedure, Natural gas, Reporting and recordkeeping 

requirements 

 By direction of the Commission. 

 Magalie R. Salas, 

 Secretary. 

 
Docket No. RM06-7-000 - 75 -

 In consideration of the foregoing, the Commission proposes to amend part 157, 

Chapter I, Title 18, Code of Federal Regulations, as follows. 

PART 157--APPLICATIONS FOR CERTIFICATES OF PUBLIC 

CONVENIENCE AND NECESSITY AND FOR ORDERS PERMITTING AND 

APPROVING ABANDONMENT UNDER SECTION 7 OF THE NATURAL GAS 

ACT

1. The authority citation for part 157 continues to read as follows: 

Authority: 15 U.S.C. 717-717w, 3301-3432; 42 U.S.C. 7101-7352. 

2. In § 157.6, paragraph (d)(2)(i) is revised to read as follows: 

§ 157.6 Applications; general requirements. 

 * * * * * 

 (d) * * * 

 (2) * * * 

 (i) Is directly affected (i.e., crossed or used) by the proposed activity, including all 

facility sites (including compressor stations, well sites, and all above-ground facilities), 

rights of way, access roads, pipe and contractor yards, and temporary workspace; 

 * * * * * 

3. In § 157.203, 

 a. in paragraph (d)(1), the phrase “30 days” is removed and the phrase “45 days” 

is inserted in its place, and the phrase “30-day” is removed and the phrase “45-day” is 

inserted in its place; 
Docket No. RM06-7-000 - 76 -

 b. in paragraph (d)(1)(ii), the phrase “; and” is removed and the phrase “;” is 

inserted in its place; 

 c. paragraph (d)(1)(iii) is redesignated as paragraph (d)(1)(iv)and a new paragraph 

(d)(1)(iii) is added; 

 d. paragraphs (d)(2)(i) and (d)(2)(ii) are revised; 

 e. in paragraph (d)(2)(iii), the word “and” is removed; 

 f. paragraph (d)(2)(iv) is redesignated as paragraph (d)(2)(vi), and the phrase “45 

days” is removed and the phrase “60 days” is inserted its place, and the final phrase “.” is 

removed and the phrase “; and” is inserted in its place; 

 g. paragraphs (d)(2)(iv) and (d)(2)(v) are added; and 

 h. a new paragraph (d)(2)(vii) is added to read as follows: 

§ 157.203 Blanket certification. 

 * * * * * 

(d) Landowner notification. 

 (1) * * * 

 (iii) A description of the company’s environmental complaint resolution 

procedure that must: 

 (A) Provide landowners with clear and simple directions for identifying and 

resolving their environmental mitigation problems and concerns during construction of 

the project and restoration of the right-of way; 
Docket No. RM06-7-000 - 77 -

 (B) Provide a local contact that the landowners should call first with problems 

and concerns and indicate when a landowner should expect a response; 

 (C) Instruct landowners that if they are not satisfied with the response, they 

should call the company's Hotline; and 

 (D) Instruct landowners that, if they are still not satisfied with the response, they 

should contact the Commission's Enforcement Hotline. 

 (2) * * * 

 (i) A brief description of the company and the proposed project, including the 

facilities to be constructed or replaced and the location (including a general location 

map), the purpose, and the timing of the project and the effect the construction activity 

will have on the landowner's property; 

 (ii) A general description of what the company will need from the landowner if the 

project is approved, and how the landowner may contact the company, including a local 

or toll-free phone number and a name of a specific person to contact who is 

knowledgeable about the project; 

 * * * * * 

 (iv) The most recent edition of the Commission pamphlet that explains the 

Commission's certificate process and addresses basic concerns of landowners; 

 (v) A brief summary of the rights the landowner has in Commission proceedings 

and in proceedings under the eminent domain rules of the relevant state(s); and 

 * * * * * 
Docket No. RM06-7-000 - 78 -

 (vii) The description of the company’s environmental complaint resolution 

procedure as described in paragraph 157.203(d)(1)(iii) of this section. 

 * * * * * 

4. In § 157.205, paragraph (d)(1), the phrase “45 days” is removed and the phrase 

“60 days” is inserted in its place. 

5. In §157.206, paragraph (b)(5) is redesignated as (b)(5)(i) and revised, and 

paragraph (b)(5)(ii) is added to read as follows: 

§ 157.206 Standard conditions. 

 * * * * * 

 (b) * * * 

 (5)(i) The noise attributable to any new compressor station, compression added to 

an existing station, or any modification, upgrade or update of an existing station, must 

not exceed a day-night level (Ldn) of 55 dBA at the site property boundary. 

 (ii) Any horizontal directional drilling or drilling of wells which will occur 

between 10 p.m. and 6 a.m. local time must be conducted with the goal of keeping the 

perceived noise from the drilling at any pre-existing noise-sensitive area (such as schools, 

hospitals, or residences) at or below 55 Ldn dBA. 

 * * * * * 

6. In § 157.208, 

 a. paragraph (c)(9) is revised; 

 b. paragraph (c)(10) is added; 
Docket No. RM06-7-000 - 79 -

c. in paragraph (d), Table I, “Year 2006,” in column 1, titled “Automatic project 

cost limit,” the phrase “8,200,000” is removed and the phrase “9,600,000” is inserted in 

its place, and in column 2, titled “Prior notice project cost limit,” the phrase “22,000,000” 

is removed and the phrase “27,400,000” is inserted in its place; and 

 d. paragraph (e)(4) is redesignated as (e)(4)(i) and paragraphs (e)(4)(ii) through 

(e)(4)(iv) are added to read as follows: 

§ 157.208 Construction, acquisition, operation, replacement, and 

miscellaneous rearrangement of facilities.

 * * * * * 

 (c) * * * 

 (9) A concise analysis discussing the relevant issues outlined in § 380.12 of this 

chapter. The analysis must identify the existing environmental conditions and the 

expected significant impacts that the proposed action, including proposed mitigation 

measures, will cause to the quality of the human environment, including impact expected 

to occur to sensitive environmental areas. When compressor facilities are proposed, the 

analysis must also describe how the proposed action will be made to comply with 

applicable State Implementation Plans developed under the Clean Air Act. The analysis 

must also include a description of the contacts made, reports produced, and results of 

consultations which took place to ensure compliance with the Endangered Species Act, 

National Historic Preservation Act and the Coastal Zone Management Act. Include a 

copy of the agreements received for compliance with the Endangered Species Act, 
Docket No. RM06-7-000 - 80 -

National Historic Preservation Act, and Coastal Zone Management Act, or if no written 

concurrence is issued, a description of how the agency relayed its opinion to the 

company. Describe how drilling for wells or horizontal direction drilling would be 

designed to meet the goal of limiting the perceived noise at NSAs to an Ldn of 55 dBA or 

what mitigation would be offered to landowners. 

 (10) A commitment to having the Environmental Inspector’s report filed every 

week. 

 * * * * * 

 (e) * * * 

 (4) * * * 

 (ii) Documentation, including images, that restoration of work areas is progressing 

appropriately; 

 (iii) A discussion of problems or unusual construction issues, including those 

identified by affected landowners, and corrective actions taken or planned; and 

 (iv) For new or modified compression, a noise survey verifying compliance with 

§ 157.206(b)(5). 

 * * * * * 

7. Section 157.210 is added to read as follows: 

 § 157.210 Mainline natural gas facilities. 

Prior Notice. Subject to the notice requirements of §§ 157.205(b) and 157.208(c), 

the certificate holder is authorized to acquire, abandon, construct, modify, replace, or 
Docket No. RM06-7-000 - 81 -

operate natural gas mainline facilities. The cost of a project may not exceed the cost 

limitation set forth in column 2 of Table I of § 157.208(d). The certificate holder must 

not segment projects in order to meet this cost limitation. 

8. Sections 157.212 and 157.213 are added to read as follows: 

 § 157.212 Synthetic and liquefied natural gas facilities. 

Prior Notice. Subject to the notice requirements of §§ 157.205(b) and 157.208(c), 

the certificate holder is authorized to acquire, abandon, construct, modify, replace, or 

operate natural gas facilities that are used to transport exclusively either synthetic gas or 

revaporized liquefied natural gas and that are not “related jurisdictional natural gas 

facilities” as defined in § 153.2(e) of this chapter. The cost of a project may not exceed 

the cost limitation set forth in column 2 of Table I in § 157.208(d) of this chapter. The 

certificate holder must not segment projects in order to meet this cost limitation. 

§ 157.213 Underground storage field facilities. 

 (a) Prior Notice. Subject to the notice requirements of §§ 157.205(b) and 

157.208(c) of this chapter, the certificate holder is authorized to acquire, abandon, 

construct, modify, replace, or operate natural gas underground storage facilities, provided 

the storage facility’s total inventory, reservoir pressure, reservoir and buffer boundaries, 

certificated capacity, and compliance with environmental and safety provisions remain 

unaffected. The cost of a project may not exceed the cost limitation set forth in column 2 

of Table I in § 157.208(d) of this chapter. The certificate holder must not segment 

projects in order to meet this cost limitation. 
Docket No. RM06-7-000 - 82 -

 (b) Contents of request. In addition to the requirements of §§ 157.206(b) and 

157.208(c), requests for activities authorized under paragraph (a) of this section must 

contain: 

 (1) A description of the current geological interpretation of the storage reservoir, 

including both the storage formation and the caprock, including summary analysis of any 

recent cross-sections, well logs, quantitative porosity and permeability data, and any 

other relevant data for both the storage reservoir and caprock; 

 (2) The latest isopach and structural maps of the storage field, showing the 

storage reservoir boundary, as defined by fluid contacts or natural geological barriers; the 

protective buffer boundary; the surface and bottomhole locations of the existing and 

proposed injection/withdrawal wells and observation wells; and the lengths of open-hole 

sections of existing and proposed injection/withdrawal wells; 

 (3) Isobaric maps (data from the end of each injection and withdrawal cycle) for 

the last three injection/withdrawal seasons, which include all wells, both inside and 

outside the storage reservoir and within the buffer area; 

 (4) A detailed description of present storage operations and how they may change 

as a result of the new facilities or modifications. Include a detailed discussion of all 

existing operational problems for the storage field, including but not limited to gas 

migration and gas loss; 

 (5) Current and proposed working gas volume, cushion gas volume, native gas 

volume, deliverability (at maximum and minimum pressure), maximum and minimum 
Docket No. RM06-7-000 - 83 -

storage pressures, at the present certificated maximum capacity or pressure, with volumes 

and rates in MMcf and pressures in psia; 

 (6) The latest field injection/withdrawal capability studies including curves at 

present and proposed working gas capacity, including average field back pressure curves 

and all other related data; 

 (7) The latest inventory verification study for the storage field, including 

methodology, data, and work papers; 

 (8) The shut-in reservoir pressures (average) and cumulative gas-in-place 

(including native gas) at the beginning of each injection and withdrawal season for the 

last 10 years; and 

 (9) A detailed analysis, including data and work papers, to support the need for 

additional facilities (wells, gathering lines, headers, compression, dehydration, or other 

appurtenant facilities) for the modification of working gas/cushion gas ratio and/or to 

improve the capability of the storage field.