[Federal Register Volume 80, Number 77 (Wednesday, April 22, 2015)]
[Rules and Regulations]
[Pages 22366-22385]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-09226]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 2

[Docket No. PL15-1-000]


Cost Recovery Mechanisms for Modernization of Natural Gas 
Facilities

AGENCY: Federal Energy Regulatory Commission, Energy.

ACTION: Policy statement.

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SUMMARY: In this Policy Statement, the Commission provides greater 
certainty regarding the ability of interstate natural gas pipelines to 
recover the costs of modernizing their facilities and infrastructure to 
enhance the efficient and safe operation of their systems. The Policy 
Statement explains the standards the Commission will require interstate 
natural gas pipelines to satisfy in order to establish simplified 
mechanisms, such as trackers or surcharges, to recover certain costs 
associated with replacing old and inefficient compressors and leak-
prone pipes and performing other infrastructure improvements and 
upgrades to enhance the efficient and safe operation of their 
pipelines.

DATES: This Policy Statement will become effective October 1, 2015.

FOR FURTHER INFORMATION CONTACT:
Monique Watson (Technical information), Office of Energy Markets 
Regulation, Federal Energy Regulatory Commission, 888 First Street NE., 
20426, Telephone: (202) 502-8384, <a href="/cdn-cgi/l/email-protection#470a28292e36322269102633342829072122352469202831"><span class="__cf_email__" data-cfemail="85c8eaebecf4f0e0abd2e4f1f6eaebc5e3e0f7e6abe2eaf3">[email protected]</span></a>.
David E. Maranville (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street NE., 20426, 
Telephone: (202) 502-6351, <a href="/cdn-cgi/l/email-protection#6a2e0b1c030e44270b180b041c0306060f2a0c0f1809440d051c"><span class="__cf_email__" data-cfemail="c084a1b6a9a4ee8da1b2a1aeb6a9acaca580a6a5b2a3eea7afb6">[email protected]</span></a>.

TABLE OF CONTENTS

 
                                                        Paragraph  Nos.
 
I. Background........................................                  4
    A. Safety and Environmental Initiatives..........                  4
    B. Existing Policy...............................                 11
    C. Proposed Policy Statement.....................                 19
    D. Comments......................................                 22
II. Discussion.......................................                 25
    A. Adoption of Policy Statement..................                 25
    B. Standards for Modernization Cost Trackers or                   44
     Surcharges......................................
        1. Review of Existing Rates..................                 45
        2. Defined Eligible Costs....................                 54
        3. Avoidance of Cost Shifting................                 72
        4. Periodic Review of the Surcharge..........                 83
        5. Shipper Support...........................                 90
    C. Additional Questions on Which the Commission                   95
     Sought Comments.................................
        1. Accelerated Amortization..................                 96
        2. Reservation Charge Crediting..............                101
        3. Other Issues..............................                110
III. Information Collection Statement................                119
IV. Document Availability............................                132
V. Effective Date and Congressional Notification.....                135
 

    1. On November 20, 2014, the Commission issued a Proposed Policy 
Statement and sought comments regarding potential mechanisms for 
interstate natural gas pipelines to use to recover the costs of 
modernizing their

[[Page 22367]]

facilities and infrastructure to enhance the efficient and safe 
operation of their systems.\1\ The Commission proposed standards that 
interstate natural gas pipelines would be required to satisfy to 
establish simplified mechanisms, such as trackers or surcharges, to 
recover such costs. Historically, the Commission has required 
interstate natural gas pipelines to design their transportation rates 
based on projected units of service. Recently, however, governmental 
safety and environmental initiatives have raised the probability that 
interstate natural gas pipelines will soon face increased costs to 
enhance the safety and reliability of their systems. The Commission 
issued the Proposed Policy Statement in an effort to address these 
potential costs and to ensure that existing Commission ratemaking 
policies do not unnecessarily inhibit interstate natural gas pipelines' 
ability to expedite needed or required upgrades and improvements, such 
as replacing old and inefficient compressors and leak-prone pipelines.
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    \1\ Cost Recovery Mechanisms for Modernization of Natural Gas 
Facilities, Proposed Policy Statement, 104 FERC ] 61,147 (2014) 
(Proposed Policy Statement).
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    2. After review of the comments on the Proposed Policy Statement, 
the Commission has determined to establish a policy allowing interstate 
natural gas pipelines to seek to recover certain capital expenditures 
made to modernize system infrastructure through a surcharge mechanism, 
subject to conditions intended to ensure that the resulting rates are 
just and reasonable and protect natural gas consumers from excessive 
costs. The Commission recognizes, as many commenters note, that 
permitting pipelines to recover these expenditures through a surcharge 
or tracker departs from the requirement that interstate natural gas 
pipelines design their transportation rates based on projected units of 
service. We find on balance, however, that consideration of such 
mechanisms is justified if they are properly designed to limit a 
pipeline's recovery of such costs to those shown to modernize the 
pipeline's system infrastructure in a manner that enhances system 
safety, reliability and regulatory compliance, and are subject to 
conditions that ensure that the resulting rates are just and reasonable 
and protect natural gas consumers from excessive costs. Accordingly, we 
are adopting this Policy Statement to provide guidance and a framework 
as to how the Commission will evaluate pipeline proposals for recovery 
of infrastructure modernization costs. The Policy Statement adopts the 
five guiding principles from the Proposed Policy Statement as the 
standards a pipeline would have to satisfy for the Commission to 
approve a proposed modernization cost tracker or surcharge. Those 
criteria are (1) Review of Existing Base Rates; (2) Defined Eligible 
Costs; (3) Avoidance of Cost Shifting; (4) Periodic Review of the 
Surcharge and Base Rates; and (5) Shipper Support.
    3. Below we review the background that led to the development of 
the Proposed Policy Statement and this Policy Statement, summarize the 
comments on the Proposed Policy Statement, and discuss the 
applicability of the Policy Statement in general, and of the five 
conditions under the new Policy Statement, in light of those comments. 
As discussed below, the Commission intends that the standards a 
pipeline must satisfy to implement a cost modernization tracker or 
surcharge to be sufficiently flexible so as not to require any specific 
form of compliance but to allow pipelines and their customers to reach 
reasonable accommodations based on the specific circumstances of their 
systems. The Commission will thus evaluate any proposal for a 
modernization cost surcharge against those five standards on a case-by-
case basis.

I. Background

A. Safety and Environmental Initiatives

    4. As we noted in the Proposed Policy Statement, there have been 
several recent legislative actions, and resulting regulatory 
initiatives, to address natural gas pipeline infrastructure safety and 
reliability. In 2012, Congress passed the Pipeline Safety, Regulatory 
Certainty, and Job Creation Act of 2011.\2\ That act includes 
requirements for the United States Department of Transportation (DOT) 
to take various actions to reduce the risk of future pipeline failures. 
Among other things, the Pipeline Safety Act requires the DOT to (1) 
consider expansion and strengthening of its integrity management 
regulations, (2) consider requiring automatic shut-off valves on new 
pipeline construction, (3) require pipelines to reconfirm their Maximum 
Allowable Operating Pressures, and (4) conduct surveys to measure 
progress in plans for safe management and replacement of cast iron 
pipelines.
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    \2\ Pipeline Safety, Regulatory Certainty, and Job Creation Act 
of 2011, 49 U.S.C.S. 60101 (2012) (Pipeline Safety Act).
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    5. The Pipeline and Hazardous Materials Safety Administration 
(PHMSA) is in the process of implementing a multi-year Pipeline Safety 
Reform Initiative to comply with the Pipeline Safety Act's mandate to 
enhance the agency's ability to reduce the risk of future pipeline 
failures.\3\ Prior to the Pipeline Safety Act's enactment, on August 
25, 2011, PHMSA published an Advance Notice of Proposed Rulemaking 
(ANOPR) titled ``Pipeline Safety: Safety of Gas Transmission 
Pipelines,'' which asked all stakeholders whether PHMSA should modify 
its existing integrity management and other pipeline safety regulations 
for interstate natural gas pipelines.\4\ The ANOPR requested public 
comment on a range of topics related to current industry practices, the 
effects of enhanced regulations on safety and cost, and the best method 
to implement proposed regulations. For example, PHMSA sought comments 
on shut-off valves and remote controlled shut-off valves. In addition, 
PHMSA held a public leak detection and valve workshop on March 28, 
2012.
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    \3\ Written Statement of Cynthia Quarterman, Administrator, 
PHSMA, before the U.S. House of Representatives, Committee on 
Transportation and Infrastructure, Subcommittee on Railroads, 
Pipelines, and Hazardous Materials (May 20, 2014), available at 
http://transportation.house.gov/uploadedfiles/2014-05-20-quarterman.pdf (Quarterman Testimony) at 3.
    \4\ Pipeline Safety: Safety of Gas Transmission Pipelines, (RIN: 
2137-AE72), 76 FR 53,086 (August 25, 2011).
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    6. Also as part of the ANOPR process, PHSMA is considering 
expanding the definition of a High Consequence Area (HCA) so that more 
miles of pipeline may become subject to integrity management 
requirements.\5\ PHMSA is also considering potential new rules related 
to repair criteria, including applying the integrity management repair 
criteria to non-HCAs; reassessing the repair criteria in areas where 
the population has grown since the pipeline was constructed; requiring 
methods to validate in-line inspection tool performance and 
qualifications of personnel; and implementing risk tiering such that 
repairs in an HCA have priority over repairs in a non-HCA. PHMSA held a 
Class Location Methodology workshop on April 16, 2014. Based on the 
comments from the ANOPR and the workshop, PHMSA ``has started drafting 
a report to Congress on this issue.'' \6\
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    \5\ An HCA is a location which is defined in the pipeline safety 
regulations as an area where pipeline releases have greater 
consequences to the safety, health and environment. Basically, these 
are areas with greater population density.
    \6\ Quarterman Testimony at 10.
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    7. PHMSA is also considering changes to its requirements that 
pipelines perform baseline and periodic assessments of pipeline 
segments in an HCA through one or a combination of in-line inspection, 
pressure testing,

[[Page 22368]]

direct assessment of external and internal corrosion, or other 
technology demonstrated to accurately assess the condition of a pipe. 
In June 2013, as updated in September 2013, PHMSA issued a flow chart 
reflecting its draft Integrity Verification Process for natural gas 
pipelines.\7\ To this end, PHMSA seeks information as to what anomalies 
have been detected using the various assessment methods, and proposes 
to include criteria in the regulations that would require more rigorous 
corrosion control.
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    \7\ 78 FR 56,268 (Sept. 12, 2013).
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    8. As we further noted in the Proposed Policy Statement, in 
addition to pipeline safety issues, there have been growing concerns 
about the emissions of greenhouse gases (GHG) in the production and 
transportation of natural gas. On April 15, 2014, the United States 
Environmental Protection Agency (EPA) issued a series of technical 
white papers, for which it has requested input from peer reviewers and 
the public, to determine how to best pursue reductions of emissions 
from, inter alia, natural gas compressors.\8\ The EPA Compressor White 
Paper discusses the most prevalent types of compressors (reciprocating 
and centrifugal) and compressor emission data. As relevant to this 
Policy Statement, the EPA lays out several ``mitigation options for 
reciprocating compressors involve[ing] techniques that limit the 
leaking of natural gas past the piston rod packing, including 
replacement of the compressor rod packing, replacement of the piston 
rod, and the refitting or realignment of the piston rod.'' \9\ The EPA 
also describes several mitigation options for centrifugal compressors 
to limit the leaking of natural gas ``across the rotating shaft using a 
mechanical dry seal, or capture the gas and route it to a useful 
process or to a combustion device.'' \10\ If the EPA's white papers 
result in the agency imposing mitigation requirements on natural gas 
pipelines, the cost of such controls could be significant.\11\
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    \8\ See EPA, Oil and Natural Gas Air Pollution Standards, White 
Papers on Methane and VOC Emission (Apr. 15, 2014), available at 
http://www.epa.gov/airquality/oilandgas/whitepapers.html.
    \9\ EPA Compressor White Paper at 29.
    \10\ Id. at 29-42.
    \11\ For example, the Interstate Natural Gas Association of 
America (INGAA) comments that one of its member companies ``reported 
capital costs of $865,000 for replacement of a wet seal'' on a 
centrifugal compressor. See INGAA Comments on EPA Compressor White 
Paper at 13 (filed June 16, 2014). INGAA also commented on the EPA's 
Leaks White Paper and noted that many factors could affect leak 
repair costs and that ``the cost of the repair may far exceed the 
benefit of eliminating a small leak.'' See INGAA Comments on EPA 
Leaks White Paper at 12-13 (filed June 16, 2014).
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    9. In 2009, the EPA published a rule for mandatory reporting of GHG 
from sources that, in general, emit 25,000 metric tons or more of 
carbon dioxide equivalent per year in the United States.\12\ This 
initiative, commonly referred to as the Greenhouse Gas Reporting 
Program (GHGRP), collects greenhouse gas data from facilities that 
conduct Petroleum and Natural Gas Systems activities, including 
production, processing, transportation and distribution of natural gas. 
Moreover, on November 14, 2014, the EPA issued a prepublication version 
of a final rule revising the Petroleum and Natural Gas Systems source 
category (Subpart W) and the General Provisions (Subpart A) of the 
GHGRP.\13\ The final rule, which was effective January 1, 2015, imposes 
new requirements for the natural gas industry to monitor methane 
emissions and report them annually. On that same day, the EPA issued a 
prepublication version of a proposed rule to add calculation methods 
and reporting requirements for greenhouse gas emissions, as relevant 
here, from blow downs of natural gas transmission pipelines between 
compressor stations. The EPA also proposed confidentiality 
determinations for new data elements contained in the proposed 
amendments.\14\
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    \12\ Mandatory Reporting of Greenhouse Gases Rule, 74 FR 56,260 
(Oct. 30, 2009). See also 40 CFR Pt. 98 (2014).
    \13\ Greenhouse Gas Reporting Rule: 2014 Revisions and 
Confidentiality Determinations for Petroleum and Natural Gas 
Systems, Docket Nos. EPA-HQ-OAR-2011-0512 and FR 9918-95-OAR (Nov. 
14, 2014).
    \14\ See Greenhouse Gas Reporting Rule: 2015 Revisions and 
Confidentiality Determination for Petroleum and Natural Gas Systems, 
Docket ID No. EPA-HQ-OAR-2014-0831 (issued Nov. 14. 2014).
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    10. As we recognized in the Proposed Policy Statement, one likely 
result of the Pipeline Safety Act and PHMSA's rulemaking proceedings is 
that interstate natural gas pipelines will soon face new safety 
standards requiring significant capital costs to enhance the safety and 
reliability of their systems. Moreover, pursuant to EPA's initiatives, 
pipelines may in the future face increased environmental monitoring and 
compliance costs, as well as potentially having to replace or repair 
existing natural gas compressors or other facilities.\15\
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    \15\ On July 29, 2014, the Department of Energy (DOE) announced 
steps to help modernize natural gas infrastructure. Moreover, on 
July 31, 2014, Secretary of Energy Ernest Moniz sent a letter to the 
Chairman of the Commission recommending the Commission explore 
efforts to provide greater certainty for cost recovery for new 
investments in modernization of natural gas transmission 
infrastructure as part of the FERC's work to ensure just and 
reasonable natural gas pipeline transportation rates.
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B. Existing Policy

    11. The Commission's regulations generally require that interstate 
natural gas pipelines design their open access natural gas 
transportation rates to recover their costs based on projected units of 
service.\16\ This requirement means that the pipeline is at risk for 
under-recovery of its costs between rate cases but may retain any over-
recovery. As the Commission explained in Order No. 436, this 
requirement gives the pipeline an incentive both to (1) ``minimize 
costs in order to provide services at the lowest reasonable costs 
consistent with reliable long-term service'' \17\ and (2) ``provide the 
maximum amount of service to the public.'' \18\
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    \16\ 18 CFR 284.10(c)(2) (2014).
    \17\ Regulation of Natural Gas Pipelines After Partial Wellhead 
Decontrol, Order No. 436, FERC Stats. & Regs., Regulations Preambles 
1982-1985 ] 30,665, at 31,534 (1985).
    \18\ Id. at 31,537.
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    12. Before the Pipeline Safety Act, the Commission held that 
capital costs incurred to comply with the requirements of pipeline 
safety legislation or with environmental regulations should not be 
included in surcharges,\19\ except in the context of an uncontested 
settlement.\20\ Noting that pipelines commonly incur capital costs in 
response to regulatory requirements intended to benefit the public 
interest, the Commission stated that recovering those costs in a 
tracking mechanism was contrary to the requirement to design rates 
based on estimated units of service because the use of cost-trackers 
undercuts the referenced incentives by guaranteeing the pipeline a set 
revenue recovery.
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    \19\ See Granite State Gas Transmission, Inc., 132 FERC ] 
61,089, at P 11 (2010) (Granite State); Florida Gas Transmission 
Co., 105 FERC ] 61,171, at PP 47-48 (2003) (Florida Gas).
    \20\ See e.g., Granite State Gas Transmission, Inc., 136 FERC ] 
61,153 (2011); Florida Gas Transmission Co., 109 FERC ] 61,320 
(2004). In 2012, the Commission again rejected a protested proposal 
that would allow a pipeline to recover regulatory safety costs 
through a tracker, but noted that PHSMA was in the early stages of 
developing regulations to implement the Pipeline Safety Act, and 
that the Commission would consider the need for further action as 
PHMSA's implementation process moved forward. CenterPoint Energy--
Mississippi River Transmission, LLC, 140 FERC ] 61,253, at P 65 
(2012) (MRT).
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    13. As we stated in the Proposed Policy Statement, however, the 
Commission recently approved, as part of a contested settlement, a 
tracker mechanism to recover substantial pipeline modernization costs 
that Columbia Gas Transmission, LLC (Columbia Gas) demonstrated were 
necessary to ensure the safety and

[[Page 22369]]

reliability of its pipeline system.\21\ The Columbia Gas settlement 
outlined significant operational and safety issues resulting from the 
age and condition of Columbia Gas' system and the corresponding 
inability to monitor and maintain the system using efficient modern 
techniques.\22\ The Commission found that approving the settlement 
would facilitate Columbia Gas' ability to make substantial capital 
investments necessary to correct significant infrastructure problems, 
and thus provide more reliable service while minimizing public safety 
concerns.
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    \21\ Columbia Gas Transmission, LLC, 142 FERC ]61,062 (2013) 
(Columbia Gas).
    \22\ Columbia Gas stated in that proceeding that over fifty 
percent of its regulated pipeline system was over 50 years old, that 
a significant portion of its system contained dangerous bare steel 
pipeline, that many of its compressors were also outdated, that many 
of its control systems were running on obsolete platforms, and that 
it was only able to inspect a small percentage of its system using 
modern in-line inspection tools.
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    14. The Commission's determination in Columbia Gas thus established 
general parameters for pipelines to consider when seeking recovery of 
pipeline investments for modernization costs related to improving 
system safety and reliability. The tracker approved in that case was 
designed to recover pipeline modernization capital costs of up to $300 
million annually over a five-year period. The Commission found that 
Columbia Gas' settlement included numerous positive characteristics 
that distinguished its cost tracking mechanism from those the 
Commission had previously rejected and that work to maintain the 
pipeline's incentives for innovation and efficiency. The key aspects of 
the settlement upon which the Commission relied to approve the tracker 
included the following.
    15. First, Columbia Gas worked collaboratively with its customers 
to ensure that its existing base rates, to which the tracker would be 
added, were updated to be just and reasonable. This included a 
reduction in Columbia Gas' base rates and a refund to its customers.
    16. Second, the settlement specifically delineated and limited the 
amount of capital costs that may go into the cost recovery mechanism. 
Moreover, the eligible facilities for which costs would be recovered 
through that mechanism were specified by pipeline segment and 
compressor station. Further, the pipeline agreed to spend $100 million 
in annual capital costs as part of its ordinary system maintenance 
during the initial term of the tracker, which would not be recovered 
through the tracker. The Commission found that these provisions should 
assure that the projects whose costs are recovered through the tracker 
go beyond the regular capital maintenance expenditures the pipeline 
would make in the ordinary course of business and are critical to 
assuring the safe and reliable operation of Columbia Gas' system.
    17. Third, the Commission found that a critically important factor 
to its approval of the settlement was the pipeline's agreement to a 
billing determinant floor for calculating the cost recovery mechanism, 
together with an agreement to impute the revenue it would achieve by 
charging the maximum rate for service at the level of the billing 
determinant floor before it trues up any cost underrcoveries. The 
Commission found these provisions should alleviate its historic concern 
that surcharges, which guarantee cost recovery, diminish a pipeline's 
incentive to be efficient and to maximize the service provided to the 
public. The Commission also found that these provisions protect the 
pipeline's shippers from significant cost shifts if the pipeline loses 
shippers or must provide increased discounts to retain business.
    18. Fourth, the surcharge was temporary and would terminate 
automatically on a date certain unless the parties agreed to extend it 
and the Commission approved the extension. Finally, the tracker was 
broadly supported by the pipeline's customers.

C. Proposed Policy Statement

    19. In the Proposed Policy Statement, the Commission found that the 
ultimate implementation of the recent initiatives described above, to 
improve natural gas infrastructure safety and reliability and to 
address environmental issues related to the operation of natural gas 
pipelines, is likely to lead to the need for interstate natural gas 
pipelines to make significant capital investments to modernize their 
systems. The Commission stated that in light of these developments, the 
Commission has a duty to ensure that interstate natural gas pipelines 
are able to recover the costs of these system upgrades in a just and 
reasonable manner that does not undercut their incentives to provide 
service in an efficient manner and protects ratepayers from 
unreasonable cost shifts.
    20. Accordingly, the Commission proposed to establish a policy 
outlining the analytical framework for evaluating pipeline proposals 
for special rate mechanisms to recover infrastructure modernization 
costs necessary for the efficient and safe operation of the pipeline's 
system and compliance with new regulations. The Commission proposed to 
base the policy on the guiding principles established in Columbia Gas. 
Pursuant to the Proposed Policy Statement, a pipeline proposal for a 
cost recovery tracker to recover pipeline modernization costs would 
need to satisfy five standards:
    (1) Review of Existing Rates--the pipeline's base rates must have 
been recently reviewed, either by means of an NGA general section 4 
rate proceeding or through a collaborative effort between the pipeline 
and its customers; (2) Eligible Costs--the eligible costs must be 
limited to one-time capital costs incurred to modify the pipeline's 
existing system to comply with safety or environmental regulations 
issued by PHMSA, EPA, or other federal or state government agencies, 
and other capital costs shown to be necessary for the safe or efficient 
operation of the pipeline, and the pipeline must specifically identify 
each capital investment to be recovered by the surcharge; (3) Avoidance 
of Cost Shifting--the pipeline must design the proposed surcharge in a 
manner that will protect the pipeline's captive customers from cost 
shifts if the pipeline loses shippers or must offer increased discounts 
to retain business; (4) Periodic Review of the Surcharge and Base 
Rates--the pipeline must include some method to allow a periodic review 
of whether the surcharge and the pipeline's base rates remain just and 
reasonable; and (5) Shipper Support--the pipeline must work 
collaboratively with shippers to seek shipper support for any surcharge 
proposal.
    21. The Commission sought comments on the Proposed Policy Statement 
in general and on the five standards noted above. We also sought 
comments on several related issues, including whether if the Commission 
were to implement the instant modernization cost recovery policy, it 
should revise its policy on reservation charge crediting.\23\
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    \23\ Other questions included whether the costs of modifications 
to compressors for the purpose of waste heat recovery should be 
eligible for recovery under a modernization surcharge, whether there 
are any capital costs associated with the expansion of the 
pipeline's existing capacity or its extension to serve new markets 
that may reasonably be included in the surcharge as necessary one-
time capital expenditures to comply with safety and environmental 
regulations, whether capital costs incurred to minimize pipeline 
facility emissions be considered for inclusion in the surcharge, 
even if those costs are not expressly required to comply with 
environmental regulations, whether non-capital maintenance costs 
associated with environmentally sound operation of a compressor be 
considered for inclusion in the surcharge, and under what 
circumstances should the Commission permit a pipeline to include in 
the tracking mechanism the costs of additional projects not 
identified in the pipeline's original filing to establish the 
tracking mechanism?

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[[Page 22370]]

D. Comments

    22. The Commission received a variety of comments in response to 
the Proposed Policy Statement.\24\ Generally, interstate pipelines and 
other natural gas facility owners and operators favor the proposed 
policy, commenting that the criteria for collecting modernization costs 
through a surcharge should be more flexible than contemplated in the 
Proposed Policy Statement. Shippers varied in supporting or opposing 
the proposal, with LDCs conditionally supporting it provided that 
surcharges are tailored to the individual circumstances of the 
pipeline, and are designed so as not to impose unreasonable cost 
burdens or risks on natural gas customers. Some marketers also favored 
a program allowing the implementation of surcharges for modernization 
costs. Other shippers, however, including industrials, municipals and 
supply end entities, oppose the proposed policy statement. Producers 
are especially opposed to the recovery of any modernization costs 
through a surcharge mechanism, claiming that to allow such recovery is 
contrary to the NGA and longstanding Commission policy. The individuals 
filing comments also oppose the Proposed Policy Statement for varying 
reasons.
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    \24\ See Appendix for a list of those entities and persons that 
filed comments and/or reply comments to the Proposed Policy 
Statement.
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    23. Numerous entities from a wide spectrum of industry interests 
filed in favor of the Proposed Policy Statement, supporting properly 
limited tracker or surcharge mechanisms to recover modernization 
costs.\25\ Some advocate granting pipelines added flexibility to comply 
with the five standards necessary to establish such trackers.\26\ 
Others filing in favor of the Commission's proposed policy state that 
pipeline cost recovery mechanisms must be tailored to the individual 
circumstances of the pipeline, and be designed so as not to impose 
unreasonable cost burdens or risks on natural gas customers.\27\ 
Various pipeline customers generally support the development of 
simplified mechanisms for the recovery of costs of modernizing pipeline 
assets to enhance safety and reliability subject to conditions, 
commenting that the costs to be recovered should be limited to capital 
improvements for safety purposes and for compliance with environmental 
regulations.\28\ Others state that modernization cost recovery trackers 
should include safeguards to ensure that pipelines are not permitted to 
pass through costs while evading shipper protections traditionally 
afforded by NGA section 4 rate review.\29\ Others support the Proposed 
Policy Statement as a method for enhancing certainty and the ability of 
interstate pipelines to recover costs for augmenting the efficient and 
safe operation of their respective systems.\30\
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    \25\ Those commenting in favor include the DOE; PHMSA; the 
Interstate Natural Gas Association of America (INGAA); Kinder Morgan 
Interstate Pipelines (Kinder Morgan); Southern Star Central Gas 
Pipeline, Inc. (Southern Star); Boardwalk Pipeline Partners, LP 
(Boardwalk); American Midstream (AlaTenn), LLC (American Midstream); 
the American Gas Association (AGA); the North Carolina Public 
Utility Commission (NCUC); the Kansas Corporation Commission (KCC); 
the Michigan Public Service Commission (Michigan PSC); the Tennessee 
Valley Authority (TVA); and the Environmental Defense Fund, the 
Conservation Law Foundation, and Sustainable FERC Project 
(collectively Environmental Commenters).
    \26\ See, e.g., INGAA Comments at 2, Boardwalk Comments at 4, 
Kinder Morgan Comments at 5.
    \27\ See, e.g., AGA Comments at 1 Laclede Comments at 1.
    \28\ Xcel Energy Services (XES) Comments at 2; Wisconsin 
Electric and Wisconsin Gas Comments at 4.
    \29\ Calpine Corporation (Calpine) Comments at 1.
    \30\ Environmental Commenters Comments at 3-5.
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    24. In contrast to the pipelines' and other comments in support of 
the proposed policy, other commenters, particularly those representing 
producers, marketers, municipal gas companies, and industrial users of 
natural gas, expressed strong opposition to the recovery of 
modernization costs through a tracker.\31\ Opponents' claims that 
additional cost-recovery guarantees to incentivize compliance with 
mandatory environmental and safety laws is misplaced, and that cost 
trackers are inconsistent with section 284.10(c)(2) of the Commission's 
regulations, which requires that transportation rates be based on 
estimated units of service so that the pipeline is at risk for cost 
under-recovery.\32\ Opponents also claim that a cost modernization 
surcharge would be contrary to longstanding Commission policy and 
precedent, noting that the Commission has consistently rejected 
maintenance, compliance, and safety cost trackers, because they 
guarantee cost recovery without taking into account the benefits of 
cost reductions in other areas and/or increases in throughput affecting 
base rate revenues.\33\ Those opposing the Proposed Policy Statement 
further claim that the five standards do not provide the consumer 
protections afforded under section 4 of the Natural Gas Act (NGA), and 
that the record lacks a showing that pipelines cannot recover such 
costs though NGA section 4 rate cases.\34\ Opponents also claim that 
the Proposed Policy Statement is premature, because PHMSA and the EPA 
have not yet issued new regulations.\35\
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    \31\ Those filing comments opposing the Proposed Policy 
Statement include the Natural Gas Supply Association (NGSA), 
Industrial Energy Consumers of America (IECA), the American Forest 
and Paper Association (AF&PA), Process Gas Consumers (PGC), the 
American Public Gas Association (APGA), the Independent Petroleum 
Association of America (IPAA), Indicated Shippers (Anadarko Energy 
Services Company, Apache Corporation, BP Energy Company, Chevron 
U.S.A. Inc., ConocoPhillips Company, Cross Timbers Energy Services, 
Inc., Direct Energy Business, LLC, ExxonMobil Gas & Power Marketing 
Company, a division of Exxon Mobil Corporation, Fieldwood Energy 
LLC, Hess Corporation, Marathon Oil Company, Noble Energy, Inc., 
Occidental Energy Marketing, Inc., Shell Energy North America (US), 
L.P., SWEPI LP, and WPX Energy Marketing, LLC), the El Paso 
Municipal Customer Group (EPMCG), Western Tennessee Municipal Group, 
the Jackson Energy Authority, City of Jackson, Tennessee, and 
Kentucky Cities (together, Cities), Independent Oil & Gas 
Association of West Virginia, Inc. (IOGA), the Municipal Defense 
Group (MDG), Deep Gulf Energy LP (Deep Gulf), Energy XXI (Bermuda) 
Ltd. (Energy XXI), EPL Oil & Gas, Inc. (EPL), and M21K, LLC (M21K) 
(collectively Energy XXI), and Helis Oil & Gas, LLC (Helis) and 
Walter Oil & Gas Corporation (Walter).
    \32\ See, e.g., NGSA Comments at 3.
    \33\ NGSA Comments at 10-11, APGA Comments at 2-4, Indicated 
Shippers Comments at 5-18 .
    \34\ APGA Comments at 2-4, NGSA Comments at 7-8.
    \35\ NGSA Comments at 8-9.
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II. Discussion

A. Adoption of Policy Statement

    25. After reviewing the comments filed on the Proposed Policy 
Statement, the Commission has determined to establish a policy allowing 
interstate natural gas pipelines to seek to recover certain capital 
expenditures made to modernize system infrastructure in a manner that 
enhances system reliability, safety and regulatory compliance through a 
surcharge mechanism, subject to conditions intended to ensure that the 
resulting rates are just and reasonable and protect natural gas 
consumers from excessive costs. While we recognize that allowing 
pipelines to recover these expenditures through a surcharge or tracker 
departs from the requirement that interstate natural gas pipelines 
design their transportation rates based on projected units of service, 
we find on balance that consideration of such mechanisms is justified 
in order to provide an enhanced opportunity to recover the substantial 
capital costs some pipelines are likely to incur to replace aging, 
unsafe and leak-prone facilities. The Policy Statement provides a 
framework for how the Commission will evaluate pipeline proposals for 
recovery of infrastructure modernization costs, and guidance as to how 
it will

[[Page 22371]]

evaluate such proposals in accordance with the five adopted standards.
    26. As the comments in support of the Commission's Proposed Policy 
Statement indicate, establishment of a policy to permit enhanced 
recovery of modernization costs is in the public interest and necessary 
to address concerns regarding the safety of the Nation's natural gas 
infrastructure and the safe operation of natural gas pipelines, as well 
as environmental issues related to emissions. With regard to safety and 
reliability, as OPS comments, recent pipeline accidents, including the 
September 2010 pipeline rupture in San Bruno, California, demonstrate 
the potential consequence of aging pipeline facilities that are not 
properly repaired, rehabilitated or replaced. OPS states that 59 
percent of existing natural gas pipelines were built before 1970 and 69 
percent of existing natural gas pipelines were built before 1980. DOE 
notes that more than half of the country's natural gas transmission and 
gathering infrastructure is over 40 years old. As OPS points out, while 
aging pipelines are not inherently risky, older facilities have been 
exposed to more threats and were likely constructed without the benefit 
of today's safety standards or quality materials.
    27. To address these concerns, Congress passed the Pipeline Safety 
Act mandating that DOT take various actions to improve the safety of 
interstate natural gas pipelines, including requiring testing to verify 
natural gas pipelines' maximum allowable operating pressure, 
considering expansion and strengthening of its integrity management 
regulations, and considering requiring automatic shut-off valves on new 
pipeline construction. The need to address pipeline safety is also 
supported by OPS' comments that multiple recommendations from the 
National Transportation Safety Board and the General Accounting Office 
reinforce the need to ensure that the Nation's pipeline infrastructure 
is sound and reliable. The DOE states in its comments that the 
Commission's proposal is ``aligned with goals of DOE's Initiative to 
Help Modernize Natural Gas Transmission and Distribution Infrastructure 
as well as government-wide efforts to improve pipeline safety and 
enhance the resilience of our nation's critical infrastructure.\36\ DOE 
asserts that offering streamlined cost recovery options will provide an 
overdue incentive for pipelines to invest in new equipment and upgrades 
that will improve safety, boost energy efficiency and reduce emissions.
---------------------------------------------------------------------------

    \36\ DOE Comments at 1.
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    28. In addition to pipeline safety issues, there have been growing 
concerns about the emissions of GHG in the production and 
transportation of natural gas. As we noted in the Proposed Policy 
Statement, in 2014, the EPA issued a series of technical white papers 
to determine how to best pursue reductions of emissions from, inter 
alia, natural gas compressors. The EPA Compressor White Paper lays out 
several ``mitigation options for reciprocating compressors and 
centrifugal compressors to limit the leaking of natural gas. . . .'' 
\37\ Further, in 2009, the EPA published its rule for mandatory 
reporting of greenhouse gas emissions. The resulting GHGRP collects 
greenhouse gas data from facilities that conduct Petroleum and Natural 
Gas Systems activities, including production, processing, 
transportation and distribution of natural gas. Moreover, the EPA 
issued a final rule effective January 1, 2015, imposing new 
requirements for the natural gas industry to monitor methane emissions 
and report them annually.
---------------------------------------------------------------------------

    \37\ EPA Oil and Natural Gas Sector Compressors (Apr. 2014) at 
29, available at http://www.epa.gov/airquality/oilandgas/2014papers/20140415compressors.pdf at 29.
---------------------------------------------------------------------------

    29. Further, the use of natural gas as a fuel for compressors adds 
to the amount of carbon dioxide emissions.\38\ DOE also estimates that 
over 110 Bcf of natural gas is lost annually through routing venting 
and equipment leaks. DOE states that a streamlined cost recovery 
mechanism such as that proposed here for voluntary emissions reductions 
can benefit pipelines and their customers. According to DOE, 
infrastructure improvements that will increase compressor efficiency 
and reduce venting and leaking of methane emissions will also result in 
product conservation and thus cost savings.\39\
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    \38\ See DOE Comments at 4, stating that EIA estimates that 728 
billion cubic feet (Bcf) of natural gas was used as fuel by 
compressor stations operating at natural gas transmission and 
storage facilities in the United States in 2012, resulting in 39 
million metric tons of CO<INF>2</INF> emissions.
    \39\ DOE Comments at 5.
---------------------------------------------------------------------------

    30. The safety and reliability of the nation's natural gas 
infrastructure, and the operation of those facilities in an efficient 
manner that minimizes environmental impact, are issues of public 
interest, and the development of mechanisms to encourage investments in 
infrastructure improvements and upgrades to enhance the efficient and 
safe operation of natural gas pipeline furthers that interest. As we 
recognized in the Proposed Policy Statement, one likely result of the 
recent regulatory safety and environmental initiatives is that 
interstate natural gas pipelines will face increased costs related to 
those rules and programs. Notably, while the opponents of the policy 
assert its implementation is premature because the amount of those 
costs is still unknown, they do not dispute that pipelines are likely 
to incur substantial costs to address these issues. In light of the 
referenced regulatory developments, the Commission has a duty to ensure 
that interstate natural gas pipelines are able to recover the costs of 
these required system upgrades in a just and reasonable manner that 
does not undercut their incentives to provide service in an efficient 
manner and also protects ratepayers from unreasonable cost shifts.
    31. In an effort to ensure that consumers are protected against 
potential effects of any modernization cost trackers or surcharges, the 
Final Policy adopts the five guiding principles proposed in the 
Proposed Policy Statement as the standards a pipeline would have to 
satisfy for the Commission to approve a proposed modernization cost 
tracker or surcharge. Those standards are (1) a requirement for a 
review of the pipeline's existing base rates by means of an NGA general 
section 4 rate proceeding, a cost and revenue study, or through a 
collaborative effort between the pipeline and its customers; (2) a 
requirement that the costs eligible for recovery through the tracker or 
surcharge must generally be limited to one-time capital costs incurred 
to modify the pipeline's existing system to comply with safety or 
environmental regulations or other federal or state government 
agencies, or other capital costs shown to be necessary for the safe, 
reliable, and/or efficient operation of the pipeline, and the pipeline 
must specifically identify each projects' costs or capital investment 
to be recovered by the surcharge; \40\ (3) a prohibition against cost 
shifting, requiring that the pipeline design any proposed surcharge in 
a manner that will protect the pipeline's captive customers from cost 
shifts if the pipeline loses shippers or must offer increased discounts 
to retain business; (4) a requirement that the pipeline must include 
some method to allow a periodic review of whether the surcharge and the 
pipeline's base rates remain just and reasonable; and (5) a requirement 
that the pipeline work collaboratively with shippers to seek

[[Page 22372]]

shipper support for any surcharge proposal. These standards will act as 
protections against pipelines unilaterally recovering costs through a 
tracker that do qualify as the type intended to meet the goals of the 
policy. They will also require any pipeline seeking a modernization 
cost tracker to demonstrate to the Commission and its customers that 
its current base rates are just and reasonable, and provide flexibility 
for the parties to pursue options to reach agreement on processes to 
ensure that those rates and the surcharge rate remain just and 
reasonable. They will also prevent shifting of additional costs to 
captive customers.
---------------------------------------------------------------------------

    \40\ As discussed below, the Commission may consider pipeline 
proposals to include certain limited non-capital maintenance costs 
in a modernization cost tracker.
---------------------------------------------------------------------------

    32. Opponents of the proposed policy argue that adopting the 
Proposed Policy Statement would be contrary to the NGA, longstanding 
Commission policy and rate regulation principles, and that the 
Commission has neither justified this departure from current policy nor 
demonstrated why it is necessary. NGSA, Indicated Shippers, the IPAA 
and others argue that the NGA requires that pipelines be afforded an 
``opportunity'' to recover their reasonable costs but that trackers 
guarantee cost recovery in violation of that principle.\41\ They assert 
this guaranteed cost recovery, absent any accounting of cost savings, 
is the reason Commission has for years disfavored cost recovery 
trackers, because it eliminates the pipeline's risk and correspondingly 
any incentive for the pipeline to be efficient and to provide effective 
service. They note that the Commission's rejections of such mechanisms 
include proposals addressing circumstances very similar to those that 
would be covered under the new policy, and that the Commission itself 
has stated that it has only approved the use of trackers that were 
agreed to in settlements.\42\ They further claim that there has been no 
change in the law or the rationale underlying the Commission's 
longstanding position that would warrant the policy modification 
proposed.
---------------------------------------------------------------------------

    \41\ See, e.g., NGSA Comments at 10, Indicated Shippers' 
Comments at 3.
    \42\ See, e.g., Indicated Shippers' Comments at 5-11, and cases 
cited therein.
---------------------------------------------------------------------------

    33. As we stated above, the Commission acknowledges that the policy 
adopted in this Policy Statement departs from the general rate policy 
in our regulations that interstate natural gas pipelines design their 
transportation rates based on projected units of service. We disagree, 
however, that there have been no changes that may result in tracker 
mechanisms being just and reasonable in certain circumstances and 
subject to appropriate controls.\43\ As discussed above, the increased 
concerns with pipeline safety reflected in the Pipeline Safety Act, 
together with the recent DOE, PHMSA, and EPA initiatives to improve 
natural gas infrastructure safety and reliability and to address 
environmental issues will result in certain increased capital and 
compliance costs for pipelines. In light of these developments the 
Commission has a duty to ensure that interstate natural gas pipelines 
are able to recover the reasonable cost of these system upgrades in a 
just and reasonable manner that does not undercut their incentives to 
provide service in an efficient manner and protects ratepayers from 
unreasonable cost shifts.
---------------------------------------------------------------------------

    \43\ Proposed Policy Statement, PP 18-20.
---------------------------------------------------------------------------

    34. We also disagree with commenters' contentions that allowing 
modernization cost trackers will eliminate the pipeline's risk of cost 
under-recovery and thereby reduce pipelines' incentives to be efficient 
and to provide effective service, contrary to goals of our general 
policy of requiring that rates be based on projected units of service. 
As discussed in more detail below, the costs included in a 
modernization cost tracker will generally be limited to one-time 
capital costs to improve the safe, reliable, and/or efficient operation 
of the pipeline. Thus, pipelines will continue to recover all other 
costs in their base rates pursuant to the Commission's ordinary 
ratemaking policies. Therefore, pipelines will continue to be at risk 
between rate cases for recovery of their operating and maintenance 
(O&M) costs, the overall return on non-modernization capital costs, the 
depreciation allowance related to those costs, and all other costs 
included in their base rates.\44\ This will give pipelines an incentive 
to operate their systems as efficiently as possible, consistent with 
Commission policy. Moreover, the pipelines will have the burden of 
showing that all costs included in a modernization cost tracker are 
prudent and consistent with the Commission's eligibility standards for 
including costs in such a tracker. This will give the Commission and 
all interested parties an opportunity to review whether the subject 
capital investments are prudent and required for the safe and efficient 
operation of the pipeline.
---------------------------------------------------------------------------

    \44\ This fact distinguishes surcharges that may be approved 
under the Policy Statement from ANR Pipeline Co., 70 FERC ] 61,143 
(1995), where we rejected ANR's proposed base rate cost-of-service 
tracker, which sought to recover all of the pipeline's cost of 
service, as contrary to our regulations.
---------------------------------------------------------------------------

    35. Several commenters, including Indicated Shippers, contend that 
the Proposed Policy Statement is contrary to Commission precedent 
prohibiting tracker mechanisms for regulatory obligations, and discuss 
a number of cases where we had rejected pipeline proposals for 
regulatory compliance cost trackers.\45\ As noted above, the Commission 
does not disagree that we have previously rejected proposed tariff 
provisions that would establish trackers to recover costs not wholly 
dissimilar to those contemplated by the Policy Statement. None of those 
proposals, however, included conditions and safeguards to protect 
shippers and consumers of the sort that the Columbia settlement did, 
and which we adopt here as conditions for a modernization cost tracker.
---------------------------------------------------------------------------

    \45\ See, e.g., Indicated Shippers' Comments at 5- 11.
---------------------------------------------------------------------------

    36. As we noted in our order approving Columbia Gas' surcharge, 
Columbia Gas' proposal contained numerous benefits and protections 
agreed to with its shippers that distinguished it from our orders 
rejecting tracker proposals.\46\ Notably the development of Columbia 
Gas' tracker for costs to make necessary improvements and upgrades to 
its system began with Columbia Gas and its shippers engaging in a 
collaborative effort to review Columbia Gas' current base rates, 
leading to Columbia Gas' agreement to make significant reductions to 
its base rates and to provide refunds to its shippers.\47\ Further the 
settlement identified by pipeline segment and compressor station, the 
specific Eligible Facilities for which costs may be recovered, and 
limited the amount of capital costs and expenses for each such 
project.\48\ It also established a billing determinant floor for 
calculating the surcharge imputing the revenue it would achieve by 
charging the maximum rate for service at the level of billing 
determinant floor before it trues up any cost under-recoveries.\49\ 
Further, Columbia Gas'

[[Page 22373]]

tracker is temporary, and terminates by its terms subject to extension 
requiring the consent of all parties, and thus will not become a 
permanent part of Columbia Gas' rates. Finally, the tracker settlement 
was supported or not opposed by virtually all of Columbia Gas' 
shippers.
---------------------------------------------------------------------------

    \46\ Columbia Gas, 142 FERC ] 61,062 at PP 22-27.
    \47\ Id. P 22.
    \48\ We noted that this distinguished Columbia Gas from the 
surcharge mechanisms we rejected in Florida Gas, 105 FERC ] 61,171 
at PP 47-48 and MRT, 140 FERC ] 61,253, which contained only general 
definitions of what type of costs would be eligible for recovery, 
leaving the pipeline considerable discretion as to what projects it 
would subsequently propose to include in the surcharge and creating 
the potential for significant disputes concerning the eligibility of 
particular projects.
    \49\ As we also noted, the surcharge mechanisms proposed in 
Florida Gas, MRT, and Granite State Gas Transmission, Inc., 132 FERC 
] 61,089 (2011), did not include a comparable mechanism to protect 
captive customers from significant cost shifts. The surcharges 
proposed in the other cases cited by Indicated Shippers as examples 
of the Commission's policy against surcharges and trackers, 
including ANR Pipeline Company, 70 FERC ] 61,143, and El Paso 
Natural Gas Co., 112 FERC ] 61,150 (2005), also did not contain the 
safeguards or customer protections included in the Columbia Gas 
settlement and implemented for the Final Policy. Similarly, the 
greenhouse gas cost recovery mechanism we rejected as premature in 
Southern Natural Gas Co., 127 FERC ] 61,003 (2009), did not provide 
safeguards of the type required by this Policy Statement. Likewise, 
our rejection in Tennessee Gas Pipeline Co., LLC and Kinetica Energy 
Express, LLC, 143 FERC ] 61,196 (2013) of a proposed hurricane 
surcharge that we found to be overly broad because it sought to 
recover costs outside those caused by hurricanes, storms or other 
natural disasters, did not include any of the referenced 
protections. Id. P 225.
---------------------------------------------------------------------------

    37. The Commission's approval of any modernization cost tracker or 
surcharge will require a showing by the pipeline of the same types or 
benefits that distinguished Columbia Gas' tracker from those we had 
rejected, and thus comments that the Policy Statement would represent a 
complete reversal of Commission policy are exaggerated. This Policy 
Statement does not provide pipelines with any ability to establish a 
modernization surcharge other than in the manner and with the same 
protections Commission has already approved in Columbia Gas. The 
analysis to be performed under this Policy Statement will be 
substantially similar to that undertaken to find that Columbia Gas' 
modernization cost recovery mechanism was just and reasonable and 
benefitted all interested parties. It will be incumbent on a pipeline 
requesting a modernization cost tracker to demonstrate that its 
proposal includes the types of benefits that the Commission found 
maintained the pipeline's incentives for innovation and efficiency, and 
distinguished Columbia Gas' modernization cost tracking mechanism from 
those the Commission had previously rejected.
    38. Further, the requirements that a pipeline proposing a tracker 
mechanism must establish that its base rates are just and reasonable 
and that there be provision for a periodic review of surcharge and base 
rates should alleviate concerns that the Final Policy will result in 
pipelines not filing NGA section 4 rate proceedings and thus being 
insulated from rate review. APGA points to examples of interstate 
pipelines having not filed NGA section 4 rate cases in over a decade 
and asserts that pipelines generally file rate cases very infrequently, 
thus depriving customers of an opportunity to review all the pipeline's 
rates for lengthy periods. However, the fact that a pipeline desiring a 
modernization cost surcharge must establish that its existing base 
rates are just and reasonable should increase customer opportunities to 
obtain review of all the pipeline's rates. As discussed in more detail 
below, if a pipeline's shippers protest a filing to establish a 
modernization cost tracker on the ground that the pipeline has not 
shown that its base rates are just and reasonable, the Commission will 
establish appropriate procedures to enable it to make a finding, based 
on substantial evidence, whether the base rates are just and 
reasonable. Moreover, while offsetting decreases in cost items will not 
be reflected in rates during the time between the effective date of the 
surcharge and the first periodic review, that periodic review will 
provide an opportunity for any offsetting cost reductions to be 
reflected in rates in order to assure that the base rates and any 
continued surcharge are just and reasonable.
    39. Accordingly, given the heightened sensitivity to pipeline 
safety and environmental related concerns, and based on the benefits 
realized from the Columbia Gas settlement, which enabled the pipeline 
to efficiently make necessary upgrades and repairs to maintain the 
safety and reliability of its system while ensuring that its shippers 
were protected against cost shifts and other potential pitfalls 
commonly associated with trackers, the Commission has determined to 
modify its policy to permit the use of a tracker mechanism in the 
limited circumstances provided for under the Policy Statement, which 
will inure to the public interest.
    40. As noted, several commenters advocate that the Commission's 
modernization cost recovery policy contain narrowly drawn conditions 
and require strict adherence to those conditions to obtain approval for 
such a mechanism. As many others comment, however, the Policy Statement 
will be most effective and efficient if designed according to flexible 
parameters that will allow for accommodation of the particular 
circumstances of each pipeline's circumstances. Maintaining a 
transparent policy with flexible standards will best allow pipelines 
and their customers to negotiate just and reasonable, and potentially 
mutually agreeable, cost recovery mechanisms to address the individual 
safety, reliability, regulatory compliance and other infrastructure 
issues facing that pipeline. For example, while we will require that 
any pipeline seeking a modernization cost tracker demonstrate that its 
existing base rates are just and reasonable, as some commenters point 
out, there may not be a need in all circumstances for a pipeline to 
file and litigate an NGA section 4 rate proceeding to make such a 
showing. There may be less costly and less time consuming alternatives. 
As we stated in the Proposed Policy Statement, the Commission proposed 
the new policy to ``ensure that existing Commission ratemaking policies 
do not unnecessarily inhibit interstate natural gas pipelines' ability 
to expedite needed or required upgrades and improvements.'' \50\ Thus, 
while we are imposing specific conditions on the approval of any 
proposed modernization cost tracker, leaving the parameters of those 
conditions reasonably flexible will be more productive in addressing 
needed and required system upgrades in a timely manner. Further, 
consistent with this approach, the Commission will be able to evaluate 
any proposals in the context of the specific facts relevant to the 
particular pipeline system at issue.
---------------------------------------------------------------------------

    \50\ Proposed Policy Statement at P 9.
---------------------------------------------------------------------------

    41. Accordingly, the Commission finds that modification of our 
previous policy is warranted to allow for consideration of pipeline 
proposals for modernization cost tracking mechanisms as a way for 
pipelines to recover those costs in a timely manner while maintaining 
the safe and efficient operation of pipeline systems. As we discuss 
more fully below, however, the Commission's approval of any such 
mechanism will be subject to the Commission's scrutiny of the proposal 
and its evaluation of the stated conditions, which will work to protect 
the pipeline's customers and ratepayers against potential adverse 
effects of any tracker. That analysis will be on a case-by-case basis, 
and thus will take into account the specific circumstances of the 
individual pipeline and its customers. Any shippers opposing the 
pipeline's proposal will have a full opportunity to express their 
position on specific aspects of the proposed mechanism at that time, 
and the pipeline will need to engage in a collaborative effort to 
garner significant shipper support before the Commission will approve a 
tracker proposal.
    42. Opponent commenters also claim that there is no need for the 
Proposed Policy Statement because there are sufficient longstanding 
procedural

[[Page 22374]]

options and mechanisms in place to achieve the Commission's cost 
recovery goals in this initiative, including NGA rate cases and the 
Commission's settlement process. Again, the Commission does not dispute 
that there are existing procedures that provide pipelines an 
opportunity to recover their just and reasonable costs. The instant 
Policy Statement, however, is meant to address imminent and foreseeable 
developments related to the safety and reliability of the natural gas 
interstate pipeline system. Thus, we find it warranted in the limited 
circumstances under which the Commission would approve a modernization 
cost surcharge, to allow recovery through a tracker of those costs 
expended to replace old and inefficient compressors and leak-prone 
pipes and performing other infrastructure upgrades and improvements to 
enhance efficient and safe operation of their pipeline systems.
    43. We disagree with comments that the Policy Statement is 
premature because the regulatory initiatives prompting the new policy 
are not yet finalized, and thus the projected increased costs are 
unknown and speculative. Although the commenters are correct that the 
regulatory initiatives that are the impetus for the Final Policy are 
not final, there is little debate that some form of them will be in 
place eventually, and that they will result in increased costs to 
pipelines. It will take pipelines a significant amount of time to 
review and analyze their systems to determine if there are portions 
that need immediate attention, and whether the projects they identify 
in their review are of the sort that would be eligible for a cost 
modernization tracker. It is reasonable for the Commission to establish 
this policy in advance of the final initiatives to provide guidance to 
the industry as to how the Commission will analyze pipeline's proposals 
to address these questions. Further, this Policy Statement will be 
beneficial to those pipelines that decide to take a proactive approach 
to ensuring system safety and reliability by conducting system and rate 
reviews prior to governmental mandates requiring them to do so.\51\
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    \51\ For the same reasons, we decline to adopt NGSA's suggestion 
in its reply comments that we defer issuing this Policy Statement 
until after PHMSA and EPA issue final regulations.
---------------------------------------------------------------------------

B. Standards for Modernization Cost Trackers or Surcharges

    44. As discussed, this Policy Statement permits pipelines to seek 
Commission approval of modernization cost trackers or surcharges to 
recover costs associated with performing infrastructure upgrades and 
replacements in a manner that will enhance the efficient and safe 
operation of their pipelines. The Commission's evaluation and approval 
of any proposed modernization cost tracker will require the proposing 
pipeline to satisfy the five standards from the Proposed Policy 
Statement. We discuss the application of those standards under the 
Policy Statement below.
1. Review of Existing Rates
    45. Under the first standard proposed by Commission, a pipeline 
proposing a tracker mechanism must establish that the base rates to 
which any surcharges would be added are just and reasonable and reflect 
the pipeline's current costs and revenues as of the date of the initial 
approval of the tracker mechanism. The Commission proposed that the 
pipeline could do this in various ways, including (1) making a new NGA 
general section 4 rate filing, (2) filing a cost and revenue study in 
the form specified in section 154.313 of the Commission's regulations 
showing that its existing rates are just and reasonable, or (3) through 
a collaborative effort between the pipeline and its customers. The 
Commission sought input on these or other acceptable approaches for 
pipelines to demonstrate that existing base rates are just and 
reasonable.
a. Comments
    46. Some commenters suggested that the Commission require pipelines 
to file an NGA section 4 rate case as part of any proposed capital cost 
tracker. IPAA and the NGSA argue that adoption of a capital cost 
tracker must require a comprehensive review of the pipeline's base 
rates and cost of service through an NGA general section 4 rate filing 
with hearing procedures that include discovery and the Commission's 
Office of Administrative Litigation staff. TVA states that it feels 
strongly that any such review would be best accomplished through the 
thorough and objective analysis of a section 4 rate filing. PEG argues 
that pipelines should be required to restate all of their rates under 
NGA section 4 within three years prior to a surcharge. Laclede also 
argues that a cost and revenue study is not a reasonable substitute for 
an NGA section 4 filing.
    47. The NYPSC, the NCUC and the KCC agree that a pipeline's base 
rates must be reviewed through a full NGA general section 4 rate 
proceeding or through a collaborative effort between the pipeline and 
its customers, and oppose allowing pipelines to only file a cost and 
revenue study. Cities and Municipals commented that the collaborative 
effort standard should be abandoned in favor of a clear standard based 
on a section 4 general rate case where all the pipeline's costs can be 
reviewed. Others comment that the pipeline's rates should have been 
reviewed and approved within a certain time-frame (3 or 4 years) prior 
to the implementation of a surcharge, and that the Commission should 
require pipelines with such surcharges to file rate cases on a regular 
basis (every 3 years).
    48. Others comment, however, that a full NGA section 4 rate case 
review would be too cumbersome for the purpose of efficiently 
implementing appropriate cost modernization surcharges. INGAA argues 
that the Commission should remain open to alternative approaches to 
justifying existing base rates. Recognizing that rate cases, cost and 
revenue studies and recent rate settlements are all appropriate methods 
for determining that existing base rates are just and reasonable, INGAA 
asserts that these are not the only circumstances in which relevant 
rates may be reviewed and approved by the Commission, and that the 
Commission should remain open to other possibilities. For example, 
INGAA argues that the Commission should allow a pipeline to introduce a 
cost recovery mechanism when such a proposal is broadly supported by 
shippers, regardless of whether the settlement addresses other rate 
issues, or when the pipeline has an upcoming obligation to file a 
general NGA section 4 rate filing, a cost and revenue study, or 
restatement or re-justification of its rates as the result of a 
settlement provision. INGAA further states that a recent review of a 
pipeline's base rates may be irrelevant to the analysis of a cost 
tracker when all, or the vast majority, of a pipeline's shippers have 
entered into long-term negotiated rate agreements accepted by the 
Commission. INGAA asserts that a cost recovery mechanism also may be 
appropriate when the Commission recently has reviewed and approved a 
pipeline's base rates in an NGA section 7 proceeding to ensure that new 
pipelines are not placed at a disadvantage.
    49. Calpine recommends the review of a pipeline's base rates occur 
through an informal collaborative process and not a general section 4 
rate case. APGA argues that permitting the rate review to occur through 
a new NGA general section 4 rate filing or a cost and revenue study, as 
opposed to requiring a pre-negotiated base rate settlement, would 
eliminate

[[Page 22375]]

the benefit of the Columbia Gas case, namely negotiations among the 
pipeline and its customers regarding substantial rate reductions and 
refunds, which led to agreement on a just and reasonable rate level. 
XES suggests having pipelines file a cost and revenue study because it 
would allow pipeline to file an `unadjusted' report so that current 
costs and revenues may be determined. The Environmental Commenters 
express concern that requiring a general section 4 rate filing as a 
prerequisite could be inapposite to the regulatory efficiency purposes 
of a cost tracker.
    50. American Midstream requests that the Commission clarify that to 
be eligible for the special cost recovery mechanism through a limited 
section 4 filing, pipelines or at least small pipelines like American 
Midstream need only demonstrate that they are not recovering their 
reasonable costs under their existing recourse rates, and will not be 
required to file testimony specifically supporting and explaining each 
of the schedules required by section 154.313 of the Commission's 
regulations.
b. Determination
    51. Under this Policy Statement, any pipeline seeking a 
modernization cost recovery tracker must demonstrate that its current 
base rates to which the surcharge would be added are just and 
reasonable. This is necessary to ensure that the overall rate produced 
by the addition of the surcharge to the base rate is just and 
reasonable, and does not reflect any cost over-recoveries that may have 
been occurring under the preexisting base rates.
    52. In the Proposed Policy Statement, we stated that the pipeline 
could demonstrate its base rates are just and reasonable by filing a 
NGA section 4 general rate proceeding, a cost and revenue study in the 
form specified in section 154.313 of the Commission's regulations, or 
through some other collaborative effort between the pipeline and its 
customers. In applying the Final Policy we decline to require that such 
rate review be conducted only through an NGA section 4 rate proceeding. 
The type of rate review necessary to determine whether a pipeline's 
existing rates are just and reasonable is likely to vary from pipeline 
to pipeline. For example, it may be possible for some pipelines to 
demonstrate that their existing base rates are under-recovering their 
full cost of service and that a section 4 rate filing would likely lead 
to an increase in their base rates through a showing short of filing an 
NGA section 4 rate proceeding. Therefore, we remain open to considering 
alternative approaches for a pipeline to justify its existing rates.
    53. We note, however, that any pipeline seeking a modernization 
cost surcharge will need to satisfy the Commission that its current 
base rates are no higher than a just and reasonable level. To that end, 
we encourage any pipeline seeking approval of a modernization cost 
tracker to engage in a full exchange of information with its customers 
to facilitate that process. If a voluntary exchange of information 
fails to satisfy interested parties that a pipeline's base rates are 
just and reasonable, the Commission will establish appropriate 
procedures to enable resolution of any issues of material fact raised 
with respect to the justness and reasonableness of the pipeline's base 
rates based upon substantial evidence on the record. In this regard, 
the Commission notes that, if the pipeline files a contested settlement 
concerning its base rates, the Commission would consider whether to 
approve the settlement pursuant to the approaches discussed in 
Trailblazer Pipeline Co.\52\
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    \52\ 87 FERC ] 61,110, at 61,438-41 (1999). See e.g., Texas Gas 
Transmission, LLC, 126 FERC ] 61,235 (2009); Devon Power LLC, 117 
FERC ] 61,133 (2006).
---------------------------------------------------------------------------

2. Defined Eligible Costs
    54. In the Proposed Policy Statement, we stated that to qualify as 
``eligible costs'' for recovery under a cost modernization tracker, 
costs must be limited to one-time capital costs incurred to modify the 
pipeline's existing system or to comply with safety or environmental 
regulations issued by PHMSA, EPA, or other federal or state government 
agencies, and other capital costs shown to be necessary for the safe or 
efficient operation of the pipeline. The Commission also recognized 
that interstate natural gas pipelines routinely make capital 
investments related to system maintenance in the ordinary course of 
business, and the Commission stated that such routine capital costs 
could not be included in a cost modernization tracker.
    55. The Commission also proposed to require that each pipeline 
specifically identify each capital investment to be recovered by the 
surcharge, the facilities to be upgraded or installed by those 
projects, and an upper limit on the capital costs related to each 
project to be included in the surcharge. The Commission stated that 
this would allow an upfront determination that the costs are eligible 
for recovery through the tracker and avoid later disputes about which 
costs or facilities qualify for such recovery.
    56. The Commission also asked several questions concerning what 
costs should be eligible for recovery in a tracker.
a. Comments
    57. The majority of commenters agree that proponents of a 
modernization cost recovery tracking mechanism should specify the costs 
and identity of projects to be recovered pursuant to any such mechanism 
and limit the recovery of those costs. AGA argues that pipelines should 
be required to clearly specify the investments which will be recovered 
through the tracking mechanism, and that shippers should have the 
ability to challenge the inclusion of projects or costs as part of the 
collaborative process. Several commenters, including NGSA, IOGA, XES, 
and Environmental Commenters note that facilities eligible for cost 
recovery under a capital cost tracker should be limited to modification 
of the pipeline's existing system for reliability, safety, or 
environmental compliance, and that there be a strict distinction 
between such facilities and maintaining the pipeline system in the 
ordinary course of business. NGSA argues that eligible tracked costs 
for recovery in a surcharge should be strictly limited to one-time 
capital costs related solely to compliance with the incremental 
requirements of future PHMSA and EPA regulations, as opposed to the 
inclusion of ordinary capital maintenance costs. EPMCG states the 
Proposed Policy fails to explain how the Commission could distinguish 
between such normal expenditures and those ``necessary to address, 
safety, efficiency or similar concerns.'' Southern Companies suggests 
using an Eligible Facilities Plan, comparable to that used in the 
Columbia Gas settlement.
    58. Wisconsin Electric and Wisconsin Gas suggest that pipelines be 
required to specify the regulation that resulted in the requirement to 
construct each project and to either file for approval of each project 
under the NGA section 7(c) certificate application process or in the 
event that a section 7(c) certificate application is not required, then 
provide all information about the project in a manner similar to a 
section 7(c) application. Wisconsin Electric and Wisconsin Gas also 
suggest the Commission establish clear criteria for an ``eligible 
modernization project'' and create a clear distinction between routine 
maintenance projects versus modernization projects undertaken to comply 
with safety and/or environmental regulations.

[[Page 22376]]

    59. Those opposed to the Policy Statement in general advocate 
strict limits on the ``eligibility'' of modernization costs that can be 
recovered through a surcharge. The AF&PA for example, opposes recovery 
of modernization costs through a surcharge and states that the costs 
the pipeline seeks to recover through the tracker/surcharge must be one 
time capital costs incurred to comply with safety or environment 
regulation issued by a governmental entity and such costs are necessary 
for the safe or efficient operations of the pipeline. AF&PA states to 
the extent that the Commission allows trackers, the Commission should 
only permit trackers related to costs that are specifically tied to 
laws that have already been enacted or regulations that are currently 
effective. AF&PA comments that the pipeline should be required to 
demonstrate that the costs are incremental to the costs imposed under 
existing laws and regulations. Laclede, who also opposes the Proposed 
Policy Statement, echoes the notion that modernization costs should 
only be recoverable through rate trackers if the costs are tied to new 
safety or health requirements. Additionally, the Industrial Energy 
Consumers of America (IECA) opposes surcharges and trackers as a way 
for pipeline companies to recover regulatory safety and environmental 
costs, arguing that it should be a requirement for pipeline companies 
to file a new tariff that includes regulatory costs. IECA recommends 
strict guidelines as to what costs pertain to eligible facilities for 
special cost recovery.
    60. Several commenters stated that the Commission needs to ensure 
that pipelines do not recover costs related to the safe and efficient 
operation of their systems that they should have already been spending. 
NCUC states that pipelines should not be provided incentives to make 
the investments it already should have made. Calpine also states 
pipelines should already be complying with safety and reliability 
requirements imposed by existing regulations and should not be incented 
to recover such costs through a modernization cost mechanism. PEG 
opposes the Commission's involvement in the mandates of other agencies 
such as EPA and PHMSA. According to PEG, ``it is presumptuous of the 
Commission to describe such expenditures as being in `advancement of 
the public interest' when first, the public interest is yet to be 
defined by regulatory action and second, such actions are outside of 
the Commission's purview.'' \53\ PEG fails to see any reason to provide 
an incentive for pipelines to take actions that they must take under 
penalty of law.
---------------------------------------------------------------------------

    \53\ PEG Comments at 7.
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    61. Other commenters found the Commission's proposal with regard to 
eligible facilities too restrictive, and stated that costs should not 
be limited to ``one-time, capital costs.'' INGAA argues that limiting 
the tracker mechanism only to capital costs is an unnecessary 
limitation on the type of costs that should be eligible for inclusion 
into the tracker mechanism, and urge expansion of the scope of the 
definition of eligible facilities. WBI Energy likewise comments that a 
one-time capital cost limitation may preclude a pipeline from 
recovering non-routine non-capital expenses which were prudently 
incurred to address system safety or efficiency. WBI Energy thus argues 
the final policy should be flexible enough to address each pipeline's 
situation.
    62. Boardwalk states that the policy should be flexible so that if 
as a result of the modification process a pipeline discovers other 
actions that need to be taken in order for a pipeline to be in 
compliance with the new PHMSA rules, the costs of those activities may 
be included in the tracker. Boardwalk states the Commission should 
provide clear and rational guidance as to categories of costs eligible 
for inclusion in the tracker. Columbia Gas argues that the Commission 
should allow pipelines and shippers to include the cost of projects 
intended to increase the reliability or safety of existing facilities, 
including those facilities not necessarily impacted by regulations, 
provided that pipelines make a clear showing of net benefits to its 
stakeholders. Columbia Gas suggests such potential benefits may include 
improved safety, reduced emissions, increased efficiency or 
reliability, reduced costs, improved fuel, or reduced lost-and-
unaccounted-for quantities.
b. Determination
    63. Consistent with the Proposed Policy Statement, costs proposed 
to be recovered through a modernization cost surcharge (Eligible Costs) 
should generally be limited to (1) one-time capital costs incurred to 
modify or replace existing facilities on the pipeline's system to 
comply with safety or environmental regulations issued by PHMSA, EPA, 
or other federal or state government agencies, or (2) other one-time 
capital costs shown to be necessary for the safe or efficient operation 
of the pipeline.\54\ The Commission does not intend that capital costs 
the pipeline incurs as part of its ordinary, recurring system 
maintenance requirements should be eligible for inclusion in a 
modernization cost tracker. The Commission is modifying its rate 
policies to permit modernization cost trackers primarily for the 
purpose of allowing pipelines to recover capital costs incurred to 
upgrade the older parts of their systems (1) to comply with new, more 
stringent regulatory requirements and/or (2) take advantage of new 
technologies that reasonably increase safety and/or efficiency, such as 
reductions in methane leaks, system modifications to allow the use of 
advanced in-line inspection tools in lieu of hydrostatic testing, or 
replacement of old compressors with newer more energy efficient 
ones.\55\
---------------------------------------------------------------------------

    \54\ In the Proposed Policy Statement, at P 23, the Commission 
proposed to define eligible costs as ``one-time capital costs to 
modify the pipeline's existing system . . .'' (emphasis supplied). 
Some commenters have interpreted our use of the word ``modify'' to 
exclude the costs of facility replacement projects from eligibility. 
We clarify that capital costs to replace existing facilities, such 
as old compressors that do not comply with new EPA emission 
requirements, are eligible for inclusion in a modernization cost 
tracker.
    \55\ See, e.g., INGAA Comments at 13.
---------------------------------------------------------------------------

    64. By contrast, the Commission believes that pipelines should 
continue to recover in their base rates ordinary capital costs of the 
type they routinely incur as part of their regular system maintenance. 
The Commission recognizes the potential difficulty in distinguishing 
between ordinary capital costs for system maintenance, which should be 
excluded from a modernization cost tracker, and capital costs for 
system upgrades, which are reasonably included in such a tracker. In 
order to address this concern, the parties may, as INGAA and others 
suggest,\56\ consider including in a modernization cost tracker a 
mechanism for ensuring that a representative level of ordinary system 
maintenance capital costs are excluded from the tracker. For example, 
the Columbia Gas settlement includes a provision that Columbia Gas will 
continue to make capital expenditures of $100 million annually for 
system maintenance and those expenditures will not be included in its 
modernization cost tracker. If Columbia Gas spends less than that 
amount in any year, the difference must be used to reduce the plant 
investment included in the modernization cost tracker.\57\ In 
developing such a mechanism, the parties could use the pipeline's 
recent history of capital expenditures incurred for routine maintenance 
as a basis for determining a representative level of

[[Page 22377]]

ordinary system maintenance capital costs to be excluded from the 
modernization cost tracker.
---------------------------------------------------------------------------

    \56\ INGAA reply comments at 18-19. Environmental Commenters at 
12-13.
    \57\ Section 7.3 of the Columbia Gas settlement.
---------------------------------------------------------------------------

    65. Some commenters have suggested that the Commission should 
permit certain non-capital expenses to be included in a modernization 
cost tracker, if they are non-routine and required by regulation or a 
voluntary program adopted by a pipeline as a best practice.\58\ 
Commenters cite as examples the costs of in-line inspections by running 
smart tools through various pipeline segments or programs to detect and 
repair leaks on parts of the system most prone to leaks. To the extent 
such testing uncovers the need to incur one-time capital costs that 
satisfy the eligibility standards described above, such capital costs 
could be included in the modernization cost tracker. However, the 
Commission is reluctant to permit non-capital testing costs of the type 
described by the commenters to be recovered through a modernization 
cost tracker. The cost of service reflected in a pipeline's existing 
base rates presumably includes a projection of the pipeline's recurring 
costs of routine testing as part of the pipeline's O&M costs. The 
testing described by the commenters would appear to be a best practice 
for pipeline maintenance that the Commission would expect pipelines to 
conduct on an ongoing basis. As such it would appear difficult to 
distinguish any particular type of testing from the testing whose costs 
are already included in the O&M costs reflected in the pipeline's base 
rates. Therefore, while the Commission will not impose a blanket 
prohibition on the inclusion of such non-capital costs in a 
modernization cost tracker, particularly where supported by the 
pipeline's shippers, any proposal to include such non-capital costs in 
the tracker would need to demonstrate that such non-capital costs are 
special non-recurring costs not reflected in the O&M costs included in 
the pipeline's base rates and are directly related to the modernization 
projects whose costs are included in the modernization cost tracker. 
Furthermore, when determining whether a cost is a capital or non-
capital cost, a pipeline's determination must be consistent with the 
Commission's accounting regulations and precedent.\59\
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    \58\ See, e.g., INGAA Comments at 5-7, AGA Comments at 7.
    \59\ See, e.g., 18 CFR part 201 (2014); see also, Jurisdictional 
Public Utilities and Licensees Natural Gas Companies, and Oil 
Pipeline Companies, order on accounting for pipeline assessment 
costs, 111 FERC ] 61,501 (2005).
---------------------------------------------------------------------------

    66. Some commenters also suggest that the Commission should allow 
eligible costs to include a portion of the capital costs incurred in a 
pipeline expansion project, if the project not only expands the 
pipeline's system but also modifies or replaces existing facilities to 
comply with safety or environmental regulations or make other 
improvements necessary for the safe and efficient operation of the 
pipeline.\60\ The Commission recognizes that some expansion projects 
may include modifications to a pipeline's existing system that would be 
eligible for recovery in a modernization cost tracker if not done in 
conjunction with an expansion. In such circumstances, the Commission 
will consider reasonable proposals for a method of cost allocation 
between the expansion project and the modifications eligible for 
inclusion in such a tracker.\61\
---------------------------------------------------------------------------

    \60\ See, e.g., INGAA Comments at 11-12, Columbia Gas Comments 
at 14-16, Berkshire Hathaway Comments at 11, Wisconsin Electric and 
Wisconsin Gas Comments at 9,
    \61\ The Columbia Gas settlement includes such a provision at 
section 7.5 of that settlement.
---------------------------------------------------------------------------

    67. Some commenters state that the costs of modifications to 
compressors for the purpose of waste heat recovery should be eligible 
for recovery under a modernization surcharge subject to conditions,\62\ 
while others oppose the inclusion of such costs because they assert 
that investments in modifications of compressors for purpose of waste 
heat recovery are discretionary and within control of the pipeline and 
should thus be subject to the normal rate review process.\63\ According 
to the DOE, expanded use of waste heat recovery by natural gas 
compressors could be beneficial to overall system efficiency, and while 
there is a general lack of good information on the scale of heat losses 
from many sectors of the economy, research published in 2008 and 2009 
found substantial opportunities for additional waste heat recovery 
investment at natural gas compressor stations. Accordingly, the 
Commission will consider proposals for recovery of such costs in a 
modernization cost tracker proposal, subject to the standards of this 
Policy Statement.
---------------------------------------------------------------------------

    \62\ See, e.g., DOE Comments at 3, Wisconsin Electric and 
Wisconsin Gas Comments at 8, Michigan PSC Comments at 15.
    \63\ See, e.g., PGC Comments at 17-18, NGSA Comments at 18-19, 
KCC Comments at 12.
---------------------------------------------------------------------------

    68. The Commission rejects the proposals of some commenters that 
eligible costs be limited to those costs which the pipeline 
demonstrates are specifically tied to laws that have already been 
enacted or regulations that are currently effective. The Commission 
sees no reason for pipelines to wait to make needed improvements to 
their systems until a regulation is adopted requiring them to do so. In 
fact, the Department of Transportation has encouraged pipeline 
operators to undertake voluntary initiatives to improve pipeline 
safety.\64\ Permitting pipelines to recover in a modernization cost 
tracker the costs of voluntary initiatives to improve safety, as well 
as minimize methane emissions, will help encourage such initiatives and 
thereby benefit the public. Accordingly, the Commission finds that all 
prudent one-time capital costs that satisfy the eligibility 
requirements may be included in a cost modernization tracker, 
regardless of whether PHMSA, EPA or some other government agency has 
adopted a regulation requiring the incurrence of the cost.
---------------------------------------------------------------------------

    \64\ United States Department of Transportation Call to Action 
to Improve the Safety of the Nation's Energy Pipeline System (Apr. 
2011), available at http://www.phmsa.dot.gov/staticfiles/PHMSA/DownloadableFiles/110404%20Action%20Plan%20Executive%20Version%20_2.pdf.
---------------------------------------------------------------------------

    69. In the Proposed Policy Statement, the Commission proposed to 
require a pipeline proposing a modernization cost tracker to identify 
each capital investment to be recovered by the surcharge, the 
facilities to be upgraded or installed by those projects, and an upper 
limit on the capital costs related to each project to be included in 
the surcharge. INGAA requests that the Commission permit pipelines 
either to propose a list of eligible projects or a list of categories 
of future projects that would be considered eligible for recovery. 
Other commenters also contend that, even if the pipeline includes an 
upfront list of specific projects to be included in the modernization 
cost tracker, the Commission should permit subsequent modifications, 
additions, or subtractions to the listed projects. They state that this 
is necessary so that the tracking mechanism can adapt to changing 
circumstances including newly adopted regulations.
    70. The Commission expects that, before the pipeline makes a tariff 
filing with the Commission proposing a modernization cost tracking 
mechanism, it will conduct a comprehensive review of its existing 
system to determine what capital investments it believes are needed to 
ensure the safe and efficient operation of its system, based on the 
information available to it at the time of the review. Such a review 
should be comparable to the comprehensive review conducted by Columbia 
Gas before it submitted its Settlement. The Commission continues to 
find that the pipeline must include in its filing a

[[Page 22378]]

description of the facilities which its review of its system has 
identified as needing upgrading and/or replacement, together an upper 
limit on the capital costs projected to be spent and a schedule for 
completing the projects. This detailed information will allow for a 
more transparent and upfront determination of the project costs that 
are eligible for recovery through the tracker so as to avoid later 
disputes on which facilities qualify, than any description of general 
categories of eligible costs could. This requirement will also help 
ensure that normal capital or other expenditures to maintain the 
pipeline's system in the ordinary course of business are not eligible 
for recovery through a surcharge mechanism. Consistent with this 
requirement, the filing should also include the accounting controls and 
procedures that the pipeline will use to ensure that only identified 
eligible costs are included in the tracker.
    71. At the same time, however, the Commission recognizes the need 
for flexibility to make changes in the projects whose costs will be 
included in the tracker, after the modernization cost tracking 
mechanism is adopted. For example, the pipeline may discover 
unanticipated problems with certain facilities during the course of its 
modernization activities or may discover more effective solutions to 
existing problems. Also, changes in its shippers' utilization of its 
system may cause certain projects to become more critical to the safe 
and efficient operation of the pipeline than originally anticipated. 
Therefore, the Commission will be open to considering proposals to 
include in a modernization cost tracker a mechanism pursuant to which 
the parties could later modify the list of eligible projects, or the 
schedule for those projects, or the cost limits, based on changing 
priorities and other reasons.\65\ The Commission also recognizes that 
pipelines may wish to begin modernizing their systems before PHMSA, 
EPA, and other Federal or state agencies complete their various ongoing 
regulatory initiatives. Therefore, the Commission will be open to 
considering proposals to add new projects to a tracking mechanism which 
may be required by new regulations adopted after the initial approval 
of the tracking mechanism or for other reasons.
---------------------------------------------------------------------------

    \65\ See section 7.2 of the Columbia Gas Settlement setting 
forth such a mechanism.
---------------------------------------------------------------------------

3. Avoidance of Cost Shifting
    72. The Proposed Policy Statement contemplated that a pipeline must 
design any proposed surcharge in a manner that will protect the 
pipeline's captive customers from costs shifts if the pipeline loses 
shippers or must offer increased discounts to retain business. The 
Commission suggested that one method of accomplishing this would be to 
establish a billing determinant floor requiring the pipeline to design 
the surcharge based on the greater of its actual billing determinants 
or the floor.
a. Comments
    73. Virtually all commenters favored the avoidance of cost shifts 
to the pipeline's captive customers that may result from the 
implementation of a cost modernization surcharge. AGA, for example, 
supports the need to ensure that existing shippers are protected from 
substantial cost shifts, and comments that pipelines should be 
required, in consultation with their shippers, to develop appropriate 
measures to protect customers from cost shifts.
    74. Those opposed to the Proposed Policy Statement, however, claim 
that the very implementation of cost modernization tracker necessarily 
shifts costs. MDG, for example, states that trackers shift costs to 
captive customers due to discounting and lost business without taking 
into account offsetting cost reductions, and thus even the best 
implementation of the Proposed Policy Statement would raise rates to 
captive customers unfairly. MDG claims that a billing floor will not 
alleviate the inherent cost shift in a policy that allows the recovery 
of one set of costs absent a review of all the pipeline's costs and 
revenues. MDG suggests that to the extent substantial pipeline capital 
costs are recovered through a tracker there should be a reduction in 
that pipeline's return on equity to reflect the pipeline's reduced 
risk. The NYPSC similarly claims that while requiring a billing 
determinant floor for a surcharge does allow some risk to remain with 
the pipeline, a tracker mechanism still reduces a pipeline's risk and 
transfers it to shippers.
    75. While NGSA, APGA, and IPAA oppose the modernization surcharge 
tracker, if surcharges are allowed they all support the requirement 
that pipelines must design the surcharge in a manner that will protect 
the pipeline's shippers from significant cost shifts. IPAA, NGSA, and 
KCC contend that at a minimum, any modernization surcharge tracker must 
provide for a minimum level of billing determinants to design the 
surcharge as in Columbia Gas. NGSA adds that any surcharge should apply 
to all throughput in the facilities and under the rate schedules 
impacted by the surcharge-related costs, so that an agreed upon floor 
on the billing determinants should be greater than the firm billing 
determinants (so as to include interruptible throughput, for example). 
AF&PA agrees that interruptible shippers should share the costs 
incurred through trackers to the extent that they are related to safety 
and environmental compliance, as these costs are not related only to 
firm service. IECA states costs recovered through a tracker should be 
limited to no more than 5 percent of the costs recovered through the 
pipeline's tariff.
    76. AF&PA submits that if the Commission implements the Proposed 
Policy Statement, the policy should spread the costs as widely as 
possible because environmental and safety costs are incurred for all 
shippers. AF&PA cautions, however, that a shipper that has released 
certain capacity should not bear any new costs related to that capacity 
and recovered through the tracker.
    77. NGSA argues that if shippers are already paying for eligible 
costs in negotiated contracts, or existing negotiated contracts 
prohibit recovery of these costs, they should not be subject to the 
modernization surcharge.
b. Determination
    78. The third standard for approval of a cost modernization tracker 
adopted by the Policy Statement is that the pipeline must design any 
proposed surcharge in a manner that will protect the pipeline's captive 
customers from cost shifts if the pipeline loses shippers or must offer 
increased discounts to retain business beyond those reflected in their 
base rates.
    79. As we stated in the Proposed Policy Statement, our regulations 
require that a pipeline's rates recover its costs based on projected 
units of service,\66\ thereby putting the pipeline at risk for any cost 
under-recovery between rate cases, incentivizing the pipeline to 
minimize costs and maximize service. Recovery of costs approved for 
inclusion in a tracker, however, would be guaranteed, thereby reducing 
the pipeline's incentives. Moreover, a tracker mechanism can shift 
costs to the pipeline's captive customers. If a pipeline recovering 
costs through a tracker or surcharge loses shippers or must offer 
increased discounts to retain business, a tracker mechanism may shift 
the amounts previously paid by those shippers directly and 
automatically to the pipeline's remaining shippers. This direct cost 
shifting is one of the reasons the Commission has generally disfavored 
trackers, namely that the cost

[[Page 22379]]

shifting described would occur without consideration of any offsetting 
items that would generally be considered in a section 4 rate 
proceeding, and which the pipeline would normally need to justify to 
recover.\67\
---------------------------------------------------------------------------

    \66\ 18 CFR 284.10(c)(2) (2014).
    \67\ For example, in order to recover costs associated with 
discounted rates the pipeline may have offered to certain shippers, 
the pipeline must demonstrate that the discount was required to meet 
competition. Policy for Selective Discounting by Natural Gas 
Pipelines, 113 FERC ] 61,173 (2005). In the case of a tracker, no 
such showing is required by the pipeline to recover the covered 
costs from its remaining customers.
---------------------------------------------------------------------------

    80. Thus, as a prerequisite to the Commission allowing such a 
tracker, the Commission will require that the pipeline design the 
surcharge in a manner that will protect its shippers from cost shifts 
and impose on the pipeline some risk of under-recovery. As we noted in 
the Proposed Policy Statement, one method to accomplish this would be 
that adopted by Columbia Gas, namely that the pipeline agree to a 
billing determinant floor such that the pipeline must design the 
surcharge on the greater of its actual billing determinants or the 
established floor, and impute the revenue it would achieve by charging 
the maximum rate for those determinants. While the Commission found 
this to be a just and reasonable approach to preventing cost shifts in 
Columbia Gas, we remain open under the Final Policy to considering 
alternative methods of protecting the pipeline's existing customers 
from cost shifts if the pipeline loses customers or has to offer 
increased discounts of its rates to retain business during the period 
the modernization cost tracker is in effect.
    81. The Commission believes that issues concerning how a 
modernization cost surcharge should be allocated among a pipeline's 
services and what billing determinants should be used to design the 
surcharge are best addressed on a case-by-case basis when each pipeline 
files to establish a modernization cost tracking mechanism. However, as 
a general matter, the Commission believes that it would be reasonable 
for the billing determinants used to design the surcharge to reflect a 
discount adjustment comparable to any discount adjustment reflected in 
the pipeline's base rates. Otherwise, a pipeline's modernization cost 
tracking mechanism would be designed in a manner that would likely lead 
to the pipeline under-recovering its prudently incurred modernization 
costs. That would be contrary to the Commission's goal of encouraging 
pipelines to expedite needed safety and environmental upgrades. The 
Commission's concern about protecting the pipeline's existing customers 
from cost shifts relates to cost shifts that would occur if a pipeline 
were permitted to true up any modernization cost under-recoveries 
resulting from the loss of customers after its modernization cost 
tracker goes into effect or a need to offer increased rate discounts to 
retain business after that date.\68\
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    \68\ The Commission notes that section 154.109(c) of the 
Commission's regulations (18 CFR 154.109 (2014)), requires that the 
pipeline's tariff contain a statement of the order in which the 
pipeline discounts its rates and charges. Therefore, pipelines with 
modernization cost surcharges will have to revise their statements 
of the order in which they discount rates to include the 
modernization cost surcharge. Treating that surcharge as the last 
rate component discounted would minimize the need for truing up any 
under-recoveries due to discounting. See Natural Gas Pipeline Co. of 
America, 70 FERC ] 61,317 (1995).
---------------------------------------------------------------------------

    82. Finally, with respect to the issue of the pipeline's ability to 
impose a modernization cost surcharge on discounted or negotiated rate 
shippers, that is a contractual issue between the pipeline and its 
discounted or negotiated rate shippers. If a particular shipper's 
discount or negotiated rate agreement with the pipeline permits the 
pipeline to add the surcharge to the agreed-upon discounted or 
negotiated rate, the pipeline will be permitted to do so.\69\ 
Otherwise, the pipeline may not impose the surcharge on a discounted or 
negotiated rate shipper.
---------------------------------------------------------------------------

    \69\ See, e.g., Sea Robin Pipeline Co., LLC, Opinion No. 516-A, 
143 FERC ] 61,129, at PP 85-213 (2013).
---------------------------------------------------------------------------

4. Periodic Review of the Surcharge
    83. In the Proposed Policy Statement, the Commission proposed that 
pipelines be required to include in a modernization cost recovery 
mechanism some method to allow a periodic review of whether the 
surcharge and the pipeline's base rates remain just and reasonable. As 
an example of such a method, the Commission cited the Columbia Gas 
settlement, in which the pipeline agreed to make the surcharge a 
temporary part of its rates (the surcharge expires automatically after 
five years), and included a requirement that the pipeline make a new 
NGA section 4 filing if it wants to continue the surcharge. However, 
the Commission stated it was open to other methods.
a. Comments
    84. Virtually all commenters, including AGA, INGAA, NGSA, APGA, 
PGC, IPAA, Southern, KCC, and TVA support the proposed standard 
requiring a pipeline proposing a modernization cost tracker to include 
a method to allow a periodic rate review of the surcharge. While 
participants generally agreed such a condition was necessary, the 
recommended method and frequency of review differed.
    85. Numerous commenters advocate requiring a pipeline with a cost 
modernization tracker to periodically file a full NGA section 4 rate 
case. NGSA for example, commented that a pipeline should have to file a 
rate case with its application for a tracker and every five years 
thereafter. IECA and Cities agree that a minimum 5-year rate case 
filing obligation is warranted. KCC and PGC espouse refresher 
requirements of 3 to 5 years, with a condition the pipeline not file to 
change rates for at least 3 years after implementation of a tracker. 
IPAA also supports the requirement for a full rate case refresher, and 
MDG suggests a rate case filing as a condition of extending any tracker 
beyond its initial term. Calpine commented that any surcharge have a 
minimum 3-year initial term that is subject to extension and 
renegotiation. Several commenters also advocated annual filings for 
pipelines to justify the projects for which costs were collected and to 
true-up such costs.
    86. Opponents of the Proposed Policy Statement commented that a 
periodic review methodology was critical, though still not sufficient 
to justify the use of trackers. They strongly advocate a requirement 
that the review methodology involve a full blown NGA section 4 rate 
case. APGA would add the requirement that, if during the period that a 
surcharge mechanism is in effect, an NGA section 5 complaint is 
initiated against the pipeline, then the pipeline must agree to make 
refunds retroactive to the date of the complaint to the extent its 
rates are determined to be unjust and unreasonable. The NYPSC and TVA 
comment that the periodic review should ensure that the surcharge does 
not produce earnings above authorized rates of return.
b. Determination
    87. In this Policy Statement, the Commission adopts a policy of 
requiring the pipeline to include some method for a periodic review of 
whether the surcharge and the pipeline's base rates remain just and 
reasonable. Potential methods for satisfying this standard may include 
making the surcharge temporary and/or requiring the pipeline to file an 
NGA section 4 rate case to the extent it wants to extend the surcharge 
beyond the initial temporary term. Because we intend the Policy 
Statement to be flexible enough to meet the particular circumstances of 
each pipeline's system, we will not require that a pipeline seeking 
approval of a cost modernization tracker propose to file a

[[Page 22380]]

full NGA section 4 rate case with some specified regularity and remain 
open to other reasonable means of accomplishing this goal.
    88. Similar to the review of the pipeline's existing base rates at 
the beginning of the tracker proposal analysis, during the periodic 
review the pipeline will have to provide sufficient information to 
satisfy the Commission that both its base rates and the surcharge 
amount remain just and reasonable if the surcharge is to continue. If 
shippers raise any issues of material fact with respect to the 
continued justness and reasonableness of the pipeline's base rates or 
the surcharge, the Commission will establish appropriate procedures to 
enable resolution of those issues based upon substantial evidence on 
the record.
    89. If a modernization cost tracking mechanism is terminated before 
the pipeline has fully recovered the costs included in that mechanism, 
the pipeline may reasonably propose in a subsequent general section 4 
rate case to include the unrecovered costs in its base rates. For 
example, if eligible costs have been treated as rate base items in the 
modernization cost tracker, the undepreciated portion of those costs as 
of the time of the NGA section 4 rate filing could be included in the 
rate base used to calculate the pipeline's proposed base rates in the 
same manner as any other investment made between rate cases, unless the 
pipeline's modernization cost tracker mechanism includes some other 
provision concerning the treatment of unrecovered costs upon 
termination of the mechanism.
5. Shipper Support
    90. The fifth condition proposed for a cost recovery surcharge was 
that the pipeline must work collaboratively with shippers to seek 
shipper support for any such proposal.
a. Comments
    91. The vast majority of commenters support this condition but 
differ on the degree of shipper support the pipeline must have. On one 
end, INGAA suggests that the Commission could approve a proposed 
surcharge mechanism that it deems just and reasonable even if it lacks 
shipper support at the outset. NGSA and APGA, on the other hand, 
comment that pipeline should have the support of shippers representing 
90 percent of the firm billing determinants. AGA comments that while 
unanimity should not be required, any approved modernization cost 
recovery tracking mechanism should be established through a robust, 
ongoing, collaborative process between the pipeline and its shippers 
that has widespread shipper support.
    92. IECA is more pessimistic and contends that it is completely 
unrealistic for any pipeline to collaborate and work with its shippers. 
The KCC supports collaboration among the pipeline and its shippers but 
comments that the condition should be expanded to include support of 
``interested parties,'' including state public utility commissions.
b. Determination
    93. The fifth standard for an acceptable cost modernization 
surcharge adopted in this Policy Statement is that the pipeline must 
work collaboratively with shippers and other interested parties to seek 
support for any such proposal. As part of this collaborative process, 
pipelines should meet with their customers and other interested parties 
to seek resolution of as many issues as possible before submitting a 
modernization cost recovery proposal to the Commission. At such 
meetings, pipelines should share with their customers the results of 
their review of their systems concerning what system upgrades and 
improvements are necessary for the safe and efficient operations of 
their systems. Pipelines should also be responsive to customer requests 
for specific cost and revenue information necessary to determine 
whether their existing base rates are just and reasonable. 
Additionally, pipelines should provide customers and interested parties 
an opportunity to comment on draft tariff language setting forth their 
proposed modernization cost recovery mechanism.
    94. As we noted in the Proposed Policy Statement, however, while we 
strongly encourage the pipeline to attempt to garner support for its 
proposal from all interested parties, we do not intend to require 
unanimity of shipper support before approving a cost modernization 
surcharge. Nor will we establish any minimum level of shipper support 
required before a pipeline's proposal can be accepted. This Policy 
Statement will provide pipelines and their customers wide latitude to 
reach agreements incorporating remedies for a variety of system safety, 
reliability and/or efficiency issues. Despite comments that mutual 
collaboration is futile or impractical, the Columbia Gas settlement is 
evidence that a system-wide collaboration between a pipeline and its 
customers can work to produce a reasonable modernization cost recovery 
mechanism that benefits all sides. The Commission continues to favor 
settlements, and notes that the negotiation of a modernization cost 
tracker to address critical infrastructure issues is exactly the type 
of issue that lends itself to pipeline customer negotiation and 
agreement because it will benefit all involved. However, if a pipeline 
satisfies its burden under NGA section 4 to show that its proposed 
modernization cost recovery mechanism is just and reasonable, including 
showing that its proposal is consistent with the guidance herein, the 
Commission may accept that proposal, even if some parties oppose it.

C. Additional Questions on Which the Commission Sought Comments

    95. The Commission also sought comments on several additional 
issues, including: Accelerated amortization, reservation charge 
crediting, and any other factors or issues commenters believed should 
be included in the Policy Statement as a prerequisite for approving a 
modernization cost recovery mechanism.
1. Accelerated Amortization
    96. In the Proposed Policy Statement, the Commission pointed out 
that the capital costs included in the modernization cost tracking 
mechanism approved in Columbia Gas are treated as rate base items, and 
thus Columbia Gas is allowed to recover a return on equity on the 
portion of those costs financed by equity. Consistent with the rate 
base treatment of those costs, they are depreciated over the life of 
Columbia Gas' system.\70\ The Commission requested comments on whether 
pipelines should also be allowed to use accelerated amortization 
methodologies, akin to that approved by the Commission for hurricane 
repair cost trackers,\71\ to recover the costs of any facilities 
installed pursuant to a modernization cost recovery mechanism. The 
Commission stated that under such a methodology the costs would not be 
included in the pipeline's rate base, and the pipeline would not 
recover any return on equity with respect to the costs financed by 
equity. Instead, the pipeline would only be allowed to recover the 
interest necessary to compensate it for the time value of money.
---------------------------------------------------------------------------

    \70\ Columbia Gas, 142 FERC ] 61,062 at P 9.
    \71\ See, e.g., Sea Robin Pipeline Co., LLC, Opinion No. 516, 
137 FERC ] 61,201, at PP 16-65 (2011), reh'g den, Opinion No. 516-A, 
143 FERC ] 61,129 at PP 17-80.
---------------------------------------------------------------------------

a. Comments
    97. The Commission received a range of comments on this issue. 
Wisconsin Electric and Wisconsin Gas support using an accelerated 
amortization of

[[Page 22381]]

costs of facilities installed pursuant to eligible modernization 
projects.\72\ IECA also supports accelerated amortization for safety 
and environmental compliance costs but argues for the amortization to 
be set at a rate that would require the pipeline to come back for a 
rate case in five years.\73\ NGSA argues that accelerated amortization, 
with carrying costs, over a specified term, is the most appropriate 
rate design structure for recovering all approved costs under a 
tracker, with the length of any amortization period determined on a 
case-by-case basis, dependent upon the level of costs.\74\ NGSA argues 
that it is not appropriate for the pipeline to earn a rate of return 
and taxes on these types of tracked expenditures because these would be 
incremental costs, with guaranteed cost recovery (i.e., no risk on the 
pipeline) under the tracker.\75\
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    \72\ Wisconsin Electric and Wisconsin Gas Comments at 14.
    \73\ IECA Comments at 21.
    \74\ NGSA Comments at 12-13, 24.
    \75\ NGSA Comments at 24.
---------------------------------------------------------------------------

    98. NCUC opposes the proposal on the grounds that the accelerated 
amortization allowed for storm damage repair costs would be 
inappropriate for modernization costs, because accelerated amortization 
would raise intergenerational cross--subsidization issues and could 
magnify rate shock. Similarly, Laclede opposes recovery of capital 
costs through accelerated amortization methodologies, and argues that 
any costs not recovered through tracker rates should be rolled into 
rate base.\76\
---------------------------------------------------------------------------

    \76\ Laclede Comments at 20. See also PGC Comments at 19-20 (PGC 
opposes accelerated amortization for modernization upgrades, 
contending that it will only give pipelines additional latitude to 
increase their profits.).
---------------------------------------------------------------------------

    99. CAPP recommends that the consultative process by which 
individual pipelines formulate their respective proposals include the 
opportunity for stakeholders to evaluate the preferred accelerated 
amortization methodology.\77\ Calpine also does not object to allowing 
pipelines and their shippers to consider accelerated amortization 
methodologies as part of their modernization surcharge 
negotiations.\78\ Columbia Gas states the Commission should consider 
permitting pipelines to use accelerated amortization methodologies but 
allow pipelines and their customers the discretion to negotiate the 
appropriate method of amortization, which should include the 
possibility of earning a reasonable return.\79\ INGAA requests that the 
Commission provide each pipeline that proposes a modernization cost 
tracker the ability to propose either accelerated amortization 
methodologies or depreciation over the life of the facilities, because 
each pipeline faces different competitive circumstances.\80\
---------------------------------------------------------------------------

    \77\ CAPP Comments at 9. See also KCC Comments at 24, 27 (KCC 
does not oppose extension of the use of accelerated amortization 
methodologies for recovering approved costs under a modernization 
cost tracker if the costs subject to accelerated amortization are 
not included in rate base, and a pipeline is not able to recover any 
return on equity for costs financed by equity).
    \78\ Calpine Comments at 30.
    \79\ Columbia Gas Comments at 34. See also APGA comments at 22 
(to the extent the Commission permits pipelines to implement the 
modernization cost tracker, customers of the requesting pipeline 
should make the decision as to whether rate base treatment or some 
sort of reasonable amortization period works best for them under the 
circumstances).
    \80\ INGAA Comments at 19-20.
---------------------------------------------------------------------------

b. Determination
    100. The Commission agrees with the commenters who suggested that 
pipelines should be allowed to negotiate with their customers 
concerning whether modernization costs should be treated as (1) a rate 
base item to be depreciated over the life of the pipeline with the 
pipeline recovering a return on equity on the portion of those costs 
financed by equity together with associated income taxes or (2) a non-
rate base item to be amortized over a shorter period with the pipeline 
recovering the interest necessary to compensate it for the time value 
of money but no return on equity or associated income taxes. These two 
cost recovery options have varying advantages and disadvantages. For 
example, rate base treatment is likely to lead to a lower per unit 
daily or monthly surcharge, because it spreads the pipeline's recovery 
of the costs over a substantially longer period. Such lower per unit 
rates should help mitigate any rate shock. However, over the long run, 
rate base treatment is likely to be more expensive for shippers, 
because the surcharge will be in effect for a longer period and the 
return on the equity portion of the rate base will be greater than the 
interest rate on the costs being amortized.\81\ In light of these 
varying advantages and disadvantages, the Commission will permit 
pipelines and their shippers to negotiate which recovery method is 
appropriate for each pipeline, based upon the circumstances of its 
system.
---------------------------------------------------------------------------

    \81\ See Opinion No. 516-A, 143 FERC ] 61,129 at PP 35-56.
---------------------------------------------------------------------------

2. Reservation Charge Crediting
    101. The Commission requires pipelines to provide full reservation 
charge credits for outages of primary firm service caused by non-force 
majeure events, where the outage occurred due to circumstances within 
the pipeline's control, including planned or scheduled maintenance.\82\ 
The Commission also requires the pipeline to provide partial 
reservation charge credits during force majeure outages, so as to share 
the risk of an event for which neither party is responsible.\83\ 
Partial credits may be provided pursuant to: (1) The No-Profit method 
under which the pipeline gives credits equal to its return on equity 
and income taxes starting on Day 1; or (2) the Safe Harbor method under 
which the pipeline provides full credits after a short grace period 
when no credit is due (i.e., 10 days or less).\84\ The Commission 
permits pipelines to reflect the recurring cost of providing 
reservation charge credits during non-force majeure events in their 
rates.\85\
---------------------------------------------------------------------------

    \82\ See, e.g., Tennessee Gas Pipeline Co., Opinion No. 406, 76 
FERC ] 61,022 (1996), order on reh'g, Opinion No. 406-A, 80 FERC ] 
61,070 (1997), as clarified by, Rockies Express Pipeline LLC, 116 
FERC ] 61,272, at P 63 (2006) (Rockies Express I), and North Baja 
Pipeline, LLC, 109 FERC ] 61,159 (2004), reh'g denied, 111 FERC ] 
61,101 (2005), aff'd, North Baja Pipeline, LLC v. FERC, 483 F.3d 819 
(D.C. Cir. 2007) (North Baja v. FERC).
    \83\ The Commission has defined force majeure outages as events 
that are both unexpected and uncontrollable. Opinion No. 406, 76 
FERC at 61,088. North Baja v. FERC, 483 F.3d at 823.
    \84\ The Commission has also stated that pipelines may use some 
other method that achieves equitable sharing reasonably equivalent 
to the two specified methods.
    \85\ See, e.g., Northern Natural Gas Co., 137 FERC ] 61,202, at 
P 36 (2011), order on reh'g and compliance, 141 FERC ] 61,221, at PP 
45-50 (2012) (Northern). The Commission has stated this could be 
accomplished by a reduction in the billing determinants used to 
design a pipeline's rates or by including the cost of the full 
reservation charge credits as an item in the pipeline's cost of 
service. Gulf South Pipeline Co., LP, 144 FERC ] 61,215, at P 34 
(2013) (Gulf South).
---------------------------------------------------------------------------

    102. In the Proposed Policy Statement, the Commission stated that 
the pipelines' performance of facility upgrades and replacements 
required by recent legislative and other actions to address pipeline 
efficiency, safety, and environmental concerns may result in disruption 
of primary firm service. The Commission also cited recent Commission 
orders clarifying that one-time outages of primary firm service, if 
necessary to comply with government orders, may be treated as force 
majeure outages, for which only partial reservation charge credits are 
required.\86\ The Commission requested comments on whether it should 
make any adjustments to its current reservation charge crediting policy 
in light of the Proposed Policy Statement.\87\
---------------------------------------------------------------------------

    \86\ See, e.g., TransColorado Gas Transmission Co. LLC, 144 FERC 
] 61,175 (2013) (TransColorado); Gulf South, 144 FERC ] 61,215.
    \87\ Proposed Policy Statement at P 34.

---------------------------------------------------------------------------

[[Page 22382]]

a. Comments
    103. The pipeline industry generally advocated that the Commission 
modify its policy requiring pipelines to pay reservation charge credits 
starting on Day One for disruption of primary firm service required by 
either voluntary or mandatory system improvements eligible for 
surcharge cost recovery. They contend that the pipeline modernization 
programs under consideration are not representative of pipeline 
mismanagement and are significantly different than conducting routine 
maintenance,\88\ and thus the Commission should not impose any 
reservation charge crediting requirement or at least treat any 
resulting outages as force majeure events requiring only partial 
reservation charge credits. INGAA also argued that the Commission 
should explicitly provide that costs to comply with other statutory and 
regulatory requirements, such as hydrostatic testing to confirm maximum 
pressure levels, are not subject to reservation charge credits.\89\ 
INGAA also argues, however, that to the extent that a pipeline must pay 
reservation charge credits for a service outage required by a system 
improvement eligible for surcharge cost recovery, it should be 
permitted to recover such crediting costs through the modernization 
cost recovery tracker.\90\ Columbia Gas urges the Commission to extend 
its policy of granting partial reservation charge credits to outages 
due to construction of eligible modernization projects.\91\
---------------------------------------------------------------------------

    \88\ INGAA Comments at 15-18.
    \89\ INGAA Comments at 18.
    \90\ INGAA Comments at 18-19. KM Comments at 8 (agreeing with 
INGAA that reservation charge crediting not apply for interruptions 
of firm service when pipelines are performing either voluntary or 
mandatory maintenance to improve safe and efficient operations.).
    \91\ Columbia Gas Comments at 36. Boardwalk suggests the 
Commission should modify its current reservation charge crediting 
policy to allow for a more equitable balancing of the risks between 
pipelines and their customers for service disruptions caused by 
testing, repair or replacement activities taken to comply with the 
new PHMSA rules. (Boardwalk Comments at 24.).
---------------------------------------------------------------------------

    104. Shippers and various state commissions encourage the 
Commission to require pipelines with modernization cost trackers to 
provide full reservation charge credits during periods that the 
pipeline must interrupt primary firm service to replace or install 
eligible facilities under the provisions of the modernization 
tracker.\92\ NCUC states that full reservation charge credits will 
provide pipelines a stronger incentive to schedule any necessary 
construction or modification of facilities required to comply with any 
new regulations in an efficient manner.\93\ Likewise, while PGC, APGA, 
IPAA, and NGSA oppose the implementation of modernization cost 
trackers, they request that to the extent the Commission chooses to 
allow their implementation, it modify its reservation charge crediting 
policy to require pipelines with modernization cost trackers to provide 
full reservation charge credits to firm customers during any period 
that the pipeline must interrupt primary firm service to replace or 
install eligible facilities.\94\
---------------------------------------------------------------------------

    \92\ Michigan PSC Comments at 20. IECA and American Midstream do 
not support changes to the existing reservation charge credits. IECA 
Comments at 21; American Midstream Comments at 8.
    \93\ NCUC Comments at 34.
    \94\ PGC Comments at 20, APGA Comments at 22, IPAA Comments at 
3, 26-27, NGSA Comments at 13, 25.
---------------------------------------------------------------------------

b. Determination
    105. The Commission's current reservation charge crediting policies 
require pipelines to provide some level of reservation charge credits 
whenever the pipeline is unable to schedule reserved primary firm 
service because of a government action. The level of credits to be 
provided turns on whether the government action is considered a force 
majeure event.\95\
---------------------------------------------------------------------------

    \95\ Tennessee Gas Pipeline Co., L.L.C., 139 FERC ] 61,050, at 
PP 80-82 (2012). Texas Eastern Transmission, LP, 149 FERC ] 61,143, 
at PP 121-123 (2014).
---------------------------------------------------------------------------

    106. The Commission has defined force majeure outages as events 
that are both ``unexpected and uncontrollable.'' In TransColorado \96\ 
and Gulf South,\97\ the Commission clarified the basic distinction as 
to whether outages resulting from governmental actions are force 
majeure or non-force majeure events. The Commission found that outages 
necessitated by compliance with government standards concerning the 
regular, periodic maintenance activities a pipeline must perform in the 
ordinary course of business to ensure the safe operation of the 
pipeline, including PHMSA's integrity management regulations, are non-
force majeure events requiring full reservation credits. Outages 
resulting from one-time, non-recurring government requirements, 
including special, one-time testing requirements after a pipeline 
failure, are force majeure events requiring only partial crediting.
---------------------------------------------------------------------------

    \96\ TransColorado, 144 FERC ] 61,175 at PP 35-43.
    \97\ Gulf South, 144 FERC ] 61,215 at PP 31-34.
---------------------------------------------------------------------------

    107. In Gulf South, the Commission explained that this distinction 
is reasonable for two reasons. First, the pipeline is likely to have 
greater discretion as to when it performs regular, periodic maintenance 
on particular pipeline segments than when the government orders special 
one-time testing, for example after a pipeline failure. Thus, regular, 
periodic maintenance required by government regulation may be 
considered reasonably within the control of the pipeline and expected, 
in contrast to one-time, non-recurring government requirements, which 
the pipeline may have to implement within a short timeframe. Second, 
the recurring costs of regular, periodic maintenance performed in the 
ordinary course of business may be included in a pipeline's rates in a 
general NGA section 4 rate case, whereas one-time, non-recurring costs 
are generally not eligible for inclusion in a pipeline's rates in a 
section 4 rate case. The Commission explained that because the full 
crediting policy is premised on the ability of the pipeline to recover 
the costs associated with that policy through its rates, it follows 
that eligibility for such cost recovery is an important factor in 
distinguishing between the types of government testing and maintenance 
requirements that trigger the full crediting requirement and those that 
only trigger a partial crediting requirement.\98\ Thus, under 
TransColorado and Gulf South, outages resulting from one-time non-
recurring government requirements that (1) are not part of the 
pipeline's routine, periodic maintenance programs and (2) provide the 
pipeline little discretion as to when the outage occurs, qualify as 
force majeure events.
---------------------------------------------------------------------------

    \98\ Texas Eastern, 149 FERC ] 61,143 at P 123.
---------------------------------------------------------------------------

    108. Against this background, we recognize that facility upgrade 
and replacement projects whose costs would be eligible for recovery 
under a modernization tracker do not lend themselves easily to the 
governmental action force majeure/non-force majeure distinction 
described above. On the one hand, such projects do not constitute 
routine periodic maintenance of the type for which the Commission 
requires full reservation charge credits; in fact, the Commission has 
held that such routine maintenance costs are not eligible for inclusion 
in a modernization cost tracker. Moreover, because each project 
constitutes a one-time, non-recurring event, any reservation charge 
credits provided by the pipeline would not be a recurring cost eligible 
for recovery in a pipeline's NGA section 4 general rate case. On the 
other hand, pipelines will likely have considerable discretion as to 
the timing of when they perform each project, with projects likely to 
be scheduled and performed

[[Page 22383]]

over a multi-year period. Therefore, the projects are not unexpected in 
the sense ordinarily required for treatment as a force majeure event.
    109. In these circumstances, the Commission believes the issue of 
reservation charge credits for projects included in a modernization 
cost tracker is best addressed, at least initially, on a case-by-case 
basis in each proceeding in which a pipeline proposes such a tracker. 
In its filing to establish a tracker, the pipeline should state the 
extent to which it anticipates that any particular project will disrupt 
primary firm service, explain why it expects it will not be able to 
continue to provide firm service, and describe what arrangements the 
pipeline intends to make to mitigate the disruption or provide 
alternative methods of providing service. To the extent a pipeline 
incurs costs to make temporary alternative arrangements to provide 
service while a project is under construction, such as through 
temporary line bypasses or natural gas tankers, such costs may be 
considered for inclusion in the tracker. However, if a modernization 
project unavoidably causes an outage of primary firm service, the 
Commission believes that pipelines should provide some relief from the 
payment of reservation charge to shippers directly affected by that 
outage. To the extent the pipeline provides such shippers full 
reservation charge credits, the Commission would consider proposals for 
the pipeline to recover such costs through the tracker, consistent with 
the Commission's policy that pipelines may recover the costs of full 
reservation charge credits in rates. Alternatively, the Commission 
would consider partial reservation charge crediting methods tailored to 
the circumstances of the projects included in the tracker.
3. Other Issues
    110. The Commission sought comments on any other issues or factors 
interested parties though the Commission should consider for inclusion 
in the Policy Statement as a prerequisite for approving a modernization 
cost recovery mechanism.\99\ The Commission received comments on a 
variety of proposals on additional items to include in the Policy 
Statement, including return on equity, and formula rates.
---------------------------------------------------------------------------

    \99\ Because the Policy Statement would address issues 
pertaining to the Commission's review of natural gas rate filings, 
the statement is categorically excluded from the requirements of the 
National Environmental Policy Act (NEPA), thus neither an 
environmental assessment nor an environmental impact statement is 
required. See 18 CFR 380.4(a)(25) (2014).
---------------------------------------------------------------------------

a. Return on Equity
    111. EPMCG, MDG, APGA and the NYPSC argue that if the portion of 
capital investment subject to a tracker is significant to the 
pipeline's rate base, then the Commission should adjust downward the 
pipeline's allowed rate of return on equity to reflect the decreased 
risk that the pipeline has to recover its cost of investment given the 
existence of a tracker.\100\ IPAA and NGSA also argue that the plant 
facilities to be constructed pursuant to the proposed modernization 
surcharge should not be eligible to earn a rate of return and taxes, 
because these facilities are not included in a pipeline's rate base 
through an NGA general section 4 rate filing.\101\
---------------------------------------------------------------------------

    \100\ EPMCG Comments at 43, APGA Comments at 22-23, and MDG 
Comments at P 2, NYPSC Comments at P 1-3.
    \101\ IPAA Comments at 3, 26, NGSA Comments at 13.
---------------------------------------------------------------------------

    112. The Commission will not mandate an automatic ROE reduction for 
pipelines that have a modernization surcharge or tracker. We do agree, 
however, that a modernization tracker or surcharge could be a factor 
that is considered as to the appropriate level of a pipeline's ROE. We 
agree that considerations of return on equity reduction may be 
considered during shipper and pipeline negotiations.
b. Formula Rates
    113. APGA argues that, if the Commission wants a tracker mechanism 
that ensures just and reasonable rates, it must apply to the pipeline's 
entire cost of service, similar to the transmission formula rates that 
the Commission has approved for electric utilities under the Federal 
Power Act.\102\ APGA states that the advantage of such formula rates, 
most of which allow projected capital additions to be included in a 
given year's formula rate and are trued up for actuals, are that the 
electric utilities are assured timely recovery of capital outlays and 
customers are assured that rates are premised on full and updated cost-
of-service data, including throughput, so that the over-recovery 
problem associated with tracker mechanisms applicable to only a portion 
of the pipeline's cost of service is obviated.
---------------------------------------------------------------------------

    \102\ APGA Comments at 11-12.
---------------------------------------------------------------------------

    114. The Commission will not adopt APGA's proposal. In the instant 
proceeding the Commission is adopting a policy permitting pipelines to 
recover a limited category of one-time costs through a tracker 
mechanism, namely the costs of making needed upgrades for the safe and 
efficient operation of the pipeline. For the reasons discussed above, 
the Commission can permit this limited exception to our general policy 
of requiring pipelines to design their rates based on projected units 
of service, without undercutting the benefits of that policy of 
providing pipeline an incentive to minimize costs and maximize the 
service they provide. APGA's proposal to require pipelines to track all 
changes in their cost of service, on the other hand, would eliminate 
both those incentives.
c. Transparency
    115. Wisconsin Electric and Wisconsin Gas propose that the 
Commission include additional transparency measures to require 
pipelines to identify and track all costs associated with each project 
or project phase and file a quarterly summary report detailing the 
progress and completion of the projects included in the tracker. In 
addition, Wisconsin Electric and Wisconsin Gas state existing service 
customers should have the right to validate the premise and the 
projected results of a pipeline's modernization and to audit costs. 
Finally, Wisconsin Electric and Wisconsin Gas submit that the pipeline 
should be required to quantify current costs that are reduced or 
avoided as a result of the and net those costs out of the total 
eligible cost.\103\
---------------------------------------------------------------------------

    \103\ Wisconsin Electric and Wisconsin Gas Comments at 15.
---------------------------------------------------------------------------

    116. The Commission will not adopt a policy requiring pipelines to 
submit reports on its projects based on any particular schedule, or 
specify the content of those reports in this Policy Statement. These 
are issues that should be addressed in the individual proceedings where 
each pipeline proposes a modernization cost tracker. Likewise, the 
validation and quantification of costs and projects may be negotiated. 
Nevertheless, a pipeline's compliance with its tariff to implement a 
modernization cost tracker may be subject to scrutiny through a 
Commission audit.
d. Proposed Certificate Policy Modifications
    117. Columbia Gas proposes that the Commission undertake a review 
and implement a ``fast track'' processing for NGA 7(c) projects that 
involve replacement of older vintage pipelines, like bare steel 
replacement, or involve an important public safety aspect.\104\ 
Columbia Gas also comments that not all pipeline facilities are 
appropriate for

[[Page 22384]]

replacement or upgrade because some facilities may have reached or are 
close to the end of their useful life. Therefore, Columbia states a 
full replacement of certain facilities may be cost prohibitive, even 
with a tracker, because shippers on the facilities are unwilling or 
unable to support the costs of the replacement.\105\ Similarly, 
Boardwalk states abandonment of facilities that will no longer be 
economic to operate because of substantial costs necessary to modify 
the facilities in order to achieve compliance with new requirements may 
be the best option and in the public interest.\106\
---------------------------------------------------------------------------

    \104\ Columbia Gas Comments at 37.
    \105\ Columbia Gas Comments at 21.
    \106\ Boardwalk Comments at 18-19.
---------------------------------------------------------------------------

    118. Columbia Gas' and Boardwalk's proposals are beyond the scope 
of this Policy Statement, and thus we will not address them here.

III. Information Collection Statement

    119. The collection of information discussed in the Policy 
Statement is being submitted to the Office of Management and Budget 
(OMB) for review under section 3507(d) of the Paperwork Reduction Act 
of 1995 \107\ and OMB's implementing regulations.\108\ OMB must approve 
information collection requirements imposed by agency rules.
---------------------------------------------------------------------------

    \107\ 44 U.S.C. 3507(d) (2012).
    \108\ 5 CFR part 1320.
---------------------------------------------------------------------------

    120. The Commission solicits comments from the public on the 
Commission's need for this information, whether the information will 
have practical utility, the accuracy of the burden estimates, 
recommendations to enhance the quality, utility, and clarity of the 
information to be collected, and any suggested methods for minimizing 
respondents' burden, including the use of automated information 
techniques. The burden estimates are for implementing the information 
collection requirements of this Policy Statement. The Commission asks 
that any revised burden estimates submitted by commenters include the 
details and assumptions used to generate the estimates.
    121. The collection of information related to this Policy Statement 
falls under FERC-545A (Gas Pipeline Rates: Rate Change (Non-Formal), 
Modernization Tracker).\109\ The following estimate of reporting burden 
is related only to this Policy Statement.
---------------------------------------------------------------------------

    \109\ The information collection requirements in this Policy 
Statement would normally be included in FERC-545 (OMB Control No. 
1902-0154) which covers rate change filings made by natural gas 
pipelines, including tariff changes. However, another item is 
pending OMB review under FERC-545, and only one item per OMB Control 
Number can be pending review at OMB at a time. Therefor in order to 
submit this timely to OMB, we are using a temporary collection 
number (FERC-545A) to cover the requirements implemented in PL15-1-
000.
---------------------------------------------------------------------------

    122. Public Reporting Burden: The estimated annual burden and cost 
follow.

                                               FERC-545A, as Implemented in Policy Statement in PL15-1-000
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Number of         Number of      Average burden                       Total annual
                                                                   respondents      responses per       hours per       Total annual     cost ($) \111\
                                                                      \110\          respondent         response        burden hours        (rounded)
                                                                             (1)               (2)               (3)   (1) x (2) x (3)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Provide information to shippers for any surcharge proposal,                    3                 1               750             2,250         $147, 578
 and prepare modernization cost tracker filing \112\..........
Perform periodic review and provide information to show that                   3        \113\ 0.60               350               630            42,235
 both base rates and the surcharge amount remain just and
 reasonable...................................................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    123. Title: FERC-545A (Gas Pipeline Rates: Rate Change (Non-
Formal), Modernization Tracker).
---------------------------------------------------------------------------

    \110\ An estimated 165 natural gas pipelines (Part 284 program) 
may be affected by this Policy Statement. Of the 165 pipelines, 
Commission staff estimates that 3 pipelines may choose to submit an 
application for a modernization cost tracker per year.
    \111\ The most recent hourly wage figures are published by the 
Bureau of Labor Statistics, U.S. Department of Labor, National 
Occupational Employment and Wage Estimates, United States, 
Occupation Profiles, May 2014 (available 4/1/2015) at http://www.bls.gov/oes/home.htm, and the benefits are calculated using BLS 
information, at http://www.bls.gov/news.release/ecec.nr0.htm.
    The average hourly cost (salary plus benefits) to prepare the 
modernization cost tracker filing is $65.59. It is the average of 
the following hourly costs (salary plus benefits): Manager ($77.93, 
NAICS 11-0000), Computer and mathematical ($58.17, NAICS 15-0000), 
Legal ($129.68, NAICS 23-0000), Office and administrative support 
($39.12, NAICS 43-0000), Accountant and auditor ($51.04, NAICS 13-
2011), Information and record clerk ($37.45, NAICS 43-4199), 
Engineer ($66.74, NAICS 17-2199), Transportation, Storage, and 
Distribution Manager ($64.55, NAICS 11-3071).
    The average hourly cost (salary plus benefits) to perform the 
periodic review is $67.04. It is the average of the following hourly 
costs (salary plus benefits): Manager ($77.93, NAICS 11-0000), Legal 
($129.68, NAICS 23-0000), Office and administrative support ($39.12, 
NAICS 43-0000), Accountant and auditor ($51.04, NAICS 13-2011), 
Information and record clerk ($37.45, NAICS 43-4199).
    \112\ The pipeline's modernization cost tracker filing is 
expected to include information to:
    <bullet> Demonstrate that its current rates are just and 
reasonable and that proposal includes the types of benefits that the 
Commission found maintained the pipeline's incentives for innovation 
and efficiency;
    <bullet> identify each capital investment to be recovered by the 
surcharge, the facilities to be upgraded or installed by those 
projects, and an upper limit on the capital costs related to each 
project to be included in the surcharge, and schedule for completing 
the projects;
    <bullet> establish accounting controls and procedures that it 
will utilize to ensure that only identified eligible costs are 
included in the tracker;
    <bullet> include method for periodic review of whether the 
surcharge and the pipeline's base rates remain just and reasonable; 
and
    <bullet> state the extent to which any particular project will 
disrupt primary firm service, explain why it expects it will not be 
able to continue to provide firm service, and describe what 
arrangements the pipeline intends to make to mitigate the disruption 
or provide alternative methods of providing service.
    \113\ Based on the Columbia case, we estimate that a review may 
be required every 5 years, triggering the first pipeline reviews to 
be done in Year 6 (for the pipelines which applied and received 
approval in Year 1).
---------------------------------------------------------------------------

    124. Action: Proposed information collection.
    125. OMB Control No.: To be determined.
    126. Respondents: Business or other for profit enterprise (Natural 
Gas Pipelines).
    127. Frequency of Responses: Ongoing.
    128. Necessity of Information: The Commission is establishing a 
policy to allow interstate natural gas pipelines to seek to recover 
certain capital expenditures made to modernize system infrastructure 
through a surcharge mechanism, subject to certain conditions. The 
information that the pipeline should share with its shippers and submit 
to the Commission is intended to ensure that the resulting

[[Page 22385]]

rates are just and reasonable and protect natural gas consumers from 
excessive costs
    129. Internal Review: The Commission has reviewed the guidance in 
the Policy Statement and has determined that the information is 
necessary. These requirements conform to the Commission's plan for 
efficient information collection, communication, and management within 
the natural gas pipeline industry. The Commission has assured itself, 
by means of its internal review, that there is specific, objective 
support for the burden estimates associated with the information 
requirements.
    130. Interested persons may obtain information on the reporting 
requirements by contacting the following: Federal Energy Regulatory 
Commission, 888 First Street NE., Washington, DC 20426 [Attention: 
Ellen Brown, Office of the Executive Director, email: 
<a href="/cdn-cgi/l/email-protection#98dcf9ecf9dbf4fdf9eaf9f6fbfdd8fefdeafbb6fff7ee"><span class="__cf_email__" data-cfemail="c88ca9bca98ba4ada9baa9a6abad88aeadbaabe6afa7be">[email protected]</span></a>, phone: (202) 502-8663, fax: (202) 273-0873].
    131. Comments concerning the collection of information and the 
associated burden estimate should be sent the Commission by June 22, 
2015.

IV. Document Availability

    132. 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/or 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 NE., Room 2A, Washington, DC 
20426.
    133. From FERC's Home Page on the Internet, this information is 
available on eLibrary. The full text of this document is available on 
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or 
downloading. To access this document in eLibrary, type the docket 
number excluding the last three digits of this document in the docket 
number field.
    134. User assistance is available for eLibrary and the FERC's Web 
site during normal business hours from FERC Online Support at (202) 
502-6652 (toll free at 1-866-208-3676) or email at 
<a href="/cdn-cgi/l/email-protection#ec8a899e8f8382808582899f999c9c839e98ac8a899e8fc28b839a"><span class="__cf_email__" data-cfemail="6f090a1d0c00010306010a1c1a1f1f001d1b2f090a1d0c41080019">[email protected]</span></a>, or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at 
<a href="/cdn-cgi/l/email-protection#deaeabbcb2b7bdf0acbbb8bbacbbb0bdbbacb1b1b39eb8bbacbdf0b9b1a8"><span class="__cf_email__" data-cfemail="80f0f5e2ece9e3aef2e5e6e5f2e5eee3e5f2efefedc0e6e5f2e3aee7eff6">[email protected]</span></a>.

V. Effective Date and Congressional Notification

    135. This Policy Statement will become effective October 1, 2015.
    The Commission orders:
    The Commission adopts the Policy Statement and supporting analysis 
contained in the body of this order.

    By the Commission.

    Issued: April 16, 2015.
Nathaniel J. Davis, Sr.,
Deputy Secretary.

    Note: The following appendix will not appear in the Code of 
Federal Regulations.

Appendix--List of Commenters

American Forest & Paper Association
American Gas Association
American Midstream, LLC
American Public Gas Association
Beatrice Gahman
Berkshire Hathaway Energy Company
Boardwalk Pipeline Partners, LP
Calpine Corporation
Canadian Association of Petroleum Producers
CenterPoint Energy Resources Corp.
Clean Air Task Force
Columbia Gas Transmission, LLC
Deep Gulf Energy LP
El Paso Municipal Customer Group
Elizabeth Balogh
Energy XXI Ltd.
Environmental Defense Fund, Conservation Law Foundation and the 
Sustainable FERC Project
Ernest J. Moniz, Secretary. United States Department of Energy
Fairfax Hutter
Helis Oil and Gas Company, L.L.C.
Independent Oil & Gas Association of West Virginia, Inc.
Independent Petroleum Association of America
Indicated Shippers
Industrial Energy Consumers of America
Interstate Natural Gas Association of America
Kansas Corporation Commission
Karen Feridum
Kinder Morgan Interstate Pipelines
Laura Pritchard
Michigan Public Service Commission
Missouri Public Service Commission
Municipal Defense Group
Natural Gas Supply Association
New York Public Service Commission
Norman W. Torkelson
North Carolina Utilities Commission
Patriots Energy Group
Pipeline Safety Coalition
Process Gas Consumers Group and the American Forest & Paper 
Association
Secretary of Energy
Southern Company Services
Southern Star Central Gas Pipeline, Inc.
Tenneesse Valley Authority
Teresa Ecker
The Laclede Group, Inc.
U.S. Department of Energy
U.S. Department of Transportation, Pipeline and Hazardous Materials 
Safety Administration
WBI Energy Transmission, Inc.
Western Tennessee Municipal Group
Wisconsin Electric Power Company and Wisconsin Gas LLC
Xcel Energy Companies

[FR Doc. 2015-09226 Filed 4-21-15; 8:45 am]
BILLING CODE 6717-01-P


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