20072 Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations

1Standards For Business Practices Of Interstate

Natural Gas Pipelines, Order No. 587, 61 FR 39053

(Jul. 26, 1996), III FERC Stats. & Regs. Regulations

miles either side of the 196° bearing from the

Mount Carmel Municipal Airport, extending

from the 6.5-mile radius to 7.4 miles south

of the airport, and within 6.4 miles either

side of the 208° bearing from the Mount

Carmel NDB, extending from the 6.5-mile

radius to 7.0 miles southwest of the NDB.

* * * * *

Issued in Des Plaines, Illinois on April 10,

1998.

Maureen Woods,

Manager, Air Traffic Division.

[FR Doc. 98–10801 Filed 4–22–98; 8:45 am]

BILLING CODE 4910–13–M

DEPARTMENT OF ENERGY

Federal Energy Regulatory

Commission

18 CFR Part 284

[Docket No. RM96–1–007; Order No.

587–G]

Standards for Business Practices of

Interstate Natural Gas Pipelines

April 16, 1998.

AGENCY: Federal Energy Regulatory

Commission.

ACTION: Final rule.

SUMMARY: The Federal Energy

Regulatory Commission (Commission) is

amending § 284.10 of its regulations

governing standards for conducting

business practices and electronic

communication with interstate natural

gas pipelines. The Commission is

incorporating by reference, in

§ 284.10(b), the most recent version

(Version 1.2) of standards promulgated

by the Gas Industry Standards Board

(GISB). The Commission also is

adopting, in new § 284.10(c),

regulations, not developed by GISB,

governing intra-day nominations,

operational balancing agreements

(OBAs), netting and trading of

imbalances, standardization of

communications over the public

Internet, and notices of operational flow

orders. These business practices and

communication standards supplement

standards adopted by the Commission

in Order Nos. 587, 587–B, and 587–C.

61 FR 39053 (Jul. 26, 1996) 62 FR 5521

(Feb. 6, 1997), 62 FR 10684 (Mar. 10,

1997).

DATES: Effective May 26, 1998. On

August 1, 1998 pipelines must

implement § 284.10(b), which

incorporates by reference Version 1.2 of

the GISB standards, and the regulations,

in §§ 284.10(c)(3)(ii) through (v),

relating to the standards for information

posted on pipeline web sites, the

content of information provided

electronically, the use of numeric

designations, and retention of electronic

information.

The implementation date for the

regulations regarding intra-day

nominations, § 284.10(c)(1)(i),

operational balancing agreements,

§ 284.10(c)(2)(i), trading of imbalances,

§ 284.10(c)(2), and Internet notification

of critical notices, § 284.10(c)(3)(vi), will

be established when the Commission

adopts standards relating to these

activities.

ADDRESSES: Federal Energy Regulatory

Commission, 888 First Street, N.E.,

Washington DC, 20426.

FOR FURTHER INFORMATION CONTACT:

Michael Goldenberg, Office of the

General Counsel, Federal Energy

Regulatory Commission, 888 First

Street, NE., Washington, DC 20426,

(202) 208–2294

Marvin Rosenberg, Office of Economic

Policy, Federal Energy Regulatory

Commission, 888 First Street, N.E.,

Washington, DC 20426, (202) 208–

1283

Kay Morice, Office of Pipeline

Regulation, Federal Energy Regulatory

Commission, 888 First Street, N.E.,

Washington, DC 20426, (202) 208–

0507

SUPPLEMENTARY INFORMATION: In

addition to publishing the full text of

this document in the Federal Register,

the Commission provides all interested

persons an opportunity to inspect or

copy the contents of this document

during normal business hours in Room

2A, 888 First Street, N.E., Washington

D.C. 20426. The complete text on

diskette in WordPerfect format may be

purchased from the Commission’s copy

contractor, La Dorn Systems

Corporation. La Dorn Systems

Corporation is located in the Public

Reference Room at 888 First Street, N.E.,

Washington, D.C. 20426.

The Commission Issuance Posting

System (CIPS), an electronic bulletin

board service, also provides access to

the texts of formal documents issued by

the Commission. CIPS is available at no

charge to the user. CIPS can be accessed

over the Internet by pointing your

browser to the URL address: http://

www.ferc.fed.us. Select the link to CIPS.

The full text of this document can be

obtained in ASCII or WordPerfect

format. CIPS also may be accessed using

a personal computer with a modem by

dialing 202–208–1397 if dialing locally

or 1–800–856–3920 if dialing long

distance. To access CIPS, set your

communications software to 19200,

14400, 12000, 9600, 7200, 4800, 2400,

or 1200 bps, full duplex, no parity, 8

data bits and 1 stop bit. The full text of

this order will be available on CIPS in

ASCII and WordPerfect 6.1 format. CIPS

user assistance is available at 202–208–

2474.

Standards for Business Practices of

Interstate Natural Gas Pipelines

TABLE OF CONTENTS

I. Background

II. Discussion

A. Introduction

B. Regulations Adopted by this Rule

1. Version 1.2 of the Standards

2. Regulations Establishing Priority of

Intra-Day Nominations

3. Regulation Requiring Pipelines to Enter

into Operational Balancing Agreements

4. Regulation Requiring Pipelines to Net

Imbalances and Permit Imbalance

Trading

5. Electronic Communication Using the

Internet

C. Issues on which the Commission

Determined Not to Adopt Requested

Regulations

1. Title Transfer Tracking

2. Cross-Contract Ranking

3. Multi-Tiered Allocations

4. Paper Pooling

5. Reimbursement for Compressor Fuel

6. Penalty Determinations

D. Market-Based Rates for Pipeline

Services

E. Implementation Schedule and Schedule

for Submission of Additional Standards

III. Information Collection Statement

IV. Environmental Analysis

V. Regulatory Flexibility Act Certification

VI. Effective Date

Before Commissioners: James J. Hoecker,

Chairman; Vicky A. Bailey, William L.

Massey, Linda Breathitt, and Curt He ̇ert, Jr.

The Federal Energy Regulatory

Commission (Commission) is amending

§ 284.10 of its regulations governing

standards for conducting business

practices and electronic communication

with interstate natural gas pipelines.

The Commission is incorporating by

reference, in § 284.10(b) of its

regulations, the most recent version

(Version 1.2) of standards promulgated

by the Gas Industry Standards Board

(GISB). The Commission also is

adopting regulations, in new § 284.10(c)

of its regulations, governing intra-day

nominations, operational balancing

agreements (OBAs), netting and trading

of imbalances, standardization of

communications over the public

Internet, and notices of operational flow

orders.

I. Background

In Order Nos. 587, 587–B, and 587–

C1 the Commission adopted regulations
Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations 20073

Preambles ¶ 31,038 (Jul. 17, 1996), Order No. 587–

B, 62 FR 5521 (Feb. 6, 1997), III FERC Stats. & Regs.

Regulations Preambles ¶ 31,046 (Jan. 30, 1997),

Order No. 587–C, 62 FR 10684 (Mar. 10, 1997), III

FERC Stats. & Regs. Regulations Preambles ¶ 31,050

(Mar. 4, 1997).

2Standards For Business Practices Of Interstate

Natural Gas Pipelines, Notice of Proposed

Rulemaking, 62 FR 61459 (Nov. 18, 1997), IV FERC

Stats. & Regs. Proposed Regulations ¶ 32,527 (Nov.

12, 1997).

3The commenters, and the abbreviations used in

this order, are listed in the Appendix.

to standardize the business practices

and communication methodologies of

interstate pipelines in order to create a

more integrated and efficient pipeline

grid. In those orders, the Commission

incorporated by reference consensus

standards developed by GISB, a private,

consensus standards developer

composed of members from all segments

of the natural gas industry. The

standards established uniform

requirements for conducting critical

industry business practices—

Nominations, Flowing Gas, Invoicing,

and Capacity Release. The standards

also required pipelines to use the

Internet as the means of conducting

business transactions electronically as

well as for providing customers with

general information.

In Order No. 587–C, however, the

Commission did not adopt standards

approved by GISB concerning intra-day

nominations, operational balancing

agreements, and imbalances. The

Commission found that those standards

did not clearly outline the pipelines’

obligations. The Commission gave GISB

and the industry until September 1,

1997 to propose additional standards in

these areas.

In addition, throughout its

deliberations in 1996, GISB had been

unable to reach consensus on whether

standards are needed in several areas—

title transfer tracking, ranking of gas

packages, treatment of compressor fuel,

operational balancing agreements,

imbalance resolution, operational flow

orders, multi-tiered allocations, and

additional pooling standards. The

Commission staff held a technical

conference on December 12–13, 1996, to

consider these issues.

Subsequently, on September 2, 1997,

GISB filed with the Commission its

latest revisions to the consensus

standards, Version 1.2. It also filed a

report on its progress in attempting to

resolve the issues reserved for further

consideration by Order No. 587–C and

some of the disputed issues considered

at the technical conference.

In the Notice of Proposed Rulemaking

(NOPR) issued on November 12, 1997,2

the Commission proposed to adopt

Version 1.2 of the GISB standards. The

Commission also considered the issues

left unresolved by GISB and proposed

regulations that would require pipelines

to:

• Give firm intra-day nominations

priority over already nominated and

scheduled interruptible transportation

(thus permitting firm shippers to change

their nomination quantities during the

day and bump scheduled interruptible

service);

• Enter into operational balancing

agreements at all pipeline to pipeline

interconnects;

• Permit shippers to offset imbalances

across contracts and trade imbalances

amongst themselves when such

imbalances have similar operational

impact on the pipeline’s systems;

• Post all information and conduct all

business transactions using the public

Internet and internet protocols by June

1, 1999 and comply with other

standards regarding communication

over the Internet.

Comments on the NOPR were due by

December 18, 1997. Fifty-five comments

were filed.3

In addition, in several areas where the

Commission did not propose

regulations, the Commission provided

guidance in the NOPR on its policies to

aid GISB’s development of standards in

these areas. The Commission asked for

comment from GISB and the industry on

the development of standards in these

areas by March 31, 1998. On March 23,

1998, GISB filed with the Commission

a report containing its approved intraday nomination standards and a

progress report on its process for

developing standards in the other areas

discussed in the NOPR.

II. Discussion

A. Introduction

Through GISB’s consensus process,

the gas industry has been able to work

together to pass a set of mutually-agreed

upon standards that have greatly

contributed to providing a more

efficient and reliable transportation and

communication system. In previous

orders, the Commission has recognized

this contribution and incorporated the

GISB standards into the Commission

regulations. But it is only to be expected

that a standards organization composed

of representatives from every facet of the

gas industry would disagree over the

need for standards in certain areas,

particularly when the disputes center on

regulatory policy decisions. Although

some commenters take issue with

aspects of the regulations proposed in

the NOPR, they virtually all support the

Commission’s determination to resolve

the divisive policy disputes that are

impeding GISB’s standards

development efforts.

In this rule, therefore, the

Commission is addressing the disputed

policy issues so that the industry can

move forward and develop the

standards needed to further integrate the

pipeline grid. The Commission is

adopting regulations establishing the

scheduling priority of intra-day

nominations for firm service and

requiring pipelines to enter into

operational balancing agreements

(OBAs) and to permit imbalance trading.

It also is standardizing communications

by requiring that, by June 1, 1999, all

transactions between pipelines and their

customers will be transacted using the

public Internet.

The business practices regulations

adopted here will enable shippers to

move gas more easily across multiple

pipelines. Establishing one rule

governing the priority of intra-day

nominations will permit firm shippers

to coordinate nomination changes

across multiple pipelines without

having a different priority regime on one

pipeline break the nomination chain.

The OBA and imbalance trading

regulations will increase the reliability

of shipments crossing multiple pipeline

by reducing the business and financial

risks of imbalances and the associated

penalties.

The Commission’s requirement that

pipelines conduct all business

transactions over the public Internet

represents the culmination of the

Commission’s efforts to replace the

current individual, and idiosyncratic

electronic bulletin board system of each

pipeline, with a standardized method of

conducting business electronically

across all the pipelines. Although

GISB’s standards have moved much

information and many electronic

transactions to the Internet, those

standards are incomplete and do not

eliminate the need for shippers to use

the individual pipeline electronic

bulletin boards. The adoption of this

regulation will fulfill the original vision

of creating a system in which all

electronic communications and

transactions will take place in a

standardized format.

Creation of a standardized

communication system promises to

markedly increase the efficiency of

transactions. As just one small example,

in the past, shippers would have to logon to each pipeline’s private bulletin

board seriatim to obtain information on

available capacity on the pipeline. With

the use of the Internet, shippers can

now easily use one Internet connection

to go to GISB’s homepage, click on a

pipeline’s hypertext link, obtain the
20074 Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations

4See Order No. 587, 61 FR at 39057, III FERC

Stats. & Regs. Regulations Preambles, at 30,060

(standards development is like a jazz musician who

takes a theme and constantly revises, enhances, and

reworks it).

5See comments by ANR/CIG, Enron, INGAA,

NGPL, NGC, NWIGU, (intra-day standards), Altra

(OBA and imbalance trading), TransCapacity

(imbalance trading), ECT, NGC, NGSA (critical

notices).

6 December 18, 1997 letter from INGAA, AGA,

and NGSA to James J. Hoecker (filed in Docket No.

RM96–1–007).

7Comments by ANR/CIG, Columbia Gas/

Columbia Gulf, Enron, Koch, NGPL, NGSA,

Southern.

8The datasets are essentially a uniform template

that shippers can use to conduct business with

multiple pipelines.

information they want, and then return

and find the information from another

pipeline, without having to log-off or

change computers or programs. Those

shippers using GISB’s standardized

datasets can realize even more

efficiency because they can download

the same information from multiple

pipelines in a standardized format and,

if they choose, directly import that

information into their gas management

systems or other software programs

where the information can be

manipulated to show the available

capacity along a proposed path.

The regulations adopted in this rule

are not the final riff of the

standardization set.4 There is still much

work to be done. With the policy

questions resolved, the Commission is

looking to GISB and the industry to

develop the technical standards needed

to implement these policies in the most

uniform and efficient manner possible.

In addition, in other areas, the

Commission has outlined the need for

the development of additional standards

and is establishing a timetable for

submission of standards in these areas.

Specifically, in this rule, the

Commission is amending § 284.10(b) of

its regulations to incorporate by

reference the most recent version of

GISB’s standards, Version 1.2. Pipelines

must implement the new version on the

first day of the month following 90 days

after the publication of this order in the

Federal Register.

Further, the Commission is

establishing its own business practices

and communications standards in new

§ 284.10(c) of its regulations. The

business practices standards will

require pipelines to:

• Give firm intra-day nominations

priority over already nominated and

scheduled interruptible transportation

service and permit firm intra-day

nominations submitted on the day prior

to gas flow to go into effect at the start

of the gas day;

• Enter into operational balancing

agreements at all interstate and

intrastate pipeline to pipeline

interconnects; and

• Permit shippers to offset imbalance

across contracts and trade imbalances

amongst themselves when such

imbalances have similar operational

impact on the pipeline’s systems.

The electronic communication

standards will require pipelines to:

• Post all information and conduct all

business transactions using the public

Internet and internet protocols by June

1, 1999;

• Adhere to standards governing the

provision of information on pipeline

web sites and retention of electronic

records of transactions;

• Notify shippers of critical events

affecting the system, such as operational

flow orders, by posting the information

on pipeline web sites and by direct

notice either through Internet E-Mail or

notification to the shipper’s Internet

address.

With respect to implementation of the

requirements in § 284.10(c), the

Commission is heeding the commenters

who argue that the Commission should

defer implementation of some of the

regulations until GISB has developed

the associated standards needed to

implement the requirements.5 The

Commission agrees that implementation

of the intra-day nomination, OBA,

imbalance trading, and critical notice

notification regulations would be more

effective if they occurred only once,

after GISB and the industry have the

opportunity to develop appropriate

standards. The Commission, therefore,

will defer implementation of these

regulations to coincide with the

implementation of standards to

implement these regulations.

A consensus of the industry supports

GISB’s Annual Plan for 1998 under

which intra-day standards will be

developed by the first quarter of 1998

and OBA and imbalance trading

standards by the second quarter of

1998.6 GISB has already filed its

completed intra-day standards with the

Commission, and the Commission will

be issuing a NOPR contemporaneous

with this rule proposing to adopt the

intra-day standards. The Commission

will establish a timetable for the filing

of proposed standards for OBA and

imbalance trading that follows the

industry consensus in GISB’s Annual

Plan, with standards in these areas due

by June 30, 1998. Since GISB has not

established a schedule for developing

standards for critical notices, the

Commission is setting a deadline of

December 31, 1998, for submission of

such standards. While some

commenters suggest that

implementation of Internet

communications be delayed to coincide

with GISB’s development of standards,7

the June 1, 1999 deadline already seems

to build in sufficient time for GISB and

the industry to develop the necessary

standards, and the Commission will not

change this date.

In addition, in the November 12, 1997

NOPR, the Commission found no need

to propose regulations in other disputed

areas—title transfer tracking, crosscontract ranking, multi-tiered

allocations, fuel reimbursement, and

penalty calculations. The Commission,

however, did provide guidance on its

policy in these areas to remove obstacles

to the development of standards. The

Commission requested comments from

GISB and the industry by March 31,

1998, proposing standards based on the

Commission guidance with respect to

title transfer tracking and cross-contract

ranking.

A consensus of the industry, as

reflected in the GISB 1998 Annual Plan,

has recommended that due to resource

commitments and the difficulty of

developing standards for title transfer

tracking and cross-contract ranking, the

schedule for development of final

standards in these areas should be

postponed until the fourth quarter of

1998. The Commission will accept the

industry consensus and delay the

deadline for submission of standards for

title transfer tracking and cross-contract

ranking.

The Commission will first address the

regulations adopted by this rule. The

Commission will then discuss those

areas in which it is not adopting

regulations requested by commenters,

but instead is providing policy guidance

as to the direction of future

standardization efforts.

B. Regulations Adopted by This Rule

1. Version 1.2 of the Standards

a. Adoption of version 1.2. The

Commission is adopting Version 1.2 of

the GISB standards. Version 1.2

principally revises the datasets used to

conduct business transactions with the

pipelines.8 Version 1.2 also contains

interpretations of the standards. The

Commission proposed to adopt the

interpretations, because, although they

would not be determinative, they would

help to provide reliable guides to the

industry’s understanding of the

standards in the event disputes arise.

No commenter has objected to

adoption of Version 1.2 of the GISB
Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations 20075

9Order No. 587 at 61 FR 39060, III FERC Stats.

& Regs. Regulations Preambles at 30,066.

10See Texas Eastern Transmission Corporation,

77 FERC ¶ 61,175, at 61,646 (1996) (pipelines

incorporating standards by reference in their tariffs

must include number and version).

11In filing to implement Version 1.2, pipelines

need to change all references to GISB standards in

their tariffs to Version 1.2. The version number

applies to all standards contained in GISB’s Version

1.2 Standards Manuals, including standards that

have not changed from prior versions.

12 18 CFR 154.207.

13Comments by Columbia Gas/Columbia Gulf

(one year), Duke Energy Interstate Pipelines,

Engage, Koch, Latitude (every two years) MGE,

NGC, NGSA, Nicor Gas, PG&E, ProEnergy, Williston

Basin.

14See comments by Duke Energy Interstate

Pipelines and Koch.

15See comment by NGSA and PG&E.

16Comments by Altra, ECT, Enron, INGAA, SoCal

Gas/SDG&E, TransCapacity.

17See comment by SoCal Gas/SDG&E.

18See Gulf States Transmission Corporation, 79

FERC ¶ 61,102 (1997).

19See Texas Eastern Transmission Corporation, 79

FERC ¶ 61,223 (1997).

20See Comments of Duke Energy Interstate

Pipelines, INGAA, Koch, NGPL, Williston Basin.

21See Comments of Altra, ECT, Engage, MGE,

NGC, NGSA, PG&E, SoCal Gas/SDG&E,

TransCapacity.

22 18 CFR 284.10(b)(1)(i) (1997), Nominations

Related Standards 1.3.1 and 1.3.2.

23 18 CFR 284.10(b)(1)(i) (1997), Nominations

Related Standards 1.2.4.

24 18 CFR 284.10(b)(1)(i) (1997), Nominations

Related Standards 1.2.7.

standards. TransCapacity and El Paso

contend the Commission should give

great weight to the interpretations.

Koch, SGPC, and ANR/CIG, while not

objecting to the adoption of the

interpretations, maintain that pipelines

should not be required to modify their

tariffs to incorporate them. ANR/CIG

also contend there is no need for

pipelines to modify their tariffs to

incorporate the Version 1.2 standards by

reference unless their tariffs are

inconsistent with the new standards.

Version 1.2 improves the datasets to

better reflect pipeline business

practices. The Commission will adopt

Version 1.2 to be implemented on the

first day of the month following 90 days

after the publication of this order in the

Federal Register. Pipelines need not

modify their tariffs to incorporate the

interpretations, just as they did not have

to incorporate the GISB principles in

their tariffs.9 Pipelines, however, will

need to make compliance filings to

adopt Version 1.2 of the standards into

their tariffs since their tariffs reflect an

older version number.10 Pipelines also

will need to make any other tariff

changes to conform their tariffs to the

new standards.11 The tariff changes

must be filed not less than 30 days prior

to the date for implementing Version 1.2

of the standards.12

b. Hiatus in implementing new

versions and waivers. The NOPR also

requested comment on two issues:

Whether the Commission should refrain

from adopting further dataset changes

for a period of a year or more and

whether the Commission should

continue to grant pipelines waivers that

permit them to deviate from the

standardized datasets. Many

commenters support the concept of a

hiatus of about a year in order to give

pipelines and shippers a chance to

implement the standards.13 But even

some of those supporting a hiatus

contend the hiatus could not be

absolute, because there will be a need to

adjust the standards to clean-up errors 14

or to address other compliance issues.15

Others urge that the current schedule of

issuing standards every six months or so

is appropriate for the start-up phase of

software development in which errors

need to be corrected.16 Some also point

out that new standards need to be

developed for new needs.17 In its March

23, 1998 filing, GISB anticipates

completion of Version 1.3 of the

standards by July 1998. It then projects

updates of various portions of the

standards occurring on an annual basis,

with Version 2 (update of Flowing Gas

and Invoicing) by July 1999 and Version

2 (update of Nominations and Capacity

Release) by July 2000.

Because the regulations adopted in

this proceeding require changes to the

existing standards, granting a significant

hiatus on adoption of revised datasets at

this time is inappropriate. To ensure

that shippers can fully take advantage of

the benefits from the regulations, the

appropriate standards need to be

implemented as soon as feasible. As

reflected in GISB’s projected schedule, a

longer time period between adoption of

revised versions may be more

appropriate once the initial phase of

standardization is complete and the

focus turns to maintenance and

improvement of the datasets.

In implementing Order No. 587, the

Commission granted pipelines two

types of waivers. It granted some,

generally smaller, pipelines, whose

computer systems were not yet ready to

implement the standards, extensions of

time to comply with the electronic

communication requirements.18 It also

granted waivers permitting some major

pipelines to use non-standardized data

elements to accommodate specific

business practices while their requests

for changes to the datasets were pending

at GISB.19

In the NOPR, the Commission asked

whether the time for permitting these

waivers had ended and whether all

pipelines should be required to adhere

to the Version 1.2 standards. The

pipelines contend the Commission

should continue to grant waivers on a

case-by-case basis if a need is shown,

although the comments did not

differentiate between the extensions of

time for small pipelines to implement

the standards and the waivers for larger

pipelines of dataset compliance.20 Koch

claims that Version 1.2 may still contain

errors that need to be corrected. Other

commenters contend the need for

waivers has ended, and pipelines now

need to conform to the standardized

data elements.21

The Commission will examine

requests for extensions of waivers on a

case-by-case basis. However, because

waivers are antithetical to the concept of

standardization, such extensions will be

disfavored. Non-uniform

implementation of the datasets on major

pipeline systems, in particular, creates

burdens for shippers because they have

to maintain unique sets of data elements

to conduct business solely on those

pipelines with waivers. Pipelines,

therefore, will have a heavy burden of

justifying any request for a waiver of the

data elements.

2. Regulations Establishing Priority of

Intra-Day Nominations

The Commission is adopting

regulations in § 284.10(c)(1)(i)

establishing the scheduling priority for

intra-day nominations. The regulations

require pipelines to accord an intra-day

nomination submitted by a firm shipper

scheduling priority over nominated and

scheduled volumes for interruptible

shippers. Pipelines are to provide an

interruptible shipper with advance

notice that its scheduled volumes are to

be reduced as well as notice of whether

penalties will apply on the day its

scheduled volumes are reduced. In

addition, the regulation requires that an

intra-day nomination submitted on the

day prior to gas flow will take effect at

the start of the gas day at 9 a.m. CCT.

a. Background. (1) Commission policy

on service priority. Under the GISB

standards, shippers submit initial

nominations at 11:30 a.m. for gas to flow

on the next gas day (starting at 9 a.m.).22

An intra-day nomination is any

nomination submitted after the initial

nomination.23 An intra-day nomination

can be made either on the day prior to

gas flow (after 11:30 a.m.) or on the day

of gas flow.24 The current standards

require a pipeline to permit one intra-
20076 Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations

25 18 CFR 284.10(b)(1)(i) (1997), Nominations

Related Standards 1.3.10.

26See Tennessee Gas Pipeline Company, 73 FERC

¶ 61,158, at 61,456 (1995).

27 Id.

28Id. (daily variance charge waived, but only for

the day on which the bump takes place).

29See El Paso Natural Gas Company, 77 FERC

¶ 61,176 (1996); Alabama-Tennessee Natural Gas

Company, 79 FERC ¶61,117 (1997); Algonquin Gas

Transmission Company, 78 FERC ¶ 61,281 (1997);

ANR Pipeline Company, 78 FERC ¶ 61,142 (1997);

Arkansas-Western Pipeline Company, 78 FERC

¶ 61,250 (1997); Canyon Creek Compression

Company, 78 FERC ¶ 61,003 (1997); CNG

Transmission Corporation, 78 FERC ¶ 61,131

(1997); Great Lakes Gas Transmission Limited

Partnership, 79 FERC ¶61,194 (1997); Iroquois Gas

Transmission System, L.P., 79 FERC ¶ 61,196

(1997); K N Interstate Gas Transmission Company,

79 FERC ¶ 61,208 (1997); Mojave Pipeline

Company, 78 FERC ¶61,153 (1997); National Fuel

Gas Supply Corporation, 78 FERC ¶ 61,332 (1997);

NorAm Gas Transmission Company, 79 FERC

¶ 61,069 (1997); Overthrust Pipeline Company, 78

FERC ¶ 61,285 (1997); Questar Pipeline Company,

78 FERC ¶ 61,305 (1997); Southern Natural Gas

Company, 78 FERC ¶ 61,125 (1997); Texas Gas

Transmission Corporation, 79 FERC ¶ 61,175

(1997); Trailblazer Pipeline Company, 77 FERC

¶ 61,328 (1996); Viking Gas Transmission Company,

78 FERC ¶ 61,243 (1997); Young Gas Storage

Company, Ltd., 79 FERC ¶ 61,030 (1997).

30See Transwestern Pipeline Company, 78 FERC

¶ 61,146 (1997); Florida Gas Transmission

Company, 77 FERC ¶ 61,177 (1996).

day nomination four hours prior to gas

flow.25

The Commission’s policy since Order

No. 636 has been that firm shippers,

who pay reservation charges, are

entitled to service superior to that of

interruptible shippers. Interruptible

shippers, by definition, take the risk that

their service will be interrupted if firm

shippers choose to use their capacity.

In Order No. 636, the Commission did

not require pipelines to provide intraday nomination opportunities and,

therefore, did not address the intra-day

priority issue in that rule. In the Order

No. 636 restructuring proceedings, some

pipelines were continuing or proposing

to add intra-day nomination

opportunities. The Commission allowed

them to do so and also permitted those

pipelines to continue tariff provisions

under which scheduled interruptible

nominations would not be bumped by

firm intra-day nominations.

However, as intra-day nominations

became more prevalent, the

Commission’s policy changed and it

began to require that intra-day

nominations conform to its general

policy giving firm service priority over

interruptible service.26 Thus, the

Commission found that firm service

intra-day nominations should be

entitled to bump scheduled

interruptible service. The Commission,

however, concluded that interruptible

shippers should receive notice of their

rescheduled quantities and an

opportunity to renominate.27 The

Commission also determined that

bumped interruptible shippers should

not be subject to penalties directly

related to the bump on the day on

which the bump takes place.28

When Order No. 587 required all

pipelines to implement at least one

intra-day nomination, the Commission

determined that those pipelines filing to

institute intra-day nominations on their

systems had to follow the general policy

on service priority and permit firm

intra-day nominations to bump

scheduled interruptible service upon

reasonable notice.29 On those pipelines

with pre-Order No. 587 tariff provisions

that prohibited bumping of interruptible

service, the Commission permitted the

no-bump provisions to stand, because

the pipeline filings were strictly

compliance filings, and the Order No.

587 standards did not address the

priority issue for intra-day

nominations.30

(2) GISB deliberations on intra-day

nominations. In Order No. 587–C, the

Commission recognized that the

divergent ways in which pipelines had

implemented the intra-day nomination

requirements prevented shippers from

coordinating their intra-day

nominations across interconnecting

pipelines. The Commission requested

that GISB provide recommendations as

to standards for coordinating intra-day

nominations by September 1, 1997.

In its September 2, 1997 filing, GISB

reported that it had been able to reach

certain agreements on intra-day issues;

for example, it submitted a proposed

schedule establishing three

synchronization times when shippers

could coordinate their intra-day

nominations: 6 p.m. (to take effect on

the next gas day), and 10 a.m. and 5

p.m. to take effect on the same gas day.

GISB reported, however, that it had

been unable to resolve certain policy

issues, principally whether, and under

what circumstances, intra-day

nominations by firm shippers could

bump or displace previously scheduled

interruptible service. Interruptible

shippers did not want their service to be

disrupted, while firm shippers argued

that their payment of reservation

charges entitled them to nomination

priority over interruptible service.

According to GISB’s March 23, 1998

filing, it has approved the intra-day

synchronization schedule and, in

addition, has passed 18 new or revised

intra-day nomination standards. The

approved standards, however, do not

resolve the bumping question. If the

Commission determines to require

bumping in this rule, the standards do

not resolve the question of when a firm

intra-day nomination submitted on the

day prior to gas flow (6 p.m.) and which

bumps interruptible service would take

effect. The standards leave that date to

be determined by the Commission in

this rule.

(3) NOPR proposals. In the November

12, 1997 NOPR, the Commission agreed
Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations 20077

31Comments by AGA, Altra, Burlington, Centra

Manitoba, Columbia Gas/Columbia Gulf, ECT,

Indicated End Users, K N Interstate Group, National

Fuel Distribution, NGC, NGSA, Nicor Gas, Pan

Alberta, Peoples/North Shore, PG&E, Piedmont.

32Comments by Koch, NWIGU, Viking, Williston

Basin.

33Comments by Burlington, Cascade, Centra

Manitoba, Columbia Gas/Columbia Gulf, ECT,

Engage, Florida Cities, FPL, Indicated End Users,

INGAA, MCV, Minnegasco, Mississippi

Distributors, MoPSC, MLGW, National Fuel

Distribution, NGC, NGSA, NGPL, Pan Alberta, PGC,

et al., PGT, Peoples/North Shore, PG&E, Piedmont,

ProEnergy, ProLiance, SGPC, SoCal Gas/SDG&E,

TVA. But see comments by Enron, K N Interstate

Group, Koch, Viking, Williston Basin (opposing

bumping).

34These parties also note that firm shippers

wanting greater flexibility in nominations can

subscribe to no-notice service.

35Comments by Indicated End Users, Mississippi

Distributors, National Fuel Distribution, PGC, et al.,

SoCal Gas/SDG&E, TVA.

that the three intra-day nomination

times established by GISB would

significantly improve shippers’ ability

to coordinate intra-day nominations.

The Commission sought to achieve

greater coordination in intra-day

scheduling by resolving the dispute

within GISB over bumping of

interruptible service. The Commission

proposed to follow its current policy

and require pipelines to provide for firm

intra-day nominations to bump

scheduled interruptible service. The

Commission also required that an

interruptible shipper be given notice

that its scheduled volumes would be

reduced.

While not proposing a regulation, the

Commission sought to resolve the

dispute at GISB over the time at which

an intra-day nomination submitted at 6

p.m. (on the day prior to gas flow)

which bumps an interruptible shipper

can take effect. The Commission

concluded that the firm intra-day

nomination should take effect at the

start of gas flow at 9 a.m., rather than

at 5 p.m. the next day, as suggested by

interruptible shippers. The Commission

reasoned that firm shippers pay for their

service priority and have the right for

their intra-day nomination to take effect

as soon as possible. In addition, in

accordance with the report from the

GISB intra-day nomination task force,

the Commission stated that those

pipelines permitting three intra-day

nomination opportunities could submit

a request to exempt the last intra-day

nomination opportunity from the

bumping rule. Providing a final nobump opportunity, the Commission

reasoned, would provide stability to the

nomination process.

The Commission will first address the

comments on its proposal to permit firm

intra-day nominations to bump

scheduled interruptible service. The

Commission will then address several

related issues: the imposition of

penalties on bumped interruptible

shippers, the provision of an overnight

rescheduling opportunity, the relative

priority of firm primary and firm

secondary service, and the effect of its

intra-day standards on pipelines

employing a rolling or continuous intraday process.

b. Bumping. (1) Comments. Most

commenters agree with the Commission

that industry-wide coordination of intraday nominations is needed,31 although a

few contend that issue should be

addressed on a pipeline specific basis.32

And, a large majority of the commenters

support the Commission’s decision that

firm intra-day nominations should

bump interruptible, at least under some

circumstances.33

The major area of disagreement is

how to implement the bumping

requirement given the intra-day

schedule proposed by GISB. NGC,

NGSA, ProEnergy, Columbia Gas/

Columbia Gulf take issue with the

Commission’s determination that a firm

shipper should be permitted to submit

a nomination at 6 p.m. (on the day prior

to gas flow) to become effective at 9 a.m.

(the beginning of gas flow). They

contend that permitting the 6 p.m.

bump would decrease the value and

certainty of interruptible service. Since

the interruptible shipper will not be

notified of the bump until after normal

working hours, they assert, the shipper

will not know it has been bumped until

the next morning and will have no

opportunity to renominate. NGSA is

concerned that bumping at 9 a.m.,

without a renomination opportunity

before the bump takes effect, could

result in an unplanned shut-in of gas.34

Rather than a 9 a.m. effective time, these

four parties contend the Commission

should establish that the 6 p.m. intraday nomination becomes effective at 5

p.m. the next day so that interruptible

shippers will have an opportunity to

renominate.

Taking a different tack, PGT and Pan

Alberta do not object to the timing of the

6 p.m. nomination, but contend that no

bumping should be permitted after gas

starts to flow. They argue that

permitting bumping of flowing gas will

devalue interruptible service and create

logistical difficulties for market

participants by complicating the

balancing process and requiring last

minute adjustments to marketing plans.

They further contend that permitting

bumping after gas flows is inconsistent

with the Canadian practice, which will

cause interconnection problems.

Firm shippers, on the other hand,

support the Commission’s proposal that

firm intra-day nominations should

bump interruptible service both on the

day prior to the gas day and on the gas

day itself. They particularly support the

Commission’s proposal that a firm intraday nomination at 6 p.m. will take effect

at 9 a.m.35 They contend that their

payment of reservation charges entitles

them to such priority and that, if they

nominate on the day prior to gas flow,

that nomination should be effective at

the start of gas flow, rather than eight

hours later. Indicated End Users argue

that delaying the bump from 9 a.m. until

5 p.m. essentially provides interruptible

shippers with eight hours of firm service

while degrading the value of firm

service. Such a result, it asserts, is

particularly inappropriate since

bumping occurs only on pipelines with

no excess capacity, where firm service

is accordingly extremely valuable.

(2) Commission determination. The

Commission has determined that intraday nominations for firm capacity

should be given scheduling priority over

scheduled and flowing interruptible

service. The vast majority of the

comments support this regulation, and

the regulation is consistent with the

priority rights to which firm shippers

are legitimately entitled. This issue

cannot be left to individual

determinations on a pipeline specific

basis, as suggested by Koch, NWIGU,

Viking, and Williston Basin.

Continuation of the current bifurcated

system is inconsistent with the creation

of an integrated pipeline grid and would

effectively reduce the effectiveness of

firm shippers’ intra-day nominations on

the majority of pipelines that permit

bumping. A firm shipper nominating

gas across multiple pipelines needs to

be able to coordinate its intra-day

nominations. Under the present system,

if even one pipeline in its nomination

chain has a no-bump rule, the shipper

may be unable to have its entire chain

of intra-day nominations confirmed.

Thus, a single approach to bumping is

necessary to integrate the pipeline grid.

With respect to the principal disputed

issue—the effective time of an intra-day

nomination submitted on the day prior

to gas flow (the 6 p.m. intra-day

nomination under the GISB schedule)—

the Commission finds that the intra-day

nomination should become effective at

the start of the gas day at 9 a.m., and

will amend its regulations to make clear

that an intra-day nomination submitted

on the day prior to gas flow will take

effect at the start of the gas day.

Firm shippers are paying reservation

charges for priority rights and those
20078 Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations

36 18 CFR 284.10(b)(1)(i) (1997), Nominations

Related Standards 1.3.18, 1.3.23, 1.3.24. See text

accompanying notes 100 and 93, infra. Pooling

together with ranking permit shippers to designate

which supplies or markets should be cut first in the

event scheduled volumes are reduced. Thus,

producers can rank those supply sources where

volumes can be changed most easily as the first to

be cut in the event of a bump.

37Comments by Burlington, Engage, INGAA,

NGSA, Nicor Gas Peoples/North Shore.

38Comments by Cascade, TVA.

39 73 FERC ¶ 61,158, at 61,456 (1995).

40Comments by Enron, INGAA, NGPL, Nicor Gas,

NGT/MRT, Southern, TransCapacity, Cascade.

41See comments by INGAA, Enron, NGPL,

Southern.

42Comments by ECT, FPL, National Fuel

Distribution, NGC, NGSA, PGC, et al.

rights should include the right to have

a nomination become effective as early

as possible on the gas day following the

nomination. Interruptible shippers

voluntarily take the risk that their

service will be interrupted and while

they are entitled to advance notice of

such interruption, they should not be

able to prevent firm shippers from

having their nominations take effect at

the earliest possible time. Gas flows on

the interstate grid 24-hours a day, and

is consumed throughout the day, so

interruptible shippers need to be

prepared to adjust gas volumes even

during non-business hours. The

interruptible shippers will receive

sufficient advance notice

(approximately 11 hours) to reduce

flows if necessary. They will still have

the two additional intra-day

opportunities during the gas day (the 10

a.m. and 5 p.m. intra-day opportunities)

to reschedule their gas. And,

interruptible shippers have the tools,

such as pooling, gas package identifiers,

and ranking, that they can use to

manage their gas supplies in the event

of bump.36 If interruptible shippers still

find the bumping risk unacceptable,

they have the opportunity to obtain firm

capacity either from the pipeline or

through the capacity release system.

While the commenters contend that

bumping creates the risk that gas will be

shut-in without an opportunity to

reschedule, that could occur under the

existing system as well. During the

regular scheduling process, an

interruptible shipper takes a risk that a

firm nomination may result in a

reduction in or termination of its flow

from one day to the next, a change that

must take effect at 9 a.m. in the

morning. Prior to Order No. 587, many

pipelines provided no opportunity for

the interruptible shipper to reschedule

that gas prior to having to implement

the reduced flow. Even after Order No.

587, many pipelines do not provide an

intra-day scheduling opportunity prior

to the start of the gas day in which case

the interruptible shippers are unable to

reschedule gas prior to the beginning of

gas flow. Indeed, interruptible shippers

are better off in many ways under the

new regulation, than they were prior to

the expansion of the intra-day

nomination process. Before adoption of

multiple intra-day nominations,

interruptible shippers could have their

volumes reduced with no opportunity to

renominate that gas, while under the

multiple intra-day nomination schedule,

interruptible shippers bumped by a 6

p.m. intra-day nomination will still

have two opportunities to reschedule

gas on an industry-wide basis (the 10

a.m. and 5 p.m. intra-day opportunities).

The Commission will follow the GISB

consensus and permit pipelines with

three intra-day nomination

opportunities to exempt the last intraday opportunity from bumping. Both

firm and interruptible shippers support

GISB’s and the Commission’s proposal

that no bumping should take place at

the third intra-day nomination

opportunity.37 Local distribution

companies (LDCs) contend that allowing

bumping at the third opportunity would

interfere with their efforts to manage

their own systems. A few commenters

contend that making the third intra-day

opportunity non-bumping is

inconsistent with the priority to which

firm service is entitled.38 The

Commission, however, agrees with the

consensus of the GISB members that

making the third intra-day nomination

non-bumping creates a fair balance

between firm shippers, who will have

had two opportunities to reschedule

their gas, and interruptible shippers and

will provide some necessary stability in

the nomination system, so that shippers

can be confident by mid-afternoon that

they will receive their scheduled flows.

c. Penalties for bumped interruptible

shippers. In Tennessee Gas Pipeline

Company,39 the Commission permitted

the pipeline to implement a tariff

provision under which firm intra-day

nominations bumped scheduled

interruptible gas, but waived the

pipeline’s daily variance penalty for

bumped interruptible shippers on the

day of the bump. Referring to this

decision, the Commission, in the NOPR,

stated that pipelines filing to implement

the regulation giving firm intra-day

nominations priority over scheduled

interruptible gas should consider

whether bumped interruptible shippers

should be exempt from certain penalties

on the day of the bump.

Pipelines as well as some shippers

contend that the pipelines must be able

to assess penalties against interruptible

shippers or else shippers will have no

incentive to comply with the bump and

the pipelines’ management of their

system will be jeopardized.40 Columbia

Gas/Columbia Gulf maintain that

penalties should be waived only if the

interruptible shipper conforms its flow

to the rescheduled volumes. The

pipelines contend that they do not have

the system flexibility to permit overuse

of capacity even on a single day.41

Shippers maintain that penalties

should be waived for bumped

interruptible shippers.42 They contend

that interruptible shippers should not be

subject to penalties when the shipper is

unable to reschedule gas and may not be

able to get a point operator to change

physical volumes. NGC maintains the

Commission should not just consider

waiving penalties, but affirmatively

adopt a rule that no penalties can be

assessed on bumped shippers.

Given the variety of penalty

provisions in pipeline tariffs, the waiver

of penalties for bumped shippers will

have to be considered when pipelines

make compliance filings. The

Commission will set forth below some

general principles for assessing when

pipelines should waive penalties for

bumped interruptible shippers. No

penalties should be imposed on bumped

shippers if the pipeline fails to provide

appropriate notice of a bump. Once

notified, shippers are expected to make

a good faith effort to adjust their flows

to conform to revised scheduling

volumes. But the Commission

recognizes that in some cases the

shortened notice period for intra-day

nominations (three hours under the

GISB timeline) may make such

adjustments difficult. As in Tennessee,

therefore, pipelines should waive noncritical penalties, such as daily

scheduling or variance penalties, for the

day of the bump. But these penalties

would be waived only for the day of the

bump; interruptible shippers should

remain responsible for the excess gas

put on the system and would be subject

to all penalties in subsequent days

resulting from the excess gas.

The Commission also recognizes the

pipelines’ need to maintain control of

their systems in critical situations, when

they invoke operational flow orders. In

these cases, bumped interruptible

shippers may not be entitled to special

treatment on penalties, because, when

OFOs are in effect, the pipelines are less

likely to be able to absorb extra gas on

their systems and all shippers may have

difficulty adjusting to the OFO. Waiving

penalties for bumped interruptible
Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations 20079

43 18 CFR 284.10(b)(1)(i) (1997), Nominations

Related Standards 1.1.14.

shippers in critical situations, therefore,

could come at the expense of reduced

service or increased penalties on other

shippers. The Commission, however,

expects pipelines to comply with the

principle embodied in standard 1.1.14

which provides:

where a nomination is required by the

service provider to make an effective

physical change necessary to comply with an

Operational Flow Order, unless critical

circumstances dictate otherwise, an

Operational Flow Order penalty should not

be assessed unless the shipper is given the

opportunity to correct the circumstance

giving rise to the Operational Flow Order and

fails to do so or the action(s) taken fails to

do so. The opportunity to correct the critical

circumstance should include the opportunity

to:

(a) Make a nomination, which, once

confirmed and scheduled would cure the

circumstance giving rise to the Operational

Flow Order, or

(b) Take other appropriate action which

cures the circumstance giving rise to the

Operational Flow Order.43

For instance, under this principle,

where an OFO would require an

interruptible shipper (which is bumped

by a firm service intra-day nomination

at 6 p.m. the day prior to gas flow) to

make a nomination to effect a physical

change to comply with the OFO, the

pipeline should afford the interruptible

shipper the opportunity to make a new

intra-day nomination at the next intraday nomination opportunity (10 a.m.) to

cure the circumstance giving rise to the

OFO. If the interruptible shipper can

make such a change, no OFO penalties

should be charged for the period

between 9 a.m. and 5 p.m. when the

interruptible shipper’s 10 a.m. intra-day

nomination would take effect. However,

if the interruptible shipper is unable to

cure the OFO at the 10 a.m. intra-day

nomination opportunity all applicable

OFO penalties would apply. These

principles appear to strike a fair balance

between the operational needs of the

pipelines and the protection of shippers.

When pipelines file to implement the

regulations, the Commission will

consider whether pipelines should

waive specific penalties for bumped

interruptible shippers. Section

284.10(c)(1)(i)(A) also requires pipelines

to notify bumped interruptible shippers

if penalties for overrunning their

scheduled quantities will apply on the

day of the bump.

d. Other Issues. (1) Overnight

rescheduling opportunity. In the NOPR,

the Commission decided not to propose

a regulation requiring pipelines to

provide an overnight rescheduling

opportunity for interruptible shippers

which are bumped. PGC, et al., contend

that the Commission should require

pipelines to permit interruptible

shippers to renominate bumped supply

overnight. NGPL, on the other hand,

contends that pipelines cannot provide

overnight renominations, because

confirmation of these nominations

could not take place in the evening and

early morning.

Pipelines wishing to provide greater

certainty to interruptible shippers may

provide an overnight opportunity for

interruptible shippers to reschedule

bumped gas. However, the Commission

agrees with NGPL that given the

confirmation difficulties occasioned by

overnight rescheduling, pipelines

should not be required to provide such

a service. The 11 hour advance notice to

interruptible shippers and the

interruptible shippers’ ability to

renominate at the 10 a.m. intra-day

opportunity provides sufficient

protection to interruptible shippers.

(2) Priority of firm capacity to primary

and secondary points. In the NOPR, the

Commission restated its policy that,

once scheduled, intra-day nominations

for firm service to primary receipt or

delivery points do not bump previously

scheduled firm capacity to secondary

points. ECT, K N Interstate Group, and

NWIGU support the current policy that

intra-day nominations to firm primary

points do not bump already scheduled

gas at secondary points. ECT and

NWIGU maintain that giving firm

primary and secondary points firm

priority is necessary for the capacity

release process to work efficiently. On

the other hand, MGE and NGT/MRT

contend the Commission should change

the policy to give intra-day nominations

to firm primary points priority over

previously scheduled firm capacity at

secondary points. They assert that firm

shippers pay for such primary point

rights. Cascade maintains that

Commission policies permitting

exceptions to priority rules need to be

reconsidered as the industry moves to a

more continuous and contiguous

scheduling system under which the

pipelines may reschedule the entire

system more frequently than once a day.

Koch, PG&E, and SoCal Gas/SDG&E

request clarification that the

Commission’s statements of priority

regarding the impact of intra-day

nominations on scheduled service to

firm secondary points do not affect

specific resolution of priority issues

with respect to the Koch and El Paso

pipelines.

At this time, the Commission will not

adopt a regulation requiring pipelines to

revise existing tariff priorities relative to

the rights of intra-day nominations to

firm primary points to affect scheduled

volumes to firm secondary points. Given

the potential effects of changing the

priority rules relating to intra-day

nominations to secondary points, such

as potentially reducing the ability of

shippers to obtain released capacity and

to use that capacity at secondary points,

changes in priority rules require

additional consideration by the

Commission and the industry.

(3) Pipelines processing intra-day

nominations on a continuous or rolling

basis. Some pipelines currently process

intra-day nominations on a continuous

or rolling basis permitting the shipper to

choose when to submit its intra-day

nomination. Others use a batch process

in which all intra-day nominations are

processed at the same time.

CNG, Enron, Nicor Gas, Peoples/

North Shore, Southern, and

TransCapacity contend that pipelines

should be able to revise their prior

continuous intra-day nomination

procedures to conform to the GISB batch

schedule. CNG maintains that pipelines

should not be held to prior intra-day

schedules based on different operating

assumptions. CNG and Enron maintain

that changing to a batch process should

not be deemed a degradation of service.

Peoples/North Shore and Nicor Gas

maintain that continuous processing

complicates LDCs’ supply planning

because they have to make operational

changes throughout the gas day.

AGA, on the other hand, is concerned

that pipelines currently offering

continuous service should not be able to

unnecessarily degrade their services by

changing to the batch process. While

Peoples/North Shore support the batch

process, they argue that pipelines

offering special services with more than

the required number of intra-day

opportunities should not be able to

reduce those to the standard three.

Adoption of the three synchronization

times is not necessarily inconsistent

with continuous intra-day processing,

since the shipper can simply choose

whether to time its nominations to

achieve synchrony with other pipelines.

However, if a pipeline finds that

continuation of the continuous process

will disrupt its system, it should be able

to change its procedures to conform to

the industry standards. The efficiency

gained by the entire industry in being

able to coordinate nominations across

the pipeline grid outweighs any

potential diminution of service resulting

solely from the change in the method of

processing the nominations. Pipelines,

however, should not use the change to

batch processing to reduce the number

of intra-day opportunities to which
20080 Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations

44Comments by ANR/CIG, Enron, INGAA, Koch,

National Fuel Distribution, SGPC, Williston Basin.

45 18 CFR 284.121–126; 18 CFR 284.224.

46See Transcontinental Gas Pipe Line

Corporation, 65 FERC ¶ 61,315, at 62,437 (1994)

(although OBAs are jurisdictional, filing is

unnecessary if copies are made available by the

pipeline).

47Comments by NGC, SoCal Gas/SDG&E,

TransCapacity.

shippers are entitled. Although these

additional intra-day opportunities are

not coordinated across pipelines, they

still provide shippers with benefits,

particularly to those shippers revising

storage or other nominations that do not

need to be coordinated with

nominations on other pipelines.

3. Regulation Requiring Pipelines To

Enter Into Operational Balancing

Agreements

In § 284.10(c)(2)(i), the Commission is

adopting a regulation requiring each

interstate pipeline to enter into an

Operational Balancing Agreements at all

points of interconnection between its

system and the system of another

interstate or intrastate pipeline.

a. Background. An operational

balancing agreement (OBA) is a contract

between two physically interconnected

parties specifying the procedures to be

used in processing imbalances or

differences in hourly flows between the

parties. GISB passed a standard

requiring pipelines to enter into OBAs

at all interstate and intrastate pipeline

interconnects where economically and

operationally feasible. In Order No.

587–C, the Commission declined to

adopt this standard, finding the phrase

economically and operationally feasible

too vague to define pipeline obligations.

In the NOPR, the Commission proposed

to require interstate pipelines to enter

into OBAs with all interconnecting

interstate and intrastate pipelines.

b. Adoption of the regulation. Almost

all the commenters either support the

regulation or do not oppose it. INGAA

and some of the pipelines suggest the

regulation is not needed since OBAs

already exist at over 91% of

interconnects between interstate

pipelines. Enron contends that, instead

of mandating that pipelines enter into

OBAs, the Commission should adopt a

regulation prohibiting pipelines from

enacting tariff provisions that inhibit the

use of OBAs at interconnect points.

The Commission concludes the

regulation is needed. As the

commenters point out, OBAs have

increased the efficiency and reliability

of the pipeline grid. An OBA ensures

that a shipper, once it has properly

nominated and had its gas confirmed,

will not be subjected to imbalance

penalties resulting from the transfer of

gas between the pipelines. Enron’s

suggestion that the Commission limit

the regulation to one that merely

prohibits pipelines from adopting tariff

provisions inhibiting the development

of OBAs does not go far enough, because

it imposes no affirmative obligation on

the pipelines to enter into OBAs.

Other issues raised by the comments

will be discussed below.

c. Definition of intrastate pipeline.

Section 284.10(c)(2)(i) requires

interstate pipelines to enter into OBAs

at all interstate and intrastate pipeline

interconnects. The comments

principally concern the scope of the

term intrastate pipeline. The pipelines

contend it should be limited to

intrastate pipelines only (defined by

Koch as those with transmission

facilities that do not cross state lines)

and should not include gatherers and

LDCs.44 ANR/CIG contend it should

include only intrastate pipelines

regulated by the Commission which

would obviate the possibility that

interstate pipelines would have to file

for waivers if they cannot negotiate an

acceptable OBA with an unregulated

entity. The pipelines argue that

expanding the requirement to gatherers

and LDCs would be too burdensome,

particularly if they had to file for a

waiver every time they could not

negotiate an acceptable agreement.

TransCapacity and PGC, et al., assert

the requirement should extend to all

interconnect points where nominations

need to be confirmed with multiple

parties behind the point, specifically

including interconnects with LDCs and

gatherers. TransCapacity contends that

the burden of including these points is

minimal if GISB develops a model OBA.

The proposed regulation uses the term

intrastate pipeline, as contained in the

original GISB formulation. The term

intrastate pipeline should apply to

pipelines providing transmission

services, as opposed to gathering or

local distribution functions. To aid in

identifying those pipelines to which the

regulation applies, the term will apply

to all pipelines performing interstate

transportation that are subject to the

Commission’s regulations under

Subparts C and G of Part 284.45 As

National Fuel Distribution suggests, this

constitutes a good beginning, but, after

experience is gained, consideration

should be given to expanding the

definition so that interstate pipelines

will be expected to negotiate OBAS with

all those transporting gas for others,

such as gatherers and LDCs.

As ANR/CIG suggest, since the

requirement applies only to OBAs

between interstate pipelines and

intrastate pipelines regulated by the

Commission, pipelines have no need to

file for waivers. While the Commission

expects that interconnecting parties will

be able to negotiate acceptable OBA

conditions, if an intractable dispute

should arise, they can submit the

dispute to the Commission for

resolution.

d. Date by which pipelines must

execute OBAs. Enron questions whether

pipelines can be expected to enter into

an OBA by a date certain, while NGC

contends the Commission needs to set

an outside date by which the OBA

process must be completed. The

Commission recognizes that pipelines

must be given some time to negotiate

and enter into OBAs and, therefore,

would expect that pipelines should be

able to complete the OBA process

within three months after the

Commission adopts final regulations

governing OBAs.

e. Requirement to make OBA

contracts available. NGPL objects to the

requirement that pipelines maintain

OBAs and provide them to requesting

parties, asserting the Commission has

offered no justification for the

requirement. NGPL would not object to

posting the OBA operator and the points

covered by the OBA. PG&E contends

OBAs are proprietary contracts and

should be filed under seal. SoCal Gas/

SDG&E and TransCapacity maintain

OBAs must be publicly available.

Section 4 of the Natural Gas Act

requires that pipelines:

file * * * and shall keep open in convenient

form and place for public inspection,

schedules showing all rates and charges for

any transportation or sale * * * and the

classifications, practices, and regulations

affecting such rates and charges, together

with all contracts which in any manner affect

or relate to such rates, charges,

classifications, and services.

Since OBAs are contracts relating to the

provision of transportation service, they

are jurisdictional. The Commission,

however, has not required pipelines to

file OBAs with the Commission.46

Instead, pipelines must make them

available, along with all relevant records

of volumes and amounts paid under

OBAS, to the Commission and any

person requesting copies.

f. Development of a standard OBA

and other issues relating to negotiation

and implementation of OBAs. Several

commenters contend that GISB should

develop a standard OBA and pipelines

should be required to accept the

standard OBA.47 A standard OBA, they

assert, will reduce the burden of having

to individually negotiate OBA terms in
Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations 20081

48Comments by CNG, INGAA, K N Interstate

Group.

49Comments by Altra, Burlington, ECT, Engage,

INGAA, K N Interstate Group (pipelines account for

imbalances differently and pipelines should define

operational impact), MoPSC, MGE, NGPL, NGC,

NGSA, Nicor Gas, Peoples/North Shore, PGC, et al.,

PG&E, ProEnergy, ProLiance, SoCal Gas/SDG&E,

TransCapacity.

every instance. The pipelines oppose a

requirement that they adhere to a

standard OBA, because, they assert, an

OBA needs to deal with issues specific

to the interconnected parties.48

Development of a standard OBA

would be of significant value in setting

forth terms that are reasonably fair to

both parties, and GISB should work on

developing such a contract. Pipelines,

however, would not have to agree to the

standard OBA if its terms are

inapplicable in a particular situation.

Pipelines raise questions about

negotiation and implementation of

OBAs. El Paso seeks clarification that it

can insist on inclusion of certain

necessary terms, such as

creditworthiness guarantees and other

assurances of performance. K N

Interstate Group, Koch, and NGPL ask if

pipelines can terminate OBAs for nonperformance. NGT/MRT ask whether

pipelines can reject OBAs, without

filing for a waiver, where the OBA

would inhibit pipeline operations.

SGPC raises concerns about having to

enter into unreasonable terms and

conditions with unregulated entities,

such as gatherers.

Pipelines can insist that OBAs contain

reasonable terms that are standard in the

industry. Development of a standard

OBA would provide a benchmark for

comparison. Based on the history of

OBAs, the Commission does not expect

numerous cases in which parties fail to

perform. However, pipelines would

have a right to terminate an OBA for

substantial, consistent non-performance,

but must do so in a non-discriminatory

fashion and should make every effort to

work out any difficulties with the other

contracting party.

Pipelines cannot unilaterally decide

not to enter into an OBA with an

interconnecting pipeline. As discussed

previously, interstate pipelines must

enter into OBAs only with intrastate

pipelines regulated by the Commission.

Any disputes over OBA terms and

conditions between interconnected

parties can be submitted to the

Commission for resolution.

NGSA argues the OBA regulation

should be expanded to require the

downstream party to adhere to the predetermined allocations of the upstream

party. Without such a requirement, it

claims the OBA cannot properly allocate

volumes to the appropriate downstream

customer when capacity is scarce.

The Commission, at this time, does

not have sufficient information to

impose this as a requirement for all

OBAs. As NGSA recognizes, this issue

is related to the question of how to

handle multi-tiered allocations on

which GISB will be developing

standards by the fourth quarter of 1998.

GISB should consider how to handle

upstream and downstream predetermined allocations when it

considers the issues relating to a

standard OBA and multi-tiered

allocations.

4. Regulation Requiring Pipelines To

Net Imbalances and Permit Imbalance

Trading

In § 284.10(c)(2)(ii), the Commission

is requiring pipelines to permit shippers

(including agents) to offset imbalances

on different contracts held by the

shipper and to trade imbalances with

other shippers so long as the imbalances

have similar operational impact on the

pipeline. In their filings to comply with

this regulation, each pipeline must

delineate the largest operational area in

which imbalances can be traded without

affecting system operations. Pipelines

also will be expected to propose

procedures governing the method by

which they will post and process

imbalance trades provided to them by

shippers or shippers’ agents, including

third-party firms that would conduct

imbalance trading for shippers. GISB is

examining standards to make the

posting and processing of imbalance

trades more uniform and efficient, and

the Commission will defer

implementation of the imbalance

trading requirement until after approval

of standards governing imbalance

trading, which are due to be filed on

June 30, 1998 according to GISB’s 1998

Annual Plan.

Under the regulation, pipelines are

not required to establish a computerized

system on which trading would take

place, although they would be free to

establish such a system and to assess a

separate fee for using that system. If a

pipeline does establish its own trading

system, it must provide equal and nondiscriminatory access for shippers

trading their own imbalances or those

using third-party services.

The Commission will address below

the comments dealing with the adoption

of the requirement itself and the

operational details.

a. Adoption of imbalance trading.

Most of the comments favor or do not

oppose the imposition of imbalance

trading.49 Those supporting imbalance

trading contend that it is needed to

offset the tightened balancing

tolerances, increased penalties, and gas

forfeiture provisions implemented by

pipelines.

WGP and SGPC oppose the

requirement, contending that permitting

imbalance trading could reduce

financial incentives for shippers to stay

in balance. WGP also argues that if a

pipeline accounts for operational

imbalances at the end of the month, a

severe imbalance in one direction at the

beginning of the month would not be

operationally offset by a corresponding

imbalance running the other way at the

end of the month.

Permitting shippers to trade

imbalances in the same operational area

enables shippers to avoid imbalance

charges without jeopardizing system

reliability. When individual shipper

imbalances offset each other, the

pipeline as a whole is in balance. The

Commission does not agree with WGP

and SGPC that imbalance trading will

significantly weaken shippers’

incentives to stay in balance. As NGSA

points out, shippers are unlikely to

allow large imbalances to accumulate,

because they run the risk that they will

be subject to penalties if they are unable

to find a shipper with an offsetting

imbalance with whom to trade. For

example, if one shipper has a financial

incentive to underdeliver gas, other

shippers likely will have the same

incentive and all the imbalances will

run in the same direction and be

untradable. Thus, imbalance trading

will ensure that imbalance penalties are

linked more closely to operational

integrity, so that shippers are not

penalized for imbalances that do not

affect pipeline operations.

WGP’s example of imbalances

occurring at different times of the month

appears to have little to do with

imbalance trading. Currently, a single

shipper may run positive imbalances

early in the month and negative ones at

the end of the month. Despite WGP’s

concern about potential adverse

operational affects on a daily basis, the

shipper’s imbalances will offset each

other by the end of the month, resulting

in no imbalance penalties. Thus,

establishing imbalance trading on a

monthly basis will not change the

relative operational impacts of

imbalances on a daily basis.

b. Operational details. Most of the

commenters address operational aspects

of imbalance trading, such as whether

imbalances can be traded across rate

schedules, the role of agents, and what

services pipelines are required to

provide.
20082 Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations

50Trunkline Gas Company, 64 FERC ¶ 61,141, at

62,134 (1993) (denying request for netting of

imbalances across rate zones where the imbalance

within each zone may have operational impact on

system operations).

51Comments by Columbia Gas/Columbia Gulf,

Enron, El Paso, Williston Basin.

52The shipper delivers 1,100 Dth into the system

of which the pipeline delivers only 100 Dth off the

system.

53The shipper delivers 100 Dth into the system

and the pipeline delivers 1,100 Dth off the system.

54 In the example given by Williston Basin, the

pipeline’s transportation revenues for the quantity

of gas delivered for each shipper appears the same

with or without imbalance trading. The pipeline

delivers only 100 units of interruptible volume and

charges for the amount delivered. The only

potential loss of revenue would be from resolution

of the imbalance through cash-out. Under

Commission policy, however, pipelines are not

entitled to such penalty revenue; such charges are

imposed only to discourage conduct inimical to the

operations of the system.

55See Panhandle Eastern Pipeline Company, 64

FERC ¶ 61,009, at 61,066 (1993); Trunkline Gas

Company, 64 FERC ¶ 61,141, at 62,133 (1993);

Algonquin Gas Transmission Company, 63 FERC

¶ 61,188, at 62,373 (1993).

56See Panhandle Eastern Pipeline Company, 64

FERC ¶ 61,009, at 61,066 (1993).

57ECT argues pipelines should automatically

offset imbalances across a shipper’s contracts.

Enron argues that pipelines need to establish

practical parameters for trading such as setting a

fixed time frame for shippers to trade imbalances,

keeping the pipeline out of shipper trading

negotiations and agreements, except to process the

resulting adjustments to the parties, and limiting

trading activity to the immediately preceding

production month’s activity to avoid cross-month

price arbitrage.

(1) Accommodating imbalance trading

to system requirements. INGAA argues

that each pipeline should be able to

accommodate imbalance trading to the

requirements of its system. The

regulation does permit each pipeline to

structure imbalance trading to its

system, because pipelines need only

permit imbalance trading in areas where

the imbalances have similar operational

effect. When pipelines file to comply

with this requirement, they must define

the largest possible areas on their

systems in which imbalances have

similar operational effect and explain

why imbalances crossing those lines are

not sufficiently similar in operational

effect.

(2) Trading across rate schedules or

rate zones. Section 284.10(c)(2)(ii)

requires pipelines to permit imbalance

trades as long as they have similar

operational impact on the pipeline.

Some of the pipelines contend that

further restrictions are appropriate.

ANR/CIG, El Paso, and NGPL contend

imbalance trading should be limited to

trades within rates zones.

Whether imbalance trading should be

permitted across rate zones depends on

the operational characteristics of the

pipeline.50 As stated earlier, each

pipeline must delineate in its

compliance filing, the largest

operational area in which imbalances

can be traded without affecting system

operations.

Other pipelines contend they should

not have to permit imbalance trades that

affect transportation charges.51 El Paso

maintains a pipeline may lose revenue

if imbalances on discounted contracts

are traded with those on full price

contracts. Williston Basin argues that

imbalances should not be traded across

different contract classes, providing the

following example. If a shipper has a

positive imbalance of 1,000 Dth under

an interruptible contract 52 and trades

that imbalance with a shipper that has

a 1,000 Dth negative imbalance on a

firm contract,53 Williston Basin claims it

would have received revenues only on

100 Dth at the higher interruptible rate

and revenues based on 1,100 Dth at the

lower firm commodity rate. Williston

Basin contends that if the trade was

between interruptible contracts alone, it

would receive revenues on 1,200 Dth at

the higher interruptible rate. (100 Dth

for the shipper with the positive

imbalance and 1,100 Dth for the shipper

with the negative imbalance).

Permitting pipelines to limit

imbalance trading to contracts within

the same rate schedule would

significantly reduce the efficacy of the

imbalance trading program and is

unrelated to operational needs of the

pipeline. Trading would be restricted

because shippers would not only have

to search out offsetting imbalances in

the same operational area, they would

have to find offsetting imbalances under

the same rate schedule. Such a

restriction on trading is unrelated to

pipeline operations since, regardless of

the rate schedule under which the gas

is shipped, the pipeline is physically in

balance so long as imbalances net out.

The pipelines have not made clear

how they lose transportation revenue

from imbalance trading across firm and

interruptible or maximum rate and

discounted contracts.54 The

Commission’s policy is to require

pipelines to permit shippers to offset

imbalances across contracts under

different rate schedules.55 If a pipeline

can document that such trading will

cause a loss of transportation revenue,

the solution is not to restrict imbalance

trading, but for the pipeline to devise an

appropriate mechanism to ensure that it

is made whole for all appropriate

transportation charges.56

(3) Pipeline fees for providing

imbalance trading services. Commenters

raise questions about the pipelines’

ability to charge fees for imbalance

trading services. NGPL is uncertain

which services pipelines must provide

and for which a fee can be charged. NGC

contends that pipelines with current

imbalance trading programs should not

be able to charge a fee and that no fee

should be charged for shippers trading

amongst themselves. CNG and Columbia

Gas/Columbia Gulf contend the

pipelines should not post imbalances,

but provide a space on their EBB or web

site for shippers to post imbalances.

Altra is concerned that pipelines may

abuse the imbalance trading process by

establishing affiliates with preferential

access to pipeline delivery and receipt

information. Altra further maintains

pipelines should be precluded from

hosting the trading process, because it

fears that allowing the pipelines to

participate in a rate-based environment

would preclude competitive markets

from working most efficiently.

To clarify, pipelines will be required,

without charging a separate fee, to

notify shippers of their imbalances and

post imbalances automatically if

shippers provide pipelines with

standing authority for posting. Pipelines

also should permit shippers the

opportunity to post their own

imbalances in the same location.

Pipelines also must process, without

charging a separate fee, imbalance

trades submitted by shippers or thirdparties acting to facilitate imbalance

trading.

The posting of imbalances will permit

shippers to negotiate their own trades.

Pipelines also can set up an imbalance

trading or auction process by which

shippers can arrange to trade

imbalances and charge a separate fee for

this service. The Commission will not

forbid pipelines from hosting such an

imbalance trading service, as Altra

suggests, since such a prohibition would

limit potential competition. If pipelines

charge a separate fee for such a service,

third-parties providing a similar service

should not be unduly disadvantaged.

Pipelines establishing such a system or

dealing with an affiliate, however, must

act non-discriminatorily in processing

imbalance trades submitted by shippers

or third-parties and comply with the

Commission’s standards of conduct

with respect to sharing of relevant

information.

(4) Standards and procedures for

trading imbalances. Commenters raise

questions about the procedures that

pipelines should adopt to facilitate

netting of imbalances and imbalance

trading.57 PG&E argues pipelines should

file tariff changes to establish the

protocols for imbalance trading so

shippers can comment.
Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations 20083

58ASC X12 is a standardized format for electronic

transmission of documents. Standards for the use of

such documents are promulgated by the American

National Standards Institute (ANSI) Accredited

Standards Committee (ASC).

59An EDI dataset is analogous to a spread-sheet

with each block or location containing specific

information that is then processed by a computer.

A computer program can translate from the raw EDI

data to whatever format or display the user wants.

60To maintain a URL address, the user has to

have its own Internet server and establish a

connection to the Internet.

61 18 CFR 284.10(b)(i)(iv) (1997), Electronic

Delivery Mechanism Related Standards 4.3.6.

62 18 CFR 284.10(b)(1)(iv) 1997), Electronic

Delivery Mechanism Related Standards 4.3.6.

As discussed earlier, the development

of standards for processing imbalance

trading would make the process more

efficient, and the Commission,

therefore, is deferring implementation of

the imbalance netting and trading

requirement until after approval of

standards governing imbalance trading,

which are due to be filed on June 30,

1998 according to GISB’s 1998 Annual

Plan. Pipelines will have to make tariff

filings to establish the parameters of

their trading areas as well as other

aspects of their programs, if not covered

by the standards. At that time, shippers

will have an opportunity to comment on

these provisions.

Enron and Koch raise questions about

a statement in the NOPR that shippers

may be willing to put gas on a pipeline

system for a fee in order to resolve

another shipper’s imbalance. Koch

maintains that shippers should not be

physically permitted to add or take

away gas to resolve historic imbalances.

Enron requests clarification that

imbalance trading should reflect end of

the month imbalances and not daily

incremental needs.

The Commission will clarify that the

regulation relates to the pipelines’

current methods for accounting for

imbalances and does not require

pipelines to institute daily imbalance

procedures, if they are not already

present on the system. However, if a

pipeline presently imposes daily

imbalance penalties, it should establish

a means of permitting shippers to trade

those imbalances before assessing

penalties. The regulation also does not

require pipelines to permit shippers to

add gas to the system at other than the

normal scheduling opportunities.

(5) Agents. The Commission has

proposed to allow agents for shippers to

offset imbalances across contracts and to

trade imbalances. National Fuel

Distribution contends that permitting

agents to provide an imbalance netting

service will diminish pipelines’ control

of their systems. Columbia Gas/

Columbia Gulf contend that offset and

trade options should not be extended to

shippers’ agents unless they are acting

for the shipper. They contend agents do

not have title to the gas, but act only as

a surrogate for nominating supplies and

some contracting activity. ProLiance

argues that there is no reason to exclude

agents from imbalance netting or

trading.

National Fuel Distribution does not

explain why permitting agents to

participate in netting imbalances or

trading imbalances will affect pipelines’

control of their systems. As long as

imbalances offset each other within the

relevant operational area, there should

be no negative operational effects on the

pipeline. In fact, since all shippers will

be able to trade imbalances, there is no

reason why agents should not be able to

offset imbalances on the contracts they

manage. Columbia Gas/Columbia Gulf’s

concern with agents is similarly unclear.

For imbalance trading to work

efficiently, pipelines must process

imbalance trades by those acting on

behalf of shippers. A third-party, for

example, may establish a computerized

service to facilitate imbalance trades for

shippers, and the pipeline will need to

process the results of those trades. Any

issues with establishing the proper

scope of agency should be worked out

between the pipeline, the third-party,

and the parties involved.

5. Electronic Communication Using the

Internet

a. Background. For many years,

pipelines have communicated with their

customers using direct dial up

connections to pipeline Electronic

Bulletin Boards (EBBs). Each pipeline

EBB is a proprietary system, with

unique software, log-on, and other

procedures. The uniqueness of each

pipeline’s EBB raises costs to those who

ship across multiple pipelines, since

shippers must maintain redundant

computers and communication software

and train their staff in the idiosyncracies

of each pipeline’s system.

Creating greater standardization in

electronic communication was one of

the first standardization tasks the

Commission and GISB undertook. The

current communication system reflects a

tripartite approach. First, shippers can

still use EBBs to conduct interactive

transactions with the pipelines and

obtain information from the pipelines.

Second, pipelines must permit

shippers to conduct many of the

important business transactions in the

industry, such as nominations, flowing

gas, invoicing, and capacity release,

using datasets in ASC X12 electronic

data interchange (EDI) format 58

transmitted over the Internet. An EDI

dataset is a highly structured or

formatted method of conducting

computer-to-computer

communication.59 To make use of EDI

over the Internet, the user must have its

own Universal Resource Locator (URL)

address 60 and be able to translate the

formatted information into the report or

display it desires. For instance, a user

could, if it wanted, translate the EDI

information into the same display it

now receives from an EBB. Or, it could

use the EDI data to feed a more

sophisticated gas management computer

system.

Third, some information, such as

pipeline tariffs, affiliate information,

and available capacity, that is posted on

EBBs also is posted on pipeline web

sites.61 This information, however, is

not transactional, like a nomination, in

which the shipper needs to

communicate with the pipeline; the

information is posted on web sites for

shippers to read or to download.

Although GISB’s standards state that

all current EBB transactions should be

achieved through one mode of

communication,62 the standards

developed by GISB do not cover all

transactions now conducted

electronically over EBBs. Pipelines are

continuing to post information and

conduct many transactions on their

proprietary EBBs.

In § 284.10(c)(3), the Commission is

adopting a series of regulations to

standardize electronic communication,

specifically requiring pipelines to: post

all information and conduct all business

transactions using the public Internet

and internet protocols by June 1, 1999;

adhere to specific standards in posting

information on pipeline web sites and

in maintaining electronic records; and

provide shippers with notice of critical

system events by using the Internet. The

Commission will discuss these

requirements below.

b. Regulation requiring pipelines to

conduct all transactions over the

Internet. In § 284.10(c)(3)(i), the

Commission is requiring pipelines to

provide all electronic information and

conduct all electronic transactions over

the public Internet. The Commission

further is requiring pipelines to provide

private networks with nondiscriminatory connections using

internet tools, internet directory

services, and internet communication

protocols upon payment of a reasonable

fee to recover the costs of providing

such an interconnection. The comments

address both the Commission’s

proposed use of the Internet to conduct

all transactions and various aspects of
20084 Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations

63See comments by Altra, CNG, Duke Energy

Interstate Pipelines, ECT, Engage, Enron, Gaslantic,

INGAA, K N Interstate Group, Latitude, MGE,

NGSA, Nicor Gas, PGC, et al., PG&E, Piedmont,

ProEnergy, SoCal Gas/SDG&E, Southern,

TransCapacity.

64 K N Interstate Group states that no pipelines

have experienced difficulties with the Internet and

that stocks and bonds are traded over the Internet,

reflecting the financial industry’s confidence in the

security of the Internet.

65The Internet is designed to maintain

communication even if portions of the network go

down. What is now termed the Internet initially

was conceived during the cold war as a

communication method to maintain continuing

transmission capability in the event of nuclear war.

The concept was to replace the point-to-point

networks, where each site on the network was

dependent on the link before it, with a web

network, where information could find its own path

even if a section was destroyed. See e.g., Bruce

Sterling, Short History of the Internet, http://

www.forthnet. gr/forthnet/isoc/

short.history.of.internet (Feb. 27, 1997). The more

likely eventuality, therefore, is an individual

problem such as a pipeline or customer’s Internet

service provider going down, just as in the current

EBB system a pipeline or customer’s EBB computer

can malfunction.

66Comments by Duke Energy Interstate Pipelines

(migrate EBBs to the Internet), NGSA (should

require interactive web sites), Southern (not

sacrifice the ease of use of EBBs).

67 18 CFR 284.10(b)(1)(iv) (1997), Electronic

Delivery Mechanism Related Standards 4.3.6.

68Shippers not paying demand rates, in effect,

would receive the interactive EBB solution for free.

69Comments by Altra, NGC, NGSA.

70See GISB’s March 23, 1998 filing (Volume I,

Appendix 9).

its implementation, which are discussed

below.

(1) The requirement to use the

internet to conduct transactions. The

commenters generally support the

requirement to move transactions to the

Internet to establish a single, efficient

mode of conducting business with all

pipelines.63 Only two commenters

oppose requiring pipelines to move all

electronic communication to the

Internet. Koch argues that, rather than

requiring that all transactions be

conducted over the Internet, the

Commission should require pipelines to

conduct only basic, minimum

transactions over the Internet, such as

the EDI transactions contained in

Version 1.2 of the datasets. Wisconsin

Distributors contend that the Internet

may not be reliable enough and that

pipelines must have back-up systems,

such as EBBs, available to avoid

degradation of reliability.

The Commission is adopting the

requirement that all transactions and

information be conducted using the

Internet, because, as the majority of the

comments recognize, moving to a single,

standardized mode of communication is

necessary to achieve an efficient

communication system. GISB has

considered the reliability and security

issues relating to the use of the Internet

for conducting transactions and

concluded that these concerns can be

met.64 Indeed, as Wisconsin Distributors

note, the Internet backbone itself is

reliable; most of the difficulties with

Internet connections are the result of

problems with the Internet servers of the

parties and not the Internet itself,

problems that can also affect pipeline

EBBs.65 Pipelines, therefore, must make

sure that they test their Internet systems

prior to implementation. Since

problems with Internet communications

generally will result from problems with

pipeline servers or with the Internet

Service Provider (ISP) used to connect

the pipeline’s server to the Internet,

GISB and the pipelines should consider

measures to ensure communication

reliability, such as mirrored (duplicate)

servers and the use of a back-up ISP.

Pipelines also may keep their EBBs

functional for one year after

implementation of the Internet system,

solely as a back-up.

Moving to the Internet is intended to

eliminate the idiosyncracies resulting

from the EBB system. Thus, the goal of

the regulation would be defeated if, as

Koch suggests, only some functions

were moved to the Internet, since

shippers still would be forced to use the

EBBs for other transactions.

(2) Implementation of the regulation.

(a) EDI v. interactive web sites and the

future of EBBs. The principal division

between the comments is over how the

proposal is to be implemented and what

will happen to EBBs. Several

commenters envision a system where

the current interactive EBBs will

become interactive web sites.66 This

would mean that shippers would be

able to conduct transactions in much

the same way they do today, by having

a person type information on the

computer screen. NGSA argues that the

standards should include both EDI and

an interactive web site.

TransCapacity and Gaslantic contend

that requiring pipelines to provide

interactive web sites fails to achieve the

necessary standardization. They

contend that except for the few

informational components already

required to be posted on web pages,67 all

transactions should be conducted

through EDI dataset transactions.

TransCapacity asserts that an EDI

solution would be far less expensive for

the pipelines to implement than an

interactive web approach. It maintains

that GISB need only create a few more

datasets to transfer all EBB functions to

EDI and that implementation of these

datasets will be relatively simple, since

the infrastructure for transferring EDI

data already exists. Koch similarly urges

that the requirement only apply to EDI

transactions. Requiring a dual EDI and

interactive web-based system, it asserts,

is just as inefficient as the current dual

EDI and EBB system and pipelines

would have to make substantial

investments to create an interactive

web-based system.

TransCapacity further asserts that if

pipelines are able to recover their

interactive web site costs through their

cost-of-service, the less efficient

interactive web-based system will

receive an unfair subsidy relative to

shippers implementing EDI on their

own or by using third-parties. The

shippers using the interactive web site

will incur no incremental charge,68

while those using EDI will incur costs

for implementing this solution. It argues

that if pipelines want to provide an

interactive web based or EBB approach

they should do so only if they impose

a separate charges for this service. Other

commenters similarly contend that once

the Internet solution is implemented,

pipeline recovery of dial-up EBB costs

through cost-of-service should be

discontinued.69

According to GISB’s 1998 Annual

Plan, it is convening an Internet

transition task force to consider how to

effectuate the transition to full Internet

communications. However, according to

the minutes of the GISB Executive

Committee Meeting of February 12,

1998, GISB also appears divided over

which model of Internet communication

should be adopted.70

To guide the industry’s deliberations,

the Commission will explain below the

general outline of how the standardized

communications policy should be

implemented.

First, pipelines conducting business

transactions electronically must conduct

all such transactions using EDI format.

The industry, and the Commission,

chose EDI as the standardized method

for conducting transactions with all

pipelines using a single uniform

methodology. Many of the efficiency

benefits from establishing the

infrastructure to process EDI

transactions would be lost unless

shippers can use EDI for conducting all

business transactions with the

pipelines. Thus, the pipelines and GISB

need to create EDI datasets for all

transactions not yet standardized.

Second, pipelines may, but will not

be required to, provide interactive web

sites. Pipelines will be permitted costof-service recovery in subsequent

section 4 rate cases for the costs of the

interactive web site only if the pipelines

together with GISB create standards

governing the access to, presentation,
Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations 20085

71 18 CFR Part 154, subpart D.

72The Commission similarly has required electric

utilities to provide connections to third-party

networks using the same protocols as the

connections to the Internet. Open Access SameTime Information System, Order No. 889, 61 FR

21737 (May 10, 1996), FERC Stats. & Regs.

Regulations Preambles [Jan. 1991–June 1996]

¶ 31,035, at 31,619 (Apr. 24, 1996).

73Comments by ANR/CIG, Columbia Gas/

Columbia Gulf, Enron, Koch, NGPL, NGSA,

Southern.

74Comments by CNG, Columbia Gas/Columbia

Gulf, Duke Energy Interstate Pipelines, INGAA,

Latitude, NGPL, Southern, WGP.

and format (‘‘look and feel’’) of the sites.

This approach will enable the pipelines

to respond to shippers’ needs while still

providing a reasonably standardized

method of communication. As NGC

notes, many electric utilities

collaborated on developing a common

Internet site that not only provided

shippers with a standardized format, but

significantly reduced the utilities’

development costs as well. The

pipelines and GISB should give serious

consideration to pursuing a similar

course.

Third, the pipelines must assure a

level playing field for shippers using

EDI and the interactive web site.

Regardless of which system is used, the

shipper must obtain the same service

and same information handling and

response priority from the pipeline. All

transactions available on the interactive

web site also must be available through

standardized EDI communications.

Fourth, by the June 1, 1999

conversion to Internet communications,

communications using EBBs should

cease. Continued use of EBBs past June

1, 1999 would only delay the move to

a standardized communication system.

Pipelines, however, may maintain EBBs

solely as a back-up system for a period

of one year after the June 1, 1999 date

for implementing Internet

communication. Pipelines must remove

EBB costs from cost-of-service in any

general section 4 rate case effective after

June 1, 2000. Pipelines also may request

recovery of any stranded costs resulting

from discontinuation of EBBs that are

incurred during the test period of a

general section 4 rate case that removes

EBB costs from cost-of-service.71 New

investments in EBB technology will not

be recoverable.

TransCapacity suggests that

permitting pipelines cost-of-service

recovery for standardized interactive

web sites provides a subsidy to the users

of the interactive web site. But the

Commission does not find an undue

preference. The costs of implementing

the EDI standards currently are included

in pipeline cost-of-service even though

not all shippers may use this approach.

While, in theory, pipelines could

impose separate charges for EDI and

interactive web sites, allocating costs

between the services could prove

difficult, given the integrated nature of

communication systems. Thus,

including all standardized approaches

in the pipelines’ cost-of-service will

permit shippers to choose the

communication approach that best fits

their business needs.

(b) Third-party networks. In a related

issue, several commenters oppose the

proposal that pipelines provide

connections to third-party networks.

Enron argues that pipelines should not

have to support value-added-networks

(VANs) that charge for connections. The

K N Interstate Group maintains that

maintenance of third-party connections

is inconsistent with a commitment to

standardization, would be expensive,

and is not needed for security concerns.

NGPL asks for clarification of the

requirement, contending that issues

need to be resolved such as standards

governing these networks, network

obligations for interfacing with

pipelines, and network responsibility

for failure to perform all necessary tasks

in a timely manner. TransCapacity and

Altra support the requirement,

contending that third-party networks

should be accommodated as long as

they are willing to pay all costs of the

interconnection. Altra contends that

such connections can be made at

relatively low cost by means of a simple

router where both the Internet and

third-party transactions go through the

same system with the same priority.

The Commission will require

pipelines to provide third-party

connections as long as the third-party

pays a reasonable fee, to be included in

the pipeline’s tariff, reflecting the costs

to the pipeline of providing the

connection.72 Third-parties would have

to use the same datasets and internet

protocols as the EDI services. The

pipelines also must provide the same

information handling and response

priority for those using the standard

Internet services and third-party

networks. GISB should consider

whether any additional standards are

necessary to ensure that third-party and

Internet connections receive equal

priority.

Pipelines will not have to pay VAN

charges, as raised by Enron; those

charges would have to be paid by the

third-party. Moreover, there should be

no added costs or burdens on the

pipelines since under the regulation, the

third-party networks would have to

communicate using the same internet

tools, protocols, and directory services

as would be used for the pipelines’

Internet service.

(c) Transactions covered. Enron,

while not disagreeing with the

regulation, maintains it is too broad.

Enron argues that the use of Internet

communications should be limited to

those functions now conducted over

EBBs, and not other electronic

transactions, such as funds transfers. All

transactions provided on EBBs are

covered by the regulation. GISB should

consider how to handle other electronic

transactions, such as funds transfers, in

the most standardized fashion possible.

(3) Implementation date. The final

rule requires pipelines to implement the

requirement to move all

communications to the Internet by June

1, 1999. In the NOPR, the Commission

stated that while the June 1, 1999

deadline should give GISB sufficient

time to develop any needed standards,

the pipelines should be prepared to

move to the Internet by the June 1, 1999

deadline regardless of whether

standards are developed.

Several commenters argue that

implementation should not precede the

development of standards even if

implementation is delayed.73 They

contend that pipeline implementation

prior to standardization would be

wasteful, since pipelines would have to

revise their systems after the standards

are developed.

The pipelines 74 and Latitude contend

that June 1, 1999 is too aggressive a

timetable for implementation. In

particular, the pipelines object to the

deadline because such an effort would

drain resources from pipeline efforts to

ensure that their computer systems are

not subject to the Year 2000 problem

(the use of only two digits, e.g. 98, to

represent the year, causing problems if

00 is interpreted as 1900 rather than

2000). Duke Energy Interstate Pipelines

contend that the June 1, 1999 deadline

should require pipelines to do nothing

more than move their EBBs to the

Internet. Any further standardization, it

recommends, should take place after

2000.

NGC and TransCapacity argue that the

June 1, 1999 deadline is achievable and

should not be changed. TransCapacity

maintains the pipelines are using the

Year 2000 issue as a pretext for delay

and there is no reason why pipelines

could not implement additional EDI

standards by June 1, 1999. Other

commenters argue the Commission

should require the pipelines to begin

testing their Internet solutions at least

three months before the deadline and

that GISB should be given an interim
20086 Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations

75Comments by NGC, NGSA, ProEnergy, SoCal

Gas/SDG&E.

76EBBs may be maintained only as back-up

systems.

deadline of June 1, 1998 to develop

standards.75

The Commission agrees that the

development of standards for moving to

the Internet is necessary and is

encouraged by GISB’s development of

task forces to begin this process. The

June 1, 1999 implementation date,

however, should provide the industry

with sufficient time to develop

appropriate standards prior to

implementation and also permit

inauguration of the new system during

the summer months, when pipelines are

not running at peak. With the widespread availability of commercial

Internet solutions, it does not appear

developing a standardized Internet

communication system should represent

a major technological challenge.

Maintaining the June 1, 1999 deadline

will give all parties an incentive to

reach agreement on standards and

proceed with implementation

expeditiously.

While the general issue of computer

readiness for the Year 2000 has received

much publicity, the pipelines have not

shown that this problem is of such

magnitude for them that

implementation of the regulation should

be delayed across the board. The

pipelines refer generally to the problem,

but do not provide any details about the

scope of their difficulties, such as by

showing how many pipelines even have

a problem, how many systems are

affected, or the extent of the resources

needed to address the problem.

Moreover, the regulation adopted here

requires only that pipelines conduct

transactions using EDI, and the

pipelines do not contend that

implementing that requirement by June

1, 1999 creates a technological problem.

As discussed earlier, pipelines may

not continue to use their EBBs past the

June 1, 1999 implementation deadline.76

For those pipelines that choose to

replace their EBBs with interactive web

sites, the ready availability of

commercial Internet solutions suggests

the development of an interactive web

site is not such a daunting technological

feat that it would unduly interfere with

correcting a particular pipeline’s

problem in accommodating the

transition to the Year 2000. In addition,

as discussed earlier, pipelines can save

significant monetary and personnel

resources as well as provide a more

standardized product if, instead of each

pipeline developing a proprietary

solution, they collaborated on

development of a standardized Internet

communication system, as was done in

the electric industry.

c. Regulations for posting information

on web sites. In Order No. 587–C, the

Commission adopted GISB standard

4.3.6 requiring pipelines to post

information relating to pipeline tariffs,

affiliate transactions, operationally

available capacity, system notices, and

an Index of Customers for viewing in

HTML format on pipeline Internet web

sites. The Commission is incorporating

by reference standards 4.3.5 and 4.3.16

of GISB’s Version 1.2, which will

require that pipelines provide for

downloads of the posted documents

either in hyper-text mark-up language

(HTML) or rich-text-format (RTF).

Additionally, in § 284.10(c)(3)(ii), the

Commission is adopting regulations

requiring pipelines to adhere to the

following standards with respect to the

posted information: the documents must

be accessible to the public over the

public Internet using commercially

available web browsers, without

imposition of a password or other access

requirement; users must be able to

search an entire document online for

selected words and users must be able

to copy selected portions of the

documents; and documents on the Web

site should be directly downloadable

without the need for users to first view

the documents on the web site.

ECT contends more standards are

necessary, for example, to establish

common methods of doing text

searches. It also contends that HTML

should not be used for downloads as

provided in GISB standard 4.3.16

because the printed version of HTML

documents may lose formatting features

and because of the difficulty in printing

entire HTML documents if the

documents are broken into separate

linked chapters or pages. It recommends

that all downloads be provided solely in

RTF format. Altra contends that there

should be a common URL or Internet

name for all standardized documents.

Latitude contends the Commission

needs to protect against web sites that

are specifically tailored to a particular

proprietary Internet browser. SGPC

argues pipelines should be able to rely

upon the most recent software.

The Commission will adopt the

proposed regulations as providing a

basic foundation for posting upon

which GISB can improve. GISB has

established its own ‘‘Look and Feel’’

task force to develop a consistent and

uniform presentation for information

posted on pipeline web sites.

With respect to Latitude’s concern,

§ 284.10(c)(3)(ii)(A) provides that web

sites must be viewable using

commercially available browsers, which

protects against a pipeline making its

site accessible to only one browser. In

response to SGPC’s comment about

current software versions, standards

4.3.6 and 4.3.16 require that all

information be posted in HTML and

downloadable in HTML or RTF format.

Therefore, pipelines should not be

requiring the use of other software to

view information on or download

information from web sites. While

pipelines should accommodate

reasonably current versions of web

browsers, they should not be required to

accommodate browsers that have been

out-of-date for several years. GISB

should consider the development of

standards reflecting the level of HTML

coding that should be supported. At this

point, the Commission sees no reason to

depart from the industry consensus

permitting pipelines to download

documents in HTML, as ECT suggests.

That, along with other standardization

issues, such as the use of a common

URL designation for documents, should

be examined by GISB as it continues its

deliberations.

d. Regulations requiring that pipelines

provide a cross-reference table for

numeric designations. In many places in

the standardized datasets, GISB has

used a common code to represent the

shipper’s name. GISB has chosen to use

the numeric designation provided by

Dun & Bradstreet (DUNS) as the means

of identifying shippers. But there is no

requirement in the standards to provide

a table cross-referencing the numeric

designation with the shipper’s name. In

§ 284.10(c)(3)(iii), the Commission,

therefore, is requiring pipelines to

provide a table cross-referencing any

numeric designation with the applicable

name or other information being

represented.

No party objects to this regulation.

NGC asks the Commission to clarify that

the numeric representation is for the

EDI datasets, used for computer-tocomputer interaction only. It maintains

that numeric designations are not useful

for information provided on web sites

for human to computer interaction.

NGSA maintains that a standardized

cross-reference table needs to be

developed so that shippers can use the

format across all pipelines.

The regulation requiring that

pipelines provide a cross-reference table

when using numeric designations is

needed to ensure that the Commission

and shippers can identify parties to a

transaction. For instance, without a

cross-reference table, neither the

Commission nor other shippers can

identify what shipper is receiving

capacity on a capacity release
Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations 20087

77See Standards For Electronic Bulletin Boards

Required Under Part 284 Of The Commission’s

Regulations, Order No. 563–A, 59 FR 23624 (May

9, 1994), III FERC Stats. & Regs. Regulations

Preambles ¶ 30,994, at 31,044–45 (May 2, 1994).

78Comments by ANR/CIG, Columbia Gas/

Columbia Gulf, Enron (5 years unwarranted),

INGAA, K N Interstate Group, Koch, NGPL (no

justification), NGT/MRT.

79 GISB standard 4.3.4 provides for two year

retention of transactional data, but states that this

requirement does not otherwise modify statutory,

regulatory, or contractual record retention

requirements. Because the Commission is

continuing its current three year requirement for

retention of electronic information, it will not adopt

GISB standard 4.3.4.

80Comments by Florida Cities (costs too much for

shippers to monitor Internet connections on a 24

hour basis), MGE (until Internet is tested, facsimile

and telephone should be used), NGSA (mode of

notification at shipper’s choice).

81For example, one pipeline representative at the

technical conference stated that even calling in all

available personnel, about 24 people, it took them

six hours to contact all affected parties using

telephonic communication. Transcript of December

13, 1996 technical conference at 37.

transaction, information which

Commission regulations require to be

publicly available. When the

Commission previously required

pipelines to use a common code to

identify pipeline transaction points, it

similarly required the pipelines to

provide a cross-reference table at a cost

not to exceed the expenses of shipping

and handling.77

The GISB standards require the use of

numeric representations only for EDI,

computer-to-computer communication.

The Commission agrees with NGC that

numeric designations should not be

used for information posted on web

sites for computer-to-human interaction.

The Commission also agrees with NGSA

that GISB either should develop a

single, central cross-reference table or

else establish standards governing the

cross-reference tables provided by the

pipelines.

Altra contends that, rather than using

DUNS numbers, GISB should develop

its own cross-reference table. Altra

maintains that Dun & Bradstreet will not

agree to permit pipelines to provide a

cross-reference table and that, even if it

did, the DUNS number is not a precise

enough designation, because the

number is not distinctly assignable to a

particular party.

The Commission will continue to

accept the industry consensus to use

DUNS numbers. However, if DUNS will

not permit the development of a crossreference table, the industry either

needs to develop its own cross-reference

table or cease using numeric

designations and return to using names.

e. Requirement that information be

the same regardless of the format in

which it is provided. Under the

Commission regulations adopted here,

pipeline customers can (or will be able

to) obtain information and transact

business using a number of formats,

EBBs (until implementation of the

Internet communication methods), EDI

datasets, or interactive web sites. In

§ 284.10(c)(3)(iv), the Commission is

adopting a regulation requiring that the

informational content must be the same

regardless of the format in which it is

provided.

Altra strongly supports this regulation

to ensure that all functions achievable

on one format can be achieved through

the other formats, and no commenter

has opposed it. Given the different

methods that pipelines can use to

provide information, it is crucial that

the content be the same regardless of the

format. For instance, information about

operationally available capacity is

available currently on EBBs, pipeline

web sites, and EDI downloads. The

information obtained using each of

these methods needs to be the same.

f. Regulation regarding the retention

period for electronic information. In the

NOPR, the Commission had proposed to

expand the current three-year

requirement for retention of electronic

EBB data to a five year period for

retention of all electronically conducted

transactions. The pipelines oppose the

extension as being unwarranted,

unjustified, and burdensome.78 ANR/

CIG point out that they conduct more

than 6,000 nominations and

confirmations each day and that, on an

industry-wide basis, this would amount

to tens of thousands of nominations and

confirmations, figures which do not

include the requirement to maintain

records of other transactions. ANR/CIG

suggest adoption of the GISB two-year

requirement for maintenance of

electronic data.

MGE, NGSA, and ProEnergy support

the five year requirement.

TransCapacity contends there is no need

to retain every electronic transaction

record for five years. It suggests the

pipelines be required to maintain only

summary electronic records, such as the

end of day scheduled quantities dataset

which summarizes the nomination

activity for the day.

After reviewing its need for

information, the Commission has

determined not to change its current

three year retention period for electronic

information. The current requirement to

retain electronic information in section

284.10(a) applies only to information

maintained on EBBs. This requirement,

therefore, needs to be updated to

encompass all information and

transactions conducted electronically

regardless of form, such as EDI or other

Internet-based communication. In

section 284.10(c)(3)(v), the Commission

is adopting a regulation requiring that

pipelines retain for a period of three

years records of all information

displayed and transactions conducted

electronically and be able to recover and

regenerate all such electronic

information and documents.79

Koch maintains that the data archived

under this section should not be

maintained on-line, but should be

provided on disk or through other

electronic means. Section

284.10(c)(3)(v) requires pipelines to

make the information available in

electronic form for a reasonable fee.

Pipelines, therefore, need not maintain

the information on line, but may make

archived information available on disk

or CD ROM.

g. Regulation requiring Internet notice

for operational flow orders and other

critical notices. In § 284.10(c)(3)(vi), the

Commission is adopting a regulation

requiring pipelines to provide notice of

operational flow orders and other

critical notices by posting the notice on

their web sites and by notifying the

affected customers directly either by

Internet E-mail or notification to the

customer’s URL or Internet address. The

Commission will address below the

comments on the regulation as well as

issues concerning the method of

implementing the requirement.

(1) The use of Internet notification.

Three commenters oppose the

requirement to use Internet notification,

contending that notice should be made

by telephone or facsimile, at the

customer’s choice.80 Their concern is

that customers may not be available to

check the Internet or read the notice.

The Commission concludes that, on

balance, posting on the web site together

with Internet E-mail or direct notice to

an Internet address effects a reasonable

balance between the shippers’ need for

notice and the pipelines’ need to create

an efficient automated system for

communicating with all of their

shippers. By permitting automated

notice to all shippers simultaneously,

Internet notification speeds up the

notification process and removes any

potential for disparate treatment

between shippers as to the time at

which they receive notice.81 The

commenters preferred solution,

notification by telephone or fax, is not

necessarily any more reliable than

Internet notification since telephones or

fax machines also may not be monitored

and there would be no record that a

notice was sent by the pipeline.

Even for after hours notice, Internet

postings provide shippers with a
20088 Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations

82Transcript of December 13, technical

conference, at 32–31.

83A filing to change current procedures cannot be

made as part of a filing to comply with the

requirements of this rule. Any filing to change

current procedures must be made as a separate

section 4 filing.

84For example, if shipper A on an upstream

pipeline transports gas to an interconnect with a

downstream pipeline and transfers the gas to

shipper B on the downstream pipeline, the

pipelines would have to match those transactions

as part of the process of confirming the

nominations.

significant amount of flexibility.

Employees can check for critical notices

on the Internet at home. In addition, the

requirement for direct notice to E-mail

and Internet addresses will enable those

shippers who want telephonic or pager

notification to receive such notice by

purchasing software that automatically

triggers telephones or pagers when an

Internet message is received.

(2) Implementation after development

of standards. ECT, NGC, and NGSA urge

that prior to implementation of the

Internet notice requirement,

standardization of definitions and

format is needed to differentiate types of

notices so the notification software can

properly determine whether to trigger

the phone or pager.

The Commission agrees that standards

are needed for this notification process

to operate efficiently. In particular, a

dataset will be needed for those

customers relying upon EDI

communication with the pipelines.

Therefore, the Commission will defer

implementation of this requirement

until the necessary standards are

developed by GISB. According to GISB’s

1998 Annual Plan, no schedule has been

set for development of standards for

OFO notification. However, during the

December 12–13, 1996 technical

conference, members of the GISB Future

Technology Task Force stated that, if

needed, such standards could be

developed and others pointed out that a

similar dataset already exists for

general, as opposed to customer

specific, notices.82 Modification of this

dataset should not prove particularly

difficult and GISB should be able to add

this to its agenda for 1998. The

Commission will expect GISB and

others in the industry to propose such

standards by December 31, 1998. Until

that time, pipelines should continue to

provide notice according to the

provisions of their tariffs.

(3) Penalties and other

implementation details. NGC, NGSA,

and Nicor Gas argue that penalties

should not be imposed for E-mail

failures or if actual notice is not

received. SoCal Gas/SDG&E contend

that the pipelines should seek to notify

the shipper using an alternative method

if the pipeline is notified that the E-Mail

was not delivered. On the other hand,

INGAA, K N Interstate Group, and

NGPL contend that E-mail should be the

shippers’ responsibility and not the

pipelines.

The Commission finds no reason for

pipelines to waive penalties except

when the pipelines’ notification system

fails. Shippers are responsible for

maintaining a current E-Mail or Internet

address, and they should bear

responsibility for failures by their

chosen Internet provider. Pipelines,

however, have little reason to leave

shippers without notice in critical

operational situations, since that could

lead to adverse consequences for the

system. Thus, the Commission fully

expects the pipelines to try alternative

methods in the event they have specific

notice that electronic notice has not

been received.

INGAA maintains the pipelines

should be responsible for notifying only

one E-Mail address. The Commission

will not impose such an absolute

requirement. Given the ease of

automatic notification, shippers should

be able to choose a reasonable number

of addresses for notification, for

example, if they want a different

notification address for after-businesshours notification.

Columbia Gas/Columbia Gulf argue

that pipelines should be able to conform

their current procedures to the

regulation without concern about

shippers’ arguments that a change

constitutes a degradation of service.

Florida Cities, however, maintains that

the new regulation should not overturn

a settlement on this issue on Florida

Gas.

As a general matter, pipelines should

be able to revise their notification

procedures to conform to the regulation.

However, while pipelines must comply

with the regulation, they may also agree

with their shippers to provide

additional methods of notification. If a

pipeline chooses to make a filing under

section 4 of Natural Gas Act to eliminate

or revise their current procedures, the

Commission will be able to consider

specific circumstances, such as

settlements or rate issues, bearing upon

the proposed change.83

C. Issues on Which the Commission

Determined Not to Adopt Requested

Regulations

In the NOPR, the Commission did not

propose regulations as requested by

some industry members in other areas

in which GISB could not reach

consensus—title transfer tracking, crosscontract ranking, multi-tiered

allocations, fuel reimbursement, and

penalty determinations. The

Commission, however, did provide the

industry with guidance as to its general

policies in these areas to help facilitate

GISB’s consideration of standards in

these areas.

1. Title Transfer Tracking

Title transfer tracking refers to the

accounting for transfers of title to gas at

a nomination point when no

transportation is involved. Under

Commission policy, shippers must have

title to gas in order to transport the gas

on a pipeline. Pipelines, therefore, have

always had to perform some title

transfer tracking to ensure that shippers

have title to gas.84

However, with unbundling and the

development of a more fluid gas market,

gas purchase and sale transactions at

nomination points are increasing

dramatically. Thus, at an interconnect

point, there may be multiple transfers of

title before the gas is nominated on the

downstream pipeline. In order for

pipelines to confirm the gas nominated

on the upstream and downstream

pipelines, they need to know which

upstream shipper(s) are delivering the

gas to the shipper on the downstream

pipeline.

GISB had begun the process of trying

to create standards for title transfer

tracking, but the industry segments

differed over whether the pipelines

should be required to establish a

computerized title transfer tracking

service. In the NOPR, the Commission

stated that its policy was not to require

pipelines to establish a service to

account for the purchase and sale of gas

between shippers independent of

transportation. The Commission found

it should be the shipper’s responsibility

to furnish sufficient information to the

pipeline to establish its title to the gas

and its right to nominate on the

pipeline. The Commission noted that

third-parties are now providing title

transfer tracking services and concluded

that pipelines must be willing to accept

title transfer information from these

third parties. The Commission

requested GISB to submit standards, by

March 31, 1998, governing pipeline

obligations to accept confirmations by

third-party title transfer trackers.

The Commission will address below

comments on the Commission’s

determination not to propose a

regulation requiring pipelines to

provide title transfer tracking service

and on several issues relating to the

pipelines’ processing of information
Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations 20089

85Comments by El Paso, Enron, INGAA, Koch,

NGPL, Nicor Gas, Peoples/North Shore, SoCal Gas/

SDG&E, TransCapacity.

86When pipelines are the sole provider of title

transfer tracking, disputes have arisen as to the

level of the service which should be provided. See

El Paso Natural Gas Company, 81 FERC ¶ 61,174

(1997) (complaints about the extent of title transfer

activity the pipeline should be required to process).

87See Moss Bluff Hub Partners, L.P., 80 FERC

¶ 61,181, at 61,475 (1997).

88For instance, TransCapacity notes pipelines

could require that title transfer tracking services

provide non-discriminatory service to anyone

requesting the service and that they adhere to the

GISB standards.

89Pipelines could even propose tariff provisions

setting out the requirements for submitting bids to

provide the service.

90Comments by Columbia Gas/Columbia Gulf,

Enron, INGAA, NGPL, Williston Basin.

91Comments by Enron, NGPL.

from third-party title transfer tracking

service providers.

a. Pipeline obligations to provide title

transfer tracking services. The pipelines

and LDCs generally agree with the

Commission’s decision not to require

pipelines to provide a title transfer

tracking service.85 NGC, NGSA, and

ProEnergy oppose the decision. They

contend that due to the nature of title

transfer tracking service, it can be

performed by only one party and that

the pipelines are the best positioned to

perform the service. They contend that

third-parties have not emerged to

provide this service.

NGC contends that having multiple

parties provide title transfer tracking is

inefficient, because the pipeline would

still have to track title transfers running

between the trackers. It suggests that the

Commission’s approach may open the

door to a plethora of title transfer

trackers each of which the pipeline

would have to support. NGSA, while

recognizing that title transfer tracking is

not an integral requirement of natural

gas transportation, contends the

pipelines are the only parties capable of

providing the service. It states GISB is

considering an option under which

pipelines would provide title transfer

tracking services and asks the

Commission to defer a final ruling on

this issue until GISB has finished its

considerations.

Altra agrees that only one party can

efficiently perform the service, but it

argues that, rather than having the

pipelines perform the service, each

pipeline should be required to choose

the third-party provider for its system.

TransCapacity, on the other hand,

contends that monopoly provision of

title transfer tracking service is not

necessary. TransCapacity argues that

pipelines can implement several

provisions in their tariffs to ensure that

they will deal with only bona fide title

transfer tracking services.

GISB should not necessarily shortcircuit on-going discussions over

options for conducting title transfer

tracking. If GISB reaches consensus that

pipelines should be required to provide

this service, the Commission will give

that agreement great weight in later

considerations of the issue.

Absent a consensus position from

GISB, however, the Commission finds

insufficient justification for proposing a

regulation requiring pipelines to

perform title transfer tracking services.

It should be the shipper’s responsibility

to furnish the transporter with sufficient

information to establish its title to gas

and its right to nominate that gas on the

pipeline. NGSA itself concedes that title

transfer tracking is not an integral part

of providing transportation of natural

gas. While pipelines may wish to offer

title transfer tracking as an added

service option to their shippers, the

Commission is not convinced at this

juncture that the pipelines are the only

possible or the best provider of the

service and, therefore, should be

required to provide it.

Rather than mandating that pipelines

be the sole provider of title transfer

tracking service, the Commission is

opening the market to the force of

competition from third-party service

providers. The competition between

providers, including those pipelines

that wish to compete, should provide

the proper incentive for firms to provide

the level of title transfer tracking

services that customers desire and for

which they are willing to pay.86

It is incorrect to assume, as do the

commenters, that the absence of thirdparty title transfer tracking services

today means such services will not

develop in the future. Hub and storage

operators currently provide title transfer

tracking services, and the pipelines

accept their confirmations.87 While

independent third party title transfer

trackers do not exist currently, that is

not surprising since, as TransCapacity

notes, until the NOPR, pipelines did not

recognize an obligation to support

confirmations from independent thirdparty title transfer tracking services. The

provision of title transfer tracking

services by storage and hub operators

suggests that a market for this service

exists and that parties other than

pipelines can provide the service. Once

GISB develops the standards and

pipelines are required to support thirdparty title transfer trackers, firms will

have incentives to enter this market,

particularly if the demand for the

service is as great as the commenters

contend.

It also is not clear that pipelines must

provide this service because a monopoly

provider of title transfer tracking

services is needed at each point or on

each pipeline. The competitive market

may develop naturally so that only one

or a few title transfer tracking service

exists at each point. The pipelines can

propose tariff provisions, if it becomes

necessary, to protect against NGC’s

concern that every shipper will

designate itself as a title transfer

tracking service provider.88 Moreover,

even if multiple title transfer trackers do

prove to be inefficient, there are

competitive solutions which would not

require the Commission to mandate that

pipelines provide the service. Shippers,

either alone or together with pipelines,

could solicit competitive bids for title

transfer tracking services on each

pipeline and choose the firm offering

the best bid.89

In the NOPR, the Commission

requested that GISB and others in the

industry submit, by March 31, 1998,

business practices and electronic

communication standards for dealing

with title transfer tracking. A consensus

of the industry supports the GISB 1998

Annual Plan which provides for the

development of such standards by the

fourth quarter of 1998, and the

Commission will therefore expect the

submission of standards by December

31, 1998.

b. Timing of pipeline processing of

title transfer tracking information. In the

NOPR, the Commission stated that

pipelines should accept title transfer

tracking information as part of its

process for confirming nominations.

The pipelines point out that the GISB

task force has not completed work on

title transfer tracking standards, and the

pipelines are not yet convinced title

transfer tracking can be accomplished

through the confirmation process.90

Their principal concern is that, if title

transfer tracking can be performed by

any firm, multiple title transfer tracking

services may develop and that

processing all those transactions during

the confirmation process would be

burdensome. Most pipelines suggest

title transfer tracking should be part of

the nomination process.91

On the other hand, Columbia Gas/

Columbia Gulf and TransCapacity

maintain that title transfer tracking

should be a part of the confirmation,

rather than the nomination process.

They also agree that title transfer

tracking should take place earlier in the

confirmation cycle than the 3:30 p.m.

confirmation from point operators.

While GISB should seek to work out

the details for conducting title transfer
20090 Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations

92Trunkline Gas Company, 75 FERC ¶ 61,003

(1996) (approving a separate flat charge for title

tracking service). But see Williams Natural Gas

Company, 79 FERC ¶61,096 (1997) (permitting a

separate fee, but rejecting a volumetric fee unrelated

to costs of providing the service).

93 18 CFR 284.10(b)(1)(i) (1997), Nominations

Related Standards 1.3.23.

94Comments by Altra, MGE, NGC, NGSA, Nicor

Gas, PG&E, Piedmont, ProEnergy, SoCal Gas/

SDG&E, TransCapacity.

95Comments by K N Interstate Group (adds too

much complexity on web based systems), NGT/

MRT (make pipeline allocations unmanageable),

SGPC (affects transportation priority rules and adds

complexity), Viking (requires computer system

upgrades and dataset revisions), Williston Basin

(cause too many problems), WGP (should only be

permitted between contracts or family of contracts

of like priority and rate).

tracking, the Commission does not want

the timing of title transfer tracking

processing to inhibit standards

development. To forestall possible later

disputes over this issue, the

Commission generally agrees with

Columbia Gas/Columbia Gulf and

TransCapacity that title transfer tracking

properly should be part of the

confirmation process. First, the purpose

of title transfer tracking is to confirm

that gas nominated by a shipper will be

at the nominated point. Physical point

operators provide title transfer tracking

services and their information generally

is processed during the confirmation

process. To ensure non-discriminatory

treatment, the same rules should apply

to independent third-party operators.

Second, placing title transfer tracking in

the nomination cycle could reduce

market liquidity and comparability

between physical and title transfer

transactions. For instance, a shipper

may arrange for physical flows up until

the 11:30 a.m. nomination deadline. But

those who wish to arrange for paper

transactions would have to make earlier

arrangements in order to permit the title

transfer tracker sufficient time to

process the paper transactions in time to

meet the 11:30 a.m. deadline. Third,

there is no reason now to suspect that

multiple independent title transfer

tracking services will arise or that the

pipelines will be unable to develop

reasonable measures to ensure that title

transfer tracking does not unduly

burden the confirmation process.

The compromise solution proposed

by Columbia Gas/Columbia Gulf and

TransCapacity would seem to satisfy the

need to include title transfer tracking as

part of the confirmation process while at

the same time providing pipelines with

time to process the title transfer tracking

information and coordinate that

information with the physical point

operators. GISB should further explore

this potential solution in its

deliberations.

c. Other issues. In the NOPR, the

Commission stated that pipelines could,

if they chose, provide a title transfer

tracking service and charge a fee for the

service. TransCapacity requests

clarification that such fees cannot be

charged for processing title transfer

tracking information from third-party

service providers. The Commission

agrees with TransCapacity. Pipelines

may not charge a fee for processing

nomination or confirmation information

from point operators, other pipelines, or

third-party title transfer tracking service

providers. Pipelines may charge a

separate fee only for tracking title

transfers between parties that are

independent of transportation.

NGC maintains that pipelines

providing a title transfer tracking service

should not be able to charge a separate

fee, but should include the costs in their

reservation charges. The Commission’s

policy has been to permit pipelines to

charge a separate fee for title transfer

tracking.92 Charging a separate fee

ensures that those using the service are

not subsidized by the firm shippers

paying reservation charges and can help

to ensure that shippers will use the

service only to the point at which the

shippers’ value from the service equals

or exceeds the price charged.

ECT contends that, if pipelines do

provide a title transfer tracking service,

they should be able to require that all

shippers submit their title transfer

tracking information to the pipeline.

Shippers should not have to use a

pipeline’s title transfer tracking service.

If title transfer tracking is to develop as

a competitive service, shippers should

be able to choose whether to use the

pipelines’ title transfer tracking service

or one provided by a third-party.

Pipelines providing their own title

transfer tracking service should enjoy no

special advantages over third-party

providers and must process all title

transfer tracking information in a

comparable manner.

Koch maintains that pipelines should

not bear liability for title transfer

tracking information provided by thirdparties. The Commission finds no

reason to distinguish between pipeline

responsibilities to process title transfer

tracking information and their

responsibilities and liabilities with

respect to processing a confirmation

from a point operator or other

connecting party.

K N Interstate Group maintains that

pipelines should be able to require

agency agreements with title transfer

tracking service providers and shippers.

As stated above, pipelines should be

able to impose reasonable tariff

requirements for dealing with thirdparty title transfer tracking services.

GISB also can consider standards

delineating the type of agency or other

business agreements that are needed to

facilitate the provision of title transfer

tracking service.

2. Cross-contract ranking. Gas package

ranking refers to the designation by a

shipper of the amount of gas that will

be allocated to particular markets or

customers in the event the shipper’s full

nomination is not accepted. The

standards adopted by the Commission

already require pipelines to honor

shipper ‘‘rankings when making

reductions during the scheduling

process when this does not conflict with

tariff-based rules.’’ 93 For example, if a

shipper nominates 1,000 MMBtus under

one contract for several markets, it can

specify how to divide gas between

markets if the full 1,000 MMBtus is not

confirmed.

Shippers had complained that, under

this standard, pipelines were not

permitting them to rank gas supplies

across contracts. In the NOPR, the

Commission concluded that pipelines

should permit cross-contract ranking so

long as it does not affect the operational

integrity of the pipeline’s system. The

Commission asked GISB and the

industry to submit any additional

standards necessary to facilitate crosscontract ranking by March 31, 1998.

Shippers and NGPL support crosscontract ranking.94 TransCapacity, while

supporting the requirement, suggests

that implementation may require some

pipelines that handle nominations on a

contract basis to change systems so that

they become point based. It suggests

that either the Commission provide

further guidance on this point or allow

GISB to try to develop a way for

pipelines to implement the requirement

without changing their systems. Most

pipelines, with the exception of NGPL,

oppose cross-contract ranking,

contending that it adds too much

complexity to the nominations

process.95

The Commission’s policy is to

provide shippers with the tools to

enable them most effectively to manage

their capacity. Shippers today may be

shipping under a variety of contracts,

including their own firm and

interruptible contracts as well as

capacity release contracts which have

their own specific terms and conditions.

Some pipelines permit cross-contract

ranking or have structured their pooling

to permit such ranking. The ability to

allocate gas among these contracts gives

shippers additional flexibility. As with

title transfer tracking, a consensus of the

industry supports the GISB 1998
Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations 20091

96Comments by ECT, El Paso, Enron, NGPL,

NGC, TransCapacity.

97Even if the shipper in the example allocated the

100 units to the interruptible contract, it still could

not receive more than the 100 units represented by

its firm capacity contract. If the shipper had

nominated no firm service, it would be unable to

allocate any gas to the interruptible contract.

98 18 CFR 284.10(b)(1)(ii) (1997), Flowing Gas

Related Standards 2.3.19.

99Comments by Columbia Gas/Columbia Gulf,

K N Interstate Group, NGPl, Williston Basin.

100 18 CFR 284.10(b)(1)(i) (1997), Nominations

Related Standards 1.2.3.

101 18 CFR 284.10(b)(1)(i) (1997), Nominations

Related Standards 1.3.17 and 1.3.18.

Annual Plan in which cross-contract

ranking standards will be developed by

the fourth quarter of 1998, and the

Commission, therefore, will expect the

submission of such standards by GISB

and others by December 31, 1998.

Several shippers and pipelines raise

concerns about one aspect of the NOPR

dealing with whether shipper rankings

across contracts should apply when

transportation constraints require

pipelines to restrict transportation based

on tariff-based service priorities.96 For

example, if a shipper has nominated 100

units of gas under an interruptible

contract and a 100 units under a firm

contract, and the pipeline can schedule

only the 100 units of firm

transportation, which has a higher

transportation priority, should the

shipper be able to allocate the 100 units

to the interruptible contract.97

Those opposing cross-contract

ranking in this situation contend that

permitting ranking in this case goes

beyond what shippers were seeking in

GISB and would improperly override

scheduling priorities in pipeline tariffs.

While the commenters recognize that

permitting ranking would not

completely obviate contractual

priorities, they maintain it fudges the

distinctions and priorities between

contract types. NGC, one of the original

and strongest proponents of crosscontract ranking, argues that ranking

should not override transportation

priorities. It argues that permitting such

ranking could lead to gaming in which

a shipper gains priority to a constrained

point under a firm contract and then

changes to an interruptible contract,

thereby freeing up its firm capacity to

gain access to another point, perhaps

using an intra-day nomination. El Paso

contends that permitting ranking to take

precedence over scheduling allocations

would cause confusion over which

service should be billed as well as create

confusion and problems during the

confirmation process. On the other side,

Altra, although its comment is not

altogether clear, appears to contend that

even when a cut occurs on the market

side of the equation, shippers should be

able to rank all contracts flowing into

the market regardless of the contractual

priority of the contract.

GISB should strive to develop

mechanisms that provide shippers with

the maximum flexibility to rank

contracts for both supply and market

cuts. GISB, however, should strive to

develop a method for handling ranking

that will not compromise the

transportation priorities associated with

firm and interruptible contracts.

3. Multi-Tiered Allocations

A pre-determined allocation is a set of

instructions by owners of gas as to how

gas should be allocated amongst them

when the actual volumes do not match

the scheduled volumes. The standards

currently require pipelines to accept one

tier of allocations from the upstream or

downstream custody transfer party.98

Some shippers requested the

Commission to issue a regulation

requiring pipelines to support multitiered allocations from all owners of gas,

including the wellhead operator and

each producer owner.

In the NOPR, the Commission found,

as it did for title transfer tracking, that

there was no basis for requiring

pipelines to maintain the accounting for

allocations occurring at the wellhead or

at interconnections not affecting the

pipeline. Since GISB had recognized

that tracking multi-tiered allocations

was another aspect of title transfer

tracking, the Commission suggested that

GISB work on standards to permit thirdparties to track multi-tiered allocations.

Pipelines generally support the

Commission’s determination.99

Columbia Gas/Columbia Gulf agree that

pipelines should not be required to

provide multi-tiered allocations, but

they point out the current standards are

not usable for pipelines or others who

may wish to track multi-tiered

allocations. They urge the Commission

to ensure that GISB follow through and

develop datasets appropriate for

tracking multi-tiered allocations.

NGC, NGSA, and ProEnergy contend

multi-tiered allocations are needed for

producers to accurately account for their

transactions. Pipelines should be

required to perform the service, they

assert, because pipelines have

traditionally been the clearinghouse for

all information related to gas

transactions and are in a unique

position to track multi-tiered

allocations. TransCapacity argues that

GISB currently is working on multitiered allocations and may have devised

a solution in which all allocations can

be made through a single or a series of

levels.

The current regulations give those

parties connecting with a pipeline the

right to determine how gas is to be

allocated at the interconnection with the

pipeline system. The Commission fails

to see why this right needs to be

extended so that pipelines become

responsible for maintaining the

accounting records for allocations

occurring at the wellhead or at

interconnections not affecting the

pipeline. The tracking of multi-tiered

allocations should be no different than

the tracking of title transfers, and thirdparties tracking title transfers should

also be able to account for allocations

back to the wellhead. GISB’s Annual

Plan recognizes the interrelation

between standards for title transfer

tracking and multi-tiered allocations

and targets the development of

standards for both by the fourth quarter

of 1998.

NGPL requests clarification about

whether pipelines can charge a separate

fee for tracking multi-tiered allocations.

Pipelines choosing to provide a service

tracking multi-tiered allocations may

charge a separate fee, as they are

permitted to do for title transfer

tracking. Pipelines, however, cannot

charge a separate fee for processing the

single tier of allocations required by the

current regulations.

4. Paper Pooling

Pooling refers to the aggregation of gas

from multiple physical or logical points

to a single physical or logical point.100

The current standards provide shippers

with the ability to both deliver gas from

receipt points into at least one pool and

receive quantities at a delivery point

from at least one pool.101 Some

pipelines provide paper pools while

others use physical pools in which

shippers have to pay transportation

charges to move gas into the pools. GISB

could not reach a consensus on whether

paper pooling should be mandated, and

shippers asked the Commission for a

regulation requiring that all pipelines

establish paper pools into which

shippers could deliver gas without any

additional transportation charge. In the

NOPR, the Commission declined to

require pipelines to provide paper

pooling, finding that those advocating

paper pools had not provided a

sufficient rationale for requiring the use

of paper pools in all situations.

NGSA and ProEnergy maintain the

Commission should require pipelines to

provide paper pooling. They assert that

pooling is a critical aspect of a

competitive marketplace, because the
20092 Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations

102See Northwest Pipeline Company, 80 FERC

¶ 61,361, at 62,240–41 (1997); Panhandle Eastern

Pipeline Company, 78 FERC ¶ 61,283, at 62,215

(1997).

103See Northwest Pipeline Company, 79 FERC

¶ 61,259, at 62,119–20 (1997) (where shipper pays

for transportation into a pool, the priority does not

depend on the priority of the take-away contract).

104 18 CFR 284.10(b)(1)(i) (1997), Nominations

Related Standards 1.3.16, 13.3.28 through 1.3.30.

The standards provide, in part, that pipelines must

adhere to a standard method for calculating fuel,

make fuel reimbursement percentages effective only

at the beginning of the month, not reject

nominations due to fuel differences of less than 5

Dth, and provide a fuel matrix for receipt and

delivery point combinations.

105Comments by CNG, Enron, INGAA, K N

Interstate Group, Koch, NGPL, NGT/MRT,

Southern, Williston Basin, WGP.

106Comments by NGC, NGSA, PG&E, SoCal Gas/

SDG&E, TransCapacity.

aggregation of gas volumes eliminates

the need to link each gas volume to a

specific source and destination. They

contend that no transportation charge

should be charged since no

transportation is provided.

The Commission agrees that pooling

is an important aspect of the

marketplace and its regulations require

pipelines to offer pooling. The

Commission, however, does not agree

that for pooling to operate efficiently

each pipeline must offer paper pooling

in which those delivering gas into the

pool are assessed no transportation

charges. Those requesting mandatory

paper pooling have not demonstrated

why transportation charges must be

assessed only on the outbound (out of

the pool) transportation component.

When a pool exists in a rate zone, a

charge for transportation must be

assessed either for gas coming into the

zone or for gas leaving the zone. In

appropriate circumstances, the

Commission has recognized that

pipelines may charge for transportation

into pools.102

NGSA and NGC further contend that

even if the Commission does not

mandate paper pooling, it should enact

into regulation its current policy that

transportation into a pool is afforded the

same transportation priority as the

transportation out of the pool. This

policy, however, is not sufficiently

generic to be established through

regulation. In the circumstances of some

cases, for instance, the Commission has

found that capacity should be allocated

based on the priority of the

transportation into the pool, rather than

the transportation out of the pool.103

5. Reimbursement for Compressor Fuel

When shippers nominate gas on

pipelines, they need to reimburse the

pipelines for the gas needed to run

compressors. The typical form of

reimbursement is in-kind fuel

reimbursement, where the shipper

includes additional gas to cover the

needs for compressor fuel. Typically,

pipelines include the applicable

percentages for fuel reimbursement in

their tariffs. The Commission has

adopted GISB standards that simplify

the process of in-kind fuel

reimbursement.104 Some pipelines also

have established tariff provisions under

which the pipeline provides the fuel

and receives reimbursement from the

shipper for the cost, usually through a

fuel cashout at an indexed price.

In the NOPR, the Commission found

no need to adopt additional standards

regarding in-kind or alternative fuel

reimbursement mechanisms. The

Commission, however, did find that

pipelines should permit shippers,

which do not want to calculate their

own fuel charges, to contract with thirdparties to provide the required fuel.

a. In-kind fuel reimbursement. Several

commenters suggest that the existing inkind fuel reimbursement standards

should be strengthened. ECT maintains

that the Commission often does not act

on tariff filings to revise fuel changes

until the end of the month, which does

not provide sufficient time for shippers

to reprogram their computers to

accommodate the change. ECT

recognizes section 4 of the Natural Gas

Act (NGA) provides for 30-day notice

prior to implementation of proposed

changes, but it, nevertheless, asks for a

requirement that fuel rates be made and

accepted no later than the close of

NYMEX trading, three days before the

end of the month. NGSA requests the

adoption of a regulation requiring fuel

reimbursement to be calculated

prospectively. ProEnergy maintains that

monthly fuel rate changes do not

provide sufficient predictability for

parties to construct competitive gas

transactions. It argues that to improve

the certainty of the process, fuel changes

should be made only once a year, with

a mechanism to true-up actual with

projected fuel use.

The existing fuel standards represent

a consensus agreement of the industry,

and the Commission does not find

sufficient justification for imposing the

disputed standards suggested by the

shippers. Given the other risks that go

into gas transactions, the change in cost

represented by a fuel change is not such

a significant component of the overall

deal that it should dramatically affect

shipper planning. Pipelines may need to

file for fuel rate changes under section

4 of the NGA more frequently than the

once a year recommended by the

commenters. For example, a yearly trueup would not deal with a continued

undercollection of fuel in individual

months, which might require the

pipeline to purchase fuel, rather than

relying on in-kind reimbursement. The

Commission also declines to restrict

pipeline tariff filings for changes in fuel

rates so that the effective date is three

days prior to the end of the month, as

ECT suggests. Even in those cases where

the filing happens to put the

Commission’s order on the last day of

the month, the shippers still have thirty

days notice that the fuel rates may

change and can have their computer

changes ready to implement if the

Commission approves the change.

b. Fuel nominations from agents.

Most of the comments address the

Commission’s policy that pipelines

should accept fuel nominations from

shippers’ agents. The pipelines maintain

the requirement is too burdensome,

because it introduces a second

nomination that must be coordinated

with the shipper’s nomination, requires

changes in fuel nominations with each

intra-day nomination change, as well as

creates other complexities such as

establishing priorities for fuel

nominations and determining which gas

should be first through the meter.105 The

pipelines contend shippers already have

sufficient flexibility for supplying fuel,

since they can nominate fuel gas from

a pool and can use a marketer or agent

to provide all of their gas requirements.

Nicor Gas agrees that permitting

separate fuel nominations would create

unnecessary burdens.

Several shippers,106 and Tennessee

Pipelines, support giving shippers the

ability to buy fuel from a third-party,

but some of the commenters raise issues

that, they assert, should be considered

by GISB in devising standards covering

fuel nominations. PG&E contends the

Commission should not require

pipelines to support third-party fuel

nominations now, but should defer

decision until GISB works on

appropriate standards. TransCapacity

outlines a series of timing and other

issues that need to be considered, such

as what fuel gas to cut in the case of an

unscheduled or bumped nomination,

the need for standards regarding the

simultaneity of fuel receipts to

transportation, and the timing of fuel

and related transportation nominations.

Throughout this proceeding, shippers

have sought standards that would

obviate the need, and the risk, of having

to calculate fuel reimbursement across

multiple pipelines. If a shipper wants

100 MMBtus delivered, it may want the

flexibility to arrange for 100 MMBtus to
Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations 20093

107See Koch Gateway Pipeline Company, 73

FERC ¶ 61,375 (1995), reh’g denied, 74 FERC

¶ 61,212 (1996), reh’g denied, 75 FERC ¶ 61,096

(1996), aff’d, 108 F.2d 397 (D.C. Cir. 1997); Natural

Gas Pipeline Company of America, 64 FERC

¶ 61,295, at 63,072 (1993).

108See Algonquin Gas Transmission Company, 63

FERC ¶ 61,188, at 62,374 (1993); Texas Eastern

Transmission Corporation, 63 FERC ¶ 61,100, at

61,486 (1993); Transcontinental Gas Pipe Line

Corporation, 55 FERC ¶ 61,446, at 62,369 (1991).

Under the Commission’s policy, a shipper would be

responsible only for the penalty category it

reasonably could have anticipated based on the

information provided by the pipeline. The cash out

price, however, should be based on the actual

imbalance incurred.

109Alternatives to Traditional Cost-of-Service

Ratemaking for Natural Gas Pipelines (Request for

Comments), 74 FERC 61,076 (1996).

110 In filing to implement Version 1.2, pipelines

need to change all references to GISB standards in

their tariffs to Version 1.2. The version number

applies to all standards contained in GISB’s Version

1.2 Standards Manuals, including standards that

have not changed from prior versions.

be injected into the system without

having to worry about accurately

calculating how much extra gas is

needed to meet multiple pipeline fuel

percentages. While the Commission is

not requiring pipelines to provide an

alternative to in-kind fuel

reimbursement, the pipelines need to

provide shippers with the option of

contracting with a third-party who

would be responsible for calculating

and injecting the required amount of

fuel. The option, suggested by the

pipelines, of shippers using a marketer

to purchase all their gas supplies is not

a substitute for being able to use a

marketer or third-party to provide fuel

only. Shippers may want to use their

own contracts to buy and transport their

own gas, but use a third-party to avoid

the difficulties of attempting to calculate

accurately the extra fuel reimbursement

across numerous pipelines.

Indeed, some pipelines have

recognized shippers’ demand for an

alternative to in-kind fuel

reimbursement and have included tariff

provisions allowing shippers to buy

their fuel from the pipeline.107 To create

a more competitive market, the

Commission concludes that all

pipelines should provide shippers the

option of nominating their fuel

requirements from an agent separately

from their nomination of the gas used

for transportation.

The Commission, however, will not

require pipelines to honor fuel

nominations from third-parties until

GISB has an opportunity to consider the

development of standards. The issues

raised by third-party fuel

reimbursement do not seem so

intractable that a reasonable set of

standards cannot be developed to cover

this transaction. GISB has not

established a schedule for development

of such standards. But these issues seem

related to the other issues relating to

third-parties, such as title transfer

tracking and multi-tiered allocations,

and adding fuel standards to GISB’s

schedule for the fourth quarter of 1998

should not appreciably complicate the

issues being considered by GISB. The

Commission will, therefore, expect that

proposed standards dealing with thirdparty fuel reimbursement will be filed

on December 31, 1998, along with

standards in these other areas.

6. Penalty Determinations

In the NOPR, the Commission

declined to require pipelines to adopt a

disputed standard that would have

required pipelines to determine

penalties on the basis of operational or

actual data, whichever is less. NGSA

contends the Commission should adopt

a standard basing penalties on

operational data. TransCapacity

supports the Commission’s current

policy of making individual

determinations on this issue. For

example, it asserts that basing penalties

on actual data is appropriate when

pipelines have small wells for which

installing telemetering is prohibitively

expensive.

Going beyond the issue in dispute at

GISB, NGC asks the Commission to

impose a requirement that pipelines

cash out imbalances at the price in

effect in the month the imbalance

occurred, rather than in the month

when a prior period adjustment is made.

The Commission finds no compelling

justification for requiring uniformity at

this time on the limited issue of whether

to base penalties on operational or

actual data. While the Commission’s

general policy is that penalty categories

should be determined based on the data

provided by the pipeline to the

shipper,108 there may be instances, as

TransCapacity points out, in which this

policy should not be applied. Moreover,

the issues raised by NGSA and NGC are

only small pieces of the penalty puzzle.

Rather than attempting to resolve these

issues on a piecemeal basis, the

Commission, and the industry, needs to

consider penalty issues on a more

comprehensive basis.

D. Market-Based Rates for Pipeline

Services

In several places in this preamble, the

Commission has indicated that

pipelines may provide certain

services—computerized imbalance

trading, title transfer tracking, and

tracking of multi-tiered allocations—and

charge a separate fee for such services.

WGP and Koch contend that pipelines

should be able to charge market-based

rates for such services, because they will

be competing with third-party firms

providing comparable services. Under

the Commission’s Alternative Rate

Design Policy Statement,109 pipelines

providing such services may file a

request for a Declaratory Order for

market-based rates if they can

demonstrate that effective competition

for the service exists.

E. Implementation Schedule and

Schedule for Submission of Additional

Standards

To summarize, pipelines must comply

with the following regulations August 1,

1998: (1) adoption of Version 1.2 of the

GISB standards in section 284.10(b); 110

and (2) compliance with the

requirements in § 284.10(c)(3)(ii)

through (v) setting standards for posting

information on pipeline web sites,

requiring that content be the same

regardless of the method of

communication, requiring a crossreference table for numeric

designations, and establishing a

retention policy for electronic

information.

Implementation of the regulations

regarding intra-day nominations,

§ 284.10(c)(1)(i), operational balancing

agreements, § 284.10(c)(2)(i), trading of

imbalances, § 284.10(c)(2)(ii), and

Internet notification of critical notices,

§ 284.10(c)(3)(vi), will take place on a

date to be set in the order adopting

standards relating to these activities.

Pipelines must implement the

regulation requiring the use of the

Internet for conducting transactions,

§ 284.10(c)(3)(i), by June 1, 1999.

The Commission expects the

submission of proposed standards in the

following areas by the dates specified:

June 30, 1998

Operational Balancing Agreements

and Imbalance Trading

December 31, 1998

Title Transfer Tracking, CrossContract Ranking, Fuel

Reimbursement, and Critical Notice

Notification

III. Information Collection Statement

OMB’s regulations in 5 CFR 1320.11

require that it approve certain reporting

and recordkeeping requirements

(collections of information) imposed by

an agency. Upon approval of a

collection of information, OMB shall

assign an OMB control number and an

expiration date. Respondents subject to
20094 Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations

111Order No. 486, Regulations Implementing the

National Environmental Policy Act, 52 FR 47897

(Dec. 17, 1987), FERC Stats. & Regs. Preambles

1986–1990 ¶ 30,783 (1987).

112 18 CFR 380.4.

the filing requirements of this Rule shall

not be penalized for failing to respond

to these collections of information

unless the collections of information

display valid OMB control numbers.

The collections of information related

to the subject Final Rule fall under the

existing reporting requirements of

FERC–545, Gas Pipeline Rates: Rate

Change (Non-Formal) (OMB Control No.

1902–0154) and FERC–549C, Standards

for Business Practices of Interstate

Natural Gas Pipelines (OMB Control No.

1902–0174). The following estimates of

reporting burden are related only to this

Rule and include the costs for pipelines

to comply with Version 1.2 of the GISB

standards and the Commission’s

regulations regarding intra-day

nominations, the use of OBAs at

pipeline interconnects, the trading of

imbalances, and communications using

the Internet. The burden estimates are

primarily related to start-up and will not

be on-going costs except for the

recordkeeping requirement.

Public Reporting Burden: (Estimated

Annual Burden).

Affected data collection Number of

respondents

Total

responses

(annual)

Estimated

hours per response

Estimated total

hours (annual)

FERC–545 ........................................................................................................ 93 93 58 5,394

FERC–549C ..................................................................................................... 93 93 4,483 416,919

Total ........................................................................................................... 93 93 4,541 422,313

The total annual hours for collection (including recordkeeping) is estimated to be 422,313. The average annualized

cost for all 93 respondents is projected to be the following:

Affected data collection

Annualized

capital/startup

costs

Annualized

costs (operations and

maintenance)

Total

annualized

costs

FERC–545 .................................................................................................................................... $284,303 $0 $284,303

FERC–549C ................................................................................................................................. 21,641,327 333,321 21,974,648

Total ...................................................................................................................................... 21,925,630 333,321 22,258,951

Koch questions the Commission’s

estimate of about $240,000 per

respondent, contending, in particular,

that it underestimates the costs of

complying with the Internet

requirements. Although Koch

recognizes the difficulty of estimating

costs for services not yet offered, it

anticipates approximately $2 million in

start-up costs for Internet compliance

alone.

Koch is the only commenter raising

questions about the Commission’s cost

estimates. From the context of Koch’s

comment, it appears to be questioning

the costs of establishing an interactive

web site. But, as discussed earlier, this

rule does not require pipelines to

establish an interactive web site; they

are required only to conduct Internet

communications using EDI files, which

Koch itself claims are less expensive.

Moreover, from the Commission’s

experience, the costs for pipelines to

create standardized interactive web sites

should not be inordinate. The

Commission strongly encourages

pipelines to jointly develop a

standardized interactive web site, which

should significantly reduce the costs for

developing such systems. As NGC

points out, electric utilities saved

substantial sums by jointly developing

their standardized Internet

communication system. In any event,

even if Koch’s estimate were accurate,

the cost would be a one-time

expenditure and the benefits to the

entire industry from creating a

standardized communication system

would be worth the cost.

The GISB standards and Commission

regulations adopted in this Rule are

necessary to further the process begun

in Order No. 587 of creating a more

efficient and integrated pipeline grid by

standardizing the business practices and

electronic communications of interstate

pipelines. Requiring interstate pipelines

to comply with these standards and

regulations will reduce the variations in

pipeline business and communication

practices and will permit pipelines and

their customers to more efficiently

obtain information from and transact

business across multiple pipelines.

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. The

information required in this Final Rule

will be reported directly to the industry

users and later be subject to audit by the

Commission. This information also will

be retained for a three year period. The

implementation of these data

requirements will help the Commission

carry out its responsibilities under the

Natural Gas Act and conforms to the

Commission’s plan for efficient

information collection, communication,

and management within the natural gas

industry.

Interested persons may obtain

information on the reporting

requirements by contacting the Federal

Energy Regulatory Commission, 888

First Street, N.E., Washington, DC 20426

[Attention: Michael Miller, Information

Services Division, 202–208–1415] or the

Office of Management and Budget

[Attention: Desk Officer for the Federal

Energy Regulatory Commission, 202–

395–3087].

IV. Environmental Analysis

The Commission is required to

prepare an Environmental Assessment

or an Environmental Impact Statement

for any action that may have a

significant adverse effect on the human

environment.111 The Commission has

categorically excluded certain actions

from these requirements as not having a

significant effect on the human

environment.112 The actions taken here

fall within categorical exclusions in the

Commission’s regulations for rules that

are clarifying, corrective, or procedural,

for information gathering, analysis, and

dissemination, and for sales, exchange,

and transportation of natural gas that
Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations 20095

113See 18 CFR 380.4(a)(2)(ii), 380.4(a)(5),

380.4(a)(27).

114 5 U.S.C. 601–612.

requires no construction of facilities.113

Therefore, an environmental assessment

is unnecessary and has not been

prepared in this rulemaking.

V. Regulatory Flexibility Act

Certification

The Regulatory Flexibility Act of 1980

(RFA) 114 generally requires a

description and analysis of final rules

that will have significant economic

impact on a substantial number of small

entities. The regulations adopted in this

rule impose requirements only on

interstate pipelines, which are not small

businesses, and these requirements are,

in fact, designed to reduce the difficulty

of dealing with pipelines by all

customers, including small businesses.

No comments were submitted to the

Commission alleging any significant

economic effect on small businesses.

Accordingly, pursuant to section 605(b)

of the RFA, the Commission hereby

certifies that the regulations proposed

herein will not have a significant

adverse impact on a substantial number

of small entities.

VI. Effective Date

These regulations will become

effective May 26, 1998. The Commission

has concluded, with the concurrence of

the Administrator of the Office of

Information and Regulatory Affairs of

OMB, that this rule is not a ‘‘major rule’’

as defined in section 251 of the Small

Business Regulatory Enforcement

Fairness Act of 1996.

List of Subjects in 18 CFR Part 284

Continental shelf, Natural gas,

Reporting and recordkeeping

requirements; Incorporation by

reference.

By direction of the Commission.

Linwood A. Watson, Jr.,

Acting Secretary.

In consideration of the foregoing, the

Commission amends Part 284, Chapter I,

Title 18, Code of Federal Regulations, as

set forth below.

PART 284—CERTAIN SALES AND

TRANSPORTATION OF NATURAL GAS

UNDER THE NATURAL GAS POLICY

ACT OF 1978 AND RELATED

AUTHORITIES

1. The authority citation for Part 284

continues to read as follows:

Authority: 15 U.S.C. 717–717w, 3301–

3432; 42 U.S.C. 7101–7532; 43 U.S.C. 1331–

1356.

2. In section 284.10, paragraph (a)(6)

is added, paragraph (b)(1) is revised,

and paragraph (c) is added to read as

follows:

§ 284.10 Standards for pipeline business

operations and communications.

(a) * * *

(6) A pipeline’s obligation to provide

information pursuant to this paragraph

will terminate when all relevant

information is provided pursuant to

paragraph (c)(3)(i) of this section.

(b) Incorporation by reference of GISB

standards. (1) An interstate pipeline

that transports gas under subparts B or

G of this part must comply with the

following business practice and

electronic communication standards

promulgated by the Gas Industry

Standards Board, which are

incorporated herein by reference:

(i) Nominations Related Standards

(Version 1.2, July 31, 1997), with the

exception of Standard 1.3.32;

(ii) Flowing Gas Related Standards

(Version 1.2, July 31, 1997), with the

exception of Standards 2.3.29 and

2.3.30;

(iii) Invoicing Related Standards

(Version 1.2, July 31, 1997);

(iv) Electronic Delivery Mechanism

Related Standards (Version 1.2, July 31,

1997), with the exception of 4.3.4; and

(v) Capacity Release Related

Standards (Version 1.2, July 31, 1997).

* * * * *

(c) Business practices and electronic

communication requirements. An

interstate pipeline that transports gas

under subparts B or G of this part must

comply with the following

requirements. The regulations in this

paragraph adopt the abbreviations and

definitions contained in the Gas

Industry Standards Board standards

incorporated by reference in paragraph

(b)(1) of this section.

(1) Nominations.

(i) Intra-day nominations.

(A) A pipeline must give scheduling

priority to an intra-day nomination

submitted by a firm shipper over

nominated and scheduled volumes for

interruptible shippers. When an

interruptible shipper’s scheduled

volumes are to be reduced as a result of

an intra-day nomination by a firm

shipper, the interruptible shipper must

be provided with advance notice of such

reduction and must be notified whether

penalties will apply on the day its

volumes are reduced.

(B) An intra-day nomination

submitted on the day prior to gas flow

will take effect at the start of the gas day

at 9 a.m. CCT.

(2) Flowing gas.

(i) Operational balancing agreements.

A pipeline must enter into Operational

Balancing Agreements at all points of

interconnection between its system and

the system of another interstate or

intrastate pipeline.

(ii) Netting and trading of imbalances.

A pipeline must establish provisions

permitting shippers and their agents to

offset imbalances accruing on different

contracts held by the shipper with the

pipeline and to trade imbalances with

other shippers where such imbalances

have similar operational impact on the

pipeline’s system.

(3) Communication protocols.

(i)(A) All electronic information

provided and electronic transactions

conducted by a pipeline must be

provided on the public Internet. A

pipeline must provide, upon request,

private network connections using

internet tools, internet directory

services, and internet communication

protocols and must provide these

networks with non-discriminatory

access to all electronic information. A

pipeline may charge a reasonable fee to

recover the costs of providing such an

interconnection.

(B) A pipeline must implement this

requirement no later than June 1, 1999.

(ii) A pipeline must comply with the

following requirements for documents

constituting public information posted

on the pipeline web site:

(A) The documents must be accessible

to the public over the public Internet

using commercially available web

browsers, without imposition of a

password or other access requirement;

(B) Users must be able to search an

entire document online for selected

words, and must be able to copy

selected portions of the documents; and

(C) Documents on the web site should

be directly downloadable without the

need for users to first view the

documents on the web site.

(iii) If a pipeline uses a numeric or

other designation to represent

information, an electronic crossreference table between the numeric or

other designation and the information

represented must be available to users,

at a cost not to exceed reasonable

shipping and handling.

(iv) A pipeline must provide the same

content for all information regardless of

the electronic format in which it is

provided.

(v) A pipeline must maintain, for a

period of three years, all information

displayed and transactions conducted

electronically under this section and be

able to recover and regenerate all such

electronic information and documents.

The pipeline must make this archived

information available in electronic form

for a reasonable fee.
20096 Federal Register / Vol. 63, No. 78 /Thursday, April 23, 1998 /Rules and Regulations

(vi) A pipeline must post notices of

operational flow orders, critical periods,

and other critical notices on its Internet

web site and must notify affected parties

of such notices in either of the following

ways to be chosen by the affected party:

Internet E-Mail or direct notification to

the party’s Internet URL address.

[FR Doc. 98–10685 Filed 4–22–98; 8:45 am]

BILLING CODE 6717–01–P

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Food and Drug Administration

21 CFR Part 74

[Docket No. 95C–0399]

Listing of Color Additives for Coloring

Sutures; D&C Violet No. 2

AGENCY: Food and Drug Administration,

HHS.

ACTION: Final rule.

SUMMARY: The Food and Drug

Administration (FDA) is amending the

color additive regulations to provide for

the safe use of D&C Violet No. 2 as a

color additive in glycolide/dioxanone/

trimethylene carbonate tripolymer

absorbable sutures for general surgery.

This action responds to a petition filed

by United States Surgical Corp.

DATES: This regulation is effective May

27, 1998; except as to any provisions

that may be stayed by the filing of

proper objections; written objections

and requests for a hearing by May 26,

1998.

ADDRESSES: Submit written objections to

the Dockets Management Branch (HFA–

305), Food and Drug Administration,

12420 Parklawn Dr., rm. 1–23,

Rockville, MD 20857.

FOR FURTHER INFORMATION CONTACT:

Ellen M. Waldron, Center for Food

Safety and Applied Nutrition (HFS–

215), 200 C St. SW., Washington, DC

20204, 202–418–3089.

SUPPLEMENTARY INFORMATION:

I. Introduction

In a notice published in the Federal

Register of October 23, 1995 (60 FR

54379), FDA announced that a color

additive petition (CAP 5C0248) had

been filed by United States Surgical

Corp., 150 Glover Ave., Norwalk, CT

06856. The petition proposed to amend

the color additive regulations in

§ 74.3602 D&C Violet No. 2 (21 CFR

74.3602) to provide for the safe use of

D&C Violet No. 2 as a color additive in

glycolide/dioxanone/trimethylene

carbonate tripolymer absorbable sutures

for general surgery. The petition was

filed under section 721(d)(1) of the

Federal Food, Drug, and Cosmetic Act

(the act) (21 U.S.C. 379e(d)(1)).

II. Regulatory History

The regulatory history of D&C Violet

No. 2 was summarized in a final rule

published in the Federal Register of

May 7, 1990 (55 FR 18865). Since the

publication of the May 7, 1990, final

rule, other uses of D&C Violet No. 2

have been approved by the agency. For

example, in a final rule published in the

Federal Register on March 14, 1994 (59

FR 11718), FDA amended § 74.3602 to

list D&C Violet No. 2 for use to color

poly(ε-caprolactone) absorbable sutures

for use in general surgery.

III. Applicability of the Act

With the passage of the Medical

Device Amendments of 1976 (Pub. L.

94–295), Congress mandated the listing

of color additives for use in medical

devices when the color additive in the

device comes into direct contact with

the body for a significant period of time

(section 721(a) of the act). D&C Violet

No. 2 is added to glycolide/dioxanone/

trimethylene carbonate tripolymer

absorbable sutures in such a way that at

least some of the color additive will

come into contact with the body when

the sutures are in place. In addition, the

sutures are intended to be absorbed by

the body, and during the absorption, the

color additive will be deposited in body

tissue. Thus, the color additive will be

in direct contact with the body for a

significant period of time.

Consequently, the petitioned use of the

color additive is subject to the statutory

listing requirement.

IV. The Color Additive

D&C Violet No. 2 is principally 1-

hydroxy-4-[(4-methylphenyl)amino]-

9,10-anthracenedione (CAS Reg. No. 81–

48–1). It is manufactured by either

condensation of quinizarin with ptoluidine or by condensation of 1-

hydroxy-halogenoanthroquinone with

p-toluidine. Because no chemical

reaction consumes all the starting

materials and yields only the desired

product, both the resulting reaction

mixture and commercial product will

contain residual amounts of the starting

materials, including p-toluidine. This

fact is significant because Weisburger et

al., have demonstrated that p-toluidine

is a carcinogen in the mouse (Ref. 1).

Residual amounts of reactants, such

as p-toluidine, and manufacturing aids

are commonly found as impurities in

chemical products, including color

additives.

V. Determination of Safety

Under the general safety clause of the

act (section 721(b)(4) of the act) for color

additives, a color additive cannot be

listed for a particular use unless a fair

evaluation of the data available to FDA

establishes that the color additive is safe

for that use. FDA’s color additive

regulations (21 CFR 70.3(i)) define

‘‘safe’’ as ‘‘reasonable certainty that no

harm will result from the intended use

of the color additive.’’

The color additives anticancer, or

Delaney, clause of the color additive

amendments (section 721(b)(5)(B) of the

act) provides that no noningested color

additive shall be deemed safe and shall

be listed if, after tests that are

appropriate for evaluating the safety of

the additive for such use, it is found to

induce cancer in man or animal.

Importantly, however, the Delaney

clause applies to the additive itself and

not to impurities in the additive. That

is, where an additive itself has not been

shown to cause cancer, but contains a

carcinogenic impurity, the additive is

properly evaluated under the general

safety standard using risk assessment

procedures to determine whether there

is reasonable certainty that no harm will

result from the proposed use of the

additive (Scott v. FDA, 728 F.2d 322

(6th Cir. 1984)).

VI. Safety of the Petitioned Use of the

Additive

FDA estimates that the petitioned use

of the additive, D&C Violet No. 2, will

result in exposure to no greater than 3.8

milligrams per person over a 70-year

lifetime or an estimated daily intake

(EDI) of 0.15 microgram per person per

day (/p/d) (Ref. 2).

FDA does not ordinarily consider

chronic toxicological studies to be

necessary to determine the safety of an

additive whose use will result in such

low exposure levels (Ref. 3), and the

agency has not required such testing

here. However, the agency has reviewed

the available toxicological data on the

additive and concludes that the

estimated small daily intake resulting

from the proposed use of this additive

is safe.

FDA has evaluated the safety of this

additive under the general safety

standard, considering all available data

and using risk assessment procedures to

estimate the upper-bound limit of

lifetime human risk presented by ptoluidine, the carcinogenic chemical

that may be present as an impurity in

the additive. The risk evaluation of ptoluidine has two aspects: (1)

Assessment of exposure to the impurity

from the proposed use of the additive,