Federal Register / Vol. 63, No. 106 /Wednesday, June 3, 1998 /Rules and Regulations 30127

1 78 FERC ¶ 61,186 (1997).

2 88 F.3d 1105 (D.C. Cir. 1996), cert. denied, 117

S.Ct. 1723 (1997).

3These parties are American Public Gas

Association and Decatur Utilities, City of Decatur

Alabama, and Huntsville Utilities, City of

Huntsville, Alabama (APGA); Coastal Companies

(ANR Pipeline Co., ANR Storage Co., Colorado

Interstate Gas Company and Wyoming Interstate

Ltd.); East Tennessee Group; Interstate Natural Gas

Association of America (INGAA); Missouri Public

Service Commission (MoPSC); National Association

of Gas Consumers (NAGC); National Association of

State Utility Consumer Advocates and the

Pennsylvania Office of Consumer Advocate;

National Fuel Gas Supply Corporation; Noram Gas

Transmission Company and Mississippi River

Transmission Company; Pacific Gas Transmission

Company; Tennessee Valley Municipal Gas

Association; Texas Eastern Transmission

Corporation, Panhandle Eastern Pipeline Company,

Trunkline Gas Company, and Algonquin Gas

Transmission Company (PanEnergy Companies);

and Williams Interstate Natural Gas Company.

SUMMARY: This action corrects an error

in the geographic coordinates of a Final

Rule that was published in the Federal

Register on April 20, 1998 (63 FR

19393), Airspace Docket No. 98–AWP–

2. The final rule modified the Class E

airspace area at Porterville, CA.

EFFECTIVE DATE: 0901 UTC August 13,

1998.

FOR FURTHER INFORMATION CONTACT:

Larry Tonish, Airspace Specialist,

Airspace Branch, AWP–520, Air Traffic

Division, Western-Pacific Region,

Federal Aviation Administration, 15000

Aviation Boulevard, Lawndale,

California, 90261, telephone (310) 725–

6539.

SUPPLEMENTARY INFORMATION:

History

Federal Register Document 98–10303,

Airspace Docket No. 98–AWP–2,

published on April 20, 1998 (63 FR

19393), revised the geographic

coordinates of the Class E airspace area

at Porterville, CA. A typographical error

was discovered in the geographic

coordinates for the Porterville, CA, Class

E airspace area. This action corrects that

error.

Correction to Final Rule

Accordingly, pursuant to the

authority delegated to me, the

geographic coordinates for the Class E

airspace area at Porterville, CA, as

published in the Federal Register on

April 20, 1998 (63 FR 19393), (Federal

Register Document 98–10303), are

corrected as follows:

§ 71.1 [Corrected]

AWP CA 35 Porterville, CA [Corrected]

On page 19394, column 2, in line 9 of the

Porterville Municipal Airport, CA, airspace

area, correct ‘‘lat. 35°47′30′′W’’ to read ‘‘lat.

35°47′30′′N’’.

Issued in Los Angeles, California, on May

19, 1998.

Sherry Avery,

Assistant Acting Manager, Air Traffic

Division, Western-Pacific Region.

[FR Doc. 98–14541 Filed 6–2–98; 8:45 am]

BILLING CODE 4910–13–M

DEPARTMENT OF ENERGY

Federal Energy Regulatory

Commission

18 CFR Part 284

[Docket Nos. RM91–11–007 and RM87–34–

073]

Pipeline Service Obligations and

Revisions to Regulations Governing

Self-Implementing Transportation

Under Part 284 and Regulation of

Natural Gas Pipelines After Partial

Wellhead Decontrol

Issued May 28, 1998.

AGENCY: Federal Energy Regulatory

Commission.

ACTION: Order on Rehearing.

SUMMARY: This order denies requests for

rehearing of Order No. 636–C published

on March 6, 1997 (62 FR 10204). The

Commission issued Order No. 636–C to

resolve six issues remanded by the

decision of the United States Court of

Appeals for the District of Columbia

Circuit in United Distribution Cos. v.

FERC, 88 F. 3d 1105 (D.C.Cir. 1996),

cert. denied, 117 S.Ct. 1723 (1997),

concerning the Commission’s rule

restructuring services in the natural gas

industry.

FOR FURTHER INFORMATION CONTACT:

Richard Howe, Office of the General

Counsel, Federal Energy Regulatory

Commission, 888 First St., NE,

Washington, DC 20426, (202) 208–

1274

Ingrid Olson, Office of the General

Counsel, Federal Energy Regulatory

Commission, 888 First St., NE,

Washington, DC 20426, (202) 208–

2015

SUPPLEMENTARY INFORMATION: In

addition to publishing the full text of

this document in the Federal Register,

the Commission also provides all

interested persons an opportunity to

inspect or copy the contents of this

document during normal business hours

in the Public Reference Room at 888

First Street, NE, Room 2A, Washington,

DC 20426.

The Commission Issuance Posting

System (CIPS) provides access to the

texts of formal documents issued by the

Commission. CIPS can be accessed via

Internet through FERC’s Homepage

(http://www.ferc.fed.us) using the CIPS

Link or the Energy Information Online

icon. The full text of this document will

be available on CIPS in ASCII and

WordPerfect 6.1 format. CIPS is also

available through the Commission’s

electronic bulletin board service at no

charge to the user and 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. User

assistance is available at 202–208–2474

or by E-mail to

CipsMaster@FERC.fed.us.

This document is also available

through the Commission’s Records and

Information Management System

(RIMS), an electronic storage and

retrieval system of documents submitted

to and issued by the Commission after

November 16, 1981. Documents from

November 1995 to the present can be

viewed and printed. RIMS is available

in the Public Reference Room or

remotely via Internet through FERC’s

Homepage using the RIMS link or the

Energy Information Online icon. User

assistance is available at 202–208–2222,

or by E-mail to

RimsMaster@FERC.fed.us.

Finally, 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, NE,

Washington, DC 20426.

Before Commissioners: James J. Hoecker,

Chairman; Vicky A. Bailey, William L.

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

On February 27, 1997, the

Commission issued Order No. 636–C,1

to comply with the Court’s decision in

United Distribution Companies v. FERC

(UDC).2 Timely requests for rehearing of

Order No. 636–C were filed by thirteen

parties.3 The requests for rehearing are

denied, and clarification is granted, as

discussed below.
30128 Federal Register / Vol. 63, No. 106 /Wednesday, June 3, 1998 /Rules and Regulations

4Pipeline Service Obligations and Revisions to

Regulations Governing Self-Implementing

Transportation and Regulation of Natural Gas

Pipelines After Partial Wellhead Decontrol [Regs.

Preambles Jan. 1991–June 1996] FERC Stats. & Regs.

¶ 30,939 (1992), order on reh’g, Order No. 636–A,

[Regs. Preambles Jan. 1991–June 1992] FERC Stats.

& Regs ¶ 30,950 (1992), order on reh’g, Order No.

636–B, 61 FERC ¶ 61,272 (1992), reh’g denied, 62

FERC ¶ 61,007 (1993).

5Specifically, the Court remanded to the

Commission issues related to eligibility for nonotice transportation, the selection of a twenty-year

cap in the right of first refusal process, SFV rate

mitigation, eligibility of small customers on

downstream pipelines for a small customer rate, the

requirement that pipelines allocate 10 percent of

GSR costs to interruptible customers, and the

decision to exempt pipelines from sharing in GSR

costs.

6UDC, 88 F.3d at 1140.

7 Id.

8 Id.

I. Background

In Order No. 636,4 the Commission

directed pipelines to restructure their

services in order to improve the

competitive structure of the natural gas

industry. Specifically, the Commission

required pipelines to unbundle the

transportation from the sale of gas, to

use a straight fixed variable rate design

in developing their transportation rates,

and to permit firm shippers to resell

their capacity rights. In addition, the

Commission took action to promote the

growth of market centers, and adopted

policies to govern the pipeline’s

recovery of the transition costs that

would arise from the restructuring. In

UDC, the Court affirmed the major

elements of the Commission’s

restructuring rule, but remanded six

issues to the Commission for further

consideration.5 In Order No. 636–C, the

Commission addressed the issues

remanded by the Court.

The requests for rehearing of Order

No. 636–C raise issues concerning the

term matching cap for the right of first

refusal, the eligibility date for no-notice

service, the appropriate rates for small

customers of downstream pipelines who

became direct customers of the

upstream pipeline as a result of

restructuring, and GSR costs. The only

parties who sought rehearing of Order

No. 636–C’s holding that pipelines need

not absorb a share of the GSR costs have

withdrawn their rehearing requests.

Therefore, that issue is now resolved.

The requests for rehearing on the other

three issues are discussed below.

II. Right of First Refusal

A. Background

Order No. 636 authorized pre-granted

abandonment of long-term firm

transportation contracts, subject to a

right of first refusal for the existing

shipper. Under the right of first refusal,

the existing shipper can retain service

by matching the rate and the term of

service in a competing bid. The rate is

capped by the pipeline’s maximum

tariff rate, and in Order No. 636, the

Commission capped the term of service

at twenty years. In UDC, the Court

approved the concept of a right of first

refusal with a term-matching cap as ‘‘a

rational means of emulating a

competitive market for allocating firm

transportation capacity,’’ 6 but found

that the Commission’s explanation for

selecting a twenty-year cap, as opposed

to some other term, inadequate. The

Court concluded that the Commission

had failed to explain why the twentyyear cap ‘‘adequately protects against

pipelines’ preexisting market power,

which they enjoy by virtue of natural

monopoly conditions;’’ 7 and why the

twenty-year cap will ‘‘prevent bidders

on capacity constrained pipelines from

using long contract duration as a price

surrogate to bid beyond the maximum

approved rate to the detriment of

captive customers.’’ 8 The Court

accordingly remanded this issue for

further consideration.

On remand, in Order No. 636–C, the

Commission reexamined the record of

the Order No. 636 proceedings, as well

as data concerning contract terms that

had become available since

restructuring. The Commission found

that this information suggested that

since the issuance of Order No. 636, the

industry trend appeared to be contract

terms of much less than twenty years.

The Commission noted that many of the

commenters in the Order No. 636

rulemaking had proposed a cap of five

years, and found that five years was

approximately the median length of

long term contracts entered into since

January 1, 1995. Therefore, in Order No.

636–C, the Commission established the

contract matching term cap at five years,

and directed pipelines to amend their

tariffs accordingly, regardless of

whether the issue was preserved in the

individual restructuring proceedings.

The Commission thought that the five–

year cap would avoid customers’ being

locked into long-term arrangements

with pipelines that they do not really

want, and therefore was responsive to

the Court’s concerns, and that the fiveyear cap also has the advantage of being

consistent with the industry trend of

short-term contracts. The Commission

stated that it would consider on a caseby-case basis whether any relief is

necessary in connection with contracts

that had been renewed since Order No.

636, and that it would entertain requests

to shorten a contract term if a customer

renewed a contract under the right-offirst-refusal process since Order No.

636, and can show that it agreed to a

longer term renewal contract than it

otherwise would have because of the

twenty-year cap.

On rehearing, the pipelines object to

the five-year cap. INGAA, National Fuel,

Noram and MRT, PanEnergy, PGT, and

Williams argue that the five year cap

interferes with the market forces that

Order No. 636 sought to encourage.

They assert that because of the five year

cap, it is unlikely that any existing

shipper will renew a contract for a term

longer than five years. Therefore, they

argue, allocation will be determined not

by the market, but by regulatory controls

and by the status of a party as an

existing customer or a new customer.

They further assert that existing

customers will be shielded from

competition and given unwarranted

control over pipeline capacity rights.

The pipelines also argue that the five

year cap creates an imbalance in the

risks assumed by pipelines and

shippers, and is too short to meet the

legitimate needs of the pipeline

industry.

In addition, the pipelines argue that

the five year cap is not supported by

substantial evidence, and that the

Commission erred in establishing the

cap based on recent data showing that

the median length of contracts is five

years. These parties argue that the use

of a median, based on less than two

years experience since January 1995, to

determine the maximum contract length

is not appropriate. They state that the

long term average term of previously

effective long term contracts is over 20

years, and the average term of all such

contracts is over ten years.

Several pipelines also argue that the

order is procedurally infirm because the

Commission did not provide an

adequate opportunity for interested

partes to comment and develop a

complete record before adopting this

rule, and because the Commission failed

to evaluate the alternatives to a five year

cap. Several of these parties also argue

that the five year renewal term conflicts

with the Commission’s decision in

Order No. 888–A, where the

Commission adopted a ROFR provision

without a maximum renewal term. The

pipelines also argue that Order No. 636–

C is not responsive to the Court’s

remand, and that the twenty-year cap

withstands the inquiries posited by the

Court. They argue that the Commission

should return to the rationale that it

originally expressed in Order No. 636,

i.e., that under the ROFR, capacity rights

should go to the party that values them

most.
Federal Register / Vol. 63, No. 106 /Wednesday, June 3, 1998 /Rules and Regulations 30129

9 Id. at 1141.

10Coastal states that the Commission took a

similar approach in Order No. 528, 53 FERC ¶

61,163 at 61,594 (1990).

11 In addition, APGA and Cities ask the

Commission to clarify that those pipeline customers

whose long term firm transportation contracts

expire before the end of the 180-day period for

complying with Order No. 636–C will not be

required to match bids of longer than five years to

retain their capacity during the right-of-first refusal

process. Alabama-Tennessee Natural Gas Co. (now

Midcoast Interstate Transmission) filed an answer

to APGA and Cities. Issues concerning the exercise

of the right of first refusal on Alabama-Tennessee

by these parties were addressed in several

complaint proceedings, and need not be addressed

here. See, e.g., Decatur Utilities v. Midcoast

Interstate Transmission, 81 FERC ¶ 61,034 (1997).

12Horsehead Resource Development Co., Inc. v.

Transcontinental Gas Pipeline Co., 81 FERC

¶ 61,293 (1997); Williams Natural Gas Co., 81 FERC

¶ 61,350 (1997); and Utilicorp United Inc., Docket

No. RP98–189–000 (filed April 17, 1998).

13 81 FERC ¶ 61,293 (1997). In Horsehead

Resources, the Commission found that the specific

facts in that case supported a finding that the

shipper agreed to a longer term than it otherwise

would have because of the twenty year cap

requirement, and therefore, granted the requested

relief subject to the outcome of the requests for

rehearing of Order No. 636–C. The Commission

then stated that it would be preferable to wait until

it had acted on the requests for rehearing of Order

No. 636–C to reduce the term of the contract. That

term can now be reduced.

14 81 FERC ¶ 61,350 (1997).

B. Discussion

The Commission has decided not to

modify the five-year cap in this

proceeding. The record in the Order No.

636 proceeding consists of data and

arguments presented to the Commission

in 1991 and 1992, before restructuring

had been implemented, and some

limited information regarding contract

terms that became available after

restructuring. Based on that record, the

five-year cap is responsive to the Court’s

concern that a twenty year matching cap

may not adequately protect consumers

against the exercise of the pipelines’

monopoly power. As the Court pointed

out, most of the commenters in this

proceeding advocated a term of less

than twenty years, such as five years.9

Further, the record in this case also

shows that the trend in the industry in

the months after restructuring was

toward shorter contracts, and the five

year cap is consistent with this industry

trend. As the Commission explained in

Order No. 636–C, the selection of a

particular matching cap involves

weighing several factors, and, as the

Court recognized, is necessarily

somewhat arbitrary. The record in this

proceeding supports the finding that the

five year cap reasonably protects captive

customers from having to match

competing bids that offer longer terms

than the bidder would have to bid in a

competitive market without the

pipeline’s natural monopoly. Therefore,

the requests for rehearing are denied.

Nevertheless, the pipelines have

raised legitimate concerns about the

practical effects of the five year term

matching cap on the restructured market

as it continues to evolve. Information

subsequent to the period covered in this

record suggests that the five year cap

results in a bias toward short-term

contracts, with possible adverse

economic consequences for both

pipelines and captive customers. The

Commission is currently analyzing these

and other issues related to both short

term and long term gas markets as part

of a comprehensive review of its gas

policies. This ongoing review will

develop a record containing information

on the pipeline industry in the postrestructured environment, and will

provide an opportunity for interested

parties to submit information and

comments on future regulatory policies,

including whether the term matching

cap in the right of first refusal should be

lengthened or removed altogether. In

contrast, the record in this proceeding

contains no information concerning

current conditions in the natural gas

industry. Therefore, any change that

may be made in the Commission’s

current policy concerning the right of

first refusal would be better addressed

in the context of a new gas policy

initiative, where all long-term issues can

be considered and a new record can be

developed concerning current

conditions in the natural gas industry.

Several parties seek clarification of

the mechanism for providing case-bycase relief to shippers who had already

renewed their contracts pursuant to the

right of first refusal prior to the issuance

of Order No. 636–C. Coastal Companies

asks the Commission to clarify that the

Commission will not shorten the term of

an already renewed contract if the

renewal took place pursuant to a

pipeline’s tariff procedures that were

established in an order that is nonappealable.10 This is particularly

important, Coastal argues, where, as in

the case of CIG, the twenty year cap is

part of a comprehensive settlement. If

the Commission denies clarification and

rehearing, Coastal asks the Commission

to clarify that in addressing a shipper’s

request to shorten the term of a contract,

the Commission will consider all

pertinent factors, such as whether

business decisions were made in

reliance on that provision. Similarly,

Noram argues that the Commission

should not disturb matching caps

established by individual pipelines. On

the other hand, NAGC asserts that the

Commission properly reduced the cap

to five years, but erred in not requiring

that all existing contracts under Order

No. 636 for 20 years could be modified

at the request of the adversely affected

customers without the necessity of

extensive proceedings before the

Commission.11

The problem of shippers exercising

the right of first refusal during the time

period between the issuance of Order

No. 636 and Order No. 636–C has not

been significant. The issue has been

raised in only three proceedings.12 The

Commission clarifies that any case

specific relief from contract terms will

be dependent on a factual finding that

the party entered into a longer term

contract than it otherwise would have

because of the 20 year cap, consistent

with the Commission’s approach in

Horsehead Resource Development Co.,

Inc. v. Transcontinental Gas Pipeline

Co.,13 and Williams Natural Gas Co.14

The Commission further clarifies that in

determining whether a contract term

should be reduced under this standard,

the Commission will consider all

pertinent factors, including whether the

term was part of a settlement package.

III. Eligibility Date for No-Notice

Service

The Commission held in Order No.

636 that pipelines were required to

provide no-notice service only to those

customers that were bundled sales

customers on May 18, 1992, the

effective date of Order No. 636. In UDC,

the Court held that the Commission had

not adequately explained why former

bundled firm sales customers who had

converted to transportation before

issuance of Order No. 636 should not

also have a right to receive no-notice

service. Accordingly, the Court

remanded the issue to the Commission

for a further explanation of which

customers should be eligible for nonotice service. In Order No. 636–C, the

Commission modified its no-notice

policy on a prospective basis and held

that if a pipeline offers no-notice

service, it must offer that service on a

non-discriminatory basis to all

customers that request it. The

Commission explained that at the time

of Order No. 636, there was

considerable uncertainty as to whether

pipelines would be able to perform nonotice service on a widespread basis,

but that post-restructuring experience

had not realized these concerns.

No party seeks rehearing of the

Commission’s requirement that

pipelines offering no-notice service

must do so on a nondiscriminatory

basis. Only NAGC requests rehearing,

and only on the issue of retroactivity.
30130 Federal Register / Vol. 63, No. 106 /Wednesday, June 3, 1998 /Rules and Regulations

15NAGC cites U.S. Improvement Co. v. Callery

Properties, 382 U.S. 223, 229 (1985); Consumer

Counsel, State of Ohio v. FERC, 826 F.2d 1136,

1138–39 (D.C.Cir. 1988); Mid-Louisiana Gas Co. v.

FERC, 780 F.2d 1238, 1247 (5th Cir. 1986); and

Tennessee Valley Municipal Gas Ass’n. v. FPC, 470

F.2d 446, 452 (D.C.Cir. 1972).

16The Commission is aware of only one pipeline

where the issue of refunds arose. Kansas Cities, one

of the municipal customers included in NAGC,

filed a complaint against Williams Natural Gas

Company alleging that Williams was engaging in

unlawful discrimination by giving converting sales

customers preferential access to no-notice service.

The Commission denied Kansas Cities’ complaint

in large part because it was a collateral attack on

Order No. 636.65 FERC ¶ 61,221 (1993), reh’g, 66

FERC ¶ 61,315 (1994). Kansas Cities appealed the

Commission’s denial of its complaint in Kansas

Municipals v. FERC (D.C.Cir. No. 93–1656), and

argued to the Court that it should receive refunds.

On May 12, 1998, the Court found that the petition

was not ripe for review and remanded the case to

the Commission for further consideration in light of

the decision in the instant proceeding. The

Commission will address the application of its

ruling in this proceeding to Kansas Municipals in

the remanded proceeding in Williams Natural Gas

Co., RS92–12–008, et al.

Also, in Williams Natural Gas Co., 80 FERC ¶

61,158 (1997), Kansas Cities argued that it had been

harmed by its ineligibility to receive no notice

service because, Kansas Cities alleged, it was

required to pay more on an annual basis than it

would have paid if it had received no notice

service. The Commission denied the request for

refunds, and Kansas Cities did not appeal the

Commission’s decision.

17Williams Natural Gas Co., 80 FERC ¶ 61,158 at

61,692 (1997); Opinion No. 369–A, Panhandle

Eastern Pipe Line Co., 59 FERC ¶ 61,244 at pp.

61,845, 61,849 (1990; ANR Pipeline Co., 50 FERC

61,091 at p. 61,257 (1990), reh’g denied, 51 FERC

61,038 at p. 61,075; Mississippi River Transmission

Corp., 50 FERC ¶ 61,092, reh’g denied, 51 FERC ¶

61,111 at p. 61,259 (1990); Trunkline Gas Co. 50

FERC ¶ 61,085 (1990).

18Further, NAGC’s characterization that in UDC,

the Court found that the restriction in Order No.

636–B on no-notice service was unlawfully

discriminatory, and that in Order No. 636–C, the

Commission agreed with the Court that its action

in promulgating that restriction was unlawful, is

inaccurate. The Court remanded the issue to the

Commission for further consideration, and in Order

No. 636–C, the Commission removed the restriction

based on experience with no-notice service.

19Tennessee Pipeline Co., 65 FERC ¶ 61,224

(1993), reh’g. denied, 66 FERC ¶ 61,317

(1994)(Tennessee), remanded, TVMGA v. FERC,

(D.C. Cir. April 21, 1998).

20The highest criteria used in the tariffs of

Tennessee’s downstream pipelines was 5,300 Dth/

day.

NAGC asserts that the Commission

erred in denying refunds to customers

who, in the past, were not eligible for

no-notice service. NAGC argues that,

although the Commission’s authority

under section 5 of the NGA is only

prospective, the courts have held that

refunds effective at the time of the

original error by the Commission are

permissible in a case like this where,

NAGC asserts, the Commission’s order

never became final and has been

overturned by a reviewing court.15

NAGC asks the Commission to revise

Order No. 636–C insofar as it limits the

effectiveness of this ruling to

prospective periods, and order refunds

to put petitioners in the same position

they would have occupied had the

alleged error not been made.

In Order No. 636–C, the Commission

made a prospective change in its policy

on this issue based on then current

circumstances in the gas industry

showing that early concerns about the

pipelines’ ability to provide no-notice

service to a broader group of customers

were unfounded. Order No. 636–C did

not find, as NAGC suggests, that the

original holding in Order No. 636 was

in error. Moreover, the Commission

explained in Order No. 636–C that it

cannot retroactively change Order No.

636’s limitation on the pipeline’s

obligation to provide no-notice service

because it is impossible to change past

service. Because no notice service, as a

premium service, is generally more

expensive than the alternatives, issues

concerning refunds to customers who

did not receive no notice service before

Order No. 636–C should not arise in

most instances.16

In any event, even if the Commission

had erred in Order No. 636 by limiting

no notice service, refunds would not be

an appropriate remedy in these

circumstances. Refunds would be

difficult to determine because if the

class of no notice customers had been

larger, both the no notice and non-no

notice rates would likely have been

different, and it would be impossible to

determine what service choices other

customers would have made if the rates

had been different. Further, unless the

Commission were to order surcharges to

counterbalance the refunds, the

pipelines would suffer losses simply for

complying with the Commission’s

order. It is for this reason that the

Commission does not order refunds for

rate design changes if the pipeline made

a good faith effort to implement the

Commission’s rate design goals.17

Nothing in the cases cited by NAGC

suggests that refunds must be ordered

for a change in rate design directed by

the Commission in a rulemaking

proceeding where pipelines complied

with the Commission’s directive

pending judicial review.18 No-notice

service is now available on a nondiscriminatory basis to all shippers on

any pipeline that offers no-notice

service. Refunds are a discretionary

remedy, and the Commission concludes

that refunds are not appropriate in these

circumstances. The request for rehearing

is therefore denied.

NAGC also asks the Commission to

clarify Order No. 636–C by expressly

eliminating the language in Order No.

636 that limits the eligibility to nonotice service. The Commission has

clearly removed the restriction on nonotice service and has held that nonotice service must now be offered on

a nondiscriminatory basis. Since there is

no regulation text at issue, nothing

further is needed to effect this change.

IV. Small Customer Rates for

Customers of Downstream Pipelines

In Order No. 636, the Commission

required pipelines to offer a one-part

small customer transportation rate to

their customers that were eligible for a

small customer sales rate on the

effective date of restructuring. On

rehearing of Order No. 636–A, the issue

arose as to whether the Commission

should require upstream pipelines to

offer their small customer rate to the

small customers of downstream

pipelines who became direct customers

of the upstream pipelines as a result of

unbundling. In Order No. 636–B, the

Commission held that this issue should

be considered on a case-by-case basis in

the individual pipeline restructuring

proceedings. In UDC, the Court found

that the Commission had made an

arbitrary distinction between former

indirect small customers of an upstream

pipeline and small customers who were

direct customers of the upstream

pipelines, and remanded this issue for

further explanation.

In Order No. 636–C, the Commission

again concluded that downstream

customer eligibility for a one-part rate

should be determined on a pipeline-bypipeline basis, rather than in a generic

rulemaking. The Commission explained

that the determination of the small

customer class size and eligibility

criteria requires consideration of the

individual circumstances present on

each pipeline system because changes

in the eligibility requirements for the

small customer rate upset the prior cost

allocation among the classes of

customers. Order No. 636–C discussed

the circumstances on Tennessee

Pipeline Co. (Tennessee) to illustrate

some of the factors that should be taken

into account with respect to

determining small customer class and

eligibility. In Tennessee’s restructuring

proceeding,19 the Commission held that

the eligibility level for Tennessee’s

former downstream customers should

be 5,300 Dth/day or less,20 while the

eligibility level for its directly

connected small customers would

remain at Tennessee’s pre-existing

eligibility level of 10,000 Dth/day or

less.

The only parties seeking rehearing of

Order No. 636–C on this issue are the
Federal Register / Vol. 63, No. 106 /Wednesday, June 3, 1998 /Rules and Regulations 30131

21Tennessee Valley Municipal Gas Ass’n v. FERC,

(D.C. Cir. No. 93–1566).

22 Id.

23 In Order No. 636–C, the Commission provides

examples to comparing the percentage of

interruptible throughput to overall throughput for

several pipelines. Order No. 636–C, slip op. at

76n.170.

East Tennessee Group (East Tennessee)

and the Tennessee Valley Municipal

Gas Authority (TVMGA), downstream

small customers of Tennessee. This

issue therefore has now been narrowed

solely to the treatment of downstream

customers on Tennessee. On rehearing

of Order No. 636–C, East Tennessee and

TVMGA argue that the Commission

failed to remove the arbitrary distinction

between the two classes of small

customers or to support the distinction

with substantial evidence. Further,

TVMGA argues that the Commission

erred in Order No. 636–C by using the

Tennessee case as an example because

the Commission misapplied its own

review standard in Tennessee. TVMGA

asserts that while Order No. 636–C

states that the Commission should

review the economic impact and cost

shift of granting small customer rate

treatment to newly qualifying small

customers, in Tennessee, the

Commission considered only their

contract demand entitlement as a

percentage of the total system. TVMGA

alleges that this caused the Commission

to substantially overestimate the

economic impact of allowing the

indirect downstream customers to

qualify for small customer status on

Tennessee based on Tennessee’s 10,000

Dth/day or less standard. TVMGA

asserts that if the Commission had

actually examined the economic impact

of any cost shift of according equal

treatment to all small customers in

Tennessee, as it states in Order No. 636–

C that it will do, it would have

concluded that any effect would be de

minimis.

East Tennessee and TVMGA also

appealed the Commission’s decision on

this issue in the Tennessee restructuring

case to the D.C. Circuit.21 In their

appeal, East Tennessee and TVMGA

made arguments very similar to their

arguments on rehearing in this

proceeding. On April 21, 1998, the

Court issued its decision in TVMGA v.

FERC,22 and remanded the portion of

the Commission’s order in Tennessee

dealing with the small customer rate to

the Commission. The Court recognized

that the issues before it on appeal of the

Tennessee decision were essentially the

same as those before the Commission on

rehearing of Order No. 636–C, and

therefore directed the Commission to

consider this aspect of the case in light

of the order on rehearing of Order No.

636–C.

The Commission continues to believe

that the small customer issue should be

decided on a case–by–case basis for the

reasons explained in Order No. 636–C.

The Commission can better address

concerns regarding eligibility and

discrimination in the context of a

proceeding that takes into account the

specific circumstances of the pipeline.

The requests for rehearing on this issue

indicate that the parties’ general

concerns cannot be adequately

addressed without reference to the

specifics of the Tennessee proceeding.

For example, a key issue raised in the

requests for rehearing involves the cost

shifts that would result from allowing

indirect customers to qualify for

Tennessee’s 10,000 Dth/day limit. That

issue is more appropriately addressed in

the Tennessee proceeding than in this

generic rulemaking. Therefore, the

Commission upholds the general

proposition that issues related to small

customer rates should be decided in

specific rate proceedings. The

Commission will address the issues

raised in the requests for rehearing

concerning downstream small customer

on Tennessee, including the allegations

of discrimination, in its order on

remand in the Tennessee proceeding.

V. Recovery of GSR Costs

In UDC, the Court did not question

the basic principle that pipelines should

be able to recover their GSR costs, but

remanded two aspects of the

Commission’s recovery policy for

further consideration. First, the Court

found that the Commission had failed to

explain adequately its decision to

allocate 10 percent of the GSR costs to

the pipeline’s interruptible

transportation customers. Second, the

Court held that the Commission had not

adequately explained it decision to

exempt pipelines altogether from the

absorption of any GSR costs.

In Order No. 636–C, the Commission

provided a further explanation of its

conclusion that pipelines should be able

to recover 100 percent of prudently

incurred GSR costs, and reaffirmed that

conclusion. MoPSC and NASUCA/

POCA sought rehearing of this ruling,

but subsequently withdrew their

requests for rehearing. This issue is

therefore resolved.

With regard to the issue of the

recovery of GSR costs from IT

customers, in Order No. 636–C, the

Commission determined not to require

that the percentage of GSR costs

allocated to IT customers be 10 percent

for all pipelines. Instead, the

Commission required each individual

pipeline, whose GSR proceeding had

not been resolved, to propose the

percentage of the GSR costs that its

interruptible customers should bear in

light of the circumstances on its system.

Therefore, the Commission directed

pipelines that had filed to recover GSR

costs before the date Order No. 636–C

was issued, and whose GSR recovery

proceedings had not been resolved by

settlement or final and non-appealable

Commission order, to file proposals for

allocation of costs to IT customers in

their respective proceedings within 120

days of the issuance of Order No. 636–

C.

No party seeks rehearing of the basic

policy that determination of the

appropriate allocation of GSR costs to IT

customers should be done on a case-bycase basis, but the Coastal Companies

seek clarification of the order. The

Coastal Companies request the

Commission to clarify that where the

provisions in a pipeline’s tariff that set

forth the allocation of GSR costs to

interruptible transportation were

approved by a final, non-appealable

Commission order, any change from the

existing ten percent allocation will be

applied prospectively from the date of

an order approving a subsequent tariff

sheet that incorporates the new

allocation percentage. The Coastal

Companies also ask the Commission to

clarify that the calculations 23 in Order

No. 636–C were merely illustrative, and

that the Commission will consider all

pertinent factors in determining the

appropriate level of GSR costs to

allocate to IT. These clarifications are

consistent with the intent of Order No.

636–C and are therefore granted.

The Commission Orders

The requests for rehearing are denied,

and the requests for clarification are

granted and denied, as set forth in this

order.

By the Commission.

Linwood A. Watson, Jr.,

Acting Secretary.

[FR Doc. 98–14676 Filed 6–2–98; 8:45 am]

BILLING CODE 6717–01–P