Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70517 

1Pipeline Safety, Regulatory Certainty, and Job 

Creation Act of 2011, 49 U.S.C. 60101 (2012) 

(Pipeline Safety Act). 

2Written Statement of Cynthia Quarterman, 

Administrator, PHSMA, before the U.S. House of 

Representatives, Committee on Transportation and 

Infrastructure, Subcommittee on Railroads, 

Pipelines, and Hazardous Materials (May 20, 2014), 

http://transportation.house.gov/uploadedfiles/

2014-05-20-quarterman.pdf (Quarterman 

Testimony) at 3. 

3Pipeline Safety: Safety of Gas Transmission 

Pipelines, (RIN: 2137–AE72), 76 FR 53086 (August 

25, 2011). 

not serve to make protestants parties to 

the proceeding. Any person wishing to 

become a party must file a notice of 

intervention or motion to intervene, as 

appropriate. The Respondent’s answer 

and all interventions, or protests must 

be filed on or before the comment date. 

The Respondent’s answer, motions to 

intervene, and protests must be served 

on the Complainants. 

The Commission encourages 

electronic submission of protests and 

interventions in lieu of paper using the 

‘‘eFiling’’ link at http://www.ferc.gov. 

Persons unable to file electronically 

should submit an original and 5 copies 

of the protest or intervention to the 

Federal Energy Regulatory Commission, 

888 First Street NE., Washington, DC 

20426. 

This filing is accessible on-line at 

http://www.ferc.gov, using the 

‘‘eLibrary’’ link and is available for 

electronic review in the Commission’s 

Public Reference Room in Washington, 

DC. There is an ‘‘eSubscription’’ link on 

the Web site that enables subscribers to 

receive email notification when a 

document is added to a subscribed 

docket(s). For assistance with any FERC 

Online service, please email 

FERCOnlineSupport@ferc.gov, or call 

(866) 208–3676 (toll free). For TTY, call 

(202) 502–8659. 

Comment Date: 5:00 p.m. Eastern 

Time on December 4, 2014. 

Dated: November 20, 2014. 

Kimberly D. Bose, 

Secretary. 

[FR Doc. 2014–28020 Filed 11–25–14; 8:45 am] 

BILLING CODE 6717–01–P 

DEPARTMENT OF ENERGY 

Federal Energy Regulatory 

Commission 

[Docket No. PL15–1–000] 

Cost Recovery Mechanisms for 

Modernization of Natural Gas Facilities 

AGENCY: Federal Energy Regulatory 

Commission, Energy. 

ACTION: Proposed policy statement. 

SUMMARY: In this proposed Policy 

Statement, the Commission seeks to 

provide greater certainty concerning the 

ability of interstate natural gas pipelines 

to recover the costs of modernizing their 

facilities and infrastructure to enhance 

the efficient and safe operation of their 

systems. The proposed Policy Statement 

explains the standards the Commission 

would require interstate natural gas 

pipelines to satisfy in order to establish 

simplified mechanisms, such as trackers 

or surcharges, to recover costs 

associated with replacing old and 

inefficient compressors and leak-prone 

pipes and performing other 

infrastructure improvements and 

upgrades to enhance the efficient and 

safe operation of their pipelines. 

DATES: Initial Comments are due 

December 26, 2014, and Reply 

Comments are due January 15, 2015. 

ADDRESSES: Comments, identified by 

docket number, may be filed in the 

following ways: 

• Electronic Filing through http://

www.ferc.gov. Documents created 

electronically using word processing 

software should be filed in native 

applications or print-to-PDF format and 

not in a scanned format. 

• Mail/Hand Delivery: Those unable 

to file electronically may mail or handdeliver comments to: Federal Energy 

Regulatory Commission, Secretary of the 

Commission, 888 First Street NE., 

Washington, DC 20426. 

Instructions: For detailed instructions 

on submitting comments and additional 

information on the rulemaking process, 

see the Comment Procedures Section of 

this document. 

FOR FURTHER INFORMATION CONTACT: 

Monique Watson (Technical 

Information), Office of Energy Markets 

Regulation, Federal Energy Regulatory 

Commission, 888 First Street NE., 

Washington, DC 20426, Telephone: 

(202) 502–8384, Monique.Watson@

ferc.gov 

David E. Maranville (Legal Information), 

Office of the General Counsel, Federal 

Energy Regulatory Commission, 888 

First Street NE., Washington, DC 

20426, Telephone: (202) 502–6351, 

David.Maranville@ferc.gov 

SUPPLEMENTARY INFORMATION: 

Proposed Policy Statement 

1. In this proposed Policy Statement, 

the Commission seeks to provide greater 

certainty concerning the ability of 

interstate natural gas pipelines to 

recover the costs of modernizing their 

facilities and infrastructure to enhance 

the efficient and safe operation of their 

systems. The proposed Policy Statement 

explains the standards the Commission 

would require interstate natural gas 

pipelines to satisfy in order to establish 

simplified mechanisms, such as trackers 

or surcharges, to recover costs 

associated with replacing old and 

inefficient compressors and leak-prone 

pipes and performing other 

infrastructure improvements and 

upgrades to enhance the efficient and 

safe operation of their pipelines. The 

Commission requests comments on this 

Proposed Policy Statement. Initial 

Comments are due 30 days after 

publication of this order in the Federal 

Register, with reply comments due 50 

days after publication in the Federal 

Register. 

I. Background 

2. There have been several recent 

legislative actions, and resulting 

regulatory initiatives, to address natural 

gas pipeline infrastructure safety and 

reliability. In 2012, Congress passed the 

Pipeline Safety, Regulatory Certainty, 

and Job Creation Act of 2011.1 That act 

includes requirements for the 

Department of Transportation to take 

various actions to reduce the risk of 

future pipeline failures. Among other 

things, the Pipeline Safety Act requires 

the Department of Transportation to (1) 

consider expansion and strengthening of 

its integrity management regulations, (2) 

consider requiring automatic shut-off 

valves on new pipeline construction, (3) 

require pipelines to reconfirm their 

Maximum Allowable Operating 

Pressures (MAOP), and (4) conduct 

surveys to measure progress in plans for 

safe management and replacement of 

cast iron pipelines. 

3. The Pipeline and Hazardous 

Materials Safety Administration 

(PHMSA) is in the process of 

implementing a multi-year Pipeline 

Safety Reform Initiative to comply with 

the Pipeline Safety Act’s mandate to 

enhance the agency’s ability to reduce 

the risk of future pipeline failures.2

Prior to the Pipeline Safety Act’s 

enactment, on August 25, 2011, PHMSA 

published an Advance Notice of 

Proposed Rulemaking (ANOPR) titled 

‘‘Pipeline Safety: Safety of Gas 

Transmission Pipelines,’’ which asked 

all stakeholders whether PHMSA 

should modify its existing integrity 

management and other pipeline safety 

regulations for interstate natural gas 

pipelines.3 The ANOPR requested 

public comment on a range of topics 

related to current industry practices, the 

effects of enhanced regulations on safety 

and cost, and the best method to 

implement proposed regulations. For 

example, PHMSA sought comments on 

shut-off valves and remote controlled 

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70518 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

4An HCA is a location which is defined in the 

pipeline safety regulations as an area where 

pipeline releases have greater consequences to the 

safety, health and environment. Basically, these are 

areas with greater population density. 

5Quarterman Testimony at 10. 

6 78 FR 56268 (Sept. 12, 2013). 

7See http://www.epa.gov/airquality/oilandgas/

whitepapers.html. 

8EPA Compressor White Paper at 29. 

9 Id. at 29–42. 10For example, the Interstate Natural Gas 

Association of America (INGAA) comments that 

one of its member companies ‘‘reported capital 

costs of $865,000 for replacement of a wet seal’’ on 

a centrifugal compressor. See INGAA Comments on 

EPA Compressor White Paper at 13 (filed June 16, 

2014). INGAA also commented on the EPA’s Leaks 

White Paper and noted that many factors could 

affect leak repair costs and that ‘‘the cost of the 

repair may far exceed the benefit of eliminating a 

small leak.’’ See INGAA Comments on EPA Leaks 

White Paper at 12–13 (filed June 16, 2014). 

11Mandatory Reporting of Greenhouse Gases 

Rule, 74 FR 56260 (Oct. 30, 2009). See also 40 CFR 

Pt. 98 (2014). 12 Greenhouse Gas Reporting Rule: 2014 

Revisions and Confidentiality Determinations for 

Petroleum and Natural Gas Systems, Docket Nos. 

EPA–HQ–OAR–2011–0512 and FR–9918–95–OAR 

(Nov. 14, 2014). 

13See Greenhouse Gas Reporting Rule: 2015 

Revisions and Confidentiality Determination for 

Petroleum and Natural Gas Systems, Docket ID No. 

EPA–HQ–OAR–2014–0831 (issued Nov. 14. 2014). 14On July 29, 2014, the Department of Energy 

(DOE) announced steps to help modernize natural 

gas infrastructure. Moreover, on July 31, 2014, 

Secretary of Energy Ernest Moniz sent a letter to the 

Chairman of the Commission recommending the 

Commission explore efforts to provide greater 

certainty for cost recovery for new investments in 

modernization of natural gas transmission 

infrastructure as part of the FERC’s work to ensure 

just and reasonable natural gas pipeline 

transportation rates. 

shut-off valves. In addition, PHMSA 

held a public leak detection and valve 

workshop on March 28, 2012. 

4. Also as part of the ANOPR process, 

PHSMA is considering expanding the 

definition of a High Consequence Area 

(HCA) so that more miles of pipeline 

may become subject to integrity 

management requirements.4 PHMSA is 

also considering potential new rules 

related to repair criteria, including 

applying the integrity management 

repair criteria to non-HCAs; reassessing 

the repair criteria in areas where the 

population has grown since the pipeline 

was constructed; requiring methods to 

validate in-line inspection tool 

performance and qualifications of 

personnel; and implementing risk 

tiering such that repairs in an HCA have 

priority over repairs in a non-HCA. 

PHMSA held a Class Location 

Methodology workshop on April 16, 

2014. Based on the comments from the 

ANOPR and the workshop, PHMSA 

‘‘has started drafting a report to 

Congress on this issue.’’ 5

5. PHMSA is also considering changes 

to its requirements that pipelines 

perform baseline and periodic 

assessments of pipeline segments in an 

HCA through one or a combination of 

in-line inspection, pressure testing, 

direct assessment of external and 

internal corrosion, or other technology 

demonstrated to accurately assess the 

condition of a pipe. In June 2013, as 

updated in September 2013, PHMSA 

issued a flow chart reflecting its draft 

Integrity Verification Process for natural 

gas pipelines.6 To this end, PHMSA 

seeks information as to what anomalies 

have been detected using the various 

assessment methods, and proposes to 

include criteria in the regulations that 

would require more rigorous corrosion 

control. 

6. In addition to pipeline safety 

issues, there have been growing 

concerns about the emissions of 

greenhouse gases (GHG) in the 

production and transportation of natural 

gas. On April 15, 2014, EPA issued a 

series of technical white papers, for 

which they have requested input from 

peer reviewers and the public, to 

determine how to best pursue 

reductions of emissions from, inter alia, 

natural gas compressors.7 The EPA 

Compressor White Paper discusses the 

most prevalent types of compressors 

(reciprocating and centrifugal) and 

compressor emission data. As relevant 

to this proposed policy statement, the 

EPA lays out several ‘‘mitigation options 

for reciprocating compressors 

involve[ing] techniques that limit the 

leaking of natural gas past the piston rod 

packing, including replacement of the 

compressor rod packing, replacement of 

the piston rod, and the refitting or 

realignment of the piston rod.’’ 8 The 

EPA also describes several mitigation 

options for centrifugal compressors to 

limit the leaking of natural gas ‘‘across 

the rotating shaft using a mechanical 

dry seal, or capture the gas and route it 

to a useful process or to a combustion 

device.’’ 9 If the EPA’s white papers 

result in the agency imposing mitigation 

requirements on natural gas pipelines, 

such controls could be significant.10

7. We also note that in 2009, the EPA 

published a rule for mandatory 

reporting of greenhouse gas emissions 

(GHG) from sources that, in general, 

emit 25,000 metric tons or more of 

carbon dioxide equivalent per year in 

the United States.11 This initiative, 

commonly referred to as the Greenhouse 

Gas Reporting Program (GHGRP), 

collects greenhouse gas data from 

facilities that conduct Petroleum and 

Natural Gas Systems activities, 

including production, processing, 

transportation and distribution of 

natural gas. Moreover, on November 14, 

2014, the EPA issued a prepublication 

version of a final rule revising the 

Petroleum and Natural Gas Systems 

source category (Subpart W) and the 

General Provisions (Subpart A) of the 

GHGRP.12 The final rule, which is 

effective January 1, 2015, imposes new 

requirements for the natural gas 

industry to monitor methane emissions 

and report them annually. Lastly, we 

note that on that same day, the EPA 

issued a prepublication version of a 

proposed rule to add calculation 

methods and reporting requirements for 

greenhouse gas emissions, as relevant 

here, from blowdowns of natural gas 

transmission pipelines between 

compressor stations. The EPA also 

proposes confidentiality determinations 

for new data elements contained in the 

proposed amendments.13

8. One likely result of the Pipeline 

Safety Act and PHMSA’s rulemaking 

proceedings is that interstate natural gas 

pipelines will soon face new safety 

standards requiring significant capital 

cost expenditures to enhance the safety 

and reliability of their systems.14

Moreover, pursuant to EPA’s initiatives, 

pipelines may in the future face 

increased environmental monitoring 

and compliance costs, as well as 

potentially having to replace or repair 

existing natural gas compressors or 

other facilities. 

9. Against this background, the 

Commission is proposing the instant 

Policy Statement in an effort to ensure 

that existing Commission ratemaking 

policies do not unnecessarily inhibit 

interstate natural gas pipelines’ ability 

to expedite needed or required upgrades 

and improvements. The proposed Policy 

Statement would allow interstate 

natural gas pipelines to recover certain 

capital expenditures made to modernize 

pipeline system infrastructure in a 

manner that enhances system reliability, 

safety and regulatory compliance 

through a surcharge mechanism, subject 

to conditions intended to ensure that 

the resulting rates are just and 

reasonable and protect natural gas 

consumers from excessive costs. 

Further, under the proposed Policy 

Statement, the Commission may 

consider capital costs to replace 

compressor facilities or make other 

improvements in response to increased 

federal or state environmental 

regulations as eligible for inclusion in a 

modernization cost recovery 

mechanism, to the extent a pipeline 

shows such costs to be beyond ordinary 

capital investments in a pipeline’s 

existing system for maintenance 

purposes. 

10. The Commission generally 

requires that interstate natural gas 

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Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70519 

15 18 CFR 284.10(c)(2) (2014). 

16Regulation of Natural Gas Pipelines After 

Partial Wellhead Decontrol, Order No. 436, FERC 

Stats. & Regs., Regulations Preambles 1982–1985 

¶ 30,665, at 31,534 (1985). 

17 Id. at 31,537. 

18See Granite State Gas Transmission, Inc., 132 

FERC ¶ 61,089, at P 11 (2010) (Granite State); 

Florida Gas Transmission Co., 105 FERC ¶ 61,171, 

at PP 47–48 (2003) (Florida Gas). 

19See e.g., Granite State Gas Transmission, Inc., 

136 FERC ¶ 61,153 (2011); Florida Gas 

Transmission Co., 109 FERC ¶ 61,320 (2004). In 

2012, the Commission again rejected a protested 

proposal that would allow the pipeline to recover 

regulatory safety costs through a tracker, but noted 

that PHSMA was in the early stages of developing 

regulations to implement the Pipeline Safety Act, 

and that the Commission would consider the need 

for further action as PHMSA’s implementation 

process moved forward. CenterPoint Energy— 

Mississippi River Transmission, LLC, 140 FERC 

¶ 61,253, at P 65 (2012). 

20Columbia Gas Transmission, LLC, 142 FERC 

¶ 61,062 (2013) (Columbia Gas). 

21Columbia Gas stated in that proceeding that 

over fifty percent of its regulated pipeline system 

was over 50 years old, that a significant portion of 

its system contained dangerous bare steel pipeline, 

that many of its compressors were also dated, that 

many of its control systems were running on 

obsolete platforms, and that it was only able to 

inspect a small percentage of its system using 

modern in-line inspection tools. 

pipelines design their open access 

natural gas transportation rates to 

recover their costs based on projected 

units of service.15 This requirement 

means that the pipeline is at risk for 

under-recovery of its costs between rate 

cases but may retain any over-recovery. 

As the Commission explained in Order 

No. 436, this requirement gives the 

pipeline an incentive both to (1) 

‘‘minimize costs in order to provide 

services at the lowest reasonable costs 

consistent with reliable long-term 

service’’ 16 and (2) ‘‘provide the 

maximum amount of service to the 

public.’’ 17

11. Before the Pipeline Safety Act, the 

Commission held that capital costs 

incurred to comply with the 

requirements of pipeline safety 

legislation or with environmental 

regulations should not be included in 

surcharges,18 except in the context of an 

uncontested settlement.19 Noting that 

pipelines commonly incur capital costs 

in response to regulatory requirements 

intended to benefit the public interest, 

the Commission stated that recovering 

those costs in a tracking mechanism was 

contrary to the requirement to design 

rates based on estimated units of service 

because the use of cost-trackers 

undercuts the referenced incentives by 

guaranteeing the pipeline a set revenue 

recovery. 

12. More recently, however, the 

Commission approved a contested 

settlement which included a tracker to 

recover substantial pipeline 

modernization costs that were shown to 

be necessary to ensure the safety and 

reliability of Columbia Gas 

Transmission LLC’s (Columbia Gas) 

pipeline system.20 The Columbia Gas 

settlement outlined significant 

operational and safety issues resulting 

from the age of its system and the 

corresponding inability to monitor and 

maintain the system using efficient 

modern techniques.21 The Commission 

found that approving the settlement 

would facilitate Columbia Gas’ ability to 

make substantial capital investments 

necessary to correct significant 

infrastructure problems, and thus 

provide more reliable service while 

minimizing public safety concerns. 

13. The Commission’s determination 

in Columbia Gas thus established 

general parameters for pipelines to 

consider when seeking recovery of 

pipeline investments for modernization 

costs related to improving system safety 

and reliability. The tracker approved in 

that case was designed to recover 

pipeline modernization capital costs of 

up to $300 million annually over a five 

year period. The Commission found that 

Columbia Gas’ settlement included 

numerous positive characteristics that 

distinguished its cost tracking 

mechanism from those the Commission 

had previously rejected and that work to 

maintain the pipeline’s incentives for 

innovation and efficiency. The key 

aspects of the settlement upon which 

the Commission relied to approve the 

tracker included the following. 

14. First, Columbia Gas worked 

collaboratively with its customers to 

ensure that its existing base rates, to 

which the tracker would be added, were 

updated to be just and reasonable. This 

included a reduction in Columbia Gas’ 

base rates and a refund to its customers. 

15. Second, the settlement specifically 

delineated and limited the amount of 

capital costs and expenses that may go 

into the cost recovery mechanism. 

Moreover, the eligible facilities for 

which costs would be recovered through 

that mechanism were specified by 

pipeline segment and compressor 

station. Further, the pipeline agreed to 

spend $100 million for normal system 

maintenance annually during the initial 

term of the tracker, which would not be 

recovered through the tracker. The 

Commission found that these provisions 

should assure that the projects whose 

costs are recovered through the tracker 

go beyond the regular capital 

maintenance expenditures the pipeline 

would make in the ordinary course of 

business and are critical to assuring the 

safe and reliable operation of Columbia 

Gas’ system. 

16. Third, the Commission found that 

a critically important factor to its 

approval of the settlement was the 

pipeline’s agreement to a billing 

determinant floor for calculating the 

cost recovery mechanism, together with 

an agreement to impute the revenue it 

would achieve by charging the 

maximum rate for service at the level of 

the billing determinant floor before it 

trues up any cost underrecoveries. The 

Commission found these provisions 

should alleviate its historic concern that 

surcharges which guarantee cost 

recovery diminish a pipeline’s incentive 

to be efficient and to maximize the 

service provided to the public. The 

Commission also found that these 

provisions protect the pipeline’s 

shippers from significant cost shifts if 

the pipeline loses shippers or must 

provide increased discounts to retain 

business. 

17. Fourth, the surcharge was 

temporary and would terminate 

automatically on a date certain unless 

the parties agreed to extend it and the 

Commission approved the extension. 

Finally, the tracker was broadly 

supported by the pipeline’s customers. 

II. Discussion 

18. The ultimate implementation of 

the recent initiatives described above, to 

improve natural gas infrastructure safety 

and reliability and to address 

environmental issues related to the 

operation of natural gas pipelines, 

appear likely to lead to the need for 

interstate natural gas pipelines to make 

significant capital investments to 

modernize their systems. In light of 

these developments, the Commission 

has a duty to ensure that interstate 

natural gas pipelines are able to recover 

the costs of these system upgrades in a 

just and reasonable manner that does 

not undercut their incentives to provide 

service in an efficient manner and 

protects ratepayers from unreasonable 

cost shifts. 

19. As noted, the Pipeline Safety Act 

and EPA’s proposed revisions to the 

Petroleum and Natural Gas Systems 

source category address serious 

concerns that directly affect the public 

interest. Although historically the 

Commission has generally disfavored 

pipelines’ use of trackers to recover 

costs, the high probability that the 

initiatives discussed will lead to 

imposition of significant compliance 

costs on pipelines justifies the 

consideration of such mechanisms, 

subject to specified conditions, as a way 

for pipelines to recover those costs in a 

timely manner, while also maintaining 

safe and efficient operation of pipeline 

systems and providing the maximum 

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70520 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

22For example, the costs allowed to be recovered 

through Columbia Gas’ modernization program are 

limited to capital costs to modify the pipeline’s 

existing system that go beyond its normal capital 

investments to modify its system, and costs of 

expansions are expressly excluded from that 

surcharge. 

amount of service at a just and 

reasonable cost consistent with safe 

operations. Establishing a framework for 

pipelines to accelerate the recovery of 

one-time capital costs necessary to make 

system improvements to comply with 

new safety and environmental 

requirements should maintain 

pipelines’ incentives for innovation and 

efficiency and prompt them to make 

such necessary system modifications in 

an expeditious manner, in advancement 

of the public interest. 

20. Accordingly, the Commission 

proposes to establish a policy outlining 

the analytical framework for evaluating 

proposed cost recovery mechanisms to 

recoup infrastructure modernization 

costs necessary for the efficient and safe 

operation of the pipeline’s system and 

compliance with new regulations. The 

Commission proposes to base the policy 

on the guiding principles established in 

Columbia Gas. Pursuant to the proposed 

policy, a pipeline proposal for a cost 

recovery tracker to recover pipeline 

modernization costs would need to 

satisfy five standards: 

(1) Review of Existing Rates—the 

pipeline’s base rates must have been 

recently reviewed, either by means of an 

NGA general section 4 rate proceeding 

or through a collaborative effort between 

the pipeline and its customers; (2) 

Eligible Costs—the eligible costs must 

be limited to one-time capital costs 

incurred to modify the pipeline’s 

existing system to comply with safety or 

environmental regulations issued by 

PHMSA, EPA, or other federal or state 

government agencies, and other capital 

costs shown to be necessary for the safe 

or efficient operation of the pipeline, 

and the pipeline must specifically 

identify each capital investment to be 

recovered by the surcharge; (3) 

Avoidance of Cost Shifting—the 

pipeline must design the proposed 

surcharge in a manner that will protect 

the pipeline’s captive customers from 

costs shifts if the pipeline loses shippers 

or must offer increased discounts to 

retain business; (4) Periodic Review of 

the Surcharge—the pipeline must 

include some method to allow a 

periodic review of whether the 

surcharge and the pipeline’s base rates 

remain just and reasonable; and (5) 

Shipper Support—the pipeline must 

work collaboratively with shippers to 

seek shipper support for any surcharge 

proposal. 

21. We discuss these five proposed 

standards, and potential issues for 

comment, below. 

1. Review of Existing Rates 

22. Pursuant to this standard, the 

Commission proposes to require a 

pipeline proposing a tracker mechanism 

to establish that the base rates to which 

any surcharges would be added are just 

and reasonable and reflect the pipeline’s 

current costs and revenues as of the date 

of the initial approval of the tracker 

mechanism. While in Columbia Gas the 

pipeline did this through a negotiated 

settlement with its shippers in which it 

agreed to reduce its base rates and 

establish a revenue sharing mechanism 

for base rate revenues above a certain 

level, the Commission will consider 

methods other than a pre-negotiated 

base rate settlement by which the 

pipeline could establish that its current 

base rates are just and reasonable. For 

example, concurrently with the 

pipeline’s filing to establish the tracker, 

the pipeline could make a new NGA 

general section 4 rate filing, or the 

pipeline could file a cost and revenue 

study in the form specified in section 

154.313 of the Commission’s regulations 

showing that its existing rates are just 

and reasonable. The Commission seeks 

input on these or other acceptable 

approaches for pipelines to demonstrate 

that existing base rates are just and 

reasonable. 

2. Eligible Facilities 

23. The Commission intends that any 

tracking mechanism authorized under 

this policy be used by pipelines to 

recover only capital costs incurred to 

modify their existing systems to address 

the safety and other concerns discussed 

above. Accordingly, the Commission 

proposes that the capital costs eligible 

for recovery through the tracking 

mechanism authorized under the 

proposed policy be limited to one-time 

capital costs to modify the pipeline’s 

existing system to comply with safety 

and environmental regulations, such as 

those being considered by PHMSA and 

by the EPA, as well as other capital 

costs shown to be necessary for the safe 

or efficient operation of the pipeline. 

24. As we have recognized previously, 

interstate natural gas pipelines routinely 

make capital investments related to 

system maintenance in the ordinary 

course of business. It will continue to be 

the Commission’s policy that such 

ordinary capital maintenance costs 

should not be included in a tracker 

mechanism. Permitting normal system 

capital maintenance costs to be 

recovered through a surcharge 

mechanism would inhibit a pipeline’s 

incentives to minimize costs and 

maximize service because it would 

guarantee a certain level of cost 

recovery. Thus, the Commission 

proposes to establish a policy that, in 

order for a pipeline to recover costs 

through a proposed modernization 

surcharge mechanism, it would need to 

demonstrate that the costs to be 

included are not normal capital 

maintenance expenditures but are costs 

necessary to address system safety, 

efficiency, or other similar concerns, 

such as in Columbia Gas, or to comply 

with federal or state regulations. 

25. The Commission also proposes to 

require that, when the pipeline files to 

establish a tracker mechanism, it should 

specifically identify in its proposal the 

projects eligible for recovery, the 

facilities to be upgraded or installed by 

those projects, and an upper limit on the 

capital costs related to each project to be 

included in the surcharge. This will 

allow an upfront determination that the 

costs are eligible for recovery through 

the tracker and avoid later disputes 

about which costs or facilities qualify 

for such recovery. These requirements 

will also help ensure that normal capital 

expenditures to maintain the pipeline’s 

system will not be eligible for recovery 

through a surcharge mechanism.22

Allowing pipelines to only recover costs 

incurred to address critical system 

efficiency, safety, and environmental 

concerns and requirements through a 

tracker will provide the pipeline with 

an inducement to make the necessary 

modifications on an expedited basis 

without inhibiting the pipeline’s 

incentive to provide the maximum level 

of service. Allowing such recovery will 

also advance the public’s interest in the 

safe, efficient and environmentally 

sound operation of the nation’s natural 

gas pipeline system. 

26. In relation to this standard, the 

Commission also seeks comments on 

the following questions: 

• Should the costs of modifications to 

compressors for the purpose of waste 

heat recovery be eligible for recovery 

under a modernization surcharge? 

• This proposed policy statement 

would limit the capital costs eligible for 

recovery through the surcharge to costs 

incurred to modify the pipeline’s 

existing system. However, the 

Commission requests comment on 

whether there are any capital costs 

associated with the expansion of the 

pipeline’s existing capacity or its 

extension to serve new markets that may 

reasonably be included in the surcharge 

as necessary one-time capital 

expenditures to comply with safety and 

environmental regulations. 

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Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 70521 

23For example, in order to recover costs 

associated with discounted rates the pipeline may 

have offered to certain shippers, the pipeline must 

demonstrate that the discount was required to meet 

competition. Policy for Selective Discounting by 

Natural Gas Pipelines, 113 FERC ¶ 61,173 (2005). In 

the case of a tracker, no such showing is required 

by the pipeline to recover the covered costs from 

its remaining customers. 24Columbia Gas, 142 FERC ¶ 61,062 at P 25. 

25As we noted in Columbia Gas, the proposed 

surcharge had the support of a broad spectrum of 

the pipeline’s shippers. 

26Columbia Gas, 142 FERC ¶ 61,062 at P 9. 

27See, e.g., Sea Robin Pipeline Co., LLC, 144 

FERC ¶ 61,008 (2013) (Sea Robin). 

28See, e.g., Sea Robin Pipeline Co., 137 FERC 

¶ 61,201, at P 51 (2011) (approving 4-year recovery 

period for hurricane surcharge and finding 

surcharge to be just and reasonable); High Island 

Offshore System, L.L.C., 135 FERC ¶ 61,105, (2011); 

Stingray Pipeline Co., L.L.C., 127 FERC ¶ 61,308 

(2009) (approving tariff provisions that allowed up 

to 36 months to amortize hurricane-related costs); 

Discovery Transmission LLC, 122 FERC ¶ 61,099, at 

Continued 

• Should capital costs incurred to 

minimize pipeline facility emissions be 

considered for inclusion in the 

surcharge, even if those costs are not 

expressly required to comply with 

environmental regulations? 

• Should non-capital maintenance 

costs associated with environmentally 

sound operation of a compressor be 

considered for inclusion in the 

surcharge? 

• Under what circumstances should 

the Commission permit a pipeline to 

include in the tracking mechanism the 

costs of additional projects not 

identified in the pipeline’s original 

filing to establish the tracking 

mechanism? 

3. Avoid Cost Shifts 

27. As noted above, the Commission’s 

general open access interstate natural 

gas transportation rate regulations 

require that a pipeline’s costs be 

recovered based on projected units of 

service. 18 CFR 284.10(c)(2) (2014). This 

requirement results in pipelines being 

placed at risk for any cost 

underrecovery between rate cases but 

also allows pipelines to retain any over 

recovery during that period, thereby 

providing pipelines with an incentive to 

minimize costs and to provide the 

maximum amount of service to the 

public. 

28. The recovery of certain costs 

through a tracker mechanism, however, 

reduces those incentives because it 

guarantees the pipeline recovery of 

those costs. Moreover, a tracker 

mechanism can shift costs to the 

pipeline’s captive customers. If a 

pipeline recovering costs through a 

tracker or surcharge loses shippers or 

must offer increased discounts to retain 

business, a tracker mechanism may shift 

the amounts previously paid by those 

shippers directly and automatically to 

the pipeline’s remaining shippers. This 

direct cost shifting is one of the reasons 

the Commission has generally 

disfavored trackers, namely that the cost 

shifting described would occur without 

consideration of any offsetting items 

that would generally be considered in a 

section 4 rate proceeding, and which the 

pipeline would normally need to justify 

to recover.23

29. Accordingly, as a prerequisite to 

the Commission approving a 

modernization cost tracker, and thereby 

effectively granting an exemption from 

the requirement that a pipeline recover 

costs based on projected units of 

service, the Commission proposes to 

establish a policy that the pipeline is 

required to design the surcharge in a 

manner that will protect the pipeline’s 

shippers from significant cost shifts. 

One way to accomplish this goal may be 

that approved in Columbia Gas, where 

the pipeline sought to provide rate 

stability and safeguard shippers against 

cost shifts resulting from losses in 

billing determinants by agreeing to a 

floor on the billing determinants that 

could be used to design the surcharge. 

The provisions of the Columbia Gas 

tracker require the pipeline to design 

the surcharge based on the greater of 

actual annual billing determinants or 

the agreed upon floor, and to impute the 

revenue it would achieve by charging 

the maximum rate for service at the 

level of the billing determinant floor 

before trueing up any cost underrecoveries. The Commission found that 

these provisions alleviated the historical 

concern that allowing the recovery of 

capital costs through a surcharge will 

diminish the pipeline’s incentive to 

operate efficiently and maximize service 

to the public, as well as provided 

protections from cost shifts if the 

pipeline lost customers or had to offer 

increased discounts to retain business.24

While the Commission found this to be 

a just and reasonable way to ensure the 

prevention of cost shifts, we are open to 

considering other methods that may 

similarly protect a pipeline’s customers. 

4. Periodic Review of Surcharge 

30. Under this standard, the 

Commission proposes to require 

pipelines seeking approval of a 

modernization surcharge to include 

some method to allow a periodic review 

of whether the surcharge and the 

pipeline’s base rates remain just and 

reasonable. For example, in Columbia 

Gas, the pipeline agreed to make the 

surcharge a temporary part of its rates 

(the surcharge expires automatically 

after five years), and included a 

requirement that the pipeline make a 

new NGA section 4 filing if it wants to 

continue the surcharge. The settlement 

also requires Columbia Gas to file a new 

NGA general section 4 rate case at that 

time. While the Commission intends to 

require that surcharge proposals must 

include a mechanism for periodic 

review, we remain open to, and seek 

comments on, reasonable methods of 

accomplishing this goal aside from that 

approved in Columbia Gas. 

5. Shipper Support 

31. The Commission expects any 

pipeline seeking approval of a pipeline 

modernization surcharge to work 

collaboratively with its shippers to seek 

support for the pipeline’s proposal.25

We note, however, that while we 

strongly encourage the pipeline to 

attempt to garner support for its 

proposal among all interested parties, 

the Commission may nonetheless 

approve any proposal the pipeline 

demonstrates to be just and reasonable 

without one-hundred percent shipper 

agreement. Thus, the Commission does 

not intend to require support from all 

shippers as a prerequisite to approval of 

a cost recovery surcharge. 

32. In addition to the considerations 

outlined above, the Commission also 

seeks comment on the following related 

issues: 

• Accelerated Amortization 

33. The capital costs included in the 

Columbia Gas surcharge are treated as 

rate base items, and thus Columbia Gas 

is allowed to recover a return on equity 

on the portion of those costs financed by 

equity. Consistent with the rate base 

treatment of those costs, they are to be 

depreciated over the life of Columbia 

Gas’ system.26 The Commission 

requests comments on whether 

pipelines should also be allowed to use 

accelerated amortization methodologies, 

akin to that approved by the 

Commission for hurricane repair cost 

trackers,27 to recover the costs of any 

facilities installed pursuant to a 

modernization cost recovery 

mechanism. Under such a methodology 

the costs would not be included in the 

pipeline’s rate base, and the pipeline 

would not recover any return on equity 

with respect to the costs financed by 

equity. Instead, the pipeline would only 

be allowed to recover the interest 

necessary to compensate it for the time 

value of money. The Commission has 

approved amortization periods for 

hurricane or storm surcharges ranging 

from one year to four years at the 

Commission’s interest rate for refunds.28

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70522 Federal Register / Vol. 79, No. 228 / Wednesday, November 26, 2014 / Notices 

P 8 (2008) (approving a 12-month recovery period 

for a hurricane surcharge subject to a cap with any 

uncollected amounts due to the cap to be recovered 

in a subsequent period); Chandeleur Pipe Line Co., 

117 FERC ¶ 61,250 (2006) (approving 12-month 

hurricane surcharge recovery period that was 

subsequently extended to 24 months). 

29See e.g., TransColorado Gas Transmission Co., 

LLC, 144 FERC ¶ 61,175 (2013); Gulf South Pipeline 

Co., LP, 144 FERC ¶ 61,215 (2013). 

30Because the proposed policy statement would 

address issues pertaining to the Commission’s 

review of natural gas rate filings, the statement is 

categorically excluded from the requirements of the 

National Environmental Policy Act (NEPA), thus 

neither an environmental assessment nor an 

environmental impact statement is required. See 18 

CFR 380.4(a)(25) (2014). 

Thus, the Commission seeks comments 

on whether pipelines should be 

permitted to use accelerated 

amortization methodologies, such as 

those approved for hurricane trackers, to 

recover the costs of any facilities 

installed pursuant to the modernization 

cost recovery mechanism, or whether 

the Commission should require 

pipelines to depreciate facilities subject 

to a modernization cost tracker over the 

life of the facilities. 

• Reservation Charge Credits 

34. The Commission requests 

comments on whether it should make 

any adjustments to its current 

reservation charge crediting policy in 

light of the proposed Policy Statement. 

As noted, given recent legislative and 

other actions to address pipeline 

efficiency, safety, and environmental 

concerns, it is likely that pipelines will 

be required to meet additional 

requirements that may include 

performing facility upgrades and 

replacements. This work, particularly 

the replacement of existing compressors 

or pipelines, may result in disruption of 

primary firm service. Pursuant to the 

Commission’s existing reservation 

charge crediting policies, such one-time 

outages, if necessary to comply with 

government orders, may be treated as 

force majeure outages, for which only 

partial reservation charge credits are 

required.29 Thus, the Commission seeks 

comment on whether it should modify 

its existing reservation crediting policy 

to require pipelines with modernization 

cost trackers to provide full reservation 

charge credits during periods that the 

pipeline must interrupt primary firm 

service to replace or install eligible 

facilities under the provisions of the 

modernization tracker. 

• Other Considerations 

35. The Commission welcomes 

comments on any other issues or factors 

the Commission should consider for 

inclusion in the Policy Statement as a 

prerequisite for approving a 

modernization cost recovery 

mechanism.30

III. Procedure for Comments 

36. The Commission invites interested 

persons to submit written comments on 

the Commission’s proposed policy to 

establish guidelines for pipelines to 

implement trackers or surcharges to 

recover infrastructure modernization 

costs as discussed above. Comments are 

due 30 days from the date of publication 

in the Federal Register and reply 

comments are due 50 days from the date 

of publication in the Federal Register. 

Comments must refer to Docket No. 

PL15–1–000, and must include the 

commentor’s name, the organization it 

represents, if applicable, and its 

address. To facilitate the Commission’s 

review of the comments, commentors 

are requested to provide an executive 

summary of their position. Additional 

issues the commentors wish to raise 

should be identified separately. The 

commentors should double space their 

comments. 

37. The Commission encourages 

comments to be filed electronically via 

the eFiling link on the Commission’s 

Web site at http://www.ferc.gov. The 

Commission accepts most standard 

word processing formats. Documents 

created electronically using word 

processing software should be filed in 

native applications or print-to-PDF 

format and not in a scanned format. 

Commenters filing electronically do not 

need to make a paper filing. 

38. Commenters that are not able to 

file comments electronically must send 

an original of their comments to: 

Federal Energy Regulatory Commission, 

Secretary of the Commission, 888 First 

Street NE., Washington, DC 20426. 

39. All comments will be placed in 

the Commission’s public files and may 

be viewed, printed, or downloaded 

remotely as described in the Document 

Availability section below. Commenters 

on this proposal are not required to 

serve copies of their comments on other 

commenters. 

IV. Document Availability 

40. In addition to publishing the full 

text of this document in the Federal 

Register, the Commission provides all 

interested persons an opportunity to 

view and/or print the contents of this 

document via the Internet through the 

Commission’s Home Page (http://

www.ferc.gov) and in the Commission’s 

Public Reference Room during normal 

business hours (8:30 a.m. to 5:00 p.m. 

Eastern time) at 888 First Street NE., 

Room 2A, Washington DC 20426. 

41. From the Commission’s Home 

Page on the Internet, this information is 

available in the Commission’s document 

management system, eLibrary. The full 

text of this document is available on 

eLibrary in PDF and Microsoft Word 

format for viewing, printing, and/or 

downloading. To access this document 

in eLibrary, type the docket number 

(excluding the last three digits) in the 

docket number field. 

42. User assistance is available for 

eLibrary and the Commission’s Web site 

during normal business hours. For 

assistance, please contact the 

Commission’s Online Support at 1–866– 

208–3676 (toll free) or 202–502–6652 

(email at FERCOnlineSupport@ferc.gov) 

or the Public Reference Room at 202– 

502–8371, TTY 202–502–8659 (email at 

public.referenceroom@ferc.gov). 

By the Commission. 

Kimberly D. Bose, 

Secretary. 

[FR Doc. 2014–28015 Filed 11–25–14; 8:45 am] 

BILLING CODE 6717–01–P 

DEPARTMENT OF ENERGY 

Federal Energy Regulatory 

Commission 

[Project No. 14628–000] 

Minnesota Leased Housing Associates 

IV, Limited Partnership; Notice of 

Intent To File License Application, 

Filing of Pre-Application Document, 

Approving Use of the Alternative 

Licensing Process, and Requesting 

Cooperating Agency Status 

a. Type of Filing: Notice of Intent to 

File License Application and Request to 

Use the Alternative Licensing Process. 

b. Project No.: 14628–000. 

c. Date Filed: July 28, 2014. 

d. Submitted By: Minnesota Leased 

Housing Associates IV, Limited 

Partnership (Minnesota Housing 

Associates). 

e. Name of Project: A-Mill Artists Loft 

Hydroelectric Project. 

f. Location: On the Mississippi River, 

in the city of Minneapolis, Hennepin 

County, Minnesota. No federal lands are 

occupied by the project works or located 

within the project boundary. 

g. Filed Pursuant to: 18 CFR 5.3 of the 

Commission’s regulations. 

h. Potential Applicant Contact: Owen 

Metz, 2905 Northwest Blvd., Suite 150, 

Plymouth, MN 55441; (763) 354–5618; 

email ometz@dominiuminc.com. 

i. FERC Contact: Janet Hutzel at (202) 

502–8675; or email at janet.hutzel@

ferc.gov. 

j. Minnesota Housing Associates filed 

its request to use the Alternative 

Licensing Process] on July 29, 2014. 

mstockstill on DSK4VPTVN1PROD with NOTICES