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----- Forwarded by Gerald Nemec/HOU/ECT on 07/06/2000 03:53 PM ----- =09LEXIS(R)/NEXIS(R) Print Delivery <lexis-nexis@prod.lexis-nexis.com< =0907/06/2000 03:30 PM =09=09=20 =09=09 To: gerald.nemec@enron.com =09=09 cc:=20 =09=09 Subject: LEXIS(R)-NEXIS(R) Email Request (59:0:11094435) =20 108CKF Print Request: LEXSEE Time of Request: July 6, 2000 04:30 pm EST Number of Lines: 661 Job Number: 59:0:11094435 Client ID/Project Name: Research Information: Lexsee 69 FERC P61,145 Note: =0F, = =20 PAGE 1 LEXSEE 69 FERC P61,145 Texas-Ohio Pipeline, Inc. Docket Nos. CP92-217-000, CP92-217-001 and MT94-2-000 FEDERAL ENERGY REGULATORY COMMISSION - Commission 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340 Order Issuing Certificates and Denying Rehearing November 2, 1994 PANEL: [*1] Before Commissioners: Elizabeth Anne Moler, Chair; Vicky A. Bailey, Jame= s=20 J. Hoecker, William L. Massey, and Donald F. Santa, Jr. OPINION: On December 3, 1991, Texas-Ohio Pipeline, Inc. (Texas-Ohio) filed an application pursuant to section 7© of the Natural Gas Act (NGA) and Parts= =20 157 and 284 of the Commission's regulations for certificates of public convenie= nce and necessity to operate its facilities in interstate commerce and to perfo= rm open-access transportation services on existing facilities known as the Hun= ter Pipeline in Garrard County, Kentucky. Texas-Ohio also requested a temporary certificate to operate the Hunter Pipeline on an interim basis pending=20 issuance of a permanent certificate. On January 15, 1992, the Commission issued Texas-Ohio a temporary=20 certificate authorizing service to existing customers utilizing the Hunter Pipeline; th= e temporary certificate is to expire upon issuance of a final Commission orde= r=20 on the request for a permanent blanket certificate. n1 On February 14, 1992, Industrial Energy Services Company (IESCO) sought rehearing of the January = 15 order. n1 Texas-Ohio Pipeline, Inc., 58 FERC 61,025 (1992). We will grant Texas-Ohio [*2] a case-specific certificate pursuant to P= art 157, subpart A of the Commission's regulations to operate the Hunter Pipeli= ne=20 in interstate commerce and a blanket transportation certificate pursuant to Pa= rt 284, subpart G of the Commission's regulations. These authorizations are ma= de subject to compliance with the conditions set forth in this order. For the reasons set forth below, IESCO's request for rehearing is denied. Notices and Interventions Notice of Texas-Ohio's application was published in the Federal Register= on December 10, 1991 (58 Fed. Reg. 64,507). Algonquin Gas Transmission Company= ,=20 CNG Transmission Corporation, Elizabethtown Gas Company, Endevco Oil and Gas=20 Company (Endevco), Enron Gas Marketing, Inc., Equitrans, Inc., IESCO, O&R Energy, I= nc. (O&R Energy), Public Service Electric and Gas Company, and Texas Eastern Transmission Corporation (TETCO) filed timely, unopposed motions to interve= ne. =0F, = =20 PAGE 2 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *2 n2 Endevco, O&R Energy, and TETCO support Texas-Ohio's application. IESCO protests the application and requests an evidentiary hearing. n2 Timely, unopposed motions to intervene are granted pursuant to Rule 2= 14=20 of the Commission's Rules of Practice and Procedure, 18 C.F.R. 385.214. [*3] On December 26, 1991, Texas-Ohio filed an answer to that portion of IESC= O's protest opposing the issuance of a temporary certificate. IESCO responded t= o Texas-Ohio's answer on January 14, 1992. n3 n3 Pursuant to section 385.213(2) of the Commission's regulations, 18=20 C.F.R. 385.213(2), an answer to a protest is not permitted unless the Commission= =20 orders otherwise. In order to have as complete a factual record as possible in thi= s proceeding, we will accept the December 26, 1991 and January 14, 1992 filin= gs=20 of Texas-Ohio and IESCO, respectively. On February 3, 1992, Energy Marketing Exchange, Inc. filed a petition fo= r leave to intervene out of time. For good cause shown, and since the late intervention will not prejudice any party to this proceeding or otherwise= =20 delay the proceeding, we will grant Energy Marketing's motion to intervene out of time. Background The Hunter Pipeline is an interconnection between facilities of Tennesse= e=20 Gas Pipeline Company (Tennessee) and TETCO. It consists of two 1,000 horsepower compressors and approximately 600 feet of above-ground 10-inch diameter gas pipeline. The Hunter Pipeline is capable of transporting 60,000 Mcf per day= of natural gas. [*4] Texas-Ohio constructed the Hunter Pipeline pursuant to a certificate iss= ued by the Kentucky Public Service Commission (Kentucky PSC) on November 19, 19= 90. This authorization designated Texas-Ohio as an intrastate pipeline operatin= g=20 as a transporting utility. However, because Texas-Ohio did not hold an=20 open-season prior to commencing transportation operations, only Texas-Ohio Gas, Inc. an= d=20 its sales customers acquired capacity on the Hunter Pipeline. n4 After=20 constructing the facilities, Texas-Ohio filed an application with the Commission in Dock= et No. PR91-5-000 seeking approval of rates under section 311(a)(2) of the=20 Natural Gas Policy Act (NGPA). The Commission instituted rate proceedings on April = 29, 1991 to determine whether Texas-Ohio's rates were fair and equitable. n5 n4 Texas-Ohio is a wholly-owned subsidiary of Texas-Ohio Gas, Inc. (TOG)= , a Houston-based marketer that ships Gulf Coast gas to northeastern industrial end-users via Tennessee and TETCO. Prior to construction of the Hunter=20 Pipeline, TOG faced separate bottlenecks on the Tennessee and TETCO systems during th= e winter heating season; the location and capacity of the Hunter Pipeline was selected to avoid these bottlenecks. n5 Texas-Ohio Pipeline, Inc., 55 FERC 61,137 (1991). [*5] On June 3, 1991, Texas-Ohio suspended transportation service through the Hunter Pipeline upon discovering that the gas being moved through those facilities was not produced in Kentucky and, therefore, that it was engaged= in =0F, = =20 PAGE 3 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *5 the interstate transportation of natural gas without authorization under NG= A section 7 or NGPA section 311. Subsequently, the Commission instituted an investigation into the construction and operation of the Hunter Pipeline. T= hat investigation determined that from the first day of operation on December 1= , 1990 through its voluntary shut-down on June 3, 1991, the Hunter Pipeline transported gas in interstate commerce. n6 On October 19, 1993, the Commiss= ion approved a stipulation and consent agreement in which Texas-Ohio agreed to= =20 pay a $ 125,000 civil penalty and to implement a program to comply with the NGA a= nd NGPA. n7 n6 Texas-Ohio received all the gas that flowed through the Hunter Pipeli= ne from Tennessee's interstate facility. Texas-Ohio then redelivered the gas t= o TETCO's interstate facility. n7 Texas-Ohio Pipeline, Inc., 65 FERC 61,069 (1993).Proposal Texas-Ohio requests authorization to operate its facilities in interstat= e [*6] commerce and perform open-access transportation service. Texas-Ohio proposes to charge firm shippers a transportation rate consisting of a reservation charge of $ 1.4813 per MMBtu and a commodity charge of $ 0.0103= =20 per MMBtu. Interruptible shippers would pay a transportation rate consisting of a commodity charge of $ 0.059 per MMBtu. n8n8 The proposed initial rates are = the same as those which Texas-Ohio was authorized to charge during the=20 effectiveness of the temporary certificate. Texas-Ohio Pipeline, Inc., 58 FERC 61,025 at 61,059 (1992). Texas-Ohio states that operation of the Hunter Pipeline will permit=20 shippers to avoid bottlenecks on the systems of Tennessee and TETCO. TETCO's bottlen= eck is located at a point near the Kentucky-Tennessee border. Due to this constraint, TETCO has historically curtailed the interruptible transportati= on=20 of natural gas from receipt points located south of the Kentucky- Tennessee=20 border that is destined for delivery to points north during the winter heating=20 season. During the past three winter seasons, TETCO has curtailed interruptible transportation for gas originating upstream of its Mt. Pleasant compressor station [*7] in Tennessee that is scheduled for delivery downstream to Zon= es=20 C and D. The bottleneck on Tennessee's system occurs in Mercer County, Pennsylvan= ia. As a result, gas produced and transported from receipt points south of Merc= er County cannot be transported to points north of Mercer County during certai= n periods of the year. During the past four winter seasons, Tennessee has curtailed gas moving on an interruptible basis from points upstream of=20 stations 219, 237, and 313 to locations downstream of those stations. Texas-Ohio's facilities are positioned to avoid both bottlenecks. In thi= s regard, Tennessee typically has interruptible transportation capacity for deliveries to Texas- Ohio's facilities, but has bottlenecks downstream of i= ts interconnection with Texas-Ohio. Conversely, TETCO has a bottleneck upstrea= m=20 of Texas-Ohio's facilities, but has capacity for the movement of interruptible transportation volumes downstream of its Mt. Pleasant compressor station. A= s such, Texas-Ohio's facilities can be utilized to alleviate bottlenecks on t= wo different pipeline systems and thereby move gas to markets in the Northeast= . =0F, = =20 PAGE 4 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *7 Discussion The Commission finds that by utilizing the Hunter [*8] Pipeline shipper= s located upstream of the TETCO bottleneck can utilize Tennessee's system to= =20 move gas to Texas-Ohio for redelivery to TETCO and continued transportation downstream. Shippers upstream of Tennessee's bottleneck, but downstream of Texas-Ohio's facilities, can, by displacement, utilize Texas-Ohio's system = to access the TETCO system for continued transportation downstream. This arrangement will avoid both the upstream and downstream bottlenecks and all= ow continued delivery of gas to various northeast markets located off both the TETCO and Tennessee systems. We find that the public convenience and necess= ity requires issuance of a certificate pursuant to Part 157, subpart A,=20 authorizing operation of Texas-Ohio's Hunter Pipeline. The Commission also finds that Texas-Ohio's pro forma tariff generally complies with the requirements for a Part 284 blanket transportation certificate. Accordingly, we will grant Texas- Ohio's application for a Par= t=20 284 blanket transportation certificate, subject to the conditions set forth her= ein to ensure Texas-Ohio's full compliance with the conditions of Order Nos. 63= 6, 497, and 566. Texas-Ohio's Part 284 blanket certificate will become effecti= ve [*9] upon Texas-Ohio's full compliance with these conditions. I. Rates Texas-Ohio proposes to charge the initial rates that were approved in th= e temporary certificate. Under this proposal, firm shippers would pay a transportation rate consisting of a reservation charge of $ 1.4813 per MMBt= u=20 and a commodity charge of $ 0.0103 per MMBtu. Interruptible shippers would pay = a transportation rate consisting of a commodity charge of $ 0.059 per MMBtu. = The proposed rates are based on the modified fixed variable rate design (MFV), = 100 percent equity capitalization, a 15 percent return on equity, and a 10 perc= ent depreciation. The reservation and usage charges are based on 100 percent of= =20 the system design capacity. A. Rate Design Order No. 636 requires pipelines to use the straight fixed variable (SFV= ) rate design methodology. n9 Texas-Ohio has not provided any evidence which= =20 would support an exception to this requirement. Accordingly, we find that Texas-O= hio should be required to use the SFV rate design methodology. Additionally, si= nce Texas-Ohio's cost of service does not include any variable costs, we will require it to use $ 0.0000 as the minimum FTS usage and ITS rates. n10 n9 See 18 C.F.R. 284.7(d). n10 See Gateway Pipeline Co., 55 FERC 61,488 (1991). [*10] B.=20 Capitalization and Rate of Return Texas-Ohio proposes a capitalization consisting of 100 percent equity. W= e find that it is appropriate to use a hypothetical capital structure consist= ing of 57 percent debt and 43 percent equity; this structure is based on the 43= .18 percent average equity ratio held by a group of seven major investor- owned interstate pipelines at the end of 1993. =0F, = =20 PAGE 5 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *10 We have generally used recent rates for Baa-rated public utility bonds t= o=20 set the debt costs on similar projects since Baa is the prevailing rating for pipeline bonds. The rate for Baa utility bonds averaged 8.40 percent for th= e=20 six months ending July 31, 1994, with a one month average of 8.80 percent for J= uly 1994. We find it appropriate to utilize a cost of debt of 8.50 percent. Texas-Ohio's proposed 15 percent rate of return on equity is excessive considering the prevailing cost of capital. We find acceptable a rate of=20 return derived from a range of returns based upon an analysis of recent interest= =20 rates and a discounted cash flow (DCF) study. The lower end of the range is=20 determined by the prevailing Baa rating for public utility bonds; as discussed above, = we will use a figure of 8.50 percent for [*11] the most recent six months. Si= nce equity is riskier than debt, 100 basis points should be added to the bond= =20 rate, thus bringing the lower end of the range to 9.50 percent. The upper end of the range is determined by a DCF analysis of a proxy gr= oup of seven publicly held natural gas transmission companies. n11 This proxy= =20 group is used because the DCF methodology requires market price data as an input = in the estimation of investor-expected equity returns. The DCF analysis for th= e proxy group results in a range of equity returns of 10.77 percent to 13.41 percent, with a median return of 12.19 percent. n11 Coastal Corporation, El Paso Natural Gas Company, Enron Corporation, Panhandle Eastern, Sonat Inc., Transco Energy, and Williams Companies, Inc. This analysis uses dividend yields and forecasts of long- term growth ra= tes as follows. For the first five years, the Institutional Brokerage Estimate System (IBES) estimates of five year growth in earnings per share was used.= =20 For longer-term growth (for the years 2000-2010), estimates taken from DRI/McGr= aw Hill (Energy Review, Spring-Summer 1994) for growth in the natural gas=20 industry were used. A growth rate for each company in the [*12] proxy group was determined by averaging the two growth rates. Combining the bottom and top figures establishes a range of 9.50 percent to 13.41 percent. The midpoint = of this range is approximately 11.50 percent. The Hunter Pipeline went into initial operation in 1990 and faces no construction risk. Accordingly, we find that the company's risk is no highe= r than that of the average pipeline. Therefore, we will require a rate of ret= urn on equity of 11.5 percent, which is equal to the midpoint of the range of reasonableness. C. Depreciation Texas-Ohio proposes a book depreciation rate of 10 percent calculated on= =20 the straight-line method which supports an economic life of 10 years. We believ= e that the economic life of the Hunter Pipeline will depend upon gas reserves connected to the Tennessee system and the future demand for natural gas downstream of those facilities. We are confident that market demand and operation of Tennessee and TETCO to service downstream markets in the=20 Northeast States will continue for the next 25 years. We also believe that the Hunter Pipeline will operate on a permanent basis and play an important role in th= e delivery of gas, especially during high demand [*13] periods. Based on the= se factors, we find that an economic life of 25 years should be used to=20 calculate a depreciation rate of four percent for the Hunter Pipeline facilities. =0F, = =20 PAGE 6 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *13 D. Conclusion We will require Texas-Ohio to modify its rates as follows. For=20 interruptible service, the minimum rate shall be $ 0.0000; the maximum rate shall be $=20 0.0518. For firm service, the minimum reservation charge shall be $ 0.0000; the=20 maximum reservation charge shall be $ 1.5749. The usage charge for firm service sha= ll=20 be $ 0.0000. n12 The rates approved herein are initial rates under NGA section= 7; their approval does not constitute approval of any underlying rate=20 methodology, principle, or concept to be used in any general rate change filed pursuant = to NGA section 4. These initial rates will remain in effect until such time as Texas-Ohio files an NGA section 4 general rate proceeding. At that time, an= y party or the Commission staff may propose new rates based on different methodologies, principles or concepts. n12 All rates are expressed per MMBtu. II. Pro Forma Tariff Texas-Ohio has applied for a blanket transportation certificate under secti= on 284.221 of the Commission's regulations. It [*14] proposes to provide bot= h firm and interruptible transportation service. To commence service under a blanket certificate, Texas-Ohio must file and place into effect rates, term= s, and conditions that are consistent with Part 284 of the regulations.=20 Texas-Ohio has not made a tariff filing in this proceeding; it has, however, filed pro forma tariff sheets which indicate the form its tariff will take. Generally= ,=20 the pro forma tariff conforms to the Commission's requirements. As discussed=20 below, however, certain provisions are either inconsistent with the Commission's policies or are not adequately justified. Certain specific changes that we= =20 will require to be made to Texas-Ohio's pro forma tariff are set forth in an=20 appendix to this order. A. Order No. 636 Review of Texas-Ohio's pro forma tariff indicates a number of changes th= at must be implemented to satisfy the requirements of Order No. 636. To implem= ent those changes, Texas-Ohio must make a tariff filing within 45 days of the d= ate of the issuance of this order. Also, Texas-Ohio is reminded that while cert= ain provisions of Order No. 636 may not apply at this time, future changes in i= ts operations may require tariff revisions to satisfy [*15] the requirements = of that Order. 1. Equality of Service/Open Season Pipelines that offer open-access transportation service must provide tho= se services on a basis that is equal in quality for all gas suppliers, whether= =20 the gas is purchased from the pipeline or from another seller. Section=20 284.14(b)(iv) of the Commission's regulations, 18 C.F.R. 284.14(b)(iv), requires a=20 pipeline's tariff to reflect the principle of equality of service for all gas transpor= ted under each rate schedule. Texas-Ohio performs only unbundled transportation service; it does not provide pipeline sales service. Texas-Ohio does, however, provide=20 transportation service for its affiliated marketers, TOG and Texas-Ohio West, Inc. Origina= l Sheet No. 6, section 3.2, of Texas-Ohio's pro forma tariff provides that =0F, = =20 PAGE 7 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *15 customers with an already executed firm transportation contract for service= on the Hunter Pipeline as of the effective date of the tariff shall have a=20 priority over customers executing a service agreement at a later date. Service is otherwise offered on a first-come, first-served basis. We find that this provision gives preferential treatment to selected customers. It is unduly discriminatory and must be [*16] removed from the tariff. Further, we find= =20 that Texas-Ohio has never held an open-season or otherwise provided for the non-discriminatory allocation of system capacity prior to initiating servic= e. Accordingly, we hold that Texas-Ohio must implement an open season within 3= 0 days of the date of issuance of an order in this proceeding to ensure non- discriminatory allocation of system capacity. 2. Pregranted Abandonment and Right of First Refusal Section 284.221(d) of the Commission's regulations, 18 C.F.R. 284.221(d)= , authorizes pregranted abandonment of interruptible and short-term firm transportation at the end of the contract. A short-term contract is one wit= h a term of less than one year. For long-term transportation with a term of mor= e than a year, section 284.14(b)(1)(xiii) requires the pipeline to establish= =20 right of first refusal procedures for use upon expiration of the long-term contra= ct. Texas-Ohio's pro forma tariff does not comply with these requirements; it i= s directed to amend its tariff accordingly. 3. Capacity Release and Electronic Bulletin Board Section 284.243 of the Commission's regulations, 18 C.F.R. 284.243,=20 requires interstate pipelines offering firm transportation [*17] to establish a=20 capacity release mechanism that allows firm shippers to release all or part of their= =20 firm transportation capacity rights to any person who wants to obtain that capac= ity by contracting with the pipeline. The release may be temporary, permanent, = or subject to conditions (i.e., on an interruptible basis). The pipeline must allocate released capacity to the person offering the highest rate (not ove= r=20 the maximum rate) and offering to meet any other terms and conditions of the release. Order No. 636 requires pipelines to provide timely and equal access to a= ny and all information necessary for buyers and sellers to arrange gas sales a= nd capacity release, including information regarding the availability of capac= ity at receipt and delivery points, and whether capacity is available from the pipeline directly or through capacity releasing. This information must be= =20 posted on an electronic bulletin board (EBB). Texas-Ohio's proposed tariff lacks these provisions. It must amend its p= ro forma tariff to provide a capacity release mechanism and establish an EBB. 4. Upstream Capacity Section 284.242 of the Commission's regulations, 18 C.F.R. 284.242, provide= s that an interstate [*18] pipeline that offers transportation service on a= =20 firm basis under subparts B or G of Part 284 must offer, without undue discrimination, to assign to its firm shippers its firm transportation=20 capacity, including contract storage, on all upstream pipelines. Texas-Ohio does not appear to hold any upstream capacity. In the tariff filing it is required t= o make to comply with the requirements of Order No. 636, Texas-Ohio should st= ate whether it holds any capacity on upstream pipelines. If it does, Texas-Ohio= =20 must =0F, = =20 PAGE 8 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *18 revise its tariff to comply with Order No. 636. 5. Transition Costs Texas-Ohio's filing predates Order No. 636 and consequently makes no=20 comment regarding incurrence of transition costs. Accordingly, we will not make a determination at this time with respect to Texas-Ohio's level of transition costs. III. Docket No. MT94-2-000 Pursuant to our order of December 23, 199= 3, Texas-Ohio filed revised tariff sheets in Docket No. MT94-2-000 to comply w= ith the requirements of section 250.16(b), 18 C.F.R. 250.16(b). n13 With the exception of the items discussed below, we find that Texas-Ohio's filing complies with those requirements. n14 n13 Texas-Ohio Pipeline, Inc., 65 FERC 61,387 (1993). Section 250.16 of = the Commission's regulations requires interstate natural gas pipelines that transport natural gas for others pursuant to subparts B, G, H, or K of Part= =20 284, and that are affiliated in any way with a natural gas marketing or brokerin= g entity, to file certain information relevant to that relationship. n14 On June 17, 1994, Order No. 566 modified section 250.16(b) effective August 1, 1994 by, among other things, eliminating the requirement that pipelines (1) receive certain information from shippers in requests for transportation service, (2) log and post on the EBB complaints made by=20 shippers, and (3) include procedures to communicate pricing and capacity information. [*19] The tariff sheets filed by Texas-Ohio do not set forth the information required to be filed in a transportation request. Texas-Ohio contends that= =20 since it is operating under a temporary certificate and is prohibited from provid= ing transportation service to new customers pending further action on its application, that information is not applicable. While Order No. 566 eliminated certain information previously required t= o=20 be provided in the transportation request form, it still requires pipelines to maintain a log of data used to allocate capacity. Texas-Ohio must comply wi= th this provision and file a transportation request form as specified. Texas-Ohio can address this deficiency by either revising existing tarif= f provisions, including its FTS and ITS request form, or by incorporating the changes into Section 16 (Order No. 497 Compliance Procedures) of its propos= ed tariff. Texas-Ohio must make a compliance filing within 45 days of the=20 issuance of this order incorporating all information required by Order Nos. 497 and= =20 566. Additionally, since the tariff sheets Texas-Ohio filed in Docket No.=20 MT94-2-000 are not pro forma, Texas-Ohio should filed corrected tariff sheets in a for= m [*20] acceptable to become effective upon issuance of an order in this proceeding. IV.Environmental Matters On August 22, 1990, Texas-Ohio notified the Commission that it intended = to commence construction of the Hunter Pipeline and that the facilities would = be used for the transportation of natural gas under NGPA section 311(a)(2). Th= is notice provided the environmental information required by section 157.206(d= )=20 of the Commission's regulations. =0F, = =20 PAGE 9 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *20 To ensure that operation of the Hunter Pipeline compressors complies wit= h=20 the noise requirements of section 157.206(d)(5), Texas-Ohio must perform a post-construction sound survey of the compressor station. This survey must = be performed not later than 30 days after the date of issuance of this order. = n15 Texas-Ohio's application for a Part 157, subpart A certificate to operate t= he Hunter Pipeline and a Part 284, subpart G blanket transportation certificat= e relies solely on the use of existing facilities; no additional construction authorization is requested or granted. Accordingly, subject to Texas-Ohio's compliance with section 157.206(d)(5), we conclude that approval of the=20 instant application is not a major Federal action significantly affecting [*21] th= e quality of the human environment. n15 Section 157.206(d)(5) provides that the noise attributable to any compressor facility shall not exceed a day-night sound level of 55 dB(A) at= =20 any existing noise-sensitive areas.V. IESCO's Protest In its protest and request for an evidentiary hearing, IESCO charges tha= t Texas-Ohio's jurisdictional status must be determined as a precondition to = the issuance of a certificate. IESCO states that if Texas-Ohio was not a interstate pipeline for the=20 period from November 1990 through June 3, 1991, it could not legally offer NGPA=20 section 311(a)(2) service and competing sellers of gas (such as IESCO) could have b= een unfairly deprived of their markets. The Commission's January 15, 1992 order issuing Texas-Ohio a temporary certificate to operate the Hunter Pipeline laid to rest concerns regarding Texas-Ohio's jurisdictional status. Further, Texas-Ohio agreed in the=20 settlement approved in the Commission's October 18, 1993, order to comply with the NGA= , NGPA, and the Commission's regulations. This order issues Texas-Ohio a case= - specific certificate pursuant to subpart A of Part 157 and a blanket transportation certificate pursuant to subpart G of [*22] Part 284. No questions remain as to the jurisdictional status of Texas-Ohio. IESCO then complains that Texas-Ohio should have held an open-season dur= ing which prospective shippers would have an opportunity to obtain services on = the Hunter Pipeline. As discussed above, the Commission has investigated Texas-Ohio's operation and determined, among other things, that Texas-Ohio notified only its marketing affiliate and the marketing affiliate's custome= rs=20 of the availability of capacity prior to construction of the Hunter Pipeline. = The Commission's policies require Texas-Ohio to use a non-discriminatory method= of selecting customers for both firm and interruptible transportation service= =20 when operating under Part 284. n16 As noted above, we are holding that Texas-Ohi= o must hold an open season prior to commencing service under its Part 284=20 blanket certificate. This approach will ensure that prior notice of firm capacity i= s made available to all interested parties on a contemporaneous basis and in = a non-discriminatory manner. n17 n16 18 C.F.R. 284.8(b) and 284.9(b). n17 See, e.g., Pacific Gas Transmission Co., 54 FERC 61.035 at 61,154=20 (1991); ANR Storage Co., 51 FERC 61,114 at 61.304 (1990). [*23] IESCO next asserts that Texas-Ohio's proposed tariff does not assure tha= t nondiscriminatory service will be provided. We disagree. Acceptance by =0F, = =20 PAGE 10 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *23 Texas-Ohio of the blanket transportation certificate authorized by this ord= er, and as conditioned herein, will subject Texas-Ohio to the full range of the Commission's requirements, including those prohibiting discriminatory=20 practices. IESCO states that Texas-Ohio must be required to comply with the provisi= ons of the Affiliated Marketer Rule. As we noted in the order issuing a tempora= ry certificate, Order Nos. 497 and 497-A apply to all interstate pipelines wit= h affiliated marketers. Upon acceptance of the temporary certificate Texas- O= hio became subject to the conditions of those orders. n18 Texas-Ohio's standard= s=20 of conduct implementing Order No. 497, filed in Docket No. MG93-5-000, have be= en accepted by the Commission. n19 When Texas-Ohio complies with this order's directions, Texas-Ohio will be in full compliance with Order No. 497. n18 Texas-Ohio Pipeline, Inc., 58 FERC 61.025 (1992). n19 Texas-Ohio Pipeline, Inc., 65 FERC 61,387 (1993); Texas- Ohio Pipeli= ne, Inc., 67 FERC 61,149 (1994). [*24] IESCO asserts that Texas-Ohio's proposed rates have not been shown to be required by the present or future public convenience and necessity. It is particularly concerned with the fact that Texas-Ohio seeks to depreciate it= s facilities over a ten-year period. As discussed above, we agree that Texas-Ohio's proposed rates and ten-year depreciation period are=20 inappropriate, and we have required adjustments to those figures as appropriate. IESCO also raises in its protest issues relating to Texas- Ohio's=20 application for a temporary certificate. Those issues were addressed in our January 15,= =20 1992 order issuing a temporary certificate. Issues raised by IESCO on rehearing = of that order are discussed below. In view of our disposition of the issues raised by IESCO, we find that= =20 there are no disputed material issues of fact and, therefore, no need for an evidentiary trial-type hearing. n20 n20 See Arkla Gathering Services Co., 67 FERC 61,257 (1994).VI. Request = for Rehearing On February 14, 1992, IESCO filed a request for rehearing of the=20 Commission's January 15, 1992 order issuing Texas-Ohio a temporary certificate. IESCO contends first that issuance of the temporary [*25] certificate to Texas-O= hio was unlawful on three grounds: (1) the Commission acted beyond its statutor= y authority because it improperly determined that an emergency existed; (2) e= ven if an emergency existed, the Commission failed to make adequate findings supported by substantial evidence; and (3) the Commission failed to resolve jurisdictional and tariff issues in connection with issuance of the tempora= ry certificate. NGA section 7©(1)(B) provides that "the Commission may issue a tempora= ry certificate in cases of emergency, to assure maintenance of adequate servic= e=20 or to serve particular customers without notice or hearing, pending the determination of an application for a [permanent] certificate . . . ." The= =20 order issuing a temporary certificate expressly found that an emergency exists=20 within the meaning of section 7©(1)(B) of the Natural Gas Act and section 157.17= of the Commission's regulations, and that the public convenience and necessity required the issuance of a temporary certificate authorizing Texas-Ohio's =0F, = =20 PAGE 11 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *25 operation of the Hunter Pipeline in order to continue service to existing customers who had been relying on that service. n21 In support thereof, the order referenced [*26] the fact that: (1) Raritan River Steel Company, the largest employer in Perth Amboy, New Jersey would be forced to purchase gas= =20 at a higher price and might have to close its plant with disastrous impacts on t= he community; and (2) a number of entities, including the Philadelphia Housing Authority, the Dartmouth Finishing Corporation, and various schools indicat= ed that they are operating under strained budgets and that the inability to transport gas on Texas-Ohio would result in severe fiscal restraints. n21 Texas-Ohio Pipeline, Inc., 58 FERC 61,025 at 61,059 (1992). Under these circumstances, we believe that an emergency situation was sh= own to exist within the standard established by NGA section 7 and that this conclusion is appropriately supported by the evidence relied upon in the=20 order. n22 n22 See generally, Penn-York Energy Corp., 37 FERC 61,109 (1986); Transcontinental Gas Pipe Line Corp., 34 FERC 61,402 (1986). With regard to its assertion that the Commission failed to resolve certa= in jurisdictional and tariff issues prior to the issuance of the temporary certificate, IESCO complains that: [*27] (i) the Commission issued a=20 temporary certificate without making a finding that Texas-Ohio is a "natural gas=20 company" subject to the Commission's NGA jurisdiction; (ii) the failure to resolve t= he jurisdictional issue leaves unresolved the question of whether a certificat= e=20 of public convenience and necessity is needed for the construction of the Hunt= er Pipeline; and (iii) the Commission has left unresolved the question of whet= her an open-season is required to assure non-discriminatory access to Texas-Ohi= o's facility, thus precluding shippers who were denied service from any=20 opportunity to obtain service during the period that the temporary certificate is in=20 effect. IESCO's arguments misapprehend the function of a temporary certificate. = By its very nature, issuance of a temporary certificate precedes decisions on matters related to issuance of the permanent certificate. The issues raised= by IESCO are appropriate for decision in connection with the issuance of a permanent certificate and we have addressed them above. n23 n23 We in fact noted in the January 15, 1992 order that the issues raise= d=20 by IESCO relating to the jurisdictional status of Texas-Ohio and the provision= of service on a nondiscriminatory basis would be resolved upon consideration o= f=20 the application for a permanent certificate. We stressed at that time that "the grant of a temporary certificate is made to allow the resumption of service= by specific customers previously utilizing Texas-Ohio's facilities to prevent hardship." Texas-Ohio Pipeline, Inc., 58 FERC 61,025 at 61,060 (1992). [*28= ] IESCO also asserts that the Commission improperly refused to order an evidentiary hearing before issuing the temporary certificate. IESCO alleges= =20 that efforts in Docket No. PR91-5-000 to determine the original and ultimate destination of gas transported by Texas-Ohio were unsuccessful. It also sta= tes that the proceedings in Docket No. PR91-5-000 and the instant docket have b= een plagued by uncertainty over the identity of Texas- Ohio's customers and the nature of the services rendered. We disagree that an evidentiary hearing was required prior to the issuan= ce=20 of =0F, = =20 PAGE 12 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *28 the temporary certificate. NGA section 7© does not require either notice = or hearings in conjunction with the issuance of a temporary certificate. Even= =20 where the statute requires an evidentiary, trial-type hearing, it is necessary on= ly where material issues of fact are in dispute that cannot be resolved on the basis of the written record. n24 The matters raised by IESCO are speculativ= e=20 or immaterial to the decision to issue a temporary certificate to allow the resumption of specific services to specific customers. Finally, IESCO alleg= es that the Commission failed to attach conditions needed to prevent abuse of = the temporary [*29] certificate. IESCO states that the temporary certificate= =20 should have been expressly limited to serving customers previously served through = the Hunter Pipeline and that it should have included a condition for potential refunds. n24 Arkla Gathering Service Co., 67 FERC 61,257 (1994). Our January 15, 1992 order specifically provided that the temporary certificate is not a blanket authorization, but is limited to only those customers with whom Texas-Ohio has existing transportation agreements. n25 = The order further specified that the grant of a temporary certificate is made t= o allow the resumption of service by specific customers previously utilizing = the Hunter Pipeline. n26 Thus, the temporary certificate expressly limited serv= ice to existing customers. Finally, the NGA does not provide for making initial rates subject to refund. n25 Id. at 61,059. n26 Id. at 61,060.The Commission Orders: (A) Upon the terms and conditions of this order, a certificate of public convenience and necessity is issued to Texas-Ohio pursuant to subpart A of= =20 Part 157 of the Commission's regulations, as amended from time to time, authoriz= ing it to operate the Hunter Pipeline [*30] in interstate commerce. (B) The certificate issued in Order Paragraph (A) above is conditioned u= pon Texas-Ohio's compliance with Part 154 and paragraphs (a), ©(3), (e), and = (g) of section 157.20 of the Commission's regulations. (C) Upon the terms and conditions of this order, a blanket certificate o= f public convenience and necessity is issued to Texas-Ohio authorizing it to perform the activities specified in subpart G of Part 284 of the Commission= 's regulations, as amended from time to time. The certificate issued to=20 Texas-Ohio in Ordering Paragraph (A) above is conditioned upon Texas-Ohio's acceptance= of this blanket certificate. (D) Upon the terms and conditions of this order, permission for and=20 approval of the abandonment by Texas-Ohio of the services authorized in subpart G of= =20 Part 284 of the Commission's regulations, as amended from time to time, are=20 granted. (E) The certificate issued in Ordering Paragraph (C) above, the abandonm= ent authorized in Ordering Paragraph (D) above, and the rights granted thereund= er are conditioned on Texas-Ohio's compliance with the applicable Commission regulations under the NGA, including Parts 154, 157, and 284, and paragraph= s=20 (a) and (e) [*31] of section 157.20 of the Commission's regulations. (F) Texas-Ohio must make a filing within 45 days of the date of issuance= of =0F, = =20 PAGE 13 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *31 this order revising its tariff to implement the requirements of Order No. 6= 36. (G) Texas-Ohio must make a filing in Docket No. MT94-2-000 within 45 day= s=20 of the date of issuance of this order revising its tariff to comply with Order= =20 Nos. 497 and 566. (H) Texas-Ohio must conduct an open-season to allocate capacity on its= =20 system to initiate Part 284 transportation within 30 days of the date of issuance = of this order. (I) Texas-Ohio shall conduct a noise survey of its compressor station to comply with 18 C.F.R. 157.206(d)(5) not later than 30 days after the date o= f issuance of this order. (J) IESCO's protest and request for a hearing is denied. (K) Energy=20 Marketing Exchange's petition for leave to intervene out of time is granted. (L) The motions of Texas-Ohio and IESCO to file answers dated December 2= 6, 1991 and January 14, 1992, respectively, are granted. APPENDIX: APPENDIX Pro Forma Tariff Analysis: Specific Comments 1. Rate Schedules FTS and/or ITS Section 1 - Availability In this section, Texas-Ohio reserves the right, in its sole judgement=20 (exercised on a reasonable [*32] and non-discriminatory basis) to decline service=20 whenever it would be contrary to good operational practices or detrimental to other customers. Texas- Ohio should revise this section to set out the specific criteria or detrimental actions that would trigger this clause. Section 1.(iii) of Rate Schedules FTS and ITS requires shippers to provi= de Texas-Ohio with "acceptable" evidence of, among other things, gas supply, market, and other transportation services. The term "acceptable" is vague a= nd subject to unduly discriminatory interpretation. Texas-Ohio must set forth specifically the evidence required to be "acceptable". Section 2- Applicability and Character of Service Section 2.4 of Rate Schedule ITS states that transportation will be "subjec= t=20 to curtailment or interruption as deemed necessary in Texas-Ohio's discretion.= "=20 The provision is vague and could result in unduly discriminatory application of curtailment procedures. Texas-Ohio must modify the provision to detail the specific operational characteristics and criteria used to determine the conditions and need for curtailment. Section 3 - Priority and Interruption of Transportation Service =0F, = =20 PAGE 14 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *33 Section 3.2 of Rate Schedule [*33] FTS provides for firm service on a fir= st come, first served basis. However, Texas-Ohio retains a priority for custom= ers with existing FTS agreements. This provision is unduly discriminatory and m= ust be removed from the tariff. Section 3.4 of Rate Schedule FTS provides that Texas-Ohio can curtail=20 service due to reasons of force majeure "or any other operational considerations to= be reasonably determined by Texas- Ohio". Texas-Ohio must set forth the specif= ic operational considerations it would rely upon in exercising this authority. In Section 3.5 of Rate Schedule FTS and Section 3.3 of Rate Schedule ITS= , Texas-Ohio proposes to suspend service if a shipper's account is unpaid for= 30 days. Texas-Ohio can suspend service without prior Commission approval if a customer fails to pay a billed amount within 30 days of the due date, but o= nly where 10 days notice is given and the shipper neither pays the bill nor=20 provides guarantee of payment. Texas-Ohio must modify these provisions to provide fo= r a 10 day notice period. Section 4 - Requests for Transportation Section 4.1 of Rate Schedules FTS and ITS states that a shipper must comple= te=20 a FTS or ITS Request Form; however, no request [*34] form is included. Texas-Ohio must establish a request form as part of its tariff. That form m= ust comply with the requirements of Order No. 497 as set forth in section=20 250.16(b) of the Commission's regulations. Section 5 - Operating Conditions Section 5.1 of Rate Schedules FTS and ITS requires shippers to provide Texas-Ohio with estimates of gas to be transported and such other operating= =20 data as Texas-Ohio may require. This section should be amended to specify what= =20 other operating data may be required of shippers. Section 5.4 of Rate Schedules FTS and ITS specifies that Texas-Ohio will= =20 not provide service on any day for which all necessary upstream and downstream arrangements cannot be confirmed. This clause should be amended to state th= at any action will be taken on a non-discriminatory basis. Section 6 - Rates Section 6.2 of Rate Schedule FTS defines the monthly reservation and commod= ity (usage) charge. Texas-Ohio should insert the word "maximum" in the second sentence prior to "monthly commodity charge" and "unit commodity rate(s)". Section 9 - Waivers Section 9 of Rate Schedule FTS provides that Texas-Ohio may waive any right= s hereunder or any obligations of a customer on [*35] a basis which is not= =20 unduly discriminatory. This language creates the impression that Texas-Ohio retai= ns the discretion to waive default by the shipper of any provision in the tari= ff. This would give Texas-Ohio excessive latitude in operating under its tariff= =20 and provide an opportunity for undue discrimination among shippers. Waiver provisions are permissible, but they must serve a functional purpose and=20 operate under a specific and clearly defined set of circumstances. Texas-Ohio must specify the criteria it will use in determining whether to waive a particul= ar =0F, = =20 PAGE 15 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *35 provision. 2. General Terms and Conditions Texas-Ohio's pro forma tariff contains no scheduling or imbalance penalties= . Pipelines are permitted, but not required, to impose penalties to maintain control of their system. If scheduling or imbalances become a problem in th= e future, Texas- Ohio can make a tariff filing to propose appropriate penalti= es. Section 2 - Transporter Receipt Point(s) Section 2.2 provides that Texas-Ohio's obligation to receive and deliver= =20 gas shall never exceed the total daily volume Shipper is able and willing to receive. Texas-Ohio must remove the words "and willing" from this provision= .=20 The phrase [*36] is vague and could lead to discriminatory activities. Section 5 - Nominations and Balancing Deliveries Section 5.1 provides that a shipper will inform Texas-Ohio daily, "or on so= me other basis as Transporter may reasonably require pursuant to such other procedures as may be established and published by Transporter from time to= =20 time . . . ." of the daily gas quantity. The phrase is vague and should be repla= ced with language specifying what other basis for notification is required (e.g= ., phone, fax, or telecopy). Section 5.2 requires shippers to give Texas-Ohio notice 24 hours in adva= nce "or as Transporter may designate from time to time" of any change in the da= ily quantity. Texas-Ohio should specify what alternative time frame would meet = its requirements or delete this phrase. =0F, = =20 108CKF ********** Print Completed ********** Time of Request: July 6, 2000 04:30 pm EST Print Number: 59:0:11094435 Number of Lines: 661 Number of Pages: 15 =0F,
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