Standards for Business Practices of Interstate Natural Gas Pipelines

AGENCY:

Federal Energy Regulatory Commission.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

The Federal Energy Regulatory Commission is proposing to amend its regulations governing standards for conducting business practices with interstate natural gas pipelines. The Commission is proposing to incorporate by reference the most recent version of the standards, Version 1.6, promulgated July 31, 2002, by the Wholesale Gas Quadrant of the North American Energy Standards Board (NAESB) and the standards governing partial day recalls (recommendations R02002 and R02002-2), adopted October 31, 2002. These standards can be obtained from NAESB at 1100 Louisiana, Suite 3625, Houston, TX 77002, 713-356-0060, http://www.naesb.org.

DATES:

Comments are due January 8, 2003.

ADDRESSES:

Federal Energy Regulatory Commission, 888 First Street, NE., Washington DC 20426.

FOR FURTHER INFORMATION CONTACT:

Michael Goldenberg, Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, 202-502-8685.

Marvin Rosenberg, Office of Markets, Tariffs, and Rates, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, 202-502-8292.

Kay Morice, Office of Markets, Tariffs, and Rates, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, 202-502-6507.

SUPPLEMENTARY INFORMATION:

Notice of Proposed Rulemaking

1. The Federal Energy Regulatory Commission (Commission) proposes to amend § 284.12 of its open access regulations governing standards for conducting business practices and electronic communications with interstate natural gas pipelines. The Commission is proposing to adopt the most recent version, Version 1.6, of the consensus standards promulgated by the Wholesale Gas Quadrant of the North American Energy Standards Board (WGQ), and the WGQ standards governing partial day recalls. The proposed rule is intended to benefit the public by adopting the most recent and up-to-date standards governing electronic communication and by adopting standards that will facilitate partial day recalls.

Background

2. Since 1996, in the Order No. 587 series, the Commission has adopted regulations to standardize the business practices and communication methodologies of interstate pipelines in order to create a more integrated and efficient pipeline grid. In this series of orders, the Commission incorporated by reference consensus standards developed by the WGQ (formerly the Gas Industry Standards Board or GISB), a private consensus standards developer composed of members from all segments of the natural gas industry. The WGQ is an accredited standards organization under the auspices of the American National Standards Institute (ANSI).

3. On October 7, 2002, the WGQ filed with the Commission a report informing the Commission that it had adopted a new version of its standards, Version 1.6. The WGQ reports that while Version 1.5 contained many of the standards designed to support Order No. 637, Version 1.6 includes additional standards that support Order No. 637. It states: “development of standards to support FERC Order No. 637 was given the highest priority by all NAESB subcommittees and task forces.” The WGQ further reports that the surety assessment performed by the Sandia National Laboratories on the GISB EDM (Electronic Delivery Mechanisms) standards was accepted by GISB and forwarded to the EDM Subcommittee for review and development of standards in October 2000. It states that some of the Sandia recommendations were implemented in Version 1.5, and the remainder were implemented in Version 1.6. Finally, the WGQ reports that work continues on requests for both new and revised business practices, information requirements, code value assignments, technical implementation and mapping or interpretations.

4. In Order No. 587-N, the Commission adopted a regulation requiring that pipelines permit releasing shippers to recall released capacity and renominate that recalled capacity at any of the nomination opportunities provided by the pipelines. The Commission established a two-phased implementation for this regulation. In the first phase, the Commission established an interim schedule under which releasing shippers could recall capacity, as long as the recall did not involve a partial or flowing day recall (a recall of scheduled gas after the time at which it began to flow). Pipelines implemented the first phase as of July 1, 2002. In the second phase, the Commission provided the WGQ with six months to develop standards dealing with the operational details of permitting partial or flowing day recalls, in particular the method by which capacity would be allocated between releasing and replacement shippers. The Commission established October 1, 2002, as the date by which the WGQ and other industry members should submit a report and further provided for reply comments to be filed by October 15, 2002.

5. On October 1, 2002, the WGQ filed a report stating that its Executive Committee had adopted standards governing partial or flowing day recalls in Recommendations R02002 and R02002-2. The WGQ membership ratified these standards on October 31, 2002.

6. Process Gas Consumers Group and Georgia Industrial Group (PGC) filed a comment on October 15, 2002. PGC supports the partial day recall standards as approved by the WGQ, but requests clarification as to whether the WGQ should be considering additional standards dealing with the allocation of penalties as a result of partial day recalls. PGC maintains that penalty issues are matters of Commission policy that should only be developed by the Commission.

Discussion

7. The Commission is proposing to adopt Version 1.6 of GISB's consensus standards and the standards adopted for partial day recalls. Pipelines would be required to implement the standards three months after a final rule is issued.

8. Adoption of Version 1.6 of the WGQ standards will help continue the process of implementing Order No. 637 and will update and improve the current standards. Adoption of the partial day recall standards will provide shippers with enhanced flexibility to recall capacity, while ensuring that replacement shippers receive notice sufficient for them to reschedule their capacity. The partial day recall standards also address the method for determining how capacity will be allocated among releasing and replacement shippers when capacity is recalled during the gas day. Among the most notable of these standards are: A revision to the capacity release timeline to permit prearranged non-biddable releases on non-business days (Standard 5.3.2); a revision to the Commission's interim timeline for recall transactions to permit recalls at any of the four nomination opportunities, while still providing sufficient notice to replacement shippers to enable them to reschedule their capacity (Standard 5.3.z1); the adoption of procedures governing notice to replacement shippers (Standards 5.3.z2 through 5.3.z5); and the use of elapsed prorata capacity as the allocation method for flowing day recalls, unless a different method is necessary to reflect the nature of the pipeline's tariff, services, or operational characteristics (Standard 5.3.z13).

9. The WGQ approved the standards under its consensus procedures. As the Commission found in Order No. 587, adoption of consensus standards is appropriate because the consensus process helps ensure the reasonableness of the standards by requiring that the standards draw support from a broad spectrum of all segments of the industry. Moreover, since the industry itself has to conduct business under these standards, the Commission's regulations should reflect those standards that have the widest possible support. In § 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTT&AA), Congress affirmatively requires federal agencies to use technical standards developed by voluntary consensus standards organizations, like the WGQ, as means to carry out policy objectives or activities.

10. PGC seeks clarification as to the role of the WGQ with respect to the development of future standards (not included in this NOPR) dealing with the allocation of penalties between releasing and replacement shippers as a result of partial day recalls. PGC is particularly concerned about two proposed standards regarding the allocation of reservation charges and capacity release credit quantities and the determination of overrun charges. PGC is concerned that such standards may undermine Commission policies regarding penalties adopted in Order No. 637, and it maintains that such issues should be deemed beyond the scope of the WGQ, and should be reserved for Commission determination.

11. PGC's comment raises two issues: The specific question of how reservation charges and credits and overrun penalties should be allocated when capacity is recalled during the gas day; and the generic question of what the WGQ's role should be in developing standards related to penalties.

12. As to the first issue, the Commission proposes that the determination of reservation charges and credits and potential liability for contract overruns should follow the allocation of capacity. This seems the fairest method of allocating contractual responsibility, especially since the standards are designed to provide replacement shippers with sufficient notice to reschedule recalled capacity in order to come within contractual limits. The Commission sees no reason in this instance for pipelines to propose individual allocation mechanisms.

13. As to the second issue, the Commission disagrees with PGC that the WGQ should refrain from examining methods of standardizing penalties. As the Commission found in Order No. 637, having penalty provisions that vary from pipeline to pipeline can create adverse effects by providing incentives for shippers to engage in penalty arbitrage and by creating additional administrative costs and uncertainty. The development of standards that reduce such adverse effects could help reduce barriers to multi-pipeline shipments and improve the overall efficiency of the pipeline grid, thus redounding to the benefit of the entire industry. Thus, the Commission finds no reason to deem the standardization of penalties beyond the scope of the WGQ's standardization activities. The Commission is not asking the WGQ specifically to develop standards for penalties, but it encourages the WGQ to examine seriously any such proposals that hold out the prospect of improving the efficiency of the pipeline grid.

14. Should the WGQ adopt penalty standards, the Commission's role in reviewing such standards will not be eliminated, as PGC appears to fear. Just as in this rulemaking, the Commission would seek comment on, and review any proposed penalty standards developed by the WGQ before adopting such standards. PGC and other shippers, therefore, will have ample opportunity in those proceedings to raise any concerns about such standards with the Commission.

Notice of Use of Voluntary Consensus Standards

15. Office of Management and Budget Circular A-119 (§ 11) (February 10, 1998) provides that Federal Agencies should publish a request for comment in a NOPR when the agency is seeking to issue or revise a regulation proposing to adopt a voluntary consensus standard or a government-unique standard. In this NOPR, the Commission is proposing to incorporate by reference voluntary consensus standards developed by the WGQ.

Information Collection Statement

16. The following collection of information contained in this proposed rule has been submitted to the Office of Management and Budget (OMB) for review under section 3507(d) of the Paperwork Reduction Act of 1995, 44 U.S.C. 3507(d). The Commission solicits comments on the Commission's need for this information, whether the information will have practical utility, the accuracy of the provided burden estimate, ways to enhance the quality, utility, and clarity of the information to be collected, and any suggested methods for minimizing respondents' burden, including the use of automated information techniques. The following burden estimate includes the costs to implement the WGQ's Version 1.6 standards which incorporate the most recent and up-to-date standards governing electronic communication, including additional standards that support Order No. 637, that implement the surety assessment performed by the Sandia National Laboratories, and that implement the WGQ's standards governing partial day recalls. The burden estimate does not include the costs of modifying, preparing and submitting tariff changes to reflect compliance with these standards since costs for tariff filings for phase two implementation of partial day recalls were previously included in the burden estimate in Order No. 587-N. The burden estimate is primarily related to start-up to implement the latest version of the standards and will not result in on-going costs.

Total Annual Hours for Collection (Reporting and Recordkeeping, (if appropriate)) = 209,064.

17. Information Collection Costs: The Commission seeks comments on the costs to comply with these requirements. It has projected the average annualized cost for all respondents to be the following:

18. OMB regulations require OMB to approve certain information collection requirements imposed by agency rule. The Commission is submitting notification of this proposed rule to OMB.

Title: FERC-549C, Standards for Business Practices of Interstate Natural Gas Pipelines.

Action: Proposed collection.

OMB Control No.: 1902-0174.

Respondents: Business or other for profit, (Interstate natural gas pipelines (Not applicable to small business)).

Frequency of Responses: One-time implementation (business procedures, capital/start-up).

Necessity of Information: This proposed rule, if implemented, would upgrade the Commission's current business practice and communication standards to the latest edition approved by the WGQ (Version 1.6) as well as the standards governing partial day recalls approved by the WGQ. These standards include additional standards that support Order No. 637 and standards implementing the surety assessment performed by the Sandia National Laboratories. The implementation of these standards is necessary to increase the efficiency of the pipeline grid and is consistent with the mandate that agencies provide for electronic disclosure of information.

19. The information collection requirements of this proposed rule will be reported directly to the industry users. The implementation of these data requirements will help the Commission carry out its responsibilities under the Natural Gas Act to monitor activities of the natural gas industry to ensure its competitiveness and to assure the improved efficiency of the industry's operations. The Commission's Office of Markets, Tariffs and Rates will use the data in rate proceedings to review rate and tariff changes by natural gas companies for the transportation of gas, for general industry oversight, and to supplement the documentation used during the Commission's audit process.

20. Internal Review: The Commission has reviewed the requirements pertaining to business practices and electronic communication with natural gas interstate pipelines and made a determination that the proposed revisions are necessary to establish a more efficient and integrated pipeline grid. Requiring such information ensures both a common means of communication and common business practices which provide participants engaged in transactions with interstate pipelines with timely information and uniform business procedures across multiple pipelines. These requirements conform to the Commission's plan for efficient information collection, communication, and management within the natural gas industry. The Commission has assured itself, by means of its internal review, that there is specific, objective support for the burden estimates associated with the information requirements.

21. Interested persons may obtain information on the reporting requirements by contacting the following: Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426. (Attention: Michael Miller, Office of the Chief Information Officer, Phone: (202) 502-8415, fax: (202) 208-2425, email: michael.miller@ferc.gov)

22. Comments concerning the collection of information(s) and the associated burden estimate(s), should be sent to the contact listed above and to the Office of Management and Budget, Office of Information and Regulatory Affairs, Washington, DC 20503 (Attention: Desk Officer for the Federal Energy Regulatory Commission, phone: (202) 395-7856, fax: (202) 395-7285).

Environmental Analysis

23. The Commission is required to prepare an Environmental Assessment or an Environmental Impact Statement for any action that may have a significant adverse effect on the human environment. The Commission has categorically excluded certain actions from these requirements as not having a significant effect on the human environment. The actions proposed here fall within categorical exclusions in the Commission's regulations for rules that are clarifying, corrective, or procedural, for information gathering, analysis, and dissemination, and for sales, exchange, and transportation of natural gas that requires no construction of facilities. Therefore, an environmental assessment is unnecessary and has not been prepared in this NOPR.

Regulatory Flexibility Act Certification

24. The Regulatory Flexibility Act of 1980 (RFA) generally requires a description and analysis of final rules that will have significant economic impact on a substantial number of small entities. The regulations proposed here impose requirements only on interstate pipelines, which are not small businesses, and, these requirements are, in fact, designed to benefit all customers, including small businesses. Accordingly, pursuant to § 605(b) of the RFA, the Commission hereby certifies that the regulations proposed herein will not have a significant adverse impact on a substantial number of small entities.

Comment Procedures

25. The Commission invites interested persons to submit written comments on the matters and issues proposed in this notice to be adopted, including any related matters or alternative proposals that commenters may wish to discuss. Comments are due January 8, 2003. Comments must refer to Docket No. RM96-1-024, and may be filed either in electronic or paper format. Those filing electronically do not need to make a paper filing.

26. Documents filed electronically via the Internet can be prepared in a variety of formats, including WordPerfect, MS Word, Portable Document Format, Rich Text Format, or ASCII format, as listed on the Commission's Web site at http://ferc.gov,, under the e-Filing link. The e-Filing link provides instructions for how to Login and complete an electronic filing. First time users will have to establish a user name and password. The Commission will send an automatic acknowledgment to the sender's E-Mail address upon receipt of comments. User assistance for electronic filing is available at 202-502-8258 or by E-Mail to efiling@ferc.gov. Comments should not be submitted to the E-Mail address.

27. For paper filings, the original and 14 copies of such comments should be submitted to the Office of the Secretary, Federal Energy Regulatory Commission, 888 First Street, NE., Washington DC 20426.

28. All comments will be placed in the Commission's public files and will be available for inspection in the Commission's Public Reference Room at 888 First Street, NE., Washington DC 20426, during regular business hours. Additionally, all comments may be viewed, printed, or downloaded remotely via the Internet through FERC's Homepage using the FERRIS link.

Document Availability

29. In addition to publishing the full text of this document in the Federal Register, the Commission provides all interested persons an opportunity to view and/or print the contents of this document via the Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's Public Reference Room during normal business hours (8:30 a.m. to 5 p.m. eastern time) at 888 First Street, NE., Room 2A, Washington, DC 20426.

30. From FERC's Home Page on the Internet, this information is available in the Federal Energy Regulatory Records Information System (FERRIS). The full text of this document is available on FERRIS in PDF and WordPerfect format for viewing, printing, and/or downloading. To access this document in FERRIS, type the docket number excluding the last three digits of this document in the docket number field.

31. User assistance is available for FERRIS and the FERC's website during normal business hours. Please contact FERC Online Support at FERCOnlineSupport@ferc.gov or toll-free at (866) 208-3676, or TTY, contact (202) 502-8659.

List of Subjects in 18 CFR Part 284

• , 32 Continental shelf
• Incorporation by reference
• Natural gas
• Reporting and recordkeeping requirements

In consideration of the foregoing, the Commission proposes to amend part 284, chapter I, title 18, Code of Federal Regulations, as follows:

PART 284—CERTAIN SALES AND TRANSPORTATION OF NATURAL GAS UNDER THE NATURAL GAS POLICY ACT OF 1978 AND RELATED AUTHORITIES

1. The authority citation for part 284 continues to read as follows:

Authority: 15 U.S.C. 717-717w, 3301-3432; 42 U.S.C. 7101-7532; 43 U.S.C. 1331-1356.

2. Section 284.12 is amended by revising paragraphs (a)(1)(i), (ii), (iii), (iv) and (v), to read as follows: