above. They argue that the three proceedings are closely related and, to some degree, dependent upon each other. We will deny the motions. Although we likely will consider these and other related applications together at some future time, consolidation of the proceedings is unnecessary to promote administrative efficiency or to avoid duplication in the certification process. Moreover, the public interest and national energy policy, as stated, dictate our considering portions of the instant application now. Enogex, Arkansas Gas Consumers (Arkansas Gas),13 and, jointly, Texaco Inc., Texaco Gas Marketing Inc., and Oryx Energy Company (collectively, Texaco) move to set this proceeding for oral hearing and/or to convene a technical conference. We will deny the motions. The requests for oral hearing of Arkansas Gas and Enogex are generalized only and do not identify, much less establish, issues of material fact that might be addressed at oral hearing. Texaco, on the other hand, alleges that material issues exist concerning Arkla's cost allocation and rate design. However, we are not addressing such rate matters here. It is well settled that an evidentiary trial-type hearing is necessary only where material issues of fact are in dispute that cannot be resolved on the basis of the written record. 14 We also see, at this time, no need for a technical conference. interests in Line AC and other facilities. For example, protestants challenge the proposed conveyances as a device to allocate firm capacity in an unduly discriminatory and preferential manner to avoid the first-come, first-served principle and other open-access transportation obligations. So that the project adheres to and furthers the objectives of the Commission's open-access policies and respects pending requests for firm transportation on Arkla's existing system, protestants offer various suggestions ranging from requiring Arkla to retain full ownership of the facilities to requiring it to hold an open season to allocate new capacity. Protestants also object to Arkla's and MRT's proposals to retain all take-or-pay credits for transportation performed by ANR and Texas Gas through the transferred interests. In addition, they challenge as anticompetitive the limited receipt and delivery points agreed to by Arkla and ANR in their sales agreement. And they argue that the merger of interests by three major competitors (i.e., Arkla, ANR, and Texas Gas) in the same market areas raises significant antitrust issues. Protests were filed by Enogex, Texaco, Premier, Arkansas Gas, and the Arkansas Public Service Commission. Arkla and MRT then filed a joint motion in this docket and in Docket No. CP89-2173-000 for leave to file a reply to the protests. Arkansas Gas then filed a motion for leave to file a reply to this reply. While our rules do not permit answers to protests, much less answers to answers,' 15 we may, for good cause, waive a rule. 16 We find good cause to do so in this instance. The replies focus on issues surrounding Arkla's and MRT's proposed sales of interests in Line AC and other facilities to ANR and Texas Gas. Although these sales are not part of the proposals being considered here, they involve complex issues that the replies seek to identify and clarify. Accordingly, to achieve a complete and accurate record in this proceeding and in Docket No. CP89-2173-000, we will accept the replies and consider them at the appropriate time. Turning now to the protests, we note that the majority of concerns raised by protestants relate specifically to these sales of ownership 13 Arkansas Gas is a group of 43 agricultural and industrial consumers of natural gas in Arkansas. 14 See, e.g., Southern Union Gas Co. v. FERC, 840 F.2d 964, 970 (D.C. Cir. 1988); Cerro Wire & Cable Co. v. FERC, 677 F.2d 124 (D.C. Cir. 1982); Inasmuch as the specific proposals being considered here do not involve the transfer of interests in any facilities, but only the operation of Line AC and related facilities by Arkla alone, we will not address at this time these issues pertaining to the proposed transfers. We will explore and address them fully in a subsequent order. We take no position on the proposed transfers here and stress that our authorization of Arkla's operation of Line AC and related facilities should not be construed as prejudging in any way these transfer proposals. Other concerns of protestants do relate specifically to Arkla's proposal to operate Line AC under section 7(c) authority. Arkansas Gas charges that Arkla seeks the best of both worlds: gaining a competitive advantage by constructing under NGPA section 311 but enjoying the reduced risk provided by a section 7 certificate. It asks the Commission to investigate fully the rate impacts of Arkla's proposal before issuing a certificate. Voicing a similar concern, Texaco points out that while Arkla has assumed willingly the full financial risks of this capacity expansion by proceeding under section 311, at the same time it has proposed rolled-in rate treatment for the costs of the new facilities. To ensure that Arkla assumes adequate risk, Texaco urges 85-to 100-percent load factor rates on Line AC. Similarly, Enogex urges 90-percent load factor rates. and Citizens for Allegan County, Inc. v. FPC, 414 F.2d 1125, 1128 (D.C. Cir. 1969). 15 See 18 C.F.R. § 385.213(a)(2) (1990). As explained more fully below in the "Rates" section, we will impose a condition on Arkla that places it at risk for the costs of that portion of the facilities which is not subscribed under long-term, firm contracts at the time it files to include the costs in its rates. This condition should satisfy these concerns of protes tants. Next, Arkansas Gas questions Arkla's need for a section 7 certificate given its assertions of the volumes it could move under NGPA section 311. We note initially that subsequent events have, to some degree, reshaped this concern. Responding to a remand by the United States Court of Appeals for the District of Columbia Circuit, the Commission recently issued an interim rule modifying its interpretation of the "on behalf of" standard for section 311 transportation.18 Since the present interpretation is more narrow than the prior interpretation, Arkla's former projections of the volumes it could transport under section 311 not only are obsolete but also could differ from the section 311 volumes it now can transport.. Additionally, contrary to the assertions of Arkansas Gas, Arkla has, in fact, proposed to move volumes through Line AC other than those qualifying for section 311 transportation. These include the firm sales volumes Arkla is seeking authority for in Docket No. CP90-188-000. Granting section 7 authority here will enable Arkla to utilize Line AC more fully not only for gas transactions now falling outside the scope of the new standard for section 311 transportation but also for other transactions that would not qualify for section 311 transportation under either the old or standard. new Enogex, citing TOPICO,19 argues that Arkla cannot construct the instant facilities crossing state lines under section 311, but instead must apply for and receive a section 7 certificate. In that case, an intrastate pipeline, relying on NGPA section 311 and section 284.3(c) of the Commission's regulations,20 constructed a pipeline in two segments, the first segment of which 17 Associated Gas Distributors v. FERC, 899 F.2d 1250 (D.C. Cir. 1990), reh'g denied, No. 88-1856 (D.C. Cir. June 4, 1990) (AGD-Hadson). 18 The revised interpretation requires that the "on behalf of" entity in section 311 transactions: (1) have physical custody of and transport the natural gas at some point during the transaction; or (2) hold title to the natural gas at some point during the transaction for a purpose related to its status and functions as an intrastate pipeline or local distribution company, as applicable. Interim Revisions to Regulations Governing Transportation under Section 311 of the Natural Gas Policy Act of 1978 and Blanket Transportation Certificates, FERC Statutes and Regulations 30,894, at p. 31,794 (1990). The Commission's former, broader interpretation of this stan was wholly within Ohio, and the second segment of which extended 46 feet into Pennsylvania. The pipeline argued that the facilities were exempt from NGA jurisdiction since they were to be used solely to transport gas under NGPA section 311. The Commission disagreed, finding that the proposed transportation between Ohio and Pennsylvania and the construction and operation of the 46-foot border segment were subject to section 7 of the NGA. The Commission issued a limited jurisdiction certificate. Enogex here argues that there is no substantive difference between the pipeline crossing state lines in TOPICO and Arkla's Line AC. Moreover, it claims that it would be unduly discriminatory and preferential to permit Arkla to construct cross-border facilities outside the Commission's section 7 purview while denying intrastate pipelines, pursuant to TOPICO, the same opportunity to construct similar pipelines crossing state borders. Enogex's reliance on TOPICO for the proposition that Arkla cannot construct under section 311 a pipeline crossing state borders is misplaced. The result in TOPICO was predicated not on a conclusion that construction crossing state borders was impermissible under section 311, but instead on the specific fact in that case, which is not present in the instant, that an intrastate pipeline claiming nonjurisdictional status under section 1(b) of the NGA was at the same time trying to expand its operations across state lines while remaining nonjurisdictional. The Commission found that Congress' intent was that once a pipeline's operations cross state lines, the section 1(b) exemption is no longer applicable.21 The Commission stated that, "[t]o characterize a system which traverses the state line as 'intrastate' is to ignore the obvious and to invite regulatory abuse."22 These concerns are inapposite here. Moreover, Enogex's real concern apparently is its perceived notion that it is unfair for an interstate pipeline to be permitted to construct across state lines under section 311 while an intrastate pipeline cannot. This result, however, is mandated by statute. Whether it is fair or not is a matter entirely outside the scope of this proceeding. Moreover, we observe generally that Commission regulations clearly allow Arkla to construct facilities and provide NGPA section 311 service without prior Commission authorization.23 Additionally, section 311 construction is permissible even where the pipeline contemplates in advance seeking section 7 authorization for the facilities.24 Discussion Since Line AC and the related facilities will be used for the transportation of natural gas in interstate commerce subject to the Commission's jurisdiction, the operation of the facilities, and, as discussed below, the construction of the compressor station, are subject to the requirements of subsections (c) and (e) of section 7 of the NGA. We conclude that the public convenience and necessity requires certificating these facilities, subject to the environmental and other conditions discussed below. Authorizing Arkla to operate Line AC, the Malvern Compressor Station, and the Hot Spring tap under section 7(c) will enable it to utilize more fully these transmission facilities. It also will provide better access to important, new natural gas reserves in the Arkoma Basin as well as to existing gas reserves there and in the Anadarko Basin. Line AC will provide an important link between these natural gas reserves and numerous mainline transmission systems to the east. Regarding the Malvern Compressor Station, we understand that site acquisition, clearing, and initial grading of the station has occurred, but that construction of the compression facilities has not commenced. Because this facility is unfinished, we will authorize Arkla to complete any remaining construction under section 7. Next, the Commission performed an engineering analysis of the Line AC facilities and found that the line should be certificated at a maximum operating pressure of 958 PSIG and at a maximum capacity of 1,002,800 Mcf per day. Finally, we reiterate that our authorization of the instant proposals should not be construed as prejudging in any way either the remaining proposals in Docket No. CP89-2174-000 or the proposals contained in the other Arkla 311 Dockets. This includes, we stress, Arkla's and 23 18 C.F.R. 284.3(c) (1990); see also North Penn Gas Co., 41 FERC 61,307, at p. 61,802 (1987). 24 North Penn Gas Co., 41 FERC 61,307, at p. 61,802 (1987). 25 The duration of these contracts would have to be at least equal to the term required to meet the MRT's proposals to transfer ownership interests in Line AC and other facilities to other pipelines. We take no position on these transfers here. In a subsequent order, we will explore and address fully all issues pertaining to these proposed transfers and the other proposals. Rates As stated, Arkla proposes no new services or rates. Accordingly, there are no direct rate issues. Since Arkla will charge existing Part 284 rates for transportation services through Line AC and the related facilities, none of its other customers will have to bear the costs of these facilities as a result of the authority granted here. To this end, we note that, where a pipeline applicant is seeking traditional 7(c) authority to construct pipeline facilities, our policy has been to require the applicant, prior to the time it commences construction, to have executed firm contracts and supporting market data volumes equivalent to the total capacity of its proposed facilities. Logically, similar safeguards should apply to applicants seeking traditional 7(c) authority to operate lines constructed under section 311. However, we have concluded here that rigid adherence to this approach may no longer serve the public interest. Imposition of such requirements could impede the availability of new sources of competitively priced and environmentally preferable energy. Accordingly, we conclude that in these cases 100 percent contract execution prior to construction is no longer automatically warranted. In adopting this approach, we do not intend to abandon our responsibility to ensure that present and future customers do not make inappropriate contributions to the costs associated with the involved facilities. This we intend to accomplish by placing Arkla at risk for the costs associated with the involved facilities in the event all of Line AC's capacity is not subscribed under firm contracts at the time Arkla files to include the costs in its rate.25 This can be accomplished in various ways. For example, the Commission could limit a pipeline's cost recovery to only the capacity for which it has firm contracts for service to satisfy the at-risk condition. The Commission also could determine that it would set rates based on 100 percent of the capacity of the involved facilities irrespective of the subscribed Commission's contract standards in traditional 7(c) certificates. We note that most construction is supported by contracts with terms of 10 years or more. volumes. These and other approaches would allow the Commission to ensure that ratepayers do not pay for unused capacity. However, it is not necessary at this time to conclude that one approach would be appropriate in all instances. The Commission will continue to look at this issue and will address it further in the ongoing rulemaking proceeding in Docket No. RM90-1-000. But to provide certainty here to Arkla, when the pipeline seeks to recover the costs of the facility we will place it at risk by allowing it to recover only the costs associated with the capacity for which it has executed firm contracts. However, the pipeline may seek to satisfy the at-risk condition in a section 4 rate case seeking to include in rate base the costs of the facilities. Environmental An environmental assessment (EA) was prepared for Arkla's remaining construction and operation of the Malvern Compressor Station under section 7(c). Based on the information discussed in the EA, the application and supplements, and the condition found in Ordering Paragraph (E) below, we conclude that the remaining construction and operation of the station will not constitute a major federal action significantly affecting the quality of the human environment. We consider the conversion of Line AC and related facilities from section 311 facilities to facilities operated under section 7(c) to be an administrative decision by Arkla that relies on the use of existing facilities. On July 23-25 and November 5-9, 1990, the Commission's staff conducted field inspections of Line AC and the related facilities. In a letter filed on December 14, 1990, Arkla agreed to implement three mitigation measures recommended by staff in a letter dated December 13, 1990. Based on this agreement and the supplemental environmental compliance documentation that Arkla previously filed, we conclude that the completed facilities are currently in compliance with the requirements of section 157.206(d),26 At a hearing held on January 16, 1991, the Commission on its own motion received and made a part of the record in this proceeding all evidence submitted, including the application and exhibits supporting the sought authorization, and after consideration of the record, The Commission orders: (A) A certificate of public convenience and necessity is issued authorizing Arkla to operate Line AC and the Hot Spring tap, and to construct and operate the Malvern Compressor Station, all as more fully described in the application and this order. (B) The remaining requests in Docket No. CP89-2174-000 are deferred for later consideration in a subsequent order. (C) Arkla shall comply with all applicable Commission regulations, particularly Part 154 and paragraphs (a), (c)(3), (c)(4), (e), and (g) of section 157.20. (D) The authority granted here is conditioned upon Arkla's bearing the risk of underutilization of the facilities, as described in the text of this order. (E) Arkla shall file with the Secretary of the Commission a noise survey of the Malvern Compressor Station no later than 30 days after placing the proposed compressors in service. If the noise attributable to the operation of the compressors exceeds an Ldn of 55 dBA at any nearby noise-sensitive areas, additional noise control measures shall be added within 1 year to meet that level. (F) All untimely motions to intervene are granted. (G) All motions for an oral hearing and/or a technical conference are denied. (H) All motions to consolidate this proceeding with other proceedings are denied. (I) The motion of Arkla and MRT for leave to file a reply to the protests is granted, and the reply is accepted for filing and consideration. (J) The motion of Arkansas Gas for leave to file a reply to Arkla's and MRT's reply is granted, and the reply is accepted for filing and consideration. (K) Any remaining motions not specifically granted are denied. Commissioner Moler concurred with a separate statement attached. 26 18 C.F.R. § 157.206(d) (1990). |