Commission's determination as to jurisdiction over the rates of Tekas' affiliates, BPGS and Cache Creek, for gathering and dehydration. If the Commission disclaims jurisdiction over the affiliate services and facilities, for all section 311 transportation performed on or after October 1, 1989, the maximum rate would be $.25 per mcf for transportation and compression by Tekas. If the Commission finds that it does have jurisdiction over the gathering by BPGS and the dehydration performed by Cache Creek, Tekas' maximum transportation rate under the settlement would continue to be $.25 per mcf where the only service performed is transportation. However, the settlement provides that if BPGS performs gathering in connection with the transportation service, the overall rate would be $.36. If Cache Creek performs dehydration (but no gathering is performed), the overall rate would be $.27. If both gathering and dehydration are performed with the transportation, the overall rate would be $.38.

Description of Corporate Relations and Facilities

Tekas and BPGS are wholly owned subsidiaries of Cache Creek, a marketing company which is wholly owned by producers in the Bradshaw Field. One producer, Dernick Resources, Inc., owns 73 percent of the stock of Cache Creek.

Tekas leases and operates a gas transportation system in Kansas consisting of a 60-mile intrastate transmission pipeline and compressor station. The 60-mile system begins at the inlet side of the Tribune compressor station in Greeley County, Kansas, in the Bradshaw Field and runs to the electric generating facilities of Sunflower Electric Cooperative, Inc., and to the interconnection with Northern Natural Gas Company (Northern Natural) in Finney County, Kansas. Tekas receives gas at the compressor station from BPGS.

Tekas' transportation customers are Cache Creek, Texaco, Inc., Texas Gas Marketing, Inc., OXY USA, Inc., Bartling Oil Company, and Continental Energy. All are producers in the Bradshaw Field, or marketers controlled by producers in the Bradshaw Field. Tekas per(Footnote Continued)

forms intrastate transportation for Cache Creek and Continental Energy to endusers in Kansas, and transports gas under NGPA section 311(a)(2) to an interconnection with Northern Natural for all of its shippers except Continental Energy.

BPGS gathers gas for its gathering customers from approximately 200 wells in the Bradshaw Field. Tekas states that the BPGS system is substantially the same as when the Commission's General Counsel applied the traditional Farmland criteria and concluded in a letter dated November 15, 1985 that the facilities performed a primarily gathering function. The facilities include a system of pipelines 12 inches in diameter and less which delivers gas from over 200 wells located in the Bradshaw Field to the Tribune compressor station.

In June 1988, Cache Creek constructed a glycol dehydration facility in the Bradshaw Field for the purpose of removing water vapor from gas which it purchases in that field. The majority of the gas marketed by Cache Creek is produced by Cache Creek's shareholders. Cache Creek also dehydrates gas for nonowner producers in the field on an individual contract basis.

Tekas' transmission and compression facilities, as well as the BPGS gathering system, were all originally constructed by Sunflower Electric Cooperative, Inc. (Sunflower) to gather and transport gas from the Bradshaw Field to Sunflower's gas-fired electric generating plants. Sunflower also transported gas pursuant to section 311 (a)(2) and was authorized by this Commission to charge a rate of $.23 per mcf for transmission and compression (including gathering).6

Discussion

The primary issue presented by the instant settlement is whether the Commission should disclaim jurisdiction over the rates for BPGS' gathering and Cache Creek's dehydration services. As discussed below, the Commission concludes that the subject affiliate gathering and dehydration services and facilities are not jurisdictional and accordingly no rates for these services are established in this proceeding. The Commission, however, finds the rate provided

dration performed by Tekas' affiliates in connection with such transportation.

4 BPGS' gathering customers are AEC Gas Company, Continental Energy, Cache Creek, Texaco, Inc., Texaco Gas Marketing, Inc., OXY USA, Inc., and Bartling Oil Company.

5 Farmland Industries, Inc., 23 FERC 61,063 (1983).

6 32 FERC 61,339 (1985).

in the settlement for Tekas' transportation service under NGPA section 311 is fair and equitable, and accordingly that part of the settlement, together with the settlement's provisions concerning refunds and rate review, is approved.

Under section 1(b) of the Natural Gas Act (NGA), the Commission is required to regulate the transportation and sale for resale of natural gas "in interstate commerce," and any "natural gas company" engaged in such transportation or sale. Section 1(b) exempts from the Commission's NGA jurisdiction "the production or gathering of natural gas." Under section 311(a)(2)(A) of the NGPA, the Commission may authorize any intrastate pipeline to transport natural gas in interstate commerce on behalf of any interstate pipeline or any local distribution company served by an interstate pipeline without becoming subject to the Commission's NGA jurisdiction.8 Specifically, such intrastate pipelines are not required to have certificates from the Commission authorizing the transportation service nor do they need abandonment authority to terminate service. Section 2(16) of the NGPA defines "intrastate pipeline" as a person "engaged in the transportation of natural gas (not including gathering) which is not subject to the jurisdiction of the Commission under the Natural Gas Act...."

The Commission establishes a rate for section 311 transportation service based on the fair and equitable standard set forth in NGPA section 311(a)(2)(B). The Commission's rate setting authority under NGPA section 311 for service by an intrastate pipeline parallels its authority under the NGA and extends only to transportation service performed by the intrastate pipeline, not gathering. Therefore, the issue of whether the facilities and services of Tekas' affiliates are subject to Commission jurisdiction requires an analysis of whether the subject activities are transportation or gathering/production.

7 Section 1(b) of the NGA reads:

The provisions of this act shall apply to the trans, portation of natural gas in interstate commerce, to the sale in interstate commerce of natural gas for resale for ultimate public consumption for domestic, commercial, industrial, or any other use, and to natural-gas companies engaged in such transportation or sale, but shall not apply to any other transportation or sale of natural gas or to the facilities used for such distribution or to the production or gathering of natural gas.

15 U.S.C. 717(b) (1988).

8 NGPA section_601(a)(2)(A)(ii) excludes such transportation from the Commission's NGA jurisdic

tion.

The Commission has developed certain physical criteria by which it evaluates the particular facts and circumstances of each case in order to make determinations of whether facilities are primarily for gathering or transmission. These criteria have been modified as the Commission's regulatory objectives and the nature and structure of the natural gas industry have changed. In the recent past, the Commission has applied the "primary function" test as formulated in Farmland Industries, Inc., 23 FERC 61,063 (1983). This test involves the weighing of several factors including the diameter and length of the facility, the location of compressors and processing plants, the extension of the facility beyond the central point in the field, the location of wells along the facility, and the geographical configuration of the system. The Commission has emphasized that it considers all the facts and circumstances of each case, rather than mechanically applying any one particular standard to determine the nature of a facility. It is not necessary for all of the Farmland, criteria to clearly indicate either gathering or transmission for a determination to be made. 10 In any given situation, the different criteria can point to opposing conclusions.11 The Commission may also consider nonphysical criteria such as the purpose, location and operation of the facility, 12 the general business activity of the owner of the facility, 13 and whether the jurisdictional determination is consistent with the objectives of the statutes under which the Commission operates.14 In Amerada Hess Corporation et al. (Amerada Hess), 15 the Commission decided a number of cases involving the gathering issue and modified the primary function test of Farmland. Among other things, the Commission stated that it would consider the changing technical and geographic nature of gas production offshore.

As discussed above, if an entity is providing a gathering service, and the primary function of the facilities it utilizes to provide that service is gathering, neither the service nor the

9 Dorchester Gas Producing Company, 32 FERC ¶ 61,409, at p. 61,917 (1985).

10 Id. at p. 61,916.

11 Id.

12 See Mid-Louisiana Gas Co., 25 FERC ¶ 61,001 (1983).

13 Superior Oil Co., 13 FERC 161,218, at p. 61,496 (1980), Beacon Gasoline Co., 30 FERC ¶ 61,041, at p. 61,066 (1985), Gulf Oil Corp., 59 FPC 1230, at p. 1231 (1977).

14 Gulf Oil Corporation v. FERC, 1 FERC 61,089, at p. 61,188, aff'd mem., Gulf Oil Corporation v. FERC, 723 F.2d 97 (D.C. Cir. 1983).

15 52 FERC 61,268 (1990).

facility is subject to the Commission's jurisdiction under either the NGA or the NGPA. Therefore, the Commission's precedents dealing with whether certain facilities are used primarily for gathering or transportation for purposes of determining jurisdiction under the NGA apply equally to cases, such as this, where the question is jurisdiction under NGPA section 311.

The character of the BPGS system is indicative of gathering. There are wells located along the entire length of this system, behind the compressor station. The pipelines are all small, 12 inches in diameter or less. The BPGS system operates at wellhead pressures. The networklike geographic configuration of the system is typical of many other gathering systems. 16 These lines exist solely to deliver gas produced from the numerous wells in the field to the compressor station, the central point in the field. The primary function of the BPGS system is therefore gathering and the system is exempt from Commission jurisdiction under section 1(b) of the NGA and NGPA section 311.

Cache Creek's dehydration facilities perform only a rudimentary dehydration function. In the context of its jurisdiction over the transportation of natural gas under the Natural Gas Act, the Commission traditionally has viewed compression and dehydration of low pressure gas as production and gathering functions, not transportation.17 The fact that Cache Creek is affiliated with Tekas does not change the characterization of the dehydration service as nonjurisdictional production.

Since the Commission lacks jurisdiction either under the NGA or NGPA section 311 to establish rates for BPGS and Cache Creek gathering and dehydration services, the Commission will, as requested by Tekas, not

approve that portion of the settlement setting rates for these services. However, the Commission approves the rest of the settlement.

The rates for section 311 transportation provided for in the instant settlement are lower than rates provided for in an offer of settlement filed October 3, 1989, which was supported by all intervenors, and the refund amounts under the instant settlement are higher than those that would result under the October offer of settlement. No one opposes the settlement.

Upon review of the record in this proceeding, the Commission finds that the proposed settlement rate for transportation service under NGPA section 311 is fair and equitable, that the settlement presents a reasonable resolution of the issues in this proceeding, is in the public interest, and should be approved and adopted.

The Commission orders:

(A) The settlement filed in these proceedings on September 16, 1990 is approved and adopted, as discussed above.

(B) Tekas is authorized to charge a maximum rate of $.25 per mcf for transportation and compression on its system pursuant to section 311 (a) of the NGPA.

(C) Tekas will make refunds as specified in the settlement no later than 30 days after this order becomes final and no longer subject to rehearing, and file a refund report no later than 60 days after this order becomes final and no longer subject to rehearing.

(D) Tekas shall file a petition for rate approval pursuant to section 284.123(b)(2) of the Commission's regulations no later than March 1, 1992 to justify its current rate or to establish new rates.

16 See 52 FERC at p. 62,004.

quarterly purchased gas adjustment (PGA) filing of Pacific Gas Transmission Company (PGT). In addition, on that same date, El Paso filed a motion for clarification. As discussed

17 Mid-Louisiana Gas Company, 24 FERC

¶ 61,202 (1983), rehearing denied, 25 FERC ¶ 61,001 (1983).

below, the Commission denies El Paso's rehearing request. However, with regard to the motion, the Commission grants clarification in part.

Background

In Docket No. RP87-62-000, PGT filed a proposal to settle its section 4 rate case. By order issued on January 24, 1990,1 the Commission modified and approved the settlement. The Commission, inter alia, directed PGT to file a proposal to recover its purchased gas costs. In addition, the Commission remanded rate design issues to the administrative law judge.2

On May 29, 1990, in compliance with that order, PGT submitted its tariff sheets containing its proposal to recover its purchased gas costs through a PGA tariff provision. By order issued June 28, 1990,3 in Docket No. RP87-62-004, the Commission accepted the compliance filing. The Commission, inter alia, granted waiver of the Commission's 60-day notice requirement to permit PGT to file its first annual PGA on July 2, 1990, to be effective on August 1, 1990.4 Also, in response to El Paso's protest, the Commission directed PGT to file in its annual PGA to be filed July 2, 1990, information to demonstrate that costs in the initial PGA filing paid to PGT's Canadian affiliates are in compliance with Opinion No. 2565 along with reassurances that it has aggressively renegotiated and not granted concessions concerning costs it would have the Commission treat as demand charges.

On July 5, 1990, in Docket No. TA90-1-86-000, PGT submitted its initial annual PGA tariff sheets. The filing only addressed the recovery of purchased gas costs prospectively from August 1, 1990. To comply with Opinion No. 256, PGT classified its Canadian demand costs to demand or commodity based on the same ratio as its own non-gas costs were classified in the settlement approved in

1 Pacific Gas Transmission Co., 50 FERC 161,067, reh'g granted, in part and denied, in part, 51 FERC 61,086 (1990).

2 The remanded rate design proceeding has been consolidated with PGT's latest section 4 rate case in Docket No. RP90-109-000. Pacific Gas Transmission Co., 51 FERC ¶ 61,246 (1990).

3 Pacific Gas Transmission Co., 51 FERC 61,362 (1990).

The June 28, 1990 order also granted PGT various waivers to provide an orderly transition from one type of gas cost tracking methodology (cost of service) to another (PGA).

5 37 FERC 61,215 (1986).

6 El Paso submitted a timely intervention on July 16, 1990, in which it stated that, because the date for

Docket No. RP87-62-000. On July 31, 1990, El Paso filed an out-of-time protest in which it objected to what it calls PGT's "proxy" method of complying with Opinion No. 256.6 By letter order issued August 3, 1990, the Commission accepted the filing subject to refund and subject to the outcome of the proceedings in Docket No. RP87-62-004 on a matter not related to El Paso's protest. The letter order did not address El Paso's protest. However, El Paso did not seek rehearing of that order.

8

On October 1, 1990, PGT submitted its initial quarterly PGA filing. El Paso protested the filing with regard to, among other things, PGT's pass-through of its Canadian gas purchases and the "proxy" methodology PGT utilized to classify such costs. In its letter order issued October 31, 1990, the Commission stated that PGT had appropriately classified its Canadian gas costs in accordance with Opinion Nos. 256 and 256-A.9 The Commission also denied El Paso's protest on the basis that only typographical or computational errors may be challenged in a pipeline's quarterly PGA filing.

Rehearing and Motion

In its request for rehearing, El Paso argues that the Commission erred on procedural and substantive grounds. First, El Paso argues that, procedurally, section 154.308(d)10 bars only one type of protest to quarterly PGA filings protests with respect to purchasing practices. El Paso states that it challenged the classification of costs and the lack of detail regarding such costs which are not purchasing practices issues. 11 Second, El Paso argues that PGT's "proxy" method blatantly discriminates against U.S. volumes since domestic supplies can be sold only at rates reflecting an accurate classification of costs based upon actual data. El Paso states that PGT has the option to avoid such obligations for its Canadian volumes by electing to utilize the proxy to classify Canadian costs. El Paso argues that submission of interventions and protests had been changed from July 30, 1990 to July 16, 1990, upon review of the filing, it may submit a protest later.

7 Pacific Gas Transmission Co., 52 FERC 61,188 (1990).

8 The Commission stated that in Docket No. RP87-62-004 Northwest Pipeline Corporation raised issues with regard to PGT's pricing of domestic gas from the Fontenelle area of Wyoming.