PGT furnished no substantive support regarding the actual classification of the Canadian costs and that it failed to comply with section 154.305(b) of the Commission's regulations12 insofar as PGT never obtained approval for its cost classification methodology as required by that regulation.

Finally, El Paso argues that PGT has not supplied data sufficient to permit a determination that it is complying with the requirements (1) that production and gathering costs and carrying charges associated take-or-pay prepayments be applied to the commodity component of the pipeline's rates, or (2) that costs associated with buyouts, buydowns or minimum purchase obligation performance or reformation, cannot be recovered on a demand basis unless the interstate pipeline is willing to absorb a portion of such costs. El Paso asserts that the PGT corporate family faces a substantial exposure to minimum purchase liability over the next three years which will involve contract reformation on the PGT system at substantial cost. El Paso asserts that particular scrutiny of PGT's costs is warranted so as to not give PGT the opportunity to recover these costs in such a disproportionate manner.

El Paso requests the Commission to review PGT's filing to determine (1) how PGT's method of classifying its Canadian purchased gas costs based upon the characteristics of its domestic purchased gas costs is consistent with the Commission's commitment to nondiscriminatory rate treatment regardless of the source of the supply,13 and (2) whether PGT is recovering, through its PGA, a disproportionate share of its buyout, buydown, and other such costs on a demand basis, despite the fact that domestic pipelines have had to absorb a share of such costs and recover a portion of the remainder on a commodity basis.

In its motion for clarification, El Paso requests the Commission to designate the forum in which issues concerning the cost classification used by PGT may be resolved. El Paso argues that such a designation is necessary as a result of purportedly inconsistent statements issued by the Commission. Alternatively, if the Commission does not identify the proceeding in which these issues will be heard on the merits, El Paso requests that the Commission consolidate various identified proceed

12 18 C.F.R. § 154.305(b) (1990).

13 Citing Iroquois Gas Transmission System, L.P. et al., 52 FERC ¶ 61,091, at p. 61,375 (1990).

14 Transcontinental Gas Pipe Line Corporation, 46 FERC 61,104 (1989).

15 46 FERC 161,104, at p. 61,423 (1989). The issues that El Paso raises here could have been raised

ings to facilitate a consistent and comprehensive resolution of the issues.

Discussion

The Commission denies El Paso's request for rehearing. First, the Commission's regulations provide that the issues raised by El Paso may not be raised in a quarterly PGA filing. Section 154.308(d) of the Commission's PGA regulations governs protests to quarterly PGA filings. The Commission has interpreted section 154.308(d) as permitting only challenges to a quarterly PGA filing which raise typographical, mathematical or accounting errors that affect the correct computation of the current adjustment in the quarterly filing.14 In doing so, the Commission has stated that, while section 154.308(d) does not expressly prohibit challenges (other than prudence) which go beyond raising purely computational errors, the Commission believes that deferring all such challenges to the annual PGA filing is consistent with the Commission's intent in adopting Order No. 483 [FERC Statutes and Regulations ¶ 30,778] to streamline the PGA review process. 15

In any event, the Commission finds that El Paso's claim of discrimination due to the misclassification of costs is unsupported and insufficient to warrant either a rejection or a further review of PGT's quarterly PGA in this proceeding. Contrary to El Paso's claim, PGT did comply with the cost classification requirements of section 154.305(d). That section embodies the Opinion No. 256 policy that fixed transmission costs must be classified using a cost classification methodology approved by the Commission with respect to the subject costs. PGT complied with Opinion No. 256 and section 154.305(d) by classifying its Canadian gas costs to demand or commodity based on the same ratio as its non-gas costs were classified in the settlement approved in Docket No. RP87-62-000. El Paso provided no basis not to apply that regulation and the Opinion No. 256 policy embodied in that regulation here. At bottom, El Paso attacks the policy adopted by Opinion No. 256. Therefore El Paso's claim is rejected. However, as clarified below, the matter of the proper classification of Canadian gas costs may be raised in PGT's remanded section 4 rate design proceeding in Docket No. RP87-62 et al. Finally, El Paso has provided no

in a request for rehearing of the Commission's August 3, 1990 letter order in Docket No. TA90-1-86-000 which accepted PGT's initial annual PGA filing that reflected the proxy methodology. El Paso failed to file such a request.

support for its request to review the filing to ascertain whether there are take-or-pay buyout and other non-gas costs being passed through the subject quarterly PGA. Therefore the Commission has no basis upon which to find that PGT is being accorded any opportunity to improperly pass through such costs in its PGA.

In response to El Paso's motion for clarification, as stated above, the Commission clarifies that the proper forum for El Paso to raise issues concerning PGT's classification of Canadian gas costs is in the ongoing remanded section 4 rate design proceeding in Docket No. RP87-62 et al.

The Commission orders:

(A) El Paso's request for rehearing is denied.

(B) El Paso's motion for clarification is granted to the limited extent set forth in the text above.

Commissioner Trabandt dissented in part with a separate statement attached.

Charles A. TRABANDT, Commissioner, dissenting in part:

I dissent in part to this order on the issue of the compliance of Pacific Gas Transmission Company (PGT) with the requirements of Opinion No. 256 (37 FERC ¶ 61,215 (1986)), (slip op. at 5).

Opinion No. 256 provided that an interstate pipeline importing natural gas supplies could not pass-through on an "as-billed" basis to customers the commodity and demand charges associated with that supply. Rather, the charges would have to be adjusted to reflect the particular rate design used by that pipeline, which generally is the modified fixed variable (MFV) rate design. Thus, in many cases, certain costs which otherwise would have been passed through as-billed in the form of demand charges would be shifted to commodity charges.

In an effort to facilitate implementation of this requirement, the Commission provided two options for determining the amount of adjustment from demand to commodity. One option would be the use of actual cost data for purposes of assessing the application of MFV principles. The other option would be a "proxy" method, which simply would apply the ratio of the pipeline's domestic commodity charges/ demand charges to the applicable imported natural gas charges. The theory of the proxy method was that most interstate pipelines had substantial amounts of domestic supplies and,

therefore, the use of the domestic commodity charges versus demand charge ratio would be an appropriate approximation of the results of the particular rate design for making the demand to commodity adjustment.

Here, however, PGT's domestic supply is less than one percent of its total supply, which otherwise is provided by PGT's Canadian affiliate. Under these circumstances, the original theory of the "proxy" option breaks down analytically, because the proxy is not an appropriate approximation of the results of the new rate design imposed by the Commission on PGT. As El Paso Natural Gas Company argues persuasively in its Request For Rehearing, the only responsible approach under the theory of Opinion No. 256 is the use of actual costs and a critical assessment of them. In this situation, the actual characteristics of the Canadian facilities and services must serve as the basis for the recovery of the associated costs under PGT's rate design, and the Commission should demand that PGT now provide the actual data and information for a valid assessment of the required cost classification.

In my judgment, El Paso's protest should not be so cavalierly dismissed as a collateral attack on Opinion No. 256, when the use of the proxy approach can, in fact, mask an anticompetitive allocation of costs to the demand charge in this case. Additionally, I believe the Commission must scrutinize closely the various PGT Canadian affiliate costs which form the basis for the upstream charges sought to be passed through to PGT's downstream customer, yet another PGT affiliate. And, of course, that PGT affiliate, Pacific Gas and Electric Company will attempt, in turn, to pass those costs through to its customers on an as-billed basis, as well.

In summary, I am persuaded that the use of the proxy method in this case, as a practical matter, is an analytical fiction directly contrary to the underlying theory and policy direction of Opinion No. 256. And, it provides a form of regulatory cover for the PGT upstream and downstream affiliates to pass-through higher demand charges, which is antithetical to our earlier PGT decisions and our stated commitment to eliminate the last vestiges of affiliate preference and nonaffiliate discrimination under the prior cost-of-service tariff on the PGT system. Consequently, I would urge the majority to reconsider its decision in this case to accept the proxy method for PGT.

For these reasons, I dissent in part.

On November 21, 1990, Transco filed its motion for clarification of the November 9, 1990 letter order and asserted that the October 12, 1990 effective date should not preclude Transco from recovering an ACA surcharge of $0.0022 per Dt for the period October 1, 1990 through October 11, 1990. Transco argued simply that the ACA surcharge was intended to allow pipelines an opportunity to recover fully the annual charge for which they are billed. Transco asserted that the purpose of the October 12, 1990 filing was "to revise the reference reflected on certain Rate Schedule IT and FT tariff sheets to conform the ACA unit rate reflected therein to the ACA unit rate approved for collection by the Commission's September 26 Order."8 Transco explained that these tariff sheets were inadvertently omitted from the August 31 filing. On this basis, Transco has requested that the Commission grant a waiver of its regulations in order to permit the "supplemental" filing to become effective on October 1, 1990, the date on which its tariff sheets filed on August 31, 1990, became effective.

Discussion

In the September 26, 1990 order, the Commission accepted all tariff sheets which set forth a $0.0022 per Mcf surcharge, to be effective October 1, 1990. In addition, the Commission stated it (i) would accept all tariff sheets that had a surcharge of less than $0.0022 per Mcf, and gave those pipelines an additional fifteen days to refile for a $0.0022 surcharge without incurring an additional filing fee, but, with an effective date of November 1, 1990, and (ii) would accept revised tariff sheets filed before October 1, 1990, to become effective October 1, 1990.

The September 26, 1990 order did not specify that filings made after October 1, 1990 would nevertheless become effective October 1, 1990. It provided that pipelines that had not filed for the correct surcharge could make

revised filings within 15 days without additional filing fees, and that any revised filings made before October 1, 1990, would be made effective October 1, 1990. Although pipelines were permitted to include a billing adjustment in their November billings to account for any ACA-surcharge underrecoveries that occurred in October, this recoupment applied only to revisions to previously-filed tariff sheets.

The Commission never intended for initial filings made later than October 1, 1990, to become effective retroactively to that date. Transco's October 12, 1990 filing is a separate filing from its August 31, 1990 filing and cannot, therefore, become effective on a date earlier than October 12, 1990, the date of the filing. Transco will not be permitted to collect an ACA surcharge of $0.0022 per Dt for the subject tariff sheets for the period October 1, 1990 through October 11, 1990, although it will be entitled to an ACA surcharge of $0.0017 per Mcf for that locked-in period, for the tariff sheets that had no precursors in the August 31 filing.

The Commission is treating all similarly situated pipelines in the same manner. On November 16, 1990, the Commission issued a letter order stating that good cause had not been shown to permit Gas Gathering Corporation's (GGC) tariff sheet to be accepted effective before the date the tariff sheet was filed. GGC had filed a tariff sheet on October 19, 1990, but had requested an effective date of October 1, 1990. Thus, the tariff sheet was made effective on October 19, 1990, the date of the filing.

The Commission orders:

(A) Transco's request for clarification is denied.

(B) Transco may not collect an ACA surcharge of $0.0022 per Dt for the tariff sheets listed in footnote 2, for the period October 1, 1990 through October 11, 1990.

Order Extending Stay

8 Transco's Motion for Clarification at p.3.

9 See, Gas Gathering Corporation, Commission letter order dated November 16, 1990 in Docket No. TM91-1-13-000.