tionally, the Commission noted that it was unclear whether Tennessee's proposed method for assigning individual customers a share of the Account No. 191 balance reasonably achieved that result. The Commission, however, directed the parties to explore the exact wording of the tariff language accepted for filing and the appropriateness of the proposed formula at a technical conference which it established in these proceedings.3

Tennessee also requested a waiver of section 154.305(b)(1) of the Commission's regulations,4 to flowthrough its PGA on an as-billed basis, demand gas costs the pipeline pays to a producer-supplier. In the December 28, 1990 order, the Commission noted that it had previously approved limited-term waivers of the regulations in order to allow the as-billed treatment of producer demand charges where such treatment would have only a modest impact on the classification of gas costs between demand and commodity rate components. However, the Commission concluded that, in this case, a $22 million producer demand charge is not de minimis and could have a substantial rate impact on Tennessee's customers. Further, the Commission found no assurance in Tennessee's proposal that Tennessee's customers had a choice of purchasing from sources other than Tennessee. The Commission noted that in two pending proceedings, Docket Nos. CP89-270-000 and RP88-228-000, the comparability of Tennessee's sales and transportation services are at issue. The Commission further noted that since comparability of services is the primary focus of those two proceedings there was no reason to establish another opportunity for discussion of comparability issue on Tennessee's system. Accordingly, the Commission denied Tennessee's request for a waiver of section 154.305(b)(1) of the regulations. The Commission explained that the parties should discuss Tennessee's proposed asbilled flowthrough of producer demand charges at the same time they explore comparability issues in other dockets.

Tennessee also requested a waiver of section 154.305(i) of the Commission's regulations5 which requires refunds to be disbursed when the balance in the refund subaccount exceeds the lesser of $2 million or one cent per Dth of total jurisdictional sales in the most recent 12-month period. Tennessee proposed to refund a credit balance to its customers 60 days after

3 The technical conference was held on January 29, 1991.

418 C.F.R. § 154.305(b)(1). This regulation provides that "[p]roducer rate changes must be applied to the commodity component of a pipeline's two-part rates or to the volumetric rates of a pipeline's onepart rates."

the end of each year's deferral period, running from September through August. A debit balance at the end of the deferral period would be transferred to the current deferral subaccount as required by current regulations. In the December 28, 1990 order, the Commission denied Tennessee's waiver request. The Commission noted that in the subject deferral period, reported debit adjustments far exceed credit adjustments obviating any immediate need for Tennessee to be granted the requested waiver.

The Requests for Rehearing

In its request for rehearing, Tennessee argues that the Commission improperly rejected Tennessee's proposal for a reconciliation surcharge providing for direct billing of unrecovered gas costs to customers that convert or reduce their current contract demands. Tennessee contends that it is essential to put in place a recovery mechanism for Tennessee's Account No. 191 balance as early as possible in order to provide the required notice to Tennessee's customers under Transwestern Pipeline Co. v. FERC, 879 F.2d 570 (D.C. Cir. 1990), cert. denied, 111 S. Ct. 373 (1990) (Transwestern). Tennessee further contends that in Transwestern the court held that direct billing of amounts accrued after Commission approval of a direct billing mechanism was lawful and that it is necessary to approve Tennessee's subject proposal as soon as possible in order to provide this required notice. Tennessee further asserts that the Commission's action is inconsistent with its authorization of the collection of unrecovered purchased gas costs through direct billing in other cases.6

Tennessee argues that as of December 1990, most of its customers possessed the right to convert 100 percent of their sales service to transportation, and in the absence of direct billing of amounts in Account No. 191 some of Tennessee's customers will be able to avoid future surcharges completely, while Tennessee must either absorb the unrecovered costs or charge large surcharges to remaining customers. Tennessee concludes this would frustrate the PGA policy by improperly denying recovery of its purchased gas costs. Tennessee further argues that its proposal is consistent with the basic concept of the PGA and constitutes a pragmatic adjustment for changed circumstances. Tennessee asserts that the Commis

518 C.F.R. § 154.305(i)(1)(ii)(1990).

6 Citing e.g. Transwestern; Northwestern Pipeline Corp., 45 FERC ¶ 61,224 (1988), reh'g denied in part, 46 FERC ¶ 61,091 (1989); Tennessee Gas Pipeline Co., 48 FERC 61,198, reh'g denied in part, 49 FERC 61,348 (1989).

sion's action is inconsistent with its conditional approval of direct billing when the PGA is suspended or terminated and other cases in which the Commission has approved direct billing.

Tennessee also objects to the Commission's rejection of Tennessee's producer demand charge proposal. Tennessee contends that the Commission's deferral of this issue to another case where the issue may not be resolved for some time would inhibit operation of the marketplace and perhaps hurt Tennessee's efforts at obtaining sufficient gas supplies. Finally, Tennessee argues that its producer demand charge proposal is relatively small involving about $22 million in total purchased gas costs of $452 million in annual costs covered by this filing or about 4.8 percent.

Tennessee also contends that the Commission's denial of the requested waiver of section 154.305(i) of the regulations to allow annual refund disbursements was in error. Tennessee asserts that under current regulations Tennessee may be required to make refunds that it would then need to recoup in its next annual PGA filing through a surcharge which could result in cost shifting. Tennessee further asserts that the crux of the problem is that the Commission recently required Tennessee to reflect prior period adjustments for imbalances in transportation and exchange (T&E) transactions which are often large non-cash transactions. Tennessee asserts that these transactions tend to swing between debits and credits month-to-month and often substantially even out over an annual period.

Tennessee contends that its workpapers show that Tennessee's T&E balances fluctuate greatly with credits in certain months offset in the next month by large debits. Tennessee asserts that its workpapers show that Tennessee faced numerous months during the twelvemonth deferral period when T&E credits greatly exceeded the $2 million trigger amount for refunds. Tennessee further asserts that it was not required to make refunds during those months due to large debit adjustments which offset the T&E credits in those months. Tennessee contends that in future years it may be required to make refunds solely due to its T&E transactions. Finally, Tennessee argues that adoption of its proposal will also help prevent an undue buildup of Account No. 191 balances.

Midwestern Customer Group argues that the Commission erred in authorizing the reconciliation surcharge if Tennessee's PGA clause is eliminated or suspended. Midwestern Customer Group argues that the Commission's requirement that Tennessee obtain advance approval for any such surcharge seems to be little more than a formality and that approval

at this point is premature. Midwestern Customer Group further contends that the direct billing of Account No. 191 is a direct surcharge on past gas purchases prohibited by the filed rate doctrine and the ban against retroactive ratemaking. Midwest Customer Group also argues that Tennessee's proposal does not meet the notice requirements in Transwestern, since the Commission has not issued an order approving the formula to be used in assigning individual customers a share of the Account No. 191 balance. Midwestern Customer Group asserts that the proposed surcharge destroys the customers' ability to make economically logical purchase decisions and removes Tennessee's incentive to price its gas accurately.

In the alternative, if the Commission does not grant Midwestern Customer Group's request to reject Tennessee's proposal for a reconciliation surcharge upon elimination or suspension of its PGA clause, Midwestern Customer Group contends that the Commission should also accept Tennessee's proposal to bill Account No. 191 balances to customers who reduce or terminate their contract demand service. Midwestern Customer Group asserts that it is unfair to allow remaining customers alone to bear the cost of the Account No. 191 balance and that all sales customers must be treated fairly and equitably.

Con Edison argues that the Commission should grant clarification or rehearing that the filed rate doctrine precludes Tennessee from direct billing any of its customers for current Account No. 191 balances accumulated as of the date of the subject filing.

IPAA's Late Motion to Intervene and Request for Rehearing

Public notice of the instant filing was issued on November 6, 1990, providing for protests, motions or notice to intervene to be filed on or before November 28, 1990. In its untimely motion to intervene filed on January 28, 1991, IPAA states that it did not realize the policy impact of this proposal until the subject order was issued and that since the technical conference had not been conducted there would not be a disruption of the proceeding. IPAA further states that it represents independent, primarily small, natural gas exploration companies whose interests in the instant proceeding are substantial and cannot be represented by any other party. IPAA asserts that no prejudice to, or additional burdens upon, any other party to this proceeding could result from the Commission's grant of the instant motion.

In its request for rehearing, IPAA objects to the Commission's rejection of the proposed producer demand charge while allowing an asserted disproportionate percentage of Cana

dian pipeline transportation costs in demand charges and the annualizing of the recovery of Canadian demand charges in Tennessee's PGA.?

IPAA has not shown good cause for its failure to file a timely motion to intervene.8 IPAA does not explain why any policy impact in the subject order was not anticipated by IPAA or what specific basis IPAA relies upon to justify its late intervention. Further, the technical conference established by the Commission is not the forum to discuss the issues raised by IPAA and the proceeding would be disrupted by granting its motion. IPAA has not shown good cause for granting its untimely motion and granting its motion would unduly disrupt the proceeding and unduly prejudice and burden the parties. Accordingly, IPAA's late motion to intervene will be denied.9

Discussion

Reconciliation Surcharge

Rejection of the portion of Tennessee's proposed reconciliation surcharge which provided for direct billing of customers that reduce or terminate their contract demand was reasonable, since Tennessee had failed to support or explain that portion of its proposed reconciliation surcharge.10 As the December 28, 1990 order explained it was unclear whether Tennessee's proposed method for assigning individual customers a share of the balance in Account No. 191 was appropriate. The Commission established a technical conference to further explore Tennessee's proposed reconciliation surcharge, the exact wording of related tariff language, and the appropriateness of Tennessee's proposed formula. The need for resolution of these issues in the technical conference distinguishes this case from the Commission's prior approvals of direct billing cited by Ten

nessee.

There may be merit in allowing a reconciliation surcharge applicable to customers that reduce their contract demand or convert from sales service to transportation, and the parties are pursuing the matter through the technical conference. In the absence of a reconciliation surcharge, customers who convert or reduce their CD levels would be able to avoid future PGA surcharges, leaving those costs for remaining customers to pay. On the other

7 See 53 FERC ¶ 61,463, at p. 62,635.
8 See 18 C.F.R. § 385.214(d) (1990).

9 Further, since IPAA is not a party to this proceeding it may not file a request for rehearing pursuant to rule 713 of the Commission's rules of practice and procedure. 18 C.F.R. § 385.713 (1990).

10 53 FERC 61,463, at p. 62,637.

11 Id.

hand, a reconciliation surcharge could discourage reductions or conversions, thus discouraging customers from purchasing gas from alternative supply sources and thereby acting as a barrier to competition. Both Tennessee and Midwestern Customer Group have stated a willingness to discuss the appropriate provisions for a reconciliation surcharge. Accordingly, the Commission encourages Tennessee and its customers to continue their discussions with a view toward reaching a settlement concerning an appropriate method for permitting Tennessee to recover costs from customers who convert or reduce their CD levels or to all reach the same position in their position papers on the technical conference on this point.1

12

Contrary to the Midwestern Customer Group's assertions, the Commission did not commit error in accepting Tennessee's proposal to direct bill its Account No. 191 balance upon the termination or suspension of its PGA. The Commission's approval of this portion of Tennessee's proposed reconciliation surcharge is subject to specific advance approval by the Commission prior to any implementation or direct billing.13 With this condition the Commission's limited approval was not premature as Midwestern Customer Group suggests. There is no necessity for the Commission to determine the exact circumstances under which Tennessee would utilize this provision in order to grant such limited approval of Tennessee's proposed rate formula.

Tennessee's proposal also is not a violation of the filed rate doctrine. The filed rate doctrine prohibits the Commission from imposing a rate different from that on file at the time gas is sold or service is made available. Its purpose is to allow purchasers of gas to know in advance the consequences of their purchasing decisions. In Transwestern, supra, the court held that the Commission in satisfying the filed rate doctrine need not confine rates to specific absolute numbers. Rather, the Commission "may approve a tariff containing a rate formula' or a rate 'rule'... [and] that where the Commission explicitly adopts a formula and indicates when it will take effect, the courts may not (without invading the Commission's province) say that such a formula may never qualify as a 'rate' within the meaning of § 4 or § 5 of the Natural

12 Compare, Order No. 528, Order on Remand Staying Collection of Take-or-Pay Fixed Charges and Directing Filing of Revised Tariff Provisions et al., 53 FERC 61,163 (1990), at pp. 61,595-96 where the Commission explicitly encouraged pipelines and their customers to reach settlements concerning revised methods for resolving their continuing take-or-pay problems.

13 53 FERC 61,463, at pp. 62,636-37.