the Commission rejected similar arguments advanced by Western Farmers in Docket No. ER90-580-000,5 where Public Service Company of Oklahoma (PSO) filed a rate decrease in order to retain customers that were considering taking service from Western Farmers.

On January 29, 1991, Western Farmers amended its January 10, 1991 pleading for the stated purpose of providing additional legal analysis to support its protest." Western Farmers urges the Commission to reject OG&E's answer because it addresses that portion of Western Farmers' January 10, 1991 pleading which constitutes a protest, and answers to protests are not permitted. Western Farmers also reiterates its argument that the submittal is unduly discriminatory because only one customer in the class has been offered the decrease. Western Farmers attempts to distinguish OG&E's proposal from the PSO proceeding where the Commission rejected similar arguments by Western Farmers by noting that PSO reduced the rate for the entire customer class, while OG&E has proposed a decrease for only one customer. Western Farmers also reiterates its argument that this is a market-based rate asserting that the sole reason for the decrease is to meet competition. Western Farmers concedes that the Commission rejected similar arguments in PSO, but suggests that the Commission inappropriately approved the PSO rate because it reflected a rate reduction. Western Farmers states that a rate decrease must either be cost-justified to demonstrate no further reductions are necessary or it must be subjected to the Commission's standards for market-based rates.

Discussion

Under Rule 214 of the Commission's Rules of Practice and Procedure, Western Farmers' timely, unopposed motion to intervene serves to make it a party to this proceeding. Western Farmers urges the Commission to reject OG&E's answer because it addresses that portion of Western Farmers' January 10, 1991 pleading which constitutes a protest. We addressed a similar claim in the Arizona Public Service Company, 48 FERC 61,075, at p. 61,350 (1989) (APS). There the Commission concluded that the issues raised in the motion to intervene and protest were so intertwined

5 Public Service Company of Oklahoma, 54 FERC 61,021 (1991) (PSO).

6 On February 13, 1991, OG&E filed an answer to Western Farmer's January 29, 1991 amendment largely reiterating the arguments made in its earlier

answer.

7 See 18 C.F.R. § 385.213(a)(2) (1990). 8 18 C.F.R. § 385.214 (1990).

that they could not be sufficiently distinguished, and that an answer was therefore permitted to such a pleading. Consistent with APS, Western Farmers' request to reject OG&E's answer is hereby denied.

We will also accept Western Farmers' untimely January 29, 1991 pleading given the lack of opposition and the absence of undue prejudice or delay.

We find that OG&E's filing meets the minimum threshold filing requirements of the Commission's regulations. Therefore, Western Farmers' request for rejection on this basis will be denied.

Western Farmers argues that the rate is unduly discriminatory because it applies to only one customer, and other similarly situated customers have not been offered the same rate. None of OG&E's other customers has requested the same rate or alleged that it has been denied the same rate. Accordingly, any concerns of discrimination are premature. If and when a similarly situated customer requests the same rate reduction and is unable to obtain it, the affected customer can raise its concerns in a complaint at that time. Accordingly, Western Farmers' request for rejection on this basis will also be denied.

As in the PSO proceeding, Western Farmers states that the rate decrease could lead to cost shifting and subsidies. As explained in our order in that proceeding, no subsidy or cost shifting can occur until the utility files revised rates for other customers. 10 And, of course, affected customers can raise their concerns in any proceeding where OG&E attempts to raise their rates to reflect costs properly allocable to Watonga.

As in the PSO proceeding, Western Farmers also states that OG&E's proposal is anticompetitive because it matches Western Farmers' offer. As we also explained in our order in that proceeding:

Clearly, when customers have options, suppliers must price their services competitively or face the loss of load. In such cases, a utility with surplus capacity will take whatever price it can get in order to defray fixed costs to the extent possible. Thus, there is nothing anticompetitive about PSO's proposal. Rather, as the Commission noted in

Background

The settlement, filed October 9, 1990, proposes: (1) to establish settlement rates and refunds for the locked-in period January 1, 1989 through January 10, 1991, (2) to resolve issues concerning the unbundling of storage, gathering, and extraction costs as well as principles of cost allocation and rate design for prospective application; (3) to institute new restructured sales service to current sales customers with contract storage; and (4) to implement, on a temporary basis, the brokering of CNG's capacity on Texas Eastern Transmission Corp. (Texas Eastern). As part of the settlement CNG agreed to file for the necessary certificate authority to implement the restructuring, to permit capacity brokering on its system, and to enable CNG to permanently assign its unused capacity on its upstream suppliers (Texas Gas Transmission Corp. (Texas Gas), Tennessee Gas Pipeline Co. (Tennessee), and Texas Eastern).

Initial comments were filed by Algonquin Customer Group, Baltimore Gas and Electric Co., City of Richmond, Virginia, CNG, Commission staff, Consolidated Edison Company of New York, Inc., Corning Natural Gas Corporation, Hope Gas, Inc., Independent Oil & Gas Association of West Virginia and Pennsylvania Natural Gas Association; Indicated CD Customers, Indicated Shippers, East Ohio Gas Co. et al., National Fuel Gas Supply Corp., Ohio Office of Consumers' Counsel, Pennsylvania Office of Consumer Advocate, Process Gas Consumers Group and American Iron and Steel Institute, Producer-Marketer Transportation Group, New York Public Service Commission, Rochester Gas and Electric Corp., Texas Eastern Transmission Corporation and Algonquin Gas Transmission Corporation, Transcontinental Gas Pipe Line Corporation, Virginia Natural Gas, Inc., Washington Gas Light Co., and West Virginia Industrial Intervenors.

Reply comments were filed by Algonquin, Baltimore Gas, CNG, staff, Consolidated Edison, Independent Gas Association, CD Customers, Indicated Shippers, East Ohio et al., Ohio Counsel, Process Gas, New York, Rochester, Transco, Virginia Natural Gas, Inc.

On November 23, 1990, the presiding ALJ issued an order (unreported) certifying the settlement to the Commission as uncontested pursuant to Rule 602 (g)(1) of the Commission's Rules of Practice and Procedure.1

Subsequently, on December 3, 1990, CNG filed an application in Docket No. CP91-554-000 et al., pursuant to the settlement, to implement the restructuring and capacity brokering on CNG's system. Specifically, CNG applied for certificates of public

118 C.F.R. § 385.602(g)(1) (1990).

convenience and necessity and for abandonment of sales service previously provided by CNG to RQ customers other than National Fuel Gas Supply Corp. CNG requested certificate authority to establish new sales service under the ACD Rate Schedule to current RQ sales customers and new CD service to current CD sales customers executing new service agreements with capacity adjustments. CNG also requested certificate authority to expand GSS/GSS-II contract storage service for current RQ sales customers and an amendment of its existing blanket transportation certificate to implement capacity brokering on its system. CNG represented that it would later file the necessary certificate authority to enable it to broker its unused capacity on Tennessee and Texas Gas, which it has now filed.

Discussion

A. Service Restructuring

The most important aspects of the settlement involve CNG's proposal to make longterm changes in the service it now provides to its full requirements (RQ) customers under a new ACD Rate Schedule with contract storage under the GSS/GSS-II Rate Schedules and other changes for its partial requirements (CD) sales customers. CNG has incorporated these proposed service changes in precedent agreements with its RQ customers and three of its CD customers. The service restructuring under these precedent agreements is contingent on Commission approval of the permanent transfer of upstream capacity on Tennessee and Texas Gas, CNG's upstream suppliers. These precedent agreements would afford current customers access to contract storage and the ability to transport gas on Texas Gas using CNG's unused entitlements and to take over CNG's rights to buy gas from Tennessee.

CNG has informed the Commission that it will complete the renegotiation of its sales contracts with its remaining CD sales customers by August 1, 1991. While CNG has represented that it will assign its capacity in upstream pipelines to any customer that requests it, the Commission is concerned that CNG may not have sufficient capacity available at desirable receipt points on its upstream pipelines, after assignments to the current precedent agreement signatories, to meet the requests of the remaining customers that have not yet entered into precedent agreements. In order to avoid unduly preferential capacity assignments in favor of those customers that have already signed precedent agreements, the Commission is deferring its consideration of CNG's proposed permanent restructuring and capacity

brokering proposals until CNG completes its renegotiation of the sales contracts.

In its certificate application, CNG attempts to address the situation that the Commission may not have acted on its pending applications to permanently assign its unused capacity on Tennessee and Texas Gas by providing for "transitional restructuring services." Under the transitional restructuring proposal, as the customer secures upstream capacity, that customer will be granted increments of firm transportation service and storage on CNG. However, CNG has only offered transitional services to three current RQ customers2 (although it states that it is willing to offer such transitional service to any other potential ACD customer that requests it). The Commission cannot approve the transitional service proposal. CNG's certificate application is too vague for the Commission to determine how the transitional mechanism would operate and CNG has not indicated the rates that would apply to such transitional services. However, CNG may supplement its application to provide the missing detail as to how CNG would provide ACD customers with interim access to CNG's GSS/GSS-II contract storage service and related transportation prior to the Commission approving CNG's proposed permanent restructuring.

B. Rates and Refunds During the Locked-In
Period

In its settlement, CNG proposed to resolve short-term rate issues. The settlement reduces the filed cost of service by approximately $61.5 million and would result in refunds of nearly $70 million. The Commission finds that the settlement rates and refunds during the lockedin period are just and reasonable, and, thus, we approve these portions of the settlement.

Article I, section 3(B) of the settlement states that the settlement rates in Appendices A through D reflect an allowance for storage working capital based on the storage inventory pricing methodology prescribed in North Penn Gas Co. (North Penn).3 According to New York, while it supports the overall settlement cost of service, the level of storage working capital reflected in the settlement to determine settlement rates is not the correct amount calculated under North Penn. New York asks the Commission to state that CNG may not rely on

2 These customers are Niagara Mohawk Power Co., Rochester Gas & Electric Co., and New York State Electric and Gas.

3 North Penn Gas Co., 12 FERC ¶ 63,033, aff'g 14 FERC 61,033 (1981).

the settlement level of storage working capital as precedent for future allowances. The Commission agrees with New York that the settlement level of storage working capital is not precedent in CNG's current rate case in Docket No. RP90-143-000. New York and other parties may challenge CNG's proposed storage working capital allowance in that docket.

Article I, section 3(B) also authorizes CNG to eliminate from its computation of interest on its Account No. 191 balance the "rolling weighted average adjustment" calculated in accordance with 18 C.F.R. § 154.305 (h)(3)(iii)(D)(1990). The settlement also provides that waiver of 18 C.F.R. § 154.305 (h)(3)(iii)(D)(1990) is effective retroactively to the date of Order No. 4834 and shall continue into effect until CNG files to change the North Penn methodology of pricing storage gas inventory. Staff opposes the proposed retroactive waiver of Commission regulations as inconsistent with Commission precedent denying waiver of the fuel adjustment clause regulation for electric utilities. CNG argues that application of the North Penn methodology in a general rate case and application of the rolling weighted average methodology in a PGA proceeding would cause an unjustified underrecovery of costs.

In its reply comments, however, CNG emphasizes that since the effective date of Order No. 483 CNG has complied with the regulation and has computed its carrying charges on Account No. 191 using the rolling weighted average methodology. Thus, a retroactive waiver of 18 C.F.R. § 154.305 (h)(3)(iii)(D)(1990) would trigger a recomputation of CNG's PGA rates. CNG's arguments that application of the North Penn methodology would cause unjustifiable underrecovery of costs is unsupported. In Order No. 483-A, the Commission stated:

Even a pipeline with a current LIFO credit in its base rate must compare the difference between the cash-based Account No. 191 and the credit in its rate base and return any difference to its jurisdictional customers. However, the Commission will consider other suggestions as to how to compute a cashbased Account No. 191 for carrying charge purposes.6

4 Order No. 483-A, Revisions to the PGA Regulations, became effective on April 8, 1988. FERC Statutes and Regulations ¶ 30,798.

5 Staff relies on, inter alia, Wisconsin Power & Light Co., 51 FERC ¶ 61,226 (1990).

6 FERC Statutes and Regulations ¶ 30,798, at p. 31,061.

The Commission will grant a waiver only for the locked-in period of the settlement. However, CNG may obtain a prospective waiver in future annual PGA cases.

Refunds under article II are calculated on a net basis by customer by rate schedule? through a comparison of non-gas revenues collected in base rates from each customer for all services and the total non-gas costs calculated at the applicable settlement rates in Appendices A through D for all services from January 1, 1989 through the earlier of January 9, 1991 or the effective date of rates in Appendix D. Process Gas asks for a clarification to address the settlement's treatment of transportation discounts for refund purposes. In its reply comments, CNG states that unless otherwise mutually agreed to the contrary, CNG will calculate refunds in such a manner that discounts on particular quantities of gas will not offset refunds due on units of gas for which CNG charged a rate for transportation above the settlement's transportation rates. CNG's determination not to reduce refunds by transportation discounts satisfactorily addresses the discount issue.

Article II(B) of the settlement states that for the period from January 1, 1989 to the date that CNG commences to bill reduced retained fuel, CNG will refund to transportation customers to whom fuel is charged or retained 1.55 cents per Dt delivered for fuel retained. Staff is concerned that the settlement fails to state when CNG will start billing the reduced retain fuel charges or require a refund report. Staff states that the settlement fails to provide a basis for the reduced fuel retainage and fuel charges. In reply, CNG states that it began billing this reduced charge on November 1, 1990 pursuant to a Commission order in Docket No. TM91-3-22-000.10 The Commission shall require CNG to make refunds to its customers in accordance with article II of the settlement and to file a refund report 30 days after making refunds.

Article II(B) provides that CNG will make refunds to its transportation customers for fuel charged or retained on a per Dt basis and will, at the same time, reflect such adjustments to Account No. 191. CD customers understand article II(B) to mean that CNG plans to disburse refunds for fuel retained or charged by a direct cash payment to transportation customers and by a credit to Account No. 191 for sales

7 In its reply comments, CNG clarifies that this provision means that CNG will base refunds for each customer on the net overpayments under each rate schedule.

8 CNG, in its reply comments, agreed to refunds based on 1.65 cents per Dt.

customers due refunds. CD customers argue that such disparate refund treatment is unduly discriminatory and that, therefore, the Commission should require CNG to make cash refunds to its sales customers also. According to staff, article II(B) suggests that the refunds made to transportation customers will be at the expense of sales customers because any adjustment to Account No. 191 will be borne by the sales customers. Staff argues that paragraph results in a subsidy to transportation customers by sales customers, and, thus, should be deleted. On the other hand, CNG states that when it collects fuel retainage and fuel charges from a transportation customer, sales customers derive a benefit because CNG need not purchase as much gas to sell and purchased gas costs are reduced by the amount of fuel charges. Because the settlement fuel charges and fuel retention charges are less than the filed rates, CNG states that sales customers should get the benefit of refunds and that charging a refund to Account No. 191 is a reconciliation, not a subsidy as staff contends.

CNG's explanation that charging the refunds to its Account No. 191 is a reconciliation is inaccurate. CNG currently flows through its PGA total system fuel-use costs and then credits transportation fuel reimbursement revenues to the Account No. 191 or reduces the purchase requirements by the in-kind fuel reimbursements. While this current system is intended to reimburse CNG's sales customers for the fuel costs that flowthrough the PGA, it is not precise. There can be subsidization between sales and transportation customers, timing differences, and cost shifting among customers. CNG's current sales rates are designed to recover only purchased gas costs associated with sales services, but gas costs for both CNG's transportation customers and its sales customers are flowed into its Account No. 191. Thus, the operation of the PGA mechanism has made CNG whole for its purchased gas costs during the locked-in period. Consequently, requiring CNG's sales customers to pay the costs of the refunds CNG proposes to make to transportation customers (through the adjustment to Account No. 191) is unjustified and rejected.

C. Remand on Rate Design Policy Statement Issues

The settlement also specifies the cost allocation and rate design methods to be used after

9 Enclosure 2 to CNG's reply comments provides the basis for the reduced fuel retainage and fuel charges.

10 CNG, 53 FERC ¶ 61,191 (1990).