tion that absent approval of that provision there is no settlement.2

Initial comments were filed by Kentucky West, Columbia, UGI Corporation, Commission staff (staff), North Carolina Natural Gas Corporation (North Carolina Natural),3 the Joint Intervenor Group, the Cities of Charlottesville and Richmond, Virginia (Virginia Cities), Office of the Ohio Consumers' Counsel (Ohio Consumers), Pennsylvania Public Utility Commission (Pennsylvania), the Public Service Commissions of New York and Kentucky, jointly (New York), and Cincinnati Gas & Electric Co. and Union Light, Heat and Power Co., jointly (Cincinnati). Reply comments were filed by Kentucky West, Columbia, and jointly by Cincinnati Gas & Electric Company and Union Light, Heat and Power Company (Cincinnati).

Public notice of the certificate aspects of the filing was issued on August 17, 1990, providing for protests, motions, or notices to intervene on certificate matters and the proposed settlement to be filed on or before September 7, 1990. Timely notices or motions to intervene were filed by the parties listed in the Appendix to this order. Pursuant to Rule 214 (18 C.F.R. § 385.214(1990)), any timely filed motions to intervene are granted unless an answer in

2 See Columbia Reply Comments, filed September 17, 1990, at 7-8. See also Appendix A of the NGPA settlement. The presiding ALJ in the relevant Kentucky West proceeding did not certify this settlement to the Commission because he concluded that the Commission had not set the issues in the settlement for hearing. Tr. at 9 (prehearing conference) (September 10, 1990).

3 On September 17, 1990, North Carolina Natural withdrew its initial comments, filed September 7, 1990, on the basis of Columbia's representations that Columbia will not seek to recover from it any of the amounts that Columbia has agreed to pay Kentucky West pursuant to the proposed settlement. North Carolina Natural became a customer on Columbia's system in December, 1989, and, hence, contended that it was inequitable to charge new customers like North Carolina Natural for costs due to Columbia's purchases of gas years before becoming customers of Columbia.

*The Joint Intervenor Group also filed further comments on October 10, 1990, which have been considered by the Commission. The Joint Intervenor Group consists of: Baltimore Gas and Electric Company; Central Hudson Gas & Electric Corp.; Cities of Charlottesville and Richmond, Virginia; Columbia Gas Distribution Companies; the Dayton Power and Light Company; Maryland People's Counsel; Mountaineer Gas Company; National Fuel Gas Supply Corporation; Office of Consumers' Counsel, State of Ohio; Orange and Rockland Utilities, Inc., Penn Fuel Gas, Inc.; Pennsylvania Gas and Water Company; UGI Corporation, Virginia Natural Gas, Inc.; Washington Gas Light Co., Frederick Gas Co., Inc. and Shenandoah Gas Co.; and West Ohio Gas Company.

opposition is filed within 15 days of the date such motion is filed. Any timely filed motions or notices not listed in the Appendix are also granted in accordance with the conditions of Rule 214.

On March 30, 1989, Kentucky West filed a revised direct billing proposal to recover NGPA repricing costs and carrying charges through January 31, 1989. On August 2, 1990, the Commission set for hearing the issue of whether the prices on which the repricing costs are based satisfy the "affiliated entities test" of NGPA section 601(b)(1)(E). The repricing cost dispute resolved by the subject NGPA settlement is a subset of the total amount of repricing costs of $127 million at issue in the affiliated entities proceeding. On September 12, 1990, Kentucky West filed an answer to various requests for intervention in the affiliated entities proceeding pending before the presiding ALJ8 Kentucky West does not oppose the requests for intervention so long as they are limited to addressing Columbia's proposed use of the PGA to recover its gas repricing costs. If, however, the interventions intend to seek party status on the affiliated entities issue in this case, which has been pending for some months before the presiding ALJ, the Commission, according to Kentucky West,

5 On October 25, 1990, Columbia filed further reply comments opposing the supplemental comments of the Joint Intervenor Group. Columbia's further reply comments have been considered by the Commission.

6 An earlier filing had been rejected because Kentucky West had included repricing costs for which final well category determinations had not been received. 46 FERC ¶ 61,306 (1989).

7 See Kentucky West Virginia Gas Co., "Order Accepting and Rejecting Amended Compliance Filing in Part and Rejecting Other Tariff Sheets" (Docket No. TQ89-1-46-005 et al.), 52 FERC ¶ 61,148, at p. 61,601 (1990). This affiliated entities hearing is currently in a holding status pending the Commission's disposition of the subject NGPA settlement. See Order of presiding administrative law judge issued January 9, 1991, calling for Third Status Report.

8 These requests for intervention include: AlliedSignal, Inc., Baltimore Gas and Electric, Central Hudson Gas and Electric Corporation, Cincinnati Gas and Electric Company and Union Light, Heat and Power Company, jointly, Cities of Charlottesville and Richmond, Virginia, jointly, Columbia Small Customer Group, Dayton Power and Light Company, Mountaineer Gas Company, North Carolina Natural Gas Corporation, Orange and Rockland Utilities, Inc., Penn Fuel Gas, Inc., UGI Corporation, and Washington Gas Light Company, Frederick Gas Company, Inc., and Shenandoah Gas Company, jointly. West Ohio Gas Company, Maryland Peoples Counsel, and Ohio Consumers' Counsel also filed late interventions in Docket No. TQ89-1-46-000, the affiliated entities proceeding.

should treat the requests as late interventions. The Commission agrees that the parties are seeking intervention on the affiliated entities issue. The Commission set the affiliated entities issue for hearing in the August 2, 1990 order accepting Kentucky West's revised direct billing proposal. As the affiliated entities proceeding is the first opportunity that many of the intervenors have to address this issue, and the affiliated entities hearing has not yet started, the Commission will grant their requests for late intervention consistent with 18 C.F.R. § 385.214 (1990).

I. Background: Kentucky West's Gas
Repricing Proposal

After enactment of the Natural Gas Policy Act of 1978, a number of pipelines, including Kentucky West, sought to increase the prices they charged for their own production, from the cost-of-service prices previously charged to the higher ceiling prices permitted in the NGPA. The Commission, however, held that the pipelines were not entitled to charge the higher prices permitted under that Act when they sold their own company-owned production. Kentucky West appealed the Commission's decision to the Court, and in all its PGA filings during the period December 1, 1978 through March 2, 1983, asserted its right to recover NGPA prices should the Court reverse the Commission's interpretation of the NGPA.

In 1986, in Kentucky West Virginia Gas Co. v. FERC Kentucky West),10 the United States Court of Appeals for the Fifth Circuit held that the Commission should have allowed Kentucky West to price its company-owned production during the period December 1, 1978 through March 2, 1983, at NGPA prices. This ruling was based on a decision of the United States Supreme Court that pipeline production is entitled to first sale status under the NGPA. See Mid-Louisiana Gas Co. v. FERC, 664 F.2d 530 (5th Cir. 1981), aff'd in part and vacated in part sub nom., Public Service Commission of New York v. Mid-Louisiana Gas Company (Mid-La), 103 S.Ct. 3024 (1983). The Fifth Circuit left it up to the Commission to determine the appropriate method Kentucky West could use to recover the higher NGPA rates

9 52 FERC 61,148 (1990).

10 780 F.2d 1231 (5th Cir. 1986).

11 47 FERC ¶ 61,001, at p. 61,003 (1989).

12 35 FERC 61,276 (1986).

13 37 FERC ¶61,310 (1986), reh'g denied. 44 FERC 61,044 (1988). On September 8, 1988, Kentucky West filed a petition for review of both orders denying Kentucky West permission to directly bill gas repricing costs. The Commission, in an order issued October 31, 1988, directed Kentucky West to

from Columbia and its other customers, which rates it had improperly been denied recovery during the period December 1978 through March 1983 through the Commission's legal error. 11

On June 3, 1986, the Commission issued an order on remand permitting Kentucky West to file a proposal to collect NGPA prices for its pipeline production for the period commencing December 1, 1978.12 Kentucky West proposed to directly bill each customer a share of the costs based on that customer's actual purchases during each month to which the retroactive allowances apply. On December 30, 1986, the Commission issued an order rejecting Kentucky West's direct billing proposal and requiring Kentucky West to include gas repricing costs in its PGA.13

The Commission, however, in an order14 issued January 13, 1989, reconsidered its requirement that Kentucky West use its PGA and, instead, required Kentucky West to recover its gas repricing costs through a direct bill, similar to that which it originally proposed, to avoid a shifting of costs to Kentucky West's remaining customer base of small municipalities. The Commission viewed direct billing as the most equitable means of implementing the Court's decision and correcting the Commission's legal error.

The Commission in the January 13, 1989 order stated that a direct bill did not violate the filed rate doctrine because Kentucky West's customers, purchasing between 1979-1983 were on notice that an increase in price through a direct bill might occur. Kentucky West's transmittal letters which accompanied its PGAs during 1979-1983 asserted its right to NGPA pricing should a court reverse the Commission's interpretation of the NGPA 15 Moreover, in the Kentucky West decision, the Court found that the customers like Columbia were on notice of Kentucky West's claim of entitlement to collect additional NGPA amounts. As the Court explained, the NGPA repricing issue "was consigned for resolution to another forum, in which Kentucky West was vigorously participating and of which the Commission and the pipeline's cus

tomers were only too aware.' "16 On August 2, 1990, the Commission issued its most recent order accepting and suspending Kentucky West's direct billing proposal allocating costs based on actual purchases, to become effective July 1, 1990, subject to refund, conditions, and the outcome of an affiliated entities hearing.

Columbia filed a petition for review with the United States Court of Appeals for the District of Columbia Circuit of the Commission's orders permitting direct billing. The D.C. Circuit transferred Columbia's petition for review as well as Kentucky West's petitions for review to the United States Court of Appeals for the Fifth Circuit. By order dated November 28, 1989, the Fifth Circuit consolidated such petitions with Kentucky West's pending petition.

Kentucky West and Columbia have filed this settlement in order to resolve all the disputes and claims arising between Kentucky West and Columbia before the Commission and in judicial review proceedings brought by Columbia and Kentucky West now pending in the Fifth Circuit for review of the Commission's orders permitting direct billing for gas repricing costs. The following summary of the settlement highlights its most important provisions.

II. Description of Kentucky West-Columbia Settlement

A. Gas Repricing (Mid-La) Costs

Kentucky West has sought the right to direct bill all its customers over $276 million, plus additional carrying charges, in gas costs arising from its repricing of company-owned production to reflect NGPA prices during the period December 1, 1978 through March 2, 1983. Of that amount, Kentucky West has sought to direct bill Columbia over $57 million, plus additional carrying charges. The Commission, however, has refused to allow Kentucky West to recover that portion of the costs for which Kentucky West has not received the necessary determinations from state regulatory commissions of the eligibility for particular NGPA price ceilings (well category determinations), until the necessary well qualification determinations are received. The costs the Commission

16 Kentucky West Virginia Gas Co. v. FERC, 780 F.2d 1231, 1236-37 (5th Cir. 1986).

17 On August 2, 1990, the Commission issued and order approving Kentucky West's direct billing to all its customers of $127,350,867.28 in Phase I costs plus additional carrying charges. The portion allocated to Columbia was to be lowered by an amount related to a prior minimum bill settlement. Kentucky West's compliance filing allocated $26,271,590.43 to Columbia. See 53 FERC 61,148 (1990) and unreported letter order of the Director, OPPR, issued September 18, 1990. Thus, Kentucky West's allocation to Columbia

considers eligible for recovery now, because well category determinations have been received, are those related to Docket No. RP86-166-000, and the settlement refers to those costs as "Phase I" costs. 17 These costs relate to gas Kentucky West produced during the period December 1, 1978 to March 3, 1983 (with carrying charges from December 1, 1978 to January 31, 1989). The cost claims which the Commission has said it will not consider until well determinations are received are associated with Docket No. RP86-165-000; these costs relate to gas produced from the same period 18 of December 1, 1978 to March 3, 1983. The settlement refers to these costs as "Phase II" costs, because well category determinations had not yet been obtained to support these

costs.

In article II, Columbia agrees to pay Kentucky West, in settlement of the Phase I repricing costs, $25,207,688 plus additional carrying charges. Kentucky West waives any entitlement which it may have to collect from Columbia the Phase II costs. The $25,207,688 is to be paid as follows:

(1) $21,377,688 will be amortized in monthly payments over a period of eight years, with additional carrying charges computed upon the declining balance commencing January 1, 1991. This payment structure is characterized as a "monthly demand surcharge".

(2) During the last two years of the eightyear amortization period, Columbia will pay an additional $3,200,000 in 24 equal monthly payments, without any additional carrying charges at any time. This payment structure is characterized as a "supplemental monthly demand surcharge," and represents carrying charges from February 1, 1989 to May 31, 1990, on the amount in (1) above.

(3) Finally, on January 2, 1993, Columbia will pay $630,000 in a lump sum, without further accrual of carrying charges. This represents carrying charges from September 16, 1990 to December 31, 1990, of the amount in (1) above.

Columbia agrees to start paying the monthly demand charge on the later of the first month after the Commission approves the settlement

on the basis of current CD pursuant to the NGPA settlement ($25,207,688) is less than the allocation based on actual purchases approved in the August 2, 1990 order.

18 The costs are generally applicable to the same gas production for the same time period. The differentiation into Phase I and Phase II costs reflects the fact that some of the costs allocated to that production (Phase I costs) were supported by final well determinations, while some costs allocated to that same production were not (Phase II costs).

without modification unacceptable to Kentucky West or Columbia, or January 1, 1991.

Article XI, paragraph 1(d), provides that the Commission's order approving the settlement will constitute the necessary authority for "Columbia's right to recover all amounts identified in Article II through its PGA on an asbilled basis." Since the costs are being billed to Columbia as a demand surcharge, this would permit Columbia to pass through the costs via a demand surcharge implemented through its PGA. In Columbia's initial comments, filed September 7, 1990, it asserted that the $21.3 million "Phase I" dollars represents Columbia's share of all the Phase I amounts Kentucky West was authorized to direct bill, allocated on the basis of Columbia's contract entitlement levels compared to the total Kentucky West contract entitlement levels. Accordingly, Columbia would also allocate the costs among its customers based on their contract entitlement levels. (Columbia Initial Comments at 3-4.)

B. Cancellation of Rate Schedule PLS-1

Columbia is a PLS-1 sales customer of Kentucky West, but Columbia has ceased its purchases under that rate schedule. Under article III, effective on approval of the settlement, Columbia and Kentucky West shall cancel on an interim basis the PLS-1 service agreement, and, in turn, Kentucky West agrees to abatement of Columbia's obligation to pay any demand charges under Rate Schedule PLS-1 until the issuance of a final and nonappealable order approving the settlement without modification unacceptable to the parties. On Commission approval of such an order, Columbia's demand charge obligations under PLS-1 shall terminate. Upon cancellation of the PLS-1 service agreement, the related capacity on Columbia's system reverts to Kentucky West and is governed by transportation agreements described in article IV of the settlement. Interim cancellation of the service agreement becomes permanent on issuance of a final order of the Commission approving the settlement. Approval of the settlement constitutes the necessary interim and permanent abandonment authorization to cancel the PLS-1 Rate Sched

ule.

C. Transportation Arrangements

These arrangements involve Equitrans, Kentucky West, and Columbia. Although Equitrans and Columbia are both customers of Kentucky West, Equitrans (but not Columbia) is, in addition, an affiliate of Kentucky West, since they are both owned by the same com

19 Columbia Gas Transmission Corporation, 49 FERC 61,071 (1989).

pany. Columbia also has a part interest in the Ozark Gas Transmission System.

1. Arkoma Basin Production

Under article IV(1), Columbia will provide transportation service through Columbia's capacity in the Ozark Gas Transmission System if Kentucky West or any affiliate desires to implement a gas supply contract for gas produced in the Arkoma Basin. Ozark is a Texas partnership that operates its natural gas pipeline system extending from eastern Oklahoma into Arkansas with gathering lines to producers in both states. Firm transportation capacity on Ozark is held by both Columbia and Tennessee Gas Pipeline Co. Access to Columbia's capacity in the Ozark system, would thus connect Kentucky West to additional gas sources in the Arkoma Basin.

2. Equitrans' Shift from the X-70 Rate Schedule to the FTS Rate Schedule

Under article IV(2), Equitrans agrees to convert its firm transportation entitlement of 72,056 Dth on Columbia under Columbia's Rate Schedule X-70 to Rate Schedule FTS service on Columbia. This shifts Equitrans from the use of individually certificated service under section 7(c) of the Natural Gas Act (NGA), to utilization of transportation pursuant to Columbia's open-access blanket certificate. In return, Equitrans' entitlement on Columbia under the settlement is increased to include the additional FTS capacity of 15,969 Dth per day which was previously available to Columbia on its system to transport gas purchased from Kentucky West under the PLS-1 Rate Schedule. With regard to the resulting total FTS transportation capacity on Columbia of 88,025 Dth per day (dry) (plus retainage), Columbia agrees to waive any pregranted abandonment that may apply to the FTS transportation services provided to Equitrans. Accordingly, Columbia agrees to obtain Commission abandonment authorization prior to discontinuing service under the FTS service agreement with Equitrans, which, the settlement represents, is consistent with Columbia's global settlement approved on October 19, 1989 in Docket No. RP86-168-000 et al.19

3. Columbia-Equitrans Transportation Agreements

Upon approval of this settlement, article IV(2)(b) provides that Columbia and Equitrans shall enter into four particular firm transportation agreements described in Appendix B of the settlement. Equitrans has the right under these four agreements to nominate additional firm and/or interruptible receipt and delivery points. If new delivery points are nom