will deny the requests for rehearing and clarify the staff order.

Background

This matter arose in connection with 41 applications filed by Transcontinental Gas Pipe Line Corporation (Transco) for permission and approval to abandon sales service to customers who, pursuant to Part 284 of the Commission's regulations, had elected to convert all or part of their firm sales entitlements to firm transportation under Transco's Rate Schedule FT.3 These applications were filed on June 21 and June 23, 1988 and on February 21, March 29, April 5 and August 10, 1989. Several intervenors in those abandonment proceedings protested Transco's proposed abandonment of the firm sales entitlements on the grounds that the pregranted abandonment provisions of section 284.221(d) of the Commission's rules created a risk that service would be interrupted when the transportation service agreements expired.

Before the Commission acted on the abovereferenced abandonment applications, it approved a revised stipulation and agreement (settlement) filed by Transco on August 7, 1989 in Docket No. RP88-68-000 et al. On October 20, 1989, Transco filed a motion for expedited consideration of the abandonment applications on the grounds that, in light of certain terms of the settlement, Transco's customers' protests to the abandonment applications had become moot. On November 8, 1989, Transco filed a supplement to its motion for expedited consideration, informing the Commission that its customers had withdrawn their protests to the abandonment applications. Accordingly, the staff order, which is the subject of the requests for rehearing in this proceeding, was issued on November 30, 1989. That order approved the proposed abandonments by Transco of sales service entitlements converted by customers to firm transportation.

Rehearing Requests

Joint petitioners note in their request for rehearing that, in response to Transco's motion for expedited consideration of the abandonment applications, two parties raised concerns which the November 30, 1989 staff order approving the abandonments did not address. Specifically, ConEd had indicated its support for expedited action, but sought clarification

3 The individual docket numbers for the 41 applications are listed in Appendix A of the staff order for which rehearing is requested in this proceeding. See 49 FERC 62,198 (1989).

448 FERC 61,399 (1989), reh'g granted in part and denied in part, 50 FERC ¶ 61,442 (1990).

S Joint Petitioners note that Elizabethtown did not join in their request for rehearing in this proceed

regarding the applicability of article II, section 8, subsection A of the Transco settlement to conversions taking place during the settlement term. Article II, section 8, subsection A states:

FERC approval of this Revised Stipulation shall provide that pregranted abandonment of FT service under section 284.221(d) of the regulations will not be applicable to any long-term FT conversions (both existing and new and future conversions after the term of this Revised Stipulation and Agreement). As a result, abandonment of FT service resulting from firm sales service shall occur only in accordance with the procedures and standards set forth in section 7(b) of the Natural Gas Act.

ConEd raised this concern because, in its motion for expedited consideration, Transco stated that pregranted abandonment would not apply to existing conversions or new conversions after the term of the settlement, but did not reference conversions taking place during the settlement term.

Elizabethtown noted in its response to Transco's motion for expedited consideration that its support of the motion was contingent on the Commission's final approval of the Transco settlement, with the provision regarding the inapplicability of pregranted abandonment to conversions intact. Elizabethtown was concerned that if rehearing of the Transco settlement resulted in any modifications that were unacceptable to Transco, the pipeline might withdraw from the settlement. In that event, Elizabethtown and others would have consented to the abandonment of their firm sales entitlements, but would not have the protection against pregranted abandonment embodied in article II, section 8, subsection A of the settlement.5

In this proceeding, the joint petitioners argue that since the staff order did not address the above issues, the Commission should either clarify the staff order to make it clear that the pregranted abandonment provisions of section 284.221(d) of the Commission's regulations will not apply to any conversions to firm transportation and/or modify the staff order to provide that the abandonment authorizations are conditioned upon final approval of the Transco settlement.

ing because the staff order in question did not apply to abandonment of any service to Elizabethtown. Elizabethtown was an intervenor in Docket No. CP88-487-000 et al., and the joint petitioners indicate that they share Elizabethtown's concern regarding the effect of rehearing on the Transco settlement.

South Carolina raises similar concerns regarding how article II, section 8, subsection A of the Transco settlement will apply to the conversions related to the abandonments granted in the staff order under consideration here. South Carolina notes that subsequent to the order approving the Transco settlement, the Commission found in Order No. 500-H6 that pregranted abandonment of firm transportation entitlements resulting from conversions remained appropriate, but in that order the Commission also made reference to Transco's offer in the settlement to waive the pregranted abandonment provisions of Part 284. Additionally, South Carolina cites to a case in which the Commission stated with regard to a proposal of a pipeline to waive the pregranted abandonment provisions of section 284.221(d) that:

There is no need or basis for the parties to agree Southern must file for case-specific abandonment authority upon expiration of a transportation service agreement. Besides being contrary to the regulations, such an agreement would serve no purpose. All the parties need to do to protect their interests is to negotiate a transportation service agreement with a longer term or whatever term the parties find desirable. Commission intervention in this process is unnecessary. Southern Natural Gas Company, 49 FERC ¶ 61,388 (1989) (Southern Natural).

South Carolina further notes that, in light of the Transco settlement, it assumed that Transco would not be able to abandon transportation service resulting from conversions of sales entitlements pursuant to the pregranted abandonment provisions of section 284.221(d) and that the November 30, 1989 staff order, on its face, did not present any reason for South Carolina to question the applicability of the Transco settlement to such conversions. South Carolina asserts that the Commission's statement in Order No. 500-H regarding Transco's proposal to waive the pregranted abandonment provisions of Part 284 confirmed its understanding that the waiver provisions in the Transco settlement were applicable to converted transportation. However, South Carolina argues, the Commission's language in the Southern Natural case casts doubt on the applicability of article II, section 8, subsection A. South Carolina states that if the Commission does not clarify the staff order to make it clear that the waiver of pregranted abandonment in the Transco settlement applies to conversions, it will reinstate its original protest to the abandonments granted in the staff order.

6 Regulation of Natural Gas Pipelines After Partial Wellhead Decontrol, Order No. 500-H, FERC Statutes and Regulations ¶ 30,867 (1989).

Discussion

We uphold the order of the Director approving abandonment of the converted sales service over the objection of the protestors. At the time of the Director's order, abandonment of converted sales service was virtually automatic, inasmuch as the rule promulgated by Order Nos. 436 [FERC Statutes and Regulations, Regulations Preambles 1982-1985 ¶30,665] and 500 [FERC Statutes and Regulations

30,761] provided that: (1) the exercise of conversion by a customer constituted consent to the abandonment of the converted sales service and (2) abandonment of the sales service was deemed permitted by the present or future public convenience and necessity.

Shortly before the requests for rehearing were filed in these proceedings, the Commission issued Order No. 500-H, FERC Statutes and Regulations 30,867, which made the abandonment provisions of Section 284.10 completely automatic. Now, under current regulations, a pipeline no longer needs to seek pro forma approval to effectuate the abandonment of converted sales. The "abandonment of the pipeline's sales service obligation is approved to the extent of the conversion" (emphasis added). This provision was upheld on appeal. See American Gas Association v. FERC, 912 F.2d 1496 (D.C. Cir. 1990).

Granted that Order No. 500-H did not apply retroactively to cases that were decided before that order was issued. Nevertheless, the rationale underlying that decision, insofar as it is applicable to this issue, is relevant. Specifically, Order No. 500-H embodies our conclusion that the requirements of section 7(b) of the Natural Gas Act are met when a customer exercises its rights to conversion. Whether the provisions are applied automatically (as under the Commission's current regulations) or whether they require a filing by the pipeline (as they did prior to Order No. 500-H), the result is the same. The pipeline is relieved of its obligation to provide sales service once conversion to transportation has been effected by the customers. Under these circumstances, there is no basis for overturning the Director's order approving the abandonment of sales service.

We also decline to grant the clarification requested by petitioners. In the first place, the abandonment provisions of section 284.10, which apply to converted sales, operate independently of the pregranted abandonment provisions of section 284.221(d), which apply to transportation.

Clarification of section 284.221(d) is also unnecessary here, since the concerns raised by the petitioners are resolved in the Transco settlement. Specifically, subsection B of article II, section 8 of the Transco settlement states:

FERC approval of this Revised Stipulation and Agreement shall provide that unless the customer gives Transco the appropriate notice of its election to terminate or reduce quantities, Transco will give long-term FT conversion customers the contractual right to continue such FT service at the full or reduced service quantity after its primary term expires and Transco will not terminate such service agreement, so long as the customer is willing to pay rates no less favorable than Transco is otherwise able to collect from third parties for such service.

Subsection B, which is a type of evergreen provision, provides substantial protection to Transco's customers against loss of transportation capacity and priority when their service agreements expire. Subsection B provides that in the absence of a customer's election to terminate or reduce quantities, Transco must continue to provide FT service as long as the customer pays rates which Transco could collect from third parties.

For the reasons discussed above, rehearing of the staff order in Docket No. CP88-487-000 et al., and clarification of it is denied.

The Commission orders:

Rehearing of the staff order issued in Docket No. CP88-487-000 et al., is denied.

Background

This matter arises in connection with a conversion of sales service under Transcontinental Gas Pipe Line Corporation's (Transco) Rate Schedule CD-3 to firm transportation, which Peco requested in the summer of 1986. At that time, Transco informed its customers that it was commencing new transportation service pursuant to the terms of section 311 of the Natural Gas Policy Act (NGPA). Section 284.10 of the Commission's regulations provided that a pipeline which initiated or continued section 311 transportation after June 30, 1986, must offer its firm sales customers the option to reduce their sales entitlements or to convert the entitlements to firm transportation service. Peco elected to convert 15 percent of its firm sales entitlement to firm transportation effective November 1, 1986.

7 We note that Elizabethtown's and the joint petitioners' concern that rehearing of the Transco settlement might affect the applicability of article II, section 8, subsection A to conversions or cause Transco to withdraw from the settlement is moot

Transco had filed for a waiver of the conversion provisions of section 284.10. However, Peco exercised its right to convert sales to transportation prior to the Commission's granting of a waiver to Transco. Because it had requested a waiver, Transco declined to implement the requested conversion, which decision resulted in a complaint filed by Peco. In response to the complaint, the Commission directed Transco to implement the conversion and to provide firm transportation in accordance with Transco's Rate Schedule FT.! Transco commenced transportation service for Peco on August 4, 1987.

Transco then filed an application in Docket No. CP88-106-000 to abandon that portion of Peco's sales entitlement which had been converted to transportation. In that proceeding, Peco asserted that the abandonment of its sales service was premature because the firm transportation it would receive under Transco's Rate Schedule FT was not equivalent to the firm sales service it had previously received. Peco noted that the transportation would be pursuant to section 311 rather than a blanket certificate, since at that time Transco did not have a blanket certificate. Thus, Peco argued,

because the Commission's order on rehearing left the terms of the settlement substantially intact.

1 See Transcontinental Gas Pipe Line Corp., 38 FERC 61,167 (1987).

the transportation would be pursuant to an uncertificated service and, therefore, of lesser quality. Moreover, Peco argued, the fact that pregranted abandonment would apply to the transportation service made that service less reliable than the sales service. In light of the fact that the new service would not be comparable to the sales service, Peco requested the Commission to defer authorizing the abandonment of the sales service until some remedy for the incomparability could be found.

The Commission authorized the abandonment of Peco's sales service and determined that Peco's concerns were moot because, in the interim, Transco had accepted a Part 284 blanket transportation service.2 Thus, the transportation service Peco would obtain from Transco would be a certificated service with all of the protections of Part 284. The Commission held that pursuant to the provisions of section 284.10(d), at that time, Peco's request to convert sales to transportation signified its consent to the abandonment.

Request for Rehearing

On July 5, 1988, Peco filed a timely request for rehearing of the order authorizing abandonment. Peco argues that the acceptance by Transco of a Part 284 blanket certificate does not moot Peco's concerns regarding the comparability of sales and transportation service because Part 284 transportation is subject to the pregranted abandonment provisions of section 284.221(d). Peco asserts that there is no precedent for the Commission to grant abandonment of sales service without reviewing and addressing the issues raised by a party to the abandonment proceeding. Peco argues that this is the case even though section 284.10(d)(3), as this section stood at the time, provided that "abandonment of sales service . . . is deemed permitted by the present and future public convenience and necessity."

Peco asserts that its concerns about the pregranted abandonment of the transportation service, which would replace the converted sales service, were sufficient to mandate a Commission determination that the abandonment of sales service was not required by the public convenience and necessity. Peco argues that the Commission should not have authorized the abandonment without: (1) requiring Transco to provide the transportation service pursuant to a case-specific certificate, in which case pregranted abandonment of the converted transportation would not apply; or (2) conditioning the abandonment to preclude Transco

2 Transco's application for a blanket certificate was granted in Docket No. CP88-328-000, 43 FERC

from abandoning the transportation service under the pregranted abandonment provisions.

Discussion

Peco's request for rehearing will be denied for several reasons. First, the Commission did not err when it held in the June 2, 1988 order that Transco's acceptance of a blanket transportation certificate mooted Peco's concerns. As the Commission noted, Peco's concern that transportation service pursuant to section 311 of the NGPA was uncertificated and, therefore, not comparable to the sales service which had been converted had no merit since service under Transco's blanket would be certificated.

Additionally, the order authorizing the abandonment of sales service was appropriate, even in light of Peco's objections. At the time this order was issued, the rule promulgated by Order Nos. 436 [FERC Statutes and Regulations, Regulations Preambles 1982-1985 ¶ 30, 665] and 500 [FERC Statutes and Regulations ¶ 30,761] provided that: (1) the exercise of conversion by a customer constituted consent to the abandonment of the converted sales service and (2) abandonment of the sales service was deemed permitted by the present or future public convenience and necessity. In other words, abandonment of converted sales was virtually automatic, requiring a filing by the pipeline that was essentially pro forma. Later, Order No. 500-H [FERC Statutes and Regulations 30,867] made the abandonment of converted sales service completely automatic, so that under the current section 284.10 a pipeline no longer needs to seek even pro forma approval to effect the abandonment of converted sales. This provision was upheld on appeal. See American Gas Association v. FERC, 912 F.2d 1496 (D.C. Cir. 1990).

Granted that Order No. 500-H did not apply retroactively to cases that were decided before that order was issued. Nevertheless, the rationale underlying that order is applicable here, since Order No. 500-H embodies our conclusion (initially set forth in Order Nos. 436 and 500) that the requirements of section 7(b) of the Natural Gas Act are met when a customer exercises its rights to conversion. Whether the provisions are applied automatically (as under the Commission's current regulations) or whether they require a filing by the pipeline (as they did prior to Order No. 500-H), the result is the same. The pipeline is relieved of its obligation to provide sales service once conversion to transportation has been effected by the customer. Under these circumstances, there is

61,196 (1988), reh'g denied, 44 FERC 61,105 (1988).