asserts that such a procedure would lessen El Paso's administrative burden by reducing the amount of imbalances which need to be physically corrected through scheduling and transportation. 347

The Commission declines to approve this recommendation. El Paso has not expressed concern about its administrative burdens associated with calculating the penalty, and the Commission will not force El Paso to netout its imbalances.

e. Difference Between Estimated and Actual Use

Sections 19.12 and 20.11 further provide that a penalty shall not be imposed when an imbalance is the result of a difference between estimated and actual fuel use and shrinkage factors. Enron agrees with this section, but would carry the concept further. Enron maintains that if imbalances due to fuel and shrinkage adjustments exist concurrently with imbalances due to other factors, the fuel and shrinkage imbalances should be ignored for purposes of determining imbalance penalties. 348 The Commission declines to order El Paso to make this change, as there is insufficient reason presented to support such an argu

ment.

f. Duration of Penalty

Willcox argues that the daily imbalance penalties in sections 19.12(a) and 20.11(a) of Volume 1-A improperly provide that, if the imbalance is not corrected within 48 hours, then the penalty will continue for the duration of the month, regardless of how soon the imbalance is corrected. Willcox argues that such a provision defeats the purpose of a daily imbalance penalty in that it gives the customer no incentive to correct the imbalance expeditiously once the 48-hour period has expired.

The Commission finds that Willcox's recommendation is not unreasonable, but we decline to order El Paso to make this recommended change in its tariff provision. While Willcox's recommendation would encourage customers to remedy imbalances expeditiously, El Paso's proposed provision would better deter such imbalances in the first place, and would better ensure that imbalances were cured within the grace period. Accordingly, the Commission does not find El Paso's provision to be unreasonable or contrary to Commission policy.

3. Notice Issue Relevant to Both Overpull and Imbalance Penalties

347 Initial Comments of Enron Gas Marketing Inc. at 6.

348 Initial Comments of Enron Gas Marketing Inc. at 6-7.

Gas Company of New Mexico argues that both the imbalance and overpull penalty provisions should state that El Paso's penalty notice to shippers must indicate what corrections must be made and must state that the shipper will not be subject to any penalty if it makes those indicated corrections. Specifically, Gas Company of New Mexico is concerned that a shipper which is told to make a 2,000 Dth corrections in takes or deliveries could make such a correction, but then could be subject to imbalance penalties in the event that the parties later learn that the actual imbalance was 10,000 rather than 2,000 Dth.349

The Commission agrees with Gas Company of New Mexico's argument, but finds that no revision of the proposed tariff provision is necessary. The tariff provides that the penalty may only be assessed after the customer has been notified as to the level of the imbalance. If El Paso has not provided adequate notice, under the tariff the customer cannot be assessed a penalty for imbalances of which it was not notified.

L. Article X: Pipeline Production Properties 1. Amended Settlement

Article X (paragraph 10.1) stipulates that certain identified proceedings are resolved as set forth in the paragraphs discussed below. 2. Comments and Commission Discussion

a. Section 10.2: Deferred Income Taxes and Replacement Contract Rate

Paragraph 10.2 resolves issues pending in Docket No. TA85-1-33-000 et al. pertaining to the treatment of deferred income taxes attributable to El Paso's pipeline production properties as well as the proper rate for a particular category of such production. Paragraph 10.2 also provides for the return of certain refunds related to deferred taxes which El Paso asserts were erroneously ordered by the Commission. Paragraph 10.2 further provides that El Paso agrees to withdraw with prejudice its claim to apply the "replacement contract" rate available under NGPA section 104 to its companyowned production.

Willcox argues that paragraph 10.2 of the settlement should be modified to take into account not only the ruling in Public Utilities Commission of California v. FERC 350 that customers must repay the deferred tax refunds previously paid to them, but also the ruling in that same case that El Paso charged excessive prices for certain vintages of gas. Willcox urges

349 Initial Comments of Gas Company of New Mexico at 14.

350 894 F.2d 1372 (D.C. Cir. 1990).

Willcox is in error in its statement that the Court in Public Utilities Commission of California v. FERC found that El Paso charged excessive prices for certain vintages of gas. Rather, the Court found that the Commission had not adequately explained its decision to allow El Paso to price its company-owned production consistent with El Paso's pattern of contracting with independent producers, and remanded the issue to the Commission. In the settlement, El Paso proposes to withdraw its claim to the "replacement-contract" rate in that proceeding. El Paso has, therefore, yielded to the claims advanced in court, and the settlement terminates the remanded proceeding. To the extent El Paso has overcollected amounts based on its prior computation of its companyowned production, it will be required to make refunds. The Commission declines at this time to order that the refunds be applied specifically as an offset against the customers' deferred tax refund obligation. The Commission will, however, require that El Paso, in its compliance filing to this order, advise the Commission what refunds are due, and how they will be applied.

b. Section 10.3: Retroactive Abandonment Paragraph 10.3 provides that approval of the amended settlement will authorize El Paso to abandon by transfer to El Paso Production Company the production properties that are described in El Paso Natural Gas Co., Docket No. CP87-553-000 and El Paso Production Company, Docket No. CI87-290-000. Paragraph 10.3 also authorizes El Paso Production Company to sell gas produced from the transferred properties for resale in interstate commerce effective July 1, 1986. Paragraph 10.3 further provides that upon transfer of the properties any claim that: (1) gas produced from such properties is subject to a "price cap" under the terms of the settlement at Docket No. CP74-314 et al.; (2) such gas was committed or dedicated to El Paso by such settlement; and (3) El Paso unreasonably or imprudently abandoned such gas, is irrevocably and unconditionally waived.

Willcox objects to section 10.3 on the ground that it would abolish a price cap for which the customers had bargained in 1985 and had given valuable consideration.352 Staff supports only a prospective abandonment authorization 353

351 Initial Comments of Willcox at 97-98.

352 Initial Comments of Willcox at 99-101.

353 Initial Comments of Commission staff at 94-97.

The Commission accepts paragraph 10.3 as proposed. The provision concerning the waiver of any claim that gas produced from the transferred properties is subject to a "price cap" is appropriate. We find that, because a competitive market dictates the price for virtually all gas sales, the price cap is irrelevant. El Paso primarily transports rather than sells gas (its role in 1985) therefore the market should now dictate the price for most gas sales.354 The transfer of the subject property occurred some time ago. Arguably, the transactions were authorized under the self-implementing provisions of Order No. 490. In any event, granting the authorization requested will effectuate the settlement which we find to be for the public convenience and necessity and will remove any cloud on the transaction.

c. Section 10.4: RFX Gas

Paragraph 10.4 provides that, upon the effectiveness of the amended settlement, gas produced from El Paso's RFX properties may be priced at applicable NGPA wellhead prices rather than on a cost-of-service basis. Paragraph 10.4 further provides that all costs related to such properties will be eliminated from El Paso's present and future rates and, thereafter, that production from such properties when acquired for system supplies will be considered and treated only as a purchased gas expense. In addition, paragraph 10.4 authorizes El Paso to sell or transfer ownership of such properties.

Staff points out that the provision in paragraph 10.4 that all RFX costs would be removed from the cost of service as of the effective date of the settlement is inconsistent with the fact that the full cost reduction attributable to the removal of RFX costs is not achieved until the Prospective Rate Period,355 Staff also asserts that El Paso's authority to price its RFX production at NGPA prices and to transfer or sell such properties under paragraph 10.4 should be deferred until the Prospective Period, to prevent double recovery of costs. In this respect, staff maintains that, because Interim Rates apply for refund purposes from the date that the settlement was filed, no rates will change on the effective date of the settlement. Staff therefore is concerned that El Paso will be able to recover through its non-gas base tariff rates the costs associated with RFX properties until the Prospective Period, even though it would be pricing the RFX production at NGPA prices and could

354 See Reply Comments of El Paso at 93-94. 355 Initial Comments of Commission staff at 97.

transfer or sell those facilities under article X of the settlement, 356

Willcox complains that the Interim Rate is based on a cost of service which includes $25.3 million of RFX costs, despite the fact that the RFX properties would no longer be dedicated to the service of the customers paying the Interim Rate.357 In its Reply Comments, staff does not disagree with Willcox's statement, but asserts that the matter would be resolved by the Commission's adoption of staff's suggestion that the settlement be modified to delay the authorization for abandonment and repricing of RFX production until the beginning of the Prospective Period. 358

El Paso states that it recognizes the inconsistency between the fact that the settlement permits the termination of cost-of-service pricing of the RFX gas upon the effectiveness of the settlement and the fact that the settlement's Interim Period straddles the settlement's effective date by commencing on September 1, 1990 and terminating on the commencement date of capacity brokering. El Paso therefore is willing to modify the settlement to reduce its Interim Period rate prospectively from the date those rates become effective as filed rates (i.e., the first day of the month following the month in which the settlement becomes effective).359

The Commission is satisfied that El Paso's proposed modification rectifies the concerns of staff and Willcox. Therefore, El Paso is required to make the proposed revision in its compliance filing, to be submitted within thirty days of the issuance date of this order.

excess in the accumulated deferred income tax accounts. Commission staff suggests that El Paso clarify in its reply comments that: (i) the $3,769,715 reduction in the Income Tax Base refers to the reduction to Account No. 282 as a result of the flow back of excess deferred federal income taxes due to the reduction in the federal income tax rate from 46 percent down to 34 percent as of July 1, 1987, and (ii) the $11,087,397 amount reflects the reduction in the Income Tax Base for purposes of computing the federal income tax allowance component of the cost of service.361

El Paso responds that it plans to reduce the excess in the accumulated deferred income tax accounts by $3,769,715 annually, that El Paso will reflect $11,087,397 in the tax adjustments to reduce the federal income tax allowance component of the cost of service, and that these two amounts are the result of settlement negotiations of the flow back of excess deferred federal income taxes due to the change in the tax rate from 46 percent to 34 362

percent.

The Commission approves article XII as proposed. We find that El Paso has provided an adequate clarification in response to staff's request.

N. Article XIV: Resolution of Other Proceedings

1. Settlement

Article XIV resolves numerous other proceedings by stipulating to the withdrawal with prejudice of all objections, complaints, protests, or requests for technical conferences in the subject proceedings.

2. Comments and Commission Discussion

a. Paragraph 14.1: Termination of Complaint

Paragraph 14.1 terminates the complaint proceeding in People of the State of California v. El Paso Natural Gas Co. (Docket No. C188-605-000) without granting any relief. Willcox objects to this provision, pointing out that the record in the complaint proceeding currently lacks a hearing, cross-examination, and an Initial Decision. Willcox concludes from these factors that the Commission can only resolve the proceeding in El Paso's favor if the Commission rules that the complaints fail to state a claim. In this last respect, Willcox maintains that the administrative law judge has denied El Paso's motion to dismiss and

360 Article XII of the amended settlement offer replaced article XII of the original settlement offer.

361 Initial Comments of Commission staff at 32-33.

362 Reply Comments of El Paso at 69-70.

therein rejected El Paso's argument that the complaints failed to state a claim upon which relief may be granted; that the judge's decision was not appealed; and that the Commission therefore lacks authority to reverse the judge's determination. 363

The Commission notes that Willcox is not a litigant in the subject proceeding. Since the complaint is being terminated because the actual litigants in the proceeding have agreed to such action, the Commission cannot understand why Willcox is raising the instant complaint, particularly given that El Paso must provide refunds. Accordingly, we approve paragraph 14.2 as proposed because it provides for a fair and reasonable resolution of the claims and is in the public interest.

b. Paragraph 14.2: Applications to Dispose of Facilities

Paragraph 14.2 provides, among other things, that all protests to El Paso's application in Docket No. CP90-1600-000 to dispose of the San Juan River facilities are deemed to be withdrawn.3 364 The Navajo Tribal Utility Authority (NTUA, one of the members of the El Paso Municipal Customer Group) had filed a protest in that docket on the ground that the requested abandonment authority would result in the abandonment of two NTUA delivery points and consequently the loss of natural gas service to NTUA. The Municipal Customer Group explains that NTUA is still negotiating with El Paso, but is unwilling to withdraw its protest until the matter is resolved to its satisfaction 3 365

Willcox opposes the portion in paragraph 14.2 which provides that the parties withdraw all objections to eight abandonment applications regarding gathering facilities. Specifically, Willcox objects to the abandonment of

363 Initial Comments of Willcox at 102-104.

364 The other proceedings subject to this provision are: CP88-244-000, CP89-483-000, CP89-1722-000, CP90-1034-000, CP90-1084-000, CP90-1269-000, and CP90-1281-000.

365 Initial Comments of El Paso Municipal Customer Group at 2 n.3.

366 Initial Comments of Willcox at 101-102.

367 No party sought rehearing of the Commission's order granting El Paso authorization to construct and operate approximately 26.1 miles of pipeline loop, compression facilities and associated appurtenances on its existing San Juan Triangle transmission system, 53 FERC ¶ 61,020 (1990).

358 The certificate in Docket No. CP89-1540-000 authorizes construction and operation of 12.96 miles of pipeline loop and compression facilities on El Paso's mainline at the California border.

369 Initial Comments of Willcox at 104.

these facilities so long as El Paso is permitted to include them in the mainline transmission rates. According to Willcox, either the facilities are required for balancing purposes, in which case the public convenience and necessity do not warrant their abandonment, or the facilities are not important to that function but are only necessary for gathering, in which case the cost of the gathering systems should be removed from the mainline rates.366

Willcox and NTUA continue to object; therefore, these protests will not be deemed withdrawn. It appears that NTUA is still negotiating with El Paso and may, in the end, agree to withdraw its protest. The Commission will address Willcox's objections to the abandonment of the gathering facilities when those cases are addressed in a subsequent order.

c. Paragraph 14.3: System Expansion Paragraph 14.3 specifies that El Paso should be authorized to expand its system by constructing facilities described in Docket Nos. CP89-896-000 (concerning the San Juan Triangle Expansion)367 and CP89-1540-000 (concerning the Wenden Expansion)368 and that each party who has filed a protest in these dockets shall withdraw its protest.

Willcox objects to the portion of paragraph 14.3 which states that the Wenden Expansion in Docket No. CP89-1540-000 should be approved and that all opposition to it is withdrawn. Willcox points out that the Commission approved this expansion project by order issued September 18, 1990. Willcox is unwilling to terminate its rights with respect to that proceeding. 369

The Commission has already authorized the construction of the subject facilities in both the

Initially, Arizona Direct Customers also opposed this provision of the settlement. In their Initial Comments, Arizona Direct Customers asserted that, on October 4, 1990, the Commission issued the certificate requested in Docket No. CP89-896-000, but failed to resolve the issues raised in their protest to that certificate application. In an effort to avoid seeking a rehearing of the October 4 order, Arizona Direct Customers requested assurance from El Paso that any allocation of the new capacity associated with the San Juan Triangle expansion in Docket No. CP89-896-000 will be subject to the pro rata capacity allocation procedures set forth in section 4.2 of Attachment I-2. Arizona Direct Customers indicated that, if they received such assurance, they would withdraw their protest and would not file a request for rehearing. Initial Comments of Arizona Direct Customers at 8-9. In its Reply Comments, El Paso provided the requested assurance. Reply Comments of El Paso at 38 n.33.

San Juan Triangle Expansion proceeding370 and the Wenden Expansion proceeding.371 Therefore, approval of this settlement does not result in the authorization of the subject certificate authority. The only significance that the Commission attributes to paragraph 14.3 is that the parties (with the apparent exception of Willcox) have agreed to withdraw any objec tions to the certificates issued in those dockets. The Commission will continue to process those dockets separately from this settlement.

O. Articles XV and XVII: Other Matters Addressed in the Articles of the Amended Settlement Offer

1. Settlement

Article XV addresses the conditions for effectiveness of the instant Stipulation and Agree

ment.

Article XVII provides for the termination of specified proceedings upon effectiveness of the Stipulation and Agreement.

2. Comments and Commission Discussion

Paragraph 15.3 of the settlement provides that the settlement rates shall remain in effect until the date on which such rates "as adjusted for purchased gas cost adjustments and other surcharges" permitted by the Commission are superseded. Staff argues that this provision is inconsistent with the settlement provision to terminate the PGA upon the effective date of the settlement. Staff requests that the reference in paragraph 15.3 be modified to remove the reference to adjustments for purchased gas costs.3

372

The Commission finds that the requested modification is reasonable. Accordingly, El Paso shall revise the language quoted above in paragraph 15.3 to read "as adjusted for surcharges."

Willcox objects to paragraph 17.3 on the ground that it terminates the proceeding in Docket No. TA88-1-33-000 et al., without granting any relief to the intervenors. Willcox argues that approval of this portion of the settlement would violate Commission Rule 602(h), which provides that the Commission cannot approve a contested settlement either unless there are no material issues of fact in dispute or unless there is substantial evidence in the record on those issues and the parties have waived an Initial Decision. Willcox asserts that the proceeding contains three

370 See Docket No. CP89-896-000, 53 FERC 61,020 (1990).

371 See Docket No. CP89-1540-000, 52 FERC 61,271 (1990).

372 Initial Comments of Commission staff at 80-81.

material factual issues in dispute and that Willcox has not waived an Initial Decision.3 373

The Commission approves paragraph 17.3. The factual issues that Willcox disputes have been set for hearing. 374 Nevertheless, with the exception of Willcox, no other party continues to challenge this provision and each has agreed to such provision as part of the overall settlement. Since Willcox continues to take issue with these factual issues and has not agreed to settlement, the Commission shall sever Willcox from this aspect of the settlement and permit Willcox to pursue its claims on its own in the hearing previously established by the Commission 375

The Commission orders:

(A) El Paso's proposed settlement is approved as modified.

(B) The motions to sever El Paso's GIC proposal are denied.

(C) El Paso must file tariff provisions and clarifications, as required in this order, within thirty days of the issuance date of this order.

(D) The late-filed interventions of Saguaro, CIG, and Williams are denied.

(E) The Commission amends El Paso's existing sales certificates of public convenience and necessity in order to authorize El Paso to implement the changes in sales delivery points for all converting customers, as more fully described in Part IV.D.2.j of this order.

(F) The certificate amendment issued in Ordering Paragraph (E) of this order is conditioned upon El Paso's payment, within ten days of the date of issuance of this order, of the filing fee required under the Commission's regulations.

(G) Within ten days of the issuance date of this order, El Paso shall inform the Commission in writing whether it accepts the certificate amendment issued in Ordering Paragraph (E) of this order.

(H) The following dockets are terminated: RP88-44-000 (Phases I and II), RP89-57-000, CP88-203-000, C187-290-000, CP87-533-000, TA85-1-33-000, C188-605-000, CP88-434-000, RP88-185-000,

CP87-44-000.

CP88-270-000,

and

(I) Willcox is severed from this settlement as it regards fixed charge Order No. 500 take-orpay recovery, as discussed in the body of this order. The stay of Order No. 528 is deferred for

373 Initial Comments of Willcox at 105.

374 See 42 FERC 61,262 (1988).

375 Id. at p. 61,839.