Jerry J. LANGDON, Commissioner, dissenting in part.

I strongly support the El Paso settlement in RP88-44-000, et al., as a whole because it resolves so many dockets in a way that ends an extended period of uncertainty for all parties, generally satisfies all parties, and may be essential to El Paso's continued viability as a competitor in the California market.

However, I dissent to this order, which is contingent on the settlement, because it: (1) denies El Paso's request for a 30-day minimum term for capacity assignments; and (2) denies El Paso's proposed prohibition against "repackaging" firm capacity rights into interruptible capacity rights.

The order presumes to know what is in the mind of El Paso's executives, denies their request on that basis, and then announces to the parties that if this mind-reading exercise has somehow missed the target, then the Commission will "alter this decision on rehearing if El Paso or any other parties provide convincing arguments that maximum flexibility is inappropriate at this time on El Paso's system." [emphasis supplied]

"1

It makes more sense to me to grant El Paso's requests for a 30-day minimum term and for a prohibition against "repackaging" firm [capacity rights] as interruptible. This could be combined with a statement to the parties that they are free to seek alternative treatment on rehearing. Instead, we are forcing on the par

ties the Commission's opinion of the proper business structure of this capacity brokering program, based upon a "surmise" about the parties' intentions, without a stated underlying policy or reasoned decision.

I do not favor substituting the opinion of a governmental body for that of business people, especially where the company is hard-pressed by competition and the business judgment itself does not contravene public policy. For the Commission to recommend tinkering with the agreement based upon what it believes to be simply a better way to do things is, in my opinion, what government should not be doing to the private sector.

Further, I firmly believe that shifting all the control over El Paso's system to SoCal and PG&E, both of which are powerful monopoly/ monopsony combinations, absent a mandatory, intrastate open-access regime, is not in the public interest. By allowing at least some of the interruptible capacity on El Paso to remain under the control of the interstate pipeline, the Commission can better protect the public from potential abuses.

I am satisfied that the order, as revised, puts the parties on notice that the Commission will not hesitate to revisit the issuance of limited jurisdiction certificates to SoCal and PG&E, in the event any aspect of capacity brokering on El Paso results in undue discrimination.

1 In this instance, El Paso may have asked for a 30-day minimum term and a prohibition against assigning firm on an interruptible basis for any number of reasons, among them the ability to earn some profits from interruptible service. Perhaps this limitation on the capacity brokering program is the only

benefit of the bargain it could make with its two giant, monopsonist customers. For El Paso to regain this benefit on rehearing would require it to prove that "maximum flexibility" is not a good thing. Thus, the order creates a bias that El Paso is not likely to

overcome.

Introduction

On June 22, 1990, Transwestern Pipeline Company (Transwestern) filed a stipulation and agreement (settlement) intended to resolve all outstanding issues related to: (1) Transwestern's section 4 rate reduction filing in Docket No. RP89-48-000; (2) the refunctionalization of certain facilities from gathering to transmission; (3) Transwestern's application to abandon standby service to Southern California Gas Company (SoCal); (4) scheduling and balancing penalties and (5) a fuel cost recovery charge. The settlement also contains a capacity brokering or assignment program (Program) that would allow Transwestern's firm transportation customers to assign their firm transportation capacity. To implement the Program Transwestern has filed, as part of its settlement, an amendment to its open-access blanket certificate in Docket No. CP88-133-001.

The chief controversy1 in Transwestern's settlement centers on the capacity assignment proposal which is described in article II of Transwestern's settlement offer. In response to Transwestern's capacity brokering proposal, on June 22, 1990, Indicated Shippers2 filed an alternate settlement proposal (Alternate Program) which it urges the Commission to approve in lieu of article II.

Comments to the settlements were due on July 23, 1990, and reply comments were due on August 22, 1990. The administrative law judge (ALJ) presiding over the hearing in this proceeding found that the comments raised no genuine issues of material fact, but only questions of law and policy. Accordingly, on September 7, 1990, the ALJ certified to the Commission the two offers of settlement.

Background

Transwestern's system is located in the states of Arizona, New Mexico, Texas and Oklahoma. The great majority of gas on Transwestern's system moves from producing areas in Texas and Oklahoma westward through New Mexico and Arizona and into California. Nearly all of Transwestern's throughput is

1 Two parties, staff and the Transwestern Producers Group (Producers Group), propose minor modifications to the settlement outside of the capacity brokering proposal.

2 The Indicated Shippers are: Chevron U.S.A. Inc., Phillips Petroleum Company, Phillips 66 Natural Gas Company, Mobil Natural Gas Inc., Texaco Inc., Texaco Producing Inc. and Texaco Gas Marketing Inc.

used for transportation performed by Transwestern under its FTS-1 (firm transportation) and ITS-1 (interruptible transportation) Rate Schedules. Less than one percent of the throughput volumes are attributable to sales made to small captive customers under Rate Schedules RW-1, SG-1 and SG-2.

This proceeding began on December 30, 1988, when Transwestern filed tariff sheets in Docket No. RP89-48-000, reflecting a proposed rate decrease of approximately $9.9 million. On January 31, 1989, the Commission accepted Transwestern's filing, subject to refund and conditions, to become effective February 1, 1989.3 Among other things, the January 31 order required Transwestern to apply for section 7(c) certificate authorization for any facilities which had been refunctionalized as transmission facilities in the rate filing. The order also required Transwestern to apply for and receive abandonment authorization under section 7(b) before terminating its standby sales service to SoCal. Transwestern sought rehearing of the January 31 order. On April 3, 1989, the Commission denied Transwestern's rehearing request.

To comply with the January 31 order, on March 31, 1989, in Docket No. CP89-1126-000, Transwestern filed the section 7(c) certificate application to refunctionalize facilities. By order dated June 8, 1989, the Commission consolidated the section 7(c) proceeding with the hearing established in Docket No. RP89-48 et al.5

Also in compliance with the January 31 order, Transwestern filed on February 23, 1989, in Docket No. CP89-886-000 et al., a section 7(b) application to abandon standby sales service to SoCal. Transwestern received abandonment authorization in an order issued March 20, 1990.6

On August 30 and September 11, 1989, in Docket No. RP89-222-000 et al., Transwestern filed tariff sheets proposing scheduling and balancing penalties applicable to transportation of gas on its system. Also included were revisions to tariff provisions concerning unauthorized

3 Transwestern Pipeline Company, 46 FERC 61,100 (1989).

4 Transwestern Pipeline Company, 47 FERC 61,004 (1989).

5 Transwestern Pipeline Company, 47 FERC ¶ 61,343 (1989).

6 Transwestern Pipeline Company, 50 FERC ¶ 61,379 (1990).

gas flow penalties, waiver of penalty payments, and the reservation of remedies other than those listed in the tariff. The Commission accepted the filings, subject to refund and conditions, to become effective October 1, 1989.7 The Commission also consolidated the filings with the ongoing rate case in Docket No. RP89-48 et al.

On September 29, 1989, in Docket No. RP89-254-000, Transwestern proposed changes to the cost recovery provisions relating to transmission fuel, company use gas and lost and unaccounted for gas. The tariff sheets proposed that the transportation commodity rates include a higher revised transmission fuel component. By order issued October 28, 1989, the Commission accepted the filing subject to refund and conditions to become effective April 1, 1990.8 The Commission imposed the condition that Transwestern file to amend its tariff sheets to give its customers the option of paying the fuel charge either by providing gas "inkind" or as part of the transportation rates. Again, the proceeding was consolidated with the ongoing rate case in Docket No. RP89-48 et al.

Also related to the subject proceeding is Transwestern's Part 284 blanket certificate which was approved by the Commission in Docket No. CP88-133-000 on March 1, 1988.9 As part of the settlement, Transwestern includes its application, filed in Docket No. CP88-133-001, to amend its blanket certificate in order to implement a capacity assignment program.

Public Notice and Interventions in Docket No. CP88-133-001

Public notice of Transwestern's application for certificate authority filed in Docket No. CP88-133-001, was issued on July 5, 1990, providing for protests, motions or notices to intervene to be filed on or before July 26, 1990. Timely notices or motions to intervene were filed by the parties listed in Appendix A 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 opposition is filed within 15 days of the date such motion is filed. Any timely filed motions or notices not listed in Appendix A are also granted in accordance with the conditions of Rule 214.

7 Transwestern Pipeline Company, 48 FERC ¶ 61,389 (1989).

8 Transwestern Pipeline Company, 49 FERC 61,093 (1989).

9 Transwestern Pipeline Company, 42 FERC ¶ 62,187 (1988).

10 A copy of the certificate application is contained in Appendix C to the Settlement.

The Settlement

A description of Transwestern's settlement and its capacity assignment program is set out below. It is directly followed by a description of Indicated Shippers' Alternate Program.

Article I. Transwestern asserts that it is authorized to state that it, SoCal, CPUC and Yates support the settlement unconditionally. It adds that it is authorized to state that Indicated Shippers, New Mexico, Producer Group and the Producer-Marketer Transportation Group support the settlement unconditionally, except for article II.

Capacity Brokering Program

Article II. The brokering program10 is modeled closely on the program approved by the Commission in Texas Eastern Transmission Corporation.11 Transwestern proposes to allow its firm transportation shippers (FTS-1 shippers) to assign their firm transportation rights pursuant to Rate Schedule FTS-1 to thirdparty shippers subject to the following conditions:

(1) Each FTS-1 shipper would be authorized to broker its transportation rights in accordance with the certificate amendment and all applicable Commission regulations. Brokering and rebrokering is to be available on an open access, not unduly discriminatory basis, pursuant to 18 C.F.R. § 284.8 (1990). Each FTS-1 shipper agrees to be responsible to Transwestern for compliance with Transwestern's tariff and the FTS-1 service agree

ment.

(2) A broker may repackage firm transportation rights and broker them as firm or interruptible; the term of any brokering or rebrokering will not be less than one calendar month.

(3) Third parties must comply with the certificate conditions and the Commission's regulations. FTS-1 shippers and third-parties may impose reasonable, nondiscriminatory conditions upon the brokering of Transwestern's capacity as long as they are consistent with the FTS-1 service agreement and the tariff. Brokers may passthrough penalties charged to the person who caused the penalty to be incurred.

11 Texas Eastern Transmission Corporation, 48 FERC 61,248 (1989); granting clarification and denying stay, 48 FERC ¶ 61,378 (1989); granting and denying reh'g, clarifying and modifying prior order, 51 FERC 61,170 (1990); denying reh'g, clarifying and modifying prior orders, 52 FERC ¶ 61,273 (1990).

(4) Each shipper warrants that it has good title, and indemnifies Transwestern for any related loss or costs.

(5) The maximum price charged for brokered and rebrokered capacity is the "as-billed" rate, calculated using the projected FTS-1 load factor underlying Transwestern's current rates. A two-part rate may be charged that is different from Transwestern's twopart rate, provided that the total revenues do not exceed those under Transwestern's charges to the FTS-1 shipper, and provided that the reservation charge does not exceed the reservation charge paid to Transwestern by the FTS-1 shipper.

(6) Transwestern will continue to offer interruptible transportation, subject to the terms of its tariff. FTS-1 shippers must notify Transwestern of the availability of capacity within 48 hours of its availability, and Transwestern will post notice on its electronic bulletin board.

(7) The requested authorizations and submittal of the Capacity Brokering Notice shall constitute the sole authorization required by brokers not otherwise subject to the Commission's jurisdiction. The Commission will exercise limited jurisdiction over such brokers. Such participants shall not be subject to the Commission's Uniform System of Accounts and other reporting requirements applicable to natural gas companies.

(8) FTS-1 shippers and third parties using the capacity of FTS-1 shippers who are interstate pipelines must obtain a Part 284 blanket certificate and Commission approval of tariff provisions authorizing brokering.

(9) The assignment program will last fifteen years. Future changes to the program will be implemented prospectively. Pregranted abandonment of the brokering transactions would be authorized. No one may broker permanently any rights under the program. Article III. The overall cost of service underlying the settlement rates is $128.7 million. The total fixed costs are $87.4 million of which $86.6 million is to be recovered through the FTS-1 Rate Schedule Reservation Charge, and the remaining $800,000 to be recovered through the ITS-1 Rate Schedule. The total variable costs are $41.3 million dollars of which $31.7 million is to be recovered through the transmission commodity rates and $9.6 million to be recovered through the gathering rate. The parties have agreed on a return on equity of 13 percent.

Article IV. The settlement rates are based upon total annual throughput volumes of 280,426,734 MMBtu. This total is reached by imputing 265,039,638 MMBtu to Rate Sched

ule FTS-1, 14,782,925 MMBtu to Rate Schedule ITS-1 and 604,171 MMBtu to remaining sales customers under Rate Schedules SG-1, SG-2 and RW-1. Upon the effective date of the settlement Transwestern's system is to be divided into four zones and the settlement rates are based upon the average miles of haul within each zone. Transwestern's maximum ITS-1 rate for each zone is a one-part commodity rate calculated on a 125-percent load factor basis of the Rate Schedule FTS-1 rate for each zone. Transwestern is lowering its maximum gathering rate to 10.96 cents per Dth. The backhaul rate will be the same as the forward haul rate except that there will be no fuel charge for the backhaul service. During the settlement term Transwestern is to bill Rate Schedule FTS-1 shippers a one-part reservation charge.

Article V. This article provides for the future adjustment of pro forma settlement sheets in Appendix B to reflect the changes in various surcharges (ACA, GRI and TCR) and the cost of purchased gas.

Article VI. Transwestern may recover all fuel used for transmission, company used gas, and lost and unaccounted for gas on an "in kind" basis in certain stipulated percentages for each of the four zones.

Article VII. Transwestern proposes to revise its unauthorized gas provisions and scheduling and balancing provisions to provide for a penalty rate of 30 cents per Dth, a tolerance level of 5 percent and monthly tolerance volume maximum and minimums of 500,000 Dth and 30,000 Dth, respectively. The balancing provisions provide that only one type of balancing provision will apply to an imbalance. Dollar balancing will be indexed to a price and the Dth receivable and payable amounts will be adjusted each month according to the index. The Index Price used to adjust the volumes underlying the imbalances will be equal to the price reported in Gas Daily's table entitled "MONTHLY CONTRACT INDEX" for delivery into Transwestern's mainline system for the affected month.

Article VIII. This article states that shippers under Transwestern's Rate Schedule FTS-1 will be permitted to use all receipt points on Transwestern's system as Alternate Receipt Points. In the event the Commission approves the Amendment to the Service Agreement between Transwestern and SoCal in Appendix F, the settlement provides for a number of changes to gas quality specifications and also provides that Transwestern will modify its Rate Schedule FTS-1 to reflect a Reservation Charge reduction if Transwestern fails to deliver quantities that have been nominated and confirmed