284 between April 1, 1991 and May 31, 1991, if such a conversion is desired. Any shipper that converts to Part 284 service will retain the same priority of service for scheduling and curtailment purposes that it currently holds under section 311.

Texas Eastern requests that the Commission waive its prior notice requirements3 and the filing fee for initial reports of new Part 284 transportation. In this regard, Texas Eastern states that any agreements that are converted are existing agreements for which initial reports have previously been filed pursuant to the Commission's regulations. In addition, Texas Eastern states that it proposes to make a blanket certificate filing prior to July 1, 1991, to satisfy the Commission's initial report requirements.

Public Notice

Public notice of the instant filing was issued on March 6, 1991, providing for protests, motions, or notices to intervene to be filed on or before March 13, 1991. 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 opposition is filed within 15 days of the date such motion is filed. Any timely motions or notices not listed in the Appendix are also granted in accordance with the conditions of Rule 214.

On March 13, 1991, the Associated Gas Distributors (AGD) filed a protest to Texas Eastern's filing. AGD states that it takes no position with respect to Texas Eastern's proposal to convert transportation authority where its Rate Schedule IT customers so choose, or to maintain the same queue priority for the converting shippers. However, AGD does object to Texas Eastern's request for waiver of the Commission's prior notice and protest requirements for long-term service under NGA section 7 blanket certificate authority. AGD contends that these regulations are grounded in NGA section 7 statutory protections.5 AGD also states that the Commission has found that while these transactions (i.e. transactions

3 18 C.F.R. § 284.223 (1990).

4

+18 C.F.R. § § 284.223(b) and 157.205 (1990).

5 AGD protest at p. 4, citing, Associated Gas Distributors v. FERC, 899 F.2d 1250, 1256 (D.C. Cir. 1990) (holding that the key distinction between transportation authorized under NGA section 7 and NGPA section 311 is the requirement of prior FERC authorization); see id. at 1254 ("[t]he FERC can issue such certificate only after a hearing upon notice to all interested parties.").

6 Interim Revisions to Regulations Governing Transportation Under Section 311 of the Natural Gas

under blanket certificate rules) are infrequently protested, the protest procedure ensures the integrity of the regulatory function mandated by statute.

AGD contends that the mere fact that Texas Eastern proposes to convert ongoing section 311 transportation for which it has previously filed initial reports, provides no basis for waiving the notice and protest procedures, as these transactions have not been under the Commission's NGA jurisdiction and therefore have never been subject to public notice.

AGD states that the issue of whether the Commission acted beyond its authority in waiving the prior notice and protest procedure for section 311 conversions taking place under Order No. 5266 is presently before the United States Court of Appeals for the D.C. Circuit in City of Wilcox Arizona, et al. v. FERC, No. 90-1588. Accordingly, AGD states that if the Commission again decides to grant waiver concerning these requirements, this proceeding should be made subject to the outcome of this court proceeding.

On March 13, 1991, the Algonquin Customer Group (Algonquin Customers) filed a request for clarification of Texas Eastern's filing. The Algonquin Customers claim that although Texas Eastern asserts that the new tariff provision contained in section 3.1(c) maintains the existing priority of service for those customers converting to Part 284, subpart G service, the language of section 3.1(c) is not clear on this point. The Algonquin Customers request that the Commission require the section to be modified to clearly state that such priority will be maintained.

Discussion

In Order No. 526 the Commission issued an interim rule revising the regulations governing transportation by interstate pipelines under section 311 of the NGPA. Order No. 526 was issued in response to the D.C. Circuit's opinion in Associated Gas Distributors v. FERC (AGDHadson). In its opinion the court found that the Commission's then-effective interpretation of the "on behalf of" standard in NGPA section 311 was inconsistent with the NGPA and

Policy Act of 1978 and Blanket Certificates, Order No. 526, Docket No. RM90-13-000, 55 Fed. Reg. 33,002, FERC Statutes and Regulations ¶ 30,894 (1990), amended, Order No. 526-A, Docket No. RM90-13-000, 55 Fed. Reg. 40,828, FERC Statutes and Regulations ¶ 30,899 (1990), reh'g denied, Order No. 526-B, Docket No. RM90-13-000, 53 FERC ¶ 61,141 (1990).

7899 F.2d 1250 (D.C. Cir. 1990), reh'g denied, No. 88-1856 (D.C. Cir. June 4, 1990), mandate issued, June 18, 1990.

To avoid market disruption, the Commission included in the interim rule a new section 284.223(h)10 to its regulations which contains procedures for the nondiscriminatory conversion of existing section 311 transportation services to blanket certificate authorization. The Commission required that all nonqualifying (i.e. those failing the new "on behalf of" standard) section 311 services be converted by October 1, 1990, and that such service would be terminated if not converted by that date (this date was later extended to November 1, 1990, by Order No. 526-A).11

In Order No. 526-B, the Commission stated that:

[a] pipeline's failure to convert a qualifying section 311 transaction while the interim rule is in effect will not prejudice the pipeline and the shipper from seeking waivers at a later time to convert the service to blanket authority without the loss of queue priority and without being subject to the blanket regulation's prior notice and protest procedures. The Commission will consider such waiver requests on a case-by-case basis.

53 FERC

61,141, at p. 61,477 (1990).

This appears to be the situation presented in the instant case. However, Texas Eastern has sought Commission approval to convert section 311 transportation by tendering tariff sheets containing language to govern any such conversion elections to be made between April 1 and May 31, 1991. This is not the type of filing that the Commission intended when it stated in Order No. 526-B that it would consider waiver requests. Texas Eastern has proposed tariff language that provides for a one time, limited term event. Such language is neither

8 The revised interpretation requires, in a new section 284.102(d) to the regulations, that the "on behalf of" entity for any section 311 transportation service by an interstate pipeline either (1) have physical custody of and transport the gas at some point, or (2) hold title to the gas at some point for a purpose related to its identity as a local distribution company or interstate pipeline.

9 On August 2, 1990 the Commission issued a Notice of Proposed Rulemaking seeking comments on ¶ 61,353

necessary nor appropriate in Texas Eastern's tariff, nor does it comport with the intent of Order No. 526-B's provision for the filing of waiver requests for consideration on a case-bycase basis.

Accordingly, the Commission will reject the proffered tariff sheets containing this proposal, without prejudice to Texas Eastern requesting the necessary waivers to implement these conversions as envisioned by the Commission. The Commission will consider such waiver requests on a case-by-case basis and will grant waivers as necessary for conversion upon a showing of good cause for the waiver. Because of the action taken here, the Commission will not address AGD's protest to the instant filing or the Algonquin Customers' requested clarification.

The Commission orders:

The tariff sheets listed in footnote no. 1 are rejected without prejudice to Texas Eastern filing requests for waiver to convert qualifying section 311 transactions, as discussed in the body of this order.

Appendix Intervenors

Associated Gas Distributors *
The Algonquin Customer Group
Long Island Lighting Company

New York State Electric & Gas Corporation
National Fuel Gas Distribution Corporation
UGI Corporation

Texas Gas Transmission Corporation
Public Service Electric and Gas Company
Central Hudson Gas & Electric Corporation
Producer-Marketer Transportation Group
The Brooklyn Union Gas Company
The Columbia Distribution Group
Orange and Rockland Utilities, Inc.
CNG Transmission Corporation
Consolidated Edison Company of New York,
Inc.

Algonquin Transmission Company
National Fuel Gas Supply Corporation

* Also filed a protest

this matter. See Revisions to Regulations Governing Transportation Under Section 311 of the Natural Gas Policy Act of 1978 and Blanket Transportation Certificates, Docket No. RM90-7-000, 55 Fed. Reg. 33,017, FERC Statutes and Regulations 32,476 (1990).

10 To be codified at 18 C.F.R. § 284.223(h).

11 See 18 C.F.R. § 284.223(h)(1)(ii) (1990).

to Order No. 528, listing the filings of those pipelines not affected by the order, the Commission issued an order on December 14, 1990, deferring application of Order No. 528 to United's recovery of its settlement costs with producers, until 30 days after the Commission issued a final order on United's comprehensive settlement in Docket No. RP85-209-000 et al. Accordingly, United is continuing to bill fixed charges to Texas Gas based on the purchase deficiency allocation method. However, Texas Gas nevertheless must revise its allocation of these costs to its customers, since it may not continue the use of the purchase deficiency method in any event.

Texas Gas proposes to allocate these costs to its firm sales and converted firm transportation customers. It proposes a revised allocation methodology based on the D-1 and D-2 contract demand quantities which were in effect for each customer on the effective date of United's original filing (January 1, 1988). Revised allocations for each customer are determined based on an equal weighing of (1) the ratio of each customer's peak-day contract demand (D-1) to the total of all Texas Gas' firm sales and converted firm transportation customers' D-1s on the applicable date, and (2) the ratio of each customer's nominated Annual D-2 Quantities (D-2) to the total of all of Texas Gas' firm sales and converted firm transportation customers' D-2s on the applicable date. Texas Gas states it believes this method provides for as equitable a distribution of the costs as is practicable, and also places the parties in the position they would have been three years ago had this method been used.

In Docket No. RP91-102-000, Texas Gas has filed to recover take-or-pay costs flowed through to it by United from Sea Robin Pipeline Company (Sea Robin) under Docket No. RP89-147-000 et al. Sea Robin was exempt from the Order No. 528 stay, and by order issued December 14, 1990, the Commission determined that United's recovery of Sea Robin's costs under Docket No. RP89-147-000 was also exempt from the Order No. 528 stay. However, on rehearing, the Commission determined the Docket No. RP89-147-000 costs were subject to Order No. 528 and deferred application of Order No. 528 to United for 45 days to permit United to file a revised allocation of these costs pursuant to Order Nos. 528 and 528-A. Since United has not yet made that filing, the allocation methodology utilized by United to recover Sea Robin's costs at the

653 FERC 61,380 (1990).

7 The take-or-pay costs billed to Texas Gas pursuant to United's authorization in Docket No. RP89-147-000 et al., were subject to recovery under

time of Texas Gas' filing was the purchase deficiency methodology.

Texas Gas has proposed a revised allocation method using the D-1 and D-2 contract demand quantities which were in effect for each firm sales and converted firm transportation customer on the effective date of United's filing (May 1, 1989). Revised allocations for each customer are determined based on the same D-1 and D-2 weighing mechanism as detailed above for United's own settlement costs.

In each of the instant filings, Texas Gas states there are two adjustments to the general calculations outlined above. First, for Columbia Gas Transmission Corporation (Columbia), Texas Gas used the D-1 and D-2 contract demand quantities provided in a letter agreement dated September 23, 1988, between Texas Gas and Columbia. Second, an adjustment was made pursuant to Order No. 528-A for Texas Gas' small customers. Texas Gas states half of the costs that would otherwise have been allocated to Texas Gas' Rate Schedule SG customers under the revised allocation method have been reallocated to the other customers paying the fixed charge.

over

a

Texas Gas has proposed to take the principal amounts already collected and reconcile such amounts with amounts determined to be owed under the revised allocation methodology. After reconciling the two amounts and crediting the amounts already collected to date against those due under the revised methodology, the adjusted status of each customer is determined. In Docket No. RP91-100-000, Texas Gas proposes to collect the remaining amounts due, including interest, over a 24-month period beginning April 1, 1991. In Docket Nos. RP91-101-000 and RP91-102-000, Texas Gas proposes to collect such amount 12-month period beginning April 1, 1991. Texas Gas states that for any customers which are due a net refund as a result of the allocation and reconciliation process, Texas Gas proposes to make such refunds no later than thirty days following a final and nonappealable Commission order accepting this filing. These customers shall also be refunded carrying charges from the date the customer fully paid its revised take-or-pay amounts to the date the refund is made. Texas Gas further states it will reflect the aggregate of all such carrying charges refunded as an adjustment to the remaining amounts due from the customers not entitled to refunds over the remainder of

Texas Gas' authorization in Docket No. RP90-64-000 et al.

8 54 FERC 61,211 (1991).

the recovery period, or as otherwise mutually agreed to by Texas Gas and its customers. Texas Gas states such adjustment shall be made pursuant to a "true-up filing" in the month following the payment of the refunds, and shall be reflected in each customer's monthly direct bill amount for the remainder of the recovery period, or shall be billed as a lump sum if such recovery period has expired.

Texas Gas states in the event of partial or complete abandonment, or termination of a customer's service agreement, a customer will not be relieved of the obligation to pay the revised fixed monthly charges set forth in the filing.

Public Notice and Intervention

Public notice of the instant filings was issued on March 4, 1991, providing for protests, motions, or notices to intervene to be filed on or before March 11, 1991. Timely notices or motions to intervene were filed by the parties indicated in Appendix B 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 B are also granted in accordance with the conditions of Rule 214. Also, motions to intervene out-of-time were filed by the persons indicated in Appendix B. Pursuant to 18 C.F.R. § 385.214(d), the Commission finds that at this early stage of the proceeding the late interventions will not disrupt this proceeding or place additional burdens on existing parties. Accordingly, the late filed motions to intervene are granted.

As further indicated in Appendix B, a number of the intervenors included protests in their filings, outlining numerous objections to Texas Gas' proposed methodology. The major issues raised include the following: (1) the proposed allocation methodology is contrary to Order No. 528 and violates the filed rate doctrine, (2) the filing does not provide for continuing readjustment of fixed charges, (3) the proposed allocation method is inequitable because there is no relationship between the allocations and the incurrence of take-or-pay costs, (4) the proposed methodology does not spread costs as broadly as possible, (5) the proposed methodology does not minimize the burdens on small captive customers, and (6) parties should be afforded the opportunity to challenge the prudence of Texas Gas' take-or-pay costs.

Discussion

The Commission accepts and suspends Texas Gas' filings to be effective April 1, 1991, subject to the conditions discussed below. We note

that the revised allocation methods proposed by Texas Gas in the captioned filings for the flow through of costs billed to Texas Gas by its upstream suppliers are to a large degree similar to each other, and also that there is a similarity of issues raised and relationships between the proceedings. Therefore, the Commission finds that administrative efficiency warrants consolidation of these three dockets.

In Order No. 528, the Commission sought to encourage pipelines and their customers to reach settlements concerning revised methods for allocating settlement costs included in their fixed charges. The Commission further stated that in order to accommodate settlement discussions, it might, among other things, convene conferences, and some of the interveners and protestors in these dockets have requested or expressed a willingness to participate in a conference to discuss settlement.

Accordingly, consistent with Order No. 528, the Commission directs staff to convene a conference at which all issues raised by the protestors may be discussed. All parties should come prepared to discuss settlement, and the parties should be represented by principals who have the authority to commit to a settlement. Staff is directed to report the results of the conference within 120 days of the issuance of this order. Thereafter, the Commission will take such further action as is appropriate. In view of the conference to discuss settlement, the Commission will not address the individual issues raised by the parties at this time.

Suspension

Based upon a review of the filing, the Commission finds that the proposed tariff sheets have not been shown to be just and reasonable, and may be unjust, unreasonable, unduly discriminatory, or otherwise unlawful. Accordingly, the Commission shall accept the tariff sheets for filing, and suspend their effectiveness for the period set forth below, subject to the conditions set forth in this order.

The Commission's policy regarding rate suspensions is that rate filings generally should be suspended for the maximum period permitted by statute where preliminary study leads the Commission to believe that the filing may be unjust, unreasonable, or that it may be inconsistent with other statutory standards. See Great Lakes Gas Transmission Co., 12 FERC ¶ 61,293 (1980) (five-month suspension). It is recognized, however, that shorter suspensions may be warranted in circumstances where suspension for the maximum period may lead to harsh and inequitable results. See Valley Gas Transmission, Inc., 12 FERC 61,197 (1980) (one-day suspension). Such circumstances exist here where the pipeline is filing because of