the Commission's motion for remand in Southwestern Electric Power Company v. FERC12 and Central Illinois Public Service Company v. FERC 13 Under the new fee schedule, filings will be assigned to one of five fee classes based on the type of filing, ranging from the simplest rate schedule filings to the most complex. The fee is based on the actual cost to the Commission of processing an average filing within each class. The new fee schedule also implements categorical reductions proposed in order to ameliorate potential unfairness or hardship. The Commission will apply the new fee schedule to West Texas' filing. 14

Under the new fee schedule, Class II rate filings are those filings under sections 205 and 206 of the Federal Power Act that have an effect on the rate the utility charges but do not involve rate decreases or rate increases. After reexamining West Texas' July 3, 1990 filing, the Commission finds that the filing is a Class II filing under the new fee schedule since West Texas' July 3, 1990 filing extends an existing service and rate to a customer not previously taking such service15 and, thus, has an effect

on rates which is neither a rate increase nor rate decrease.16 Accordingly, the appropriate filing fee is a Class II filing fee, or $2,970.

West Texas argues that even if its filing is properly deemed to affect its rates, the assessed fee is illegal because it is not justified by the Commission's costs as required by the Independent Offices Appropriations Act (IOAA). West Texas' argument may have had some merit as it relates to the old fee schedule. However, we are applying the new filing fee rule, which explicitly takes into consideration the IOAA in determining the fair and appropriate fee and thus explicitly responds to West Texas' concerns. 17

We conclude, for the foregoing reasons, that West Texas' request for rehearing should be denied and a payment be ordered.

The Commission orders:

(A) West Texas' request for rehearing is hereby denied.

(B) West Texas is hereby directed to make a payment of $2,970.

12 Nos. 88-1507 et al. (D.C. Cir. remanded August 11, 1989).

13 Nos. 88-1545 (D.C. Cir. remanded August 11, 1989).

14 Cf. Revision of Filing Fees for Natural Gas Rate and Tariff Filings, Order No. 506, 53 Fed. Reg. 44,182, FERC Statutes and Regulations ¶ 30,836, at p. 31,258 (1988).

15 West Texas' filing extends service under the tariff to Brazos, which would typically make the filing a Class II filing requiring a $2,970 fee. However, West Texas' filing also reduces the tariff rate for all tariff customers, which would typically make the filing a Class I rate filing requiring no fee.

Section 381.103(c) of the Commission's regulations states that "[i]f a filing for one service or benefit may be considered as falling within two or more categories or services for which a fee is established, that filing must be accompanied by the higher or highest of the applicable fees." 18 C.F.R. § 381.103(c)

of Carnegie's Tariff) to track Texas Eastern Transmission Corporation's (Texas Eastern) gas inventory charges.2 Section 26, proposed by Carnegie in a January 19, 1990 tariff filing, would establish a mechanism for tracking

(1990). Therefore, West Texas' submittal must be accompanied by the higher Class II filing fee.

16 See FERC Statutes and Regulations at p. 31,826.

17 55 Fed. Reg. at 41,997; accord Request for Rehearing at 4.

152 FERC 61,012 (1990), granting rehearing in part of prior order at 50 FERC 61,189 (1990). Carnegie has challenged both these orders in the U.S. Court of Appeals for the District of Columbia Circuit. See Carnegie Natural Gas Company v. FERC, D.C. Cir. Case Nos. 90-1434.

2 The operation of section 26 is fully described in the suspension order in Docket No. RP90-72-000, issued February 16, 1990. 50 FERC ¶ 61,189 (1990). The Commission previously had rejected an earlier Carnegie proposal, embodied in section 26 of its General Terms and Conditions, to passthrough Texas Eastern's gas inventory charges, filed September 29, 1989, in its suspension order issued October 31, 1989.

through to Carnegie's customers the gas supply inventory reservation charges (GSI Reservation Charges or GSIRC) billed to Carnegie by Texas Eastern.3

The July 10 order rejected Carnegie's proposal because it provided for the automatic tracking of Texas Eastern's GSIRC on a purchase deficiency basis which failed to match cost incurrence with cost responsibility. For the reasons discussed below, the Commission denies Carnegie's requests for rehearing and stay.

Background

On September 29, 1989, in Docket No. RP89-253-000, Carnegie filed a revised Volume No. 1 of its tariff which included a proposal to establish a new section 26 to its tariff to flowthrough Texas Eastern's GSI Reservation Charges. In a suspension order issued October 31, 1989, the Commission accepted and suspended Carnegie's filing, but required Carnegie to eliminate section 26 from its tariff within 15 days. In an order issued January 26, 1990,5 the Commission denied Carnegie's request for reconsideration and stay of the October 31 order and encouraged Carnegie to file a more detailed proposal in conformity with the October 31 order.

On January 19, 1990, Carnegie filed a revised section 26 which proposed to track Texas Eastern's GSIRC. In a February 16 order, the Commission accepted and suspended the January 19 filing subject to the outcome of a technical conference. The July 10, 1990 order on the technical conference found that Carnegie's proposed GIC flowthrough mechanism does not necessarily match cost incurrence with cost responsibility, because there could be causes for Carnegie's incurring GSI Reservation Charges other than the purchase deficiencies of its customers. The July 10 order therefore required the removal of section 26 from Carnegie's tariff.

The Commission explained the following possible circumstances under which Carnegie's proposal for a deficiency based gas inventory charge tracker would not necessarily match cost responsibility with cost incurrence: (1) Carnegie's level of contract demand on Texas (Footnote Continued)

49 FERC 161,122 (1989), reconsideration and stay denied, 50 FERC ¶ 61,089 (1990).

3 Texas Eastern was authorized to assess a gas inventory charge by order issued April 21, 1989, 44 FERC 61,413 (1988), aff'd on reh'g, 47 FERC 61,100 (1989), orders remanded, Tejas Power Corporation et al. v. FERC, Docket Nos. 89-1267, et al. (D.C. Cir. July 24, 1990), order on remand, 53 FERC 61,105 (1990). The parties are now exploring at hearing the issue of the duration of Texas Eastern's GSIRC.

61,333

Eastern could cause the incurrence of the GSI Reservation Charges; (2) Carnegie's monthly nominations on Texas Eastern could influence the GSI Reservation Charges Carnegie incurs; (3) a customer of Carnegie could incur GSI Reservation Charges because it has no individual claim to any of Carnegie's credits under Texas Eastern's GIC mechanism that its purchases may have created; and (4) Carnegie's decision about the total amount of firm sales and firm transportation it would receive from Texas Eastern could affect its GSIRC responsibility. Additionally, the Commission recognized that all of Carnegie's customers benefitted from its purchases of spot market gas and that Carnegie proposed to include GSIRC costs incurred as a result of spot purchases in its PGA.

The July 10 order concluded that the basic problem with Carnegie's proposal was that it required the automatic passthrough of Texas Eastern's GSI Reservation Charge under a deficiency-based tracker that does not address the other factors, noted above, that could result in Carnegie incurring gas inventory costs. Therefore, the July 10 order concluded that Carnegie's proposal was unjust and unreasonable and not in the public interest.

Carnegie's Request for Rehearing

On rehearing, Carnegie challenges the Commission's explanation of how Carnegie could incur inventory charges from Texas Eastern for reasons other than the failure of Carnegie's customers to take at their reference level volumes. Concerning the Commission's first reason, that Carnegie may have contracted with Texas Eastern for more volumes than its customers needed, Carnegie contends that there is nothing in the record to support the Commission's assumption that Carnegie may have contracted to purchase too much gas from Texas Eastern.

Concerning the second reason, that Carnegie may have selected a monthly nomination pattern (Monthly Inventory Determinant (MID)) on Texas Eastern that affects the level of GIC charges Carnegie incurs, Carnegie states that its nomination pattern provides maximum pro

449 FERC 61,122 (1989).

550 FERC 61,089 (1990).

650 FERC 61,189 (1990).

7 The technical conference was held on March 15, 1990.

8 These other factors are fully explained in the July 10 order. 52 FERC at pp. 61,092-93.

tection to its customers against incurring Texas Eastern's GSI Reservation Charges. Carnegie nominated at a 50-percent level for the first nine months of the 1989-90 contract year, at 70 percent for August, and at 100 percent for September and October of the contract year in order to build GSI credits to use in the summer months.

The Commission's third reason is that a customer of Carnegie could incur GIC costs because it has no individual claim to any of the credits under Texas Eastern's GIC mechanism that its purchases may have created. Credits created on Texas Eastern's system by the excess purchases of one customer early in the year may be used up by a second customer before the first customer has an opportunity to use them to offset its purchase deficiencies later in the year. Carnegie contends that the Commission incorrectly determined that because Carnegie's customers have no claim to Texas Eastern's credits, the assignment of cost responsibility to Carnegie's individual customers cannot work. Carnegie states that its proposal matches cost incurrence with cost responsibility to the maximum extent possible, because Carnegie maintains a record of customer purchases and any customer that purchases in excess of its reference level builds credits on Carnegie's system, although not on Texas Eastern's system.

Concerning the Commission's fourth reason, that Carnegie could have reduced its gas inventory charge responsibility if it had converted from firm sales to firm transportation on Texas Eastern, Carnegie contends that there are serious problems underlying Texas Eastern's conversion process. Carnegie refers to the complaint in Equitrans, Inc. v. Texas Eastern Transmission Corp., in which Equitrans and Carnegie contend that Texas Eastern's conversion procedures are unworkable. Carnegie states it could not convert from firm sales to firm transportation service because of a lack of secure, firm third party supplies.

Discussion

Carnegie, on rehearing, essentially faults the Commission for failing to make specific factual

9 49 FERC 61,397 (1989). On October 26, 1990, the Commission issued an order in Docket No. CP90-2154-000 et al., consolidating the Equitrans complaint with the remand proceeding concerning Texas Eastern's GIC. 53 FERC ¶ 61,105 (1990).

10 See CNG Transmission Corporation, 44 FERC 161,203 (1988), in which the Commission permitted CNG to recover its upstream supplier GIC costs in its PGA through a commodity surcharge. Also see, Equitrans, Inc., 52 FERC ¶ 61,228 (1990), where the Commission permitted Equitrans to recover its upstream supplier GIC costs in its PGA as a demand surcharge.

findings concerning ACQ and monthly nomination levels, the operation of the crediting mechanism, and conversion from sales to transportation service, to support the Commission's conclusion that the deficiency-based tracker proposal is flawed. The Commission disagrees with Carnegie's contentions.

There are two methods permitted under the Commission's regulations in which a pipeline can recover an upstream supplier's gas inventory charges: (1) through the pipeline's PGA as purchased gas costs, 10 and (2) through the pipeline's own GIC. Carnegie currently is recovering Texas Eastern's GIC charges through its PGA.12 Carnegie seeks to recover these costs under a third method, a tracking mechanism that purports to match the upstream pipeline-supplier's gas inventory charge allocation mechanism.

Under section 154.303(a) of the Commission's regulations, 13 a pipeline may elect to recover changes in its purchased gas costs either by filing a request for a change in its rate level under section 154.63 of the regulations or by electing a PGA clause. Since the Commission has found that these GIC costs are to be included as purchased gas cost,14 and since Carnegie does not have a GIC of its own, Carnegie must first obtain a waiver of the Commission's regulations before it can recover Texas Eastern's GSIRC costs through a GIC tracking mechanism. Carnegie has failed to show that there is good cause for the Commission to grant such a waiver. On the contrary, we have determined that there is good cause to deny any such waiver, since Carnegie's proposal is flawed and recovery under Carnegie's PGA is less harmful to the individual customer.

Carnegie's proposal is unjust and unreasonable because it forces customers to make purchasing decisions without knowing the true cost of the gas they are purchasing. The customer does not know the true cost of the gas at the time of purchase because the total cost may be changed retroactively by adjustments resulting from Carnegie's annual reconciliation. Carnegie's customers can only make purchasing decisions relating to their sources of supply if they know the total costs they are compar

11 An example of where the Commission approved such a GIC is Columbia Gas Transmission Corp.'s settlement approved by the Commission on October 19, 1989. See 49 FERC at pp. 61,290-91 (1989).

12 See 52 FERC ¶ 61,254 (1990).
13 18 C.F.R. § 154.303(a) (1990).

14 The Commission has defined purchased gas costs to include GIC charges if the purchaser does not have a GIC tracking mechanism on its system. CNG Transmission Corporation, 44 FERC ¶ 61,203, at p. 61,728 (1988).

ing. The customer's purchasing decisions may be distorted by the fact that it may accrue potential liability to Carnegie for Texas Eastern's GSIRC, based on its monthly purchase levels, for which it ultimately is never charged due to the annual purchase levels of all of Carnegie's customers which may offset the individual customer's shortfall in purchases. Alternately, a customer's purchasing decisions may be distorted by its making monthly GSI flowthrough payments to Carnegie, based on its monthly purchase levels, which will ultimately be refunded based on Carnegie's annual reconciliation for that customer. Thus, again the customer doesn't have an actual cost from Carnegie to compare to alternate supply sources. Further, even if the customer departs Carnegie's system after the annual reconciliation, the customer cannot escape responsibility for costs incurred during the prior year when it

was a customer.

The Commission also finds Carnegie's proposal to be unjust and unreasonable as a passthrough mechanism because, as the July 10 order stated, Carnegie's tracking mechanism fails to account for the possibility that Carnegie could incur a GSIRC for reasons other than the purchasing practices of Carnegie's customers. For instance, Carnegie, not its customers, has control over the decisions on Carnegie's contract demand, nominations and conversions with Texas Eastern. Even though GSIRC costs could be incurred for reasons related to these decisions and unrelated to customer purchase decisions, the entire amount of the costs would be automatically flowed through to Carnegie's customers. In light of our statutory responsibilities to "protect consumers against exploitation at the hands of natural gas companies,"15 we cannot approve a passthrough mechanism with such potential to force customers to pay imprudent costs.

Carnegie's proposal provides that, to the extent prudently purchased spot gas supplies result in a GSIRC, Carnegie would collect those charges through its PGA. Carnegie's proposed GIC tracker mechanism also provides for automatic passthrough of the GSIRC from Texas Eastern, but it fails to provide for an opportunity to review the prudence of Carnegie's nonspot gas purchases which result in Carnegie incurring a GSIRC. This means that Carnegie's customers could be charged GSI Flowthrough Charges with respect to Carnegie's non-spot gas purchases even if the charges were incurred due to Carnegie's imprudent purchasing practices. The fact that Carnegie's proposal would automatically recover such GSIRC costs renders it flawed because Carnegie's customers

15 See FPC v. Hope Natural Gas Co., 320 U.S. 591, at P. 610 (1944).

could only challenge Carnegie's purchasing practices involving non-spot gas in an NGA section 5 proceeding where relief could only be granted on a prospective basis, and no refunds could be ordered by the Commission.

The Commission recognizes that many of Carnegie's arguments on rehearing regarding the rejection of its proposed recovery mechanism have some merit. On balance, however, the Commission has decided to reject Carnegie's proposal, since, as discussed above, it does not provide any rate certainty for Carnegie's customers and it has the potential to force customers to pay imprudent costs.

By contrast, use of the PGA is a better mechanism. A pipeline's recovery of any purchased gas costs included in its PGA filing is subject to a prudence review and provides the customer with price certainty at the time of purchase. Under the PGA, a customer would not ultimately bear GSIRC costs that the Commission finds to be caused by Carnegie's imprudent purchasing practices. Additionally, the customer knows, at the time it is deciding what and how much gas to purchase, the total cost of the gas. To the extent the GSIRC owed by Carnegie is revised by Texas Eastern's reconciliation procedures, the change is reflected in the PGA charges prospectively only, and no retroactive adjustments occur. This allows the customer to make sound purchasing decisions because it has all the facts for its pricing comparison of different supplies. Under the PGA, the customer can avoid increases in the commodity rate, due to prospective adjustments for GSIRC costs, by not purchasing gas from the pipeline.

Although we find that Carnegie's proposed mechanism to recover Texas Eastern's GSIRC is flawed, Carnegie still has other options besides continuing to recover the GSIRC in the commodity component of its PGA. For example, Carnegie can use a recovery mechanism like the one approved by the Commission for Equitrans in its last annual PGA filing.16 In that filing, Equitrans tracked the GIC charges it paid to Texas Eastern in the demand component of its PGA.

Carnegie claims that the Commission improperly relied on a secret internal Commission staff document reporting on the technical conference as the basis for the Commission's conclusion that the GIC provision does not match cost incurrence with cost responsibility. To the contrary, the Commission relied on a review of the whole record in this case and ultimately the Commission's decision must be, and is, supported by the public record that is

16 Equitrans, Inc., 52 FERC 61,228, at pp. 61,817-61,818 (1990).

available to all parties. Staff reports concerning technical conferences are not ex parte pleadings, but merely reports prepared by the advisory staff for the purpose of providing advice to the Commission. The Commission properly may use these reports in making determinations; they are no different from any other document prepared in cases by the advisory staff to assist the Commission in learning the facts of the case, the position of the parties and recommending a course of action. 17 As such these staff reports are ordinarily exempt from public disclosure under the Freedom of Information Act, 18

Finally, Carnegie maintains that the Commission has improperly rejected Carnegie's tariff sheets without an opportunity for a hearing after accepting them for filing. Carnegie argues that relevant and genuine issues of material fact are in dispute concerning, among other things, whether Carnegie's flowthrough mechanism matches cost responsibility with cost causation, and whether Carnegie has the ability to purchase alternate supplies, and convert from firm sales service to firm transportation service on Texas Eastern. The Commission disagrees.

The Commission's review of Carnegie's proposal focused on how the mechanism operates. The Commission finds the mechanism is flawed because it does not provide for an opportunity to review the prudence of Carnegie's purchasing practices or provide rate certainty for Carnegie's customers. Carnegie does not dispute how the mechanism operates, but claims that the Commission has not shown that it has taken any specific imprudent actions. Carnegie's argument misses the point, since the issue is not whether any particular action or decision by Carnegie was imprudent, but whether the mechanism operates to allow Carnegie's customers to challenge any potentially imprudent practices by Carnegie whether in the past or the future.

Since we are reviewing a passthrough mechanism applying to all Texas Eastern GSIRC costs incurred by Carnegie so long as the GSIRC remains in effect, the mere fact that the mechanism would guarantee that customers would pay all GSIRC costs, including costs that could potentially result from Carnegie's

17 See Panhandle Eastern Pipe Line Company, 41 FERC 61,202, at pp. 61,524-25 (1987), where the Commission stated that a technical conference report was advisory to the Commission and was not barred by the Commission's separation of functions or ex parte rules.

imprudence, is sufficient basis for rejecting Carnegie's proposal. No specific GSIRC costs are being reviewed here, and we are not making any findings regarding the prudence of Carnegie's incurrence of any specific GSIRC costs. Thus, contrary to Carnegie, there are no issues of fact concerning Carnegie's prudence. Since there are no issues of fact, a formal hearing is unnecessary. Accordingly, Carnegie's request for a hearing is denied.

Although the July 10, 1990 order directed Carnegie to file revised tariff sheets eliminating section 26 from its tariff, Carnegie has not as yet done so. Accordingly, as we are denying rehearing, the Commission shall require Carnegie to file, within 15 days after issuance of this order, to eliminate section 26 from its tariff.

The Request for Stay

Carnegie asks the Commission to stay the July 10, 1990 order. Carnegie contends that requiring it to recover Texas Eastern's GSIRC through its PGA would increase Carnegie's gas costs to such a level that resales to customers without GIC deficiencies would be lost and Carnegie would be irreparably harmed. On July 30, 1990, UGI Corporation (UGI) and New Jersey Natural Gas Company (New Jersey) filed answers opposing Carnegie's request for stay. They stated that Carnegie will not suffer irreparable harm since it has an alternative means of gas inventory charge recovery through the PGA but that a stay would harm Carnegie's customers (and their ratepayers) because they would have to purchase otherwise uneconomic gas from Carnegie or incur a gas inventory charge. Since the Commission has found Carnegie's proposal to be unjust and unreasonable and denies rehearing, the Commission will not grant the stay.

The Commission orders:

(A) Carnegie's request for rehearing of the July 10, 1990 order is denied.

(B) Carnegie's request for stay is denied.

(C) Within 15 days after issuance of this order, Carnegie must file revised tariff sheets eliminating section 26 from its tariff.

18 Freedom of Information Act, 5 U.S.C. § 552(b)(1)(5) (Supp. 1990).