Staff and Producers Group are concerned with Transwestern's reliance on a single measure in establishing the Index Price. Staff is also concerned that permitting imbalances to be resolved by dollar settlements at a price other than the Index Price may lead to discrimination. The Commission accepts Transwestern's explanation for the single index price as reasonable. It states that the Gas Daily index was chosen by the parties because it is the earliest monthly price posted at least ten days ahead of the next reliable index. It asserts that the earliest posting was viewed as vital so that shippers could plan to resolve imbalances during the month. The Commission is also satisfied that the tariff language providing that imbalance penalties may be "resolved, on a not unduly discriminatory basis, by payment on an 'in-kind' basis or by either the Seller or the Buyer purchasing volumes at the Index Price or such other price as parties may mutually agree❞45 is sufficiently specific. Therefore, this provision is accepted. Staff argues that Transwestern's proposal allows it to require a letter of credit for the value of an imbalance and also to impose a cash penalty in the case of under-tenders.46 Staff requests an explanation of why these provisions do not conflict with the Commission's policy of denying more than one penalty for imbalances. Transwestern responds that a letter of credit is required only with respect to under-tenders and that such a requirement is necessary since Transwestern will have delivered gas without receiving that amount of gas into its system. Transwestern argues that the letter of credit assures Transwestern that it will not suffer a loss if a shipper does not repay Transwestern for its gas. A transporting pipeline may require a potential shipper to demonstrate its creditworthiness before agreeing to provide service to the shipper.47 The Commission has stated that if a pipeline intends to require a letter of credit to establish creditworthiness a pipeline must first establish the criteria that would be used to determine whether a letter of credit is neces 44 Appendix D to the settlement, Pro Forma Sheet No. 91C to the General Terms and Conditions. 45 Id. 46 Appendix D to the settlement, Pro Forma Tariff Sheet No. 91D to the General Terms and Conditions. 47 See Northern Border Pipeline Company, 39 FERC 61,104, at pp. 61,349-49 (1987). sary. 48 Here, Transwestern seeks to use the letter of credit requirement to assure that the shipper will reimburse Transwestern for gas under-tenders. The letter of credit requirement is in addition to other penalties that may be assessed for over- and under-tenders. Therefore, we agree with staff that this requirement in addition to other imbalance penalties amounts to the impermissible assessment of more than one penalty for the same imbalance.49 Producers Group asks that Transwestern be precluded from charging an imbalance penalty until one year after the imbalance occurs. We agree with Transwestern that the purpose of this request is unclear and will reject it. The Commission believes that quick resolution of scheduling and imbalance matters is in the best interests of both the pipeline and its shippers. Applicability of Section 5. Staff would also require a provision that the settlement will expire on the effective date of any change in the base tariffs resulting from a proceeding instituted by the Commission under section 5 of the NGA subsequent to the effective date of the settlement. From its standpoint, Transwestern states that a significant part of the overall bargainedfor consideration for the settlement is that Transwestern will have the opportunity to collect the agreed-upon cost of service for the term of the settlement. The Commission does not believe the requested modification is necessary. While the Commission appreciates Transwestern's desire for rate stability, we are unable to guarantee that its negotiated rates will be inviolate for the settlement term. If at any time during the term of the settlement a section 5 investigation results in a determination that the settlement rates are unjust, unreasonable or unduly discriminatory, the Commission retains its statutory right to alter the settlement rates on a prospective basis. No amendment to the settlement is necessary to preserve this right. Therefore, staff's request is denied. periods.51 For the reasons discussed below, the Commission finds that the settlement rate design sufficiently comports with the Policy Statement to permit use of the settlement rates. Transwestern explains that its system is divided into three segments. The first two segments are laterals in Texas and Oklahoma into which virtually all production flows. The two laterals intersect with a single mainline facility near Roswell, N.M., which transports the gas from both laterals westward to a point near Needles, California. Transwestern states that it remains almost exclusively a forward haul system with most gas moving from east to west. Throughput on its system is relatively constant and shows little seasonal variation. Transwestern states that it performs no displacement service and that it has no storage facilities on its system. Transwestern operates almost exclusively as a transporting pipeline and less than one percent of its throughput is attributable to sales service. SoCal is Transwestern's only firm transportation customer. SoCal is contractually entitled to 100 percent of Transwestern's firm capacity at a delivery point near Needles, California. Presently there exists a firm transportation queue at Needles. Finally, the Commission has issued an order52 in Docket No. CP90-2294-000, making a preliminary determination that expansion of capacity on Transwestern's system would be in the public convenience and necessity. Final approval of the proposal is subject to, among other things, environmental review of the application. In its certificate application Transwestern requests permission to build a lateral connecting San Juan Basin gas to its system and to expand its mainline capacity into California. The mainline expansion would provide for 340,000 Mcf/d of additional capacity to Transwestern's West-of-Roswell zone. Of this amount, Transwestern has agreements with shippers to supply services totalling a contract demand of 285,400 Mcf/d. Discussion In the settlement Transwestern employs a new rate design methodology rather than a modified fixed variable (MFV) rate design methodology. Transwestern's methodology places one third of the return on equity and associated taxes in the demand component and the remaining two thirds of return on equity and associated taxes in the transportation commodity component. This creates a higher demand charge than the MFV methodology which classifies none of the return on equity and associated taxes to the demand component. 51 47 FERC 61,295, at p. 62,053. 52 Transwestern Pipeline Company, 54 FERC [61,031 (1991). This higher demand charge should act to ration firm capacity and is appropriate and in view our preliminary certificate determination expansion of Transwestern's capacity is justified. However, once additional capacity is installed, the appropriateness of this particular rate design will need to be reexamined. The key component of Transwestern's settlement its capacity brokering program comports with the Policy Statement's encouragement to provide for capacity adjustments in connection with higher rates to ration capacity.53 In the short term the brokering program should act to ration firm capacity. By permitting SoCal to assign its excess capacity on either a firm or interruptible basis, capacity to California should be opened up to shippers who wish to move gas on a firm basis from anywhere on Transwestern's system and who until now were unable to do so because of SoCal's right to all firm capacity at Needles. Later, expansion of Transwestern's mainline facilities should make firm transportation rights available to shippers in California other than SoCal. A comparison of Transwestern's throughput to southern California in the winter and summer seasons for 1987-1990 shows minimal sea54 sonal differences in use of the system. Therefore, seasonally differentiated rates are unwarranted as a technique to ration capacity and Transwestern does not have them. The settlement provides that the maximum ITS-1 rate for each zone on the system will be a one-part commodity rate calculated on a 125-percent load factor basis of the FTS-1 rate for each zone. The settlement increases the load factor for interruptible service from 100 percent to 125 percent and therefore, reduces the rate. Transwestern states it expects the capacity brokering program will increase use of service under the FTS-1 Rate Schedule and decrease throughput under the ITS-1 Rate Schedule. It maintains that the lower initial cost and its ability to discount interruptible transportation reflects the lower quality of this service and the fact that Transwestern may have to discount the ITS-1 rates to compete with brokered capacity. The reasons given by Transwestern do not justify a lower interruptible rate. Because capacity is presently scarce, there would not appear to be a need for a lower interruptible rate. However, in the past Transwestern has discounted its ITS-1 rate to levels comparable to the negotiated settlement rate. Moreover, the lower interruptible rate may be necessary to maximize throughput when the plans to expand capacity on Transwestern's system reach fruition. For these reasons we will accept this aspect of the settlement. 53 47 FERC 61,295, at pp. 62,055-56. 54 See exhibit No. 1 of Appendix A to settlement. Generally, the Policy Statement favors the unbundling or separation of charges for services. This is to assure that only those customers receiving a service pay for it. Gathering costs are separately stated in the settlement. Four zones are established with the rate for fuel in each zone being based upon the average miles of transportation within that zone thus creating mileage sensitive rates. Because backhauls account for less than 2 percent of its throughput, the settlement provides that Transwestern will charge up to the maximum forward haul rate for each zone (less fuel costs). Transwestern can discount that rate as appropriate to account for the fact that a particular backhaul transaction may create capacity on its system. In sum, the Commission finds the negotiated rates to be acceptable. The Commission orders: (A) The proposed settlement filed by Transwestern is approved as modified by the conditions set forth below and by the discussion above. (B) The alternate settlement filed by Indicated Shippers is rejected. (C) Transwestern is directed to file, within 15 days of the issuance of this order, revised tariff sheets consistent with the above discussion concerning the rates, terms and conditions applicable to Docket No. RP89-48-000 et al. (D) Transwestern's blanket certificate of public convenience and necessity issued in Docket No. CP88-133-000 is amended to authorize a transportation assignment program as provided in Transwestern's application and a described and modified in this order for a term of fifteen years. Pregranted abandonment of the individual assignment transactions is authorized in accordance with the terms of the blanket certificate. (E) Any firm pipeline shipper, and any other interstate pipeline that desires to assign capacity under Transwestern's transportation assignment program, must have accepted a blanket certificate under subpart G of Part 284 of the Commission's regulations in order to assign capacity under the program authorized here. The blanket certificates of all such participating pipelines are hereby amended to authorize, for a limited term of fifteen years, the buying and selling of firm transportation capacity on Transwestern's system under Rate Schedule FTS-1. The certificate holder must file appropriate tariff sheets if it desires to assign and reassign capacity under its amended blanket certificate. The tariff sheets must reflect all of the changes reflected herein and must include provisions for the establishment of an open season for the allocation of assignable capacity. The tariff filing must also include all the scheduling, balancing and penalty provisions, and any other terms and conditions which the pipeline seeks to impose upon the assignment of Transwestern's capacity, as described above. Pregranted abandonment of individual transactions is authorized. (F) A certificate of public convenience and necessity is issued to any firm shipper and to any other able and willing person who is not currently an interstate pipeline, authorizing for a limited term of fifteen years, the buying and selling of firm transportation capacity on Transwestern's system, as more fully described above. Pregranted abandonment is of individual transactions is authorized. The Commission shall exercise limited jurisdiction only, as described in this order, over any person accepting this certificate whose activities are not otherwise subject to the jurisdiction of the Commission. SoCal shall file the written procedure described in this order within 30 days of the date of this order. The otherwise nonjurisdictional activities of such persons shall not be affected by any certificate granted herein. Except as otherwise provided herein, any person authorized to assign capacity will be granted a waiver of compliance with the Commission's Uniform System of Accounts and other reporting requirements applicable to natural gas companies. (G) All assignment and reassignment transactions must be performed on an open access, not unduly discriminatory, first-come, firstserved basis, as more fully described in this order. (H) Any person engaging in the assignment of capacity under this program must comply with the reporting requirements contained in Transwestern's certificate application but each assignor should also be required to include a telephone number in the necessary filings. All persons responsible for reporting the required information should use the format shown in Appendix B to this order. (I) Any interstate pipeline that wishes to engage in the assignment or reassignment of capacity under a certificate amended by an order herein must make the necessary tariff filings prior to its first transaction. (J) Any person, including any firm shipper, marketer, end-user, or any other participant engaging in the assignment of capacity under the certificates issued or amended by action in Ordering Paragraphs (E) and (F) above should be required to notify the Commission of its acceptance of the certificate issued herein at least 10 days prior to its first transaction undertaken pursuant to the certificate. (K) The rate which any authorized person may charge to assign firm capacity on Transwestern's system cannot exceed the as-billed rate charged by Transwestern. Any person assigning or reassigning capacity must track any changes in Transwestern's rates on file. If the Commission orders refunds of any rates on file, the person assigning or reassigning capacity must also make corresponding refunds. (L) In situations where the demand and commodity components of a two-part rate are blended to form a one-part rate for service assigned on a firm basis, the maximum onepart rate must be calculated using the projected FTS-1 load factor underlying Transwestern's current rates. However, for firm assignments, the FTS-1 shippers and subsequent assignors must provide the assignees with the option of paying the as-billed rate or the blended rate. (M) Assignors may charge a two-part rate that is different from Transwestern's two-part rate for capacity assigned on a firm basis, provided that the total revenues do not exceed those that would be generated using the rates which Transwestern charges to the FTS-1 shipper, and further provided that the reservation fee does not exceed the reservation fee paid by the respective FTS-1 shipper to Transwestern. (N) The rate for FTS-1 capacity assigned on an interruptible basis must be a volumetric rate which complies with section 284.9(d) of the Commission's regulations. The maximum rate for firm capacity assigned on an interruptible basis must be no higher than Transwestern's maximum rate for interruptible service, while the minimum rate must be equal to Transwestern's minimum rate for interruptible service. (0) FTS-1 capacity assigned on an interruptible basis shall be accorded the same priority on Transwestern's system as that of the FTS-1 shipper from whom the assignment originated. (P) The FTS-1 shippers and subsequent assignors are authorized to enter into duplicative interruptible assignment agreements for the same FTS-1 shipper entitlement. Transwestern is not required to honor scheduling requests which exceed the FTS-1 shipper's entitlement. (Q) Section 284.10 conversion rights with respect to priority to capacity available under the program should be clarified as provided in this order. (R) Any person, including an FTS-1 shipper, a marketer, an end-user, or any other participant engaging in the assignment or reassignment of capacity under certificates issued or amended in Ordering Paragraphs (E) and (F) above is permitted to repackage the firm transportation rights and assign those rights on either a firm or an interruptible basis. (S) There will be no minimum term for capacity assigned on either a firm or an interruptible basis. (T) A one-part blended rate, as described above, should not be used as a reservation fee or as a demand charge, but can only be charged for a service that is actually rendered. (U) The amount of FTS-1 capacity that an FTS-1 shipper may assign on a firm basis is limited annually to its annual entitlement to service and daily to the amount represented by the D-1 payment. (V) Transwestern is required to file tariff sheets reflecting the maximum volumetric rate for service assigned under this program. Transwestern is required to file updated volumetric rates whenever it files a new general section 4 rate case or otherwise revises its FTS-1 rates. (W) The FTS-1 shipper should be responsible for all operational requirements and other terms and conditions specified in Transwestern's tariff, and for the payment provisions of the underlying contract between the FTS-1 shipper and Transwestern. Included in these obligations is the obligation for arranging and scheduling transportation on Transwestern's system. (X) The FTS-1 shippers and subsequent assignors are authorized to impose reasonable, nondiscriminatory conditions upon the assignment of Transwestern's capacity, as described above. Such conditions must be consistent with the FTS-1 service agreement between the FTS-1 shipper and Transwestern, and with Transwestern's tariff. (Y) The FTS-1 shippers, and subsequent assignors, are authorized to passthrough any scheduling or balancing penalties actually levied by Transwestern against the FTS-1 shippers. Penalties may only be passed through to assignees who caused the penalty to be incurred. (Z) The FTS-1 shipper must notify Transwestern of the availability of capacity, within 48 hours, throughout the program. Transwestern must notice this on an electronic bulletin board so that it is easily accessible to persons seeking to participate in the program. Transwestern is responsible for maintaining the bulletin board. (AA) A firm shipper, or subsequent assignor, may not condition a capacity assignment upon the bundling with any other services. (BB) No person is authorized to permanently assign any rights under this program. (CC) Transwestern and other interstate pipelines that participate in the program, and their respective affiliates are subject to the requirements of Order Nos. 497 and 497-A, as long as those orders remain in effect. (DD) The certificates issued herein are conditioned upon compliance with the Commission's regulations, particularly section 157.20. Further, except for those certificates issued in Ordering Paragraph (F) above, any certificates issued herein are conditioned upon compliance with Part 154 of the Commission's regulations. (EE) The Commission reserves the right to terminate the authorizations granted herein at any time during the program term if the Commission determines that Transwestern's program is no longer required by the public convenience and necessity. The Commission reserves the right to modify the program should that be necessary to ensure that it continues to be required by the public convenience and necessity. (FF) Transwestern must notify the Commission within 30 days if it accepts this certificate amendment. (GG) Municipalities will remain nonjurisdictional. (HH) Salmon's request for a hearing is denied. Commissioner Trabandt dissented in part on the one-month minimum term issue, with a statement to be issued at a later date. Commissioner Langdon dissented in part with a statement attached. Appendix A Docket No. CP88-133-001 Intervenors American Paper Institute El Paso Natural Gas Company Pacific Gas and Electric Company ** Process Gas Consumers Group San Diego Gas & Electric Company ** Texaco Inc., Texaco Producing Inc. and Texaco Yates Petroleum Corporation ** *Filed a protest ** Also intervened in Docket No. RP89-48-000 et al. *** Requests a hearing If Volumes are reported in MCF (or MMCF), the average BTU content per CF: Pipeline System on which assignment is being reported: |