disposition of the remaining Phase I issues in a manner which reduces the impact both on Southern and all of its customers by providing for a transition from the existing cost and zone allocations over a period of years.

Adoption of Stipulation III as the basis for the Initial Decision not only will expedite the resolution of the Phase I issues but also will result in essential rate certainty for the Southern system. So also, it provides for rate reductions by Southern under the terms of Article IV which will redound to the benefit of all customers.

ARTICLE II

Cost Allocation and Rate Design

A. Southern, the Commission Staff and the undersigned parties to these proceedings hereby stipulate and agree that all of the unresolved cost classification, cost allocation (including zoning) and rate design issues on the Southern system shall be resolved as provided in this Article II and Article III of Stipulation III.

(1) Except for Southern's transmission costs allocated by Mcf-miles, all cost allocations and rate design computations shall be made by Southern using the actual sales and actual 3 day peak volumes as adjusted for the Btu content of the gas deliveries to each customer incurred during the locked-in period provided in Stipulation I. Prior to making the cost allocations, Southern's costs shall be classified to fixed and variable classifications and to Demand and Commodity components in accordance with Article III of Stipulation II.

(2) Administrative and General costs assigned to the transmission function and the costs in Account 858- Transmission and Compression of Gas by Others shall be allocated during the lockedin period provided in Stipulation I without the application of any mileage factor. All other transmission demand and commodity costs shall be allocated using the actual 3 day peak and actual sales during the locked-in period provided in Stipulation I with the application of the mileage factor as provided in this Article II.

(3) Storage demand and commodity costs shall be allocated during the locked-in period provided in Stipulation I using the actual 3 day peak and actual winter season sales, respectively, during the lockedin period.

(4) Southern shall phase in a single rate zone in which the cost allocation and allocation of transmission costs shall be determined without the application of any mileage factor (Mcf-mile factor) to Southern's transmission costs. The phase in to a single rate zone shall include the same rate level in rate Zones 2 and 3 effective May 1, 1979 and shall be accomplished in the following stages:

(a) For the 9 month period commencing August 1, 1978 through April 30, 1979, Southern's transmission demand and commodity costs shall

be allocated between jurisdictional and nonjurisdictional service and to rate zones with the application of the Mcf-mile factor.

(b) For the 12 month period commencing May 1, 1979 through April 30, 1980, two thirds of Southern's transmission demand and commodity costs shall be allocated between jurisdictional and non-jurisdictional service and to rate zones with the application of the Mcf-mile factor.

(c) For the 12 month period commencing May 1, 1980 through April 30, 1981, one third of Southern's transmission demand and commodity costs shall be allocated between jurisdictional and non-jurisdictional service and to rate zones with the application of the Mcf-mile factor.

(d) On May 1, 1981, Southern's transmission demand and commodity costs shall be allocated between jurisdictional and non-jurisdictional service and to the single rate zone without the Mcf-mile factor.

B. The provisions of this Article II shall be applicable to any refunds made by Southern pursuant to Article IV of Stipulation I.

ARTICLE III

The rate for the X-30 Transportation Service for Florida Gas Transmission Company shall be predicated as follows:

A. For the nine-month period commencing August 1, 1978 through April 30, 1979, the rates for the X-30 transportation service shall be determined by deducting all costs of gas supply, gathering, advance payments and products extraction from the Rate Schedule OCD-1 rates.

B. Commencing May 1, 1979, Southern shall establish a separate transmission rate for the X-30 Transportation Service based on the allocation of costs and factors enumerated in Articles II A (1), (2), (3) and (4) (a) exclusive of the costs of gas supply, gathering, advance payments and products extraction.

ARTICLE IV

Future Rate Reductions By Southern

A. When the Commission issues final orders on rehearing during the locked-in period as defined in Article IV of the Stipulation I approving (1) this Stipulation and Agreement (Stipulation III) (2) the Stipulation and Agreement dated November 3, 1978 certified to the Commission on November 8, 1978 (Stipulation I) and (3) the Stipulation and Agreement dated December 12, 1978 (Stipulation II) all without modification or conditions or if modified or conditioned, if such modification and/or conditions are accepted by the parties and such order or orders are not stayed, Southern shall reduce its effective rates during the remainder of the locked-in period to reflect (1) the rate of return and related Federal and state income taxes in accordance with Article III paragraph 5 of Stipulation I and (2) the cost

reductions relating to Southern Energy Company in Article II of Stipulation II. Any reduction in Southern's effective rates pursuant to this Article IV during the locked-in period shall be deemed a refund within the meaning of Article VI of Stipulation I.

B. If Southern is required to make a rate reduction pursuant to this Article IV, Southern shall file such rate reduction with the Commission within ten days of the date on which a petition for judicial review of the Commission's final order in Phase I of these proceedings has been filed in a court of competent jurisdiction or within ten days of the date on which the time for judicial review under Section 19(b) of the Natural Gas Act has expired whichever is earlier; Provided, however, if a motion for stay is pending before the Commission or a court of competent jurisdiction at the time Southern is required to file for such a rate reduction, Southern shall not be required to file rate reductions hereunder until ten days following the date on which such motion or motions for a stay have been ruled upon.

C. If Southern is required to make the rate reductions pursuant to Article IV hereof prior to the end of locked-in period in Stipulation I, Southern shall implement the rate reductions required by Section A of this Article IV based on Southern's filed test year costs and volumes underlying its effective rates at the time such rate reduction is placed in effect.

ARTICLE V

Evidence and Procedures

As a result of this Stipulation and Agreement, Southern Natural Gas Company, Atlanta Gas Light Company, the Commission Staff and Georgia Public Service Commission have withdrawn, modified or supplemented all or portions of their testimony on cost allocation and rate design in Phase I of this proceeding Such changes have been made solely to facilitate approval of this Stipulation and Agreement. Should the Commission's order in Phase I not adopt this Stipulation and Agreement without modification or condition or if modified or conditioned, if such modification and/or conditions are not accepted by the undersigned parties, all undersigned parties will be entitled to introduce testimony on the Phase I issues and a procedural schedule for consideration of such testimony shall be established.

Similarly, all parties to this Stipulation and Agreement have waived their rights to cross-examine certain testimony submitted in this Phase I proceeding. Should the Commission's order not approve this Stipulation and Agreement without modification or condition or if modified or conditioned, if such modification and/or conditions are not accepted by the undersigned parties, all parties reserve the right to cross-examine all testimony in this proceeding under the procedural schedule established by the Presiding Administrative Law Judge or the Commission.

ARTICLE VI Effectiveness

This Stipulation and Agreement shall be effective upon the date hereof.

ARTICLE VII

Reservations

A. Neither Southern, the Commission's Staff, nor any person or party shall be bound or prejudiced by any part of this Stipulation and Agreement unless it is approved and made effective as to all of its terms and conditions without modification by the Commission in its final order, or if modified or conditioned if such modification and/or conditions are accepted by the undersigned parties. Any party objecting to a modification or condition shall notify the Commission Staff and all other parties of the objection and the basis therefor in a written communication within ten days of the Commission's order modifying or imposing conditions to this Stipulation and Agreement. In the absence of such written notice, all parties shall be deemed to have accepted Stipulation III as modified and/or conditioned. Following written notice of an objection, unless such objections are resolved by the parties, this Stipulation and Agreement shall not be binding on any party or the Commission Staff.

B. This Stipulation and Agreement is made upon the express understanding that it constitutes a negotiated settlement resolving the Phase I issues in Docket No. RP78-36, and neither Southern, the Commission's Staff, nor any other person or party shall be deemed to have approved, accepted, agreed to or consented to any principle of ratemaking, cost of service determination, allocation method, or rate design formula underlying or supposed to underlie any of the rates provided for herein, or prejudice positions taken in any other proceeding.

Record

TO THE COMMISSION:

At the pre-hearing conference herein held on March 5, 1979, Panhandle Eastern Pipe Line Company ("Panhandle") presented a proposed Stipulation And Agreement (dated March 5, 1979) in settlement of many, but not all, the issues in this proceeding, and requested that the same be certified to the Commission for its approval. The issues as to which no settlement was reached have been set for hearing.

The proposed settlement was arrived at after service of the Commission Staff's top sheets and discussions and negotiations among the parties and the Staff. All parties and the Staff present at the March 5 conference either expressed approval of the proposed settlement or voiced no disapproval.

Pursuant to Panhandle's motion and Section 1.18(e) of the Rules of Practice and Procedure, I hereby certify the aforesaid Stipulation And Agree

ment, a copy of which is annexed hereto, to the Commission for its consideration and disposition.

Pre-hearing conferences were held on December 7 and 8, 1978, February 13, 1979, and March 5, 1979. The official stenographer's reports of said conferences (Vols. 1 through 4, pp. 1 through 42), on file with the Commission, is certified herewith. At the March 5, 1979 conference, Panhandle's Statement P of its rate filing in this case, was admitted in evidence without cross-examination, as an item by reference for the limited purpose only of the Commission's consideration of the proposed settlement, and said Statement P, on file with the Commission, is certified herewith.

1979.

Respectfully certified this 7th day of March,

SAMUEL Z. GORDON,

Presiding Administrative Law Judge.

TO THE COMMISSION:

The proceedings herein before the undersigned were provided for by Commission order of August 31, 1978, 4 FERC ¶ 61,266, the Commission affecting certain modifications to the initiating order by an Order on Rehearing of October 16, 1978, 5 FERC 61,043.

Following the filing of the company's case-inchief, and a Staff Statement of Position, settlement conferences were conducted herein on February 7, February 23 and March 6, 1979. At the last of the settlement sessions, there was copied into the record a Joint Stipulation and Agreement of Transcontinental Gas Pipe Line Corporation and Commission Staff in Settlement of PGA Rate Proceedings, the signing parties suggesting April 3 and

April 13, 1979, as the dates for initial comments and reply comments, respectively.

There was also copied into the record the prepared testimony of three company witnesses, there being admitted into evidence Exhibit Numbers 1 through 9, and Items by Reference A, B and C, as described in Volume No. 3 (March 6, 1979) of the Official Stenographers' Report of the proceeding, the total Report consisting of three volumes of transcript, containing pages 1 through 39.

The proposed Stipulation and Agreement is herewith certified to the Commission this eighth day of March, 1979.

WILLIAM JENSEN,

Presiding Administrative Law Judge.

This case is in its second phase. The Commission determined in the first phase that KansasNebraska Natural Gas Company, Inc. could put into effect its package of tariff proposals before the agency had ruled upon the legality of the proposals.' The lawfulness of these proposals will now be decided.2

The package of tariff proposals is to be used in two different sets of circumstances. In one, it is fashioned as a curtailment plan to ration natural gas among Kansas-Nebraska's customers in the event the pipeline ever experiences a gas supply shortage. In the other, the same tariff package is intended to operate even where there is no supply shortage.

If a gas supply shortage ever arises on its system, Kansas-Nebraska readily admits that it will occur only years from now, "sometime subsequent to the end of 1982” (Tr. 4718; 4978–79). Only then would the tariff proposals, which include eight priority-of-service categories (or steps), be implemented as a curtailment plan.

Kansas-Nebraska is presently operating under the second set of circumstances where no gas supply shortage exists. It uses the tariff package in these circumstances primarily to deal with inadequate pipeline capacity-whereby a pipeline is full of gas and its physical capacity simply cannot transport any other gas, albeit available, that is demanded. Though Kansas-Nebraska insists that its tariff proposals essentially permit it in these circumstances to reduce or cut off service to some customers on a nondiscriminatory basis, the proposals actually allow it to achieve much more.

Among other things, the tariff package permits Kansas-Nebraska, while reducing or cutting off service from time-to-time to particular customers, to market gas to new customers, or to increase service to some existing customers (without increasing its pipeline capacity). This is accomplished in part through the eight priority-of-service categories; storage provisions; and provisions allowing growth as to some customers, while prohibiting it as to others.

The customers whose service is at times reduced or cut off are principally boiler fuel users. Under the priority-of-service categories, the first four steps to be interrupted consist entirely of these users. The first of these steps to be interrupted consists of the largest electric generating customers-the same targets before this Commission of an unsuccessful attempt by Kansas-Nebraska to abandon service. Docket No. CP74-299 (orders issued July 20, 1977, 59 FPC 851, and November 10, 1977, 1 FERC ¶ 61,110). By interrupting service to these customers, Kansas-Nebraska is then in a position to shift the gas and eventually market it to new or existing residential, commercial, and even some industrial consumers. In doing So, Kansas-Nebraska stands to enjoy greater revenues-particularly in its role as a distributor of gas to ultimate consumers.

Supporting Kansas-Nebraska in its efforts here are virtually all of its resale customers (who, as Kansas-Nebraska itself, will receive more revenues by adding new customers), plus other direct and indirect customers who will not have their service interrupted because they have been placed by Kansas-Nebraska in high steps of the eight priorityof-service categories. The major opposition to the tariff proposals has been filed by certain boiler fuel users-a three-member group of public electric utilities in Nebraska (the Nebraska group);' Central Kansas Power Company, which is both a resale customer (distributing gas at retail mostly to high priority consumers) and a direct sale customer (consuming gas at its electric generation plants); and Great Western Sugar Company, whose sugar manufacturing plants in Colorado and Kansas mostly use gas as a boiler fuel."

As for the Commission's Staff, its position at times is equivocal and somewhat confusing. The Staff seemingly supports in part Kansas-Nebraska's tariff proposals, especially those allowing growth of residential and small commercial consumers to the detriment of existing boiler fuel users. Yet the Staff recognizes belatedly that the lawfulness of these tariff proposals (which are already in effect) merits