

[Federal Register: November 1, 2005 (Volume 70, Number 210)]
[Proposed Rules]               
[Page 65866-65871]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01no05-21]                         

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 41, 158, 286 and 349

[Docket No. RM06-2-000]

 
Procedures for Disposition of Contested Audit Matters

October 20, 2005.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: Pursuant to section 309 of the Federal Power Act, 16 U.S.C. 
825h (2000); section 16 of the Natural Gas Act, 15 U.S.C. 717o (2000); 
sections 20 and 204(a)(6) of the Interstate Commerce Act, 49 App. 
U.S.C. 20 and 204(a)(6)(2000); and section 501 of the Natural Gas 
Policy Act of 1978, 15 U.S.C. 3411 (2000), the Federal Energy 
Regulatory Commission proposes to issue Rules permitting audited 
persons to challenge audit findings before the issuance of a Commission 
order on the merits of those findings. The Commission seeks public 
comment on the Rules proposed herein.

DATES: Comments are due November 22, 2005. Reply comments are due 
November 29, 2005.

ADDRESSES: Comments may be filed electronically via the eFiling link on 
the Commission's Web site at http://www.ferc.gov. Commenters unable to 

file comments electronically must send an original and 14 copies of 
their comments to: Federal Energy Regulatory Commission, Office of the 
Secretary, 888 First Street NE., Washington, DC 20426. Refer to the 
Comment Procedures section of the preamble for additional information 
on how to file comments.

FOR FURTHER INFORMATION CONTACT: John R. Kroeger, Office of Market 
Oversight and Investigations, Federal Energy Regulatory Commission, 888 
First Street, NE., Washington, DC 20426. (202) 502-8177.

SUPPLEMENTARY INFORMATION:

[[Page 65867]]

I. Summary

    1. In this Notice of Proposed Rulemaking (NOPR), the Federal Energy 
Regulatory Commission (Commission) proposes to amend parts 41 and 158, 
add new language to part 286 and to add a new part 349 to its 
regulations.\1\ The main purpose of the proposed rule is to apply 
existing procedures for challenging the Commission staff's financial 
audit findings and proposed remedies to the Commission staff's 
operational audit findings and proposed remedies as well.
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    \1\ 18 CFR parts 41, 158 and 286 (2005). Part 41 applies to 
public utilities and licensees under the Federal Power Act (FPA), 
part 158 applies to natural gas companies under the Natural Gas Act 
(NGA), part 286 applies to entities subject to the Commission's 
jurisdiction under the Natural Gas Policy Act of 1978 (NGPA) and the 
new part 349 would apply to common carries subject to the 
Commission's jurisdiction under the Interstate Commerce Act (ICA).
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    2. The Commission is proposing to amend its regulations to permit 
any audited person \2\ to challenge staff audit findings and proposed 
remedies (collectively, audit matters) before the issuance of a 
Commission order on the merits of those audit matters. Under the 
proposed rule, the Commission would issue an order on the merits with 
respect to non-disputed audit matters contained in a notice of 
deficiency, audit report or similar document and would notice, without 
making any findings on the merits, any disputed audit matters. The 
Commission would provide the audited person an opportunity to challenge 
any such disputed audit matters. The audited person could then elect a 
shortened procedure \3\ or a trial-type hearing to challenge the 
disputed audit matters. The Commission would honor this election unless 
in the Commission's judgment there were no material facts in dispute 
which require cross-examination.
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    \2\ The term ``person'' as used in this notice and the 
accompanying regulatory text is the same as the definition of person 
found in parts 101 (Definition 24) and 201 (Definition 27) of the 
Commission's regulations, which reads as follows: ``An individual, a 
corporation, a partnership, an association, a joint stock company, a 
business trust, or any other organized group of persons, whether 
incorporated or not, or any receiver or trust.''
    \3\ The term ``shortened procedure'' as used in this notice and 
the accompanying regulatory text refers to a ``paper hearing,'' or 
briefing of matters only, not including a trial-type proceeding, in 
a contested proceeding before the Commission.
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II. Background

    3. Relevant portions of the existing language of parts 41 and 158 
that relate to procedures for challenging audit matters date at least 
to 1937.\4\ At that time and for many years afterward, Commission staff 
audited primarily the financial accounts and records of jurisdictional 
persons and the language of these sections was adequate. Financial 
audits have been conducted mainly to determine compliance with parts 
101 (Uniform System of Accounts Prescribed for Public Utilities and 
Licensees), 201 (Uniform System of Accounts Prescribed for Natural Gas 
Companies) and 352 (Uniform Systems of Accounts Prescribed for Oil 
Pipeline Companies). However, in more recent years the Commission staff 
has conducted operational audits. Operational audits have been 
conducted to determine compliance with the Commission's Standards of 
Conduct,\5\ Behavior Rules,\6\ Codes of Conduct, tariff matters and 
other Commission requirements. Thus, operational audits address matters 
that are not explicitly covered by the existing provisions of parts 41 
and 158. Accordingly, the proposed rule is needed to provide the 
audited persons who are subject to operational audits, and indeed, to 
all audits the Commission staff conducts, the same procedural benefits 
provided to audited persons who are subject to financial audits. The 
proposed rule would advance the due process rights of all audited 
persons by providing an effective procedure for them to challenge staff 
audit findings.
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    \4\ See Federal Power Commission, Rules of Practice and 
Regulations Sec.  301(a) (Revised January 1, 1937).
    \5\ See 18 CFR part 358 (2005).
    \6\ See Authorization of Terms and Conditions of Public Utility 
Market-Based Rate Authorizations, 105 FERC ] 61,218 (2003); 
Amendments to Blanket Sales Certificates, III FERC Statutes & 
Regulations, Regulations Preambles ] 31,153 (2003).
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    4. The Commission's regulations do not now contain procedures for 
challenging audit findings and proposed remedies of audits conducted 
under the NGPA and the ICA. The proposed rule includes audits under 
these statutes for the sake of completeness. While the Commission's 
staff conducts audits under the authority of these statutes less 
frequently than it does under the NGA and FPA, the proposed rule would 
permit persons audited under the NGPA and the ICA to challenge audit 
matters in the same way that persons audited under the NGA or FPA could 
challenge audit matters.

III. Discussion

    5. The Commission staff conducts audits of persons subject to the 
Commission's jurisdiction to determine compliance with the Uniform 
Systems of Accounts and other requirements of the Commission. The 
Commission's audit staff conducts audits that pertain to orders, rules 
and regulations covering, among other things, financial accounting and 
reporting, annual charges, Standards of Conduct and Codes of Conduct, 
interlocking directorates, and other requirements affecting persons 
under the Commission's jurisdiction.
    6. The Commission's rules now permit persons subject to financial 
audits to challenge staff audit findings before the issuance of a 
Commission order on the merits of those findings. Parts 41 and 158, at 
sections 41.1 through 41.7 and at sections 158.1 through 158.7, 
respectively, currently provide for Commission or Commission staff to 
inform a person subject to the Commission's FPA jurisdiction (in the 
case of part 41) or the Commission's NGA jurisdiction (in the case of 
part 158) of a deficiency with respect to the following limited 
classification of items: (1) The maintenance of accounts, or any books 
and records pertaining to or in support of those accounts; or (2) any 
statement or report submitted by such person. In the event of a 
disagreement between such person and the Commission or its staff with 
respect to any finding, parts 41 and 158 permit such person to 
challenge one or more findings of audit staff before issuance of an 
order by the Commission on the merits of the audit findings. An audited 
person can challenge the findings by either choosing a paper hearing, 
referred to as a ``shortened procedure'' in parts 41 and 158, or a 
trial type-hearing under subpart E of part 385 of the Commission's 
regulations.\7\ The shortened procedure consists of an opportunity to 
submit briefs to the Commission with respect to the disagreement. If 
the audited person does not choose the shortened procedure, the 
Commission will assign the proceeding for a trial-type hearing except 
when there are no material facts in dispute requiring cross-
examination.
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    \7\ See 18 CFR 41.1 and 158.1 (2005).
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    7. The proposed rule would expand the existing procedural rights of 
persons subject to audits conducted by the Commission staff. 
Accordingly, under the proposed rule, the Commission would not limit 
the ability to challenge staff audit findings before the issuance of a 
Commission order on the merits of those findings to persons subject to 
financial audits only, i.e., audits of accounts or books and records in 
support of those accounts, or audits of statements or reports submitted 
to the Commission. Instead, the Commission would amend its regulations 
to permit all audited persons who disagree with staff audit findings to 
so challenge them.
    8. The Commission's audit staff communicates its audit findings and

[[Page 65868]]

proposed remedies with the audited person. The audited person has an 
opportunity to provide written comments signifying agreement or 
disagreement with the audit findings and proposed remedial measures. 
Under the proposed rule, in cases where the audited person communicated 
its disagreement with any finding or proposed remedy, the Commission 
would notice any such disputed findings and proposed remedies, without 
ruling on the merits with respect to them, in any initial order 
regarding the notice of deficiency, audit report or similar document. 
For all audits, the Commission would provide the audited person the 
opportunity to timely challenge the noticed finding or findings and 
proposed remedial measures through the shortened procedure or a trial-
type hearing. The Commission would honor the audited person's election 
unless in the Commission's judgment there were no material facts in 
dispute which require cross-examination. By opting for the shortened 
procedure, the person has waived any right to subsequently request a 
hearing before an administrative law judge under section 41.7 or 
158.7.\8\
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    \8\ See sections 41.3 and 158.3 of the Commission's regulations; 
18 CFR 41.3 and 158.7 (2005).
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    9. The Commission is also proposing to permit persons audited under 
the NGPA or the ICA the same opportunity to challenge staff audit 
findings before the Commission issues an order on the merits of those 
findings.\9\ The Commission's regulations applicable to these statutes 
do not contain provisions analogous to the procedures in parts 41 and 
158. Accordingly, the proposed rule would add sections 286.103 through 
286.109 to part 286 to provide the indicated provisions for persons 
audited under authority of the NGPA. The proposed rule would further 
add a new part 349 to provide the indicated provisions for persons 
audited under authority of the ICA.
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    \9\ The Commission staff may conduct an audit pursuant to its 
enforcement authority found in section 501(a) of the NGPA, 15 U.S.C. 
3411(a) (2000). Such audits are infrequent and the Commission 
suggests no change in the frequency of such audits by the 
promulgation of this proposed rule. The Commission staff may conduct 
an audit to assure compliance with the Uniform Systems of Accounts 
Prescribed for Oil Pipeline Companies, 18 CFR part 352 (2005).
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    10. The Commission has legal authority to make the proposed changes 
under the FPA, NGA, ICA and NGPA.\10\ In this respect, the FPA and NGA 
empower the Commission, with respect to public utilities and interstate 
natural gas pipeline companies to ``perform any and all acts, and to 
prescribe, issue, make, amend, and rescind such orders, rules and 
regulations as it may find necessary or appropriate to carry out the 
provisions of [the] Act.''\11\
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    \10\ See section 309 of the FPA, 16 U.S.C. 825h (2000); section 
16 of the NGA, 15 U.S.C. 717o (2000); sections 20 and 204(a)(6) of 
the ICA; 49 App. U.S.C. 20 and 204(a)(6) (2000); and section 501 of 
the NGPA, 15 U.S.C. 3411 (2000).
    \11\ Section 309 of the FPA, 16 U.S.C. 825h (2000); and section 
16 of the NGA, 15 U.S.C. 717o (2000).
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    11. The Commission invites public comments on whether the 
Commission should also provide informal procedures before proceeding 
with the formal procedures contained in the proposed rule. Commenters 
should address the relative merits of such processes and how they could 
function in concert with the proposed rule.

IV. Information Collection Statement

    12. This proposed rule clarifies and amends the existing 
requirements to apply to all audits and does not include new 
information collections under the provisions of the Paperwork Reduction 
Act of 1995.\12\
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    \12\ 44 U.S.C. 3501 et seq. (2000).
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V. Environmental Analysis

    13. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment. The 
Commission has categorically excluded certain actions from this 
requirement as not have a significant effect on the human environment. 
Included in the exclusions are rules that are clarifying, corrective, 
or procedural or that do not substantively change the effect of the 
regulations being amended. This proposed rule, if finalized, is 
procedural in natural and therefore falls under this exception; 
consequently, no environmental consideration would be necessary.

VI. Regulatory Flexibility Act Statement

    14. The Regulatory Flexibility Act of 1980 (RFA) \13\ generally 
requires a description and analysis of final rules that will have 
significant economic impact on a substantial number of small entities. 
The Commission is not required to make such analyses if a rule would 
not have such an effect. The Commission concludes that this rule would 
not have such an impact on small entities. Most filing companies 
regulated by the Commission do not fall within the Commission's 
definition of a small entity. The proposed rule would not impose new 
filing requirements.
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    \13\ 5 U.S.C. 601-612.
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VII. Comment Procedures

    15. The Commission invites interested persons to submit written 
comments on the matters and issues proposed in this notice to be 
adopted, including any related matters or alternative proposals that 
commenters may wish to discuss. Comments are due 21 days from 
publication in the Federal Register. Comments must refer to Docket No. 
RM06-2-000, and may be filed either in electronic or paper format. 
Those filing electronically do not need to make a paper filing.
    16. Documents filed electronically via the Internet can be prepared 
in a variety of formats, including WordPerfect, MS Word, Portable 
Document Format, Real Text Format, or ASCII format, as listed on the 
Commission's Web site at http://ferc.gov under the e-Filing link. The 

e-Filing link provides instructions for how to Login and complete an 
electronic filing. First time users will have to establish a user name 
and password. The Commission will send an automatic acknowledgment to 
the sender's e-mail address upon receipt of comments. User assistance 
for electronic filing is available at 202-208-0258 or by e-mail to 
efiling@ferc.gov. Comments should not be submitted to the e-mail 

address.
    17. For paper filings, the original and 14 copies of such comments 
should be submitted to the Office of the Secretary, Federal Energy 
Regulatory Commission, 888 First Street, NE., Washington, DC 20426.
    18. All comments will be placed in the Commission's public files 
and will be available for inspection in the Commission's Public 
Reference Room at 888 First Street, NE., Washington, DC 20426, during 
regular business hours. Additionally, all comments may be viewed, 
printed, or downloaded remotely via the Internet through FERC's home 
page.

VIII. Document Availability

    19. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through FERC's home page and in FERC's Public Reference Room 
during normal business hours.
    20. From FERC's home page on the Internet, this information is 
available in e-library. The full text of this document is available in 
e-library in PDF and MS Word format for viewing, printing or 
downloading. To access this document in e-library, type the docket 
number excluding the last three digits of this document in the docket 
number field.

[[Page 65869]]

    21. User assistance is available for e-library and the FERC's Web 
site during normal business hours from our Help line at (202) 208-2222 
or the Public Reference Room at (202) 208-1371. E-mail the Public 
Reference Room at public.reference@ferc.gov.

List of Subjects

18 CFR Part 41

    Electric power, accounts, records, memoranda, conduct, shortened 
procedure.

18 CFR Part 158

    Natural gas, accounts, records, memoranda, conduct, shortened 
procedure.

18 CFR Part 286

    Natural gas, accounts, records, memoranda, conduct, shortened 
procedure.

18 CFR Part 349.

    Oil pipelines, accounts, records, memoranda, conduct, shortened 
procedure.

    By direction of the Commission.
Magalie R. Salas,
Secretary.
    In consideration of the foregoing, the Commission proposes to amend 
Chapter 1, Title 18, of the Code of Federal Regulations, as follows:

PART 41--ACCOUNTS, RECORDS, MEMORANDA AND DISPOSITION OF CONTESTED 
AUDIT FINDINGS AND PROPOSED REMEDIES

    1. The authority citation for part 41 continues to read as follows:

    Authority: 16 U.S.C. 791a-825r.

    2. The heading of part 41 is revised to read as set forth above.
    3. Sections 41.1, 41.2 and 41.3, and the undesignated center 
heading preceding them, are revised to read as follows:

Disposition of Contested Audit Findings and Proposed Remedies


Sec.  41.1  Notice to audited person.

    An audit conducted by the Commission's staff under authority of the 
Federal Power Act may result in a notice of deficiency or audit report 
or similar document containing a finding or findings that the audited 
person has not complied with a requirement of the Commission with 
respect to, but not limited to, the following: A filed tariff or 
tariffs, contracts, data, records, accounts, books, communications or 
papers relevant to the audit of the audited person; matters under the 
Standards of Conduct or the Code of Conduct; and the activities or 
operations of the audited person. The notice of deficiency, audit 
report or similar document may also contain one or more proposed 
remedies that address findings of noncompliance. Where such findings, 
with or without proposed remedies, appear in a notice of deficiency, 
audit report or similar document, such document shall be provided to 
the audited person, and the finding or findings, and any proposed 
remedies, shall be noted and explained. The audited person shall timely 
indicate in a written response any and all findings, including any and 
all proposed remedies, with which the audited person disagrees. Any 
initial order that the Commission subsequently may issue with respect 
to the notice of deficiency, audit report or similar document shall 
note, but not address on the merits, the finding or findings and any 
proposed remedies with which the audited person disagreed. The 
Commission shall provide the audited person a specified number of days 
to respond with respect to the finding or findings and any proposed 
remedies with which it disagreed.


Sec.  41.2  Response to notification.

    Upon issuance of a Commission order that notes a finding or 
findings, with or without proposed remedies, with which the audited 
person has disagreed, the audited person may: Acquiesce in the findings 
and proposed remedies by not timely responding to the Commission order, 
in which case the Commission may issue an order approving them or 
taking other action; or challenge the finding or findings, and any 
proposed remedies, with which it disagreed by timely notifying the 
Commission in writing that it requests Commission review by means of a 
shortened procedure or, if there are material facts in dispute which 
require cross-examination, a trial-type hearing.


Sec.  41.3  Shortened procedure.

    If the audited person subject to a Commission order described in 
Sec.  41.1 notifies the Commission that it seeks to challenge one or 
more audit findings, with or without proposed remedies, by the 
shortened procedure, the Commission shall thereupon issue a notice 
setting a schedule for the filing of memoranda. The person electing the 
use of the shortened procedure, and any other interested entities, 
including the Commission staff, shall file, by the date specified by 
the Commission in the notice, an initial memorandum that addresses the 
relevant facts and applicable law that support the position or 
positions taken regarding the matters at issue. In the notice, the 
Commission shall also set a date for the filing of reply memoranda, 
which may be filed only by participants that filed initial memoranda. 
Subpart T of part 385 of the Commission's regulations shall apply to 
all filings. A person that consents to the matter being handled 
pursuant to the shortened procedure has waived any right to 
subsequently request a hearing pursuant to Sec.  41.7 and may not later 
request such a hearing.
* * * * *

PART 158--ACCOUNTS, RECORDS MEMORANDA AND DISPOSITION OF CONTESTED 
AUDIT FINDINGS AND PROPOSED REMEDIES

    4. The authority citation for part 158 continues to read as 
follows:

    Authority: 15 U.S.C. 717-717w.

    5. The heading of part 158 is revised to read as set forth above.
    6. Sections 158.1, 158.2 and 158.3, and the undesignated center 
heading preceding them, are revised to read as follows:

Disposition of Contested Audit Findings and Proposed Remedies


Sec.  158.1  Notice to audited person.

    An audit conducted by the Commission or its staff under authority 
of the Natural Gas Act may result in a notice of deficiency or audit 
report or similar document containing a finding or findings that the 
audited person has not complied with a requirement of the Commission 
with respect to, but not limited to, the following: A filed tariff or 
tariffs, contracts, data, records, accounts, books, communications or 
papers relevant to the audit of the audited person; matters under the 
Standards of Conduct or the Code of Conduct; and the activities or 
operations of the audited person. The notice of deficiency, audit 
report or similar document may also contain one or more proposed 
remedies that address findings of noncompliance. Where such findings, 
with or without proposed remedies, appear in a notice of deficiency, 
audit report or similar document, such document shall be provided to 
the audited person, and the finding or findings, and any proposed 
remedies, shall be noted and explained. The audited person shall timely 
indicate in a written response any and all findings, including any and 
all proposed remedies, with which the audited person disagrees. Any 
initial order that the Commission subsequently may issue with respect 
to the notice of deficiency, audit report or similar document shall 
note, but not address on the merits, the

[[Page 65870]]

finding or findings and any proposed remedies with which the audited 
person disagreed. The Commission shall provide the audited person a 
specified number of days to respond with respect to the finding or 
findings and any proposed remedies with which it disagreed.


Sec.  158.2  Response to notification.

    Upon issuance of a Commission order that notes a finding or 
findings, with or without proposed remedies, with which the audited 
person has disagreed, the audited person may: Acquiesce in the findings 
and proposed remedies by not timely responding to the Commission order, 
in which case the Commission may issue an order approving them or 
taking other action; or challenge the finding or findings and any 
proposed remedies with which it disagreed by timely notifying the 
Commission in writing that it requests Commission review by means of a 
shortened procedure, or, if there are material facts in dispute which 
require cross-examination, a trial-type hearing.


Sec.  158.3  Shortened procedure.

    If the audited person subject to a Commission order described in 
Sec.  158.1 notifies the Commission that it seeks to challenge one or 
more audit findings, with or without proposed remedies, by the 
shortened procedure, the Commission shall thereupon issue a notice 
setting a schedule for the filing of memoranda. The person electing the 
use of the shortened procedure, and any other interested entities, 
including the Commission staff, shall file, by the date specified by 
the Commission in the notice, an initial memorandum that addresses the 
relevant facts and applicable law that support the position or 
positions taken regarding the matters at issue. In the notice, the 
Commission shall also set a date for the filing of reply memoranda, 
which may be filed only by participants that filed initial memoranda. 
Subpart T of part 385 of the Commission's regulations shall apply to 
all filings. A person that consents to the matter being handled 
pursuant to the shortened procedure has waived any right to 
subsequently request a hearing pursuant to Sec.  158.7 and may not 
later request such a hearing.
* * * * *

PART 286--ADMINISTRATIVE PROCEDURES AND DISPOSITION OF CONTESTED 
AUDIT FINDINGS AND PROPOSED REMEDIES

    7. The authority citation for part 286 continues to read as 
follows:

    Authority: Administrative Procedure Act, 5 U.S.C. 551 et seq., 
Natural Gas Policy Act of 1978, Pub. L. 95-621, 92 Stat. 3350, 
Department of Energy Organization Act, Pub. L. 95-91, E.O. 12009, 42 
FR 46267.

    8. The heading of part 286 is revised to read as set forth above.
    9. Sections 286.103 through 286.109 and a new undesignated center 
heading preceding them are added as follows:

Disposition of Contested Audit Findings and Proposed Remedies


Sec.  286.103  Notice to audited person.

    An audit conducted by the Commission or its staff under authority 
of the Natural Gas Policy Act may result in a notice of deficiency or 
audit report or similar document containing a finding or findings that 
the audited person has not complied with a requirement of the 
Commission with respect to, but not limited to, the following: A filed 
tariff or tariffs, contracts, data, records, accounts, books, 
communications or papers relevant to the audit of the audited person; 
matters under the Standards of Conduct or the Code of Conduct; and the 
activities or operations of the audited person. The notice of 
deficiency, audit report or similar document may also contain one or 
more proposed remedies that address findings of noncompliance. Where 
such findings, with or without proposed remedies, appear in a notice of 
deficiency, audit report or similar document, such document shall be 
provided to the audited person, and the finding or findings, and any 
proposed remedies, shall be noted and explained. The audited person 
shall timely indicate in a written response any and all findings, 
including any and all proposed remedies, with which the audited person 
disagrees. Any initial order that the Commission subsequently may issue 
with respect to the notice of deficiency, audit report or similar 
document shall note, but not address on the merits, the finding or 
findings and any proposed remedies with which the audited person 
disagreed. The Commission shall provide the audited person a specified 
number of days to respond with respect to the finding or findings and 
any proposed remedies with which it disagreed.


Sec.  286.104  Response to notification.

    Upon issuance of a Commission order that notes a finding or 
findings, with or without proposed remedies, with which the audited 
person has disagreed, the audited person may: Acquiesce in the findings 
and proposed remedies by not timely responding to the Commission order, 
in which case the Commission may issue an order approving them or 
taking other action; or challenge the finding or findings and any 
proposed remedies with which it disagreed by timely notifying the 
Commission in writing that it requests Commission review by means of a 
shortened procedure, or, if there are material facts in dispute which 
require cross-examination, a trial-type hearing.


Sec.  286.105  Shortened procedure.

    If the audited person subject to a Commission order described in 
Sec.  286.103 notifies the Commission that it seeks to challenge one or 
more audit findings, with or without proposed remedies, by the 
shortened procedure, the Commission shall thereupon issue a notice 
setting a schedule for the filing of memoranda. The person electing the 
use of the shortened procedure, and any other interested entities, 
including the Commission staff, shall file, by the date specified by 
the Commission in the notice, an initial memorandum that addresses the 
relevant facts and applicable law that support the position or 
positions taken regarding the matters at issue. In the notice, the 
Commission shall also set a date for the filing of reply memoranda, 
which may be filed only by participants that filed initial memoranda. 
Subpart T of part 385 of the Commission's regulations shall apply to 
all filings. A person that consents to the matter being handled 
pursuant to the shortened procedure has waived any right to 
subsequently request a hearing pursuant to Sec.  286.109 and may not 
later request such a hearing.


Sec.  286.106  Form and style.

    Each copy of such memorandum must be complete in itself. All 
pertinent data should be set forth fully, and each memorandum should 
set out the facts and argument as prescribed for briefs in Sec.  
385.706 of this chapter.


Sec.  286.107  Verification.

    The facts stated in the memorandum must be sworn to by persons 
having knowledge thereof, which latter fact must affirmatively appear 
in the affidavit. Except under unusual circumstances, such persons 
should be those who would appear as witnesses if hearing were had to 
testify as to the facts stated in the memorandum.


Sec.  286.108  Determination.

    If no formal hearing is had the matter in issue will be determined 
by the Commission on the basis of the facts and arguments submitted.


Sec.  286.109  Assignment for oral hearing.

    Except when there are no material facts in dispute, when a person 
does not

[[Page 65871]]

consent to the shortened procedure, the Commission will assign the 
proceeding for hearing as provided by subpart E of part 385 of this 
chapter. Notwithstanding a person's not giving consent to the shortened 
procedure, and instead seeking assignment for hearing as provided for 
by subpart E of part 385 of this chapter, the Commission will not 
assign the proceeding for a hearing when no material facts are in 
dispute. The Commission may also, in its discretion, at any stage in 
the proceeding, set the proceeding for hearing.
    10. Part 349 is added to Subchapter P to read as follows:

PART 349--DISPOSITION OF CONTESTED AUDIT FINDINGS AND PROPOSED 
REMEDIES

Sec.
349.1 Notice to audited person.
349.2 Response to notification.
349.3 Shortened procedure.
349.4 Form and style.
349.5 Verification.
349.6 Determination.
349.7 Assignment for oral hearing.

    Authority: 42 U.S.C. 7101-7352; 49 U.S.C. 60502; 49 App. U.S.C. 
1-85.


Sec.  349.1  Notice to audited person.

    An audit conducted by the Commission or its staff under authority 
of the Interstate Commerce Act may result in a notice of deficiency or 
audit report or similar document containing a finding or findings that 
the audited person has not complied with a requirement of the 
Commission with respect to, but not limited to, the following: A filed 
tariff or tariffs, contracts, data, records, accounts, books, 
communications or papers relevant to the audit of the audited person; 
matters under the Standards of Conduct or the Code of Conduct; and the 
activities or operations of the audited person. The notice of 
deficiency, audit report or similar document may also contain one or 
more proposed remedies that address findings of noncompliance. Where 
such findings, with or without proposed remedies, appear in a notice of 
deficiency, audit report or similar document, such document shall be 
provided to the audited person, and the finding or findings, and any 
proposed remedies, shall be noted and explained. The audited person 
shall timely indicate in a written response any and all findings, 
including any and all proposed remedies, with which the audited person 
disagrees. Any initial order that the Commission subsequently may issue 
with respect to the notice of deficiency, audit report or similar 
document shall note, but not address on the merits, the finding or 
findings and any proposed remedies with which the audited person 
disagreed. The Commission shall provide the audited person a specified 
number of days to respond with respect to the finding or findings and 
any proposed remedies with which it disagreed.


Sec.  349.2  Response to notification.

    Upon issuance of a Commission order that notes a finding or 
findings, with or without proposed remedies, with which the audited 
person has disagreed, the audited person may: Acquiesce in the findings 
and proposed remedies by not timely responding to the Commission order, 
in which case the Commission may issue an order approving them or 
taking other action; or challenge the finding or findings and any 
proposed remedies with which it disagreed by timely notifying the 
Commission in writing that it requests Commission review by means of a 
shortened procedure, or, if there are material facts in dispute which 
require cross-examination, a trial-type hearing.


Sec.  349.3  Shortened procedure.

    If the audited person subject to a Commission order described in 
Sec.  349.1 above notifies the Commission that it seeks to challenge 
one or more audit findings, with or without proposed remedies, by the 
shortened procedure, the Commission shall thereupon issue a notice 
setting a schedule for the filing of memoranda. The person electing the 
use of the shortened procedure, and any other interested entities, 
including the Commission staff, shall file, by the date specified by 
the Commission in the notice, an initial memorandum that addresses the 
relevant facts and applicable law that support the position or 
positions taken regarding the matters at issue. In the notice, the 
Commission shall also set a date for the filing of reply memoranda, 
which may be filed only by participants that filed initial memoranda. 
Subpart T of Part 385 of the Commission's regulations shall apply to 
all filings. A person that consents to the matter being handled 
pursuant to the shortened procedure has waived any right to 
subsequently request a hearing pursuant to Sec.  349.7 and may not 
later request such a hearing.


Sec.  349.4  Form and style.

    Each copy of such memorandum must be complete in itself. All 
pertinent data should be set forth fully, and each memorandum should 
set out the facts and argument as prescribed for briefs in Sec.  
385.706 of this chapter.


Sec.  349.5  Verification.

    The facts stated in the memorandum must be sworn to by persons 
having knowledge thereof, which latter fact must affirmatively appear 
in the affidavit. Except under unusual circumstances, such persons 
should be those who would appear as witnesses if hearing were had to 
testify as to the facts stated in the memorandum.


Sec.  349.6  Determination.

    If no formal hearing is had the matter in issue will be determined 
by the Commission on the basis of the facts and arguments submitted.


Sec.  349.7  Assignment for oral hearing.

    Except when there are no material facts in dispute, when a person 
does not consent to the shortened procedure, the Commission will assign 
the proceeding for hearing as provided by subpart E of part 385 of this 
chapter. Notwithstanding a person's not giving consent to the shortened 
procedure, and instead seeking assignment for hearing as provided for 
by subpart E of part 385 of this chapter, the Commission will not 
assign the proceeding for a hearing when no material facts are in 
dispute. The Commission may also, in its discretion, at any stage in 
the proceeding, set the proceeding for hearing.

[FR Doc. 05-21422 Filed 10-31-05; 8:45 am]

BILLING CODE 6717-01-P
