

[Federal Register: June 26, 2006 (Volume 71, Number 122)]
[Proposed Rules]               
[Page 36276-36294]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26jn06-25]                         


[[Page 36276]]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 157

[Docket No. RM06-7-000]

 
Revisions to the Blanket Certificate Regulations and 
Clarification Regarding Rates

June 16, 2006.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) proposes 
to amend its blanket certification regulations to expand the scope and 
scale of activities that may be undertaken pursuant to blanket 
authority. The Commission proposes to expand the types of natural gas 
projects permitted under blanket authority and to increase the cost 
limits that apply to blanket projects. In addition, the Commission will 
clarify that a natural gas company is not necessarily engaged in an 
unduly discriminatory practice if it charges different customers 
different rates for the same service based on the date that customers 
commit to service.

DATES: Comments are due August 25, 2006.

ADDRESSES: You may submit comments, identified by Docket No. RM06-7-
000, by one of the following methods:
     Agency Web Site: http://www.ferc.gov. Follow the 

instructions for submitting comments via the eFiling link found in the 
Comment Procedures Section of the preamble. The Commission encourages 
electronic filing.
     Mail: Commenters unable to file comments electronically 
must mail or hand deliver an original and 14 copies of their comments 
to: Federal Energy Regulatory Commission, Office of the Secretary, 888 
First Street, NE., Washington, DC 20426. Please refer to the Comments 
Procedures Section of the preamble for additional information on how to 
file paper comments.

FOR FURTHER INFORMATION CONTACT: Gordon Wagner, Office of the General 
Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426. gordon.wagner@ferc.gov. (202) 502-8947.
    John Leiss, Office of Energy Projects, Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426. 
john.leiss@ferc.gov. (202) 502-8058.


SUPPLEMENTARY INFORMATION:
     1. The Federal Energy Regulatory Commission (Commission) proposes 
to amend its part 157, subpart F, blanket certification regulations to 
expand the scope and scale of activities that may be undertaken 
pursuant to blanket authority.\1\ The Commission proposes to expand the 
types of natural gas projects permitted under blanket authority and to 
increase the cost limits that apply to blanket projects. In addition, 
the Commission will clarify that a natural gas company is not 
necessarily engaged in an unduly discriminatory practice if it charges 
different customers different rates for the same service based on the 
date that customers commit to service.
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    \1\ 18 CFR 157.201-157.218 (2005).
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    2. A natural gas company must obtain a certificate of public 
convenience and necessity pursuant to section 7 of the Natural Gas Act 
(NGA) to construct, acquire, alter, abandon, or operate jurisdictional 
gas facilities or to provide jurisdictional gas services. Natural gas 
companies holding an NGA section 7(c) certificate may also obtain 
blanket certificate authority under part 157, subpart F, of the 
Commission's regulations to undertake certain types of activities 
without the need to obtain case-specific certificate authorization for 
each project. Activities undertaken pursuant to blanket certificate 
authority are not subject to the longer and more exacting review 
process associated with individual authorizations issued on an 
application-by-application basis.\2\
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    \2\ Certain activities are exempted from the certificate 
requirements of NGA section 7(c). For example, Sec.  2.55 of the 
Commission's regulations exempts auxiliary installations and the 
replacement of physically deteriorated or obsolete facilities; part 
284, subpart I, of the regulations provides for the construction and 
operation of facilities needed to alleviate a gas emergency.
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    3. Natural gas facilities that may be constructed, acquired, 
altered, or abandoned pursuant to blanket authority are currently 
constrained by a cost limit of $8,200,000 for projects which can be 
undertaken without prior notice (also referred to as self-implementing 
or automatic authorization projects) and $22,700,000 for projects for 
which prior notice is required.\3\ In addition, the blanket certificate 
provisions apply only to a restricted set of eligible facilities; \4\ 
ineligible facilities currently include mainlines, storage field 
facilities, and facilities receiving gas from a liquefied natural gas 
(LNG) plant or a synthetic gas plant.\5\
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    \3\ See 18 CFR 157.208(d), Table I (2006), as updated. In 
November 2005, in response to the impacts of hurricanes Katrina and 
Rita on gas production, processing, and transportation in and along 
the Gulf of Mexico, these cost limits were temporarily raised to 
$50,000,000 for prior notice projects and $16,000,000 for self-
implementing projects, provided the projects increase access to gas 
supply and will be completed by October 31, 2006. See Expediting 
Infrastructure Construction To Speed Hurricane Recovery, 113 FERC ] 
61,179 (2005). The October 31, 2006 deadline was subsequently 
extended to February 28, 2007. 114 FERC ] 61,186 (2006).
    \4\ See Sec.  157.202(b)(2)(i) of the Commission's regulations, 
defining ``eligible facilities,'' and Sec.  157.202(b)(2)(ii) (2005) 
of the regulations, describing facilities excluded from the 
definition of ``eligible facilities.''
    \5\ The November 2005 Order cited in note 3 also temporarily 
extended blanket certificate authority to include what would 
otherwise be ineligible facilities, namely, an extension of a 
mainline; a facility, including compression and looping, that alters 
the capacity of a mainline; and temporary compression that raises 
the capacity of a mainline.
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    4. In this notice of proposed rulemaking (NOPR) the Commission 
proposes to expand the scope of activities that can be undertaken 
pursuant to blanket authority by (1) increasing the project cost limit 
to $9,600,000 for an automatic authorization project and $27,400,000 
for a prior notice project and (2) expanding the category of facilities 
eligible for construction under blanket certificate authority to 
include mainline facilities, certain LNG and synthetic gas facilities, 
and certain storage facilities. In addition, the Commission will 
clarify that a natural gas company is not necessarily engaged in an 
unduly discriminatory practice if it charges different customers 
different rates for the same service based on the date that customers 
commit to service.

Background

Petition To Expand the Blanket Certificate Program and Clarify Criteria 
Defining Just and Reasonable Rates

    5. On November 22, 2005, the Interstate Natural Gas Association of 
America (INGAA) and the Natural Gas Supply Association (NGSA) jointly 
filed a petition under Sec.  385.207(a) of the Commission's regulations 
proposing that the blanket certificate provisions be expanded ``to 
improve the industry's ability to ensure the adequacy of 
infrastructure, without impairing any legitimate rights of any party 
and without frustrating any public-policy objectives.'' \6\ Petitioners 
point to natural gas prices and tight gas supply and demand, and stress 
the need to ensure that natural gas facilities are adequate to reliably 
move available gas supplies to consuming markets. By way of example, 
Petitioners observe that natural gas producers faced with takeaway 
constraints can experience shut-ins, the depression of wellhead prices, 
and uncertainty as to when and where to

[[Page 36277]]

drill new wells. Petitioners add that companies faced with an inability 
to build new facilities when and where they are needed can experience a 
lack of growth, operational problems, and constraints on system 
flexibility. Petitioners argue that implementing their requested 
regulatory revisions will diminish the likelihood of experiencing such 
adverse events.\7\
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    \6\ INGAA/NGSA Petition at 2 (November 22, 2005).
    \7\ While Petitioners have ``determined that there is little to 
be improved in the Commission's processing of certificate 
applications,'' and that ``there are few changes to the current 
authorization process that would accelerate the process beyond its 
current, efficient state,'' they nevertheless contend that adopting 
the proposed revisions will ``further enhance the authorization 
process'' and provide additional certainty regarding regulatory 
treatment. INGAA/NGSA Petition at 2 and 4 (November 22, 2005).
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Expanded Blanket Certificate Authority

    6. Petitioners observe that the natural gas industry has undergone 
fundamental change since the blanket certificate provisions were put in 
place in 1982,\8\ and believe that the rationale for certain of the 
limitations imposed when the blanket certificate program was 
implemented should no longer apply. Petitioners request that blanket 
certificate authority be expanded to include mainline facilities, LNG 
takeaway facilities, and certain underground storage field facilities 
which are currently excluded from the blanket certificate program, and 
request that the cost limits for blanket projects be raised.
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    \8\ Interstate Pipeline Certificates for Routine Transactions, 
Order No. 234, 47 FR 24254 (June 4, 1982), FERC Stats. & Regs. ] 
30,368 (1982); Order No. 234-A, 47 FR 38871 (September. 3, 1982), 
FERC Stats. & Regs. ] 30,389 (1982).
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Blanket Project Cost Limits
    7. Petitioners comment that ``in the Commission's original 
justification for the [blanket certificate program] restrictions in 
Order No. 234, the primary reason given was the impact on ratepayers, 
not environmental impact or safety.'' \9\ In 1982, the blanket project 
cost limits were set at $4,200,000 for automatic projects and 
$12,000,000 for prior notice projects; presently, these cost limits 
stand at an inflation adjusted $8,200,000 and $22,700,000, 
respectively. Petitioners assert that the current blanket project cost 
cap is ``sufficiently small'' to render any rate impacts de minimis and 
state their belief in ``the likelihood that new investments will 
produce new revenue that covers the cost of the investments.'' \10\
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    \9\ INGAA/NGSA Petition at 8 (November 22, 2005).
    \10\ Id.
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    8. Petitioners claim that natural gas project costs have escalated 
faster than inflation, citing costs attributable to more extensive 
public outreach, greater agency involvement, a more complex permitting 
process, additional environmental remediation requirements, and the use 
of technologically advanced construction equipment. In view of this, 
Petitioners ask the Commission to reassess project costs and raise the 
blanket project cost limits in Sec.  157.208(d), Table I, of the 
regulations. Petitioners do not characterize this as enlarging the 
scale of projects permitted under blanket authorization,\11\ but as 
recalibrating the cost limits to permit a project that could have been 
constructed within the cost limit in effect in 1982 to be built again 
today within today's updated cost limit.
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    \11\ ``[I]t is not contemplated that an increase in the dollar 
limits will cause blanket projects to be larger, in terms of the 
project foot print or right of way needed, than they would have 
been'' in 1982. INGAA/NGSA Petition at 16 (November 22, 2005).
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Request To Clarify Criteria Defining Just and Reasonable Rate
    9. Petitioners state that a natural gas company's decision to go 
forward with a proposed project can turn on whether there are customer 
service commitments in hand sufficient to demonstrate the proposal's 
economic viability. Petitioners request that the Commission allow 
preferential rate treatment for ``foundation shippers,'' i.e., 
customers that sign up early for firm service and thereby establish the 
financial foundation for a new project. Doing so, Petitioners claim, 
will ``provide a strong incentive for more potential shippers to become 
foundation shippers, thus allowing needed infrastructure projects to 
get underway earlier.'' \12\ Petitioners seek assurance that offering 
customers that commit early to a proposed project a more favorable rate 
than customers that seek service later will not be viewed as unduly 
discriminatory.
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    \12\ Id. at 20.
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Notice and Comments

    10. Notice of the INGAA/NGSA petition was published in the Federal 
Register on December 9, 2005.\13\ The Commission sought comments on 
whether it should take further action on the petition. Responses were 
filed by: American Gas Association (AGA); American Public Gas 
Association (APGA); Anadarko Petroleum Corporation (Anadarko); Devon 
Energy Corporation (Devon); Duke Energy Gas Transmission Corporation 
(Duke); Enstor Operating Company, LLC (Enstor); Honeoye Storage 
Corporation (Honeoye Storage); Illinois Municipal Gas Agency (Illinois 
Municipal); Independent Petroleum Association of America (IPAA); Kinder 
Morgan Interstate Gas Transmission, LLC (Kinder Morgan); NiSource Inc. 
(NiSource); Process Gas Consumers Group (Process Gas Consumers); Public 
Service Commission of New York (PSCNY); and Sempra Global (Sempra).
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    \13\ 70 FR 73,232 (2005).
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    11. Duke, Enstor, Honeoye Storage, IPAA, and Process Gas Consumers 
unequivocally support the petition, and the majority of the remaining 
comments support aspects of the proposal. Several comments question 
and/or oppose the petition's proposals. The comments are discussed 
below.

Request for Technical Conference and Commission Response

    12. AGA requests the Commission convene a technical conference to 
consider whether the proposal could adversely impact rates or degrade 
service, and thus be inconsistent with Commission policy which requires 
weighing the impact of new facilities on existing customers.\14\ AGA is 
concerned expanding blanket certificate authority would undermine the 
Commission's rationale for initiating the blanket certificate program, 
which rests on the premise that blanket activities are minor in scope 
and ``so well understood as an established industry practice that 
little scrutiny is required to determine their compatibly with the 
public convenience and necessity.'' \15\
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    \14\ See Certification of New Interstate Natural Gas Pipeline 
Facilities (Policy Statement on New Facilities), 88 FERC ] 61,227 
(1999), orders clarifying statement of policy, 90 FERC ] 61,128 and 
92 FERC ] 61,094 (2000), order further clarifying statement of 
policy, 92 FERC ] 61,094 (2000).
    \15\ Interstate Pipeline Certificates for Routine Transactions, 
Order No. 234, FERC Stats. & Regs. ] 30,368 at 30,200 (1982). See 
also, Distrigas of Massachusetts Corp., 60 FERC ] 61,274 at 61,931 
(1992), in which the Commission stated that ``[t]he blanket 
procedures were intended to apply only to proposals which by their 
very nature require limited Commission involvement.''
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    13. AGA raises legitimate issues relevant to the outcome of this 
proceeding. That said, the Commission expects all interested persons 
will have an adequate opportunity to express their views in comments in 
response to this NOPR. Given that comments have yet to be submitted on 
the merits of the regulatory revisions proposed herein, the Commission 
will dismiss AGA's request for a technical conference as premature. 
Following a review of the comments received in response to this NOPR, 
the request will be reassessed.

[[Page 36278]]

Proposed Regulatory Revisions

Rationale for the Blanket Certificate
    14. The blanket certificate program was designed to provide an 
administratively efficient means to authorize a generic class of 
routine activities, without assessing each prospective project on a 
case-by-case basis. In 1982, in instituting the blanket certificate 
program, the Commission explained the new program as follows:

    [T]he final regulations divide the various actions that the 
Commission certificates into several categories. The first category 
applies to certain activities performed by interstate pipelines that 
either have relatively little impact on ratepayers, or little effect 
on pipeline operations. This first category also includes minor 
investments in facilities which are so well understood as an 
established industry practice that little scrutiny is required to 
determine their compatibility with the public convenience and 
necessity. The second category of activities provides for a notice 
and protest procedure and comprises certain activities in which 
various interested parties might have a concern. In such cases there 
is a need to provide an opportunity for a greater degree of review 
and to provide for possible adjudication of controversial aspects. 
Activities not authorized under the blanket certificate are those 
activities which may have a major potential impact on ratepayers, or 
which propose such important considerations that close scrutiny and 
case-specific deliberation by the Commission is warranted prior to 
the issuance of a certificate.\16\
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    \16\ 47 FR 24254 (June 4, 1982).

    15. The Commission continues to apply the above criteria in an 
effort to distinguish those types of activities that may appropriately 
be constructed under blanket certificate authority from those projects 
that merit closer, case-specific scrutiny due to their potentially 
significant impact on rates, services, safety, security, competing 
natural gas companies or their customers, or on the environment.
    16. ''Under section 7 of the NGA, pursuant to which the blanket 
certificate rule is promulgated,'' the Commission has ``an obligation 
to issue certificates only where they are required by the public 
convenience and necessity. The blanket certificate rules set out a 
class of transactions, subject to specific conditions, that the 
Commission has determined to be in the public convenience and 
necessity.'' \17\ To the extent this class of transactions is enlarged, 
there must be an assessment, and assurance, that each added class of 
transactions is similarly required by the public convenience and 
necessity.
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    \17\ Regulation of Natural Gas Pipelines After Partial Wellhead 
Decontrol, Order No. 436, 50 FR 42408 (October 18, 1985).
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    17. In this NOPR, the Commission proposes to expand the scope of 
blanket certificate activities to include mainlines, storage 
facilities, and certain facilities carrying regasified LNG and 
synthetic gas, and to expand the scale of blanket certificate 
activities by raising the project cost limits. The Commission seeks 
comments on whether this can be accomplished without compromising the 
rationale upon which the blanket certificate program is founded.

Comments and Commission Response

    18. APGA questions the rationale for revising the blanket 
certificate program. Unlike Petitioners, APGA sees no cause to 
attribute current high natural gas prices and recent price volatility 
to inadequate gas transportation or storage facilities. Instead, APGA 
contends prices reflect tight supplies and a relatively inelastic 
demand.\18\ Consequently, APGA does not expect the proposed regulatory 
revisions to result in lower gas prices or less price volatility. APGA 
contends the proposed changes will eliminate protections mandated by 
the NGA and will be contrary to Commission's Policy Statement on New 
Facilities.\19\
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    \18\ APGA adds that the municipal and publicly-owned local 
distribution systems it represents, and the retail customers they 
serve, are ``extremely sensitive'' to increases in the cost of 
natural gas and it urges the Commission to ``take all reasonable 
actions to ensure the lowest natural gas prices and to minimize 
price volatility.'' APGA's Comments at 4 (January 17, 2006).
    \19\ See note 14.
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    19. The regulatory revisions proposed herein are not intended to 
drive down current gas costs; rather, the Commission seeks to provide a 
streamlined means for natural gas companies to make infrastructure 
enhancements in a timely manner. Nevertheless, to the extent prices 
reflect capacity constraints that might be alleviated by adding or 
upgrading facilities, then expanding the blanket certificate program, 
which offers companies an expedited means to obtain construction 
authorization, may indirectly drive prices down by allowing companies 
to address system bottlenecks expeditiously through use of their 
blanket certificate authority. The Commission recognizes that the 
proposed revisions, by expanding blanket certificate authorization, 
would modify the nature of the blanket program; however, for the 
reasons discussed below, the Commission believes the proposed revisions 
comport with the Commission's mandate under the NGA and are consistent 
with current Commission policy.
    20. APGA observes that in the past, the Commission has temporarily 
altered provisions of the blanket certificate program in response to 
natural gas emergencies, and states that these temporary measures have 
proved effective. In view of the Commission's success in making 
temporary adjustments, APGA sees no need to permanently expand blanket 
certificate authority. APGA contends that but for the electric crisis 
in the Western United States in 2000-2001, Petitioners have not cited 
any instance of mainline pipeline capacity constraint that would 
justify lifting the prohibition on adding mainline capacity under 
blanket certificate authority. APGA states that the Commission's 
response to the 2005 Gulf Coast hurricanes is designed to expedite 
rebuilding infrastructure to restore lost services, and does not 
reflect a need to permanently alter the blanket certificate regulations 
in order to promote a nationwide expansion of facilities and services.
    21. The Commission concurs with APGA that flexibility afforded by 
the NGA, and the intermittent use of provisional waivers of certain 
Commission regulations, have proved effective in accelerating the 
industry's recovery from natural gas emergencies. However, the 
Commission does not view the result of a temporary waiver of compliance 
with certain blanket certificate requirements --whether the result be 
deemed a success or not--as a reason to adopt or reject the blanket 
certificate program expansion as Petitioners propose. The Commission 
believes the emphasis of the blanket certificate program should remain, 
as it always has, on expediting the process of adding and improving gas 
facilities and services, while ensuring that there are no adverse 
impacts on existing rates, services, or the environment. The immediate 
crisis in the aftermath of the hurricanes has eased. However, the need 
to restore and add infrastructure remains critical: (1) To attach new 
supplies to offset the continuing decline from existing gas sources; 
(2) to add interconnections, extensions, and other new facilities to 
enhance the flexibility and responsiveness of the grid; and (3) to 
accommodate anticipated increases in imports of LNG. It is with these 
objectives in mind that the Commission proposes to expand its blanket 
certificate program.
    22. The Commission seeks comment whether allowing project sponsors 
the option of requesting an incremental rate

[[Page 36279]]

for a particular project \20\ will provide additional flexibility to 
expedite the process of adding and improving gas facilities and 
services, while ensuring that there are no adverse impacts on existing 
rates, services, or the environment. Further, the Commission seeks 
comment regarding what additional or alternative revisions to the 
blanket certificate regulations would be necessary to establish the 
appropriate procedures.
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    \20\ See, e.g., Tennessee Gas Pipeline Company, 110 FERC ] 
61,047, order denying reh'g, 111 FERC ] 61,094 (2005), discussing 
the Commission's rejection of a pipeline's proposal to construct a 
five-mile lateral line under blanket authority and charge an 
incremental rate.
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Facilities Subject to Blanket Certificate Authority
    23. To meet the above stated objectives, the Commission proposes to 
expand the scope of the blanket certificate program by including 
certain facilities associated with LNG and synthetic gas plants, 
storage facilities, and mainlines--all of which have heretofore been 
excluded from the blanket certificate program.\21\ In 1982, these 
facilities were excluded principally due to their perceived potential 
to adversely impact existing customers' rates and services. With 
respect to rates, a presumption that blanket certificate project costs 
will qualify for rolled-in rate treatment will continue to apply, 
subject to rebuttal by showing adverse impacts in a NGA section 4 rate 
case proceeding. With respect to facilities and services, the proposal 
discussed below to require prior notice for projects undertaken as a 
result of expanded blanket certificate authority, in conjunction with 
the proposal to lengthen the prior notice period, should provide a 
reasonable opportunity to review the potential system impacts of a 
proposed blanket project prior to its construction.
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    \21\ Certain limited underground storage field testing and 
development is permitted under Sec.  157.215; this NOPR proposes a 
significant expansion of blanket-eligible storage field activities. 
Also, as noted above, blanket certificate authority has been 
extended to otherwise ineligible facilities on a temporary basis in 
order to respond to a natural gas emergency.
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Facilities Receiving LNG and Synthetic Gas
    24. The blanket certificate regulations exclude facilities used to 
take gas away from plants regasifying LNG and manufacturing synthetic 
gas, a restriction imposed in 1982, in part, to protect customers from 
the impact of paying the high commodity cost of LNG and synthetic 
gas.\22\ Such rate protection is now little more than an artifact of 
the era when jurisdictional pipelines provided merchant service, 
charging customers a bundled rate that combined a transportation charge 
for delivering natural gas plus the cost to purchase gas. In 1992, in 
Order No. 636,\23\ the Commission undertook a process of restructuring 
the gas industry, resulting in the itemization and separate billing of 
previously bundled gas services. As a result, today's jurisdictional 
rates no longer include the commodity cost of gas purchased by the 
pipeline and sold to the customer. Further, over the last several 
years, the cost differential between non-traditional energy sources, 
particularly imported LNG, and traditional domestic, Canadian, and 
Mexican gas supplies has narrowed. In view of recent and anticipated 
market conditions, barring facilities receiving LNG and synthetic gas 
from the blanket program may be hindering consumers' access to 
competitively-priced gas supplies.
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    \22\ As stated in the 1982 order promulgating the blanket 
certificate regulations, because LNG and synthetic gas ``facilities 
may have a significant impact on ratepayers, the Commission believes 
they should not be authorized under a blanket certificate, but 
should be subjected instead to the scrutiny of a case-specific 
determination.'' 47 FR 24254 (June 4, 1982).
    \23\ Pipeline Service Obligations and Revisions to Regulations 
Governing Self-Implementing Transportation Under Part 284 of the 
Commission's Regulations, and Regulation of Natural Gas Pipelines 
After Partial Wellhead Decontrol, Order No. 636, FERC Stats. & Regs. 
] 30,939 (1992), order on reh'g, Order No. 636-A, FERC Stats. & 
Regs. ] 30,950 (1992), order on reh'g, Order No. 636-B, 61 FERC ] 
61,272 (1992), aff'd in part, rev'd in part sub nom. United 
Distribution Cos. v. FERC, 88 F.3d 1105 (D.C. Cir. 1996), cert. 
denied sub nom. Associated Gas Distributors v. FERC, 520 U.S. 1224 
(1997), on remand, Order No. 636-C, 78 FERC P 61,186 (1997), order 
on reh'g, Order No. 636-D, 83 FERC ] 61,210 (1998).
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    25. The Commission believes that increasing access to LNG and 
synthetic gas is consistent with the public interest. Accordingly, the 
Commission proposes to revise its regulations to permit certificate 
holders to rely on blanket authority to add, alter, or abandon certain 
pipeline facilities used to carry gas away from an LNG terminal, a 
deepwater LNG port, an inland LNG storage facility, or a synthetic gas 
manufacturing plant.
    26. The Commission proposes to add Sec.  157.212, to read as 
follows:

Sec.  157.212 Synthetic and liquefied natural gas facilities.

    Prior Notice. Subject to the notice requirements of Sec. Sec.  
157.205(b) and 157.208(c), the certificate holder is authorized to 
acquire, abandon, construct, modify, replace, or operate natural gas 
facilities that are used to transport exclusively either synthetic 
gas or revaporized liquefied natural gas and that are not ``related 
jurisdictional natural gas facilities'' as defined in Sec.  
153.2(e). The cost of a project may not exceed the cost limitation 
set forth in column 2 of Table I of Sec.  157.208(d). The 
certificate holder must not segment projects in order to meet this 
cost limitation.

    27. This approach is intended to provide advance notice of proposed 
blanket certificate projects involving facilities carrying exclusively 
LNG or synthetic gas to allow the public, or Commission staff, to 
comment or protest, and thereby possibly compel case-specific 
consideration of a proposal.\24\ The Commission views ``facilities that 
are used to transport exclusively either synthetic gas or revaporized 
liquefied natural gas'' as pipelines interconnected directly to an LNG 
or synthetic gas plant and downstream laterals; the facilities extend 
from an LNG or synthetic gas source to the first junction with a line 
carrying natural gas drawn from the ground. Once gas supply sources are 
commingled, Sec.  157.212 becomes inapplicable. Pursuant to Sec.  
153.2(e), blanket certificate authority will not apply to the outlet 
pipe of an LNG or synthetic gas plant, but only to those facilities 
that attach to the directly interconnected pipe.
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    \24\ A protest may be filed in response to a prior notice of a 
proposed blanket project. 18 CFR 157.205(e) (2005). If the protest 
is not withdrawn or dismissed within the time allotted, the prior 
notice proceeding is then treated as an application for a case-
specific NGA section 7 certificate authorization. 18 CFR 157.205(f) 
and (g) (2005).
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    28. The Commission acknowledges that there may be no objections 
presented to certain LNG and synthetic gas takeaway pipeline projects, 
e.g., a meter at a line leading from an inland LNG peaking plant. 
Nevertheless, the Commission believes it is prudent to provide prior 
notice of all LNG and synthetic gas takeaway pipeline projects to give 
end users, local distribution companies, the Commission, and others the 
opportunity to review the potential impacts of a proposal and the 
option to comment or protest.
    29. The blanket certificate provisions do not apply to LNG plant 
facilities,\25\ and this proposed regulatory revision will not change 
that. LNG plant facilities are not within the class of minor, well-
understood, routine activities that the blanket certificate program is 
intended to embrace; LNG plant facilities necessarily require a review 
of engineering, environmental,

[[Page 36280]]

safety, and security issues that the Commission believes only can be 
properly considered on a case-by-case basis. Similarly, the proposed 
blanket certificate provisions will be inapplicable to jurisdictional 
natural gas facilities directly attached to an LNG terminal, since such 
facilities are subject to the mandatory 180-day pre-filing process 
specified in Sec.  157.21 of the Commission's regulations.\26\
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    \25\ LNG facilities' construction and operation remain subject 
to separate regulatory requirements, either NGA section 3 approval 
for import or export plant facilities, or NGA section 7 case-
specific certificate authorization for LNG storage facilities. The 
Commission's jurisdiction over the transportation and sale of 
natural gas in interstate commerce does not apply to synthetic gas 
manufacturing plant facilities.
    \26\ Section 153.2 of the Commission's regulations states that 
the construction of any pipelines or other natural gas facilities 
subject to section 7 of the NGA which will directly interconnect 
with the facilities of an LNG terminal, and which are necessary to 
transport gas to or regasified LNG from a proposed or existing 
authorized LNG terminal, are subject to a mandatory minimum six-
month pre-filing process. 18 CFR 153.2 (2006). See Regulations 
Implementing Energy Policy Act of 2005; Pre-Filing Procedures for 
Review of LNG Terminals and Other Natural Gas Facilities, Order No. 
665, 113 FERC ] 61,015 (2005).
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    30. The mandatory 180-day pre-filing process for jurisdictional 
natural gas facilities that directly interconnect with the facilities 
of an LNG terminal was put in place last year pursuant to section 
311(d) of the Energy Policy Act of 2005 (EPAct 2005).\27\ Petitioners 
ask that the Commission revise these recently enacted regulations so 
that ``the pipeline lateral receiving LNG is not subject to the 
Commission's mandatory pre-filing process,'' asserting that a ``lateral 
to hook up to existing LNG facilities should cause no additional issues 
regarding safety and environmental concerns.'' \28\ The Commission 
disagrees. Because an LNG terminal and the facilities that attach 
directly to it are interdependent--inextricably bound in design and 
operation--a terminal and its takeaway facilities must be evaluated in 
tandem; both merit a similar degree of regulatory scrutiny.
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    \27\ Public Law 109-58, 119 Stat. 594 (2005).
    \28\ INGAA/NGSA Petition at 14 (November 22, 2005).
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    31. Petitioners argue that rules ``that make it considerably more 
difficult to hook up LNG to the interstate grid * * * differentiate 
between facilities for different types of supply'' which ``appears 
unduly discriminatory.'' \29\ Again, the Commission disagrees. The 
different rules applicable to different natural gas supply sources 
reflect the different technology involved in importing, storing, and 
regasifying LNG. In addition, different public policy considerations 
apply to LNG, e.g., safety and reliability concerns and issues related 
to gas quality and interchangeability. In view of this, the Commission 
finds legitimate cause to draw a regulatory distinction between LNG 
imports and traditional gas supplies, and will decline the request to 
revisit the provisions put in place in last year's Order No. 665.
---------------------------------------------------------------------------

    \29\ Id.
---------------------------------------------------------------------------

Comments and Commission Response
    32. Devon is apprehensive that expanding blanket certificate 
authority to include certain LNG pipelines could give LNG imports a 
competitive advantage over domestic gas supplies. The Commission is not 
in a position to address this, as it is not charged with or conducting 
a comparative analysis of types of energy, or with promoting one source 
or type of energy over another, or with determining whether the 
national interest lies with obtaining energy independence or foreign 
energy supplies. More to the point, LNG import terminals and the 
pipelines directly interconnected to them need to be constructed, or 
expanded, in tandem before additional volumes of LNG can be brought 
into the United States, and the proposed expansion of blanket 
certificate authority will not apply to either LNG terminals or the 
facilities that are directly interconnected with them.\30\ Thus, the 
construction, expansion, or modification of facilities capable of 
boosting LNG imports will remain subject to case-specific NGA section 7 
certificate authorization and case-specific NGA section 3 approval.
---------------------------------------------------------------------------

    \30\ See 18 CFR 153.2(e) (2006).
---------------------------------------------------------------------------

    33. Devon and APGA observe that LNG imports can have 
characteristics different from traditional gas supplies and assert that 
the changed character of the gas could result in adverse impacts on 
pipelines carrying imported LNG and end users consuming it. The 
Commission's Policy Statement on Provisions Governing Natural Gas 
Quality and Interchangeability in Interstate Natural Gas Pipeline 
Company Tariffs (Policy Statement on Gas Quality) in Docket No. PL04-3-
000, issued concurrently with this NOPR, provides direction for 
addressing gas quality and interchangeability concerns. Assuming LNG 
supplies conform to the gas quality standards of jurisdictional 
pipelines' tariffs, and the tariffs are in accord with the Policy 
Statement on Gas Quality, the Commission believes that objections that 
concern the character of particular volumes of gas are best presented 
to parties buying and reselling the gas. However, if there are 
indications that gas volumes--regardless of their source--may have 
characteristics incompatible with pipelines' tariff provisions, or 
inconsistent with the Policy Statement on Gas Quality, then it would be 
appropriate to inform the Commission either by a protest to a proposed 
blanket certificate project or by presenting an NGA section 5 
complaint.
    34. Devon suggests that LNG imports could interfere with pipelines' 
operations by creating capacity constraints. A pipeline would not agree 
to accept LNG imports--or, indeed, additional quantities of gas from 
any source--if doing so could compromise its ability to continue to 
reliably meet its commitments to its existing customers, since doing so 
would conflict with the pipeline's certificate obligation to meet its 
customers' firm service requirements. If there is an indication that a 
change in a natural gas company's operations, be it due to receipt of 
LNG or any other cause, may interfere with the company's capability to 
continue to provide certificated services, allegations to this effect 
may be presented in a protest to a proposed blanket certificate project 
or in an NGA section 5 complaint. The Commission will act as necessary 
to prevent and remedy improper practices; as appropriate, the 
Commission will employ its NGA enforcement authority, under which it 
may impose a civil penalty of up to $1,000,000 per day for the 
violation of any provision of the NGA ``or any rule, regulations, 
restriction, condition, or order made or imposed by the Commission 
under authority of'' the NGA.\31\
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    \31\ See EPAct 2005 section 314, amending the Commission's civil 
penalty authority under NGA section 22.
---------------------------------------------------------------------------

    35. AGA and Petitioners concur that the motive for excluding LNG 
takeaway facilities from blanket certificate projects--i.e., the 
concern that high-priced LNG imports would raise gas costs for the 
customers of merchant pipelines--is now no more than an artifact of the 
bundled era, and is thus no longer relevant. Nevertheless, AGA urges 
that LNG takeaway lines continue to be excluded from the blanket 
certificate program due to the public safety and operational issues 
raised by the import of additional LNG supplies. AGA suggests awaiting 
the outcome of the proceeding in Docket No. PL04-3-000 prior to 
applying any expanded blanket certificate authority to LNG pipeline 
facilities. Similarly, APGA maintains that modifications to LNG 
takeaway facilities raise technical issues that merit examination prior 
to implementation. APGA adds that the compatibility of LNG supplies 
with existing transmission equipment and with end users' facilities and 
processes is an issue that should be considered, yet might not receive 
the attention deserved if LNG takeaway facilities were expanded under 
blanket certificate authority.

[[Page 36281]]

    36. First, pursuant to Order No. 665, the blanket certificate 
provisions do not apply to facilities attached directly to an LNG 
terminal. With respect to LNG and synthetic gas takeaway facilities to 
which the blanket certificate provisions will apply, all proposed Sec.  
157.212 projects will require prior notice, which should permit the 
public an adequate opportunity to identify, address, and resolve issues 
before construction can commence. If there is an interest in exploring 
gas quality and interchangeability issues, or any issues related to the 
operational characteristics of LNG and synthetic gas plants, an 
interested person may protest, and by doing so, potentially convert the 
blanket proceeding to a case-specific NGA section 7 certificate 
authorization proceeding. Finally, as noted, in Docket No. PL04-3-000 a 
Policy Statement on Gas Quality is issued concurrently with this NOPR 
and will apply to all blanket certificate projects.

Underground Storage Field Facilities

    37. Currently, the blanket certificate program excludes a 
``facility required to test or develop an underground storage field or 
that alters the certificated capacity, deliverability, or storage 
boundary, or a facility required to store gas above ground * * * or 
wells needed to utilize an underground storage field.'' \32\ 
Petitioners request these restrictions be removed, provided blanket 
certificate activities do not result in inappropriate changes to the 
physical characteristics of an underground storage field. Specifically, 
Petitioners seek to expand the blanket certificate program to include: 
(1) Facilities that provide deliverability enhancements (e.g. 
aboveground piping or compression); (2) infill wells that increase 
injection or withdrawal capability; (3) the development of new caverns 
or storage zones within a previously defined project area or field, as 
long as there is no change in the certificated boundaries or pressure 
of the field.
---------------------------------------------------------------------------

    \32\ 18 CFR 157.202(b)(2)(ii)(D) (2005).
---------------------------------------------------------------------------

    38. As a general proposition, it is easier to track gas volumes 
moving through a pipeline than gas volumes moving in and out of an 
underground reservoir. The boundaries, integrity, and operational 
characteristics of a segment of pipe are known and fixed, but these 
characteristics are neither obvious nor immutable for an underground 
storage facility. In view of the operational and engineering 
ambiguities inherent in managing underground storage facilities, these 
facilities (but for a limited Sec.  157.215 exception for facilities 
for testing and development) have been excluded from the blanket 
certificate program.
    39. Underground storage fields are designed, constructed, 
developed, and operated based on initial available data, and as 
additional data are obtained over the course of a storage field's 
operation, the facilities' design and the operational parameters may be 
modified to optimize the field's development and productivity. Because 
storage design and development is not an exact science, it typically 
takes three to ten years of full operation to understand and 
incorporate engineering, geological, and related data to obtain optimal 
storage field functioning.
    40. The Commission seeks to ensure that storage facilities are 
operated in a manner that will maintain their long-term integrity while 
meeting day-to-day performance requirements. Because certain 
modifications may affect operational parameters such as total storage 
capacity and working and cushion gas volumes, the Commission believes 
it would be imprudent to expand blanket certificate authority to 
activities that could impact the operating pressures, reservoir or 
buffer boundaries, or the certificated capacity of a storage facility. 
Nevertheless, the Commission believes the administrative advantages of 
construction under blanket certificate authority can be prudently 
extended to certain storage field activities provided there is 
sufficiently detailed prior notice of a proposed project. This will 
allow companies, under blanket certificate authority, to utilize re-
engineering to enhance the capability of existing storage facilities 
while permitting the Commission and the public to assess whether a 
proposal might compromise a storage field's integrity or alter its 
physical characteristics or certificated capacity.
    41. The Commission proposes to add Sec.  157.213, specifying 
information to be included in a prior notice of a proposed project 
affecting underground storage field facilities.\33\ Under these 
proposed regulatory revisions, if a certificate holder is able to 
demonstrate, by theoretical or empirical evidence, that a proposed 
project will improve storage operations without altering an underground 
storage facility's total inventory, reservoir pressure, or reservoir or 
buffer boundaries, and will comply with environmental and safety 
provisions, then blanket certificate authority may be used to re-
engineer an existing storage facility to decrease cushion gas, increase 
working gas, improve injection and withdrawal capabilities, and add 
more cycles per season. Storage field facilities can include gathering 
lines, wells (vertical, horizontal, directional, observation, and 
injection and withdrawal), pipelines, compression units, and 
dehydration and other gas treatment facilities. This proposed expanded 
blanket certificate authority might be used to maintain and enhance 
deliverability in existing fields with lagging performance due to 
deteriorated wells or flow strings, damage to well bore drainage areas, 
water encroachment, and other operational and facility problems, and to 
make field enhancements, such as converting a nonjurisdictional 
observation well to withdrawal or injection/withdrawal status. These 
enhancements can serve to improve peak, daily, and/or seasonal 
deliverability by decreasing cushion gas, increasing working gas, 
improving injection and withdrawal capabilities, or adding more cycles 
per season--all without affecting overall operating limits.
---------------------------------------------------------------------------

    \33\ The information to be included in prior notice should 
satisfy APGA's request for an opportunity to review blanket project 
storage field modifications before construction.
---------------------------------------------------------------------------

    42. Petitioners promote expanding blanket certificate authority to 
encompass the development of new caverns or storage zones within a 
previously defined and certificated project area or field. The 
Commission, however, views the blanket certificate program as ill 
suited to construction that would create new storage zones, because 
impacts associated with such projects are wide ranging and go beyond 
the limited impact that increases in deliverability are expected to 
have on existing fields. The development of new storage zones within a 
previously defined and certificated field is no different than the 
development of an entirely new storage field and thus deserves the same 
level of scrutiny. The issues to be considered in establishing new 
underground gas reservoirs require a close review of technical 
characteristics and test results, among other criteria, that go far 
beyond the project description, and limited assessment thereof, 
available in prior notice proceeding.\34\
---------------------------------------------------------------------------

    \34\ This also applies to the development of new salt caverns. 
The safety parameters of a salt cavern within a salt dome or salt 
formation are more complicated and require more detailed studies and 
analysis than depleted gas or oil fields. The development of salt 
caverns, even if within a previously studied and certificated dome 
or bedded salt formation, calls for exacting step-by-step procedures 
to verify the validity of the original and modified design.
---------------------------------------------------------------------------

    43. Similarly, the proposed expanded blanket certificate authority 
is not

[[Page 36282]]

intended to include storage reservoirs that are still under development 
or reservoirs which have yet to reach their inventory and pressure 
levels as determined from their original certificated construction 
parameters. Such reservoirs may or may not have reliable information 
available on geological confinement or operational parameters via data 
gathered throughout the life of a storage field, whereas new storage 
zones lack data collected over time on physical and operational aspects 
of a field. Therefore, for such facilities, the Commission finds it 
necessary to individually examine each reservoir to determine its 
potential operating parameters (capacity, cushion and working gas, 
operational limits, well locations, etc.) and to review data essential 
to understand and predict how modifications might affect the integrity, 
safety, and certificated parameters of the facility.
    44. The Commission proposes to expand the blanket certificate 
program to permit additional storage field activities subject to the 
Sec. Sec.  157.205 and 157.208(c) prior notice provisions and the 
submission of information pertinent to the proposed project, as 
specified below. The current Sec.  157.215 automatic authorization 
remains in effect for limited storage testing and development. The 
Commission proposes to add a new Sec.  157.213 for prior notice storage 
projects, as follows:

Sec.  157.213 Underground storage field facilities.

    (a) Prior Notice. Subject to the notice requirements of 
Sec. Sec.  157.205(b) and 157.208(c), the certificate holder is 
authorized to acquire, abandon, construct, modify, replace, or 
operate natural gas underground storage facilities, provided the 
storage facility's total inventory, reservoir pressure, reservoir 
and buffer boundaries, certificated capacity, and compliance with 
environmental and safety provisions remain unaffected. The cost of a 
project may not exceed the cost limitation set forth in column 2 of 
Table I of Sec.  157.208(d). The certificate holder must not segment 
projects in order to meet this cost limitation.
    (b) Contents of request. In addition to the requirements of 
Sec. Sec.  157.206(b) and 157.208(c), requests for activities 
authorized under paragraph (a) must contain:
    (1) A description of the current geological interpretation of 
the storage reservoir, including both the storage formation and the 
caprock, including summary analysis of any recent cross-sections, 
well logs, quantitative porosity and permeability data, and any 
other relevant data for both the storage reservoir and caprock;
    (2) The latest isopach and structural maps of the storage field, 
showing the storage reservoir boundary, as defined by fluid contacts 
or natural geological barriers; the protective buffer boundary; the 
surface and bottomhole locations of the existing and proposed 
injection/withdrawal wells and observation wells; and the lengths of 
open-hole sections of existing and proposed injection/withdrawal 
wells;
    (3) Isobaric maps (data from the end of each injection and 
withdrawal cycle) for the last three injection/withdrawal seasons, 
which include all wells, both inside and outside the storage 
reservoir and within the buffer area;
    (4) A detailed description of present storage operations and how 
they may change as a result of the new facilities or modifications. 
Include a detailed discussion of all existing operational problems 
for the storage field, including but not limited to gas migration 
and gas loss;
    (5) Current and proposed working gas volume, cushion gas volume, 
native gas volume, deliverability (at maximum and minimum pressure), 
maximum and minimum storage pressures, at the present certificated 
maximum capacity or pressure, with volumes and rates in MMcf and 
pressures in psia;
    (6) The latest field injection/withdrawal capability studies 
including curves at present and proposed working gas capacity, 
including average field back pressure curves and all other related 
data;
    (7) The latest inventory verification study for the storage 
field, including methodology, data, and work papers;
    (8) The shut-in reservoir pressures (average) and cumulative 
gas-in-place (including native gas) at the beginning of each 
injection and withdrawal season for the last 10 years; and
    (9) A detailed analysis, including data and work papers, to 
support the need for additional facilities (wells, gathering lines, 
headers, compression, dehydration, or other appurtenant facilities) 
for the modification of working gas/cushion gas ratio and/or to 
improve the capability of the storage field.

Comments and Commission Response

    45. APGA argues that making modifications to underground storage 
facilities raises technical issues that should be reviewed in advance 
of any construction activity, and that the blanket certificate program 
does not provide for adequate advance oversight. The Commission 
believes adequate oversight will be assured because prospective storage 
field projects will be subject to prior notice, which notice must 
include the detailed information descried above.
    46. Honeoye Storage contends that there is no reason to subject 
storage field construction to greater scrutiny than other construction 
activities as long as additional well construction or other activities 
do not alter the certificated parameters of existing storage 
facilities. For the reasons discussed above, the Commission believes 
that activities that alter certain characteristics of a storage field 
merit close scrutiny. However, provided there is adequate advance study 
and documentation of the proposed construction, the Commission finds no 
reason to bar every activity that might alter a certificated parameter 
from the blanket certificate program.\35\ The information a project 
sponsor is required to submit pursuant to proposed Sec.  157.213 is 
intended to give the Commission and interested persons a sufficient 
basis upon which to assess the prudence of proposed storage field 
activities.
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    \35\ See Texas Eastern Transmission Corporation, 62 FERC ] 
61,196 (1993).
---------------------------------------------------------------------------

Mainline Facilities

    47. The Commission proposes to extend blanket certificate authority 
to mainline facilities. Heretofore, the blanket certificate provisions 
have excluded mainline facilities, in part out of concern that mainline 
project costs could be large enough to adversely impact existing rates. 
Without this exclusion, it might be possible for a natural gas company 
to break a costly mainline project into several blanket-sized segments. 
This remains a valid concern, and as stressed in comments, this concern 
is rendered more acute as blanket project cost limits increase.
    48. To allay this concern, the Commission proposes to require that 
all blanket certificate projects involving mainline facilities be 
subject to prior notice to give the Commission and interested persons a 
means to assess a proposal and express objections before construction 
begins. Section 157.208(b) of the Commission's regulations states that 
a blanket certificate holder ``shall not segment projects in order to 
meet the cost limitation set forth in column 2 of Table I,'' i.e., the 
prior notice project cost cap. The Commission intends to continue to 
closely monitor blanket certificate projects, and in cases when a 
project sponsor relies on blanket certificate authority for multiple 
projects, to review blanket activities to verify that individual 
projects are not piecemeal portions of a larger integrated undertaking. 
If the Commission determines segmentation has occurred, it may impose 
sanctions, which can include precluding a natural gas company from 
acting under blanket certificate authority \36\ and penalties of up to 
$1,000,000 per day per violation.
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    \36\ See, e.g., Destin Pipeline Company, L.L.C., 90 FERC ] 
61,270 (2000), in which the Commission responded to construction 
costs that greatly exceeded the project cost limit by suspending the 
natural gas company's blanket certificate authority.
---------------------------------------------------------------------------

    49. The Commission proposes to add Sec.  157.210, to read as 
follows:

Sec.  157.210 Mainline natural gas facilities.

    Prior Notice. Subject to the notice requirements of Sec. Sec.  
157.205(b) and 157.208(c),

[[Page 36283]]

the certificate holder is authorized to acquire, abandon, construct, 
modify, replace, or operate natural gas mainline facilities. The 
cost of a project may not exceed the cost limitation set forth in 
column 2 of Table I of Sec.  157.208(d). The certificate holder must 
not segment projects in order to meet this cost limitation.

Comments and Commission Response

    50. Petitioners observe that one of the reasons for excluding 
mainline capacity expansion projects in the past was the worry that the 
new capacity might be inequitably allocated, and reply that the 
regulations instituted since the industry restructuring following Order 
No. 636 have reduced the potential to allocate existing or new capacity 
inequitably. The Commission believes its current capacity allocation 
requirements, e.g., posting and bidding, which apply to capacity made 
available as a result of blanket projects, will act as a check on 
discrimination in capacity allocation. If a party suspects a request 
for service has been improperly awarded, it may seek redress by 
submitting a complaint to the Commission under NGA section 5. The 
Commission will act as necessary to prevent, remedy, and penalize 
improper practices.
    51. AGA is apprehensive that expanding blanket authority to include 
mainline facilities could lead to insufficient scrutiny of 
environmental or operational impacts, particularly in the case of 
automatic authorization projects. First, the Commission does not 
propose to permit automatic authorization for projects involving 
mainline facilities, regardless of cost. Second, blanket certificate 
projects are subject to the Sec.  157.206(b) environmental compliance 
conditions to ensure that actions that could cause a significant 
adverse impact on the human environment are not conducted under blanket 
certificate authority, but are instead subject to case-specific review. 
If the blanket certificate program is enlarged to include mainline 
facilities as proposed, the Sec.  157.206(b) conditions will apply. In 
view of this, and the proposal herein to fortify prior notice and 
environmental compliance provisions, the Commission concludes that 
proposals involving mainline facilities will receive sufficient 
scrutiny.
    52. Anadarko is apprehensive the proposed revisions could undermine 
the Commission's authority to ensure that the legislative goals and 
requirements of the Alaska Natural Gas Transportation Act of 1976 
(ANGTA) \37\ and the Alaska Natural Gas Pipeline Act (ANGPA) \38\ are 
met. Anadarko states that the Commission's consideration of a case-
specific certificate application, and the attendant open season 
allocation requirement, provides ``the first, and perhaps the only, 
opportunity for objections to be raised to the size of the proposed 
expansion, the allocation of capacity, or the rate to be charged, and 
it is the first opportunity for discrimination claims to be raised.'' 
\39\ Anadarko argues that allowing ``any mainline expansion of an 
Alaskan natural gas pipeline'' without ``all of the protections 
afforded by a complete NGA section 7(c) certificate proceeding'' could 
conflict with the ANGTA and ANGPA rate and the open season regulatory 
requirements recently articulated in the Commission's Order No. 
2005.\40\ Anadarko asks that the Commission specifically exempt an 
Alaska natural gas transportation project from any expanded blanket 
certificate authority.
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 719, et seq. (2000).
    \38\ 15 U.S.C. 720, et seq. (2000).
    \39\ Anadarko's Comments at 4 (January 17, 2005).
    \40\ Regulations Governing the Conduct of Open Seasons for 
Alaska Natural Gas Transportation Projects, Order No. 2005, 70 FR 
8269 (February 9, 2005) 110 FERC ] 61,095 (2005).
---------------------------------------------------------------------------

    53. The Commission, in implementing its regulatory authority under 
ANGPA, explained that ``a number of existing Commission policies 
predicated on competitive conditions in the lower 48 states are ill-
suited for application in the case of an Alaska natural gas 
transportation project;'' therefore, there is a ``need in certain 
instances to accommodate existing Commission policy to the unique 
circumstances surrounding the exploration, production, development, and 
transportation to market of Alaska natural gas.'' \41\ Consequently, 
the Commission will consider the need to accommodate the blanket 
certificate program to the unique circumstances of an Alaska project in 
any future proceedings authorizing such a project.
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    \41\ Order No. 2005-A, 70 FR 35011, 35016 (June 16, 2005); 111 
FERC ] 61,332, P 36 (2005).
---------------------------------------------------------------------------

    54. Kinder Morgan states its intention to extend or expand 
mainlines in order to bring natural gas to new ethanol production 
plants. Kinder Morgan cites public policy initiatives intended to 
promote the production and consumption of ethanol and expresses the 
concern that the current blanket certificate program's exclusion of 
mainline facilities may hinder the timely construction of facilities 
necessary to supply gas to new ethanol plants. The Commission expects 
the proposal to expand the blanket certificate provisions to include 
mainlines will provide Kinder Morgan with the additional authority it 
seeks. Kinder Morgan describes requests it has received from a 
developer of two new ethanol plants: one to extend a mainline by adding 
2 to 3 miles of 8-inch pipe, the other to loop a mainline with 14 miles 
of 12-inch pipe. Under the proposed revised regulations, both projects 
would fall well within the parameters of the expanded blanket 
certificate program.

Blanket Project Cost Limits

    55. Blanket certificate projects are constrained (1) by cost caps, 
(2) by compliance with the Sec.  157.206(b) environmental requirements, 
and (3) by being limited to a restricted set of facilities.\42\ The 
Commission proposes to raise the cost caps for blanket certificate 
projects.
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    \42\ Further, as a prerequisite for a blanket certificate, the 
Commission requires a company to first obtain a case-specific 
certificate, because it is in the context of evaluating an 
application for an NGA section 7 certificate authorization that the 
Commission establishes a ``jurisdictional and informational base * * 
* concerning such matters as rates, system supplies and certificated 
customers.'' Interstate Pipeline Certificates for Routine 
Transactions, Order No. 234, 47 FR 24254 (June 4, 1982); 47 FR 30724 
(July 15, 1982), Reg. Preambles 1982-1985 P 30,200 (1982).
---------------------------------------------------------------------------

    56. The blanket certificate project cost limits were initially set 
at $4,200,000 for an automatic authorization project and $12,000,000 
for a prior notice project. Since 1982, the Commission has used an 
inflation tracker (the gross domestic product implicit price deflator 
as determined by the Department of Commerce) that has resulted in 
incrementally ratcheting up blanket project cost limits to the current 
level of $8,200,000 for an automatic authorization project and 
$22,700,000 for a prior notice project. Petitioners contend these 
inflation-adjusted cost caps fail to take into account additional 
costs, such as regulatory compliance requirements and the use of more 
expensive construction technology, which did not play as prominent a 
part in 1982 as they do today, and request the Commission initiate a 
study to analyze and compare costs in 1982 to costs today.
    57. There is no question that construction costs vary over time, 
and do so in a manner that is not easily predicted. Recently, for 
example, certain project components--notably the price of steel pipe--
have risen far faster than any measure of overall inflation. However, 
although steel prices have run up over the past several years, in 
looking back to 1982, there were periods during which steel prices fell 
substantially. Further, changing regulatory requirements and 
construction techniques, to which Petitioners attribute cost increases, 
do

[[Page 36284]]

not always add to project costs, and may well contribute to cost 
reductions and efficiencies.
    58. Petitioners request the Commission reassess construction costs 
to determine if a project constructed within 1982 cost limits could be 
replicated within today's cost limits. The Commission is concerned that 
a focus on changes in construction costs over time risks losing sight 
of the fundamental premise of the blanket certificate program, namely, 
that blanket authorization be restricted (1) to projects that are 
modest in scale and routine in nature, i.e., projects that are 
sufficiently well understood so as to permit them to proceed with a 
lesser level of regulatory scrutiny, and (2) to projects that will not 
result in unjustified increases in existing customers' rates. With 
respect to the latter, comparing construction costs over time is 
irrelevant; the relevant question is whether the project cost caps have 
served to adequately insulate existing rates from increases 
attributable to blanket program costs. The Commission cautions that 
even if it were possible to mirror 1982 costs to costs today, the 
dollar amounts would not reflect proportionate impacts on existing 
rates, since in 1982 the commodity cost of gas was a significant 
portion of pipeline customers' merchant service rate, whereas today, 
gas costs are no longer a component of pipeline customers' 
transportation service rate. In view of this, the Commission questions 
the utility of undertaking a formal inquiry to try to true up 
construction costs from 1982 to today, and so declines Petitioners' 
invitation to do so.
    59. Nevertheless, in an effort to gauge whether the inflation 
tracker employed by the Commission over the past quarter century has 
functioned as a reliable indicator of the rise in construction costs, 
the Commission has reviewed changes in gas utility construction 
materials costs. Between 1982 and 2005, such costs have risen by a 
factor of approximately 2.29,\43\ compared to a factor of approximately 
1.90 using the inflation tracker employed by the Commission. To account 
for this divergence, the Commission proposes to raise blanket cost 
limits to $9,600,000 for a no-notice project and to $27,400,000 for a 
prior notice project. In view of the relatively small disparity 
demonstrated between utility construction materials costs and the 
Department of Commerce's GDP implicit price deflator, the Commission 
proposes to continue to rely the latter, a commonly used and generally 
accepted measure of overall inflation levels, as the measure for making 
annual adjustments to the project cost limits. The Commission declines 
to tie the blanket cost limit adjustment to commodity prices (such as 
steel), labor rates, or other potentially subjective and varying 
project cost components out of a concern that this could result in 
volatile or inappropriate cost limit adjustments.
---------------------------------------------------------------------------

    \43\ The gas utility construction materials cost factor is 
derived by averaging regional costs throughout the 48 contiguous 
states, as estimated in the Handy-Whitman Index of Public Utility 
Construction Costs, Trends of Construction Costs, Bulletin No. 162, 
1912 to July 1, 2005. In initiating the blanket certificate program, 
``[m]any commenters argued against the use of the ``GNP implicit 
price deflator'' for adjusting * * * [project cost] limits and 
recommended using the Handy-Whitman Index, a pricing index of 
various utility and utility-type equipment, updated semi-annually, 
for this purpose. The Commission believes that it is preferable to 
use the GNP implicit price deflator instead of an index based on a 
private collection of data not easily susceptible to governmental 
verification.'' (Footnote omitted.) 47 FR 24254 (June 4, 1982). The 
Commission reaffirms this preference.
---------------------------------------------------------------------------

    60. The Commission requests comments on (1) the merits of this 
proposed boost in the blanket project cost limits, (2) whether the 
inflation tracker mechanism currently employed by the Commission 
accurately reflects changes in blanket project costs, and (3) whether 
another means of accounting for changes in project costs may be 
preferable. With respect to prospective comments, the Commission notes 
that the blanket certificate program was implemented to allow a generic 
class of minor projects to go forward without case-specific review, 
based on the expectation that the cumulative effect of such 
construction would neither raise existing rates nor degrade existing 
services. Thus, the pertinent question is not the extent to which 
construction costs may have changed over the last quarter century, but 
whether blanket certificate activities can be expanded without 
compromising the program's premise that there be no significant adverse 
impacts on existing ratepayers, services, or the environment.

Comments and Commission Response

    61. Commentors did not argue for either particular new cost limits 
or any means to calculate such limits, although AGA did ask as an 
initial matter to establish ``whether the initial purpose of the 
blanket construction certificate regulations is being frustrated by the 
current dollar limits.'' \44\ The Commission welcomes comments on this 
question.
---------------------------------------------------------------------------

    \44\ AGA's Comments at 12 (January 17, 2005).
---------------------------------------------------------------------------

    62. Several commentors caution that increasing the blanket 
certificate project cost limits will put exiting customers at risk for 
rising rates. Currently, blanket certificate project costs are afforded 
a presumption that they will qualify for rolled in rate treatment in a 
future NGA section 4 rate proceeding.\45\ Commentors are apprehensive 
that if the blanket certificate program is expanded as proposed, 
additional construction will take place under blanket certificate 
authority, and the costs of this additional construction subsequently 
will be rolled into a natural gas company's existing rate base, and 
thereby raise systemwide rates. The Commission believes that the 
proposed measured increase in blanket certificate project cost caps, in 
conjunction with the proposal to require prior notice for projects that 
rely on the expanded blanket certificate authority proposed herein, 
will provide interested persons a preview of and opportunity to comment 
on the rate impact of proposed blanket certificate projects. As noted, 
persons that object to a blanket project subject to prior notice can 
file a protest, which if not withdrawn or dismissed within the allotted 
time, will result in the proposed blanket certificate project being 
treated as a case-specific NGA section 7 certificate application.
---------------------------------------------------------------------------

    \45\ The Commission has routinely allowed blanket certificate 
project costs to be rolled into a natural gas company's existing 
rate base. See, e.g., Pricing Policy for New and Existing Facilities 
Constructed by Interstate Natural Gas Pipelines, 71 FERC ] 61,241, 
61917 (1995), stating that blanket ``projects will be presumed to 
qualify for the presumption in favor of rolled-in pricing upon a 
showing of system-wide benefits,'' and Destin Pipeline Company, 
L.L.C., 83 FERC ] 61,308, 61,308 (1988), further clarifying ``the 
Commission has determined that such facilities qualify for the 
presumption of rolled-in rate treatment without a case-specific 
analysis of system-wide benefits because the resulting rate impact 
in such situations is usually de minimis.''
---------------------------------------------------------------------------

    63. Commentors suggest the proposed revisions could alter the 
nature of the blanket certificate program and undermine the premise of 
the program: that the impacts of projects constructed under blanket 
certificate authority will be insignificant. The Commission seeks 
comments on what additional measures, if any, it should consider to 
limit any potentially adverse impacts which might be associated with 
its proposed expansion of the blanket certificate program.\46\
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    \46\ For example, in 1982, in promulgating the blanket program, 
the Commission considered shielding existing customers from the 
impact of the costs of blanket certificate projects by imposing both 
a per-project cost cap and an annual cost cap, the latter at a 
suggested maximum of three percent of the certificate holder's net 
plant. In the end, the Commission elected not to impose any annual 
limit, reasoning that ``[g]iven the high costs of purchased gas 
relative to the customer's total gas bill, it is unlikely that the 
cumulative effect of the activities approved under this section will 
have any significant effect on ratepayers.'' 47 FR 24254 (June 4, 
1982).

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[[Page 36285]]

    64. NiSource supports the petition, but cautions the Commission to 
guard against segmentation, i.e., a series of small projects, each of 
which is within the blanket certificate cost limit, but each of which 
is also an integral part of a larger project that would otherwise 
exceed the cost limit. NiSource contends that when blanket certificate 
costs are afforded a presumption that they will receive rolled-in rate 
treatment, segmentation could result in existing customers subsidizing 
expansion costs. The Commission has previously cautioned against 
segmenting a large project into a daisy chain of smaller blanket-sized 
projects, and reiterates its intention to exercise close oversight when 
a certificate holder presents a series of potentially interrelated 
blanket certificate proposals. To the extent any person suspects a 
natural gas company is employing its blanket certificate authority to 
put in place projects that are not only interrelated but 
interdependent, such an abuse of the blanket certificate program should 
be brought to the Commission's attention.
    65. APGA notes the Commission's Policy Statement on New Facilities 
declares that the threshold criterion for a proposed project is that 
revenues meet or exceed costs so that there will be no subsidization, 
and cautions this threshold calculation, and the Commission's 
assessment of the remaining public interest criteria articulated in its 
policy statement, are not considered when the costs of facilities added 
under blanket certificate authority are presumed to merit rolled-in 
rate treatment. To date, the Commission has not found cause to apply 
its Policy Statement on New Facilities to blanket certificate 
facilities,\47\ and invites comments on whether this approach merits 
reconsideration in light of the proposed expansion of the blanket 
certificate program.
---------------------------------------------------------------------------

    \47\ 88 FERC ] 61,227, 61,737, note 3 (1999).
---------------------------------------------------------------------------

    66. AGA observes that cost limits were imposed to ensure projects 
constructed under blanket authorization would have a de minimis impact 
on existing rates, and argues that if cost limits are raised, then 
rolled-in rate treatment for blanket certificate costs should be 
reconsidered. AGA suggests it may be prudent to require that all 
blanket certificate projects be subject to prior notice, in order to 
provide an opportunity to review the potential rate, service, and 
environmental impacts.
    67. The Commission does not anticipate the relatively modest 
proposed increase in blanket certificate project cost limits will 
significantly shift the impact that costs of construction under blanket 
certificates now have on existing rates. However, recognizing that 
expanding blanket certificate authority to include types of projects 
heretofore excluded from the blanket certificate program may lead to 
additional expenditures on blanket certificate construction, the 
Commission is proposing all newly enfranchised blanket certificate 
projects be subject to prior notice. As noted above, concerns regarding 
rate impacts may be raised in response to a prior notice or in an NGA 
section 4 rate proceeding. To the extent the AGA has remaining concerns 
regarding rate impacts, the Commission welcomes comments on whether 
additional or alternative revisions to the blanket certificate 
regulations are necessary to ensure that projects constructed pursuant 
to blanket certificate authority will have no more than a de minimis 
impact on existing rates.

Notification Requirements

    68. The Commission has previously emphasized the ``need for advance 
notification of landowners for blanket certificate activities'' so that 
landowners are able to air their views and concerns ``to make sure that 
our regulations provide for similar protections for similar 
activities.'' \48\ If the scale or scope of blanket certificate-
eligible activities is expanded, the Commission believes additional 
notice and compliance provisions are needed to guarantee that 
protections under the blanket certificate program remain comparable to 
those applicable to case-specific applications.
---------------------------------------------------------------------------

    \48\ Landowner Notification, Expanded Categorical Exclusions, 
and Other Environmental Filing Requirements, Order No. 609, 64 FR 
57374, 57383 (October 25, 1999).
---------------------------------------------------------------------------

    69. Section 157.203(d) describes the procedures for notice to 
landowners affected by a proposed project, and Sec.  157.205 describes 
the public prior notice procedure applicable to blanket certificate 
projects that exceed the automatic authorization cost limit. Currently, 
Sec.  157. 203(d)(1) requires that project sponsors must notify 
landowners affected by an automatic authorization project at least 30 
days prior to construction.\49\ The Commission proposes to extend this 
to 45 days. In view of the proposed expanded scope and scale of blanket 
certificate authority, which can be expected to increase number of 
automatic authorization projects undertaken and the number of people 
impacted, an additional 15 days offers greater assurance that there 
will be adequate time for landowners to state their concerns and for 
project sponsors and the Commission to respond.
---------------------------------------------------------------------------

    \49\ A project sponsor's contact with a landowner to initiate 
easement negotiations qualifies as notice. A landowner may waive the 
30-day notice requirement in writing, provided notice has been 
provided. For activity required to restore service in an emergency, 
the 30-day prior notice period is satisfied if a natural gas company 
obtains all necessary easements. These aspects of Sec.  157. 
203(d)(1) are unaffected by this NOPR.
---------------------------------------------------------------------------

    70. In addition, the Commission proposes to modify Sec. Sec.  
157.203(d)(2)(iv) and 157.205(d) to extend the deadline to protest a 
proposed prior notice project from 45 to 60 days. This additional time 
will offer greater certainty that public notice of a proposed project 
reaches all potentially interested persons and that they have an 
adequate interval to reply. Further, the additional time will provide 
the Commission with a more reasonable period of time to conduct and 
conclude its environmental assessment (EA) of a proposal. This NOPR 
contemplates an increase the number, extent, kind, and complexity of 
facilities subject to blanket certificate authority, yet even for the 
types of projects currently permitted, 45 days has proved to be, on 
occasion, an unrealistically short time for the consultation and 
analysis required to complete an EA. The additional time will ensure 
the Commission is not forced to protest a prior notice project merely 
as a means to gain time to finish an EA. The Commission does not expect 
the extended landowner and public notice periods to unduly delay 
blanket certificate projects, since natural gas companies, in large 
part, can dictate when a blanket certificate project may begin 
construction by when the company elects to initiate the notice process.
    71. To provide landowners with a more complete understanding of the 
blanket certificate program and the potential impacts of a particular 
blanket certificate project, the Commission proposes to expand the 
description of the program and project that is provided in the notice 
to landowners. The proposed new landowner notification requirements at 
Sec. Sec.  157.203(d)(1)(iii) and 157.203(d)(2)(vii) will require the 
notice to include: A general map; a statement of the proposed project's 
purpose and timing; a discussion of what the project sponsor will need 
from the landowner and how to contact the project sponsor; a Commission 
pamphlet addressing basic concerns of landowners; a brief summary of 
the landowner's rights under the eminent domain rules of the relevant 
state; and the project sponsor's environmental complaint resolution 
procedure. While this suggested change

[[Page 36286]]

will require that future notices include more information than they 
currently do, the more detailed new notice will still require a project 
sponsor to present considerably less information than would be 
necessary for a case-specific application. The Commission notes that 
all the activities this NOPR contemplates placing under the proposed 
expanded blanket certificate authority, but for the expanded blanket 
certificate authority, would require case-specific NGA section 7 
certificate authorization.

Environmental Conditions

    72. Commenters note, and the Commission concurs, that as the scope 
and scale of the blanket certificate program grows, so does the 
potential for a blanket certificate project to constitute a major 
federal action likely to have a significant impact on the quality of 
the human environment. A blanket certificate project must continue to 
meet the environmental conditions set forth in Sec.  157.206(b) of the 
Commission regulations, and compliance with these conditions serves to 
reduce the potential adverse environmental impacts of a project to 
acceptable levels. To ensure that this continues to be the case with 
larger and more varied types of blanket certificate projects, the 
Commission proposes to modify the blanket certificate program's 
environmental compliance conditions as follows.
    73. Section 157.6(d)(2)(i) will be revised to clarify that 
``facility sites'' include wells and all other aboveground facility 
sites. Section 157.206(b)(5), describing noise attributable to 
compressor stations, will be revised to specify that the noise level is 
to be measured at the site property boundary. Also in Sec.  
157.206(b)(5), a goal is established that horizontal directional 
drilling (HDD) and well drilling noise not exceed a day-night level 
(Ldn) of 55 decibels (dBA) at the nearest noise sensitive area (NSA). 
In turn, Sec.  157.208(c)(9) will be revised to require a description 
of the steps to be taken to comply with the revised Sec.  157.206(b)(5) 
HDD and well drilling noise levels, or a description of the mitigation 
to be employed. Finally, the Commission proposes to revise Sec.  
157.208(e)(4) to require a noise survey verifying compliance with Sec.  
157.206(b)(5) for new or modified compression.
    74. The Commission proposes to add a new Sec.  157.208(c)(10), 
directing the certificate holder to include a statement committing to 
have the environmental inspector(s) report--as currently required by 
Sec.  157.206(b)(3)(iv) under the Upland Erosion Control, Revegetation 
and Maintenance Plan--filed with the Commission on a weekly basis. This 
is necessitated by the proposed wider scope of prior notice projects, 
which present a greater potential for environmental harm, and 
consequently require a heightened vigilance to ensure environmental 
safeguards are not inadvertently overlooked. Moreover, this will allow 
the Commission, through its staff, to more efficiently monitor 
compliance; this may also reduce the need for the natural gas company 
to assist in routine staff field investigations.
    75. Recently, in certain regions, the United States Fish and 
Wildlife Service has adopted a practice of not responding in writing if 
a determination of no effect on endangered or threatened species is 
reached; yet the Commission's current regulations require the 
certificate holder to provide copies of the agency's determination. To 
reconcile this regulatory incompatibility, the Commission proposes to 
modify Sec.  157.208(c)(9) to allow the certificate holder to present 
substitute documentation of agency concurrence if no written 
concurrence is received. This substitute documentation may consist of 
telephone logs, copies of e-mails, or any other reliable means of 
identifying the agency personnel contacted from whom confirmation of 
the agency's determination is received.
    76. In anticipation of an increase in the number and type of 
automatic authorization projects, and in view of the fact that 
automatic authorization projects are not identified by a docket number, 
the Commission proposes to modify Sec.  157.208(e)(4) by adding new 
paragraphs (ii) and (iii) to require the annual report for 
automatically authorized projects to document the progress toward 
restoration, and a discussion of problems or unusual construction 
issues--including those identified by affected landowners--and 
corrective actions taken or planned.

Comments and Commission Response

    77. Sempra contends that expanded blanket certificate authority 
could induce competitive inequities because a potential new entrant 
would have to undergo a de novo environmental review, whereas an 
incumbent could construct identical facilities as long as it is able to 
satisfy the Sec.  157.206((b) environmental compliance conditions. This 
purported inequity is likely to be tempered by the additional notice 
and environmental compliance conditions proposed above. Moreover, a new 
entrant submitting an NGA section 7 application and a certificate 
holder relying on blanket authority for equivalent projects must both 
comply with the same set of environmental requirements.
    78. Nevertheless, Sempra's objection to the blanket certificate 
environmental provisions remains, and in effect constitutes a 
collateral attack on the entire blanket certificate program. The 
Commission concedes that in terms of procedural efficiency, a new 
market entrant can be at a competitive disadvantage when pitted against 
a certificate holder able to act under blanket certificate authority. 
This disparity is inherent in the blanket certificate program, as the 
blanket certificate program provides for expedited authorization when 
compared to having to obtain case-specific section 7 authorization. The 
Commission is unaware of any systematic distortion of infrastructure 
development due to its blanket certificate program's providing 
incumbent certificate holders with this advantage over prospective, but 
as yet uncertificated, competitors. Comments on this are requested.

Clarification of Criteria Defining Just and Reasonable Rates

Rate Treatment for Foundation Shippers
    79. Turning from requested revisions to the blanket certificate 
program and to NGA section 7 applications in general, Petitioners 
request clarification that it is not undue discrimination for a natural 
gas company to offer rate benefits to prospective customers who commit 
to a project before the company makes a public statement of its intent 
to build the project. Petitioners state that reaching bilateral 
agreements with as many of a project's potential customers as early as 
possible may be the most significant variable affecting the timing of 
infrastructure additions. Petitioners argue that project sponsors must 
have a critical mass of customers willing to commit early as 
``foundation shippers'' to provide the financial support for a project 
before project sponsors commit to go forward with the project.
    80. However, Petitioners state that there is an economic incentive 
for a potential customer to ``sit in the wings,'' and bet that the 
critical mass of support will evolve, and the project go forward, at 
which point the customer may then make a choice as to whether to take 
service. Petitioners assert that if enough potential customers adopt 
this ``wait and see'' approach, project sponsors may not be able to 
justify spending the capital required to initiate the environmental 
review and certificate application process. Petitioners desire to 
encourage early commitments by offering rates to customers that commit 
early which are more favorable than the

[[Page 36287]]

rates that will be available to those that seek service later.
    81. Petitioners propose to divide the foundation shippers eligible 
for such favorable rates into two groups. ``Group I Foundation 
Shippers'' would receive the most favorable rates; this group includes 
all shippers who execute a binding precedent agreement by the deadline 
established in the open season for the project.\50\ Petitioners 
subdivide Group I into three different types of shippers. First, those 
typically large shippers that reach agreements with the project sponsor 
through one-on-one negotiation in formulating the project and come 
forward hand-in-hand with the project sponsor when the project is 
announced. Second, shippers of multiple sizes that bid successfully in 
the public open season and execute binding precedent agreements by the 
deadline established by the project sponsor. Third, shippers that make 
their first contractual commitment to the project by the deadline 
established in the open season by the project's sponsor.\51\ 
Petitioners state that such shippers, large and small, ultimately 
provide the critical mass of support for the project.
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    \50\ To date, it has been the Commission's policy, developed 
through its orders and opinions, that all new interstate pipeline 
construction be preceded by a nondiscriminatory, nonpreferential 
public ``open season'' process through which all potential shippers 
may seek and obtain firm capacity rights.
    \51\ INGAA/NGSA Petition at 18-19 (November 22, 2005). However, 
at page 21, Petitioners describe their proposal somewhat 
differently, stating that the common defining criterion for Group I 
shippers is their execution of a binding commitment by the point at 
which a project sponsor makes the ``go/no go'' decision for the 
project. The Commission assumes that the point at which the 
project's sponsors make the ``go/no go'' decision is approximately 
the same time as the deadline established by the open season for a 
binding agreement to be signed.
---------------------------------------------------------------------------

    82. ``Group II Foundation Shippers'' would consist of shippers that 
do not execute binding commitments until after the deadline set in the 
open season, but do commit to the project prior to the point at which 
the project sponsor commits publicly to its willingness to build the 
project. Petitioners state that such shippers also provide essential 
support for a project, but should not necessarily be considered 
similarly situated with the Group I shippers because they did not 
commit to the project by the open-season deadline.
    83. Petitioners assert that project sponsors and the foundation 
shippers currently risk their bargain being undone by the Commission, 
either by disallowing the preferential rate treatment afforded to 
shippers that signed up early or by extending the preferential rate to 
shippers seeking service later in time. Petitioners request the 
Commission confirm that it is not undue discrimination to provide rate 
benefits to foundation shippers and withhold the same benefits from 
later-generation shippers. Similarly, Petitioners request the 
Commission confirm that it is not undue discrimination to provide rate 
benefits to Group I shippers that are not available to Group II 
shippers. Petitioners state that their proposal does not address 
distinctions among foundation shippers within Group I, thus Petitioners 
do not ask the Commission to address whether rate preferences among the 
different categories of Group I shippers would be unduly 
discriminatory.
    84. Petitioners assert that a Commission statement affirming the 
legitimacy of disparate rate offerings will allow project sponsors and 
foundation shippers to negotiate bilateral commitments confident that 
their agreements will be neither overturned nor conferred on later 
shippers. Petitioners argue that such a confirmation will provide a 
strong incentive for more potential shippers to become foundation 
shippers, thus enabling needed infrastructure projects to get underway 
earlier.
Comments
    85. The AGA finds the proposal worthy of discussion and believes 
that shippers that commit early to new projects should be recognized 
for the risks they take. The AGA also states that it is important to 
clarify that all shippers should have the ability to become foundation 
shippers and that existing customers should not be made to subsidize 
the foundation shippers.
    86. Duke endorses a policy to encourage relatively early 
commitments by potential shippers. In particular, Duke contends that 
shippers willing to sign up for capacity prior to a project's 
development should be able to rely on their contracted-for capacity 
without the risk of pro rata reallocation if additional shippers 
request capacity at a later time. Duke asserts that unless foundation 
shippers are protected against reallocations resulting from open 
seasons, there is little incentive to make an early commitment to a 
project. NiSource asserts that the Commission should not view the 
proposed differential rates as undue discrimination, but as a positive 
practical benefit that will prompt the development of needed 
infrastructure.
    87. Illinois Municipal seeks assurance that if the foundation 
shipper proposal is accepted, the Commission will still continue to 
prohibit discount adjustments for discounts given on expansion 
capacity.\52\ Illinois Municipal asserts that the Commission's discount 
policies do not prohibit project sponsors from granting special lower 
negotiated rates to foundation shippers. However, there should be no 
attempt to impose a discount adjustment on the rate to the pre-
expansion shippers.
---------------------------------------------------------------------------

    \52\ Illinois Municipal at 3, citing, Policy For Selective 
Discounting By Natural Gas Pipelines, 113 FERC ] 61,173 (2005).
---------------------------------------------------------------------------

    88. PSCNY asserts that the proposal is overly complicated and may 
cause more problems than it solves, but should be explored. PSCNY 
asserts that the qualifications for membership in the two groups of 
foundation shippers appear to be based upon arbitrary deadlines, which 
leads to concern over the criteria used to define a bid as binding and 
how project sponsors will designate deadlines. PSCNY states that the 
creation of rate distinctions will complicate Commission policies 
regarding the pricing of pipeline expansions and produce additional 
issues for litigation in subsequent rate cases. PSCNY also argues that 
it is not clear why customers that commit in a later open season should 
receive less favorable treatment than customers that commit in an 
earlier open season, especially when the reason or cause of a 
subsequent open season is within the control of the pipeline. Further, 
PSCNY argues that there is no assurance that this proposal will achieve 
its objective of providing an incentive for customers to make an early 
commitment to a new project. Finally, PSCNY claims that forcing 
shippers to commit early to a project may conflict with the public 
interest, since having binding commitments in hand might discourage the 
development of competing project proposals.
    89. PSCNY states that the preferential rates given to the Group I 
Foundation Shippers may provide such shippers with a competitive 
advantage over later-committing shippers, and that this competitive 
advantage may discourage smaller marketers from entering retail open 
access markets. PSCNY asserts that policies that promote 
nondiscriminatory pricing are more likely to achieve the desired 
objective of establishing competitive retail as well as wholesale 
markets.
    90. PSCNY appreciates the need for project sponsors to obtain 
binding commitments from prospective customers in order to obtain 
financial backing for projects, but argues that issues associated with 
the difficulties in obtaining such commitments go far

[[Page 36288]]

beyond rate treatment. PSCNY insists that the way to keep the process 
as transparent and nondiscriminatory as possible is to establish clear 
guidelines for implementing a transparent open-season process that 
define the criteria for eligible bids and the binding nature of such 
bids. PSCNY claims this will ensure that all shippers, including those 
that commit in a secondary open season, have equal access to new 
capacity. Potential customers will have a built-in incentive to make 
binding bids before the end of an open season, because if they delay, 
they risk the capacity being fully subscribed.
    91. Sempra states that preferential rate treatment for foundation 
shippers may pose no undue discrimination in most cases. However, it 
prefers for the Commission to develop undue discrimination policies 
through individual natural gas company adjudications because such 
determinations are necessarily fact specific, and a case-by-case 
approach allows the Commission to fully consider the implications of 
each individual proposal, including public interest considerations 
particular to a proposed project. Accordingly, Sempra rejects 
Petitioners' contention that the Commission issue a rulemaking or 
policy statement to address the foundation shipper rate issue on a 
generic basis.
    92. Anadarko requests that the Commission clarify that its action 
regarding foundation shippers will have no effect on or application to 
an Alaska project authorized under ANGTA or the NGA.

Discussion

    93. The Commission does not dispute the premise that a project 
sponsor is best positioned to secure financial backing and perfect an 
application if it has customer commitments in hand. Accordingly, the 
sooner a project sponsor can induce customers to sign up for firm 
service, the sooner a project can be expected to go forward. For the 
reasons discussed below, the Commission finds that its existing 
policies can accommodate the Petitioners' desire to offer rate 
incentives to obtain such early project commitments, and pursuant to 
these existing policies, rate incentives do not constitute undue 
discrimination.
    94. The NGA contemplates individualized contracts for service.\53\ 
Under the NGA, the Commission's role is to ensure that the rates 
offered and accepted as a result of individual negotiations are just 
and reasonable and not unduly discriminatory.\54\ Further, the Supreme 
Court has held that the purpose of the NGA was not to ``abrogate 
private contracts to be filed with the Commission'' and that the NGA 
``expressly recognized that rates to particular customers may be set by 
individual contracts.'' \55\ Therefore, not all differentiations in 
rate treatment are unreasonable or illegal. Rather, ``[it] is only when 
a preference or advantage accorded to one customer over another is 
undue or a difference in service as between them is unreasonable that * 
* * [the undue discrimination provisions] of the Act come [ ] into 
play.'' \56\
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    \53\ United Gas Pipe Line Co. v. Mobile Gas Service Corp. 
(Mobile), 350 U.S. 332 at pp. 338-9 (1956); FPC v. Sierra Pacific 
Power Co. (Sierra), 350 U.S. 348 (1956).
    \54\ Id. NGA section 4 prohibits natural gas companies subject 
to the Commission's jurisdiction from: (1) Making or granting any 
undue preference or advantage to any person or subjecting any person 
to any undue prejudice or disadvantage, or (2) maintaining any 
unreasonable difference in rates, charges, service, facilities or in 
any other respect, either as between localities or as between 
classes of service.
    \55\ Mobile, 350 U.S. 332 at pp. 338-339.
    \56\ Michigan Consolidated Gas Co. v. FPC, 203 F.2d 895, 901 (3d 
Cir. 1953).
---------------------------------------------------------------------------

    95. Moreover, in Cities of Bethany, et al v. FERC,\57\ the Court of 
Appeals found that the ``mere fact of a rate disparity [between 
customers receiving the same service] does not establish unlawful rate 
discrimination'' under the NGA, and that ``rate differences may be 
justified and rendered lawful by facts--cost of service or otherwise.'' 
\58\ Relying on the Supreme Court's decisions in Mobile and Sierra, the 
court held that the anti-discrimination mandate of NGA section 4(b) 
should not be interpreted as ``obliterating the public policy 
supporting private rate contracts'' between natural gas pipelines and 
their customers.\59\ Therefore, it is clear that pipelines may provide 
different rates to different customers based upon different 
circumstances.
---------------------------------------------------------------------------

    \57\ 727 F.2d 1131 (D.C. Cir. 1984).
    \58\ Id. at 1139. Thus, the court observed that fixed rate 
contracts between the parties may justify a rate disparity, citing 
Town of Norwood v. FERC, 587 F.2d 1306, 1310 (D.C. Cir. 1978); 
Boroughs of Chambersburg, et al. v. FERC, 580 F.2d 573, 577 (D.C. 
Cir. 1978) (per curium)). See also, United Municipal Distributors 
Group v. FERC, 732 F.2d 202 (D.C. Cir. 1984).
    \59\ Id.
---------------------------------------------------------------------------

    96. Consistent with this statutory scheme, in both its discounted 
rate and negotiated rate programs, the Commission has authorized 
natural gas companies to negotiate individualized rates with particular 
customers. Section 284.10(c)(5) of the Commission's open access 
regulations permits a pipeline to offer discounted rates in a range 
between its maximum and minimum tariff rate; discounted rates must 
reflect the same rate design as the tariff rate. In its 1996 negotiated 
rate policy statement,\60\ the Commission allowed pipelines to 
negotiate individualized rates that are not constrained by the maximum 
and minimum rates in the pipeline's tariff and need not reflect the 
same rate design.\61\
---------------------------------------------------------------------------

    \60\ Alternatives to Traditional Cost-of-Service Ratemaking for 
Natural Gas Pipelines, Regulation of Negotiated Transportation 
Services, Statements of Policy and Comments, 74 FERC ] 61,076 
(1996), order on clarification, 74 FERC ] 61,194 (1996), order on 
reh'g, 75 FERC ] 61,024 (1996).
    \61\ See Northern Natural Gas Co., 105 FERC ] 61,299 at P12-16 
(2003) (discussing the distinction between discounted and negotiated 
rates).
---------------------------------------------------------------------------

    97. The Commission has permitted pipelines to use both discounted 
and negotiated rates in establishing rates for the participants in new 
projects. In fact, in the Commission's Policy Statement on New 
Facilities, the Commission encouraged pipelines to negotiate risk 
sharing agreements with shippers participating in a new project 
regarding the effect of cost overruns and underutilized capacity on 
rates for the proposed facilities.\62\ Negotiated rates that will 
remain fixed regardless of actual construction costs are an obvious way 
of accomplishing such risk sharing. In recent years, many project 
sponsors have entered into such negotiated rate agreements with their 
foundation shippers, and the Commission has approved the rates.\63\
---------------------------------------------------------------------------

    \62\ 88 FERC ] 61,128 at 61,747 (1999), stating ``should reach 
such agreements with new shippers concerning who will bear the risks 
of underutilization of capacity and cost overruns.''
    \63\ In some instances, the negotiated rates have been lower 
than the ultimate recourse rate for the service provided. See e.g. 
Natural Gas Pipeline Co. of America, 110 FERC ] 61,341 (2005) 
(``Natural executed three precedent agreements with shippers for the 
full capacity of the proposed project. The $4,911,988 in revenue 
generated by the fixed $3.07 per Dth monthly negotiated rate under 
the precedent agreements will not fully recover the estimated $6.6 
million cost of service for the project. Thus, Natural will be at 
risk for any revenue shortfall due to the lower negotiated contract 
rates with the incremental shippers.'') (Footnote omitted.) Id. at P 
23-25.
---------------------------------------------------------------------------

    98. It is within this regulatory framework that the Commission 
considers whether to confirm that it is not unduly discriminatory to 
provide rate benefits to foundation shippers and withhold the same 
benefits from later-generation shippers \64\ or to provide rate 
benefits to Group I shippers and withhold the same benefits from Group 
II shippers. The Commission finds, as a general matter, that rate 
differentials between foundation shippers that sign

[[Page 36289]]

up for service early and shippers that sign up for service later are 
not unduly discriminatory, since the later shippers are not similarly 
situated to the foundation shippers. However, integral to this finding 
is the concept discussed below, that all potential shippers have an 
equal and open opportunity to become foundation shippers. The 
contractual commitments by the foundation shippers to purchase capacity 
on the new projects provide essential support for the sponsor to 
proceed with the project. For example, these contractual commitments 
help the project sponsor to obtain financing for the construction of 
the project, and may reduce the cost of that financing by reducing the 
perceived risk of the investment in the new facilities. Moreover, by 
committing to a particular project, foundation shippers may be giving 
up other competitive alternatives to obtain their needed capacity, 
either on an existing pipeline or by participating in a different new 
project. An essential component of the Commission's certificate policy 
has been to provide both the project sponsor and project participants 
the opportunity to obtain greater certainty concerning the rate that 
the participants will pay, so that all parties can make an informed 
decision as to whether to go forward. Approving negotiated rates that 
will remain fixed regardless of subsequent developments is consistent 
with this policy.\65\
---------------------------------------------------------------------------

    \64\ As discussed above, Petitioners do not ask the Commission 
to address distinctions among foundation shippers within the same 
group; thus, the Commission does not do so.
    \65\ However, rate distinctions based on the timing of a 
customers' commitment are inapplicable to the blanket certificate 
program. The streamlined blanket certificate process is intended for 
relatively small projects; financing such small scale projects 
should not entail finding customers willing to provide an economic 
incentive.
---------------------------------------------------------------------------

    99. The Commission's policies contain adequate safeguards to 
minimize the possibility of undue discrimination in permitting the use 
of rate incentives to obtain early commitments for construction 
projects. First, under the Commission's policies, all new interstate 
pipeline construction must be preceded by a nondiscriminatory, 
nonpreferential, open-season process through which potential shippers 
may seek and obtain firm capacity rights. The instant proposal 
contemplates the use of such an open season. Therefore, under the 
instant proposal all potential shippers would have an opportunity to 
become foundation shippers in a nondiscriminatory, nonpreferential 
open-season process, consistent with Commission policy. Second, as part 
of the open season, the project sponsor must offer a maximum recourse 
rate so that the bidder in the open season may have the option to 
choose between the recourse rate or a negotiated rate.\66\ This 
recourse rate may be based upon an estimated cost of service for the 
proposed project where actual construction costs are not yet known.\67\
---------------------------------------------------------------------------

    \66\ Natural Gas Pipeline Co. of America, 101 FERC ] 61,125 
(2002).
    \67\ Id. at P 39. ``In the certificate proceeding for any such 
project the Commission will approve an initial recourse rate for the 
project which the pipeline must file before the project goes into 
service. Moreover, in this proceeding, the Commission may ensure 
that pre-expansion shippers on a pipeline will not subsidize a 
proposed expansion project. However, the Commission will permit a 
newly constructed pipeline to employ the same discounting policies 
as an existing pipeline.'' See Policy for Selective Discounting By 
Natural Gas Pipelines, 113 FERC ] 61,173 P 96-99 (2005). The 
pipeline will have to offer available capacity for sale to new 
shippers that offer to pay the maximum just and reasonable recourse 
rate, and this rate may change from time to time pursuant to 
sections 4 and 5 of the NGA.
---------------------------------------------------------------------------

    100. PSCNY raises various concerns about the procedures to be used 
in open seasons in which the proposed rate incentives are offered. The 
Commission believes such issues are best addressed on a case-by-case 
basis. Petitioners do not propose the Commission modify any aspect of 
its open-season policies, which require that pipelines conduct 
nondiscriminatory, nonpreferential open seasons for new projects.\68\ 
To the extent any potential shipper believes that a pipeline's open 
season did not comply with this policy, it may raise that issue in the 
certificate proceeding or in an NGA section 5 complaint. The Commission 
will act as necessary to prevent, remedy, and penalize improper 
practices.
---------------------------------------------------------------------------

    \68\ The Commission endorses the Petitioners' clarification of 
this policy as follows: ``As long as potential shippers received the 
same notice and ability to acquire capacity created by a * * * [new] 
expansion as they do on any existing capacity that becomes 
available, any risk of undue discrimination should be avoided'' 
INGAA/NGSA Petition at 8 (November 22, 2005).
---------------------------------------------------------------------------

    101. Here, Petitioners posit an open-season process that will 
produce in two distinct sets of foundation shippers. Group I shippers 
sign a binding agreement either by the date established in the open 
season for executing contracts or by the date the project sponsor makes 
a ``go/no go'' decision for the project; Group II shippers sign a 
binding agreement prior to the time the project sponsor commits 
publicly to build the project. Under the Petitioners' proposal, the 
rate incentives a project sponsor offers to obtain early commitments to 
a project will be based solely on the timing of each shipper's 
contractual commitment to the project. However, the Commission can 
envision that different project sponsors may prefer to offer rate 
incentives based on something other than the timing of contractual 
commitments. Because Commission policies permit rate differentials 
among customers based on a number of grounds \69\--including differing 
elasticities of demand, volumes to be transported, and length of 
service commitments--a project sponsor might wish to offer preferential 
rates to shippers who contract for larger volumes of service.
---------------------------------------------------------------------------

    \69\ Policy For Selective Discounting By Natural Gas Pipelines, 
113 FERC ] 61,173 (2005).
---------------------------------------------------------------------------

    102. Given the variety of rate incentives that might be offered 
consistent with Commission policy, the Commission believes it would be 
premature to go beyond our general finding above and seek to itemize 
every rate incentive that might be offered in an open season without 
risk of undue discrimination. Instead, the Commission prefers to review 
different rate incentives on a case-by-case basis. The Commission 
observes that the risk of undue discrimination would be reduced to the 
extent that the rate incentives offered are clearly defined in the 
announcement of the open season, publicly verifiable, and equally 
available to all potential shippers. For example, Petitioners have 
described the eligibility standard for Group I foundation shippers 
variously as (1) the date established in the open season for executing 
contracts or (2) the date the project sponsor makes a ``go/no go'' 
decision for the project. The first date would appear to involve less 
risk of discrimination, since it would be publicly available from the 
start of the open season, whereas the second date appears to give the 
project sponsor considerable discretion as to when to terminate 
eligibility for Group I.
    103. AGA and Illinois Municipal are concerned that existing 
customers not subsidize the foundation shippers. We find these concerns 
are adequately addressed by our Policy Statement on New Facilities, 
which requires that existing pipelines proposing new projects must be 
prepared to financially support the project without relying on 
subsidies from existing customers. Moreover, the Commission has stated 
that when an expansion project is incrementally priced, there will be 
no discount adjustment for service on the expansion that affects the 
rates of the current shippers, since rates for the expansion service 
will be designed incrementally.\70\
---------------------------------------------------------------------------

    \70\ Id. at P 98.
---------------------------------------------------------------------------

    104. Duke submits that shippers willing to sign up for capacity 
prior to pipeline development (when the project is being sized) should 
be able to rely on their contracted-for capacity without the

[[Page 36290]]

risk of pro rata reallocation if additional shippers request capacity 
at a later time. As Petitioners state, the instant proposal does not 
apply to non-rate issues such as capacity allocation. The Commission 
requires that capacity be allocated on a basis that is not unduly 
discriminatory, but the Commission has not prescribed any particular 
capacity allocation method that must be used. Thus, the Commission has 
permitted pipelines to use a first-come first-served allocation method, 
and has not required the use of a pro-rata allocation method. For 
example, in approving certain new projects, the Commission found that 
the finite nature of capacity and the anchor shippers' reliance on 
receiving the full capacity for which they had bargained justified 
giving the anchor shippers their required capacity, while open-season 
shippers were subject to an allocation of available capacity.\71\ The 
instant proposal does not contemplate any change from existing 
Commission policy and precedent in these non-rate areas.
---------------------------------------------------------------------------

    \71\ See, e.g., Garden Banks Gas Pipeline, LLC, 78 FERC ] 61,066 
(1997); Green Canyon Pipe Line Co., 47 FERC ] 61,310 (1989); Destin 
Pipeline Co. L.L.C., 81 FERC ] 61,211 (1997); Maritimes & Northeast 
Pipeline, L.L.C., 76 FERC ] 61,124 (1996), order on reh'g, 80 FERC ] 
61,136 (1997).
---------------------------------------------------------------------------

    105. APGA claims that by far the largest group of potential new 
customers that may seek rate inducements to contract for capacity on 
new projects, if not the only potential new customers of any size, are 
electric generators.\72\ APGA sees no justification for a policy that 
would act as an incentive to increase demand during a period of supply 
constraints. PSCNY and Sempra also question whether rate incentives 
based on timing might distort infrastructure development. Petitioners 
and commentors supporting the petition argue the opposite.
---------------------------------------------------------------------------

    \72\ APGA's Comments at 11. APGA adds that there is no need to 
offer rate inducements to local distribution companies, as they are 
captive customers subject to a public interest mandate to contract 
for capacity as necessary to meet demand.
---------------------------------------------------------------------------

    106. The Commission seeks to promote new infrastructure in order to 
help relieve existing supply constraints. The Commission agrees that 
new facilities should not be added unless they fulfill a demonstrated 
need. However, in the Commission's view, this showing of need is 
satisfied by the willingness of companies and customers to take on the 
economic risk of the cost of constructing and operating new facilities. 
The Commission proposes no changes in its existing policy that 
pipelines must be willing to financially support a project without 
subsidies from its existing customers.
    107. Anadarko requests that the Commission clarify that its action 
regarding foundation shippers will have no effect on or application to 
an Alaska project. The Commission recognizes the unique nature of an 
Alaska natural gas pipeline project and will consider the applicability 
of its rate policies, both in general and with respect to blanket 
facilities, to an Alaska project in any future proceeding authorizing 
such a project.

Information Collection Statement

    108. The Office of Management and Budget (OMB) regulations require 
that OMB approve certain reporting, recordkeeping, and public 
disclosure requirements (collections of information) imposed by an 
agency.\73\ Therefore, the Commission is providing notice of its 
proposed information collections to OMB for review in accordance with 
section 3507(d) of the Paperwork Reduction Act of 1995.\74\ Upon 
approval of a collection of information, OMB will assign an OMB control 
number and an expiration date. The only entities affected by this rule 
would be the natural gas companies under the Commission's jurisdiction.
---------------------------------------------------------------------------

    \73\ 5 CFR 1320.11 (2005).
    \74\ 44 U.S.C. 3507(d) (2000).
---------------------------------------------------------------------------

    109. FERC-537, ``Gas Pipeline Certificates: Construction, 
Acquisition and Abandonment,'' identifies the Commission's information 
collections relating to part 157 of its regulations, which apply to 
natural gas facilities for which authorization under NGA section 7 is 
required, and includes all blanket certificate projects. FERC-577, 
``Gas Pipeline Certificates: Environmental Impact Statement,'' 
identifies the Commission's information collections relating to Part 
380 of its regulations implementing the National Environmental Policy 
Act of 1969 (NEPA),\75\ which include the environmental compliance 
conditions of Sec.  157.206(b).
---------------------------------------------------------------------------

    \75\ 42 U.S.C. 4321, et seq. (2000).
---------------------------------------------------------------------------

    110. The proposed revisions to the Commission's regulations, as 
contained in the NOPR, and the resulting change in collections of 
information burdens, are as follows.
    111. The NOPR proposes to provide an additional 15 days for notice 
to landowners and the public. This will have no impact on the 
collections of information.
    112. The NOPR proposes specific additional information to be 
included in the notice to landowners located along the route of a 
proposed blanket certificate project and in the prior notice to the 
public of a proposed project. This should have a minor impact on 
blanket certificate project sponsors, since the additional information 
is already required for the landowner notification for case-specific 
NGA section 7 applications. Expanding the blanket certificate program 
to include mainline, certain LNG and synthetic gas facilities, and 
storage facilities is expected to allow approximately 62 projects per 
year to proceed under blanket certificate authority that would 
otherwise be required to obtain case-specific NGA section 7 certificate 
authorization. Thus, these 62 projects will be removed from FERC-577 
and shifted to FERC-537. Project sponsors permitted to rely on the 
proposed expanded blanket certificate authority to undertake projects 
that currently require case-specific NGA section 7 certificate 
authorization will not need to submit any additional information to 
meet the proposed blanket certificate notice requirements. The 
exception to this is the proposal to require a description of a natural 
gas company's environmental complaint resolution procedure in the 
blanket certificate program notice. However, this information is also 
frequently required for case-specific NGA section 7 projects and may be 
satisfied by a generic description of the complaint resolution process 
applicable to all projects along with individual contact information 
applicable to each project.
    113. The NOPR proposes to specify additional information to be 
included in the prior notice to the public and in the annual report. 
This should result in a minor increase in the existing burden. Only 
proposed prior notice blanket certificate projects that involve HDD and 
well drilling will be required to include a description of how noise 
limits will be achieved. Prior notice projects will also need to commit 
to file weekly environmental inspector reports. The annual reports 
covering projects subject to automatic blanket certificate authority 
will require discussions of the progress of restoration efforts, 
problems, and corrections. Where applicable, noise surveys are also 
required in annual reports, but such surveys are normally done to 
verify compliance with the standard environmental conditions, so this 
requirement adds only a minimal burden.
    114. The NOPR proposes to revise the environmental compliance 
conditions to apply the noise standard to the site property boundary 
instead of the noise-sensitive areas, and as a goal, to apply the noise 
standard to drilling. Neither of these changes involves a change in the 
reporting burden.
    115. Because the proposed expansion of the blanket certificate 
program will

[[Page 36291]]

permit projects that are now processed under the case-specific NGA 
section 7 procedures to go forward under the streamlined blanket 
certificate program, while the burden under the expanded blanket 
certificate program will increase, the overall burden on the industry 
will decrease. The Commission estimates that the total annual hours for 
the blanket certificate program burden will increase by 7,727, whereas 
the total annual hours associated with case-specific application 
projects will decrease by 11,997. This represents an overall reduction 
of 4,270 hours.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of       Number of
                 Data collection                     Number of      responses/       hours per     Total annual
                                                    respondents       filings        response          hours
----------------------------------------------------------------------------------------------------------------
FERC-537 (Part 157).............................              76             206          -42.02           7,727
FERC-577 (Part 380).............................              76             -62          193.50         -11,997
----------------------------------------------------------------------------------------------------------------

    Information Collection Costs: The above reflects the total blanket 
certificate program reporting burden if expanded as proposed. Because 
of the regional differences and the various staffing levels that will 
be involved in preparing the documentation (legal, technical and 
support) the Commission is using an hourly rate of $150 to estimate the 
costs for filing and other administrative processes (reviewing 
instructions, searching data sources, completing and transmitting the 
collection of information). The estimated cost is anticipated to be 
$2,748,900, an amount that is $640,500 less than the current estimated 
cost.
    Title: FERC-537 and FERC-577.
    Action: Proposed Data Collection.
    OMB Control Nos.: 1902-0060 and 1902-0128.
    Respondents: Natural gas pipeline companies.
    Frequency of Responses: On occasion.
    Necessity of Information: Submission of the information is 
necessary for the Commission to carry out its NGA statutory 
responsibilities and meet the Commission's objectives of expediting 
appropriate infrastructure development to ensure sufficient energy 
supplies while addressing landowner and environmental concerns fairly. 
The information is expected to permit the Commission to meet the 
request of the natural gas industry, as expressed in the INGAA and NGSA 
petition to improve industry's ability to ensure the adequacy of the 
infrastructure to meet increased demands from consuming markets, to 
expand the scope and scale of the blanket certificate program to 
provide a streamlined means to build and maintain infrastructure 
necessary to ensure all gas supplies are available to fulfill market 
needs.
    116. The Commission requests comments on the accuracy of the burden 
estimates, how the quality, quantity, and clarity of the information to 
be collected might be enhanced, and any suggested methods for 
minimizing the respondent's burden. Interested persons may obtain 
information on the reporting requirements or submit comments by 
contacting the Federal Energy Regulatory Commission, 888 First Street, 
NE., Washington, DC 20426 (Attention: Michael Miller, Office of the 
Executive Director, 202-502-8415 or e-mail michael.miller@ferc.gov). 
Comments may also be sent to the Office of Management and Budget 
(Attention: Desk Officer for the Federal Energy Regulatory Commission, 
fax: 202-395-7285 or e-mail: oira_submission@omb.eop.gov.)

Environmental Analysis

    117. The Commission is required to prepare an Environmental 
Assessment (EA) or an Environmental Impact Statement (EIS) for any 
action that may have a significant adverse effect on the human 
environment.\76\ In 1982, in promulgating the blanket certificate 
program, the Commission prepared an EA in which it determined that, 
subject to compliance with the standard environmental conditions, 
projects under the blanket program would not have a significant 
environmental impact. As a result, the Commission determined that 
automatic authorization projects would be categorically excluded from 
the need for an EA or (EIS) under Sec.  380.4 of the Commission's 
regulations. However, the Commission specified that prior notice 
projects should be subject an EA to ensure each individual project 
would be environmentally benign. For the reasons set forth below the 
Commission continues to believe this would be the case under the 
blanket certificate program as modified in this NOPR.
---------------------------------------------------------------------------

    \76\ Order No. 486, Regulations Implementing the National 
Environmental Policy Act, 52 FR 47897 (December 17, 1987), FERC 
Stats. & Regs. Preambles 1986-1990 ] 30,783 (1987).
---------------------------------------------------------------------------

    118. First, the monetary limits on projects are simply being 
adjusted to account for inflationary effects which were not completely 
captured under the mechanism specified in the regulations (the gross 
domestic product implicit price deflator as determined by the 
Department of Commerce). As a result, the scale of projects which will 
be within the new cost limits will be comparable to those projects that 
were allowed when the blanket program was first created. Second, the 
proposed additions to the types of projects which are acceptable under 
the blanket program will be subject to the prior notice provisions and 
will be subject to an EA. Finally, the Commission is proposing to 
strengthen the standard environmental conditions applicable to all 
blanket projects. Therefore, this proposed rule does not constitute a 
major federal action that may have a significant adverse effect on the 
human environment.

Regulatory Flexibility Act Analysis

    119. The Regulatory Flexibility Act of 1980 (RFA) \77\ generally 
requires a description and analysis of proposed regulations that will 
have significant economic impact on a substantial number of small 
entities. The Commission is not required to make such an analysis if 
proposed regulations would not have such an effect.\78\ Under the 
industry standards used for purposes of the RFA, a natural gas pipeline 
company qualifies as ``a small entity'' if it has annual revenues of 
$6.5 million or less. Most companies regulated by the Commission do not 
fall within the RFA's definition of a small entity.\79\
---------------------------------------------------------------------------

    \77\ 5 U.S.C. 601-612 (2000).
    \78\ 5 U.S.C. 605(b) (2000).
    \79\ 5 U.S.C. 601(3), citing to section 3 of the Small Business 
Act, 15 U.S.C. 623 (2000). Section 3 of the Small Business Act 
defines a ``small-business concern'' as a business which is 
independently owned and operated and which is not dominant in its 
field of operation.
---------------------------------------------------------------------------

    120. The procedural modifications proposed herein should have no 
significant economic impact on those entities--be they large or small--
subject to the Commission's regulatory jurisdiction under NGA section 3 
or 7, and no significant economic impact on state agencies. 
Accordingly, the Commission certifies that this notice's proposed 
regulations, if promulgated, will not have a significant economic 
impact on a substantial number of small entities.

[[Page 36292]]

Public Comments

    121. The Commission invites interested persons to submit 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 by August 25, 2006. Comments must 
refer to Docket No. RM06-7-000, and must include the commenter's name, 
the organization represented, if applicable, and address in the 
comments. Comments may be filed either in electronic or paper format. 
The Commission encourages electronic filing.
    122. Comments may be filed electronically via the eFiling link on 
the Commission's Web site at http://www.ferc.gov. The Commission 

accepts most standard word processing formats and requests commenters 
to submit comments in a text-searchable format rather than a scanned 
image format. Commenters filing electronically do not need to make a 
paper filing. 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.
    123. All comments will be placed in the Commission's public files 
and may be viewed, printed, or downloaded remotely as described in the 
Document Availability section below. Commenters on this proposal are 
not required to serve copies of their comments on other commenters.

Document Availability

    124. 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 print the contents of this document via the 
Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's 

Public Reference Room during normal business hours (8:30 a.m. to 5 p.m. 
Eastern time) at 888 First Street, NE., Room 2A, Washington, DC 20426.

List of Subjects in 18 CFR Part 157

    Administrative practice and procedure, Natural gas, Reporting and 
recordkeeping requirements.

    By direction of the Commission.
Magalie R. Salas,
Secretary.

    In consideration of the foregoing, the Commission proposes to amend 
part 157, Chapter I, Title 18, Code of Federal Regulations, as follows.

PART 157--APPLICATIONS FOR CERTIFICATES OF PUBLIC CONVENIENCE AND 
NECESSITY AND FOR ORDERS PERMITTING AND APPROVING ABANDONMENT UNDER 
SECTION 7 OF THE NATURAL GAS ACT

    1. The authority citation for part 157 continues to read as 
follows:

    Authority: 15 U.S.C. 717-717w, 3301-3432; 42 U.S.C. 7101-7352.

    2. In Sec.  157.6, paragraph (d)(2)(i) is revised to read as 
follows:


Sec.  157.6  Applications; general requirements.

* * * * *
    (d) * * *
    (2) * * *
    (i) Is directly affected (i.e., crossed or used) by the proposed 
activity, including all facility sites (including compressor stations, 
well sites, and all above-ground facilities), rights of way, access 
roads, pipe and contractor yards, and temporary workspace;
* * * * *
    3. In Sec.  157.203:
    a. In paragraph (d)(1), the phrase ``30 days'' is removed and the 
phrase ``45 days'' is added in its place, and the phrase ``30-day'' is 
removed and the phrase ``45-day'' is added in its place;
    b. In paragraph (d)(1)(ii), the phrase ``; and'' is removed and the 
phrase ``;'' is added in its place;
    c. Paragraph (d)(1)(iii) is redesignated as paragraph (d)(1)(iv)and 
a new paragraph (d)(1)(iii) is added;
    d. Paragraphs (d)(2)(i) and (d)(2)(ii) are revised;
    e. In paragraph (d)(2)(iii), the word ``and'' is removed;
    f. Paragraph (d)(2)(iv) is redesignated as paragraph (d)(2)(vi), 
and the phrase ``45 days'' is removed and the phrase ``60 days'' is 
added its place, and the period at the end of the paragraph is removed 
and the phrase ``; and'' is added in its place;
    g. New paragraphs (d)(2)(iv), (d)(2)(v) and (d)(2)(vii) are added 
to read as follows:


Sec.  157.203  Blanket certification.

* * * * *
    (d) Landowner notification. * * *
    (1) * * *
    (iii) A description of the company's environmental complaint 
resolution procedure that must:
    (A) Provide landowners with clear and simple directions for 
identifying and resolving their environmental mitigation problems and 
concerns during construction of the project and restoration of the 
right-of way;
    (B) Provide a local contact that the landowners should call first 
with problems and concerns and indicate when a landowner should expect 
a response;
    (C) Instruct landowners that if they are not satisfied with the 
response, they should call the company's Hotline; and
    (D) Instruct landowners that, if they are still not satisfied with 
the response, they should contact the Commission's Enforcement Hotline.
    (2) * * *
    (i) A brief description of the company and the proposed project, 
including the facilities to be constructed or replaced and the location 
(including a general location map), the purpose, and the timing of the 
project and the effect the construction activity will have on the 
landowner's property;
    (ii) A general description of what the company will need from the 
landowner if the project is approved, and how the landowner may contact 
the company, including a local or toll-free phone number and a name of 
a specific person to contact who is knowledgeable about the project;
* * * * *
    (iv) The most recent edition of the Commission pamphlet that 
explains the Commission's certificate process and addresses basic 
concerns of landowners;
    (v) A brief summary of the rights the landowner has in Commission 
proceedings and in proceedings under the eminent domain rules of the 
relevant state(s); and
* * * * *
    (vii) The description of the company's environmental complaint 
resolution procedure as described in paragraph 157.203(d)(1)(iii) of 
this section.
* * * * *


Sec.  157.205  [Amended]

    4. In Sec.  157.205, paragraph (d)(1), the phrase ``45 days'' is 
removed and the phrase ``60 days'' is inserted in its place.
    5. In Sec.  157.206, paragraph (b)(5) is redesignated as (b)(5)(i) 
and revised, and paragraph (b)(5)(ii) is added to read as follows:


Sec.  157.206  Standard conditions.

* * * * *
    (b) * * *
    (5)(i) The noise attributable to any new compressor station, 
compression added to an existing station, or any modification, upgrade 
or update of an existing station, must not exceed a day-night level 
(Ldn) of 55 dBA at the site property boundary.
    (ii) Any horizontal directional drilling or drilling of wells which 
will occur between 10 p.m. and 6 a.m. local time must be conducted with 
the goal of keeping the perceived noise from the

[[Page 36293]]

drilling at any pre-existing noise-sensitive area (such as schools, 
hospitals, or residences) at or below 55 Ldn dBA.
* * * * *
    6. In Sec.  157.208:
    a. Paragraph (c)(9) is revised;
    b. Paragraph (c)(10) is added;
    c. in paragraph (d), Table I, ``Year 2006,'' in column 1, titled 
``Automatic project cost limit,'' the figure ``8,200,000'' is removed 
and the figure ``9,600,000'' is added in its place, and in column 2, 
titled ``Prior notice project cost limit,'' the figure ``22,000,000'' 
is removed and the figure ``27,400,000'' is added in its place; and
    d. paragraph (e)(4) is redesignated as (e)(4)(i) and paragraphs 
(e)(4)(ii) through (e)(4)(iv) are added to read as follows:


Sec.  157.208  Construction, acquisition, operation, replacement, and 
miscellaneous rearrangement of facilities.

* * * * *
    (c) * * *
    (9) A concise analysis discussing the relevant issues outlined in 
Sec.  380.12 of this chapter. The analysis must identify the existing 
environmental conditions and the expected significant impacts that the 
proposed action, including proposed mitigation measures, will cause to 
the quality of the human environment, including impact expected to 
occur to sensitive environmental areas. When compressor facilities are 
proposed, the analysis must also describe how the proposed action will 
be made to comply with applicable State Implementation Plans developed 
under the Clean Air Act. The analysis must also include a description 
of the contacts made, reports produced, and results of consultations 
which took place to ensure compliance with the Endangered Species Act, 
National Historic Preservation Act and the Coastal Zone Management Act. 
Include a copy of the agreements received for compliance with the 
Endangered Species Act, National Historic Preservation Act, and Coastal 
Zone Management Act, or if no written concurrence is issued, a 
description of how the agency relayed its opinion to the company. 
Describe how drilling for wells or horizontal direction drilling would 
be designed to meet the goal of limiting the perceived noise at NSAs to 
an Ldn of 55 dBA or what mitigation would be offered to landowners.
    (10) A commitment to having the Environmental Inspector's report 
filed every week.
* * * * *
    (e) * * *
    (4)(i) * * *
    (ii) Documentation, including images, that restoration of work 
areas is progressing appropriately;
    (iii) A discussion of problems or unusual construction issues, 
including those identified by affected landowners, and corrective 
actions taken or planned; and
    (iv) For new or modified compression, a noise survey verifying 
compliance with Sec.  157.206(b)(5).
* * * * *
    7. Section 157.210 is added to read as follows:


Sec.  157.210  Mainline natural gas facilities.

    Prior Notice. Subject to the notice requirements of Sec. Sec.  
157.205(b) and 157.208(c), the certificate holder is authorized to 
acquire, abandon, construct, modify, replace, or operate natural gas 
mainline facilities. The cost of a project may not exceed the cost 
limitation set forth in column 2 of Table I of Sec.  157.208(d). The 
certificate holder must not segment projects in order to meet this cost 
limitation.
    8. Sections 157.212 and 157.213 are added to read as follows:


Sec.  157.212  Synthetic and liquefied natural gas facilities.

    Prior Notice. Subject to the notice requirements of Sec. Sec.  
157.205(b) and 157.208(c), the certificate holder is authorized to 
acquire, abandon, construct, modify, replace, or operate natural gas 
facilities that are used to transport exclusively either synthetic gas 
or revaporized liquefied natural gas and that are not ``related 
jurisdictional natural gas facilities'' as defined in Sec.  153.2(e) of 
this chapter. The cost of a project may not exceed the cost limitation 
set forth in column 2 of Table I in Sec.  157.208(d) of this chapter. 
The certificate holder must not segment projects in order to meet this 
cost limitation.


Sec.  157.213  Underground storage field facilities.

    (a) Prior Notice. Subject to the notice requirements of Sec. Sec.  
157.205(b) and 157.208(c) of this chapter, the certificate holder is 
authorized to acquire, abandon, construct, modify, replace, or operate 
natural gas underground storage facilities, provided the storage 
facility's total inventory, reservoir pressure, reservoir and buffer 
boundaries, certificated capacity, and compliance with environmental 
and safety provisions remain unaffected. The cost of a project may not 
exceed the cost limitation set forth in column 2 of Table I in Sec.  
157.208(d) of this chapter. The certificate holder must not segment 
projects in order to meet this cost limitation.
    (b) Contents of request. In addition to the requirements of 
Sec. Sec.  157.206(b) and 157.208(c), requests for activities 
authorized under paragraph (a) of this section must contain:
    (1) A description of the current geological interpretation of the 
storage reservoir, including both the storage formation and the 
caprock, including summary analysis of any recent cross-sections, well 
logs, quantitative porosity and permeability data, and any other 
relevant data for both the storage reservoir and caprock;
    (2) The latest isopach and structural maps of the storage field, 
showing the storage reservoir boundary, as defined by fluid contacts or 
natural geological barriers; the protective buffer boundary; the 
surface and bottomhole locations of the existing and proposed 
injection/withdrawal wells and observation wells; and the lengths of 
open-hole sections of existing and proposed injection/withdrawal wells;
    (3) Isobaric maps (data from the end of each injection and 
withdrawal cycle) for the last three injection/withdrawal seasons, 
which include all wells, both inside and outside the storage reservoir 
and within the buffer area;
    (4) A detailed description of present storage operations and how 
they may change as a result of the new facilities or modifications. 
Include a detailed discussion of all existing operational problems for 
the storage field, including but not limited to gas migration and gas 
loss;
    (5) Current and proposed working gas volume, cushion gas volume, 
native gas volume, deliverability (at maximum and minimum pressure), 
maximum and minimum storage pressures, at the present certificated 
maximum capacity or pressure, with volumes and rates in MMcf and 
pressures in psia;
    (6) The latest field injection/withdrawal capability studies 
including curves at present and proposed working gas capacity, 
including average field back pressure curves and all other related 
data;
    (7) The latest inventory verification study for the storage field, 
including methodology, data, and work papers;
    (8) The shut-in reservoir pressures (average) and cumulative gas-
in-place (including native gas) at the beginning of each injection and 
withdrawal season for the last 10 years; and
    (9) A detailed analysis, including data and work papers, to support 
the need for additional facilities (wells, gathering lines, headers, 
compression, dehydration, or other appurtenant facilities) for the 
modification of

[[Page 36294]]

working gas/cushion gas ratio and/or to improve the capability of the 
storage field.

[FR Doc. 06-5618 Filed 6-23-06; 8:45 am]

BILLING CODE 6717-01-P
