FERC Modifies CEII Rules to Provide Easy Access to Pipeline Maps
Pipelines seeking Natural Gas Act (NGA) Section 7 certificate authorization to construct new natural gas facilities must include maps depicting the proposal in their applications. Customers of such pipelines, who under cost of service ratemaking generally end up paying for such facilities in their rates, review these filings and provide their input to the Federal Energy Regulatory Commission (FERC or Commission) to assist the agency’s evaluation of the pipeline’s request. Shortly after the Sept. 11 terrorist attacks, and in the interest of national security, the Commission implemented regulations restricting public access to maps and other specifications contained in these filings, making customer review and participation in this process more difficult and time consuming.
After Sept. 11, FERC designated the more detailed specifications contained in such applications as Critical Energy Infrastructure Information (CEII) and determined that such information could be harmful in the hands of terrorists and, as a consequence, made all such information non-public. At the same time, the FERC created a new category, Non-Internet Public (NIP), for pipeline maps that, although not containing such detailed specifications and thus not qualifying as CEII, could reveal the location of other critical energy infrastructure. Pipelines filing such NIP locational information were instructed to segregate this otherwise public information into a separate volume or appendix of their application and, when filing at the FERC, specify that it not be placed on the Internet. Consequently, when pipelines served copies of their certificate applications on their customers, this NIP information, along with the CEII non-public information, was omitted.
In Order No. 702, issued Oct. 30, 2007, FERC helpfully modified its regulations governing access to CEII to make it easier for customers to review and comment on pipeline certificate applications. FERC eliminated the NIP designation for all otherwise public locational maps, thus allowing this information to be accessed via the Internet and to be included in the copies of the filings served on a pipeline’s customers. FERC decided to take this action because it realized that much of the information it has been designating as NIP was currently already easily available online from other sources anyway. For the approximately 5,400 NIP documents currently on file, FERC also proposes to make them publicly available via the Internet in the absence of any objections, within 60 days of the rule’s effective date, to redesignate any such documents as CEII.
Currently, the CEII regulations require a party requesting access to CEII to submit a non-disclosure agreement with each request. In a further effort to make the CEII restrictions less intrusive, the FERC modified its regulations to create a new annual certification for repeat requestors so that a new non-disclosure form would not have to be included with each request.
FERC Proposes Expanding Pipeline Financial Reporting Requirements
On Sept. 20, 2007, the FERC proposed to amend its rules to require natural gas pipelines to submit more information, via expanded Form 2 and 2-A annual and Form 3-Q quarterly filing requirements, regarding their revenues and costs. These changes are intended to enhance the ability of a pipeline’s customers, state commissions and the public to independently access whether the pipeline’s rates remain just and reasonable, as required by the NGA, and if they believe not, to facilitate their ability to file a complaint under Section 5 of the NGA to compel FERC’s reassessment of these rates.
Under Section 5 of the NGA, the complainant has the burden of proof and must have access to information needed to meet this burden. In the current regulatory environment, FERC noted, accurate data on a pipeline’s revenues and costs is difficult to obtain in the absence of a pipeline initiating a general rate case filing under Section 4 of the NGA. However, there has been a steady decline in the number of general rate cases in recent years and, in some cases, a pipeline’s cost of service, revenues and rates have not been reviewed for more than a decade. “If shippers cannot readily access the data they need to make informed assessments regarding the propriety of the rates charged, they are left without any plausible means of assessing the justness and reasonableness of those rates,” FERC observed. Through these proposed rules, the Commission aims to enhance a shipper’s ability to file a complaint against a pipeline if it believes its rates are excessive by making sure that there is sufficient public data on which to base such a complaint.
Crystallizing the problem, two Section 5 complaints were filed by parties within the last year, each alleging pipeline rates had become excessive. In one instance, the pipeline’s rates had not been reviewed in 11 years and, in the other, 17 years. Both complaints were opposed by the respondent pipelines on the basis that the Form 2 and 2-A data they submitted to the Commission, and relied upon by their customers to substantiate these complaints, was legally insufficient. In setting both complaints for hearing, the Commission rejected this claim, but agreed that the financial reports currently submitted by pipelines were insufficient.
To remedy this situation, the Commission is seeking public comment on proposed regulations (Docket No. RM07-9-000), which would amend existing reporting requirements to require gas companies to submit revenue from shipper-supplied gas, identify the costs associated with affiliate transactions, provide additional information on costs and revenues associated with incrementally priced facilities, and require the identification of volumes and revenues applicable to discounted and negotiated rate services.
The Commission proposed an effective date of Jan. 1, 2008 for these revised reporting requirements. Pursuant to that proposed timeline, subject companies would be required to file revised Form 3-Q quarterly reports beginning with the first quarter of 2009. The revised Form 2 and Form 2-A for calendar year 2008 would be filed by April 30, 2009.
FERC Seeks Comment on Fuel Recovery Policy
The Commission issued a Notice of Inquiry (Docket No. RM07-20) on Sept. 20, 2007, requesting comment as to whether it should modify its current policy for “in-kind” recovery of fuel and lost and unaccounted-for natural gas by pipelines. Pipelines are permitted by FERC to recover from their customers a small percentage of the volumes of gas tendered to compensate the pipeline for fuel for compressors and to make up for lost and unaccounted-for gas. Currently, pipelines have two rate options for recovering such costs. First, they can establish a fixed fuel-retention percentage in a general Section 4 rate case and leave the percent unchanged until the next rate case. Second, they can include in their tariff a mechanism for periodic changes to the fuel-retention percentage outside of a general rate case. Since 2004, the FERC has required pipelines who adopt the latter approach to also include a mechanism in their tariffs to true-up any over- and under-recoveries of such costs.
According to the Commission, customers have expressed concerns that in-kind gas retained by pipelines for fuel and unaccounted-for gas requirements is excessive, and provides pipelines with significant excess profits. FERC notes that the Natural Gas Supply Association, in its recent study of pipeline returns, estimated that in aggregate 32 pipelines, representing 80 percent of interstate throughput, generated about $2.1 billion in excess retained fuel over the five-year period ending in 2005. Further, with a tightening supply market the price of natural gas has risen substantially. Consequently, a pipeline’s fuel charges now comprise a significantly greater percentage of the overall cost of transporting natural gas.
In its Notice of Inquiry, the Commission seeks comment on whether it should continue to permit recovery of pipeline fuel costs through fixed fuel-retention percentages, and whether it should mandate that all pipelines have fuel-recovery tracker mechanisms. The Commission also seeks comment on whether, if it decides to require tracker mechanisms, it should also require a true-up mechanism. Finally, the Commission seeks comments on whether it should retain its current policy, which gives pipelines discretion over whether to have a tracker mechanism governing the recovery of fuel costs.