American Oil and Gas Reporter - May 2015 - 27

WASHINGTONWATCH
FERC Approves
Policies On Nominations,
Cost Recovery
The Federal Energy Regulatory Commission voted out two significant orders at its April 16 open meeting. FERC adopted the
recommendations of a united gas industry by adding flexibility
to its gas nomination and confirmation process, but maintained
the start of the "gas day." The commission also approved a new
policy on cost recovery for natural gas facilities that provides a
surcharge mechanism for interstate pipelines to recover costs for
modernizing infrastructure required to comply with new safety
and environmental regulations.
Looking at the meeting in baseball terms, producers are batting .500, although "fan" behavior is alarming, with disruptions
coming from anti-fossil-fuel activists.
Maintaining the 9 a.m. Central Clock Time (CCT) for the start
of the gas day is a significant victory for producers, since moving
to an earlier start would have imposed significant costs on gas marketing efforts and possibly placed crews at risk, if they had to go
into the field to make routine manual changes before sunrise. The
entire chain of the natural gas industry worked together as part of
the Natural Gas Council to oppose the 4 a.m. CCT start that FERC
proposed in its March 2014 notice of proposed rule making.
The gas industry worked within the North American Energy
Standards Board process, as directed by FERC, to agree on some
revisions, but held firm on the gas day start. Interstate natural gas
pipelines will begin operating under the new business practice.
The final rule, which was approved unanimously:
* Changes the nationwide "timely nomination cycle" deadline for scheduling natural gas transportation from 11:30 a.m. CCT
to 1 p.m. CCT; and
* Revises the intraday nomination timeline to include an additional intraday scheduling opportunity.
While the March 2014 NOPR strongly recommended a 4 a.m.
CCT gas day start, the natural gas industry made a persuasive
showing that the record in the proceeding did not support a change,
and that an earlier start would not resolve scheduling issues with
generators in all regions. As Commissioner Collette Honorable
noted, FERC is "leaving regional issues to be resolved at the regional level."
FERC acted quickly in approving the pipeline modernization
surcharge policy statement (see March 2015 Washington Watch),
which was proposed in November 2014. Producers argued that
pipelines already were assured recovery of prudently incurred costs
through a Section 4 rate case, and that potential changes that had
not yet been proposed by the Environmental Protection Agency
or the Pipeline and Hazardous Materials Safety Administration
did not warrant a surcharge at this time.
However, FERC largely adopted the proposed policy statement
with an Oct 1, 2016, effective date. Fortunately, producer interests
succeeded in maintaining five conditions that will help ensure just
and reasonable rates. Interstate pipelines had argued to FERC that
the conditions were unnecessary. Those five conditions are:
* A pipeline's base rates must have been reviewed recently
through a Natural Gas Act general Section 4 rate proceeding, a
cost and revenue study, or through a collaborative effort between

"Looking at the meeting in baseball terms,
producers are batting .500,

although 'fan' behavior is alarming.

the pipeline and its customers.
* Eligible costs must be limited generally to one-time capital costs incurred to meet safety or environmental regulations,
or other capital costs shown to be necessary for the safe, reliable,
and/or efficient operation of the pipeline, and the pipeline must
specifically identify each capital investment to be recovered by
the surcharge.
* Captive customers must be protected from cost shifts if the
pipeline loses shippers or increases discounts to retain business.
* The pipeline must include some method to allow a periodic
FERC review to ensure rates remain just and reasonable.
* The pipeline must work collaboratively with shippers to seek
their support for any surcharge proposal.
The commissioners were sympathetic to the concerns of producers and shippers, but were persuaded of the need to demonstrate that FERC was alert to emerging interests and would promote investment while protecting consumers.
The April 16 meeting was the first chaired by Norman Bay.
Groups opposing fossil fuel development have zeroed in on FERC
to press their agenda, moving beyond filing comments to using
open meetings to voice their views.
Disruptions continue, despite expanded security efforts. Individuals imbed themselves in the middle of long rows to prolong
their removal, all the while shouting their list of grievances. As soon
as one activist is removed and the meeting resumes, another stands
to repeat. Chairman Bay fruitlessly admonished the protestors that
these outbursts did not further their cause, but did harm their standing. But the legal process doesn't seem to matter to these activists,
if FERC decides in favor of energy development.
It is a disconcerting development when FERC meetings-usually staid affairs governed by law and regulations-are marred by
such acts. While the zeal of anti-fossil-fuel interests is not likely to diminish, it is discouraging when such zeal goes beyond legal bounds.
Ì

SUSAN GINSBERG is vice
president of crude oil and natural gas regulatory affairs for
the Independent Petroleum
Association of America. She
covers legislation and regulation, focusing on the CFTC
and FERC. Her experience in
natural gas regulatory affairs
spans 25 years.
MAY 2015 27

American Oil and Gas Reporter - May 2015

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