Policy Statement in P:15-1, published in FR

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(c) Each first handler responsible for
remitting assessments shall remit the
amounts due to the Board’s office on a
monthly basis no later than the fifteenth
day of the month following the month
in which the honey or honey products
were marketed.
(d) Each importer shall pay an
assessment to the Board on all honey or
honey products the importer imports
into the United States. An importer
shall pay the assessment to the Board
through the United States Customs and
Border Protection (Customs) when the
honey or honey products being assessed
enters the United States. If Customs
does not collect an assessment from an
importer, the importer is responsible for
paying the assessment to the Board.
(e) The import assessment
recommended by the Board and
approved by the Secretary shall be
uniformly applied to imported honey or
honey products that are identified as
HTS heading numbers 0409.00.00 and
2106.90.9988 by the Harmonized Tariff
Schedule of the United States or any
other numbers used to identify honey or
honey products.
*
*
*
*
*
■ 3. In § 1212.53, paragraph (d) is
revised to read as follows:
§ 1212.53

Exemption from assessment.

*

*
*
*
*
(d) Upon receipt of an application, the
Board shall determine whether an
exemption may be granted. The Board
will then issue, if deemed appropriate,
a certificate of exemption to each person
who is eligible to receive one. The
exemption is effective when approved
by the Board. It is the responsibility of

these persons to retain a copy of the
certificate of exemption.
*
*
*
*
*
■ 4. Section 1212.71 is revised to read
as follows:
§ 1212.71

Book and records.

Each first handler and importer,
including those who are exempt under
this subpart, must maintain any books
and records necessary to carry out the
provisions of this part, and any
regulations issued under this part,
including the books and records
necessary to verify any required reports.
Books and records must be made
available during normal business hours
for inspection by the Board’s or
Secretary’s employees or agents. A first
handler or importer must maintain the
books and records for three years
beyond the fiscal period to which they
apply.
Dated: April 16, 2015.
Rex A. Barnes,
Associate Administrator.

ACTION:

Policy statement.

In this Policy Statement, the
Commission provides greater certainty
regarding the ability of interstate natural
gas pipelines to recover the costs of
modernizing their facilities and
infrastructure to enhance the efficient
and safe operation of their systems. The
Policy Statement explains the standards
the Commission will require interstate
natural gas pipelines to satisfy in order
to establish simplified mechanisms,
such as trackers or surcharges, to
recover certain costs associated with
replacing old and inefficient
compressors and leak-prone pipes and
performing other infrastructure
improvements and upgrades to enhance
the efficient and safe operation of their
pipelines.

SUMMARY:

This Policy Statement will
become effective October 1, 2015.

DATES:

FOR FURTHER INFORMATION CONTACT:

[FR Doc. 2015–09292 Filed 4–21–15; 8:45 am]
BILLING CODE 3410–02P

DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
18 CFR Part 2
[Docket No. PL15–1–000]

Cost Recovery Mechanisms for
Modernization of Natural Gas Facilities

Monique Watson (Technical
information), Office of Energy Markets
Regulation, Federal Energy Regulatory
Commission, 888 First Street NE.,
20426, Telephone: (202) 502–8384,
Monique.Watson@ferc.gov.
David E. Maranville (Legal Information),
Office of the General Counsel, Federal
Energy Regulatory Commission, 888
First Street NE., 20426, Telephone:
(202) 502–6351, David.Maranville@
ferc.gov.
TABLE OF CONTENTS

Federal Energy Regulatory
Commission, Energy.

AGENCY:

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Paragraph
Nos.
I. Background ................................................................................................................................................................................
A. Safety and Environmental Initiatives ..............................................................................................................................
B. Existing Policy ..................................................................................................................................................................
C. Proposed Policy Statement ..............................................................................................................................................
D. Comments .........................................................................................................................................................................
II. Discussion ................................................................................................................................................................................
A. Adoption of Policy Statement .........................................................................................................................................
B. Standards for Modernization Cost Trackers or Surcharges ............................................................................................
1. Review of Existing Rates ...........................................................................................................................................
2. Defined Eligible Costs ................................................................................................................................................
3. Avoidance of Cost Shifting ........................................................................................................................................
4. Periodic Review of the Surcharge .............................................................................................................................
5. Shipper Support .........................................................................................................................................................
C. Additional Questions on Which the Commission Sought Comments ..........................................................................
1. Accelerated Amortization ..........................................................................................................................................
2. Reservation Charge Crediting ....................................................................................................................................
3. Other Issues ................................................................................................................................................................
III. Information Collection Statement ..........................................................................................................................................
IV. Document Availability ...........................................................................................................................................................
V. Effective Date and Congressional Notification .......................................................................................................................

1. On November 20, 2014, the
Commission issued a Proposed Policy

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Statement and sought comments
regarding potential mechanisms for

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interstate natural gas pipelines to use to
recover the costs of modernizing their

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Federal Register / Vol. 80, No. 77 / Wednesday, April 22, 2015 / Rules and Regulations
facilities and infrastructure to enhance
the efficient and safe operation of their
systems.1 The Commission proposed
standards that interstate natural gas
pipelines would be required to satisfy to
establish simplified mechanisms, such
as trackers or surcharges, to recover
such costs. Historically, the Commission
has required interstate natural gas
pipelines to design their transportation
rates based on projected units of service.
Recently, however, governmental safety
and environmental initiatives have
raised the probability that interstate
natural gas pipelines will soon face
increased costs to enhance the safety
and reliability of their systems. The
Commission issued the Proposed Policy
Statement in an effort to address these
potential costs and to ensure that
existing Commission ratemaking
policies do not unnecessarily inhibit
interstate natural gas pipelines’ ability
to expedite needed or required upgrades
and improvements, such as replacing
old and inefficient compressors and
leak-prone pipelines.
2. After review of the comments on
the Proposed Policy Statement, the
Commission has determined to establish
a policy allowing interstate natural gas
pipelines to seek to recover certain
capital expenditures made to modernize
system infrastructure through a
surcharge mechanism, subject to
conditions intended to ensure that the
resulting rates are just and reasonable
and protect natural gas consumers from
excessive costs. The Commission
recognizes, as many commenters note,
that permitting pipelines to recover
these expenditures through a surcharge
or tracker departs from the requirement
that interstate natural gas pipelines
design their transportation rates based
on projected units of service. We find on
balance, however, that consideration of
such mechanisms is justified if they are
properly designed to limit a pipeline’s
recovery of such costs to those shown to
modernize the pipeline’s system
infrastructure in a manner that enhances
system safety, reliability and regulatory
compliance, and are subject to
conditions that ensure that the resulting
rates are just and reasonable and protect
natural gas consumers from excessive
costs. Accordingly, we are adopting this
Policy Statement to provide guidance
and a framework as to how the
Commission will evaluate pipeline
proposals for recovery of infrastructure
modernization costs. The Policy
Statement adopts the five guiding
1 Cost Recovery Mechanisms for Modernization of
Natural Gas Facilities, Proposed Policy Statement,
104 FERC ¶ 61,147 (2014) (Proposed Policy
Statement).

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principles from the Proposed Policy
Statement as the standards a pipeline
would have to satisfy for the
Commission to approve a proposed
modernization cost tracker or surcharge.
Those criteria are (1) Review of Existing
Base Rates; (2) Defined Eligible Costs;
(3) Avoidance of Cost Shifting; (4)
Periodic Review of the Surcharge and
Base Rates; and (5) Shipper Support.
3. Below we review the background
that led to the development of the
Proposed Policy Statement and this
Policy Statement, summarize the
comments on the Proposed Policy
Statement, and discuss the applicability
of the Policy Statement in general, and
of the five conditions under the new
Policy Statement, in light of those
comments. As discussed below, the
Commission intends that the standards
a pipeline must satisfy to implement a
cost modernization tracker or surcharge
to be sufficiently flexible so as not to
require any specific form of compliance
but to allow pipelines and their
customers to reach reasonable
accommodations based on the specific
circumstances of their systems. The
Commission will thus evaluate any
proposal for a modernization cost
surcharge against those five standards
on a case-by-case basis.
I. Background
A. Safety and Environmental Initiatives
4. As we noted in the Proposed Policy
Statement, there have been several
recent legislative actions, and resulting
regulatory initiatives, to address natural
gas pipeline infrastructure safety and
reliability. In 2012, Congress passed the
Pipeline Safety, Regulatory Certainty,
and Job Creation Act of 2011.2 That act
includes requirements for the United
States Department of Transportation
(DOT) to take various actions to reduce
the risk of future pipeline failures.
Among other things, the Pipeline Safety
Act requires the DOT to (1) consider
expansion and strengthening of its
integrity management regulations, (2)
consider requiring automatic shut-off
valves on new pipeline construction, (3)
require pipelines to reconfirm their
Maximum Allowable Operating
Pressures, and (4) conduct surveys to
measure progress in plans for safe
management and replacement of cast
iron pipelines.
5. The Pipeline and Hazardous
Materials Safety Administration
(PHMSA) is in the process of
implementing a multi-year Pipeline
Safety Reform Initiative to comply with
2 Pipeline Safety, Regulatory Certainty, and Job
Creation Act of 2011, 49 U.S.C.S. 60101 (2012)
(Pipeline Safety Act).

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the Pipeline Safety Act’s mandate to
enhance the agency’s ability to reduce
the risk of future pipeline failures.3
Prior to the Pipeline Safety Act’s
enactment, on August 25, 2011, PHMSA
published an Advance Notice of
Proposed Rulemaking (ANOPR) titled
‘‘Pipeline Safety: Safety of Gas
Transmission Pipelines,’’ which asked
all stakeholders whether PHMSA
should modify its existing integrity
management and other pipeline safety
regulations for interstate natural gas
pipelines.4 The ANOPR requested
public comment on a range of topics
related to current industry practices, the
effects of enhanced regulations on safety
and cost, and the best method to
implement proposed regulations. For
example, PHMSA sought comments on
shut-off valves and remote controlled
shut-off valves. In addition, PHMSA
held a public leak detection and valve
workshop on March 28, 2012.
6. Also as part of the ANOPR process,
PHSMA is considering expanding the
definition of a High Consequence Area
(HCA) so that more miles of pipeline
may become subject to integrity
management requirements.5 PHMSA is
also considering potential new rules
related to repair criteria, including
applying the integrity management
repair criteria to non-HCAs; reassessing
the repair criteria in areas where the
population has grown since the pipeline
was constructed; requiring methods to
validate in-line inspection tool
performance and qualifications of
personnel; and implementing risk
tiering such that repairs in an HCA have
priority over repairs in a non-HCA.
PHMSA held a Class Location
Methodology workshop on April 16,
2014. Based on the comments from the
ANOPR and the workshop, PHMSA
‘‘has started drafting a report to
Congress on this issue.’’ 6
7. PHMSA is also considering changes
to its requirements that pipelines
perform baseline and periodic
assessments of pipeline segments in an
HCA through one or a combination of
in-line inspection, pressure testing,
3 Written Statement of Cynthia Quarterman,
Administrator, PHSMA, before the U.S. House of
Representatives, Committee on Transportation and
Infrastructure, Subcommittee on Railroads,
Pipelines, and Hazardous Materials (May 20, 2014),
available at http://transportation.house.gov/
uploadedfiles/2014-05-20-quarterman.pdf
(Quarterman Testimony) at 3.
4 Pipeline Safety: Safety of Gas Transmission
Pipelines, (RIN: 2137–AE72), 76 FR 53,086 (August
25, 2011).
5 An HCA is a location which is defined in the
pipeline safety regulations as an area where
pipeline releases have greater consequences to the
safety, health and environment. Basically, these are
areas with greater population density.
6 Quarterman Testimony at 10.

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direct assessment of external and
internal corrosion, or other technology
demonstrated to accurately assess the
condition of a pipe. In June 2013, as
updated in September 2013, PHMSA
issued a flow chart reflecting its draft
Integrity Verification Process for natural
gas pipelines.7 To this end, PHMSA
seeks information as to what anomalies
have been detected using the various
assessment methods, and proposes to
include criteria in the regulations that
would require more rigorous corrosion
control.
8. As we further noted in the
Proposed Policy Statement, in addition
to pipeline safety issues, there have
been growing concerns about the
emissions of greenhouse gases (GHG) in
the production and transportation of
natural gas. On April 15, 2014, the
United States Environmental Protection
Agency (EPA) issued a series of
technical white papers, for which it has
requested input from peer reviewers and
the public, to determine how to best
pursue reductions of emissions from,
inter alia, natural gas compressors.8 The
EPA Compressor White Paper discusses
the most prevalent types of compressors
(reciprocating and centrifugal) and
compressor emission data. As relevant
to this Policy Statement, the EPA lays
out several ‘‘mitigation options for
reciprocating compressors involve[ing]
techniques that limit the leaking of
natural gas past the piston rod packing,
including replacement of the
compressor rod packing, replacement of
the piston rod, and the refitting or
realignment of the piston rod.’’ 9 The
EPA also describes several mitigation
options for centrifugal compressors to
limit the leaking of natural gas ‘‘across
the rotating shaft using a mechanical
dry seal, or capture the gas and route it
to a useful process or to a combustion
device.’’ 10 If the EPA’s white papers
result in the agency imposing mitigation
requirements on natural gas pipelines,
the cost of such controls could be
significant.11
7 78

FR 56,268 (Sept. 12, 2013).
EPA, Oil and Natural Gas Air Pollution
Standards, White Papers on Methane and VOC
Emission (Apr. 15, 2014), available at http://
www.epa.gov/airquality/oilandgas/
whitepapers.html.
9 EPA Compressor White Paper at 29.
10 Id. at 29–42.
11 For example, the Interstate Natural Gas
Association of America (INGAA) comments that
one of its member companies ‘‘reported capital
costs of $865,000 for replacement of a wet seal’’ on
a centrifugal compressor. See INGAA Comments on
EPA Compressor White Paper at 13 (filed June 16,
2014). INGAA also commented on the EPA’s Leaks
White Paper and noted that many factors could
affect leak repair costs and that ‘‘the cost of the
repair may far exceed the benefit of eliminating a

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8 See

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9. In 2009, the EPA published a rule
for mandatory reporting of GHG from
sources that, in general, emit 25,000
metric tons or more of carbon dioxide
equivalent per year in the United
States.12 This initiative, commonly
referred to as the Greenhouse Gas
Reporting Program (GHGRP), collects
greenhouse gas data from facilities that
conduct Petroleum and Natural Gas
Systems activities, including
production, processing, transportation
and distribution of natural gas.
Moreover, on November 14, 2014, the
EPA issued a prepublication version of
a final rule revising the Petroleum and
Natural Gas Systems source category
(Subpart W) and the General Provisions
(Subpart A) of the GHGRP.13 The final
rule, which was effective January 1,
2015, imposes new requirements for the
natural gas industry to monitor methane
emissions and report them annually. On
that same day, the EPA issued a
prepublication version of a proposed
rule to add calculation methods and
reporting requirements for greenhouse
gas emissions, as relevant here, from
blow downs of natural gas transmission
pipelines between compressor stations.
The EPA also proposed confidentiality
determinations for new data elements
contained in the proposed
amendments.14
10. As we recognized in the Proposed
Policy Statement, one likely result of the
Pipeline Safety Act and PHMSA’s
rulemaking proceedings is that
interstate natural gas pipelines will soon
face new safety standards requiring
significant capital costs to enhance the
safety and reliability of their systems.
Moreover, pursuant to EPA’s initiatives,
pipelines may in the future face
increased environmental monitoring
and compliance costs, as well as
potentially having to replace or repair
existing natural gas compressors or
other facilities.15
small leak.’’ See INGAA Comments on EPA Leaks
White Paper at 12–13 (filed June 16, 2014).
12 Mandatory Reporting of Greenhouse Gases
Rule, 74 FR 56,260 (Oct. 30, 2009). See also 40 CFR
Pt. 98 (2014).
13 Greenhouse Gas Reporting Rule: 2014
Revisions and Confidentiality Determinations for
Petroleum and Natural Gas Systems, Docket Nos.
EPA–HQ–OAR–2011–0512 and FR 9918–95–OAR
(Nov. 14, 2014).
14 See Greenhouse Gas Reporting Rule: 2015
Revisions and Confidentiality Determination for
Petroleum and Natural Gas Systems, Docket ID No.
EPA–HQ–OAR–2014–0831 (issued Nov. 14. 2014).
15 On July 29, 2014, the Department of Energy
(DOE) announced steps to help modernize natural
gas infrastructure. Moreover, on July 31, 2014,
Secretary of Energy Ernest Moniz sent a letter to the
Chairman of the Commission recommending the
Commission explore efforts to provide greater
certainty for cost recovery for new investments in
modernization of natural gas transmission
infrastructure as part of the FERC’s work to ensure

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B. Existing Policy
11. The Commission’s regulations
generally require that interstate natural
gas pipelines design their open access
natural gas transportation rates to
recover their costs based on projected
units of service.16 This requirement
means that the pipeline is at risk for
under-recovery of its costs between rate
cases but may retain any over-recovery.
As the Commission explained in Order
No. 436, this requirement gives the
pipeline an incentive both to (1)
‘‘minimize costs in order to provide
services at the lowest reasonable costs
consistent with reliable long-term
service’’ 17 and (2) ‘‘provide the
maximum amount of service to the
public.’’ 18
12. Before the Pipeline Safety Act, the
Commission held that capital costs
incurred to comply with the
requirements of pipeline safety
legislation or with environmental
regulations should not be included in
surcharges,19 except in the context of an
uncontested settlement.20 Noting that
pipelines commonly incur capital costs
in response to regulatory requirements
intended to benefit the public interest,
the Commission stated that recovering
those costs in a tracking mechanism was
contrary to the requirement to design
rates based on estimated units of service
because the use of cost-trackers
undercuts the referenced incentives by
guaranteeing the pipeline a set revenue
recovery.
13. As we stated in the Proposed
Policy Statement, however, the
Commission recently approved, as part
of a contested settlement, a tracker
mechanism to recover substantial
pipeline modernization costs that
Columbia Gas Transmission, LLC
(Columbia Gas) demonstrated were
necessary to ensure the safety and
just and reasonable natural gas pipeline
transportation rates.
16 18 CFR 284.10(c)(2) (2014).
17 Regulation of Natural Gas Pipelines After
Partial Wellhead Decontrol, Order No. 436, FERC
Stats. & Regs., Regulations Preambles 1982–1985
¶ 30,665, at 31,534 (1985).
18 Id. at 31,537.
19 See Granite State Gas Transmission, Inc., 132
FERC ¶ 61,089, at P 11 (2010) (Granite State);
Florida Gas Transmission Co., 105 FERC ¶ 61,171,
at PP 47–48 (2003) (Florida Gas).
20 See e.g., Granite State Gas Transmission, Inc.,
136 FERC ¶ 61,153 (2011); Florida Gas
Transmission Co., 109 FERC ¶ 61,320 (2004). In
2012, the Commission again rejected a protested
proposal that would allow a pipeline to recover
regulatory safety costs through a tracker, but noted
that PHSMA was in the early stages of developing
regulations to implement the Pipeline Safety Act,
and that the Commission would consider the need
for further action as PHMSA’s implementation
process moved forward. CenterPoint Energy—
Mississippi River Transmission, LLC, 140 FERC
¶ 61,253, at P 65 (2012) (MRT).

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reliability of its pipeline system.21 The
Columbia Gas settlement outlined
significant operational and safety issues
resulting from the age and condition of
Columbia Gas’ system and the
corresponding inability to monitor and
maintain the system using efficient
modern techniques.22 The Commission
found that approving the settlement
would facilitate Columbia Gas’ ability to
make substantial capital investments
necessary to correct significant
infrastructure problems, and thus
provide more reliable service while
minimizing public safety concerns.
14. The Commission’s determination
in Columbia Gas thus established
general parameters for pipelines to
consider when seeking recovery of
pipeline investments for modernization
costs related to improving system safety
and reliability. The tracker approved in
that case was designed to recover
pipeline modernization capital costs of
up to $300 million annually over a fiveyear period. The Commission found that
Columbia Gas’ settlement included
numerous positive characteristics that
distinguished its cost tracking
mechanism from those the Commission
had previously rejected and that work to
maintain the pipeline’s incentives for
innovation and efficiency. The key
aspects of the settlement upon which
the Commission relied to approve the
tracker included the following.
15. First, Columbia Gas worked
collaboratively with its customers to
ensure that its existing base rates, to
which the tracker would be added, were
updated to be just and reasonable. This
included a reduction in Columbia Gas’
base rates and a refund to its customers.
16. Second, the settlement specifically
delineated and limited the amount of
capital costs that may go into the cost
recovery mechanism. Moreover, the
eligible facilities for which costs would
be recovered through that mechanism
were specified by pipeline segment and
compressor station. Further, the
pipeline agreed to spend $100 million
in annual capital costs as part of its
ordinary system maintenance during the
initial term of the tracker, which would
not be recovered through the tracker.
The Commission found that these
provisions should assure that the
projects whose costs are recovered
21 Columbia Gas Transmission, LLC, 142 FERC
¶61,062 (2013) (Columbia Gas).
22 Columbia Gas stated in that proceeding that
over fifty percent of its regulated pipeline system
was over 50 years old, that a significant portion of
its system contained dangerous bare steel pipeline,
that many of its compressors were also outdated,
that many of its control systems were running on
obsolete platforms, and that it was only able to
inspect a small percentage of its system using
modern in-line inspection tools.

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through the tracker go beyond the
regular capital maintenance
expenditures the pipeline would make
in the ordinary course of business and
are critical to assuring the safe and
reliable operation of Columbia Gas’
system.
17. Third, the Commission found that
a critically important factor to its
approval of the settlement was the
pipeline’s agreement to a billing
determinant floor for calculating the
cost recovery mechanism, together with
an agreement to impute the revenue it
would achieve by charging the
maximum rate for service at the level of
the billing determinant floor before it
trues up any cost underrcoveries. The
Commission found these provisions
should alleviate its historic concern that
surcharges, which guarantee cost
recovery, diminish a pipeline’s
incentive to be efficient and to
maximize the service provided to the
public. The Commission also found that
these provisions protect the pipeline’s
shippers from significant cost shifts if
the pipeline loses shippers or must
provide increased discounts to retain
business.
18. Fourth, the surcharge was
temporary and would terminate
automatically on a date certain unless
the parties agreed to extend it and the
Commission approved the extension.
Finally, the tracker was broadly
supported by the pipeline’s customers.
C. Proposed Policy Statement
19. In the Proposed Policy Statement,
the Commission found that the ultimate
implementation of the recent initiatives
described above, to improve natural gas
infrastructure safety and reliability and
to address environmental issues related
to the operation of natural gas pipelines,
is likely to lead to the need for interstate
natural gas pipelines to make significant
capital investments to modernize their
systems. The Commission stated that in
light of these developments, the
Commission has a duty to ensure that
interstate natural gas pipelines are able
to recover the costs of these system
upgrades in a just and reasonable
manner that does not undercut their
incentives to provide service in an
efficient manner and protects ratepayers
from unreasonable cost shifts.
20. Accordingly, the Commission
proposed to establish a policy outlining
the analytical framework for evaluating
pipeline proposals for special rate
mechanisms to recover infrastructure
modernization costs necessary for the
efficient and safe operation of the
pipeline’s system and compliance with
new regulations. The Commission
proposed to base the policy on the

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guiding principles established in
Columbia Gas. Pursuant to the Proposed
Policy Statement, a pipeline proposal
for a cost recovery tracker to recover
pipeline modernization costs would
need to satisfy five standards:
(1) Review of Existing Rates—the
pipeline’s base rates must have been
recently reviewed, either by means of an
NGA general section 4 rate proceeding
or through a collaborative effort between
the pipeline and its customers; (2)
Eligible Costs—the eligible costs must
be limited to one-time capital costs
incurred to modify the pipeline’s
existing system to comply with safety or
environmental regulations issued by
PHMSA, EPA, or other federal or state
government agencies, and other capital
costs shown to be necessary for the safe
or efficient operation of the pipeline,
and the pipeline must specifically
identify each capital investment to be
recovered by the surcharge; (3)
Avoidance of Cost Shifting—the
pipeline must design the proposed
surcharge in a manner that will protect
the pipeline’s captive customers from
cost shifts if the pipeline loses shippers
or must offer increased discounts to
retain business; (4) Periodic Review of
the Surcharge and Base Rates—the
pipeline must include some method to
allow a periodic review of whether the
surcharge and the pipeline’s base rates
remain just and reasonable; and (5)
Shipper Support—the pipeline must
work collaboratively with shippers to
seek shipper support for any surcharge
proposal.
21. The Commission sought
comments on the Proposed Policy
Statement in general and on the five
standards noted above. We also sought
comments on several related issues,
including whether if the Commission
were to implement the instant
modernization cost recovery policy, it
should revise its policy on reservation
charge crediting.23
23 Other questions included whether the costs of
modifications to compressors for the purpose of
waste heat recovery should be eligible for recovery
under a modernization surcharge, whether there are
any capital costs associated with the expansion of
the pipeline’s existing capacity or its extension to
serve new markets that may reasonably be included
in the surcharge as necessary one-time capital
expenditures to comply with safety and
environmental regulations, whether capital costs
incurred to minimize pipeline facility emissions be
considered for inclusion in the surcharge, even if
those costs are not expressly required to comply
with environmental regulations, whether noncapital maintenance costs associated with
environmentally sound operation of a compressor
be considered for inclusion in the surcharge, and
under what circumstances should the Commission
permit a pipeline to include in the tracking
mechanism the costs of additional projects not

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D. Comments
22. The Commission received a
variety of comments in response to the
Proposed Policy Statement.24 Generally,
interstate pipelines and other natural
gas facility owners and operators favor
the proposed policy, commenting that
the criteria for collecting modernization
costs through a surcharge should be
more flexible than contemplated in the
Proposed Policy Statement. Shippers
varied in supporting or opposing the
proposal, with LDCs conditionally
supporting it provided that surcharges
are tailored to the individual
circumstances of the pipeline, and are
designed so as not to impose
unreasonable cost burdens or risks on
natural gas customers. Some marketers
also favored a program allowing the
implementation of surcharges for
modernization costs. Other shippers,
however, including industrials,
municipals and supply end entities,
oppose the proposed policy statement.
Producers are especially opposed to the
recovery of any modernization costs
through a surcharge mechanism,
claiming that to allow such recovery is
contrary to the NGA and longstanding
Commission policy. The individuals
filing comments also oppose the
Proposed Policy Statement for varying
reasons.
23. Numerous entities from a wide
spectrum of industry interests filed in
favor of the Proposed Policy Statement,
supporting properly limited tracker or
surcharge mechanisms to recover
modernization costs.25 Some advocate
granting pipelines added flexibility to
comply with the five standards
necessary to establish such trackers.26
Others filing in favor of the
Commission’s proposed policy state that
pipeline cost recovery mechanisms
must be tailored to the individual
circumstances of the pipeline, and be
designed so as not to impose
identified in the pipeline’s original filing to
establish the tracking mechanism?
24 See Appendix for a list of those entities and
persons that filed comments and/or reply comments
to the Proposed Policy Statement.
25 Those commenting in favor include the DOE;
PHMSA; the Interstate Natural Gas Association of
America (INGAA); Kinder Morgan Interstate
Pipelines (Kinder Morgan); Southern Star Central
Gas Pipeline, Inc. (Southern Star); Boardwalk
Pipeline Partners, LP (Boardwalk); American
Midstream (AlaTenn), LLC (American Midstream);
the American Gas Association (AGA); the North
Carolina Public Utility Commission (NCUC); the
Kansas Corporation Commission (KCC); the
Michigan Public Service Commission (Michigan
PSC); the Tennessee Valley Authority (TVA); and
the Environmental Defense Fund, the Conservation
Law Foundation, and Sustainable FERC Project
(collectively Environmental Commenters).
26 See, e.g., INGAA Comments at 2, Boardwalk
Comments at 4, Kinder Morgan Comments at 5.

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unreasonable cost burdens or risks on
natural gas customers.27 Various
pipeline customers generally support
the development of simplified
mechanisms for the recovery of costs of
modernizing pipeline assets to enhance
safety and reliability subject to
conditions, commenting that the costs to
be recovered should be limited to
capital improvements for safety
purposes and for compliance with
environmental regulations.28 Others
state that modernization cost recovery
trackers should include safeguards to
ensure that pipelines are not permitted
to pass through costs while evading
shipper protections traditionally
afforded by NGA section 4 rate review.29
Others support the Proposed Policy
Statement as a method for enhancing
certainty and the ability of interstate
pipelines to recover costs for
augmenting the efficient and safe
operation of their respective systems.30
24. In contrast to the pipelines’ and
other comments in support of the
proposed policy, other commenters,
particularly those representing
producers, marketers, municipal gas
companies, and industrial users of
natural gas, expressed strong opposition
to the recovery of modernization costs
through a tracker.31 Opponents’ claims
that additional cost-recovery guarantees
to incentivize compliance with
mandatory environmental and safety
laws is misplaced, and that cost trackers
are inconsistent with section
27 See, e.g., AGA Comments at 1 Laclede
Comments at 1.
28 Xcel Energy Services (XES) Comments at 2;
Wisconsin Electric and Wisconsin Gas Comments at
4.
29 Calpine Corporation (Calpine) Comments at 1.
30 Environmental Commenters Comments at 3–5.
31 Those filing comments opposing the Proposed
Policy Statement include the Natural Gas Supply
Association (NGSA), Industrial Energy Consumers
of America (IECA), the American Forest and Paper
Association (AF&PA), Process Gas Consumers
(PGC), the American Public Gas Association
(APGA), the Independent Petroleum Association of
America (IPAA), Indicated Shippers (Anadarko
Energy Services Company, Apache Corporation, BP
Energy Company, Chevron U.S.A. Inc.,
ConocoPhillips Company, Cross Timbers Energy
Services, Inc., Direct Energy Business, LLC,
ExxonMobil Gas & Power Marketing Company, a
division of Exxon Mobil Corporation, Fieldwood
Energy LLC, Hess Corporation, Marathon Oil
Company, Noble Energy, Inc., Occidental Energy
Marketing, Inc., Shell Energy North America (US),
L.P., SWEPI LP, and WPX Energy Marketing, LLC),
the El Paso Municipal Customer Group (EPMCG),
Western Tennessee Municipal Group, the Jackson
Energy Authority, City of Jackson, Tennessee, and
Kentucky Cities (together, Cities), Independent Oil
& Gas Association of West Virginia, Inc. (IOGA), the
Municipal Defense Group (MDG), Deep Gulf Energy
LP (Deep Gulf), Energy XXI (Bermuda) Ltd. (Energy
XXI), EPL Oil & Gas, Inc. (EPL), and M21K, LLC
(M21K) (collectively Energy XXI), and Helis Oil &
Gas, LLC (Helis) and Walter Oil & Gas Corporation
(Walter).

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284.10(c)(2) of the Commission’s
regulations, which requires that
transportation rates be based on
estimated units of service so that the
pipeline is at risk for cost underrecovery.32 Opponents also claim that a
cost modernization surcharge would be
contrary to longstanding Commission
policy and precedent, noting that the
Commission has consistently rejected
maintenance, compliance, and safety
cost trackers, because they guarantee
cost recovery without taking into
account the benefits of cost reductions
in other areas and/or increases in
throughput affecting base rate
revenues.33 Those opposing the
Proposed Policy Statement further claim
that the five standards do not provide
the consumer protections afforded
under section 4 of the Natural Gas Act
(NGA), and that the record lacks a
showing that pipelines cannot recover
such costs though NGA section 4 rate
cases.34 Opponents also claim that the
Proposed Policy Statement is premature,
because PHMSA and the EPA have not
yet issued new regulations.35
II. Discussion
A. Adoption of Policy Statement
25. After reviewing the comments
filed on the Proposed Policy Statement,
the Commission has determined to
establish a policy allowing interstate
natural gas pipelines to seek to recover
certain capital expenditures made to
modernize system infrastructure in a
manner that enhances system reliability,
safety and regulatory compliance
through a surcharge mechanism, subject
to conditions intended to ensure that
the resulting rates are just and
reasonable and protect natural gas
consumers from excessive costs. While
we recognize that allowing pipelines to
recover these expenditures through a
surcharge or tracker departs from the
requirement that interstate natural gas
pipelines design their transportation
rates based on projected units of service,
we find on balance that consideration of
such mechanisms is justified in order to
provide an enhanced opportunity to
recover the substantial capital costs
some pipelines are likely to incur to
replace aging, unsafe and leak-prone
facilities. The Policy Statement provides
a framework for how the Commission
will evaluate pipeline proposals for
recovery of infrastructure modernization
costs, and guidance as to how it will
32 See,

e.g., NGSA Comments at 3.
Comments at 10–11, APGA Comments at
2–4, Indicated Shippers Comments at 5–18 .
34 APGA Comments at 2–4, NGSA Comments at
7–8.
35 NGSA Comments at 8–9.
33 NGSA

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Federal Register / Vol. 80, No. 77 / Wednesday, April 22, 2015 / Rules and Regulations
evaluate such proposals in accordance
with the five adopted standards.
26. As the comments in support of the
Commission’s Proposed Policy
Statement indicate, establishment of a
policy to permit enhanced recovery of
modernization costs is in the public
interest and necessary to address
concerns regarding the safety of the
Nation’s natural gas infrastructure and
the safe operation of natural gas
pipelines, as well as environmental
issues related to emissions. With regard
to safety and reliability, as OPS
comments, recent pipeline accidents,
including the September 2010 pipeline
rupture in San Bruno, California,
demonstrate the potential consequence
of aging pipeline facilities that are not
properly repaired, rehabilitated or
replaced. OPS states that 59 percent of
existing natural gas pipelines were built
before 1970 and 69 percent of existing
natural gas pipelines were built before
1980. DOE notes that more than half of
the country’s natural gas transmission
and gathering infrastructure is over 40
years old. As OPS points out, while
aging pipelines are not inherently risky,
older facilities have been exposed to
more threats and were likely
constructed without the benefit of
today’s safety standards or quality
materials.
27. To address these concerns,
Congress passed the Pipeline Safety Act
mandating that DOT take various
actions to improve the safety of
interstate natural gas pipelines,
including requiring testing to verify
natural gas pipelines’ maximum
allowable operating pressure,
considering expansion and
strengthening of its integrity
management regulations, and
considering requiring automatic shut-off
valves on new pipeline construction.
The need to address pipeline safety is
also supported by OPS’ comments that
multiple recommendations from the
National Transportation Safety Board
and the General Accounting Office
reinforce the need to ensure that the
Nation’s pipeline infrastructure is sound
and reliable. The DOE states in its
comments that the Commission’s
proposal is ‘‘aligned with goals of DOE’s
Initiative to Help Modernize Natural
Gas Transmission and Distribution
Infrastructure as well as governmentwide efforts to improve pipeline safety
and enhance the resilience of our
nation’s critical infrastructure.36 DOE
asserts that offering streamlined cost
recovery options will provide an
overdue incentive for pipelines to invest
in new equipment and upgrades that
36 DOE

Comments at 1.

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will improve safety, boost energy
efficiency and reduce emissions.
28. In addition to pipeline safety
issues, there have been growing
concerns about the emissions of GHG in
the production and transportation of
natural gas. As we noted in the
Proposed Policy Statement, in 2014, the
EPA issued a series of technical white
papers to determine how to best pursue
reductions of emissions from, inter alia,
natural gas compressors. The EPA
Compressor White Paper lays out
several ‘‘mitigation options for
reciprocating compressors and
centrifugal compressors to limit the
leaking of natural gas. . . .’’ 37 Further,
in 2009, the EPA published its rule for
mandatory reporting of greenhouse gas
emissions. The resulting GHGRP
collects greenhouse gas data from
facilities that conduct Petroleum and
Natural Gas Systems activities,
including production, processing,
transportation and distribution of
natural gas. Moreover, the EPA issued a
final rule effective January 1, 2015,
imposing new requirements for the
natural gas industry to monitor methane
emissions and report them annually.
29. Further, the use of natural gas as
a fuel for compressors adds to the
amount of carbon dioxide emissions.38
DOE also estimates that over 110 Bcf of
natural gas is lost annually through
routing venting and equipment leaks.
DOE states that a streamlined cost
recovery mechanism such as that
proposed here for voluntary emissions
reductions can benefit pipelines and
their customers. According to DOE,
infrastructure improvements that will
increase compressor efficiency and
reduce venting and leaking of methane
emissions will also result in product
conservation and thus cost savings.39
30. The safety and reliability of the
nation’s natural gas infrastructure, and
the operation of those facilities in an
efficient manner that minimizes
environmental impact, are issues of
public interest, and the development of
mechanisms to encourage investments
in infrastructure improvements and
upgrades to enhance the efficient and
safe operation of natural gas pipeline
furthers that interest. As we recognized
in the Proposed Policy Statement, one
likely result of the recent regulatory
37 EPA Oil and Natural Gas Sector Compressors
(Apr. 2014) at 29, available at http://www.epa.gov/
airquality/oilandgas/2014papers/
20140415compressors.pdf at 29.
38 See DOE Comments at 4, stating that EIA
estimates that 728 billion cubic feet (Bcf) of natural
gas was used as fuel by compressor stations
operating at natural gas transmission and storage
facilities in the United States in 2012, resulting in
39 million metric tons of CO2 emissions.
39 DOE Comments at 5.

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safety and environmental initiatives is
that interstate natural gas pipelines will
face increased costs related to those
rules and programs. Notably, while the
opponents of the policy assert its
implementation is premature because
the amount of those costs is still
unknown, they do not dispute that
pipelines are likely to incur substantial
costs to address these issues. In light of
the referenced regulatory developments,
the Commission has a duty to ensure
that interstate natural gas pipelines are
able to recover the costs of these
required system upgrades in a just and
reasonable manner that does not
undercut their incentives to provide
service in an efficient manner and also
protects ratepayers from unreasonable
cost shifts.
31. In an effort to ensure that
consumers are protected against
potential effects of any modernization
cost trackers or surcharges, the Final
Policy adopts the five guiding principles
proposed in the Proposed Policy
Statement as the standards a pipeline
would have to satisfy for the
Commission to approve a proposed
modernization cost tracker or surcharge.
Those standards are (1) a requirement
for a review of the pipeline’s existing
base rates by means of an NGA general
section 4 rate proceeding, a cost and
revenue study, or through a
collaborative effort between the pipeline
and its customers; (2) a requirement that
the costs eligible for recovery through
the tracker or surcharge must generally
be limited to one-time capital costs
incurred to modify the pipeline’s
existing system to comply with safety or
environmental regulations or other
federal or state government agencies, 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 projects’ costs or capital
investment to be recovered by the
surcharge; 40 (3) a prohibition against
cost shifting, requiring that the pipeline
design any proposed surcharge in a
manner that will protect the pipeline’s
captive customers from cost shifts if the
pipeline loses shippers or must offer
increased discounts to retain business;
(4) a requirement that the pipeline must
include some method to allow a
periodic review of whether the
surcharge and the pipeline’s base rates
remain just and reasonable; and (5) a
requirement that the pipeline work
collaboratively with shippers to seek
40 As discussed below, the Commission may
consider pipeline proposals to include certain
limited non-capital maintenance costs in a
modernization cost tracker.

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shipper support for any surcharge
proposal. These standards will act as
protections against pipelines
unilaterally recovering costs through a
tracker that do qualify as the type
intended to meet the goals of the policy.
They will also require any pipeline
seeking a modernization cost tracker to
demonstrate to the Commission and its
customers that its current base rates are
just and reasonable, and provide
flexibility for the parties to pursue
options to reach agreement on processes
to ensure that those rates and the
surcharge rate remain just and
reasonable. They will also prevent
shifting of additional costs to captive
customers.
32. Opponents of the proposed policy
argue that adopting the Proposed Policy
Statement would be contrary to the
NGA, longstanding Commission policy
and rate regulation principles, and that
the Commission has neither justified
this departure from current policy nor
demonstrated why it is necessary.
NGSA, Indicated Shippers, the IPAA
and others argue that the NGA requires
that pipelines be afforded an
‘‘opportunity’’ to recover their
reasonable costs but that trackers
guarantee cost recovery in violation of
that principle.41 They assert this
guaranteed cost recovery, absent any
accounting of cost savings, is the reason
Commission has for years disfavored
cost recovery trackers, because it
eliminates the pipeline’s risk and
correspondingly any incentive for the
pipeline to be efficient and to provide
effective service. They note that the
Commission’s rejections of such
mechanisms include proposals
addressing circumstances very similar
to those that would be covered under
the new policy, and that the
Commission itself has stated that it has
only approved the use of trackers that
were agreed to in settlements.42 They
further claim that there has been no
change in the law or the rationale
underlying the Commission’s
longstanding position that would
warrant the policy modification
proposed.
33. As we stated above, the
Commission acknowledges that the
policy adopted in this Policy Statement
departs from the general rate policy in
our regulations that interstate natural
gas pipelines design their transportation
rates based on projected units of service.
We disagree, however, that there have
been no changes that may result in
41 See, e.g., NGSA Comments at 10, Indicated
Shippers’ Comments at 3.
42 See, e.g., Indicated Shippers’ Comments at
5–11, and cases cited therein.

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tracker mechanisms being just and
reasonable in certain circumstances and
subject to appropriate controls.43 As
discussed above, the increased concerns
with pipeline safety reflected in the
Pipeline Safety Act, together with the
recent DOE, PHMSA, and EPA
initiatives to improve natural gas
infrastructure safety and reliability and
to address environmental issues will
result in certain increased capital and
compliance costs for pipelines. In light
of these developments the Commission
has a duty to ensure that interstate
natural gas pipelines are able to recover
the reasonable cost of these system
upgrades in a just and reasonable
manner that does not undercut their
incentives to provide service in an
efficient manner and protects ratepayers
from unreasonable cost shifts.
34. We also disagree with
commenters’ contentions that allowing
modernization cost trackers will
eliminate the pipeline’s risk of cost
under-recovery and thereby reduce
pipelines’ incentives to be efficient and
to provide effective service, contrary to
goals of our general policy of requiring
that rates be based on projected units of
service. As discussed in more detail
below, the costs included in a
modernization cost tracker will
generally be limited to one-time capital
costs to improve the safe, reliable, and/
or efficient operation of the pipeline.
Thus, pipelines will continue to recover
all other costs in their base rates
pursuant to the Commission’s ordinary
ratemaking policies. Therefore,
pipelines will continue to be at risk
between rate cases for recovery of their
operating and maintenance (O&M) costs,
the overall return on non-modernization
capital costs, the depreciation allowance
related to those costs, and all other costs
included in their base rates.44 This will
give pipelines an incentive to operate
their systems as efficiently as possible,
consistent with Commission policy.
Moreover, the pipelines will have the
burden of showing that all costs
included in a modernization cost tracker
are prudent and consistent with the
Commission’s eligibility standards for
including costs in such a tracker. This
will give the Commission and all
interested parties an opportunity to
review whether the subject capital
investments are prudent and required
43 Proposed

Policy Statement, PP 18–20.
fact distinguishes surcharges that may be
approved under the Policy Statement from ANR
Pipeline Co., 70 FERC ¶ 61,143 (1995), where we
rejected ANR’s proposed base rate cost-of-service
tracker, which sought to recover all of the pipeline’s
cost of service, as contrary to our regulations.
44 This

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for the safe and efficient operation of the
pipeline.
35. Several commenters, including
Indicated Shippers, contend that the
Proposed Policy Statement is contrary to
Commission precedent prohibiting
tracker mechanisms for regulatory
obligations, and discuss a number of
cases where we had rejected pipeline
proposals for regulatory compliance cost
trackers.45 As noted above, the
Commission does not disagree that we
have previously rejected proposed tariff
provisions that would establish trackers
to recover costs not wholly dissimilar to
those contemplated by the Policy
Statement. None of those proposals,
however, included conditions and
safeguards to protect shippers and
consumers of the sort that the Columbia
settlement did, and which we adopt
here as conditions for a modernization
cost tracker.
36. As we noted in our order
approving Columbia Gas’ surcharge,
Columbia Gas’ proposal contained
numerous benefits and protections
agreed to with its shippers that
distinguished it from our orders
rejecting tracker proposals.46 Notably
the development of Columbia Gas’
tracker for costs to make necessary
improvements and upgrades to its
system began with Columbia Gas and its
shippers engaging in a collaborative
effort to review Columbia Gas’ current
base rates, leading to Columbia Gas’
agreement to make significant
reductions to its base rates and to
provide refunds to its shippers.47
Further the settlement identified by
pipeline segment and compressor
station, the specific Eligible Facilities
for which costs may be recovered, and
limited the amount of capital costs and
expenses for each such project.48 It also
established a billing determinant floor
for calculating the surcharge imputing
the revenue it would achieve by
charging the maximum rate for service
at the level of billing determinant floor
before it trues up any cost underrecoveries.49 Further, Columbia Gas’
45 See,

e.g., Indicated Shippers’ Comments at 5–

11.
46 Columbia

Gas, 142 FERC ¶ 61,062 at PP 22–

27.
47 Id.

P 22.
noted that this distinguished Columbia Gas
from the surcharge mechanisms we rejected in
Florida Gas, 105 FERC ¶ 61,171 at PP 47–48 and
MRT, 140 FERC ¶ 61,253, which contained only
general definitions of what type of costs would be
eligible for recovery, leaving the pipeline
considerable discretion as to what projects it would
subsequently propose to include in the surcharge
and creating the potential for significant disputes
concerning the eligibility of particular projects.
49 As we also noted, the surcharge mechanisms
proposed in Florida Gas, MRT, and Granite State
Gas Transmission, Inc., 132 FERC ¶ 61,089 (2011),
48 We

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tracker is temporary, and terminates by
its terms subject to extension requiring
the consent of all parties, and thus will
not become a permanent part of
Columbia Gas’ rates. Finally, the tracker
settlement was supported or not
opposed by virtually all of Columbia
Gas’ shippers.
37. The Commission’s approval of any
modernization cost tracker or surcharge
will require a showing by the pipeline
of the same types or benefits that
distinguished Columbia Gas’ tracker
from those we had rejected, and thus
comments that the Policy Statement
would represent a complete reversal of
Commission policy are exaggerated.
This Policy Statement does not provide
pipelines with any ability to establish a
modernization surcharge other than in
the manner and with the same
protections Commission has already
approved in Columbia Gas. The analysis
to be performed under this Policy
Statement will be substantially similar
to that undertaken to find that Columbia
Gas’ modernization cost recovery
mechanism was just and reasonable and
benefitted all interested parties. It will
be incumbent on a pipeline requesting
a modernization cost tracker to
demonstrate that its proposal includes
the types of benefits that the
Commission found maintained the
pipeline’s incentives for innovation and
efficiency, and distinguished Columbia
Gas’ modernization cost tracking
mechanism from those the Commission
had previously rejected.
38. Further, the requirements that a
pipeline proposing a tracker mechanism
must establish that its base rates are just
and reasonable and that there be
provision for a periodic review of
surcharge and base rates should
alleviate concerns that the Final Policy
will result in pipelines not filing NGA
section 4 rate proceedings and thus
being insulated from rate review. APGA
points to examples of interstate
did not include a comparable mechanism to protect
captive customers from significant cost shifts. The
surcharges proposed in the other cases cited by
Indicated Shippers as examples of the
Commission’s policy against surcharges and
trackers, including ANR Pipeline Company, 70
FERC ¶ 61,143, and El Paso Natural Gas Co., 112
FERC ¶ 61,150 (2005), also did not contain the
safeguards or customer protections included in the
Columbia Gas settlement and implemented for the
Final Policy. Similarly, the greenhouse gas cost
recovery mechanism we rejected as premature in
Southern Natural Gas Co., 127 FERC ¶ 61,003
(2009), did not provide safeguards of the type
required by this Policy Statement. Likewise, our
rejection in Tennessee Gas Pipeline Co., LLC and
Kinetica Energy Express, LLC, 143 FERC ¶ 61,196
(2013) of a proposed hurricane surcharge that we
found to be overly broad because it sought to
recover costs outside those caused by hurricanes,
storms or other natural disasters, did not include
any of the referenced protections. Id. P 225.

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pipelines having not filed NGA section
4 rate cases in over a decade and asserts
that pipelines generally file rate cases
very infrequently, thus depriving
customers of an opportunity to review
all the pipeline’s rates for lengthy
periods. However, the fact that a
pipeline desiring a modernization cost
surcharge must establish that its existing
base rates are just and reasonable should
increase customer opportunities to
obtain review of all the pipeline’s rates.
As discussed in more detail below, if a
pipeline’s shippers protest a filing to
establish a modernization cost tracker
on the ground that the pipeline has not
shown that its base rates are just and
reasonable, the Commission will
establish appropriate procedures to
enable it to make a finding, based on
substantial evidence, whether the base
rates are just and reasonable. Moreover,
while offsetting decreases in cost items
will not be reflected in rates during the
time between the effective date of the
surcharge and the first periodic review,
that periodic review will provide an
opportunity for any offsetting cost
reductions to be reflected in rates in
order to assure that the base rates and
any continued surcharge are just and
reasonable.
39. Accordingly, given the heightened
sensitivity to pipeline safety and
environmental related concerns, and
based on the benefits realized from the
Columbia Gas settlement, which
enabled the pipeline to efficiently make
necessary upgrades and repairs to
maintain the safety and reliability of its
system while ensuring that its shippers
were protected against cost shifts and
other potential pitfalls commonly
associated with trackers, the
Commission has determined to modify
its policy to permit the use of a tracker
mechanism in the limited circumstances
provided for under the Policy
Statement, which will inure to the
public interest.
40. As noted, several commenters
advocate that the Commission’s
modernization cost recovery policy
contain narrowly drawn conditions and
require strict adherence to those
conditions to obtain approval for such a
mechanism. As many others comment,
however, the Policy Statement will be
most effective and efficient if designed
according to flexible parameters that
will allow for accommodation of the
particular circumstances of each
pipeline’s circumstances. Maintaining a
transparent policy with flexible
standards will best allow pipelines and
their customers to negotiate just and
reasonable, and potentially mutually
agreeable, cost recovery mechanisms to
address the individual safety, reliability,

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22373

regulatory compliance and other
infrastructure issues facing that
pipeline. For example, while we will
require that any pipeline seeking a
modernization cost tracker demonstrate
that its existing base rates are just and
reasonable, as some commenters point
out, there may not be a need in all
circumstances for a pipeline to file and
litigate an NGA section 4 rate
proceeding to make such a showing.
There may be less costly and less time
consuming alternatives. As we stated in
the Proposed Policy Statement, the
Commission proposed the new policy to
‘‘ensure that existing Commission
ratemaking policies do not
unnecessarily inhibit interstate natural
gas pipelines’ ability to expedite needed
or required upgrades and
improvements.’’ 50 Thus, while we are
imposing specific conditions on the
approval of any proposed
modernization cost tracker, leaving the
parameters of those conditions
reasonably flexible will be more
productive in addressing needed and
required system upgrades in a timely
manner. Further, consistent with this
approach, the Commission will be able
to evaluate any proposals in the context
of the specific facts relevant to the
particular pipeline system at issue.
41. Accordingly, the Commission
finds that modification of our previous
policy is warranted to allow for
consideration of pipeline proposals for
modernization cost tracking
mechanisms as a way for pipelines to
recover those costs in a timely manner
while maintaining the safe and efficient
operation of pipeline systems. As we
discuss more fully below, however, the
Commission’s approval of any such
mechanism will be subject to the
Commission’s scrutiny of the proposal
and its evaluation of the stated
conditions, which will work to protect
the pipeline’s customers and ratepayers
against potential adverse effects of any
tracker. That analysis will be on a caseby-case basis, and thus will take into
account the specific circumstances of
the individual pipeline and its
customers. Any shippers opposing the
pipeline’s proposal will have a full
opportunity to express their position on
specific aspects of the proposed
mechanism at that time, and the
pipeline will need to engage in a
collaborative effort to garner significant
shipper support before the Commission
will approve a tracker proposal.
42. Opponent commenters also claim
that there is no need for the Proposed
Policy Statement because there are
sufficient longstanding procedural
50 Proposed

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options and mechanisms in place to
achieve the Commission’s cost recovery
goals in this initiative, including NGA
rate cases and the Commission’s
settlement process. Again, the
Commission does not dispute that there
are existing procedures that provide
pipelines an opportunity to recover
their just and reasonable costs. The
instant Policy Statement, however, is
meant to address imminent and
foreseeable developments related to the
safety and reliability of the natural gas
interstate pipeline system. Thus, we
find it warranted in the limited
circumstances under which the
Commission would approve a
modernization cost surcharge, to allow
recovery through a tracker of those costs
expended to replace old and inefficient
compressors and leak-prone pipes and
performing other infrastructure
upgrades and improvements to enhance
efficient and safe operation of their
pipeline systems.
43. We disagree with comments that
the Policy Statement is premature
because the regulatory initiatives
prompting the new policy are not yet
finalized, and thus the projected
increased costs are unknown and
speculative. Although the commenters
are correct that the regulatory initiatives
that are the impetus for the Final Policy
are not final, there is little debate that
some form of them will be in place
eventually, and that they will result in
increased costs to pipelines. It will take
pipelines a significant amount of time to
review and analyze their systems to
determine if there are portions that need
immediate attention, and whether the
projects they identify in their review are
of the sort that would be eligible for a
cost modernization tracker. It is
reasonable for the Commission to
establish this policy in advance of the
final initiatives to provide guidance to
the industry as to how the Commission
will analyze pipeline’s proposals to
address these questions. Further, this
Policy Statement will be beneficial to
those pipelines that decide to take a
proactive approach to ensuring system
safety and reliability by conducting
system and rate reviews prior to
governmental mandates requiring them
to do so.51

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B. Standards for Modernization Cost
Trackers or Surcharges
44. As discussed, this Policy
Statement permits pipelines to seek
Commission approval of modernization
51 For the same reasons, we decline to adopt
NGSA’s suggestion in its reply comments that we
defer issuing this Policy Statement until after
PHMSA and EPA issue final regulations.

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cost trackers or surcharges to recover
costs associated with performing
infrastructure upgrades and
replacements in a manner that will
enhance the efficient and safe operation
of their pipelines. The Commission’s
evaluation and approval of any
proposed modernization cost tracker
will require the proposing pipeline to
satisfy the five standards from the
Proposed Policy Statement. We discuss
the application of those standards under
the Policy Statement below.
1. Review of Existing Rates
45. Under the first standard proposed
by Commission, a pipeline proposing a
tracker mechanism must establish that
the base rates to which any surcharges
would be added are just and reasonable
and reflect the pipeline’s current costs
and revenues as of the date of the initial
approval of the tracker mechanism. The
Commission proposed that the pipeline
could do this in various ways, including
(1) making a new NGA general section
4 rate filing, (2) filing a cost and revenue
study in the form specified in section
154.313 of the Commission’s regulations
showing that its existing rates are just
and reasonable, or (3) through a
collaborative effort between the pipeline
and its customers. The Commission
sought input on these or other
acceptable approaches for pipelines to
demonstrate that existing base rates are
just and reasonable.
a. Comments
46. Some commenters suggested that
the Commission require pipelines to file
an NGA section 4 rate case as part of
any proposed capital cost tracker. IPAA
and the NGSA argue that adoption of a
capital cost tracker must require a
comprehensive review of the pipeline’s
base rates and cost of service through an
NGA general section 4 rate filing with
hearing procedures that include
discovery and the Commission’s Office
of Administrative Litigation staff. TVA
states that it feels strongly that any such
review would be best accomplished
through the thorough and objective
analysis of a section 4 rate filing. PEG
argues that pipelines should be required
to restate all of their rates under NGA
section 4 within three years prior to a
surcharge. Laclede also argues that a
cost and revenue study is not a
reasonable substitute for an NGA
section 4 filing.
47. The NYPSC, the NCUC and the
KCC agree that a pipeline’s base rates
must be reviewed through a full NGA
general section 4 rate proceeding or
through a collaborative effort between
the pipeline and its customers, and
oppose allowing pipelines to only file a

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cost and revenue study. Cities and
Municipals commented that the
collaborative effort standard should be
abandoned in favor of a clear standard
based on a section 4 general rate case
where all the pipeline’s costs can be
reviewed. Others comment that the
pipeline’s rates should have been
reviewed and approved within a certain
time-frame (3 or 4 years) prior to the
implementation of a surcharge, and that
the Commission should require
pipelines with such surcharges to file
rate cases on a regular basis (every 3
years).
48. Others comment, however, that a
full NGA section 4 rate case review
would be too cumbersome for the
purpose of efficiently implementing
appropriate cost modernization
surcharges. INGAA argues that the
Commission should remain open to
alternative approaches to justifying
existing base rates. Recognizing that rate
cases, cost and revenue studies and
recent rate settlements are all
appropriate methods for determining
that existing base rates are just and
reasonable, INGAA asserts that these are
not the only circumstances in which
relevant rates may be reviewed and
approved by the Commission, and that
the Commission should remain open to
other possibilities. For example, INGAA
argues that the Commission should
allow a pipeline to introduce a cost
recovery mechanism when such a
proposal is broadly supported by
shippers, regardless of whether the
settlement addresses other rate issues,
or when the pipeline has an upcoming
obligation to file a general NGA section
4 rate filing, a cost and revenue study,
or restatement or re-justification of its
rates as the result of a settlement
provision. INGAA further states that a
recent review of a pipeline’s base rates
may be irrelevant to the analysis of a
cost tracker when all, or the vast
majority, of a pipeline’s shippers have
entered into long-term negotiated rate
agreements accepted by the
Commission. INGAA asserts that a cost
recovery mechanism also may be
appropriate when the Commission
recently has reviewed and approved a
pipeline’s base rates in an NGA section
7 proceeding to ensure that new
pipelines are not placed at a
disadvantage.
49. Calpine recommends the review of
a pipeline’s base rates occur through an
informal collaborative process and not a
general section 4 rate case. APGA argues
that permitting the rate review to occur
through a new NGA general section 4
rate filing or a cost and revenue study,
as opposed to requiring a pre-negotiated
base rate settlement, would eliminate

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the benefit of the Columbia Gas case,
namely negotiations among the pipeline
and its customers regarding substantial
rate reductions and refunds, which led
to agreement on a just and reasonable
rate level. XES suggests having
pipelines file a cost and revenue study
because it would allow pipeline to file
an ‘unadjusted’ report so that current
costs and revenues may be determined.
The Environmental Commenters express
concern that requiring a general section
4 rate filing as a prerequisite could be
inapposite to the regulatory efficiency
purposes of a cost tracker.
50. American Midstream requests that
the Commission clarify that to be
eligible for the special cost recovery
mechanism through a limited section 4
filing, pipelines or at least small
pipelines like American Midstream
need only demonstrate that they are not
recovering their reasonable costs under
their existing recourse rates, and will
not be required to file testimony
specifically supporting and explaining
each of the schedules required by
section 154.313 of the Commission’s
regulations.
b. Determination
51. Under this Policy Statement, any
pipeline seeking a modernization cost
recovery tracker must demonstrate that
its current base rates to which the
surcharge would be added are just and
reasonable. This is necessary to ensure
that the overall rate produced by the
addition of the surcharge to the base rate
is just and reasonable, and does not
reflect any cost over-recoveries that may
have been occurring under the
preexisting base rates.
52. In the Proposed Policy Statement,
we stated that the pipeline could
demonstrate its base rates are just and
reasonable by filing a NGA section 4
general rate proceeding, a cost and
revenue study in the form specified in
section 154.313 of the Commission’s
regulations, or through some other
collaborative effort between the pipeline
and its customers. In applying the Final
Policy we decline to require that such
rate review be conducted only through
an NGA section 4 rate proceeding. The
type of rate review necessary to
determine whether a pipeline’s existing
rates are just and reasonable is likely to
vary from pipeline to pipeline. For
example, it may be possible for some
pipelines to demonstrate that their
existing base rates are under-recovering
their full cost of service and that a
section 4 rate filing would likely lead to
an increase in their base rates through
a showing short of filing an NGA section
4 rate proceeding. Therefore, we remain
open to considering alternative

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approaches for a pipeline to justify its
existing rates.
53. We note, however, that any
pipeline seeking a modernization cost
surcharge will need to satisfy the
Commission that its current base rates
are no higher than a just and reasonable
level. To that end, we encourage any
pipeline seeking approval of a
modernization cost tracker to engage in
a full exchange of information with its
customers to facilitate that process. If a
voluntary exchange of information fails
to satisfy interested parties that a
pipeline’s base rates are just and
reasonable, the Commission will
establish appropriate procedures to
enable resolution of any issues of
material fact raised with respect to the
justness and reasonableness of the
pipeline’s base rates based upon
substantial evidence on the record. In
this regard, the Commission notes that,
if the pipeline files a contested
settlement concerning its base rates, the
Commission would consider whether to
approve the settlement pursuant to the
approaches discussed in Trailblazer
Pipeline Co.52
2. Defined Eligible Costs
54. In the Proposed Policy Statement,
we stated that to qualify as ‘‘eligible
costs’’ for recovery under a cost
modernization tracker, costs must be
limited to one-time capital costs
incurred to modify the pipeline’s
existing system or to comply with safety
or environmental regulations issued by
PHMSA, EPA, or other federal or state
government agencies, and other capital
costs shown to be necessary for the safe
or efficient operation of the pipeline.
The Commission also recognized that
interstate natural gas pipelines routinely
make capital investments related to
system maintenance in the ordinary
course of business, and the Commission
stated that such routine capital costs
could not be included in a cost
modernization tracker.
55. The Commission also proposed to
require that each pipeline specifically
identify each capital investment to be
recovered by the surcharge, the facilities
to be upgraded or installed by those
projects, and an upper limit on the
capital costs related to each project to be
included in the surcharge. The
Commission stated that this would
allow an upfront determination that the
costs are eligible for recovery through
the tracker and avoid later disputes
52 87 FERC ¶ 61,110, at 61,438–41 (1999). See e.g.,
Texas Gas Transmission, LLC, 126 FERC
¶ 61,235 (2009); Devon Power LLC, 117 FERC
¶ 61,133 (2006).

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about which costs or facilities qualify
for such recovery.
56. The Commission also asked
several questions concerning what costs
should be eligible for recovery in a
tracker.
a. Comments
57. The majority of commenters agree
that proponents of a modernization cost
recovery tracking mechanism should
specify the costs and identity of projects
to be recovered pursuant to any such
mechanism and limit the recovery of
those costs. AGA argues that pipelines
should be required to clearly specify the
investments which will be recovered
through the tracking mechanism, and
that shippers should have the ability to
challenge the inclusion of projects or
costs as part of the collaborative
process. Several commenters, including
NGSA, IOGA, XES, and Environmental
Commenters note that facilities eligible
for cost recovery under a capital cost
tracker should be limited to
modification of the pipeline’s existing
system for reliability, safety, or
environmental compliance, and that
there be a strict distinction between
such facilities and maintaining the
pipeline system in the ordinary course
of business. NGSA argues that eligible
tracked costs for recovery in a surcharge
should be strictly limited to one-time
capital costs related solely to
compliance with the incremental
requirements of future PHMSA and EPA
regulations, as opposed to the inclusion
of ordinary capital maintenance costs.
EPMCG states the Proposed Policy fails
to explain how the Commission could
distinguish between such normal
expenditures and those ‘‘necessary to
address, safety, efficiency or similar
concerns.’’ Southern Companies
suggests using an Eligible Facilities
Plan, comparable to that used in the
Columbia Gas settlement.
58. Wisconsin Electric and Wisconsin
Gas suggest that pipelines be required to
specify the regulation that resulted in
the requirement to construct each
project and to either file for approval of
each project under the NGA section 7(c)
certificate application process or in the
event that a section 7(c) certificate
application is not required, then provide
all information about the project in a
manner similar to a section 7(c)
application. Wisconsin Electric and
Wisconsin Gas also suggest the
Commission establish clear criteria for
an ‘‘eligible modernization project’’ and
create a clear distinction between
routine maintenance projects versus
modernization projects undertaken to
comply with safety and/or
environmental regulations.

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59. Those opposed to the Policy
Statement in general advocate strict
limits on the ‘‘eligibility’’ of
modernization costs that can be
recovered through a surcharge. The
AF&PA for example, opposes recovery
of modernization costs through a
surcharge and states that the costs the
pipeline seeks to recover through the
tracker/surcharge must be one time
capital costs incurred to comply with
safety or environment regulation issued
by a governmental entity and such costs
are necessary for the safe or efficient
operations of the pipeline. AF&PA states
to the extent that the Commission
allows trackers, the Commission should
only permit trackers related to costs that
are specifically tied to laws that have
already been enacted or regulations that
are currently effective. AF&PA
comments that the pipeline should be
required to demonstrate that the costs
are incremental to the costs imposed
under existing laws and regulations.
Laclede, who also opposes the Proposed
Policy Statement, echoes the notion that
modernization costs should only be
recoverable through rate trackers if the
costs are tied to new safety or health
requirements. Additionally, the
Industrial Energy Consumers of America
(IECA) opposes surcharges and trackers
as a way for pipeline companies to
recover regulatory safety and
environmental costs, arguing that it
should be a requirement for pipeline
companies to file a new tariff that
includes regulatory costs. IECA
recommends strict guidelines as to what
costs pertain to eligible facilities for
special cost recovery.
60. Several commenters stated that
the Commission needs to ensure that
pipelines do not recover costs related to
the safe and efficient operation of their
systems that they should have already
been spending. NCUC states that
pipelines should not be provided
incentives to make the investments it
already should have made. Calpine also
states pipelines should already be
complying with safety and reliability
requirements imposed by existing
regulations and should not be incented
to recover such costs through a
modernization cost mechanism. PEG
opposes the Commission’s involvement
in the mandates of other agencies such
as EPA and PHMSA. According to PEG,
‘‘it is presumptuous of the Commission
to describe such expenditures as being
in ‘advancement of the public interest’
when first, the public interest is yet to
be defined by regulatory action and
second, such actions are outside of the
Commission’s purview.’’ 53 PEG fails to
53 PEG

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b. Determination
63. Consistent with the Proposed
Policy Statement, costs proposed to be
recovered through a modernization cost
surcharge (Eligible Costs) should
generally be limited to (1) one-time
capital costs incurred to modify or
replace existing facilities on the
pipeline’s system to comply with safety
or environmental regulations issued by
PHMSA, EPA, or other federal or state
government agencies, or (2) other onetime capital costs shown to be necessary
for the safe or efficient operation of the
pipeline.54 The Commission does not
54 In the Proposed Policy Statement, at P 23, the
Commission proposed to define eligible costs as

Comments at 7.

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see any reason to provide an incentive
for pipelines to take actions that they
must take under penalty of law.
61. Other commenters found the
Commission’s proposal with regard to
eligible facilities too restrictive, and
stated that costs should not be limited
to ‘‘one-time, capital costs.’’ INGAA
argues that limiting the tracker
mechanism only to capital costs is an
unnecessary limitation on the type of
costs that should be eligible for
inclusion into the tracker mechanism,
and urge expansion of the scope of the
definition of eligible facilities. WBI
Energy likewise comments that a onetime capital cost limitation may
preclude a pipeline from recovering
non-routine non-capital expenses which
were prudently incurred to address
system safety or efficiency. WBI Energy
thus argues the final policy should be
flexible enough to address each
pipeline’s situation.
62. Boardwalk states that the policy
should be flexible so that if as a result
of the modification process a pipeline
discovers other actions that need to be
taken in order for a pipeline to be in
compliance with the new PHMSA rules,
the costs of those activities may be
included in the tracker. Boardwalk
states the Commission should provide
clear and rational guidance as to
categories of costs eligible for inclusion
in the tracker. Columbia Gas argues that
the Commission should allow pipelines
and shippers to include the cost of
projects intended to increase the
reliability or safety of existing facilities,
including those facilities not necessarily
impacted by regulations, provided that
pipelines make a clear showing of net
benefits to its stakeholders. Columbia
Gas suggests such potential benefits may
include improved safety, reduced
emissions, increased efficiency or
reliability, reduced costs, improved fuel,
or reduced lost-and-unaccounted-for
quantities.

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intend that capital costs the pipeline
incurs as part of its ordinary, recurring
system maintenance requirements
should be eligible for inclusion in a
modernization cost tracker. The
Commission is modifying its rate
policies to permit modernization cost
trackers primarily for the purpose of
allowing pipelines to recover capital
costs incurred to upgrade the older parts
of their systems (1) to comply with new,
more stringent regulatory requirements
and/or (2) take advantage of new
technologies that reasonably increase
safety and/or efficiency, such as
reductions in methane leaks, system
modifications to allow the use of
advanced in-line inspection tools in lieu
of hydrostatic testing, or replacement of
old compressors with newer more
energy efficient ones.55
64. By contrast, the Commission
believes that pipelines should continue
to recover in their base rates ordinary
capital costs of the type they routinely
incur as part of their regular system
maintenance. The Commission
recognizes the potential difficulty in
distinguishing between ordinary capital
costs for system maintenance, which
should be excluded from a
modernization cost tracker, and capital
costs for system upgrades, which are
reasonably included in such a tracker.
In order to address this concern, the
parties may, as INGAA and others
suggest,56 consider including in a
modernization cost tracker a mechanism
for ensuring that a representative level
of ordinary system maintenance capital
costs are excluded from the tracker. For
example, the Columbia Gas settlement
includes a provision that Columbia Gas
will continue to make capital
expenditures of $100 million annually
for system maintenance and those
expenditures will not be included in its
modernization cost tracker. If Columbia
Gas spends less than that amount in any
year, the difference must be used to
reduce the plant investment included in
the modernization cost tracker.57 In
developing such a mechanism, the
parties could use the pipeline’s recent
history of capital expenditures incurred
for routine maintenance as a basis for
determining a representative level of
‘‘one-time capital costs to modify the pipeline’s
existing system . . .’’ (emphasis supplied). Some
commenters have interpreted our use of the word
‘‘modify’’ to exclude the costs of facility
replacement projects from eligibility. We clarify
that capital costs to replace existing facilities, such
as old compressors that do not comply with new
EPA emission requirements, are eligible for
inclusion in a modernization cost tracker.
55 See, e.g., INGAA Comments at 13.
56 INGAA reply comments at 18–19.
Environmental Commenters at 12–13.
57 Section 7.3 of the Columbia Gas settlement.

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Federal Register / Vol. 80, No. 77 / Wednesday, April 22, 2015 / Rules and Regulations
ordinary system maintenance capital
costs to be excluded from the
modernization cost tracker.
65. Some commenters have suggested
that the Commission should permit
certain non-capital expenses to be
included in a modernization cost
tracker, if they are non-routine and
required by regulation or a voluntary
program adopted by a pipeline as a best
practice.58 Commenters cite as examples
the costs of in-line inspections by
running smart tools through various
pipeline segments or programs to detect
and repair leaks on parts of the system
most prone to leaks. To the extent such
testing uncovers the need to incur onetime capital costs that satisfy the
eligibility standards described above,
such capital costs could be included in
the modernization cost tracker.
However, the Commission is reluctant
to permit non-capital testing costs of the
type described by the commenters to be
recovered through a modernization cost
tracker. The cost of service reflected in
a pipeline’s existing base rates
presumably includes a projection of the
pipeline’s recurring costs of routine
testing as part of the pipeline’s O&M
costs. The testing described by the
commenters would appear to be a best
practice for pipeline maintenance that
the Commission would expect pipelines
to conduct on an ongoing basis. As such
it would appear difficult to distinguish
any particular type of testing from the
testing whose costs are already included
in the O&M costs reflected in the
pipeline’s base rates. Therefore, while
the Commission will not impose a
blanket prohibition on the inclusion of
such non-capital costs in a
modernization cost tracker, particularly
where supported by the pipeline’s
shippers, any proposal to include such
non-capital costs in the tracker would
need to demonstrate that such noncapital costs are special non-recurring
costs not reflected in the O&M costs
included in the pipeline’s base rates and
are directly related to the modernization
projects whose costs are included in the
modernization cost tracker.
Furthermore, when determining
whether a cost is a capital or non-capital
cost, a pipeline’s determination must be
consistent with the Commission’s
accounting regulations and precedent.59
66. Some commenters also suggest
that the Commission should allow
eligible costs to include a portion of the
58 See, e.g., INGAA Comments at 5–7, AGA
Comments at 7.
59 See, e.g., 18 CFR part 201 (2014); see also,
Jurisdictional Public Utilities and Licensees Natural
Gas Companies, and Oil Pipeline Companies, order
on accounting for pipeline assessment costs, 111
FERC ¶ 61,501 (2005).

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capital costs incurred in a pipeline
expansion project, if the project not only
expands the pipeline’s system but also
modifies or replaces existing facilities to
comply with safety or environmental
regulations or make other improvements
necessary for the safe and efficient
operation of the pipeline.60 The
Commission recognizes that some
expansion projects may include
modifications to a pipeline’s existing
system that would be eligible for
recovery in a modernization cost tracker
if not done in conjunction with an
expansion. In such circumstances, the
Commission will consider reasonable
proposals for a method of cost allocation
between the expansion project and the
modifications eligible for inclusion in
such a tracker.61
67. Some commenters state that the
costs of modifications to compressors
for the purpose of waste heat recovery
should be eligible for recovery under a
modernization surcharge subject to
conditions,62 while others oppose the
inclusion of such costs because they
assert that investments in modifications
of compressors for purpose of waste
heat recovery are discretionary and
within control of the pipeline and
should thus be subject to the normal
rate review process.63 According to the
DOE, expanded use of waste heat
recovery by natural gas compressors
could be beneficial to overall system
efficiency, and while there is a general
lack of good information on the scale of
heat losses from many sectors of the
economy, research published in 2008
and 2009 found substantial
opportunities for additional waste heat
recovery investment at natural gas
compressor stations. Accordingly, the
Commission will consider proposals for
recovery of such costs in a
modernization cost tracker proposal,
subject to the standards of this Policy
Statement.
68. The Commission rejects the
proposals of some commenters that
eligible costs be limited to those costs
which the pipeline demonstrates are
specifically tied to laws that have
already been enacted or regulations that
are currently effective. The Commission
sees no reason for pipelines to wait to
make needed improvements to their
60 See, e.g., INGAA Comments at 11–12,
Columbia Gas Comments at 14–16, Berkshire
Hathaway Comments at 11, Wisconsin Electric and
Wisconsin Gas Comments at 9,
61 The Columbia Gas settlement includes such a
provision at section 7.5 of that settlement.
62 See, e.g., DOE Comments at 3, Wisconsin
Electric and Wisconsin Gas Comments at 8,
Michigan PSC Comments at 15.
63 See, e.g., PGC Comments at 17–18, NGSA
Comments at 18–19, KCC Comments at 12.

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systems until a regulation is adopted
requiring them to do so. In fact, the
Department of Transportation has
encouraged pipeline operators to
undertake voluntary initiatives to
improve pipeline safety.64 Permitting
pipelines to recover in a modernization
cost tracker the costs of voluntary
initiatives to improve safety, as well as
minimize methane emissions, will help
encourage such initiatives and thereby
benefit the public. Accordingly, the
Commission finds that all prudent onetime capital costs that satisfy the
eligibility requirements may be
included in a cost modernization
tracker, regardless of whether PHMSA,
EPA or some other government agency
has adopted a regulation requiring the
incurrence of the cost.
69. In the Proposed Policy Statement,
the Commission proposed to require a
pipeline proposing a modernization cost
tracker to identify each capital
investment to be recovered by the
surcharge, the facilities to be upgraded
or installed by those projects, and an
upper limit on the capital costs related
to each project to be included in the
surcharge. INGAA requests that the
Commission permit pipelines either to
propose a list of eligible projects or a list
of categories of future projects that
would be considered eligible for
recovery. Other commenters also
contend that, even if the pipeline
includes an upfront list of specific
projects to be included in the
modernization cost tracker, the
Commission should permit subsequent
modifications, additions, or subtractions
to the listed projects. They state that this
is necessary so that the tracking
mechanism can adapt to changing
circumstances including newly adopted
regulations.
70. The Commission expects that,
before the pipeline makes a tariff filing
with the Commission proposing a
modernization cost tracking mechanism,
it will conduct a comprehensive review
of its existing system to determine what
capital investments it believes are
needed to ensure the safe and efficient
operation of its system, based on the
information available to it at the time of
the review. Such a review should be
comparable to the comprehensive
review conducted by Columbia Gas
before it submitted its Settlement. The
Commission continues to find that the
pipeline must include in its filing a
64 United States Department of Transportation
Call to Action to Improve the Safety of the Nation’s
Energy Pipeline System (Apr. 2011), available at
http://www.phmsa.dot.gov/staticfiles/PHMSA/
DownloadableFiles/110404%20
Action%20Plan%20Executive%20Version%20_
2.pdf.

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description of the facilities which its
review of its system has identified as
needing upgrading and/or replacement,
together an upper limit on the capital
costs projected to be spent and a
schedule for completing the projects.
This detailed information will allow for
a more transparent and upfront
determination of the project costs that
are eligible for recovery through the
tracker so as to avoid later disputes on
which facilities qualify, than any
description of general categories of
eligible costs could. This requirement
will also help ensure that normal capital
or other expenditures to maintain the
pipeline’s system in the ordinary course
of business are not eligible for recovery
through a surcharge mechanism.
Consistent with this requirement, the
filing should also include the
accounting controls and procedures that
the pipeline will use to ensure that only
identified eligible costs are included in
the tracker.
71. At the same time, however, the
Commission recognizes the need for
flexibility to make changes in the
projects whose costs will be included in
the tracker, after the modernization cost
tracking mechanism is adopted. For
example, the pipeline may discover
unanticipated problems with certain
facilities during the course of its
modernization activities or may
discover more effective solutions to
existing problems. Also, changes in its
shippers’ utilization of its system may
cause certain projects to become more
critical to the safe and efficient
operation of the pipeline than originally
anticipated. Therefore, the Commission
will be open to considering proposals to
include in a modernization cost tracker
a mechanism pursuant to which the
parties could later modify the list of
eligible projects, or the schedule for
those projects, or the cost limits, based
on changing priorities and other
reasons.65 The Commission also
recognizes that pipelines may wish to
begin modernizing their systems before
PHMSA, EPA, and other Federal or state
agencies complete their various ongoing
regulatory initiatives. Therefore, the
Commission will be open to considering
proposals to add new projects to a
tracking mechanism which may be
required by new regulations adopted
after the initial approval of the tracking
mechanism or for other reasons.
3. Avoidance of Cost Shifting
72. The Proposed Policy Statement
contemplated that a pipeline must
design any proposed surcharge in a
65 See section 7.2 of the Columbia Gas Settlement
setting forth such a mechanism.

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manner that will protect the pipeline’s
captive customers from costs shifts if
the pipeline loses shippers or must offer
increased discounts to retain business.
The Commission suggested that one
method of accomplishing this would be
to establish a billing determinant floor
requiring the pipeline to design the
surcharge based on the greater of its
actual billing determinants or the floor.
a. Comments
73. Virtually all commenters favored
the avoidance of cost shifts to the
pipeline’s captive customers that may
result from the implementation of a cost
modernization surcharge. AGA, for
example, supports the need to ensure
that existing shippers are protected from
substantial cost shifts, and comments
that pipelines should be required, in
consultation with their shippers, to
develop appropriate measures to protect
customers from cost shifts.
74. Those opposed to the Proposed
Policy Statement, however, claim that
the very implementation of cost
modernization tracker necessarily shifts
costs. MDG, for example, states that
trackers shift costs to captive customers
due to discounting and lost business
without taking into account offsetting
cost reductions, and thus even the best
implementation of the Proposed Policy
Statement would raise rates to captive
customers unfairly. MDG claims that a
billing floor will not alleviate the
inherent cost shift in a policy that
allows the recovery of one set of costs
absent a review of all the pipeline’s
costs and revenues. MDG suggests that
to the extent substantial pipeline capital
costs are recovered through a tracker
there should be a reduction in that
pipeline’s return on equity to reflect the
pipeline’s reduced risk. The NYPSC
similarly claims that while requiring a
billing determinant floor for a surcharge
does allow some risk to remain with the
pipeline, a tracker mechanism still
reduces a pipeline’s risk and transfers it
to shippers.
75. While NGSA, APGA, and IPAA
oppose the modernization surcharge
tracker, if surcharges are allowed they
all support the requirement that
pipelines must design the surcharge in
a manner that will protect the pipeline’s
shippers from significant cost shifts.
IPAA, NGSA, and KCC contend that at
a minimum, any modernization
surcharge tracker must provide for a
minimum level of billing determinants
to design the surcharge as in Columbia
Gas. NGSA adds that any surcharge
should apply to all throughput in the
facilities and under the rate schedules
impacted by the surcharge-related costs,
so that an agreed upon floor on the

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billing determinants should be greater
than the firm billing determinants (so as
to include interruptible throughput, for
example). AF&PA agrees that
interruptible shippers should share the
costs incurred through trackers to the
extent that they are related to safety and
environmental compliance, as these
costs are not related only to firm service.
IECA states costs recovered through a
tracker should be limited to no more
than 5 percent of the costs recovered
through the pipeline’s tariff.
76. AF&PA submits that if the
Commission implements the Proposed
Policy Statement, the policy should
spread the costs as widely as possible
because environmental and safety costs
are incurred for all shippers. AF&PA
cautions, however, that a shipper that
has released certain capacity should not
bear any new costs related to that
capacity and recovered through the
tracker.
77. NGSA argues that if shippers are
already paying for eligible costs in
negotiated contracts, or existing
negotiated contracts prohibit recovery of
these costs, they should not be subject
to the modernization surcharge.
b. Determination
78. The third standard for approval of
a cost modernization tracker adopted by
the Policy Statement is that the pipeline
must design any proposed surcharge in
a manner that will protect the pipeline’s
captive customers from cost shifts if the
pipeline loses shippers or must offer
increased discounts to retain business
beyond those reflected in their base
rates.
79. As we stated in the Proposed
Policy Statement, our regulations
require that a pipeline’s rates recover its
costs based on projected units of
service,66 thereby putting the pipeline at
risk for any cost under-recovery
between rate cases, incentivizing the
pipeline to minimize costs and
maximize service. Recovery of costs
approved for inclusion in a tracker,
however, would be guaranteed, thereby
reducing the pipeline’s incentives.
Moreover, a tracker mechanism can shift
costs to the pipeline’s captive
customers. If a pipeline recovering costs
through a tracker or surcharge loses
shippers or must offer increased
discounts to retain business, a tracker
mechanism may shift the amounts
previously paid by those shippers
directly and automatically to the
pipeline’s remaining shippers. This
direct cost shifting is one of the reasons
the Commission has generally
disfavored trackers, namely that the cost
66 18

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shifting described would occur without
consideration of any offsetting items
that would generally be considered in a
section 4 rate proceeding, and which the
pipeline would normally need to justify
to recover.67
80. Thus, as a prerequisite to the
Commission allowing such a tracker, the
Commission will require that the
pipeline design the surcharge in a
manner that will protect its shippers
from cost shifts and impose on the
pipeline some risk of under-recovery.
As we noted in the Proposed Policy
Statement, one method to accomplish
this would be that adopted by Columbia
Gas, namely that the pipeline agree to a
billing determinant floor such that the
pipeline must design the surcharge on
the greater of its actual billing
determinants or the established floor,
and impute the revenue it would
achieve by charging the maximum rate
for those determinants. While the
Commission found this to be a just and
reasonable approach to preventing cost
shifts in Columbia Gas, we remain open
under the Final Policy to considering
alternative methods of protecting the
pipeline’s existing customers from cost
shifts if the pipeline loses customers or
has to offer increased discounts of its
rates to retain business during the
period the modernization cost tracker is
in effect.
81. The Commission believes that
issues concerning how a modernization
cost surcharge should be allocated
among a pipeline’s services and what
billing determinants should be used to
design the surcharge are best addressed
on a case-by-case basis when each
pipeline files to establish a
modernization cost tracking mechanism.
However, as a general matter, the
Commission believes that it would be
reasonable for the billing determinants
used to design the surcharge to reflect
a discount adjustment comparable to
any discount adjustment reflected in the
pipeline’s base rates. Otherwise, a
pipeline’s modernization cost tracking
mechanism would be designed in a
manner that would likely lead to the
pipeline under-recovering its prudently
incurred modernization costs. That
would be contrary to the Commission’s
goal of encouraging pipelines to
expedite needed safety and
environmental upgrades. The
67 For example, in order to recover costs
associated with discounted rates the pipeline may
have offered to certain shippers, the pipeline must
demonstrate that the discount was required to meet
competition. Policy for Selective Discounting by
Natural Gas Pipelines, 113 FERC ¶ 61,173 (2005). In
the case of a tracker, no such showing is required
by the pipeline to recover the covered costs from
its remaining customers.

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Commission’s concern about protecting
the pipeline’s existing customers from
cost shifts relates to cost shifts that
would occur if a pipeline were
permitted to true up any modernization
cost under-recoveries resulting from the
loss of customers after its modernization
cost tracker goes into effect or a need to
offer increased rate discounts to retain
business after that date.68
82. Finally, with respect to the issue
of the pipeline’s ability to impose a
modernization cost surcharge on
discounted or negotiated rate shippers,
that is a contractual issue between the
pipeline and its discounted or
negotiated rate shippers. If a particular
shipper’s discount or negotiated rate
agreement with the pipeline permits the
pipeline to add the surcharge to the
agreed-upon discounted or negotiated
rate, the pipeline will be permitted to do
so.69 Otherwise, the pipeline may not
impose the surcharge on a discounted or
negotiated rate shipper.
4. Periodic Review of the Surcharge
83. In the Proposed Policy Statement,
the Commission proposed that pipelines
be required to include in a
modernization cost recovery mechanism
some method to allow a periodic review
of whether the surcharge and the
pipeline’s base rates remain just and
reasonable. As an example of such a
method, the Commission cited the
Columbia Gas settlement, in which the
pipeline agreed to make the surcharge a
temporary part of its rates (the surcharge
expires automatically after five years),
and included a requirement that the
pipeline make a new NGA section 4
filing if it wants to continue the
surcharge. However, the Commission
stated it was open to other methods.
a. Comments
84. Virtually all commenters,
including AGA, INGAA, NGSA, APGA,
PGC, IPAA, Southern, KCC, and TVA
support the proposed standard requiring
a pipeline proposing a modernization
cost tracker to include a method to
allow a periodic rate review of the
surcharge. While participants generally
68 The Commission notes that section 154.109(c)
of the Commission’s regulations (18 CFR 154.109
(2014)), requires that the pipeline’s tariff contain a
statement of the order in which the pipeline
discounts its rates and charges. Therefore, pipelines
with modernization cost surcharges will have to
revise their statements of the order in which they
discount rates to include the modernization cost
surcharge. Treating that surcharge as the last rate
component discounted would minimize the need
for truing up any under-recoveries due to
discounting. See Natural Gas Pipeline Co. of
America, 70 FERC ¶ 61,317 (1995).
69 See, e.g., Sea Robin Pipeline Co., LLC, Opinion
No. 516–A, 143 FERC ¶ 61,129, at PP 85–213
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agreed such a condition was necessary,
the recommended method and
frequency of review differed.
85. Numerous commenters advocate
requiring a pipeline with a cost
modernization tracker to periodically
file a full NGA section 4 rate case.
NGSA for example, commented that a
pipeline should have to file a rate case
with its application for a tracker and
every five years thereafter. IECA and
Cities agree that a minimum 5-year rate
case filing obligation is warranted. KCC
and PGC espouse refresher requirements
of 3 to 5 years, with a condition the
pipeline not file to change rates for at
least 3 years after implementation of a
tracker. IPAA also supports the
requirement for a full rate case refresher,
and MDG suggests a rate case filing as
a condition of extending any tracker
beyond its initial term. Calpine
commented that any surcharge have a
minimum 3-year initial term that is
subject to extension and renegotiation.
Several commenters also advocated
annual filings for pipelines to justify the
projects for which costs were collected
and to true-up such costs.
86. Opponents of the Proposed Policy
Statement commented that a periodic
review methodology was critical,
though still not sufficient to justify the
use of trackers. They strongly advocate
a requirement that the review
methodology involve a full blown NGA
section 4 rate case. APGA would add
the requirement that, if during the
period that a surcharge mechanism is in
effect, an NGA section 5 complaint is
initiated against the pipeline, then the
pipeline must agree to make refunds
retroactive to the date of the complaint
to the extent its rates are determined to
be unjust and unreasonable. The NYPSC
and TVA comment that the periodic
review should ensure that the surcharge
does not produce earnings above
authorized rates of return.
b. Determination
87. In this Policy Statement, the
Commission adopts a policy of requiring
the pipeline to include some method for
a periodic review of whether the
surcharge and the pipeline’s base rates
remain just and reasonable. Potential
methods for satisfying this standard may
include making the surcharge temporary
and/or requiring the pipeline to file an
NGA section 4 rate case to the extent it
wants to extend the surcharge beyond
the initial temporary term. Because we
intend the Policy Statement to be
flexible enough to meet the particular
circumstances of each pipeline’s system,
we will not require that a pipeline
seeking approval of a cost
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full NGA section 4 rate case with some
specified regularity and remain open to
other reasonable means of
accomplishing this goal.
88. Similar to the review of the
pipeline’s existing base rates at the
beginning of the tracker proposal
analysis, during the periodic review the
pipeline will have to provide sufficient
information to satisfy the Commission
that both its base rates and the surcharge
amount remain just and reasonable if
the surcharge is to continue. If shippers
raise any issues of material fact with
respect to the continued justness and
reasonableness of the pipeline’s base
rates or the surcharge, the Commission
will establish appropriate procedures to
enable resolution of those issues based
upon substantial evidence on the
record.
89. If a modernization cost tracking
mechanism is terminated before the
pipeline has fully recovered the costs
included in that mechanism, the
pipeline may reasonably propose in a
subsequent general section 4 rate case to
include the unrecovered costs in its base
rates. For example, if eligible costs have
been treated as rate base items in the
modernization cost tracker, the
undepreciated portion of those costs as
of the time of the NGA section 4 rate
filing could be included in the rate base
used to calculate the pipeline’s
proposed base rates in the same manner
as any other investment made between
rate cases, unless the pipeline’s
modernization cost tracker mechanism
includes some other provision
concerning the treatment of unrecovered
costs upon termination of the
mechanism.

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5. Shipper Support
90. The fifth condition proposed for a
cost recovery surcharge was that the
pipeline must work collaboratively with
shippers to seek shipper support for any
such proposal.
a. Comments
91. The vast majority of commenters
support this condition but differ on the
degree of shipper support the pipeline
must have. On one end, INGAA suggests
that the Commission could approve a
proposed surcharge mechanism that it
deems just and reasonable even if it
lacks shipper support at the outset.
NGSA and APGA, on the other hand,
comment that pipeline should have the
support of shippers representing 90
percent of the firm billing determinants.
AGA comments that while unanimity
should not be required, any approved
modernization cost recovery tracking
mechanism should be established
through a robust, ongoing, collaborative

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process between the pipeline and its
shippers that has widespread shipper
support.
92. IECA is more pessimistic and
contends that it is completely
unrealistic for any pipeline to
collaborate and work with its shippers.
The KCC supports collaboration among
the pipeline and its shippers but
comments that the condition should be
expanded to include support of
‘‘interested parties,’’ including state
public utility commissions.
b. Determination
93. The fifth standard for an
acceptable cost modernization surcharge
adopted in this Policy Statement is that
the pipeline must work collaboratively
with shippers and other interested
parties to seek support for any such
proposal. As part of this collaborative
process, pipelines should meet with
their customers and other interested
parties to seek resolution of as many
issues as possible before submitting a
modernization cost recovery proposal to
the Commission. At such meetings,
pipelines should share with their
customers the results of their review of
their systems concerning what system
upgrades and improvements are
necessary for the safe and efficient
operations of their systems. Pipelines
should also be responsive to customer
requests for specific cost and revenue
information necessary to determine
whether their existing base rates are just
and reasonable. Additionally, pipelines
should provide customers and
interested parties an opportunity to
comment on draft tariff language setting
forth their proposed modernization cost
recovery mechanism.
94. As we noted in the Proposed
Policy Statement, however, while we
strongly encourage the pipeline to
attempt to garner support for its
proposal from all interested parties, we
do not intend to require unanimity of
shipper support before approving a cost
modernization surcharge. Nor will we
establish any minimum level of shipper
support required before a pipeline’s
proposal can be accepted. This Policy
Statement will provide pipelines and
their customers wide latitude to reach
agreements incorporating remedies for a
variety of system safety, reliability
and/or efficiency issues. Despite
comments that mutual collaboration is
futile or impractical, the Columbia Gas
settlement is evidence that a systemwide collaboration between a pipeline
and its customers can work to produce
a reasonable modernization cost
recovery mechanism that benefits all
sides. The Commission continues to
favor settlements, and notes that the

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negotiation of a modernization cost
tracker to address critical infrastructure
issues is exactly the type of issue that
lends itself to pipeline customer
negotiation and agreement because it
will benefit all involved. However, if a
pipeline satisfies its burden under NGA
section 4 to show that its proposed
modernization cost recovery mechanism
is just and reasonable, including
showing that its proposal is consistent
with the guidance herein, the
Commission may accept that proposal,
even if some parties oppose it.
C. Additional Questions on Which the
Commission Sought Comments
95. The Commission also sought
comments on several additional issues,
including: Accelerated amortization,
reservation charge crediting, and any
other factors or issues commenters
believed should be included in the
Policy Statement as a prerequisite for
approving a modernization cost
recovery mechanism.
1. Accelerated Amortization
96. In the Proposed Policy Statement,
the Commission pointed out that the
capital costs included in the
modernization cost tracking mechanism
approved in Columbia Gas are treated as
rate base items, and thus Columbia Gas
is allowed to recover a return on equity
on the portion of those costs financed by
equity. Consistent with the rate base
treatment of those costs, they are
depreciated over the life of Columbia
Gas’ system.70 The Commission
requested comments on whether
pipelines should also be allowed to use
accelerated amortization methodologies,
akin to that approved by the
Commission for hurricane repair cost
trackers,71 to recover the costs of any
facilities installed pursuant to a
modernization cost recovery
mechanism. The Commission stated that
under such a methodology the costs
would not be included in the pipeline’s
rate base, and the pipeline would not
recover any return on equity with
respect to the costs financed by equity.
Instead, the pipeline would only be
allowed to recover the interest necessary
to compensate it for the time value of
money.
a. Comments
97. The Commission received a range
of comments on this issue. Wisconsin
Electric and Wisconsin Gas support
using an accelerated amortization of
70 Columbia

Gas, 142 FERC ¶ 61,062 at P 9.
e.g., Sea Robin Pipeline Co., LLC, Opinion
No. 516, 137 FERC ¶ 61,201, at PP 16–65 (2011),
reh’g den, Opinion No. 516–A, 143 FERC ¶ 61,129
at PP 17–80.
71 See,

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costs of facilities installed pursuant to
eligible modernization projects.72 IECA
also supports accelerated amortization
for safety and environmental
compliance costs but argues for the
amortization to be set at a rate that
would require the pipeline to come back
for a rate case in five years.73 NGSA
argues that accelerated amortization,
with carrying costs, over a specified
term, is the most appropriate rate design
structure for recovering all approved
costs under a tracker, with the length of
any amortization period determined on
a case-by-case basis, dependent upon
the level of costs.74 NGSA argues that it
is not appropriate for the pipeline to
earn a rate of return and taxes on these
types of tracked expenditures because
these would be incremental costs, with
guaranteed cost recovery (i.e., no risk on
the pipeline) under the tracker.75
98. NCUC opposes the proposal on
the grounds that the accelerated
amortization allowed for storm damage
repair costs would be inappropriate for
modernization costs, because
accelerated amortization would raise
intergenerational cross—subsidization
issues and could magnify rate shock.
Similarly, Laclede opposes recovery of
capital costs through accelerated
amortization methodologies, and argues
that any costs not recovered through
tracker rates should be rolled into rate
base.76
99. CAPP recommends that the
consultative process by which
individual pipelines formulate their
respective proposals include the
opportunity for stakeholders to evaluate
the preferred accelerated amortization
methodology.77 Calpine also does not
object to allowing pipelines and their
shippers to consider accelerated
amortization methodologies as part of
their modernization surcharge
negotiations.78 Columbia Gas states the
Commission should consider permitting
pipelines to use accelerated
amortization methodologies but allow
pipelines and their customers the
72 Wisconsin Electric and Wisconsin Gas
Comments at 14.
73 IECA Comments at 21.
74 NGSA Comments at 12–13, 24.
75 NGSA Comments at 24.
76 Laclede Comments at 20. See also PGC
Comments at 19–20 (PGC opposes accelerated
amortization for modernization upgrades,
contending that it will only give pipelines
additional latitude to increase their profits.).
77 CAPP Comments at 9. See also KCC Comments
at 24, 27 (KCC does not oppose extension of the use
of accelerated amortization methodologies for
recovering approved costs under a modernization
cost tracker if the costs subject to accelerated
amortization are not included in rate base, and a
pipeline is not able to recover any return on equity
for costs financed by equity).
78 Calpine Comments at 30.

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discretion to negotiate the appropriate
method of amortization, which should
include the possibility of earning a
reasonable return.79 INGAA requests
that the Commission provide each
pipeline that proposes a modernization
cost tracker the ability to propose either
accelerated amortization methodologies
or depreciation over the life of the
facilities, because each pipeline faces
different competitive circumstances.80
b. Determination
100. The Commission agrees with the
commenters who suggested that
pipelines should be allowed to negotiate
with their customers concerning
whether modernization costs should be
treated as (1) a rate base item to be
depreciated over the life of the pipeline
with the pipeline recovering a return on
equity on the portion of those costs
financed by equity together with
associated income taxes or (2) a non-rate
base item to be amortized over a shorter
period with the pipeline recovering the
interest necessary to compensate it for
the time value of money but no return
on equity or associated income taxes.
These two cost recovery options have
varying advantages and disadvantages.
For example, rate base treatment is
likely to lead to a lower per unit daily
or monthly surcharge, because it
spreads the pipeline’s recovery of the
costs over a substantially longer period.
Such lower per unit rates should help
mitigate any rate shock. However, over
the long run, rate base treatment is
likely to be more expensive for shippers,
because the surcharge will be in effect
for a longer period and the return on the
equity portion of the rate base will be
greater than the interest rate on the costs
being amortized.81 In light of these
varying advantages and disadvantages,
the Commission will permit pipelines
and their shippers to negotiate which
recovery method is appropriate for each
pipeline, based upon the circumstances
of its system.
2. Reservation Charge Crediting
101. The Commission requires
pipelines to provide full reservation
charge credits for outages of primary
firm service caused by non-force
majeure events, where the outage
occurred due to circumstances within
79 Columbia Gas Comments at 34. See also APGA
comments at 22 (to the extent the Commission
permits pipelines to implement the modernization
cost tracker, customers of the requesting pipeline
should make the decision as to whether rate base
treatment or some sort of reasonable amortization
period works best for them under the
circumstances).
80 INGAA Comments at 19–20.
81 See Opinion No. 516–A, 143 FERC ¶ 61,129 at
PP 35–56.

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the pipeline’s control, including
planned or scheduled maintenance.82
The Commission also requires the
pipeline to provide partial reservation
charge credits during force majeure
outages, so as to share the risk of an
event for which neither party is
responsible.83 Partial credits may be
provided pursuant to: (1) The No-Profit
method under which the pipeline gives
credits equal to its return on equity and
income taxes starting on Day 1; or (2)
the Safe Harbor method under which
the pipeline provides full credits after a
short grace period when no credit is due
(i.e., 10 days or less).84 The Commission
permits pipelines to reflect the recurring
cost of providing reservation charge
credits during non-force majeure events
in their rates.85
102. In the Proposed Policy
Statement, the Commission stated that
the pipelines’ performance of facility
upgrades and replacements required by
recent legislative and other actions to
address pipeline efficiency, safety, and
environmental concerns may result in
disruption of primary firm service. The
Commission also cited recent
Commission orders clarifying that onetime outages of primary firm service, if
necessary to comply with government
orders, may be treated as force majeure
outages, for which only partial
reservation charge credits are
required.86 The Commission requested
comments on whether it should make
any adjustments to its current
reservation charge crediting policy in
light of the Proposed Policy
Statement.87
82 See, e.g., Tennessee Gas Pipeline Co., Opinion
No. 406, 76 FERC ¶ 61,022 (1996), order on reh’g,
Opinion No. 406–A, 80 FERC ¶ 61,070 (1997), as
clarified by, Rockies Express Pipeline LLC, 116
FERC ¶ 61,272, at P 63 (2006) (Rockies Express I),
and North Baja Pipeline, LLC, 109 FERC ¶ 61,159
(2004), reh’g denied, 111 FERC ¶ 61,101 (2005),
aff’d, North Baja Pipeline, LLC v. FERC, 483 F.3d
819 (D.C. Cir. 2007) (North Baja v. FERC).
83 The Commission has defined force majeure
outages as events that are both unexpected and
uncontrollable. Opinion No. 406, 76 FERC at
61,088. North Baja v. FERC, 483 F.3d at 823.
84 The Commission has also stated that pipelines
may use some other method that achieves equitable
sharing reasonably equivalent to the two specified
methods.
85 See, e.g., Northern Natural Gas Co., 137 FERC
¶ 61,202, at P 36 (2011), order on reh’g and
compliance, 141 FERC ¶ 61,221, at PP 45–50 (2012)
(Northern). The Commission has stated this could
be accomplished by a reduction in the billing
determinants used to design a pipeline’s rates or by
including the cost of the full reservation charge
credits as an item in the pipeline’s cost of service.
Gulf South Pipeline Co., LP, 144 FERC ¶ 61,215, at
P 34 (2013) (Gulf South).
86 See, e.g., TransColorado Gas Transmission Co.
LLC, 144 FERC ¶ 61,175 (2013) (TransColorado);
Gulf South, 144 FERC ¶ 61,215.
87 Proposed Policy Statement at P 34.

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a. Comments
103. The pipeline industry generally
advocated that the Commission modify
its policy requiring pipelines to pay
reservation charge credits starting on
Day One for disruption of primary firm
service required by either voluntary or
mandatory system improvements
eligible for surcharge cost recovery.
They contend that the pipeline
modernization programs under
consideration are not representative of
pipeline mismanagement and are
significantly different than conducting
routine maintenance,88 and thus the
Commission should not impose any
reservation charge crediting requirement
or at least treat any resulting outages as
force majeure events requiring only
partial reservation charge credits.
INGAA also argued that the Commission
should explicitly provide that costs to
comply with other statutory and
regulatory requirements, such as
hydrostatic testing to confirm maximum
pressure levels, are not subject to
reservation charge credits.89 INGAA
also argues, however, that to the extent
that a pipeline must pay reservation
charge credits for a service outage
required by a system improvement
eligible for surcharge cost recovery, it
should be permitted to recover such
crediting costs through the
modernization cost recovery tracker.90
Columbia Gas urges the Commission to
extend its policy of granting partial
reservation charge credits to outages due
to construction of eligible
modernization projects.91
104. Shippers and various state
commissions encourage the Commission
to require pipelines with modernization
cost trackers to provide full reservation
charge credits during periods that the
pipeline must interrupt primary firm
service to replace or install eligible
facilities under the provisions of the
modernization tracker.92 NCUC states
that full reservation charge credits will
provide pipelines a stronger incentive to
88 INGAA

Comments at 15–18.
Comments at 18.
Comments at 18–19. KM Comments at
8 (agreeing with INGAA that reservation charge
crediting not apply for interruptions of firm service
when pipelines are performing either voluntary or
mandatory maintenance to improve safe and
efficient operations.).
91 Columbia Gas Comments at 36. Boardwalk
suggests the Commission should modify its current
reservation charge crediting policy to allow for a
more equitable balancing of the risks between
pipelines and their customers for service
disruptions caused by testing, repair or replacement
activities taken to comply with the new PHMSA
rules. (Boardwalk Comments at 24.).
92 Michigan PSC Comments at 20. IECA and
American Midstream do not support changes to the
existing reservation charge credits. IECA Comments
at 21; American Midstream Comments at 8.
89 INGAA

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90 INGAA

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schedule any necessary construction or
modification of facilities required to
comply with any new regulations in an
efficient manner.93 Likewise, while
PGC, APGA, IPAA, and NGSA oppose
the implementation of modernization
cost trackers, they request that to the
extent the Commission chooses to allow
their implementation, it modify its
reservation charge crediting policy to
require pipelines with modernization
cost trackers to provide full reservation
charge credits to firm customers during
any period that the pipeline must
interrupt primary firm service to replace
or install eligible facilities.94
b. Determination
105. The Commission’s current
reservation charge crediting policies
require pipelines to provide some level
of reservation charge credits whenever
the pipeline is unable to schedule
reserved primary firm service because of
a government action. The level of
credits to be provided turns on whether
the government action is considered a
force majeure event.95
106. The Commission has defined
force majeure outages as events that are
both ‘‘unexpected and uncontrollable.’’
In TransColorado 96 and Gulf South,97
the Commission clarified the basic
distinction as to whether outages
resulting from governmental actions are
force majeure or non-force majeure
events. The Commission found that
outages necessitated by compliance
with government standards concerning
the regular, periodic maintenance
activities a pipeline must perform in the
ordinary course of business to ensure
the safe operation of the pipeline,
including PHMSA’s integrity
management regulations, are non-force
majeure events requiring full
reservation credits. Outages resulting
from one-time, non-recurring
government requirements, including
special, one-time testing requirements
after a pipeline failure, are force
majeure events requiring only partial
crediting.
107. In Gulf South, the Commission
explained that this distinction is
reasonable for two reasons. First, the
pipeline is likely to have greater
discretion as to when it performs
93 NCUC

Comments at 34.
Comments at 20, APGA Comments at 22,
IPAA Comments at 3, 26–27, NGSA Comments at
13, 25.
95 Tennessee Gas Pipeline Co., L.L.C., 139 FERC
¶ 61,050, at PP 80–82 (2012). Texas Eastern
Transmission, LP, 149 FERC ¶ 61,143, at PP 121–
123 (2014).
96 TransColorado, 144 FERC ¶ 61,175 at PP 35–
43.
97 Gulf South, 144 FERC ¶ 61,215 at PP 31–34.
94 PGC

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regular, periodic maintenance on
particular pipeline segments than when
the government orders special one-time
testing, for example after a pipeline
failure. Thus, regular, periodic
maintenance required by government
regulation may be considered
reasonably within the control of the
pipeline and expected, in contrast to
one-time, non-recurring government
requirements, which the pipeline may
have to implement within a short
timeframe. Second, the recurring costs
of regular, periodic maintenance
performed in the ordinary course of
business may be included in a
pipeline’s rates in a general NGA
section 4 rate case, whereas one-time,
non-recurring costs are generally not
eligible for inclusion in a pipeline’s
rates in a section 4 rate case. The
Commission explained that because the
full crediting policy is premised on the
ability of the pipeline to recover the
costs associated with that policy
through its rates, it follows that
eligibility for such cost recovery is an
important factor in distinguishing
between the types of government testing
and maintenance requirements that
trigger the full crediting requirement
and those that only trigger a partial
crediting requirement.98 Thus, under
TransColorado and Gulf South, outages
resulting from one-time non-recurring
government requirements that (1) are
not part of the pipeline’s routine,
periodic maintenance programs and (2)
provide the pipeline little discretion as
to when the outage occurs, qualify as
force majeure events.
108. Against this background, we
recognize that facility upgrade and
replacement projects whose costs would
be eligible for recovery under a
modernization tracker do not lend
themselves easily to the governmental
action force majeure/non-force majeure
distinction described above. On the one
hand, such projects do not constitute
routine periodic maintenance of the
type for which the Commission requires
full reservation charge credits; in fact,
the Commission has held that such
routine maintenance costs are not
eligible for inclusion in a modernization
cost tracker. Moreover, because each
project constitutes a one-time, nonrecurring event, any reservation charge
credits provided by the pipeline would
not be a recurring cost eligible for
recovery in a pipeline’s NGA section 4
general rate case. On the other hand,
pipelines will likely have considerable
discretion as to the timing of when they
perform each project, with projects
likely to be scheduled and performed
98 Texas

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Federal Register / Vol. 80, No. 77 / Wednesday, April 22, 2015 / Rules and Regulations
over a multi-year period. Therefore, the
projects are not unexpected in the sense
ordinarily required for treatment as a
force majeure event.
109. In these circumstances, the
Commission believes the issue of
reservation charge credits for projects
included in a modernization cost tracker
is best addressed, at least initially, on a
case-by-case basis in each proceeding in
which a pipeline proposes such a
tracker. In its filing to establish a
tracker, the pipeline should state the
extent to which it anticipates that any
particular project will disrupt primary
firm service, explain why it expects it
will not be able to continue to provide
firm service, and describe what
arrangements the pipeline intends to
make to mitigate the disruption or
provide alternative methods of
providing service. To the extent a
pipeline incurs costs to make temporary
alternative arrangements to provide
service while a project is under
construction, such as through temporary
line bypasses or natural gas tankers,
such costs may be considered for
inclusion in the tracker. However, if a
modernization project unavoidably
causes an outage of primary firm
service, the Commission believes that
pipelines should provide some relief
from the payment of reservation charge
to shippers directly affected by that
outage. To the extent the pipeline
provides such shippers full reservation
charge credits, the Commission would
consider proposals for the pipeline to
recover such costs through the tracker,
consistent with the Commission’s policy
that pipelines may recover the costs of
full reservation charge credits in rates.
Alternatively, the Commission would
consider partial reservation charge
crediting methods tailored to the
circumstances of the projects included
in the tracker.
3. Other Issues

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110. The Commission sought
comments on any other issues or factors
interested parties though the
Commission should consider for
inclusion in the Policy Statement as a
prerequisite for approving a
modernization cost recovery
mechanism.99 The Commission received
comments on a variety of proposals on
additional items to include in the Policy
99 Because the Policy Statement would address
issues pertaining to the Commission’s review of
natural gas rate filings, the statement is
categorically excluded from the requirements of the
National Environmental Policy Act (NEPA), thus
neither an environmental assessment nor an
environmental impact statement is required. See 18
CFR 380.4(a)(25) (2014).

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Statement, including return on equity,
and formula rates.
a. Return on Equity
111. EPMCG, MDG, APGA and the
NYPSC argue that if the portion of
capital investment subject to a tracker is
significant to the pipeline’s rate base,
then the Commission should adjust
downward the pipeline’s allowed rate of
return on equity to reflect the decreased
risk that the pipeline has to recover its
cost of investment given the existence of
a tracker.100 IPAA and NGSA also argue
that the plant facilities to be constructed
pursuant to the proposed modernization
surcharge should not be eligible to earn
a rate of return and taxes, because these
facilities are not included in a pipeline’s
rate base through an NGA general
section 4 rate filing.101
112. The Commission will not
mandate an automatic ROE reduction
for pipelines that have a modernization
surcharge or tracker. We do agree,
however, that a modernization tracker
or surcharge could be a factor that is
considered as to the appropriate level of
a pipeline’s ROE. We agree that
considerations of return on equity
reduction may be considered during
shipper and pipeline negotiations.
b. Formula Rates
113. APGA argues that, if the
Commission wants a tracker mechanism
that ensures just and reasonable rates, it
must apply to the pipeline’s entire cost
of service, similar to the transmission
formula rates that the Commission has
approved for electric utilities under the
Federal Power Act.102 APGA states that
the advantage of such formula rates,
most of which allow projected capital
additions to be included in a given
year’s formula rate and are trued up for
actuals, are that the electric utilities are
assured timely recovery of capital
outlays and customers are assured that
rates are premised on full and updated
cost-of-service data, including
throughput, so that the over-recovery
problem associated with tracker
mechanisms applicable to only a
portion of the pipeline’s cost of service
is obviated.
114. The Commission will not adopt
APGA’s proposal. In the instant
proceeding the Commission is adopting
a policy permitting pipelines to recover
a limited category of one-time costs
through a tracker mechanism, namely
the costs of making needed upgrades for
100 EPMCG Comments at 43, APGA Comments at
22–23, and MDG Comments at P 2, NYPSC
Comments at P 1–3.
101 IPAA Comments at 3, 26, NGSA Comments at
13.
102 APGA Comments at 11–12.

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22383

the safe and efficient operation of the
pipeline. For the reasons discussed
above, the Commission can permit this
limited exception to our general policy
of requiring pipelines to design their
rates based on projected units of service,
without undercutting the benefits of that
policy of providing pipeline an
incentive to minimize costs and
maximize the service they provide.
APGA’s proposal to require pipelines to
track all changes in their cost of service,
on the other hand, would eliminate both
those incentives.
c. Transparency
115. Wisconsin Electric and
Wisconsin Gas propose that the
Commission include additional
transparency measures to require
pipelines to identify and track all costs
associated with each project or project
phase and file a quarterly summary
report detailing the progress and
completion of the projects included in
the tracker. In addition, Wisconsin
Electric and Wisconsin Gas state
existing service customers should have
the right to validate the premise and the
projected results of a pipeline’s
modernization and to audit costs.
Finally, Wisconsin Electric and
Wisconsin Gas submit that the pipeline
should be required to quantify current
costs that are reduced or avoided as a
result of the and net those costs out of
the total eligible cost.103
116. The Commission will not adopt
a policy requiring pipelines to submit
reports on its projects based on any
particular schedule, or specify the
content of those reports in this Policy
Statement. These are issues that should
be addressed in the individual
proceedings where each pipeline
proposes a modernization cost tracker.
Likewise, the validation and
quantification of costs and projects may
be negotiated. Nevertheless, a pipeline’s
compliance with its tariff to implement
a modernization cost tracker may be
subject to scrutiny through a
Commission audit.
d. Proposed Certificate Policy
Modifications
117. Columbia Gas proposes that the
Commission undertake a review and
implement a ‘‘fast track’’ processing for
NGA 7(c) projects that involve
replacement of older vintage pipelines,
like bare steel replacement, or involve
an important public safety aspect.104
Columbia Gas also comments that not
all pipeline facilities are appropriate for
103 Wisconsin Electric and Wisconsin Gas
Comments at 15.
104 Columbia Gas Comments at 37.

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Federal Register / Vol. 80, No. 77 / Wednesday, April 22, 2015 / Rules and Regulations

replacement or upgrade because some
facilities may have reached or are close
to the end of their useful life. Therefore,
Columbia states a full replacement of
certain facilities may be cost
prohibitive, even with a tracker, because
shippers on the facilities are unwilling
or unable to support the costs of the
replacement.105 Similarly, Boardwalk
states abandonment of facilities that will
no longer be economic to operate
because of substantial costs necessary to
modify the facilities in order to achieve
compliance with new requirements may
be the best option and in the public
interest.106
118. Columbia Gas’ and Boardwalk’s
proposals are beyond the scope of this
Policy Statement, and thus we will not
address them here.

respondents’ burden, including the use
of automated information techniques.
The burden estimates are for
implementing the information
collection requirements of this Policy
Statement. The Commission asks that
any revised burden estimates submitted
by commenters include the details and
assumptions used to generate the
estimates.
121. The collection of information
related to this Policy Statement falls
under FERC–545A (Gas Pipeline Rates:
Rate Change (Non-Formal),
Modernization Tracker).109 The
following estimate of reporting burden
is related only to this Policy Statement.
122. Public Reporting Burden: The
estimated annual burden and cost
follow.

III. Information Collection Statement
119. The collection of information
discussed in the Policy Statement is
being submitted to the Office of
Management and Budget (OMB) for
review under section 3507(d) of the
Paperwork Reduction Act of 1995 107
and OMB’s implementing
regulations.108 OMB must approve
information collection requirements
imposed by agency rules.
120. The Commission solicits
comments from the public on the
Commission’s need for this information,
whether the information will have
practical utility, the accuracy of the
burden estimates, recommendations to
enhance the quality, utility, and clarity
of the information to be collected, and
any suggested methods for minimizing

FERC–545A, AS IMPLEMENTED IN POLICY STATEMENT IN PL15–1–000
Number of
respondents 110

Number of
responses per
respondent

Average
burden hours
per response

Total annual
burden hours

(1)

(2)

(3)

(1) × (2) × (3)

Provide information to shippers for any surcharge proposal, and prepare modernization cost tracker filing 112 ..............................
Perform periodic review and provide information to show that both base rates and the
surcharge amount remain just and reasonable ...............................................................

123. Title: FERC–545A (Gas Pipeline
Rates: Rate Change (Non-Formal),
Modernization Tracker).
124. Action: Proposed information
collection.
125. OMB Control No.: To be
determined.
105 Columbia

Gas Comments at 21.
Comments at 18–19.
107 44 U.S.C. 3507(d) (2012).
108 5 CFR part 1320.
109 The information collection requirements in
this Policy Statement would normally be included
in FERC–545 (OMB Control No. 1902–0154) which
covers rate change filings made by natural gas
pipelines, including tariff changes. However,
another item is pending OMB review under FERC–
545, and only one item per OMB Control Number
can be pending review at OMB at a time. Therefor
in order to submit this timely to OMB, we are using
a temporary collection number (FERC–545A) to
cover the requirements implemented in PL15–1–
000.
110 An estimated 165 natural gas pipelines (Part
284 program) may be affected by this Policy
Statement. Of the 165 pipelines, Commission staff
estimates that 3 pipelines may choose to submit an
application for a modernization cost tracker per
year.
111 The most recent hourly wage figures are
published by the Bureau of Labor Statistics, U.S.
Department of Labor, National Occupational
Employment and Wage Estimates, United States,
Occupation Profiles, May 2014 (available 4/1/2015)

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106 Boardwalk

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Total annual
cost ($) 111
(rounded)

3

1

750

2,250

$147, 578

3

113 0.60

350

630

42,235

126. Respondents: Business or other
for profit enterprise (Natural Gas
Pipelines).
127. Frequency of Responses:
Ongoing.
128. Necessity of Information: The
Commission is establishing a policy to
allow interstate natural gas pipelines to

seek to recover certain capital
expenditures made to modernize system
infrastructure through a surcharge
mechanism, subject to certain
conditions. The information that the
pipeline should share with its shippers
and submit to the Commission is
intended to ensure that the resulting

at http://www.bls.gov/oes/home.htm, and the
benefits are calculated using BLS information, at
http://www.bls.gov/news.release/ecec.nr0.htm.
The average hourly cost (salary plus benefits) to
prepare the modernization cost tracker filing is
$65.59. It is the average of the following hourly
costs (salary plus benefits): Manager ($77.93, NAICS
11–0000), Computer and mathematical ($58.17,
NAICS 15–0000), Legal ($129.68, NAICS 23–0000),
Office and administrative support ($39.12, NAICS
43–0000), Accountant and auditor ($51.04, NAICS
13–2011), Information and record clerk ($37.45,
NAICS 43–4199), Engineer ($66.74, NAICS 17–
2199), Transportation, Storage, and Distribution
Manager ($64.55, NAICS 11–3071).
The average hourly cost (salary plus benefits) to
perform the periodic review is $67.04. It is the
average of the following hourly costs (salary plus
benefits): Manager ($77.93, NAICS 11–0000), Legal
($129.68, NAICS 23–0000), Office and
administrative support ($39.12, NAICS 43–0000),
Accountant and auditor ($51.04, NAICS 13–2011),
Information and record clerk ($37.45, NAICS 43–
4199).
112 The pipeline’s modernization cost tracker
filing is expected to include information to:

• Demonstrate that its current rates are just and
reasonable and that proposal includes the types of
benefits that the Commission found maintained the
pipeline’s incentives for innovation and efficiency;
• identify each capital investment to be
recovered by the surcharge, the facilities to be
upgraded or installed by those projects, and an
upper limit on the capital costs related to each
project to be included in the surcharge, and
schedule for completing the projects;
• establish accounting controls and procedures
that it will utilize to ensure that only identified
eligible costs are included in the tracker;
• include method for periodic review of whether
the surcharge and the pipeline’s base rates remain
just and reasonable; and
• state the extent to which any particular project
will disrupt primary firm service, explain why it
expects it will not be able to continue to provide
firm service, and describe what arrangements the
pipeline intends to make to mitigate the disruption
or provide alternative methods of providing service.
113 Based on the Columbia case, we estimate that
a review may be required every 5 years, triggering
the first pipeline reviews to be done in Year 6 (for
the pipelines which applied and received approval
in Year 1).

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rates are just and reasonable and protect
natural gas consumers from excessive
costs
129. Internal Review: The
Commission has reviewed the guidance
in the Policy Statement and has
determined that the information is
necessary. These requirements conform
to the Commission’s plan for efficient
information collection, communication,
and management within the natural gas
pipeline industry. The Commission has
assured itself, by means of its internal
review, that there is specific, objective
support for the burden estimates
associated with the information
requirements.
130. Interested persons may obtain
information on the reporting
requirements by contacting the
following: Federal Energy Regulatory
Commission, 888 First Street NE.,
Washington, DC 20426 [Attention: Ellen
Brown, Office of the Executive Director,
email: DataClearance@ferc.gov, phone:
(202) 502–8663, fax: (202) 273–0873].
131. Comments concerning the
collection of information and the
associated burden estimate should be
sent the Commission by June 22, 2015.
IV. Document Availability
132. In addition to publishing the full
text of this document in the Federal
Register, the Commission provides all
interested persons an opportunity to
view and/or print the contents of this
document via the Internet through
FERC’s Home Page (http://
www.ferc.gov) and in FERC’s Public
Reference Room during normal business
hours (8:30 a.m. to 5:00 p.m. Eastern
time) at 888 First Street NE., Room 2A,
Washington, DC 20426.
133. From FERC’s Home Page on the
Internet, this information is available on
eLibrary. The full text of this document
is available on eLibrary in PDF and
Microsoft Word format for viewing,
printing, and/or downloading. To access
this document in eLibrary, type the
docket number excluding the last three
digits of this document in the docket
number field.
134. User assistance is available for
eLibrary and the FERC’s Web site during
normal business hours from FERC
Online Support at (202) 502–6652 (toll
free at 1–866–208–3676) or email at
ferconlinesupport@ferc.gov, or the
Public Reference Room at (202) 502–
8371, TTY (202) 502–8659. Email the
Public Reference Room at
public.referenceroom@ferc.gov.
V. Effective Date and Congressional
Notification
135. This Policy Statement will
become effective October 1, 2015.

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The Commission orders:
The Commission adopts the Policy
Statement and supporting analysis
contained in the body of this order.

Xcel Energy Companies

By the Commission.
Issued: April 16, 2015.
Nathaniel J. Davis, Sr.,
Deputy Secretary.

DEPARTMENT OF ENERGY

Note: The following appendix will not
appear in the Code of Federal Regulations.

18 CFR Part 40

22385

[FR Doc. 2015–09226 Filed 4–21–15; 8:45 am]
BILLING CODE 6717–01–P

Federal Energy Regulatory
Commission

[Docket No. RM14–13–000; Order No. 808]

Appendix—List of Commenters
American Forest & Paper Association
American Gas Association
American Midstream, LLC
American Public Gas Association
Beatrice Gahman
Berkshire Hathaway Energy Company
Boardwalk Pipeline Partners, LP
Calpine Corporation
Canadian Association of Petroleum
Producers
CenterPoint Energy Resources Corp.
Clean Air Task Force
Columbia Gas Transmission, LLC
Deep Gulf Energy LP
El Paso Municipal Customer Group
Elizabeth Balogh
Energy XXI Ltd.
Environmental Defense Fund, Conservation
Law Foundation and the Sustainable FERC
Project
Ernest J. Moniz, Secretary. United States
Department of Energy
Fairfax Hutter
Helis Oil and Gas Company, L.L.C.
Independent Oil & Gas Association of West
Virginia, Inc.
Independent Petroleum Association of
America
Indicated Shippers
Industrial Energy Consumers of America
Interstate Natural Gas Association of America
Kansas Corporation Commission
Karen Feridum
Kinder Morgan Interstate Pipelines
Laura Pritchard
Michigan Public Service Commission
Missouri Public Service Commission
Municipal Defense Group
Natural Gas Supply Association
New York Public Service Commission
Norman W. Torkelson
North Carolina Utilities Commission
Patriots Energy Group
Pipeline Safety Coalition
Process Gas Consumers Group and the
American Forest & Paper Association
Secretary of Energy
Southern Company Services
Southern Star Central Gas Pipeline, Inc.
Tenneesse Valley Authority
Teresa Ecker
The Laclede Group, Inc.
U.S. Department of Energy
U.S. Department of Transportation, Pipeline
and Hazardous Materials Safety
Administration
WBI Energy Transmission, Inc.
Western Tennessee Municipal Group
Wisconsin Electric Power Company and
Wisconsin Gas LLC

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Communications Reliability Standards
Federal Energy Regulatory
Commission.
ACTION: Final rule.
AGENCY:

Pursuant to the Federal Power
Act, the Commission approves two
revised Reliability Standards, COM–
001–2 (Communications) and COM–
002–4 (Operating Personnel
Communications Protocols), developed
by the North American Electric
Reliability Corporation (NERC), which
the Commission has certified as the
Electric Reliability Organization
responsible for developing and
enforcing mandatory Reliability
Standards. The two revised Reliability
Standards will enhance reliability by,
among other things, requiring adoption
of predefined communication protocols,
annual assessment of those protocols
and operating personnel’s adherence
thereto, training on the protocols, and
use of three-part communications. In
addition, the Commission directs NERC
to develop a modification to Reliability
Standard COM–001–2 that addresses
internal communications capabilities
that could involve the issuance or
receipt of Operating Instructions or
other communications that could have
an impact on reliability.
DATES: This rule will become effective
June 22, 2015.
FOR FURTHER INFORMATION CONTACT:
Vincent Le (Technical Information),
Office of Electric Reliability, Federal
Energy Regulatory Commission, 888
First Street NE., Washington, DC 20426,
(202) 502–6204, Vincent.le@ferc.gov.
Michael Gandolfo (Technical
Information), Office of Electric
Reliability, Federal Energy Regulatory
Commission, 888 First Street NE.,
Washington, DC 20426, (202) 502–6817,
Michael.gandolfo@ferc.gov.
Julie Greenisen (Legal Information),
Office of the General Counsel, Federal
Energy Regulatory Commission, 888
First Street NE., Washington, DC 20426,
(202) 502–6362, julie.greenisen@
ferc.gov.
SUMMARY:

SUPPLEMENTARY INFORMATION:

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