Regulations Governing the Conduct of Open Seasons for Alaska Natural Gas Transportation Projects, 35011-35027 [05-11658]

Agencies

• DEPARTMENT OF ENERGY
• Federal Energy Regulatory Commission

[Federal Register Volume 70, Number 115 (Thursday, June 16, 2005)]
[Rules and Regulations]
[Pages 35011-35027]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-11658]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 157

[Docket No. RM05-1-001; Order No. 2005-A]


Regulations Governing the Conduct of Open Seasons for Alaska 
Natural Gas Transportation Projects

Issued June 1, 2005.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Final rule; order on rehearing.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) 
generally reaffirms its determinations in Order No. 2005. Order No. 
2005 establishes requirements governing the conduct of open seasons for 
proposals to construct Alaska natural gas transportation projects, 
including procedures for allocation of capacity. Pursuant to the 
directive of section 103(e)(2) of the Alaska Natural Gas Pipeline Act, 
enacted on October 13, 2004, the regulations promulgated in Order No. 
2005 include the criteria for and timing of any open season, promote 
competition in the exploration, development, and production of Alaska 
natural gas, and for any open seasons for capacity exceeding the 
initial capacity, provide for the opportunity for the transportation of 
natural gas other than from the Prudhoe Bay and Point Thomson units.
    In this order, the Commission addresses the requests for rehearing 
and/or clarification of Order No. 2005. Here, we grant rehearing in 
part, deny rehearing in part, and provide clarification of Order No. 
2005. In specific, we: Clarify that the Commission may require design 
changes necessary to ensure that some portion of a proposed voluntary 
expansion will be allocated to new shippers or shippers seeking to 
transport gas from areas other than Prudhoe Bay or Point Thomson, 
provided such shippers are willing to sign qualifying long-term firm 
transportation agreements; codify the expanded criteria for evaluating 
late bids for capacity and the requirement that any late bid contain a 
good faith showing; in the case of the mandatory pre-review, codify 
that the plan to be filed by the Commission must contain the open 
season notice, and eliminates the 30-day prior notice requirement; 
discuss how the open season rules may apply to jurisdictional gas 
treatment plants; clarify that capacity bid for the open season is 
exempt from allocation only in a case where there is also presubscribed 
capacity, and that in the event there are more than one pre-
subscription agreement, bidders in the open season may not cherry-pick 
among the provisions of the several agreements; clarify the project 
applicant's obligation to establish a separate entity to conduct the 
open season; and further codify the requirements of the catchall 
provision regarding information to be included in an open season 
notice.

DATES: Effective Date: Revisions in this order on rehearing will become 
effective on June 16, 2005.

FOR FURTHER INFORMATION CONTACT: Whit Holden, Office of the General 
Counsel, (202) 502-8089, edwin.holden@ferc.gov; Richard Foley, Office 
of Energy Projects, (202) 502-8955, richard.foley@ferc.gov; Federal 
Energy Regulatory Commission, 888 First Street, NE., Washington, DC 
20426.

SUPLEMENTARY INFORMATION:

Before Commissioners: Pat Wood, III, Chairman; Nora Mead Brownell, 
Joseph T. Kelliher, and Suedeen G. Kelly.

Order on Rehearing and Clarification

    1. On February 9, 2005, the Federal Energy Regulatory Commission 
(Commission) issued a Final Rule, Order No. 2005,\1\ amending its 
regulations by adding Subpart B to Part 157 to establish requirements 
governing the conduct of open seasons for capacity on proposals to 
construct Alaska natural gas transportation projects. Order No. 2005 
fulfilled the Commission's responsibilities to issue open season 
regulations under section 103 of the Alaska Natural Gas Pipeline Act 
(ANGPA or the Act), enacted on October 13, 2004. Section 103(e)(1) of 
the Act directs the Commission, within 120 days from enactment of the 
Act, to promulgate regulations governing the conduct of open seasons 
for Alaska natural gas transportation projects, including procedures 
for allocation of capacity. As required by section 103(e)(2) of the 
Act, the regulations promulgated in Order No. 2005 (1) include the 
criteria for and timing of any open season, (2) promote competition in 
the exploration, development, and production of Alaska

[[Page 35012]]

natural gas, and (3) for any open seasons for capacity exceeding the 
initial capacity, provide for the opportunity for the transportation of 
natural gas other than from the Prudhoe Bay and Point Thomson units.
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    \1\ Regulations Governing the Conduct of Open Seasons for Alaska 
Natural Gas Transportation Projects, RM05-1-000, Order No. 2005, 
FERC Stats. and Regs. ] 31,174 (2005).
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    2. The Commission affirms here the legal and policy conclusions on 
which Order No. 2005 was based. As stated in Order No. 2005, the goal 
of the open season regulations is to design an open season process that 
provides non-discriminatory access to capacity on any Alaska natural 
gas transportation project and, at the same time, allows sufficient 
economic certainty to support the construction of the pipeline and 
thereby provide a stimulus for exploration, development, and production 
of Alaska natural gas. We find that Order No. 2005's open season rules 
as revised and clarified herein, satisfy that goal and, therefore, are 
in the public interest.

Background

    3. ANGPA mandates the expedited processing by the Commission of any 
application for an Alaska natural gas transportation project. To this 
end, as stated above, section 103(e)(1) of the Act specifically directs 
the Commission to prescribe the rules which shall apply to any open 
season held for the purpose of soliciting interest in, or making 
binding commitments to the acquisition of capacity on, any Alaska 
natural gas transportation project, including the criteria for 
allocating capacity among competing bidders. In this regard, Congress 
instructed the Commission to include in its regulations the criteria 
for, and timing of, any open season, and to design its open season 
regulations to promote competition in the exploration, development, and 
production of Alaska natural gas and, as to any open season for the 
voluntary expansion \2\ of the initial capacity of any Alaska natural 
gas transportation project, to specifically provide the opportunity for 
gas other than Prudhoe Bay and Point Thomson production to have access 
to the pipeline.
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    \2\ Excluded from the scope of the open season rules are 
expansions compelled by the Commission pursuant to section 105 of 
the Act. Section 105 authorizes the Commission to order these 
``involuntary'' expansions upon the request of one or more persons, 
and upon the satisfaction of certain statutory criteria.
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    4. In response to the Act's directive, on November 15, 2004, the 
Commission issued in Docket No. RM05-1-000 a Notice of Proposed 
Rulemaking (NOPR) in this proceeding containing the Commission's 
proposed Alaska natural gas transportation project open season 
regulations. Also, the Commission held a public technical conference in 
Anchorage, Alaska on December 3, 2004 to develop a record in this 
proceeding. The Commission received 25 comments in response to the 
NOPR.
    5. On February 9, 2005, the Commission issued Order No. 2005. The 
open season regulations contained in Order No. 2005 apply to any 
application for a certificate or other Commission authorization for an 
Alaska natural gas transportation project, whether filed pursuant to 
the NGA, the Alaska Natural Gas Transportation Act of 1976, or ANGPA, 
as well as to any voluntary applications for expansions of such a 
project.
    6. The Final Rule adopted the NOPR's proposed requirements that the 
applicant provide a 30-day prior public notice containing extensive 
information intended to allow all interested persons to decide whether 
to participate in the open season, followed by an actual open season 
period of at least 90 days. The regulations in the Final Rule also 
adopted the NOPR's approach of allowing prospective applicants to 
develop and state in detail the methodologies for determining the value 
of bids and for allocating capacity, subject to the requirement that 
all capacity be awarded without undue discrimination or preference of 
any kind. In addition, the Final Rule required that at least 90 days 
prior to providing the open season notice, the prospective applicant 
must file its open season plan with the Commission for approval, and 
that the Commission will act on the plan within 60 days of its filing.
    7. The Final Rule provided that prospective applicants must conduct 
or adopt a study of Alaska's in-state needs, and use the study results 
to design capacity needs for use within the state, and design in-state 
delivery points and in-state transportation rates as part of an open 
season. Moreover, bidding on in-state capacity must be conducted 
independent of out-of-state deliveries during a prospective applicant's 
open season.
    8. In order to further the Commission's goal of a non-
discriminatory open season, the Final Rule applied certain of the 
Standards of Conduct requirements of Order No. 2004, including the 
establishment of an independent, functionally-separate unit to conduct 
the open season. In addition, the open season notice must identify the 
prospective applicant's affiliates involved in the production of 
natural gas in the state of Alaska, and all information about the open 
season disclosed to any potential shippers must be made available to 
all potential shippers.
    9. The Final Rule permitted pre-subscription by anchor shippers, 
limited to initial capacity only, in order to facilitate the 
development of an Alaska pipeline project. However, to ensure that all 
other potential shippers have an equal opportunity to obtain access to 
capacity on the project in the open season, all pre-subscription 
agreements must be made public within ten days of their execution, and 
capacity on the proposed project must be offered to all prospective 
qualifying shippers under the same terms and conditions and at the same 
rates as the pre-subscription agreements. In addition, if capacity is 
oversubscribed in the open season and it is not feasible to redesign 
the proposed project to meet both the pre-subscription shippers' and 
the open season shippers' capacity needs, then capacity bid for in the 
open season will not be reduced, but all capacity subject to the terms 
and conditions of pre-subscription agreements will be allocated pro 
rata.
    10. In an effort to allow as many potential shippers as possible 
the opportunity to acquire capacity in the initial open season, the 
Final Rule required that the project sponsor must consider any 
qualifying bids tendered after the expiration of the open season, and 
reject them only if they cannot be accommodated due to economic, 
engineering, or operational constraints.
    11. The Final Rule stated that, within ten days after precedent 
agreements have been executed for capacity acquired in the open season, 
the prospective applicant shall make public the results of the open 
season, including the names of the prospective shippers, amount of 
capacity awarded, and the terms of the agreements. Within 20 days after 
precedent agreements have been executed, copies of all precedent 
agreements, as well as copies of any correspondence with bidders whose 
bids were not accepted, must be filed with the Commission.
    12. In another provision, the Final Rule stated that, as a part of 
the Commission's review of any application for an Alaska natural gas 
transportation project, it will consider the extent to which the 
proposed project has been designed to accommodate the needs of shippers 
who have made conforming bids during an open season, as well as the 
extent to which the project can accommodate low-cost expansion, and the 
Commission may require changes in the project's design necessary to 
promote competition and offer a reasonable opportunity for access to 
the project.
    13. Finally, to provide guidance to interested parties on the 
important

[[Page 35013]]

subject of expansion rate treatment, the Final Rule establishes a 
presumption in favor of rolled-in pricing for expansions up to the 
point that it would cause there to be a subsidy of expansion shippers 
by initial shippers.
    14. Requests for rehearing and/or clarification were filed jointly 
by BP Exploration (Alaska), Inc., ConocoPhillips Company and Exxon 
Mobile Corporation (the North Slope Producers), by Enbridge, Inc. 
(Enbridge), by ChevronTexaco Natural Gas, a division of Chevron U.S.A. 
Inc. (ChevronTexaco), and by the State of Alaska. In addition, Anadarko 
Petroleum Corporation (Anadarko) and the Legislative Budget and Audit 
Committee of the Alaska State Legislature (Alaska Legislators) filed 
responses to the rehearing requests.\3\
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    \3\ Under Rule 213 of the Commission's Rules of Practice and 
Procedure, answers to rehearing requests are not permitted. However, 
the Commission has discretion to waive this rule when it finds that 
the answers will help provide a complete record in the proceeding or 
allow a better understanding of the issues. This proceeding involves 
the establishment of open season rules for capacity on an Alaska 
natural gas transportation project, and is critical to the 
development of Alaska's vast natural gas resources to meet 
anticipated national demand for natural gas, thereby enhancing 
national security. The Commission finds that the answers will 
provide necessary information to provide a full and complete record, 
which will assist the Commission in addressing the issues on 
rehearing pertaining to the complex and unique circumstances 
surrounding the development of an Alaska natural gas transportation 
project. Therefore, Anadarko's and the State of Alaska's answers to 
the rehearing requests are accepted. See 18 CFR 385.213 (2004).
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Discussion

I. Mandating Pipeline Design

A. The Final Rule--Sec. Sec.  157.36 and 157.37
    15. Section 157.36 requires that any open season for expansion 
capacity of an Alaska natural gas transportation project must provide 
the opportunity for the transportation of gas other than Prudhoe Bay or 
Point Thomson production, and that the Commission, in considering any 
proposed voluntary expansion of an Alaska natural gas pipeline project, 
``may require design changes to ensure that all who are willing to sign 
long-term firm transportation contracts that some portion of the 
expansion capacity be allocated to new shippers or shippers seeking to 
transport natural gas from areas other than Prudhoe Bay and Point 
Thomson.'' Section 157.37 states that, in reviewing any application for 
an Alaska natural gas pipeline project, the Commission ``may require 
changes in the project design necess[ary] to promote competition and 
offer a reasonable opportunity for access to the project, taking into 
account the extent to which the proposed project design accommodates 
the open season's conforming bids as well as low-cost expansion.'' \4\ 
These provisions were included in the Final Rule in response to 
concerns of non-North Slope producers that they have access to capacity 
on an Alaska natural gas transportation project when their potential 
gas reserves are commercially developed.
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    \4\ ``Necessity'' in section 157.37 is revised to read 
``necessary.''
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B. Rehearing/Clarification Requests
    16. The North Slope Producers and ChevronTexaco object to the 
provisions contained in sections 157.36 and 157.37 to the extent that 
they authorize the Commission to require changes in the design of an 
Alaska natural gas transportation project. The North Slope Producers 
object to these provisions on a number of grounds. First, they contend 
that it is beyond the Commission's NGA authority to mandate changes in 
the design of a pipeline, either to provide additional capacity or to 
enhance future expandability. The North Slope Producers contend that, 
in either case, the result is a mandatory expansion of the project, 
which according to section 7(a) of the NGA, is outside the Commission's 
authority to require.\5\ The North Slope Producers maintain that this 
limitation on the Commission's authority is reflected in the 
Commission's regulations providing that open access pipelines are ``not 
required to provide any requested transportation service for which 
capacity is not available or that would require the construction or 
acquisition of any new facilities,'' \6\ and in judicial precedent.\7\ 
According to the North Slope Producers, the Commission has acted 
unreasonably in ``morphing'' ANGPA's vague and undefined open season 
requirements pertaining to competition in the exploration, development, 
and production of Alaska gas and sufficient opportunity for future 
access for the transportation of non-Prudhoe Bay/Point Thomson gas into 
factors to be considered by the Commission in its NGA section 7 review 
of certificate applications for Alaska natural gas transportation 
projects.
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    \5\ Section 7(a) of the NGA provides ``[t]hat the Commission 
shall have no authority to compel the enlargement of transportation 
facilities * * *'' 15 U.S.C. 717f(a).
    \6\ 18 CFR 284.7(f).
    \7\ The North Slope Producers cite Panhandle Eastern Pipe Line 
Co., 204 F.2d 675 (3rd Cir. 1953) in which the court stated that 
``[i]n light of section 7(a) we are compelled to conclude that 
Congress meant to leave the question whether to employ additional 
capital in the enlargement of its pipeline facilities to the 
unfettered judgment of the stockholders and directors of each 
natural gas company involved.'' 204 F.2d at 680.
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    17. Second, the North Slope Producers assert that ANGPA section 105 
further limits the Commission's authority to require an expansion of an 
Alaska natural gas transportation project sections. The North Slope 
Producers state that before an involuntary expansion can be ordered by 
the Commission, section 105 lists a number of statutory requirements 
that must be met which are designed to balance potential future 
shippers' interests with the need to protect the pipeline and existing 
shippers and to protect against uneconomic overbuilding. The North 
Slope Producers state that none of these statutory requirements are 
referenced in or satisfied by section 157.36 or 157.37.
    18. Third, the North Slope Producers argue that the Commission 
appears to mistakenly ``assume that a pipeline can, in all 
circumstances, be efficiently designed to accommodate all qualifying 
bids.'' The North Slope Producers assert that the most efficient and 
economic pipeline design might not be one which can accommodate 100 
percent of the capacity bid for in the open season. In fact, according 
to the North Slope Producers, it is possible that a pipeline designed 
to accommodate all the capacity bid in the open season ``could result 
in a design that is inefficient and/or negatively impacts future 
expansion design alternatives.''
    19. Fourth, the North Slope Producers maintain that to the extent 
that it authorizes a set-aside of capacity, section 157.36 violates the 
Order No. 636's goal of eliminating impediments to the transmission of 
proper pricing signals between producers and consumers, as well as the 
Commission's non-discrimination policies. The North Slope Producers 
point to the second sentence of section 157.36, which states:

``In considering a proposed voluntary expansion of an Alaska natural 
gas pipeline project, the Commission will consider the extent to 
which the expansion will be utilized by shippers other than those 
who are the initial shippers on the project, and in order to promote 
competition and open access on the project, may require design 
changes to ensure that all who are willing to sign long-term firm 
transportation contracts to some portion of the expansion capacity 
be allocated to new shippers or shippers seeking to transport 
natural gas from areas other than Prudhoe Bay and Point Thomson.'' 
(Emphasis added).

The North Slope Producers assert that if this ``indecipherable'' 
language is intended to set aside capacity for new

[[Page 35014]]

shippers or shippers of gas from areas other than Prudhoe Bay and Point 
Thomson, then the Commission is favoring one shipper's bid over another 
bid that otherwise meets all of the bid criteria. The North Slope 
Producers assert that ANGPA's section 103(e)(2)(C) requirement that 
open season regulations for voluntary expansions are to ``provide an 
opportunity for the transportation of gas other than Prudhoe Bay and 
Point Thomson gas'' does not support section 157.36's apparent set-
aside or preference. The North Slope Producers state that not only is 
such a preference inconsistent with the Commission's open access 
policies, it is patently discriminatory and anti-competitive and 
unlawful under the NGA. The North Slope Producers contend that 
allocating pipeline capacity in an open season to customers who value 
it most, i.e., through the use of the Commission-favored net present 
value capacity allocation methodology, ensures pipelines and shippers 
that capacity will be allocated in a non-discriminatory and 
economically efficient manner. The North Slope Producers also assert 
that development of multi-owner fields could be delayed or hampered if 
one group of shipper/owners had a competitive advantage over another 
shipper/owner group due to a capacity allocation advantage or 
preference.
    20. Finally, the North Slope Producers maintain that sections 
157.36 and 157.37 are contrary to the Commission's reliance on market 
forces, on which its existing policies are based. Specifically, the 
North Slope Producers claim that Order No. 2005 fails to reconcile 
Subparts 157.36 and 157.37 with current Commission policies in favor of 
``facilitate[ing] the unimpeded operation of market forces to stimulate 
the production of natural gas,''\8\ and against the subsidization of 
new services by existing shippers. The North Slope Producers state that 
it would be unreasonable to expect that the pipeline sponsors would 
simply assume the financial risk for significant amounts of 
uncontracted capacity on such an enormous project, yet Order No. 2005 
fails to address cost recovery issues associated with any mandated 
design changes that might be ordered.
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    \8\ Order No. 636, FERC Stats. and Regs. ] 30,939 at 30,393 
(1992), quoting S.Rep. No. 30 9, 101st Cong., 1st Sess. at p. 2 
(1989).
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    21. ChevronTexaco claims that the regulations promulgated in Order 
No. 2005 apply to open seasons for initial or voluntary expansion 
capacity; therefore, the idea of post-open season Commission-mandated 
design changes is inconsistent with and outside the scope of this 
rulemaking. Moreover, ChevronTexaco asserts that the design change 
provisions of sections 157.36 and 157.37 should be deleted from the 
open season regulations because the subject was not included in the 
Notice of Proposed Rulemaking. ChevronTexaco states that absent 
removing sections 157.36 and 157.37 from the open season regulations, 
the Commission should provide that it would not require project design 
changes if doing so would negatively impact the rates, terms or 
conditions of service for initial shippers or otherwise adversely 
affect pipeline operations of efficiency.
    22. In its response to the rehearing requests, Anadarko argues that 
ANGPA and the NGA provide the Commission with ample authority to 
require changes in the design of an initial or expanded Alaska natural 
gas transportation project necessary to meet the statutory objectives 
of promoting competition and provide a reasonable opportunity for 
access to all shippers who have made conforming bids during the open 
season. Anadarko states that clearly there is interplay between the NGA 
and ANGPA. Specifically, states Anadarko, section 7(e) of the NGA 
provides that a ``certificate shall be issued * * * if it is found that 
proposed service, sale, operation, construction * * * to the extent 
authorized by the certificate, is or will be required by the present or 
future public convenience and necessity.'' Anadarko states that the 
Commission considers many factors in making this public convenience and 
necessity finding, and, in the case of an Alaska natural gas 
transportation project, should consider the requirements of ANGPA.
    23. Anadarko asserts that the Commission often imposes conditions 
to its certificates requiring routing or design modifications in order 
to support a finding that a particular project is in the public 
convenience and necessity. In any event, sections 157.36 and 157.37 do 
not mandate an expansion, according to Anadarko, because the applicant 
may choose not to accept a certificate that requires that the project 
be redesigned. Anadarko states that the regulations merely put the 
applicant on notice that its proposed project design might be rejected 
as failing to meet the objectives of ANGPA, and consequently, not being 
required by the public convenience and necessity.
    24. In response to the North Slope Producers' charge that section 
157.36 provides for discriminatory reallocation of capacity contrary to 
existing Commission policy, Anadarko contends that the Commission is 
merely following the mandate of ANGPA section 103(e)(2)(C). Anadarko 
states that under section 103(e)(2)(C), the Commission's regulations 
must ensure that any open season for expansion capacity provides the 
opportunity for the transportation of natural gas other than from 
Prudhoe Bay/Point Thomson, and section 157.36 seeks to do just that.
    25. Anadarko also disputes the North Slope Producers' claim that 
parties were not adequately notified in the NOPR that pipeline design 
would be a subject of the rulemaking. Anadarko maintains that the 
regulations contained in sections 157.36 and 157.37 reasonably respond 
to many concerns expressed throughout the rulemaking process.\9\ 
Anadarko contends that under the Administrative Procedure Act (APA), 
the Commission was required in this informal rulemaking proceeding to 
provide either the terms or substance of the proposed rule or a 
description of the subjects and issues involved.\10\ Moreover, Anadarko 
points out that the courts have held that ``even if the final rule 
deviates from the proposed rule,'[s]o long as the final rule 
promulgated by the agency is a ``logical outgrowth'' of the proposed 
rule'' the purposes of the notice and comment have been adequately 
served.'' \11\ Anadarko states that Order No. 2005's pipeline design 
provisions were a ``logical outgrowth'' of the NOPR and the issues 
discussed therein, e.g., the major goals of ANGPA, concerns over 
potential discrimination, producer/sponsor preferences, the role of 
pre-subscriptions, and tensions between ANGPA's goals and the 
application of existing policies to an Alaska project.
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    \9\ Anadarko identifies comments addressing pipeline size both 
at the technical conference and written. See Anadarko's March 29, 
2005 response at 15-16.
    \10\ See 5 U.S.C.A. 553(b)(3).
    \11\ Appalachian Power Co. v. EPA, 135 F.3d 791, 804 n.22 (DC 
Cir. 1998).
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    26. Lastly, Anadarko contends that the Commission provided ample 
support for not following current Commission policies that favor 
reliance on market forces. Anadarko states that the rulemaking record 
in Order No. 2005 thoroughly discusses the conditions and circumstances 
in Alaska that are much different than those found in the lower 48 
states, requiring the appropriate regulatory action taken in sections 
157.36 and 157.37. In conclusion, Anadarko disagrees that 157.36 is 
``indecipherable'' as claimed by the North Slope Producers.
    27. The Alaska Legislators maintain that sections 157.36 and 157.37 
are well within the Commission's broad power

[[Page 35015]]

to attach to certificates any conditions that may be found to be 
required by the public convenience and necessity. They claim that the 
``forced expansion'' argument fails to acknowledge that ANGPA has 
injected into the public convenience and necessity standard of the NGA 
a new statutory standard, i.e., the promotion of competition in the 
exploration, development and production of Alaska natural gas with 
respect to Alaska natural gas transportation projects. Moreover, the 
Alaska legislators contend that the Commission's pipeline design 
concerns are required not only by the mandate of ANGPA, but also by the 
economic realities in Alaska, where virtually all of the proven 
reserves are held by the North Slope Producers. The Alaska legislators 
state that the Commission is simply announcing in sections 157.36 and 
157.37 that it may condition the approval of the certificate upon the 
applicant's making necessary design changes required to satisfy the 
public convenience and necessity standard, including the ``promote 
competition'' standard, which is uniquely applicable to an Alaska 
natural gas transportation project.
    28. Addressing the North Slope Producers' claim that section 157.36 
provides for an unduly discriminatory set aside of capacity for non-
North Slope shippers, the Alaska legislators agree with Anadarko that 
ANGPA mandates that in the case of an expansion of an Alaska natural 
gas transportation project, the Commission must provide an opportunity 
for the transportation of natural gas other than from Prudhoe Bay and 
Point Thomson units in its open season rules. Alaska legislators state 
that section 157.36 is consistent with that mandate.
    29. The Alaska legislators also defend the Commission's 
``proactive'' approach through which it fashioned the open season rules 
in recognition of the recognized differences between competitive forces 
in the lower 48 states and the lack of competition in Alaska. Given 
these differences, the Alaska legislators maintain that the Commission 
was right to depart from existing Commission policy. They assert that 
the fact that Congress required the Commission to promulgate the Alaska 
open season rules in place of the Commission's long-standing policy of 
evaluating open seasons on a case-by-case, after-the-fact basis, is an 
illustration of the need for a different approach based on the unique 
circumstances surrounding an Alaska pipeline. The Alaska Legislators 
conclude that, unlike the situation in the lower 48 states, there is no 
existing or foreseeable competitive environment in Alaska, where the 
North Slope Produces not only control all the known gas reserves, but 
also may become the sponsors of the Alaska pipeline. Therefore, the 
Commission was right to not rely on market forces in Alaska to ensure 
the development, routing, sizing and timing of an Alaska pipeline.
    30. Finally, the state of Alaska suggests that section 157.36 be 
expanded to better reflect its intent. According to the State of 
Alaska, section 157.36 should read:

    In considering a proposed voluntary expansion of an Alaska 
natural gas transportation project, the Commission will consider the 
extent to which the expansion will be utilized by shippers other 
than those who are the initial shippers on the project and, in order 
to promote competition and open access to the project, may require 
design changes to ensure that new shippers willing to sign long-term 
firm transportation contracts or shippers seeking to transport 
natural gas from areas other than Prudhoe Bay or Point Thomson who 
are willing to sign long-term contracts can have access to some 
portion of the expansion capacity.
C. Commission Response
    31. The North Slope Producers' assertion that the Commission has no 
authority under the NGA to require changes in the design of a proposed 
Alaska natural gas transportation project in connection with an 
application for authorization either to construct the project, or to 
expand the project is inconsistent with law and precedent. At the 
outset, we reject the notion that any design change that might be 
required under either section 157.36 or 157.37 would constitute a 
mandatory expansion of the project. First, in every case in which the 
section 7(a) limitation has been addressed, the facilities involved 
were existing facilities subject to existing certificate authorization. 
The reasoning behind this limitation is clear. Once a natural gas 
company accepts a certificate and in reliance thereof expends resources 
to construct the facilities authorized therein, the pipeline and its 
customers should have the right to rely on the authorizations contained 
in that certificate. It is quite another thing where the Commission 
tells a certificate applicant that unless it agrees to certain changes 
(including cost allocations and the design of initial service rates), 
its proposal will not be found to be in the public convenience and 
necessity. In such case, if the applicant does not want to change its 
proposed project design, it is not required to accept the certificate. 
Furthermore, because design changes under either 157.36 or 157.37 would 
not constitute a mandatory project expansion, the statutory 
requirements of ANGPA section 105 have no application.
    32. In considering an application for a certificate of public 
convenience and necessity under section 7 of the NGA, the Commission 
has the authority to consider all factors bearing on the public 
interest,\12\ and in particular, the Commission ``certainly has the 
right to consider a congressional expression of fundamental national 
policy as bearing upon the question whether a particular certificate is 
required by the public convenience and necessity.'' \13\ In the case of 
an Alaska natural gas transportation project, these factors would 
properly include the requirements of ANGPA, including the statutory 
objectives of promoting competition and provide a reasonable 
opportunity for access to all shippers who have made conforming bids 
during the open season.
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    \12\ See, e.g., FPC v. Transcontinental Gas Pipe Line 
Corporation, 365 U.S. 1, 81 S.Ct. 435 (1961); Office of Consumers' 
Counsel v. FERC, 655 F.2d 1132, 210 U.S. App. D.C. 315 (1980).
    \13\ City of Pittsburgh v. FPC, 237 F.2d 741 at 754 (D.C. Cir. 
1965).
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    33. The Commission has authority under NGA section 7(e) to attach 
to a certificate of public convenience and necessity any conditions it 
deems necessary to meet the public interest.\14\ The Commission has 
exercised this conditioning authority to require routing or design 
modifications in order to support a finding that a particular project 
is in the public convenience and necessity.\15\ Sections 157.36 and 
157.37 merely codify our existing authority and practice.
---------------------------------------------------------------------------

    \14\ See, e.g., FPC v. Hunt, 376 U.S. 515, 525-527, 84 S.Ct. 861 
(1964); Atlantic Refining Co. v. Public Service Commission of New 
York, 360 U.S. 378 (1959).
    \15\ See, e.g., Vector Pipeline, L.P., 87 FERC ] 61,225 at 
61,892-893 (1999); Maritimes & Northeast Pipelines, L.L.C., 80 FERC 
] 61,345 (1997); NE Hub Partners, L.P., 83 FERC ] 61,043 (1998); see 
also, Transcontinental Gas Pipe Line Corp v. FERC, 589 F.2d 186 (5th 
Cir.), cert. denied, 445 U.S. 915 (1979).
---------------------------------------------------------------------------

    34. The North Slope Producers' claim that sections 157.36 and 
157.37 are predicated on the Commission's erroneous assumption ``that a 
pipeline can, in all circumstances, be efficiently designed to 
accommodate all qualifying bids.'' This is inaccurate. We noted in 
Order No. 2005 that both the North Slope Producers and Enbridge 
maintained that an Alaska pipeline could be designed and built with 
sufficient capacity to accommodate the needs of every qualified 
shipper.\16\ Our expectation is that an Alaska natural gas 
transportation project will be designed and built, to the extent 
possible, to

[[Page 35016]]

accommodate all qualified shippers who are ready to sign firm 
transportation agreements. Nonetheless, in Order No. 2005 we certainly 
did not rule out the possibility that a project, with or without pre-
subscription agreements, might be oversubscribed.\17\ On this note, we 
should emphasize that in our review of any application for initial 
Alaska project or any expansion thereof, our consideration of the 
project design will be driven by our need to find that the proposal is 
in the public convenience and necessity. Any conditions we impose must 
be required by the public interest, and be based on substantial 
evidence.
---------------------------------------------------------------------------

    \16\ See, e.g., Order No. 2005 at P 29, 37, and 88.
    \17\ See id. at P 37; see also Sec.  157.34(c)(15).
---------------------------------------------------------------------------

    35. The North Slope Producers' claim that section 157.36 provides 
for an unduly discriminatory set-aside of capacity for non-North Slope 
shippers discounts, if not ignores, the Congressional mandate of ANGPA 
section 103(e)(2)(C) that requires our open season regulations to 
ensure that any open season for expansion capacity provides the 
opportunity for the transportation of natural gas other than from 
Prudhoe Bay/Point Thomson. Section 157.36 does so in a reasonable 
manner. In any event, our regulations do not require that an expansion 
proposal must, regardless of economic and technical considerations, 
provide transportation of gas other than Prudhoe Bay/Point Thomson 
volumes. The regulations simply require that an opportunity for such 
transportation be provided.
    36. As pointed out elsewhere in this order, and throughout Order 
No. 2005, a number of existing Commission policies predicated on 
competitive conditions in the lower 48 states are ill-suited for 
application in the case of an Alaska natural gas transportation 
project, particularly in view of ANGPA's directives. As we stated in 
Order No. 2005, a successful Alaska natural gas transportation project 
will have to overcome a variety of significant obstacles, including 
unique and complex competitive conditions. Those competitive 
conditions, we said, are intensified by the generally agreed-upon fact 
that there will be only one such Alaska pipeline for the foreseeable 
future.\18\ Against that backdrop, we affirm the conclusions of Order 
No. 2005, which serve as the underpinnings of the Final Rule's 
regulations, including the need in certain instances to accommodate 
existing Commission policy to the unique circumstances surrounding the 
exploration, production, development, and transportation to market of 
Alaska natural gas.
---------------------------------------------------------------------------

    \18\ The North Slope Producers, in their rehearing request, 
claim that it is too early to conclude that only one Alaska pipeline 
will ever be built. We find nothing in the record to support a 
contrary conclusion.
---------------------------------------------------------------------------

    37. Finally, while due process and the APA impose an obligation on 
agencies to provide adequate notice of issues to be considered,\19\ 
that obligation is satisfied in this informal rulemaking by providing 
either the terms or substance of the proposed rule or a description of 
the subjects and issues involved.\20\ Order No. 2005's pipeline design 
provisions were a logical outgrowth of the NOPR and the issues 
discussed therein, e.g., major goals of ANGPA, concerns over potential 
discrimination, producer/sponsor preferences, potential role of pre-
subscriptions, tensions between ANGPA's goals, and application of 
existing policies to the circumstances of an Alaska project. Indeed, 
the critical importance of properly sizing the pipeline was a recurring 
theme throughout this proceeding, and was raised by several parties at 
the technical conference, and in later comments and reply comments.\21\ 
Thus, Order No. 2005 does not unduly change the scope of this 
proceeding. In any event, the parties' ability to seek rehearing 
resolves any due process issues.
---------------------------------------------------------------------------

    \19\ Public Service Commission of the Commonwealth of Kentucky 
v. FERC, 397 F.3d 1004 (DC Cir. 2005), citing Williston Basin 
Interstate Pipeline Co. v. FERC, 165 F.3d 54 (DC Cir. 1999); see 5 
U.S.C. 554(b)(3).
    \20\ See 5 U.S.C. 553(b)(3).
    \21\ See n. 8, supra.
---------------------------------------------------------------------------

    38. Although the North Slope Producers describe section 157.36 to 
be ``indecipherable,'' their comments demonstrate that they understand 
its intent. Section 157.36 is intended to provide that the Commission 
may require design changes necessary to ensure that some portion of a 
proposed voluntary expansion will be allocated to new shippers or 
shippers seeking to transport gas from areas other than Prudhoe Bay or 
Point Thomson, provided such shippers are willing to sign qualifying 
long-term firm transportation agreements. To ensure clarity, we will 
revise section 157.36 to read as follows:

    ``In considering a proposed voluntary expansion of an Alaska 
natural gas transportation project, the Commission will consider the 
extent to which the expansion will be utilized by shippers other 
than those who are the initial shippers on the project and, in order 
to promote competition and open access to the project, may require 
design changes to ensure that some portion of the expansion capacity 
will be allocated to new shippers willing to sign qualifying long-
term firm transportation contracts, including shippers seeking to 
transport natural gas from areas other than Prudhoe Bay or Point 
Thomson.''


II. Presumption of Rolled-in Rates for Expansions

A. Final Rule--Sec.  157.39
    39. Section 157.39 states that ``[t]here shall be a rebuttable 
presumption that rates for any expansion of an Alaska natural gas 
transportation project shall be determined on a rolled-in basis.'' The 
Commission stated in Order No. 2005 that by providing for this 
presumption, the Commission is advising potential shippers, in advance 
of any initial Alaska natural gas transportation project open season, 
of its intention to harmonize the objective of rate predictability for 
initial shippers with the objective of reducing barriers to future 
exploration and production in designing rates for future expansions of 
any Alaska natural gas transportation project. The Commission concluded 
in Order No. 2005 that section 157.39 is consistent with ``our guiding 
principle that competition favors all of the Commission's customers, as 
well as with the objectives of the Act, to adopt rolled-in rate 
treatment up to the point that would cause there to be a subsidy of 
expansion shippers by initial shippers, if any subsidy were to be 
found.''
B. Rehearing/Clarification Requests
    40. The North Slope Producers, Enbridge, and ChevronTexaco assert 
that the presumption in favor of rolled-in rates for voluntary 
expansions established in section 157.39 creates uncertainty for 
shippers and project sponsors, and, therefore, section 157.39 should be 
eliminated from the regulations or substantially revised. The North 
Slope Producers and Enbridge claim that prospective initial shippers, 
fearing that in the future their rates may be increased to subsidize 
the cost of expansion facilities, will be less willing to make the 
long-term commitments necessary to support an Alaska project. This 
uncertainty, they predict, will discourage rather than advance the 
development of an Alaska pipeline or any voluntary expansion thereof--a 
result clearly inconsistent with ANGPA's primary goal. Moreover, the 
North Slope Producers and Enbridge suggest that mandatory expansions 
pursuant to ANGPA section 105 will become more attractive than 
voluntary expansions because of the explicit rate protection for 
existing shippers in section 105.

[[Page 35017]]

    41. The North Slope Producers contend that section 157.39 is 
unjustifiably inconsistent with the Commission's current policy 
regarding rate treatment of expansions, which is to discourage 
uneconomic expansions and assure that expansions will not be subsidized 
by existing shippers. They assert that even if, as claimed by the 
Commission, only one pipeline will be built in Alaska, that distinction 
does not justify deviating from the Commission's current policy.
    42. The North Slope Producers charge that the Commission acted 
arbitrarily and capriciously in relying on ANGPA section 103(e) to 
justify its conclusion to provide for a presumption of rolled-in rates 
for expansions. Although the North Slope Producers concede that the 
Commission clearly has the authority under ANGPA and the NGA to approve 
rates for Alaska natural gas transportation projects, they claim that 
ANGPA section 103(e) has nothing to do with rate regulation. 
Furthermore, state the North Slope Producers, even if section 103 could 
be read to give the Commission authority to include rate regulations in 
its open season rules, the proper course would be to remove section 
157.39 from the open season rules and instead address rate policy 
issues only after the parties have the opportunity of developing a 
complete factual record. Failing this, the North Slope Producers state 
that the Commission should revise section 157.39 to provide that the 
Commission's current rate policies will apply to Alaska projects.
    43. Enbridge also argues that the Commission acted arbitrarily and 
capriciously by imposing a rebuttable rolled-in presumption, even where 
rolled-in pricing would increase existing shippers' rates. According to 
Enbridge, Order No. 2005 identifies two considerations, namely the 
Commission's disfavor of existing shippers subsidizing the rates of new 
shippers, and the Commission's reluctance to authorize an expansion 
rate that would have an unduly negative impact on the exploration and 
development of Alaska reserves. Enbridge contends that the presumption 
should be ``scaled back'' to apply only to cases where expansion rates 
are no higher than pre-existing rates. Enbridge points to the 
Commission's acknowledgement in Order No. 2005 that it ``cannot at this 
point, without a specific project proposal or the facts surrounding a 
proposed expansion before us, define exactly what will be required to 
overcome the presumption.'' Enbridge contends that the Commission's 
inability to explain how the presumption can be rebutted renders 
rolled-in pricing mandatory, leaving the question of whether a rolled-
in expansion rate that is higher than original rates is a subsidy to be 
resolved in a future NGA section 7 filing.
    44. ChevronTexaco stresses that because the text of Order No. 2005 
recognizes that ``without a specific project proposal or the facts 
surrounding a proposed expansion'' the Commission cannot determine what 
is needed to overcome the presumption favoring rolled-in rates, the 
Commission should defer any determination of rate treatment for 
expansions until a record can be developed after a specific proposal is 
made. According to ChevronTexaco, this inability to articulate when the 
presumption will be applied creates uncertainty that inhibits the 
development of any Alaska project.
    45. ChevronTexaco states that inconsistency between the text of 
order and the text of the regulations creates further uncertainty. 
ChevronTexaco states that while the regulations state that the 
presumption applies to ``any expansion,'' Order No. 2005's text, at 
paragraphs 124 and 125, suggests that rolled-in rates are appropriate 
only if there is no increase in rates for existing shippers. 
ChevronTexaco urges the Commission to clarify section 157.39 to state 
that no cross-subsidy is intended. Otherwise, the Commission should 
consider issuing, in lieu of a regulation, a policy statement which 
outlines the general direction that the Commission intends to take.
    46. The Alaska Legislators and Anadarko contend that rolled-in 
pricing is essential and justified. Anadarko asserts that the 
Commission clearly has the statutory authority to establish a 
presumption of rolled-in pricing for future expansions in the open 
season regulations. Both Anadarko and the Alaska Legislators contend 
that the significant differences identified in the record between an 
Alaskan pipeline project and a pipeline in the lower 48 states provide 
ample justification for departing from the current pricing policy. The 
Alaska Legislators contend that even if there were some factual reason 
for applying the current policy, that policy cannot be reconciled with 
the policy considerations stated in ANGPA. Both Anadarko and the Alaska 
Legislators state that incremental pricing of expansions cannot be 
reconciled with ANGPA's goals of promoting competition in the 
exploration, development, and production of Alaska natural gas, and 
providing for the transportation of natural gas other than from the 
Prudhoe Bay and Point Thomson units in any expansions of the Alaska 
pipeline facilities. The Alaska Legislators estimate that expanding a 
pipeline, through looping, to a capacity of 7 billion cubic feet (Bcf), 
would result in an expansion rate 50 percent higher than existing rates 
if incrementally priced. Anadarko predicts that incremental pricing of 
expansions of an Alaskan pipeline beyond 6 Bcf would cause the pipeline 
to be capped at 6 Bcf.
C. Commission Response
    47. ANGPA section 103(i) gives the Commission broad authority to 
establish ``such regulations as are necessary'' for the conduct of open 
seasons. In this regard, the Commission believes that it is appropriate 
to establish rate criteria that will assist potential shippers to make 
informed open season bids, and will promote competition, as required by 
ANGPA. As discussed in detail in Order No. 2005, these criteria include 
projected rates for in-state deliveries of gas, as well as a 
presumption for rolled-in rate treatment for future pipeline 
expansions.
    48. In adopting the presumption for rolled-in rate treatment, the 
Commission balanced rate predictability for initial shippers with the 
objective of reducing barriers to future exploration, development and 
production of Alaska natural gas. The Commission was concerned that the 
prospect of high incremental transportation rates might increase risks 
to Alaskan producers and serve as a disincentive to future exploration 
and development of potentially valuable natural gas resources. On the 
other hand, the Commission does not wish to discourage voluntary 
capacity expansions.
    49. The rolled-in rate presumption was not an abandonment of our 
current policy of not favoring rate subsidization by existing customers 
of capacity expansions as suggested in the requests for rehearing. The 
Commission did, however, suggest that because of the likelihood of a 
single Alaskan pipeline project, it would consider alternatives to our 
current policy on how to define or quantify subsidization by current 
customers. Current policy primarily considers whether the expansion 
project will result in a rate higher than the existing transportation 
rate for existing customers. An alternative consideration or definition 
of subsidization could be whether the expansion rate is no higher than 
the actual initial rate or of an initial rate without built-in 
subsidies. The Commission believed and continues to believe that the 
appropriate place to review this issue is in the context of a future 
NGA section 7 filing.

[[Page 35018]]

In such a proceeding, if the pipeline owners can show that the initial 
pipeline was sized appropriately, i.e., it was uneconomic or 
inefficient to build a larger capacity pipeline, the Commission would 
consider this in overcoming the rolled-in rate presumption.
    50. The text of Order No. 2005 referred to by ChevronTexaco does 
not simply state that rolled-in rates are appropriate only if there is 
no increase in rates for existing shippers; it suggests that a rolled-
in expansion rate that is higher than the original rate is not 
necessarily a subsidy. As noted above, we will determine whether a 
particular rate amounts to a subsidy when the issue is presented to us.
    51. Nothing in the requests for rehearing causes us to question our 
conclusion that a rebuttal presumption of rolled-in treatment for the 
expansion of an Alaska Project is a reasonable approach to the 
difficult issues we, and prospective pipeline proponents and shippers, 
may face on the future. We think that the signal we are sending is a 
positive one that will help spur natural gas exploration and 
development in Alaska. At the same time, we have not prejudged how we 
will resolve future proceedings, and all parties will have the 
opportunity to convince us of appropriate rate treatment if and when 
expansion proposals for an Alaska project are developed. We therefore 
will not change the rule on this matter.

III. Late Bids

A. The Final Rule--Sec.  157.34(d)(2)
    52. Order No. 2005 added a new provision in the Final Rule, section 
157.34(d)(2), that a project sponsor must consider any bids tendered 
after the expiration of the open season by qualified bidders, and may 
reject them only if they cannot be accommodated due to economic, 
engineering, or operational constraints, in which case the project 
sponsor must provide a detailed explanation for the rejection. The 
Commission explained that this requirement is designed to allow 
reasonable access to those shippers who may not be ready to participate 
during the established open season period, and at the same time provide 
the sponsor with flexibility in the timing of its open season.
B. Rehearing/Clarification Requests
    53. The North Slope Producers and Enbridge contend that it is 
important for the timely development of any project that the project 
sponsors be able to rely on an open season that has a definite term. 
They state that the open season results are needed to permit the 
project sponsor to gauge demand and in turn finalize pipeline design. 
They assert that the late bid provisions of section 157.34(d)(2) will 
result in unreasonable risks and costs to the project sponsor by 
creating a never-ending, open-ended open season in which the project 
sponsor will be required, for each and every late bid received, to 
divert resources and incur additional costs to evaluate whether bid can 
be accommodated. In addition, they state that there is tremendous 
potential for delay at each step of the development of the project, if 
the project sponsor must stop and make design changes at every stage to 
accommodate a late bid. Thus, they state, section 157.34(d)(2) would 
frustrate the Commission's stated goal of adopting open season 
regulations that ensure sufficient economic certainty to support the 
construction of a pipeline.
    54. The North Slope Producers add that financing cannot be secured 
until pipeline design and development costs are known and precedent 
agreements are in place. Consequently, they claim, the prospect of 
having to make changes to key project components to accommodate late 
bids jeopardizes the project sponsor's ability to obtain financing in a 
timely manner.
    55. Both Enbridge and the North Slope Producers also state that 
section 157.34(d)(2) fails to provide a clear standard under which the 
project sponsor must evaluate late bids. This failure, they claim, 
presents another risk of uncertainty and delay. Enbridge argues that, 
even if it is necessary to significantly re-design a project in order 
to satisfy a late bid, the regulation would require that such a bid be 
accepted if the re-designed project remains feasible from an 
``economic, engineering or operational'' perspective.
    56. The North Slope Producers state that another effect of the late 
bid provision is that potential shippers will be discouraged from 
participating in an open season if they can submit a late bid. They 
worry that this would diminish the open season's ability to accurately 
demonstrate the demand for pipeline capacity. Enbridge also claims 
that, absent a good faith requirement in connection with submitting 
late bids, section 157.34(d)(2) permits such gamesmanship. Enbridge 
states that at a minimum, section 157.34(d)(2) should put ``the burden 
on the bidder to demonstrate compelling circumstances that prevented 
participation in open season, and that the bid can be accommodated 
without changing system design, requiring capacity to be allocated away 
from other shippers, or otherwise adversely impacting the project's 
development and timing.'' In this regard, the State of Alaska maintains 
the Commission should include language in section 157.34(d)(2) that 
requires late bidders to provide adequate justification for their late 
bids.
    57. Additionally, the North Slope Producers assert that, to the 
extent a project sponsor would be required to expand the project to 
accommodate late bids, the Commission is in effect ordering an 
expansion of the pipeline. In such a case, section 157.34(d)(2) raises 
the same issues regarding forced expansions as are raised by sections 
157.36 and 157.37. The North Slope Producers contend that whereas the 
Commission may require an expansion under section 105, that section 
places the burden on the party seeking such expansion to establish that 
specific conditions are met, section 157.34(d)(2) appears to place the 
burden on the pipeline to justify why it cannot expand the project to 
accommodate a late bid.
    58. Enbridge states that in any event there is little or no reason 
for section 157.34(d)(2) ``given the other measures instituted by Order 
No. 2005 to protect the interests of late developing shippers.'' 
Specifically, Enbridge refers to the unprecedented level of information 
required in the open season notice on which bidders will be able to 
base their long-term capacity decisions, Order No. 2005's emphasis on 
requiring that the project's design demonstrate a capability for low-
cost expansion, and, finally, the mandatory expansion provisions of 
ANGPA 105. Enbridge contends that to the extent late bids can be 
accommodated without adversely impacting the project's development, it 
is in the project sponsor's economic interests to do so.
    59. ChevronTexaco requests that the Commission clarify that project 
sponsors will be required to consider late bids only if there is excess 
capacity after capacity is allocated to those open who bid in the open 
season. ChevronTexaco states that one of the major purposes of the open 
season is provide a level playing field for all participants, thereby 
eliminating the advantages of possessing superior or advance 
information. ChevronTexaco cannot understand the Commission's reasoning 
in giving special consideration to one specific parameter of a 
conforming bid, namely, the timing of the bid. According to 
ChevronTexaco, late bidders should not be allowed to put new burdens on 
the project or to adversely affect timely open season bidders.
    60. Anadarko states that section 157.34(d)(2) is a reasonable 
compromise

[[Page 35019]]

balancing concerns that the open season could be held prematurely with 
a project sponsor's desire to control open season timing. Anadarko also 
states that it is possible to accommodate all qualified bidders up to 
the time the pipeline design is finalized.
C. Commission Response
    61. Under the Commission's open access policy and rules, all 
operating interstate pipelines have an obligation to receive and 
respond to new requests for service, even if no capacity is available. 
All operating pipelines have provisions in their FERC tariffs governing 
the procedures that the pipeline will use in evaluating requests for 
service. Absent an expansion,\22\ capacity could still be made 
available to a prospective shipper via capacity release or the capacity 
turnback provisions of an interstate pipeline's FERC tariff. During the 
several years between the time that the open season ends and an Alaskan 
pipeline goes into service, there will be no tariff with provisions 
like those described above in effect for that pipeline. Without the 
late bidder provisions of section 157.34(d), late-developing 
prospective shippers would have no formal way of seeking capacity on 
the pipeline after the open season ends. As revised herein, the 
Commission believes that the late bidder provision is a fair and 
necessary addition to the open season process for an Alaska natural gas 
transportation project.
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    \22\ Interstate pipelines, other than an Alaska pipeline, cannot 
be required to expand their systems, but pipelines are required to 
respond to those who request service, even when none is available.
---------------------------------------------------------------------------

    62. The project sponsor's obligation under section 157.34(d)(2) is 
not ``unbounded'' or ``open-ended,'' as North Slope Producers contend. 
We added this requirement in recognition of the possibility that an 
appreciable amount of time might pass between the close of the open 
season and the project sponsor's finalizing the details of the proposed 
pipeline design and associated development costs, given the size and 
scope of an Alaska natural gas pipeline project. During that time, it 
is possible that producers of Alaska natural gas who were not in a 
position to commit to long-term capacity commitments during the open 
season, might then be in a position to request capacity consistent with 
the open season notice (except, of course, that the bid is tendered out 
of time). We felt it proper to require the project sponsor to consider 
such a request. At the same time, we appreciated that at some point in 
time, either before or after the proposed pipeline design is finalized, 
the project sponsor might not be able to accommodate reasonably a late 
request. For that reason, we provided that late requests could be 
rejected on the basis of ``economic, engineering or operational 
constraints.'' This is far from an unbounded, open-ended obligation. 
Indeed, as noted above, Enbridge points out that to the extent that 
late bids can be accommodated without adversely impacting the project's 
development, it is in the project sponsor's economic interest to do so. 
We see no harm in requiring that result.
    63. We will however, revise the requirements of section 
157.34(d)(2) in response to the complaints that the ``economic, 
engineering or operational constraints'' standard for rejecting late 
bids is too vague. Specifically, we are clarifying the criteria for 
rejecting late bids in section 157.34(d)(2) to be ``economic, 
engineering, design, capacity or operational constraints, or 
accommodating the request would otherwise adversely impact the timely 
development of the project.'' \23\ Additionally, we are adding a 
provision to the section which will enable the project sponsor, at the 
appropriate time in the development of its project and subject to 
Commission approval, to determine, based on the above criteria, that no 
further bids can be accepted. We will also revise section 157.34(d)(2) 
to provide that any bid tendered after the expiration of an open season 
must contain a good faith showing, including a statement of the 
circumstan