Before Commissioners: Joseph T. Kelliher, Chairman; Nora Mead Brownell, and Suedeen G. Kelly; Natural Gas Interchangeability; Policy Statement on Provisions Governing Natural Gas Quality and Interchangeability in Interstate Natural Gas Pipeline Company Tariffs, 35893-35904 [06-5582]
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Federal Register / Vol. 71, No. 120 / Thursday, June 22, 2006 / Notices
Street, NE., Washington, DC 20426.
(202) 502–8370. Julia.lake@ferc.gov.
DEPARTMENT OF ENERGY
DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
Federal Energy Regulatory
Commission
[Docket No. IS06–259–000]
[Docket No. RM06–11–000]
Platte Pipe Line Company; Notice of
Technical Conference
Financial Accounting, Reporting and
Records Retention Requirements
Under the Public Utility Holding
Company Act of 2005; Notice of New
Date for Technical Conference
Take notice that the Commission will
convene a technical conference on
Friday, July 14, 2006, at 9 a.m. (EDT),
in a room to be designated at the offices
of the Federal Energy Regulatory
Commission, 888 First Street, NE.,
Washington, DC 20426.
The technical conference will address
all aspects of Platte’s Supplement No. 7
to its FERC Tariff No. 1456 proposing to
establish a new prorationing policy for
crude oil volumes moving east of
Guernsey, Wyoming, as discussed in the
Commission’s Order issued on May 19,
2006.1 Platte’s current prorationing
methodology allocates capacity monthly
on the basis of shippers’ nominations as
a percentage of available capacity. The
provisions of Supplement No. 7 would
allocate capacity among Historic
Shippers and New Shippers, which are
defined as those moving injection
volumes in four or less months of the
six months used in the historical
calculation. Platte proposes to base the
revised calculation on a past six-month
period and also proposes to allocate
New Shippers 10 percent of available
capacity, with no individual New
Shipper allocated more than three
percent of available capacity.
FERC conferences are accessible
under section 508 of the Rehabilitation
Act of 1973. For accessibility
accommodations please send an e-mail
to accessibility@ferc.gov or call toll free
(866) 208–3372 (voice) or 202–502–8659
(TTY), or send a fax to 202–208–2106
with the required accommodations.
All interested persons are permitted
to attend. For further information please
contact Jenifer Lucas at (202) 502–8362
or e-mail jenifer.lucas@ferc.gov.
Magalie R. Salas,
Secretary.
[FR Doc. E6–9805 Filed 6–21–06; 8:45 am]
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BILLING CODE 6717–01–P
1 Platte Pipe Line Company, 115 FERC ¶ 61,215
(2006).
19:08 Jun 21, 2006
Magalie R. Salas,
Secretary.
[FR Doc. E6–9890 Filed 6–21–06; 8:45 am]
BILLING CODE 6717–01–P
June 15, 2006.
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DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
June 16, 2006.
On April 21, 2006, the Federal Energy
Regulatory Commission (Commission)
announced a staff technical conference
in the above-referenced proceeding to be
held at the Federal Energy Regulatory
Commission, 888 First Street, NE.,
Washington, DC 20426 in the
Commission Meeting Room on June 21,
2006, from 9 a.m. until 4:30 p.m. EDT.
This conference was rescheduled for
July 11, 2006. It is now being
rescheduled for July 18, 2006, in the
interest of having the largest possible
participation. All interested persons are
invited to attend. There is no
registration fee or requirement to
register in order to attend.
The purpose of the conference
remains the same. It is to identify the
issues associated with the proposed
Uniform System of Accounts for
Centralized Service Companies, the
proposed records retention
requirements for holding companies and
service companies, and the revised
Form No. 60. The technical conference
will develop information for use by
Commission staff in preparing a final
rule in this proceeding.
Interested persons wishing to
participate as a speaker in the technical
conference are asked to notify
Commission staff electronically at
https://www.ferc.gov/whats-new/
registration/usoa-06-21-speakerform.asp by June 20, 2006.
Prospective attendees and
participants are urged to watch for
further notices; a detailed agenda will
be issued in advance of the conference.
FERC conferences and meetings are
accessible under section 508 of the
Rehabilitation Act of 1973. For
accessibility accommodations please
send an e-mail to accessibility@ferc.gov
or call toll free (866) 208–3372 (voice)
or (202) 502–8659 (TTY), or send a fax
to (202) 208–2106 with the required
accommodations.
Questions about the conference
should be directed to: Julia A. Lake,
Office of the General Counsel—Energy
Markets and Reliability, Federal Energy
Regulatory Commission, 888 First
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[Docket No. PL04–3–000]
Before Commissioners: Joseph T.
Kelliher, Chairman; Nora Mead
Brownell, and Suedeen G. Kelly;
Natural Gas Interchangeability; Policy
Statement on Provisions Governing
Natural Gas Quality and
Interchangeability in Interstate Natural
Gas Pipeline Company Tariffs
Issued June 15, 2006.
I. Introduction
1. In this proceeding, the Commission
has been exploring natural gas quality
and interchangeability issues and the
impact of those issues on the natural gas
companies subject to the Commission’s
jurisdiction, as well as on natural gas
producers, shippers and end-users.
Based upon the information developed
during this proceeding, which will be
discussed below, the Commission today
announces its policy on natural gas
quality and interchangeability issues.
2. The Commission’s intention in
issuing this statement of generic policy
is to provide direction for addressing
gas quality and interchangeability
concerns, as well as to provide guidance
to individual companies that have
concerns about these issues. The
Commission’s policy embodies five
principles: (1) Only natural gas quality
and interchangeability specifications
contained in a Commission-approved
gas tariff can be enforced; (2) pipeline
tariff provisions on gas quality and
interchangeability need to be flexible to
allow pipelines to balance safety and
reliability concerns with the importance
of maximizing supply, as well as
recognizing the evolving nature of the
science underlying gas quality and
interchangeability specifications; (3)
pipelines and their customers should
develop gas quality and
interchangeability specifications based
on technical requirements; (4) in
negotiating technically based solutions,
pipelines and their customers are
strongly encouraged to use the Natural
Gas Council Plus (NGC+) interim
guidelines filed with the Commission
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on February 28, 2005 1 (discussed
below) as a common reference point for
resolving gas quality and
interchangeability issues; and, (5) to the
extent pipelines and their customers
cannot resolve disputes over gas quality
and interchangeability, those disputes
can be brought before the Commission
to be resolved on a case-by-case basis,
on a record of fact and technical review.
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II. Background
3. The Commission has seen interest
in natural gas quality and
interchangeability issues escalate for
several years, and these issues have
come before the Commission in
complaints, proposed tariff provisions
and certificate proceedings. Historically,
gas quality is one of many terms and
conditions of service stated in
individual pipelines’ FERCjurisdictional tariffs. The Commission
has no generic policy in this area, and
individual pipelines have different
standards, practices, and enforcement
mechanisms.
4. Principally methane, natural gas is
commonly found in nature mixed with
other hydrocarbons and varying
amounts of contaminants.2 The exact
composition of natural gas is chiefly
dependent upon the geological source
from which it is extracted. At typical
interstate pipeline operating pressures
and temperatures, ‘‘pipeline quality’’
natural gas remains in a gaseous state
and pipelines, distribution facilities,
and end-user equipment are all
designed to handle and burn this gas.
The term ‘‘pipeline quality’’ natural gas
is defined in each individual pipeline’s
tariff, and these definitions vary widely
from pipeline to pipeline.
5. Depending on the relative prices of
these hydrocarbon fractions, producers
may have an economic incentive to
process gas and deliver mostly pure
methane as ‘‘pipeline quality’’ gas to
interstate pipelines. However, when
economics favor sales of natural gas
over other hydrocarbons, producers may
choose not to process.3 As it is
1 Report on Liquid Hydrocarbon Drop Out in
Natural Gas Infrastructure (HDP Report) and Report
on Natural Gas Interchangeability and NonCombustion End Use (Interchangeability Report).
2 The hydrocarbon gases that can be found in
natural gas are (and the number of carbon atoms in
each): Methane (C1), ethane (C2), propane (C3),
butanes (C4), pentanes (C5), hexanes (C6), heptanes
(C7), octanes (C8) and nonanes plus (C9+). Nonhydrocarbons in natural gas can include nitrogen
(N2), carbon dioxide (CO2), helium (He), hydrogen
sulfide (H2S), water vapor (H2O), oxygen (O2), other
sulfur compounds and trace gases.
3 When delivered, natural gas is measured in
terms of its thermal value, usually measured in
British thermal units (Btus), and billed on that
basis. When deciding whether to process natural
gas, producers look to the relative thermal values
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transported and distributed,
unprocessed natural gas may experience
changes in temperature and pressure
which cause the heavy hydrocarbons to
assume a liquid form. When this
happens, pipelines and other
downstream equipment may experience
inefficient operations and unsafe
conditions. This problem is known as
hydrocarbon liquid dropout, and the
potential for this problem to occur can
be measured in terms of cricondentherm
hydrocarbon dew point (CHDP). Gas
quality, as discussed in this policy
statement, is concerned with the impact
of non-methane hydrocarbons on the
safe and efficient operation of pipelines,
distribution facilities, and end-user
equipment.4
6. Gas pipelines have taken different
approaches to dealing with hydrocarbon
liquid dropout, as reflected in a number
of pipelines’ tariffs. The HDP Report
cites three examples.5 First, about onethird of interstate pipeline tariffs specify
a maximum heating value, but this has
proven to be an inadequate predictor of
hydrocarbon liquid drop out.6 Second,
some pipelines have addressed the
potential for hydrocarbon liquid
dropout by specifying concentration
limits for heavy hydrocarbons (using
C5+ gallons per standard cubic feet 7 or
C5+ GPM) to establish the concentration
limits above which the heavy
hydrocarbon level might be detrimental
to pipeline operational integrity. This
measure may in some instances indicate
the potential for liquid hydrocarbon
drop out, but it is not as reliable in
isolation as it is in conjunction with
hydrocarbon dew point. Third, a
number of pipelines have elected to
of the different hydrocarbons that might be
extracted in processing to determine which product
will generate the most revenue.
4 Other materials commonly found in natural gas,
include contaminants, such as water, sand, sulfur
compounds, oxygen, carbon monoxide, carbon
dioxide, nitrogen, helium and other materials.
While this policy statement does not address these
materials, the Commission understands that
jurisdictional pipeline tariffs already include
specifications to control these elements within
acceptable limits.
5 HDP Report, at sections 3.1.2–3.1.3, at 16.
6 The Report notes that maximum heating value
alone is not a good predictor of whether
hydrocarbon liquid drop out will occur because
different gases with the same gross heating value
may have different propensities for hydrocarbon
liquid drop out. The paper notes the examples of
a gas with a relatively low heating value but a high
hexane concentration that may have a high
probability of hydrocarbon liquid drop out in
contrast to a gas with a high heating value due to
a high ethane content with a very low probability
of hydrocarbon liquid drop out.
7 Gallons per Million cubic feet is abbreviated
GPM. See, e.g., HDP Report at sections 1.2.7 and
3.1.
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establish CHDP limits to control liquid
dropout.
7. Natural gas interchangeability is
also a significant consideration in the
discussion of tariff specification of
‘‘pipeline quality’’ gas. As used by the
gas industry historically,
‘‘interchangeability’’ means the extent to
which a substitute gas can safely and
efficiently replace gas normally used by
an end-use customer in a combustion
application.8 Much of the available
science and research on
interchangeability that exists today
originated in the 1930s and 1940s when
the interstate transportation of natural
gas began to supplant manufactured
gas.9 Technological innovation since
that time has created more efficient,
more environmentally benign
equipment, such as gas-fired turbines.
Other technological innovations, such
as liquefied natural gas (LNG) storage
facilities, have inherent design
limitations based on the quality of
natural gas available at the time the
facilities were originally designed. How
well they will operate if future gas
supply characteristics differ from those
available today is unknown.
8. Several indices have been
developed over time to characterize the
interchangeability of different natural
gases. One widely accepted measure of
interchangeability is the Wobbe Index,
which is based on energy input and
specific gravity. Other indices
incorporate fundamental combustion
phenomena in their calculations.
Examples include the AGA Bulletin 36
Indices and the Weaver Indices. These
indices were created using different
measurable characteristics of natural gas
and combustion experiments to measure
and predict interchangeability.
However, each index has limits to the
predictive value of its application. The
importance of measuring
interchangeability, regardless of the
index used, is that it provides a
predictive correlation between the
specific measurable physical
characteristics of natural gas and burner
tip performance.
9. During the 2000/01 winter heating
season, rising natural gas prices led
producers to stop processing natural
gas. As a result, pipelines began to
receive a richer quality gas containing a
higher proportion of liquid and
liquefiable hydrocarbons, and a higher
energy density, as measured in Btus per
cubic foot of natural gas. A number of
pipelines reacted by invoking tariff
8 See, e.g., Cove Point LNG Limited Partnership,
97 FERC ¶ 61,043, at 61,197 (2001), order on reh’g,
97 FERC ¶ 61,276 (2001).
9 Interchangeability Report, at section 3.1.1.
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provisions that authorize pipelines to
issue operational flow orders (OFOs),
which required the gas to be processed
before being delivered to the pipelines.
Producers objected, arguing that
pipelines were attempting to impose
more stringent quality standards on
some producers, but not on others.
10. Interchangeability issues have also
been raised in proceedings to authorize
the siting and operation of LNG import
terminals. In September, 2001, the
Commission issued an order
reauthorizing the receipt of LNG
imports at Dominion’s Cove Point LNG
facility.10 Among the issues raised was
the interchangeability of this LNG with
the historic quality of gas delivered to
Washington Gas Light (WGL).
Ultimately, the Commission approved a
settlement between Dominion, WGL and
others that specified a maximum Btu
heating content.11
III. Procedural History
11. In September 2003, the National
Petroleum Council (NPC) completed a
report on the natural gas industry,
which contained a number of findings
and policy recommendations and
highlighted the increased importance of
LNG in meeting expected demand
growth over the ensuing decade.12 The
Commission explored the findings and
recommendations of the NPC report in
an October 14, 2003 technical
conference. The Summary Report
recommended that the natural gas
interchangeability standards be
updated: ‘‘FERC and DOE should
champion the new standards effort to
allow a broader range of LNG imports.
This should be conducted with
participation from LDCs [local
distribution companies], LNG
purchasers, process gas users, and
original equipment manufacturers
(OEMs).’’ 13
12. By the time the NPC report was
issued, the Commission already had
pending before it a number of
proceedings that raised natural gas
quality or interchangeability issues.
Since that time, other proceedings
10 Cove
Point LNG Limited Partnership, supra n.
8.
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11 Cove
Point LNG Limited Partnership, 102 FERC
¶ 61,227 (2003). In the context of Dominion’s
proposal to expand the capacity at Cove Point, WGL
now claims that the low heavy hydrocarbon content
of LNG delivered by Cove Point led to drying and
cracking seals in distribution facilities, which
eventually led to gas leaks. See Dominion Cove
Point LNG, L.P., Docket No. CP05–130–000.
12 The National Petroleum Council (NPC) is an oil
and natural gas advisory committee to the Secretary
of Energy.
13 National Petroleum Council, Balancing Natural
Gas Policy: Fueling the Demands of a Growing
Economy, Volume I, Summary of Findings and
Recommendations, September 2003, at 64.
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involving natural gas quality or
interchangeability have been initiated.
Procedurally, the gas quality and
interchangeability issues have arisen in
the context of complaint proceedings,14
certificate proceedings,15 and proposed
tariff changes.16 Although each case
involves unique circumstances,
collectively, these cases reveal a
growing tension between the desire of
natural gas pipelines and distributors to
ensure the quality of gas entering their
facilities, and the desire of producers
and shippers to have their product
transported without onerous or unduly
discriminatory processing requirements.
Another recurring theme is the desire of
end-use customers to receive gas that
will not harm their gas-fueled
equipment nor cause inefficient
operations.
13. The Commission held a public
conference to discuss gas quality and
interchangeability issues on February
18, 2004. Many industry participants,
representing industry sectors from
wellhead to burner tip, provided the
Commission with information on the
range of complex operational concerns
and issues that the market was facing.
14. Subsequent to the February 2004
technical conference the natural gas
industry, under the auspices of the
Natural Gas Council, initiated a
collaborative effort to seek consensus on
industry-wide standards for gas quality
and interchangeability. This
collaborative effort made tremendous
progress in identifying the underlying
science, identifying measurement
techniques, and characterizing the
different perspectives on the problems
different sectors face with changing or
uncertain natural gas quality and
interchangeability.
15. On February 28, 2005, the Natural
Gas Council filed with the Commission
two technical papers entitled: Natural
14 See, e.g., The Toca Producers v. Southern
Natural Gas Co., Docket No. RP03–484–001; Amoco
Production Company, Docket No. RP01–208–000;
Southern Natural Gas Co., Docket No. RP04–42–000
(collectively, the Toca Proceedings); Indicated
Shippers v. Trunkline Gas Company, LLC, Docket
No. RP04–64–000; Indicated Shippers v. ANR
Pipeline Company, Docket No. RP04–65–000; ANR
Pipeline Company, Docket No. RP04–216–000 and
RP04–435–000 (the ANR Proceedings); Indicated
Shippers v. Columbia Gulf Transmission Company,
Docket No. RP04–98–000, Indicated Shippers v.
Tennessee Gas Pipeline Company, Docket No.
RP04–99–000; and, AES Ocean Express LLC v.
Florida Gas Transmission Company, Docket No.
RP04–249–000/–001.
15 See, e.g., Dominion Cove Point LNG, L.P.,
Docket No. CP05–130–000; Pearl Crossing Pipeline
LP, Docket No. CP04–376–000.
16 See, e.g., Natural Gas Pipeline Company of
America, Docket Nos. RP01–503–002, –003, 102
FERC ¶61,234 (2003) and 103 FERC ¶ 61,322
(2003). A December 20, 2005 Initial Decision in this
proceeding is pending before the Commission.
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35895
Gas Interchangeability and NonCombustion End Use and Liquid
Hydrocarbon Drop Out in Natural Gas
Infrastructure (collectively, NGC+
Reports). These papers represent the
culmination of nearly a year of work by
a large group of natural gas industry
stakeholders—the NGC+ Group 17—
which worked to reach a consensus
understanding of these problems and
recommendations about how they might
be managed. Both Reports suggest
interim recommendations and urge
additional research.
16. The Interchangeability Report
defines interchangeability as:
The ability to substitute one gaseous fuel
for another in a combustion application
without materially changing operational
safety, efficiency, performance or materially
increasing air pollutant emissions.18
The paper goes on to provide
background information on the history
of the industry’s experience with gas
quality issues, and the changes it has
experienced, and then reviews various
measures that have been employed to
measure interchangeability. After a
review of the impacts of variable fuel
quality on gas-fired appliances, the
paper provides an overview of past
industry efforts to measure, predict and
monitor the interchangeability of
natural gases, and examines several
options for managing interchangeability.
17. Recognizing that more research is
needed, the NGC+ Interchangeability
Work Group makes interim
recommendations, to be implemented
pending further study and deliberation.
These interim guidelines provide for: (1)
Use of the local average historical
Wobbe Index average with an allowable
range of variation of plus or minus four
percent; (2) subject to a maximum
Wobbe Index level of 1,400; (3) a
maximum heating value limit of 1,110
Btu/scf; (4) a limit on butanes and
heavier hydrocarbons (butanes+ or C4+)
of 1.5 mole percent; and (5) an upper
limit on the amount of total inert gases
(principally nitrogen and carbon
dioxide) of up to four mole percent. The
Interchangeability Report also
recommends an exception from these
interim guidelines for service territories
17 The Natural Gas Council is an organization
made up of the representatives of the trade
associations of the different sectors of the natural
gas industry, such as the producers, pipelines, and
local distribution companies. The NGC+ group
included many industry volunteers from the
member companies of the various trade associations
as well as other industry participants interested in
these issues.
18 Interchangeability Report, (February 28, 2005;
refiled on March 3, 2005, and resubmitted with
appendices June 30, 2005), at 2. https://
elibrary.ferc.gov/idmws/common/
opennat.asp?fileID=10644164.
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that could demonstrate experience with
supplies exceeding these Wobbe Index
levels, Heating Value and/or
Composition Limits. Companies in these
service territories could continue to use
non-conforming supplies as long as use
of these supplies does not unduly
jeopardize the safety of or create
utilization problems for end use
equipment.19
18. NGC+ Group recommends that
these guidelines be employed until
research can be completed filling in
major data gaps for modern end-use
appliances and the industry forges a
consensus on improved
interchangeability requirements. The
NGC+ Reports originally forecast that it
would take 2 to 3 years to complete this
additional work. The interim guidelines
are for gases delivered to points in the
gas transportation system most closely
associated with end users: Gases
delivered to local distribution
companies (LDCs). The guidelines do
not necessarily apply directly to points
upstream in the transportation system
where blending, gas processing, and
other factors may be utilized to allow
gases outside the ranges of the
guidelines to satisfy the guidelines at
LDC city gates. The NGC+ Group is
continuing to investigate development
of guidelines for points upstream.
19. The second paper, Liquid
Hydrocarbon Drop Out in Natural Gas
Infrastructure, addresses the issue of
controlling hydrocarbon drop out in
natural gas pipeline and distribution
facilities, and other gas industry
infrastructure downstream of producing
areas. The NGC+ interim
recommendation on this issue is to
adopt interim standards that translate
historic experience into terms of CHDP
or C6+ GPM methodologies,20 taking
best available historical data into
account. The NGC+ also recommends
that additional research be conducted to
better understand gas composition, and
to develop improved analytic
equipment suitable for daily operational
use.
20. In addition to Commission action
on gas quality and interchangeability,
The North American Energy Standards
Board (NAESB) has considered requests
that it adopt Business Practice
Standards to address natural gas quality
and interchangeability. On September
20, 2004, the Wholesale Gas Quadrant
Executive Committee of NAESB adopted
19 Interchangeability
Report at 26.
phrase ‘‘C6+ GPM’’ stands for hexanes and
heavier hydrocarbons, as measured in gallons per
million cubic feet of natural gas. Measuring and
controlling for the amount of these heavier
hydrocarbons in the natural gas stream is an
alternative to the CHDP method.
20 The
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standards for electronic posting of
certain gas quality parameters on
pipeline websites. One month later,
these standards were ratified by the
NAESB membership. On May 9, 2005,
the Commission issued an order
amending its regulations governing
standards for conducting business
practices with interstate natural gas
pipelines to incorporate by reference the
NAESB standards related to gas quality,
which are part of Version 1.7 of the
NAESB consensus standards.21
21. On May 16, 2005, the Natural Gas
Supply Association (NGSA) filed a
petition for rulemaking seeking a
Commission notice of proposed
rulemaking (NOPR) to establish natural
gas quality and interchangeability
standards. By order issued
contemporaneously with this Policy
Statement in Docket No. RM06–17–000,
the Commission is denying this petition.
Instead of proceeding to address gas
quality and interchangeability issues
through a rulemaking proceeding, the
Commission instead establishes herein
the regulatory policy it will apply in
individual proceedings before the
Commission.
IV. Summary of Comments
22. The Commission solicited written
comments on the NGC+ Reports and
subsequently convened a technical
conference on May 17, 2005 to allow for
further public comment on and
discussion of the issues raised by the
Reports. In addition, the Commission
solicited comments on the Natural Gas
Supply Association’s (NGSA) May 16,
2005 petition for rulemaking. Appendix
A to this Policy Statement lists
commenters on the Reports and
comments received after the May 17
technical conference addressing issues
in the Reports and the NGSA Petition.
23. Appendix B to this Policy
Statement is a summary of the
comments received on the NGC+
Reports and the NGSA Petition. Briefly,
commenters articulate conflicting views
on whether mandatory nationwide
standards are warranted, and if so,
which standards should be adopted.
While there is a great deal of consensus
on how to articulate the problem in
technical terms, opinion is divided
among a number of preferred solutions.
The Interstate Natural Gas Association
of America (INGAA), for example,
believes that there is no national
problem with gas quality and
interchangeability that warrants a
21 Order No. 587–S, Standards for Business
Practices of Interstate Natural Gas Pipelines, 18
CFR part 284 (2005); FERC Statutes and Regulations
¶ 31,179.
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rulemaking. While urging the
Commission to address gas quality and
interchangeability issues as they arise,
INGAA favors a policy statement if the
Commission decides to address the
issues generically. There was no
unanimity within the producer segment.
The Independent Petroleum Association
of America (IPAA) supports a
rulemaking and the NGSA proposal,
while the Appalachian Producers and
the Independent Petroleum Association
of Mountain States oppose mandatory
national standards for gas quality. The
American Gas Association (AGA), the
American Public Power Association of
America (APGA), and a number of LDCs
ask that the Commission require
pipeline tariffs to contain
merchantability standards. The Process
Gas Consumers endorse a rulemaking
and the NGSA petition. The Edison
Electric Institute and Siemens
Westinghouse raise concerns about the
impact of interchangeability standards
on DLE turbines. Gas appliance
manufacturers point out the importance
of basing gas quality standards on local
historical gas characteristics.
V. Discussion
A. The Problem in a Nutshell
24. Most, if not all, interstate natural
gas companies have provisions in their
tariffs governing gas quality. But as the
NGC+ Reports note, ‘‘at no time has
there ever been a common set of
specifications for [hydrocarbon]
components such as there has been for
CO2, H2S, and water.’’ 22 Each pipeline
established its own terminology,
standards, controls, and conditions for
waiver. Until relatively recently, this
approach appears to have worked
reasonably well. However, gas quality
and interchangeability controversies
have become more frequent.23 The
Commission’s policy guidance
recognizes the importance of
encouraging rather than impeding the
development of natural gas
infrastructure and the movement of gas
to the grid and to ultimate consumers.
Thus, the Commission believes that the
policy adopted here achieves a balanced
approach by providing certainty,
ensuring the safety and reliability of the
nation’s gas grid, and recognizing
concerns about natural gas quality and
interchangeability, while providing
pipelines and their customers the
flexibility necessary to maximize the
introduction of new supply into the
grid.
22 HDP
Report at section 3.1.1.
note 13.
23 Supra
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25. The Commission believes that
there are compelling reasons to provide
policy guidance on these issues. Three
factors suggest that there is a need to act
now. First, processing economics can
create hydrocarbon dew point problems
whenever the economics shift to favor
decisions not to process natural gas.
Second, establishing a sound policy on
gas quality and interchangeability issues
now would lower a potential barrier to
expected increases in LNG imports.24
Third, acting now will provide a firm
regulatory policy basis for additional
research and development on gas
quality and interchangeability issues.
26. The natural gas industry, through
the efforts of the NGC, has produced the
NGC+ Reports that represent consensus
on these topics. They offer interim
approaches that can be put in place
now, to the extent well-functioning gas
quality and interchangeability
provisions are not already in place in
individual pipelines’ tariffs. These
interim recommendations provide a
common language for discussion of
these issues, and a reasonable
framework to establish market-specific
standards.
27. However, these same consensus
Reports highlight the need for
additional research and development
before any more permanent consensus
may be forged.25 The Commission
believes that a generic policy on gas
quality and interchangeability would
help guide the industry in the right
direction. But given the areas of
additional research that is required, it
would be premature to take more
prescriptive actions such as prescribing
gas quality and interchangeability
standards or prescribing specific levels
of the constituent elements of, or the
heating values for, the natural gas
transported in pipelines.
28. In the face of these challenges, the
accomplishment of the NGC+ group in
achieving consensus to submit two
technical papers addressing
hydrocarbon dew point and
interchangeability is worthy of praise.
The Commission commends those
members of the natural gas industry
24 The Energy Information Administration
projects that by the year 2030, 4.4 trillion cubic feet
equivalent (Tcf) of LNG will be imported to meet
approximately 27 Tcf in annual demand for natural
gas—an eight-fold increase over the roughly 0.5 Tcf
of LNG imported in 2003. Energy Information
Administration, Annual Energy Outlook 2006, at 86
(February 2006). https://www.eia.doe.gov/oiaf/aeo/
pdf/0383(2006).pdf.
25 We are encouraged by the efforts of the
Department of Energy in pursuing research and
development in this area. Along with the efforts of
the industry, and continued voluntary
collaboration, we look forward to the improvements
that will become possible with a better
understanding provided by these research efforts.
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who participated in these efforts. The
Commission’s policy statement is based
in large part on the foundation of this
group’s work, and the comments filed in
this generic proceeding.
B. Statement of General Policy
Regarding Interstate Pipeline Tariff
Provisions Governing Gas Quality and
Interchangeability
29. The Commission’s policy on gas
quality and interchangeability embodies
five principles. First, only natural gas
quality and interchangeability
specifications contained in a
Commission-approved gas tariff can be
enforced. The Commission’s authority
to address questions about tariff
provisions on gas quality and
interchangeability arises under sections
4, 5 and 7 of the NGA. By law, the
Commission is responsible for ensuring
that rates, charges, rules and regulations
of service are just, reasonable and not
unduly discriminatory or preferential,
and that initial rates, terms and
conditions of service are required by the
public convenience and necessity.26
Unless these specifications are stated in
the tariff, the Commission will not be
able to address gas quality and
interchangeability concerns. Where gas
quality and interchangeability issues are
of concern to the transporting pipeline,
tariff standards are essential terms and
conditions of service.
30. Second, pipeline tariff provisions
on gas quality and interchangeability
need to be flexible. Pipelines operate in
dynamic environments that frequently
require quick responses to rapidly
changing situations. For example, a
pipeline may be asked to transport gas
that does not meet a particular gas
quality or interchangeability
specification in the pipeline’s tariff.
Nevertheless, if the pipeline has the
ability to transport such out-of-spec gas
without jeopardizing system operations,
its tariff should be flexible enough to
allow it to do so. The Commission
believes that flexible tariff provisions on
natural gas quality and
interchangeability will allow pipelines
to balance safety and reliability
concerns with the importance of
maximizing supply, while recognizing
the evolving nature of the science
underlying gas quality and
interchangeability specifications.
31. Third, pipelines and their
customers should develop gas quality
and interchangeability specifications.
The Commission expects that
specifications for natural gas quality and
interchangeability will be based upon
sound technical, engineering and
26 15
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35897
scientific considerations. In addition,
the Commission encourages pipelines
and their customers to resolve gas
quality and interchangeability issues on
their own, either prior to or outside of
formal Commission proceedings. This
will facilitate mutually beneficial
outcomes for all parties and should not
have a detrimental impact on either
current or prospective shippers.27
32. Fourth, in negotiating technically
based solutions, pipelines and their
customers are strongly encouraged to
use the NGC+ interim guidelines as a
common scientific reference point for
resolving gas quality and
interchangeability issues. The interim
guidelines suggest a process for
applying scientific principles to
individual markets but do not address
the specifics of individual pipeline
circumstances or tariff provisions.
Furthermore, the interim guidelines
recognize that additional research and
development are needed to arrive at
more clearly defined limits to
interchangeability specifications and to
address the need for better and more
timely operational information on
natural gas quality and pipeline
operations. The Commission’s policy
will keep step with improved
knowledge on gas quality and
interchangeability.
33. Finally, to the extent pipelines
and their customers cannot resolve
disputes over gas quality and
interchangeability, those disputes can
be brought before the Commission to be
resolved on a case-by-case basis, on a
record of fact and technical review. In
resolving any such disputes, the
Commission will give significant weight
to the NGC+ interim guidelines. In
addressing disputes, the Commission
will develop a factual record, with
sound technical underpinnings, which
will provide the Commission with a
good foundation for resolving disputes.
The Commission recognizes that
regional variation and differing local
needs cannot be accommodated with an
inflexible generic policy on gas quality
and interchangeability. Rigid gas quality
and interchangeability requirements
could unnecessarily restrict the
introduction of new sources of supply,
which is inconsistent with the
Commission’s policy of encouraging
new supplies and the construction of
27 In this regard, the Commission notes the ‘‘Joint
Statement of the American Gas Association and the
Interstate Natural Gas Association of America,’’
filed on June 2, 2006, which outlines their
agreement on developing gas quality and
interchangeability specifications on a pipeline-bypipeline basis, where needed, within the next year.
On June 8, APGA filed a response to the AGAINGAA joint statement.
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infrastructure to bring new supplies to
market.28 The following discussion will
elaborate on how we envision this
general policy being applied in
individual cases.
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1. Gas Quality
34. The Reports’ interim
recommendations identify two valid
methods that might be used to control
hydrocarbon liquid dropout—the CHDP
method, and the C6+ GPM method.29 As
a matter of policy, the Commission
believes that jurisdictional tariffs should
contain provisions that govern the
quality of gas received for transportation
when necessary to manage hydrocarbon
liquid dropout within acceptable levels.
Pipelines with existing tariff provisions
that adequately control hydrocarbon
dropout may continue to rely on their
existing tariff.30 Pipelines that wish to
add provisions to their tariffs, or modify
existing provisions, to control
hydrocarbon dropout are strongly
encouraged to use one of the two
methods found by the NGC+ to be valid.
If a pipeline wishes to propose a
different method, the pipeline must
provide an explanation of how the
proposed method differs from the CHDP
method described in the HDP Report. In
addition, the pipeline will be required
to include in any filing to revise its gas
quality standards a comparison, in
equivalent terms, of its proposed gas
quality specifications and those of each
interconnecting pipeline.
35. In application, either of the two
methods suggested by the NGC+ task
group offers a process for arriving at
appropriate gas quality specifications
for natural gas accepted for
transportation by a pipeline. However,
the specifications themselves must be
derived to fit the specific circumstances
of each pipeline.31 The appropriate gas
quality specifications for different
pipelines may vary depending upon a
number of factors, including pipeline
configuration, geographic location of the
28 See e.g., Northern Natural Gas Company, 108
FERC ¶ 61,083, at P. 24 (2004) (‘‘* * * the
Commission must ensure that proposals that are
intended to address system integrity do not
unnecessarily discourage new sources of supply or
impose unreasonable costs on shippers and
consumers.’’), and Hackberry LNG Terminal, 101
FERC ¶ 61,294 (2002).
29 For a technical description of either of these
methods, see HDP Report, especially sections 4
through 6.
30 To the extent a complaint is filed alleging that
an existing pipeline tariff is not just and reasonable,
the Commission will evaluate the complaint on its
specific merits.
31 See HDP Report, Appendix A Parameters to be
Considered in Establishing CHDP or C6+ GPM
Based Limits, and Appendix B Process for
Establishing a Cricondentherm Hydrocarbon Dew
Point (CHDP) Limit.
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pipeline, access to and location of
processing facilities, flowing gas
temperatures and pressures, average
ambient and ground temperatures and
source of gas supply.32 This is a factintensive exercise, and is not one that
lends itself to generic specifications.
The Commission will examine the
appropriate circumstances in each
individual case. That being said, the
Commission will give appropriate
weight to the gas quality and
interchangeability requirements of
interconnecting pipelines as well as the
requirements of markets directly served.
The Commission wishes to ensure that
natural gas wholesale trade across
markets is not unduly impeded by the
tariff requirements of individual
pipelines. In addition, the tariff should
state the natural gas quality
specifications for gas that the pipeline
will deliver to its customers.
2. Interchangeability
36. In its report, the NGC+
Interchangeability Work Group
recommend interim guidelines based on
a range of plus and minus four percent
of the Wobbe number based on either
local historical average gas or an
established ‘‘adjustment or target’’ gas
for the service territory at issue. This
basic guideline was subject to additional
parameters limiting: The maximum
Wobbe number to 1,400; the maximum
heating value to 1,110 Btu/scf;
maximum butanes+ to 1.5 mole percent;
and maximum total inert gases to four
mole percent. These interim guidelines
also included a specific exception for
service territories with demonstrated
experience with gas supplies exceeding
any of the ‘‘additional parameters.’’
37. The Interchangeability Report
contains a methodology for arriving at
an appropriate interchangeability
specification, based in part on historical
experience. Pipelines with existing tariff
provisions which adequately
characterize interchangeability limits
may continue to rely on their existing
tariff.33 Pipelines that wish to add
provisions to their tariffs, or modify
existing provisions, to characterize
interchangeability specifications are
encouraged to use the interim
guidelines proposed by the NGC+
32 See, e.g., El Paso at 6 (‘‘A policy statement
would allow the Commission to tailor its approach
to reflect the complexities that each pipeline faces
in addressing HDP issues, including, for example,
reticulated pipeline systems that have bidirectional
flows and as such may not be able to easily engage
in pairing, blending, or aggregation.’’), and Questar
at 3–4.
33 To the extent a complaint is filed alleging that
an existing pipeline tariff is not just and reasonable,
the Commission will evaluate the complaint on its
specific merits.
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Interchangeability Task Group. To the
extent a pipeline wishes to propose a
different method, it must explain how
the proposed method differs from the
interim guidelines. In addition, the
pipeline will be required to include in
any filing to revise its interchangeability
standards a comparison, in equivalent
terms, of its proposed interchangeability
specifications and those of each
interconnecting pipeline.
38. As is the case with gas quality
specifications, selection of
interchangeability limits is a fact-based
exercise. In application, either of the
two methods suggested by the NGC+
task group offers a process for arriving
at appropriate limits for the
interchangeability characteristics of
natural gas that may be accepted for
transportation by a pipeline. However,
the limits themselves must be derived to
fit within the specific circumstances of
each pipeline.34 The appropriate
interchangeability specifications for
different pipelines may vary depending
on a number of factors, including: The
historic characteristics of natural gas
delivered by the pipeline to the markets
it serves; local market practices for the
use of target or adjustment gases used to
install and adjust equipment in that
market; historic variability in the
characteristics of gas delivered to the
market; whether there are customer
loads with special gas quality
requirements, such as a large process
gas user; the type and gas quality
tolerances of the end-use equipment
(including ‘‘legacy’’ equipment); and,
the tariff requirements of downstream
pipelines.35 This fact-intensive exercise
does not lend itself to generic
specifications. The Commission will
examine the appropriate circumstances
in each individual case. That being said,
the Commission will give appropriate
weight to the gas quality and
interchangeability requirements of
interconnected pipelines as well as the
requirements of markets directly served.
The Commission wishes to ensure that
natural gas wholesale trade across
markets is not unduly impeded by the
tariff requirements of individual
pipelines. In addition, the tariff should
state the natural gas quality
specifications for gas that the pipeline
will deliver to its customers.
3. Blending
39. Given the complexity of operating
an interstate pipeline, there is
substantial discretion given a pipeline
to decide when and how much to allow
34 See
Interchangeability Report at 24–26.
e.g., The Florida Utilities April 1, 2005
comments.
35 See,
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exceptions to gas quality and
interchangeability specifications to
accommodate production that may not
have convenient access to gas
processing. In addition, some pipelines
will waive gas quality limitations when
operating circumstances allow,
enforcing strict compliance with the
tariff only when necessary. For example,
a pipeline may be able to accept rich gas
containing more of the heavier
hydrocarbons than its tariff would
otherwise permit by blending that gas
with leaner gas that contains very little
of the heavier hydrocarbons. However,
there may be more such lean gas
available for blending on some parts of
the pipeline’s system than on other
parts. Furthermore, a pipeline’s ability
to blend supplies of varying quality will
depend on the supplies’ proximity to
market.
40. Pragmatically, this discretion
allows the pipeline to maximize the gas
supply available to its customers while
maintaining its ability to manage gas
quality and interchangeability within
acceptable limits. The Commission has
found in at least one case that such
actions are ‘‘not necessarily undue
discrimination under the NGA [Natural
Gas Act].’’ 36 Operational constraints in
particular parts of a pipeline’s system
may justify treating shippers on those
parts of the system differently than
shippers on other parts of the system.37
41. The Commission continues to
believe that it is appropriate to allow
pipelines to exercise their discretion to
waive strict gas quality limits when
operating conditions allow, and to
enforce such limits when operating
conditions require stricter measures, as
long as it is done in a not unduly
discriminatory manner.38 The
Commission wishes to encourage
pipelines to allow blending, pairing,39
36 Natural Gas Pipeline Company of America, 102
FERC ¶ 61,234 at P. 27, and see discussion at PP.
25–33 (2003).
37 Consolidated Edison Company of New York v.
FERC, 165 F.3d 992, 1013 (D.C. Cir. 1999).
38 The Commission’s regulations require that
pipelines strictly enforce the provisions of their
tariffs if those provisions do not permit the use of
discretion. In instances where the tariff provides the
pipeline with discretion, it must keep a written log
detailing the circumstances and manner in which
it has exercised discretion under its tariff, and this
information must be posted on the pipeline’s
website within 24 hours of when the pipeline
exercised its discretion. See 18 CFR 385.5(c)(1) and
385.5(c)(4).
39 The HDP Report does not use the term
‘‘pairing,’’ but instead refers to the practice of
‘‘contractual blending.’’ It is a paper transaction
allowing a producer of gas that does not meet a
pipeline’s gas quality requirements to contract to
blend this gas with the gas of another producer
whose gas is in compliance with the pipeline’s gas
quality specifications. These two producers’
volumes may enter the gas stream at different points
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and other strategies, to the extent these
can be implemented on a nondiscriminatory basis and in a manner
that is consistent with safe and reliable
operations. This is consistent with the
Commission’s policy of minimizing any
unnecessary restrictions on the supplies
available to the national gas market.
Pipelines may consider ‘‘safe harbor’’
provisions and informational posting
requirements as means of minimizing
the potential for undue
discrimination.40
4. Merchantability
42. AGA urges the Commission to
require pipelines to include a
merchantability provision in their
tariffs.41 AGA defines the term
‘‘merchantable’’ as gas that is:
consistently commercially free from
objectionable matter including odors,
bacteria, dust, gums, water, hydrocarbon
liquids, other liquid or gaseous constituents
that may preclude supply from being
interchangeable with historically acceptable
supplies delivered into a market area and
will not cause injury or interference with
operation of existing end use equipment,
pipelines and the gas transmission and
distribution infrastructure.42
43. The Commission will not require
such provisions. We do not believe that
mandating additional merchantability
requirements would provide any
additional value at this time.43 In
addition, we are concerned that
adoption of a general merchantability
requirement could come into conflict
with the specifications of gas quality
and interchangeability that would be
quantified under the interim processes
recommended in the NGC+ Reports.
Pipeline tariff provisions that contain
detailed technical specifications for gas
quality and interchangeability may be
sufficient without the addition of a
general merchantability provision;
technical specifications and general
descriptions, to the extent they are
present, must work together if they are
to function as intended. Neither of the
and thus may not blend directly in the pipeline.
Section 3.2.5 describes contractual blending. See
also comments of El Paso Corporation’s Pipeline
Group at 2 and 10; NGSA Petition at 4 n.2; and,
Selected Processors at 2.
40 See National Gas Pipeline Company of
America, 102 FERC ¶ 61,234 at PP. 43, 48 (2003).
41 See, e.g., AGA comments at 25–29.
42 Id. at 27–8.
43 The Commission notes that AGA also suggested
an alternative approach in its comments, stating
that ‘‘delivered gas will be ‘merchantable’ gas and
will meet certain specifications, such as those set
out for interchangeability, CHDP and other
constituent limits.’’ AGA comments at 28. The
Commission sees no value to adding the label
‘‘merchantable’’ to gas that otherwise meets the gas
quality and interchangeability specifications set
forth in the tariff.
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35899
NGC+ Reports included in their
consensus recommendations the
adoption of a merchantability clause.
Some pipelines have merchantability
provisions in their current tariffs and
some do not. As a policy matter, the
Commission will neither mandate nor
prohibit such provisions.
C. Applicability to Section 311
Transporters
44. The Commission intends to apply
this policy to statements of operating
conditions filed by entities which
provide interstate transportation
services pursuant to section 311 of the
Natural Gas Policy Act of 1978 (NGPA).
As a general principle, the Commission
expects that each section 311
transporter will include specific
provisions in its statement of operating
conditions governing gas quality and
interchangeability.44
D. New Companies Authorized Under
Section 7 of the Natural Gas Act
45. The Commission intends to apply
this policy in its review of pro forma
tariffs filed as part of section 7(c)
certificate applications. Applicants
should ensure that their Exhibit P pro
forma tariff includes general terms and
conditions addressing gas quality and
interchangeability. Recognizing that
new entrants do not have historic
markets upon which to base their
analysis of gas quality and
interchangeability specifications, the
Commission expects section 7
applicants to include relevant
information about the gas quality and
interchangeability specifications of
interconnecting pipelines, and of the
competing pipelines serving customers
to be served directly by the new entrant,
as well as the relevant information
about the gas supplies to be received by
the new entrant for transportation or
storage. Applicants must show how they
derived their gas quality and
interchangeability specifications stated
in their pro forma tariffs.
E. New Companies Authorized Under
Section 3 of the Natural Gas Act
46. The Commission intends to apply
this policy in its review of proposals to
construct and operate new facilities for
the importation of natural gas.
Applicants should include information
44 Section 284.224, subpart G, of the
Commission’s regulations authorizes LDCs and
Hinshaw pipelines to perform the same types of
transactions that intrastate pipelines are authorized
to perform under section 311 of the NGPA and
subpart C and D of Part 284 of the Commission’s
regulations. The Commission intends that the
requirements imposed by this policy statement on
section 311 intrastate pipelines would also apply to
Hinshaw pipelines.
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in their application which demonstrates
the compatibility of their imports with
the gas quality and interchangeability
requirements of all interconnecting
pipelines. To the extent service is
provided pursuant to Parts 157 or 284
of the Commission’s regulations, the
applicant should make specific
reference to tariff or contract provisions
governing gas quality and
interchangeability and demonstrate
their compliance with this policy
statement.
47. Some commenters ask the
Commission to impose specific
obligations on LNG project developers
regarding merchantability, identification
of adverse impacts, compensation for
negative impacts, and mitigation.45
However, the Commission believes that
these are issues that should be
addressed, if and when problems are
identified, in specific cases.
By the Commission.
Magalie R. Salas,
Secretary.
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Appendix A
Commenters
American Gas Association (AGA)
American Public Gas Association (APGA)
Appalachian Producers:
Kentucky Oil & Gas Association, Ohio Oil
and Gas Association, and the
Independent Oil & Gas Association of
Pennsylvania
Aux Sable Liquid Products, L.P. (Aux Sable)
BHP Billiton LNG International (BHP
Billiton)
Calpine Corporation (Calpine)
Consolidated Edison Company of New York,
Inc. and Orange & Rockland Utilities,
Inc.
Constellation Energy Group, Inc.
Devon Energy Corporation
Dow Chemical Company
Duke Energy Gas Transmission
Edison Electric Institute (EEI)
Electric Power Supply Association (EPSA)
El Paso Corporation’s Pipeline Group
EMS Pipeline Services
Fertilizer Institute
Florida Power & Light
Florida Utilities:
Tampa Electric Company; Peoples Gas
System, a Division of Tampa Electric
Company; the Associated Gas
Distributors of Florida (AGDF); and the
Florida Municipal Natural Gas
Association (FMNGA). The AGDF
consists of Florida Public Utilities
Company; Central Florida Gas Company;
Indiantown Gas Company; Sebring Gas
Systems, Inc.; St. Joe Natural Gas
Company, Inc.; and Florida City Gas. The
FMNGA consists of the City of
Chattahoochee; City of Clearwater Gas
System; Crescent City Natural Gas; City
of DeFuniak Springs; Geneva County Gas
District; Lake Apopka Natural Gas
45 See, e.g., AGA, APGA, Constellation at 3, and
KeySpan’s April 1 comments at 10–13.
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District; City of Leesburg; City of Live
Oak; City of Madison; Okaloosa Gas
District; Palatka Gas Authority; City of
Perry; Southeast Alabama Gas District;
and City of Sunrise.
Gas Appliance Manufacturers Association
(GAMA)
Gas Processors Association
General Electric Company (GE)
Gulf South Pipeline Company, LP (Gulf
South)
Independent Petroleum Association of
Mountain States (IPAMS)
Interstate Natural Gas Association of America
(INGAA)
Independent Petroleum Association of
America (IPAA)
KeySpan Corporation
Michigan Consolidated Gas Company
National Fuel Gas Supply Corporation and
National Fuel Gas Distribution
Corporation
Natural Gas Supply Association (NGSA)
NiSource, Inc.
Pacific Gas and Electric Company
Process Gas Consumers Group (PGC)
Producer Coalition:
Devon Energy Corporation, Dominion
Exploration & Production, Inc., Forest
Oil Corporation, The Houston
Exploration Company, Kerr-McGee Oil &
Gas Corporation, Newfield Exploration
Company, Spinnaker Exploration
Company, and TOTAL E&P U.S.A., Inc.
Progress Energy
Questar Pipelines
Selected Processors:
Enterprise Products Operating L.P.,
Williams Midstream, Dynegy Midstream
Services, Limited Partnership and Duke
Energy Field Services, LLC
Sempra Global
Shell NA LNG LLC and Shell US Gas &
Power, LLC
Siemens Westinghouse Power Corporation
South Carolina Electric & Gas Company,
SCANA Energy Marketing, Inc. and
Public Service Company of North
Carolina, Inc. (SCANA)
South Carolina Pipeline Company and SCG
Pipeline, Inc.
South Coast Air Quality Management District
(SCAQMD)
Southeastern End Users Group:
Florida Cities—City of Tallahassee, Florida
Gas Utility, Gainesville Regional
Utilities, JEA, Lakeland Electric, and
Orlando Utilities Commission, Florida
City Gas, Florida Municipal Natural Gas
Association—Cities of Chattahoochee,
DeFuniak Springs, Leesburg, Madison,
Perry and Sunrise, City of Clearwater Gas
System, Crescent City Natural Gas,
Geneva County Gas District, Lake
Apopka Natural Gas District, Okaloosa
Gas District, Palatka Gas Authority,
Southeast Alabama Gas District, Florida
Power & Light Company, Florida Public
Utilities Company, Progress Energy,
Peoples Gas System, a Division of Tampa
Electric Company, Seminole Electric
Cooperative, Inc., Southern Cities—
Georgia Cities of Cartersville, Cordele,
Cuthbert, Dublin, Hawkinsville,
LaGrange and Tallapoosa and the Florida
City of Tallahassee, Tampa Electric
Company
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Southern California Gas Company and San
Diego Gas & Electric Company
Suez Energy North America
TransCanada Pipelines Limited
Utah Department of Public Utilities (UDPU)
Williston Basin Interstate Pipeline Company
Wisconsin Distributor Group:
Wisconsin Power & Light Company, City
Gas Company, Madison Gas & Electric
Company, Wisconsin Gas LLC, and
Wisconsin Electric Power Company—
Collectively, We Energy, and Wisconsin
Public Service Corporation
Appendix B
Summary of Comments
A. Natural Gas Producers
1. NGSA urges the Commission to move
quickly to initiate a rulemaking to adopt its
proposals. NGSA also would establish a
presumption of interchangeability (with
historical gas supplies) for all gas that meets
the interchangeability specifications in the
NGSA rulemaking proposal. In addition,
NGSA does not support efforts by local
distribution companies (LDCs) to require
pipelines to include merchantability
clauses 46 in their tariffs.
2. Among independent producers, the
Independent Petroleum Association of
America (IPAA) supports the NGSA proposal
for a NOPR, including the CHDP safe harbor
and the interchangeability levels. In addition,
IPAA advocates a de minimis exemption for
production from small wells, where such
exceptions will not affect pipeline
operations. Devon Energy, a small producer
and processor, supports the NGSA petition
and supports the de minimis exemption for
small volumes, so long as the quality of
delivered gas remains within the tariff
limits.47
3. The Independent Petroleum Association
of Mountain States (IPAMS), an association
of small producers in the Rocky Mountains,
opposes any rigid national standard for gas
quality, citing the different needs of
customers in Salt Lake City and Denver,
where its members’ gas is delivered. IPAMS
also supports a small producer de minimis
exemption. However, it does not address the
NGSA proposal directly. The Appalachian
Producers oppose the NGSA proposal and
assert that the presumption of
interchangeability, for example, ‘‘could easily
be transformed into a requirement that
natural gas must meet those standards * * *
changing the presumptive specifications into
prescriptive ones.’’ 48
4. Finally, the Producer Coalition 49
supports adoption of natural gas quality and
interchangeability standards through a formal
46 Several LDC commenters, including the
American Gas Association (AGA), urge the
Commission to require pipelines to include
merchantability provisions in their tariffs. The issue
of merchantability is discussed in the context of
LDC comments beginning at P 37.
47 Devon at 4.
48 Appalachian Producers comments at 2.
49 The Producer Coalition is an ad hoc group of
natural gas producers consisting of Devon,
Dominion E&P, Forest Oil, Houston Exploration,
Kerr-McGee, Newfield Exploration, Spinnaker
Exploration and TOTAL E&P.
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rulemaking proceeding rather than through a
policy statement. The Producer Coalition
asserts that much of the controversy in
setting gas quality standards ‘‘would be
eliminated if the Commission, by rule or
policy statement, would (i) establish a
uniform method for determining CHDP limits
for interstate pipelines; and (ii) determine
who pays—producers or downstream
customers—for conditioning or handling gas
to accommodate the downstream temperature
and pressure cuts between the interstate
pipeline grid and the gas burner tip.’’ 50
B. LNG Operators
5. Four LNG facility operator/developer
companies filed comments on the NGSA
proposal. Both Shell and Sempra urge the
Commission to move quickly to adopt
standards in order to maintain momentum
from the NGC+ efforts. Shell favors a
Commission policy statement, while Sempra
supports action via a NOPR, along the lines
advocated by NGSA. Both support the
interchangeability interim guidelines in the
Report instead of the NGSA proposal,
because NGSA does not adopt the ± 4% range
in the Report or the 1,110 Btu limit. In
addition, Sempra opposes a mandate for
pipeline blending, aggregation and other
operational techniques for dealing with nonstandard gas. Both favor requiring pipelines
to adopt gas quality and interchangeability
standards in their tariffs. Suez Energy North
America (Suez) supports a rulemaking based
on the proposals in the Reports, and it asserts
that the Commission should ‘‘craft rules that
will encourage some degree of
standardization while also leaving distinct
pipeline service territory issues for
determination on each pipeline system.’’ 51
6. The issue of federal—state cooperation
in standard-setting is the focus of comments
by BHP Billiton LNG International (BHP
Billiton), an Australian energy company that
plans to build a floating storage and
regasification unit for LNG imports offshore
California to bring gas into California. BHP
Billiton opposes a proposal pending before
the California Public Utilities Commission
(CPUC) 52 in the CPUC’s ongoing proceeding
examining gas quality issues. In that
proceeding, a California utility has proposed
that LNG suppliers be subject not only to the
quality specifications in utility tariffs but also
to the quality specifications of any other
Federal, state or local agency having ‘‘subject
matter’’ jurisdiction over natural gas quality.
BHP states that gas quality and
interchangeability ‘‘should not be subject to
the whim or caprice of governmental
agencies that do not have direct regulatory
authority over utilities.’’ 53
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C. Gas Processors
7. The Selected Processors 54 support a
NOPR that considers three issues: Uniform
CHDP standards across interconnecting
pipelines; CHDP specifications in pipeline
50 Producer
Coalition at 6.
at 5.
52 CPUC Docket No. 04–01–025.
53 BHP Billiton at 4.
54 The Selected Processors consist of Enterprise,
Williams Midstream, Dynegy Midstream and Duke
Energy Field Services.
51 Suez
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tariffs; and fair and non-discriminatory
application of the CHDP standards for all gas
supplies. The Selected Processors would
exempt interstate pipelines that do not
directly serve an end-use market from the
CHDP standards. It believes that the NGSA
proposal is ‘‘vague,’’ and may not resolve the
need for uniform CHDP standards across
interconnecting pipelines, long-term
certainty through clear CHDP standards in
pipeline tariffs and the fair and nondiscriminatory application of gas quality
standards for all gas supplies. 55 The Selected
Processors advocate a formal rulemaking
proceeding and mandatory measures for
pipeline blending or pairing of noncompliant gas. They are concerned that
discretionary blending and pairing by
pipelines pose the potential for
discrimination.
8. Aux Sable Liquid Products (Aux Sable),
which operates a gas processing plant at the
terminus of the Alliance Pipeline near
Chicago, Illinois, supports the adoption of
gas quality and interchangeability standards
through a rulemaking proceeding, but it
disagrees with the detailed regulatory text
contained in the NGSA proposal.
Nevertheless, Aux Sable supports the Report
recommendations, including a CHDP safe
harbor, 56 and the establishment of the
Wobbe Index as the basic means of
determining interchangeability.
9. In an October 27, 2005 letter to the
Chairman, the Gas Processors Association
(GPA) encourages swift resolution of the
issues involved in setting gas quality
specifications to ease uncertainty in the
industry with respect to the outcome of these
proceedings. Citing the loss of infrastructure
that occurred in the Gulf following last year’s
hurricanes, GPA states that regulatory
uncertainty adversely affects decisions on
new investment to rebuild damaged
infrastructure. ‘‘The gas processing industry
desperately needs to know that fair,
consistent application of gas quality
specifications will be applied for the longterm.’’ 57
D. Interstate Pipelines
10. The Interstate Natural Gas Association
of America (INGAA) opposes NGSA’s NOPR
proposal, stating that gas quality and
interchangeability issues are not a
nationwide problem. Rather, problems with
gas quality and interchangeability can be
addressed on a pipeline-specific basis as
problems arise. 58 However, if the
55 Selected
Processors at 1.
Aux Sable states that it supports the
‘‘minimum safe harbor’’ CDHP method of
controlling liquid drop out, the Report itself does
not include a ‘‘safe harbor’’ recommendation.
57 Letter from Mark F. Sutton, Executive Director
of GPA to Chairman Kelliher and officials at the
Energy Information Administration and the
Minerals Management Service, at 2 (October 27,
2005).
58 In this regard, the Commission notes the ‘‘Joint
Statement of the American Gas Association and the
Interstate Natural Gas Association of America,’’
filed on June 2, 2006, which outlines their
agreement on developing gas quality and
interchangeability specifications on a pipeline-bypipeline basis, where needed, within the next year.
On June 8, APGA filed a response to the AGA–
56 While
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Commission is going to address these issues
in a generic proceeding, INGAA believes it
should do so through a policy statement. It
supports a presumptive 15 degree CHDP safe
harbor but wants pipelines to have the
flexibility to accept gas at receipt points at
different CHDP levels (higher or lower than
the NGSA proposal). INGAA would apply the
CHDP standards at pipeline receipt points
rather than at delivery points. The 1,400
Wobbe Index level standard proposed by
NGSA is missing critical technical
parameters (heating value, use of historical
average gas supply, and the plus or minus
4% Wobbe Index range). INGAA would
evaluate the need for a de minimis exemption
for small producers on a pipeline-by-pipeline
basis. Finally, INGAA opposes a requirement
for merchantability provisions, saying that
these could be used to ‘‘trump’’ pipeline gas
quality and interchangeability tariff
provisions.
11. Several pipeline companies filed
individual comments on the Reports and the
NGSA proposal. Pipeline commenters oppose
merchantability requirements, and, to the
extent any procedural tool is favored, the
pipeline commenters oppose a generic
rulemaking along the lines proposed by
NGSA. Instead, most support the
development of a policy statement governing
gas quality and interchangeability issues.
Duke Energy Gas Transmission takes another
view, arguing that these issues should be
handled on a complaint-driven basis and not
through generic national standards. On
providing an exemption for small producers
advocated by some producers, ANR,
Southern Natural and El Paso all assert that
they have such exceptions in their gas quality
tariff provisions.
12. Other pipelines point to specific
constraints or supply issues on their systems
that would make a generic approach
particularly difficult. For example, Gulf
South Pipeline states that, due to its
reticulated nature, gas cannot be pathed on
its system, nor can gas molecules be traced.
This would make it very difficult for Gulf
South to apply a single CHDP minimum
standard to its entire system.59
13. Questar and Williston Basin both cite
their ability to transport high HDP gas or coal
bed methane as being essential to meeting the
requirements of downstream markets. In
Questar’s case, some of the gas it treats is
delivered to its affiliated LDC. Questar has
made significant investment in liquid
handling facilities and processing plants in
order to provide transportation service for gas
coming from growing supply sources in the
Green River, Uinta and Piceance basins.
Although the question of who should pay for
these facilities is the subject of an ongoing
dispute with the Utah Division of Public
Utilities, Questar asserts that its ability to
INGAA joint statement. Subsequent comments on
the joint statement were filed by NGSA (on June 12)
urging the Commission to establish a policy for
developing natural gas quality and
interchangeability standards, and by Washington
Gas Light (June 13), who urged the Commission to
recognize the infrastructure impacts of changes in
supply compositions in addressing
interchangeability issues.
59 Gulf South at 11–12.
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transport high HDP gas on its system would
be adversely affected by the CHDP safe
harbor proposed in the NGSA petition.60
Similarly, Williston Basin states that the gas
it has transported on its system historically
exceeds the levels in both the Reports and
the NGSA petition. In addition, Williston
Basin states that applying an inflexible gas
quality standard at delivery points would
impose a tremendous hardship on the
pipeline, which has 53 receipt points but
over 3,100 delivery points.61
E. LDCs
14. AGA and the American Public Gas
Association (APGA), the major LDC trade
associations, oppose the NGSA petition.
AGA’s original position on the NGSA
petition supported a NOPR mandating
pipeline tariff provisions on gas quality and
interchangeability. AGA pointed to many
flaws in the NGSA proposal, most of which
stem from the differences between the NGSA
proposal and the Reports’ proposed interim
guidelines. AGA believes that the
Commission should allow pipelines to
require gas to be processed, and it believes
the CHDP should be set at the receipt points
on the pipeline system instead of at delivery
points as proposed by NGSA.
15. AGA proposed an alternative to the
NGSA rulemaking proposal, outlining its
own rulemaking procedure: pipelines would
amend their tariffs to adopt a CHDP level or
safe harbor CHDP developed through a
pipeline-by-pipeline consensus process
initiated by the Commission’s NOPR and
modeled on the collaborative process that led
to the development of the Report. AGA
would rely on the Interchangeability Report’s
interim guidelines implemented in a
Commission-mandated consensus process in
setting interchangeability standards.62 Since
filing its comments on the NGSA petition,
AGA has collaborated with INGAA to
develop an agreement on how industry
stakeholders could negotiate natural gas
quality and interchangeability specifications
on a pipeline-by-pipeline basis, where
needed, within the next year. This proposal,
styled as a ‘‘joint statement,’’ was filed on
June 2, 2006.63
16. Both AGA and APGA support requiring
pipelines to include a merchantability
provision in their tariffs to protect pipeline
customers from the effects of gas that is not
in compliance with tariff standards gas. This
will provide pipelines flexibility to accept
gas that is not in compliance with the tariff
but through blending or other means is
‘‘merchantable’’ when delivered to LDCs and
other end-use customers. KeySpan also
strongly endorses a requirement that pipeline
tariffs include a merchantability provision.
17. A significant number of LDCs filed
comments on the Reports, the May 17
technical conference and the NGSA proposal,
which most LDC commenters explicitly
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60 Questar
at 3–4.
Basin at 4.
62 AGA at 32–36.
63 Supra at n.57. On June 8, AGPA filed a
response to the AGA–INGAA joint statement
essentially agreeing with the process but opining
that the parties should be able to complete their
negotiations within six months.
61 Williston
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oppose. Their comments are largely
encompassed in the comments of AGA and
APGA, and most LDC commenters explicitly
endorsed the trade association comments.
Constellation, for example, endorsed the
comments of AGA and EEI. Standards based
on historical gas quality and mandatory
merchantability requirements in pipeline
tariffs are supported by most LDCs. Most
favor a rulemaking procedure, although
NiSource favors a policy statement for gas
quality and interchangeability standards.
18. National Fuel Gas Distribution
Corporation, which has a pipeline affiliate
that receives substantial quantities of
Appalachian production, expresses concern
about the proposal for exempting de minimis
production from gas quality standards.
National Fuel points out that the location
along the pipeline and availability of
blending are also important considerations
when determining whether de minimis
production volumes should be exempt from
gas quality standards. ‘‘Processing
requirements should be imposed on de
minimis producers as necessary, on a
pipeline-by-pipeline, market-by-market basis
to maintain the historical content of gas
introduced into commerce and minimize
liquid dropout.’’ 64
19. SCANA opposes the NGSA petition
and proposes another process for developing
gas quality and interchangeability standards.
Additional research would focus on
developing a nationwide baseline gas quality
specification, and the industry should have
a 10 to 15 year transition period to
accommodate a new nationwide baseline gas
standard. Additional focus should also be
given on providing guidance to equipment
manufacturers for complying with the new
nationwide baseline gas standard. SCANA
asserts that pipeline tariffs should be
required to contain merchantability
provisions, which would supersede any
CHDP level in the tariff. CHDP levels would
be set on a pipeline-by-pipeline basis.
20. The Wisconsin Distributors Group 65
states that the NGSA’s proposed 15 degree
CHDP safe harbor minimum might not work
in the service territories of their members.
The NGSA proposal is based on average
ambient ground temperatures, and in
Wisconsin, a 15 degree safe harbor might not
be low enough to prevent liquid drop out. In
its comments on the Reports, the Wisconsin
Distributors Group points out that much of
Wisconsin is served by Canadian gas, which
has a CHDP of minus 30 degrees. However,
recognizing the interconnectedness of the
interstate pipeline grid, more gas now is
coming into Wisconsin from sources other
than Canada. The onus should be on each
pipeline, and its tariff should prescribe the
CHDP and other gas quality criteria. Each
64 National
Fuel at 3.
Wisconsin Distributors Group (WDG) is an
ad hoc group of LDCs serving natural gas customers
in Wisconsin. For purposes of this proceeding, the
Wisconsin Distributors Group comprises the
following: Alliant Energy—Wisconsin Power &
Light Company, City Gas Company, Madison Gas &
Electric Company, Wisconsin Gas LLC and
Wisconsin Electric Power Company (collectively
doing business as We Energies) and Wisconsin
Public Service Corporation.
65 The
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pipeline should ensure uniformity across its
system, and each tariff should include a
merchantability provision.
21. The importance of interchangeability
issues in the context of LNG project
development was raised by several LDC
commenters. AGA asserts that the
Commission should require that LNG
terminal developers be responsible for
ensuring that their product meets standards
for interchangeability and that this
responsibility should be incorporated as part
of the NGA section 3 or section 7 certificate
processes for the review of individual
applications. APGA states that the
Commission should require pipelines that
utilize LNG in their supply mix to develop
tariff provisions for monitoring and
compensating for the costs incurred by
communities that are near the injection of
vaporized LNG into the pipeline system.
However, a couple of individual LDCs raised
issues on LNG and interchangeability that
were not mentioned by the trade groups. For
example, Constellation states that it should
not have to bear the cost of any modifications
to its LNG peak shaving facility that are
necessary to accommodate elevated ethane
content from LNG imported into Dominion’s
Cove Point LNG facility.66
22. KeySpan proposes that the Commission
require a new Gas Supply Resource Report be
included in each NGA section 3 and section
7 application, 67 a proposal endorsed by
SCANA and SCANA’s pipeline affiliates.
This resource report would identify all gas
composition changes associated with the
introduction of new gas supplies from the
proposed facilities and all adverse impacts
on end-users associated with the change in
gas quality. In addition, the report would
consider whether specific mitigation
measures would be required to address
potential adverse impacts from the new gas
stream on such facilities as LNG peak
shaving facilities and dry-low-emissions
(DLE) natural gas turbines.
F. Industrial Gas Users
23. Among industrial gas users, Process
Gas Consumers (PGC), Dow Chemical and the
Fertilizer Institute filed comments. PGC and
Dow Chemical approached the NGSA
petition from completely different
perspectives. PGC endorses virtually every
aspect of the proposal. It would condition its
support of the 15 degree CHDP on the
Commission not ‘‘grandfathering’’ existing
pipeline CHDP standards without additional
opportunity for comment, and it would
subject ‘‘grandfathered’’ pipelines to the
same complaint process NGSA proposes for
all other pipeline tariff standards. It also
advocates a 15 to 18 month ‘‘reopener’’ to
evaluate how the standards have worked.
PGC avers that its members ‘‘are prepared to
shoulder the burden’’ of system
modifications to accommodate a 1,400
Wobbe Index level ‘‘to increase gas
supplies.’’ 68
24. By contrast, Dow Chemical urges the
Commission to be cautious in moving
66 Constellation
67 KeySpan
68 PGC
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forward on the NGSA proposal. It points to
the severe economic consequences for
petrochemical plants when producers bypass
processing their gas in order to ‘‘preserve
their entrained liquefiables for sale to
downstream gas markets,’’ thereby depriving
petrochemical plants of critical feedstocks,
such as ethane and propane.69 The Fertilizer
Institute takes no position on the NGSA
proposal but states that the determination as
to where on the pipeline system gas quality
standards are imposed, whether at pipeline
delivery points, as advocated by NGSA or at
pipeline receipt points, as advocated by
INGAA, will have significant consequences
for members of the Fertilizer Institute. Many
members of the Fertilizer Institute are
directly connected to interstate pipelines
upstream of LDC city gates. If gas quality
standards are imposed on gas at the LDC city
gate, these customers would not be protected.
G. Electric Utilities, Generators and Power
Marketers
25. The Edison Electric Institute (EEI) and
the Electric Power Supply Association
(EPSA) filed extensive comments in support
of a NOPR process. However, both express
fundamental disagreement with NGSA’s
petition and proposals for CHDP and
interchangeability standards. Both disagree
with the 15 degree CHDP minimum and the
1,400 Wobbe Index level for reasons
expressed by other commenters. EPSA
observes that NGSA’s proposed complaint
process is tilted against those filing
complaints and states that the Commission
already has in place regulations for filing
complaints under section 5 of the NGA.
26. EEI supports the establishment of
natural gas quality and interchangeability
standards through a Commission rulemaking,
but it asserts that the NGSA CHDP and
Wobbe levels are ‘‘not workable.’’ 70
Although EEI agrees with NGSA that a NOPR
is the preferable procedural framework for
setting standards, it believes that natural gas
composition requirements must be based on
historical deliveries, and that gas
composition requirements must be set
regionally or on a pipeline-by-pipeline basis
and not nationally, as proposed by NGSA.
EEI’s comments also included a lengthy
study by Combustion Science & Engineering,
‘‘Effect of Fuel Composition on Gas Turbine
Operability and Emissions.’’ Among its
conclusions is that turbine operators have
reported numerous operational difficulties
attributed to changes in gas composition.
Because there is an inherent trade-off
between NOX and combustion dynamics for
the latest generation of gas turbines, when
changes in gas composition lead to increases
in NOX emissions, turbine operators will
have to make operational changes to remain
in compliance with air permits.
27. The Southeastern End Users Group, an
ad hoc group of LDCs and users of gas
turbines in Florida and Georgia,71 opposes
the NGSA petition and endorses AGA’s
proposed process for developing gas quality
69 Dow
at 3.
at 3.
71 The members of the Southeastern End Users
Group are listed in Appendix A.
and interchangeability standards. Of
particular concern is the impact of gas
quality and interchangeability parameters on
operators of DLE natural gas turbines. The
Southeastern End Users Group is concerned
about whether DLEs can accept wide
variations in gas quality and yet remain in
compliance with emissions requirements
without having to add expensive automatic
tuning and heating controls. The
Southeastern End Users Group also expresses
concern about ‘‘legacy’’ gas equipment and
asserts that any gas quality and
interchangeability standards ultimately
adopted must ensure that ‘‘legacy’’
equipment will not be adversely affected.
They request that any generic policy adopted
by the Commission not replace case-specific
decisions, such as the ongoing AES
proceeding (Docket No. RP04–249–000 et
al.) 72
28. Calpine and Florida Power & Light
oppose the NGSA petition. Progress Energy
opposes implementation of the interim
guidelines in the Reports and expresses
concern that the fuel constituent values in
the interim guidelines on interchangeability
could have an adverse effect on DLE turbines.
Progress Energy also believes that EPA
should be brought into the process of
developing gas quality and interchangeability
standards.
H. Gas Equipment Manufacturers
29. The Gas Appliance Association of
America (GAMA) and Siemens Westinghouse
represent consumer appliance manufacturers
and turbine manufacturers, respectively.
Neither supports the specific Wobbe levels
advocated by NGSA, supporting instead the
interim measure recommended in the report.
GAMA points out that the report cited a 1992
GRI study that showed an average Wobbe
Index of 1,345, and it urges the Commission
to adopt the Report’s interchangeability
guidelines and its ± 4% Wobbe Index range,
instead of NGSA’s. GAMA also points out
that the lack of a heating value standard in
the NGSA proposal as another critical flaw.
Other than to oppose NGSA’s petition,
GAMA takes no position on what procedural
vehicle the Commission should employ.
30. Siemens Westinghouse requests that
several of the interchangeability criteria set
forth in the Report interim guidelines be
modified: (1) Siemens Westinghouse would
set a limit of 2.5 percent for propanes and
one percent for butanes+ (compared with the
interim guideline of 1.5 percent for
butanes+); (2) it requests that an additional
limit be set on the rate of change in the
Wobbe Index of gas delivered to no more
than two percent per minute; (3) Siemens
Westinghouse suggests that tariff provisions
take into account changes in gas quality that
affect air quality; and, (4) it asks the
Commission to consider a mechanism to
provide for cost recovery related to
equipment failure caused by gas quality or
interchangeability issues. Finally, Siemens
Westinghouse states that the levels in
NGSA’s proposal may be ‘‘too narrow’’ for
certain end users, such as fuel cell
applications or natural gas vehicles.73
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31. GE states that the heavy-duty turbines
it manufactures have a gas fuel specification
that defines the allowable ranges for fuel
physical properties, constituents, and
contaminants, but this specification ‘‘was not
written with the intent of addressing
continuous fuel variability within the
allowable ranges.’’ 74 GE states that fuel
variations of more than 5 percent from the
Wobbe Index level established for the
particular gas turbine may result in the need
to re-tune the combustion system. Because
significant or frequent variability may require
constant monitoring with manual
intervention (i.e., re-tuning), GE is working
on turbine upgrade packages that allow
turbines to operate with automatic
combustion tuning for acoustic dynamics and
emissions. This effort has been spurred in
part by GE’s support for LNG and the desire
to develop retro-fit equipment that will allow
continuous operation by gas turbines over a
range of Wobbe Index levels ‘‘consistent with
GE expected ranges for [natural gas] and LNG
for the North American Market.’’ 75
I. Governmental Entities
32. The Utah Department of Public Utilities
(UDPU) and the South Coast Air Quality
Management District (SCAQMD) filed
comments on the Reports. UDPU’s focus is
on the quality of gas being transported by
Questar Pipeline, the measures and facilities
employed by Questar to render the high HDP
gas suitable for downstream customers
(including its affiliated LDC), and who
should pay these costs. It complains that
Questar’s tariff requirements are set so
broadly as to accommodate transporting as
much gas as possible. UDPU’s solution is for
pipeline tariffs to specify quality standards
for gas that is delivered onto the system and
to require the pipeline to ensure ‘‘a constant
quality’’ that meets the needs of the end
users. UDPU would require the pipeline to
control the quality of gas entering its system.
33. SCAQMD characterizes the Report on
interchangeability as ‘‘a good start’’ to
understanding the issues, and it agrees that
there are significant data gaps that must be
investigated. In this vein, SCAQMD
recommends expedited research in these
areas:
a. Emission studies of the impacts of high
Btu gas on combustion equipment,
particularly larger combustion and power
generation sources.
b. Effects of inert gas addition on large and
small equipment.
c. Regional air quality impact analysis of
LNG imports.
d. Cost analysis of different mitigation
measures.
SCAQMD states that the natural gas quality
standards that apply in its area are
inadequate. They allow a heating value of up
to 1,150 Btu/scf and indirectly a Wobbe
Index of approximately 1,433. In addition,
SCAQMD is concerned about the air quality
impacts of high Btu LNG.76
74 GE
70 EEI
72 Southeastern
End Users Group at 8.
73 Siemens Westinghouse at 3.
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at 2.
76 SCAQMD at 3–4.
75 Id.
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J. Pipeline/LNG Industry Service Providers
34. EMS Pipeline Services provides a broad
array of pipeline operations and maintenance
services, including field measurement,
pipeline integrity testing, asset management,
communications, and web-based data
management. EMS is the only provider of
pipeline services that filed comments, which
generally support the Reports’ approaches on
both gas quality and interchangeability. EMS
asserts that the Commission should
encourage the industry to develop better and
more comprehensive ways of measuring gas
quality and interchangeability.
[FR Doc. 06–5582 Filed 6–21–06; 8:45 am]
BILLING CODE 6717–01–P
ENVIRONMENTAL PROTECTION
AGENCY
[EPA–HQ–OA–2006–0513; FRL–8185–6]
Agency Information Collection
Activities: Request for Renewal of
Information Collection for EPA’s
National Environmental Performance
Track Program, EPA ICR Number
1949.05, OMB Control Number 2010–
0032
Environmental Protection
Agency (EPA).
ACTION: Notice.
wwhite on PROD1PC61 with NOTICES
AGENCY:
SUMMARY: In compliance with the
Paperwork Reduction Act (44 U.S.C.
3501 et seq.), this document announces
that EPA is planning to submit a request
to renew an existing approved
Information Collection Request (ICR) to
the Office of Management and Budget
(OMB). This ICR is scheduled to expire
on August 31, 2006. The request will be
to renew the existing approved
collection (EPA ICR Number 1949.03,
OMB Control Number 2010–0032,
National Environmental Performance
Track Program). Before submitting the
ICR to OMB for review and approval,
EPA is soliciting comments on specific
aspects of the proposed information
collections as described below.
DATES: Comments must be submitted on
or before August 21, 2006.
ADDRESSES: Submit your comments,
identified by Docket ID No. EPA–HQ–
OA–2006–0513 by one of the following
methods:
• https://www.regulations.gov: Follow
the on-line instructions for submitting
comments.
• E-mail: docket.oei@epa.gov.
• Fax: 202–566–0224.
• Mail: Office of Administrator
Docket, Environmental Protection
Agency, Mailcode: 2822T, 1200
Pennsylvania Ave., NW., Washington,
DC 20460.
• Hand Delivery: EPA Docket Center,
EPA West, Room B–102, 1301
VerDate Aug<31>2005
19:08 Jun 21, 2006
Jkt 208001
Constitution Ave, NW., Washington, DC
20460. Such deliveries are only
accepted during the Docket’s normal
hours of operation (8:30 a.m. to 4:30
p.m. M–F), special arrangements should
be made for deliveries of boxed
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PO 00000
Frm 00045
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E:\FR\FM\22JNN1.SGM
22JNN1
]]>Agencies
[Federal Register Volume 71, Number 120 (Thursday, June 22, 2006)]
[Notices]
[Pages 35893-35904]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-5582]
-----------------------------------------------------------------------
DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
[Docket No. PL04-3-000]
Before Commissioners: Joseph T. Kelliher, Chairman; Nora Mead
Brownell, and Suedeen G. Kelly; Natural Gas Interchangeability; Policy
Statement on Provisions Governing Natural Gas Quality and
Interchangeability in Interstate Natural Gas Pipeline Company Tariffs
Issued June 15, 2006.
I. Introduction
1. In this proceeding, the Commission has been exploring natural
gas quality and interchangeability issues and the impact of those
issues on the natural gas companies subject to the Commission's
jurisdiction, as well as on natural gas producers, shippers and end-
users. Based upon the information developed during this proceeding,
which will be discussed below, the Commission today announces its
policy on natural gas quality and interchangeability issues.
2. The Commission's intention in issuing this statement of generic
policy is to provide direction for addressing gas quality and
interchangeability concerns, as well as to provide guidance to
individual companies that have concerns about these issues. The
Commission's policy embodies five principles: (1) Only natural gas
quality and interchangeability specifications contained in a
Commission-approved gas tariff can be enforced; (2) pipeline tariff
provisions on gas quality and interchangeability need to be flexible to
allow pipelines to balance safety and reliability concerns with the
importance of maximizing supply, as well as recognizing the evolving
nature of the science underlying gas quality and interchangeability
specifications; (3) pipelines and their customers should develop gas
quality and interchangeability specifications based on technical
requirements; (4) in negotiating technically based solutions, pipelines
and their customers are strongly encouraged to use the Natural Gas
Council Plus (NGC+) interim guidelines filed with the Commission
[[Page 35894]]
on February 28, 2005 \1\ (discussed below) as a common reference point
for resolving gas quality and interchangeability issues; and, (5) to
the extent pipelines and their customers cannot resolve disputes over
gas quality and interchangeability, those disputes can be brought
before the Commission to be resolved on a case-by-case basis, on a
record of fact and technical review.
---------------------------------------------------------------------------
\1\ Report on Liquid Hydrocarbon Drop Out in Natural Gas
Infrastructure (HDP Report) and Report on Natural Gas
Interchangeability and Non-Combustion End Use (Interchangeability
Report).
---------------------------------------------------------------------------
II. Background
3. The Commission has seen interest in natural gas quality and
interchangeability issues escalate for several years, and these issues
have come before the Commission in complaints, proposed tariff
provisions and certificate proceedings. Historically, gas quality is
one of many terms and conditions of service stated in individual
pipelines' FERC-jurisdictional tariffs. The Commission has no generic
policy in this area, and individual pipelines have different standards,
practices, and enforcement mechanisms.
4. Principally methane, natural gas is commonly found in nature
mixed with other hydrocarbons and varying amounts of contaminants.\2\
The exact composition of natural gas is chiefly dependent upon the
geological source from which it is extracted. At typical interstate
pipeline operating pressures and temperatures, ``pipeline quality''
natural gas remains in a gaseous state and pipelines, distribution
facilities, and end-user equipment are all designed to handle and burn
this gas. The term ``pipeline quality'' natural gas is defined in each
individual pipeline's tariff, and these definitions vary widely from
pipeline to pipeline.
---------------------------------------------------------------------------
\2\ The hydrocarbon gases that can be found in natural gas are
(and the number of carbon atoms in each): Methane (C1),
ethane (C2), propane (C3), butanes
(C4), pentanes (C5), hexanes (C6),
heptanes (C7), octanes (C8) and nonanes plus
(C9+). Non-hydrocarbons in natural gas can include
nitrogen (N2), carbon dioxide (CO2), helium
(He), hydrogen sulfide (H2S), water vapor
(H2O), oxygen (O2), other sulfur compounds and
trace gases.
---------------------------------------------------------------------------
5. Depending on the relative prices of these hydrocarbon fractions,
producers may have an economic incentive to process gas and deliver
mostly pure methane as ``pipeline quality'' gas to interstate
pipelines. However, when economics favor sales of natural gas over
other hydrocarbons, producers may choose not to process.\3\ As it is
transported and distributed, unprocessed natural gas may experience
changes in temperature and pressure which cause the heavy hydrocarbons
to assume a liquid form. When this happens, pipelines and other
downstream equipment may experience inefficient operations and unsafe
conditions. This problem is known as hydrocarbon liquid dropout, and
the potential for this problem to occur can be measured in terms of
cricondentherm hydrocarbon dew point (CHDP). Gas quality, as discussed
in this policy statement, is concerned with the impact of non-methane
hydrocarbons on the safe and efficient operation of pipelines,
distribution facilities, and end-user equipment.\4\
---------------------------------------------------------------------------
\3\ When delivered, natural gas is measured in terms of its
thermal value, usually measured in British thermal units (Btus), and
billed on that basis. When deciding whether to process natural gas,
producers look to the relative thermal values of the different
hydrocarbons that might be extracted in processing to determine
which product will generate the most revenue.
\4\ Other materials commonly found in natural gas, include
contaminants, such as water, sand, sulfur compounds, oxygen, carbon
monoxide, carbon dioxide, nitrogen, helium and other materials.
While this policy statement does not address these materials, the
Commission understands that jurisdictional pipeline tariffs already
include specifications to control these elements within acceptable
limits.
---------------------------------------------------------------------------
6. Gas pipelines have taken different approaches to dealing with
hydrocarbon liquid dropout, as reflected in a number of pipelines'
tariffs. The HDP Report cites three examples.\5\ First, about one-third
of interstate pipeline tariffs specify a maximum heating value, but
this has proven to be an inadequate predictor of hydrocarbon liquid
drop out.\6\ Second, some pipelines have addressed the potential for
hydrocarbon liquid dropout by specifying concentration limits for heavy
hydrocarbons (using C5+ gallons per standard cubic feet \7\
or C5+ GPM) to establish the concentration limits above
which the heavy hydrocarbon level might be detrimental to pipeline
operational integrity. This measure may in some instances indicate the
potential for liquid hydrocarbon drop out, but it is not as reliable in
isolation as it is in conjunction with hydrocarbon dew point. Third, a
number of pipelines have elected to establish CHDP limits to control
liquid dropout.
---------------------------------------------------------------------------
\5\ HDP Report, at sections 3.1.2-3.1.3, at 16.
\6\ The Report notes that maximum heating value alone is not a
good predictor of whether hydrocarbon liquid drop out will occur
because different gases with the same gross heating value may have
different propensities for hydrocarbon liquid drop out. The paper
notes the examples of a gas with a relatively low heating value but
a high hexane concentration that may have a high probability of
hydrocarbon liquid drop out in contrast to a gas with a high heating
value due to a high ethane content with a very low probability of
hydrocarbon liquid drop out.
\7\ Gallons per Million cubic feet is abbreviated GPM. See,
e.g., HDP Report at sections 1.2.7 and 3.1.
---------------------------------------------------------------------------
7. Natural gas interchangeability is also a significant
consideration in the discussion of tariff specification of ``pipeline
quality'' gas. As used by the gas industry historically,
``interchangeability'' means the extent to which a substitute gas can
safely and efficiently replace gas normally used by an end-use customer
in a combustion application.\8\ Much of the available science and
research on interchangeability that exists today originated in the
1930s and 1940s when the interstate transportation of natural gas began
to supplant manufactured gas.\9\ Technological innovation since that
time has created more efficient, more environmentally benign equipment,
such as gas-fired turbines. Other technological innovations, such as
liquefied natural gas (LNG) storage facilities, have inherent design
limitations based on the quality of natural gas available at the time
the facilities were originally designed. How well they will operate if
future gas supply characteristics differ from those available today is
unknown.
---------------------------------------------------------------------------
\8\ See, e.g., Cove Point LNG Limited Partnership, 97 FERC ]
61,043, at 61,197 (2001), order on reh'g, 97 FERC ] 61,276 (2001).
\9\ Interchangeability Report, at section 3.1.1.
---------------------------------------------------------------------------
8. Several indices have been developed over time to characterize
the interchangeability of different natural gases. One widely accepted
measure of interchangeability is the Wobbe Index, which is based on
energy input and specific gravity. Other indices incorporate
fundamental combustion phenomena in their calculations. Examples
include the AGA Bulletin 36 Indices and the Weaver Indices. These
indices were created using different measurable characteristics of
natural gas and combustion experiments to measure and predict
interchangeability. However, each index has limits to the predictive
value of its application. The importance of measuring
interchangeability, regardless of the index used, is that it provides a
predictive correlation between the specific measurable physical
characteristics of natural gas and burner tip performance.
9. During the 2000/01 winter heating season, rising natural gas
prices led producers to stop processing natural gas. As a result,
pipelines began to receive a richer quality gas containing a higher
proportion of liquid and liquefiable hydrocarbons, and a higher energy
density, as measured in Btus per cubic foot of natural gas. A number of
pipelines reacted by invoking tariff
[[Page 35895]]
provisions that authorize pipelines to issue operational flow orders
(OFOs), which required the gas to be processed before being delivered
to the pipelines. Producers objected, arguing that pipelines were
attempting to impose more stringent quality standards on some
producers, but not on others.
10. Interchangeability issues have also been raised in proceedings
to authorize the siting and operation of LNG import terminals. In
September, 2001, the Commission issued an order reauthorizing the
receipt of LNG imports at Dominion's Cove Point LNG facility.\10\ Among
the issues raised was the interchangeability of this LNG with the
historic quality of gas delivered to Washington Gas Light (WGL).
Ultimately, the Commission approved a settlement between Dominion, WGL
and others that specified a maximum Btu heating content.\11\
---------------------------------------------------------------------------
\10\ Cove Point LNG Limited Partnership, supra n. 8.
\11\ Cove Point LNG Limited Partnership, 102 FERC ] 61,227
(2003). In the context of Dominion's proposal to expand the capacity
at Cove Point, WGL now claims that the low heavy hydrocarbon content
of LNG delivered by Cove Point led to drying and cracking seals in
distribution facilities, which eventually led to gas leaks. See
Dominion Cove Point LNG, L.P., Docket No. CP05-130-000.
---------------------------------------------------------------------------
III. Procedural History
11. In September 2003, the National Petroleum Council (NPC)
completed a report on the natural gas industry, which contained a
number of findings and policy recommendations and highlighted the
increased importance of LNG in meeting expected demand growth over the
ensuing decade.\12\ The Commission explored the findings and
recommendations of the NPC report in an October 14, 2003 technical
conference. The Summary Report recommended that the natural gas
interchangeability standards be updated: ``FERC and DOE should champion
the new standards effort to allow a broader range of LNG imports. This
should be conducted with participation from LDCs [local distribution
companies], LNG purchasers, process gas users, and original equipment
manufacturers (OEMs).'' \13\
---------------------------------------------------------------------------
\12\ The National Petroleum Council (NPC) is an oil and natural
gas advisory committee to the Secretary of Energy.
\13\ National Petroleum Council, Balancing Natural Gas Policy:
Fueling the Demands of a Growing Economy, Volume I, Summary of
Findings and Recommendations, September 2003, at 64.
---------------------------------------------------------------------------
12. By the time the NPC report was issued, the Commission already
had pending before it a number of proceedings that raised natural gas
quality or interchangeability issues. Since that time, other
proceedings involving natural gas quality or interchangeability have
been initiated. Procedurally, the gas quality and interchangeability
issues have arisen in the context of complaint proceedings,\14\
certificate proceedings,\15\ and proposed tariff changes.\16\ Although
each case involves unique circumstances, collectively, these cases
reveal a growing tension between the desire of natural gas pipelines
and distributors to ensure the quality of gas entering their
facilities, and the desire of producers and shippers to have their
product transported without onerous or unduly discriminatory processing
requirements. Another recurring theme is the desire of end-use
customers to receive gas that will not harm their gas-fueled equipment
nor cause inefficient operations.
---------------------------------------------------------------------------
\14\ See, e.g., The Toca Producers v. Southern Natural Gas Co.,
Docket No. RP03-484-001; Amoco Production Company, Docket No. RP01-
208-000; Southern Natural Gas Co., Docket No. RP04-42-000
(collectively, the Toca Proceedings); Indicated Shippers v.
Trunkline Gas Company, LLC, Docket No. RP04-64-000; Indicated
Shippers v. ANR Pipeline Company, Docket No. RP04-65-000; ANR
Pipeline Company, Docket No. RP04-216-000 and RP04-435-000 (the ANR
Proceedings); Indicated Shippers v. Columbia Gulf Transmission
Company, Docket No. RP04-98-000, Indicated Shippers v. Tennessee Gas
Pipeline Company, Docket No. RP04-99-000; and, AES Ocean Express LLC
v. Florida Gas Transmission Company, Docket No. RP04-249-000/-001.
\15\ See, e.g., Dominion Cove Point LNG, L.P., Docket No. CP05-
130-000; Pearl Crossing Pipeline LP, Docket No. CP04-376-000.
\16\ See, e.g., Natural Gas Pipeline Company of America, Docket
Nos. RP01-503-002, -003, 102 FERC ]61,234 (2003) and 103 FERC ]
61,322 (2003). A December 20, 2005 Initial Decision in this
proceeding is pending before the Commission.
---------------------------------------------------------------------------
13. The Commission held a public conference to discuss gas quality
and interchangeability issues on February 18, 2004. Many industry
participants, representing industry sectors from wellhead to burner
tip, provided the Commission with information on the range of complex
operational concerns and issues that the market was facing.
14. Subsequent to the February 2004 technical conference the
natural gas industry, under the auspices of the Natural Gas Council,
initiated a collaborative effort to seek consensus on industry-wide
standards for gas quality and interchangeability. This collaborative
effort made tremendous progress in identifying the underlying science,
identifying measurement techniques, and characterizing the different
perspectives on the problems different sectors face with changing or
uncertain natural gas quality and interchangeability.
15. On February 28, 2005, the Natural Gas Council filed with the
Commission two technical papers entitled: Natural Gas
Interchangeability and Non-Combustion End Use and Liquid Hydrocarbon
Drop Out in Natural Gas Infrastructure (collectively, NGC+ Reports).
These papers represent the culmination of nearly a year of work by a
large group of natural gas industry stakeholders--the NGC+ Group \17\--
which worked to reach a consensus understanding of these problems and
recommendations about how they might be managed. Both Reports suggest
interim recommendations and urge additional research.
---------------------------------------------------------------------------
\17\ The Natural Gas Council is an organization made up of the
representatives of the trade associations of the different sectors
of the natural gas industry, such as the producers, pipelines, and
local distribution companies. The NGC+ group included many industry
volunteers from the member companies of the various trade
associations as well as other industry participants interested in
these issues.
---------------------------------------------------------------------------
16. The Interchangeability Report defines interchangeability as:
The ability to substitute one gaseous fuel for another in a
combustion application without materially changing operational
safety, efficiency, performance or materially increasing air
pollutant emissions.\18\
---------------------------------------------------------------------------
\18\ Interchangeability Report, (February 28, 2005; refiled on
March 3, 2005, and resubmitted with appendices June 30, 2005), at 2.
https://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=10644164.
The paper goes on to provide background information on the history
of the industry's experience with gas quality issues, and the changes
it has experienced, and then reviews various measures that have been
employed to measure interchangeability. After a review of the impacts
of variable fuel quality on gas-fired appliances, the paper provides an
overview of past industry efforts to measure, predict and monitor the
interchangeability of natural gases, and examines several options for
managing interchangeability.
17. Recognizing that more research is needed, the NGC+
Interchangeability Work Group makes interim recommendations, to be
implemented pending further study and deliberation. These interim
guidelines provide for: (1) Use of the local average historical Wobbe
Index average with an allowable range of variation of plus or minus
four percent; (2) subject to a maximum Wobbe Index level of 1,400; (3)
a maximum heating value limit of 1,110 Btu/scf; (4) a limit on butanes
and heavier hydrocarbons (butanes+ or C4+) of 1.5 mole percent; and (5)
an upper limit on the amount of total inert gases (principally nitrogen
and carbon dioxide) of up to four mole percent. The Interchangeability
Report also recommends an exception from these interim guidelines for
service territories
[[Page 35896]]
that could demonstrate experience with supplies exceeding these Wobbe
Index levels, Heating Value and/or Composition Limits. Companies in
these service territories could continue to use non-conforming supplies
as long as use of these supplies does not unduly jeopardize the safety
of or create utilization problems for end use equipment.\19\
---------------------------------------------------------------------------
\19\ Interchangeability Report at 26.
---------------------------------------------------------------------------
18. NGC+ Group recommends that these guidelines be employed until
research can be completed filling in major data gaps for modern end-use
appliances and the industry forges a consensus on improved
interchangeability requirements. The NGC+ Reports originally forecast
that it would take 2 to 3 years to complete this additional work. The
interim guidelines are for gases delivered to points in the gas
transportation system most closely associated with end users: Gases
delivered to local distribution companies (LDCs). The guidelines do not
necessarily apply directly to points upstream in the transportation
system where blending, gas processing, and other factors may be
utilized to allow gases outside the ranges of the guidelines to satisfy
the guidelines at LDC city gates. The NGC+ Group is continuing to
investigate development of guidelines for points upstream.
19. The second paper, Liquid Hydrocarbon Drop Out in Natural Gas
Infrastructure, addresses the issue of controlling hydrocarbon drop out
in natural gas pipeline and distribution facilities, and other gas
industry infrastructure downstream of producing areas. The NGC+ interim
recommendation on this issue is to adopt interim standards that
translate historic experience into terms of CHDP or C6+ GPM
methodologies,\20\ taking best available historical data into account.
The NGC+ also recommends that additional research be conducted to
better understand gas composition, and to develop improved analytic
equipment suitable for daily operational use.
---------------------------------------------------------------------------
\20\ The phrase ``C6+ GPM'' stands for hexanes and heavier
hydrocarbons, as measured in gallons per million cubic feet of
natural gas. Measuring and controlling for the amount of these
heavier hydrocarbons in the natural gas stream is an alternative to
the CHDP method.
---------------------------------------------------------------------------
20. In addition to Commission action on gas quality and
interchangeability, The North American Energy Standards Board (NAESB)
has considered requests that it adopt Business Practice Standards to
address natural gas quality and interchangeability. On September 20,
2004, the Wholesale Gas Quadrant Executive Committee of NAESB adopted
standards for electronic posting of certain gas quality parameters on
pipeline websites. One month later, these standards were ratified by
the NAESB membership. On May 9, 2005, the Commission issued an order
amending its regulations governing standards for conducting business
practices with interstate natural gas pipelines to incorporate by
reference the NAESB standards related to gas quality, which are part of
Version 1.7 of the NAESB consensus standards.\21\
---------------------------------------------------------------------------
\21\ Order No. 587-S, Standards for Business Practices of
Interstate Natural Gas Pipelines, 18 CFR part 284 (2005); FERC
Statutes and Regulations ] 31,179.
---------------------------------------------------------------------------
21. On May 16, 2005, the Natural Gas Supply Association (NGSA)
filed a petition for rulemaking seeking a Commission notice of proposed
rulemaking (NOPR) to establish natural gas quality and
interchangeability standards. By order issued contemporaneously with
this Policy Statement in Docket No. RM06-17-000, the Commission is
denying this petition. Instead of proceeding to address gas quality and
interchangeability issues through a rulemaking proceeding, the
Commission instead establishes herein the regulatory policy it will
apply in individual proceedings before the Commission.
IV. Summary of Comments
22. The Commission solicited written comments on the NGC+ Reports
and subsequently convened a technical conference on May 17, 2005 to
allow for further public comment on and discussion of the issues raised
by the Reports. In addition, the Commission solicited comments on the
Natural Gas Supply Association's (NGSA) May 16, 2005 petition for
rulemaking. Appendix A to this Policy Statement lists commenters on the
Reports and comments received after the May 17 technical conference
addressing issues in the Reports and the NGSA Petition.
23. Appendix B to this Policy Statement is a summary of the
comments received on the NGC+ Reports and the NGSA Petition. Briefly,
commenters articulate conflicting views on whether mandatory nationwide
standards are warranted, and if so, which standards should be adopted.
While there is a great deal of consensus on how to articulate the
problem in technical terms, opinion is divided among a number of
preferred solutions. The Interstate Natural Gas Association of America
(INGAA), for example, believes that there is no national problem with
gas quality and interchangeability that warrants a rulemaking. While
urging the Commission to address gas quality and interchangeability
issues as they arise, INGAA favors a policy statement if the Commission
decides to address the issues generically. There was no unanimity
within the producer segment. The Independent Petroleum Association of
America (IPAA) supports a rulemaking and the NGSA proposal, while the
Appalachian Producers and the Independent Petroleum Association of
Mountain States oppose mandatory national standards for gas quality.
The American Gas Association (AGA), the American Public Power
Association of America (APGA), and a number of LDCs ask that the
Commission require pipeline tariffs to contain merchantability
standards. The Process Gas Consumers endorse a rulemaking and the NGSA
petition. The Edison Electric Institute and Siemens Westinghouse raise
concerns about the impact of interchangeability standards on DLE
turbines. Gas appliance manufacturers point out the importance of
basing gas quality standards on local historical gas characteristics.
V. Discussion
A. The Problem in a Nutshell
24. Most, if not all, interstate natural gas companies have
provisions in their tariffs governing gas quality. But as the NGC+
Reports note, ``at no time has there ever been a common set of
specifications for [hydrocarbon] components such as there has been for
CO2, H2S, and water.'' \22\ Each pipeline
established its own terminology, standards, controls, and conditions
for waiver. Until relatively recently, this approach appears to have
worked reasonably well. However, gas quality and interchangeability
controversies have become more frequent.\23\ The Commission's policy
guidance recognizes the importance of encouraging rather than impeding
the development of natural gas infrastructure and the movement of gas
to the grid and to ultimate consumers. Thus, the Commission believes
that the policy adopted here achieves a balanced approach by providing
certainty, ensuring the safety and reliability of the nation's gas
grid, and recognizing concerns about natural gas quality and
interchangeability, while providing pipelines and their customers the
flexibility necessary to maximize the introduction of new supply into
the grid.
---------------------------------------------------------------------------
\22\ HDP Report at section 3.1.1.
\23\ Supra note 13.
---------------------------------------------------------------------------
[[Page 35897]]
25. The Commission believes that there are compelling reasons to
provide policy guidance on these issues. Three factors suggest that
there is a need to act now. First, processing economics can create
hydrocarbon dew point problems whenever the economics shift to favor
decisions not to process natural gas. Second, establishing a sound
policy on gas quality and interchangeability issues now would lower a
potential barrier to expected increases in LNG imports.\24\ Third,
acting now will provide a firm regulatory policy basis for additional
research and development on gas quality and interchangeability issues.
---------------------------------------------------------------------------
\24\ The Energy Information Administration projects that by the
year 2030, 4.4 trillion cubic feet equivalent (Tcf) of LNG will be
imported to meet approximately 27 Tcf in annual demand for natural
gas--an eight-fold increase over the roughly 0.5 Tcf of LNG imported
in 2003. Energy Information Administration, Annual Energy Outlook
2006, at 86 (February 2006). https://www.eia.doe.gov/oiaf/aeo/pdf/
0383(2006).pdf.
---------------------------------------------------------------------------
26. The natural gas industry, through the efforts of the NGC, has
produced the NGC+ Reports that represent consensus on these topics.
They offer interim approaches that can be put in place now, to the
extent well-functioning gas quality and interchangeability provisions
are not already in place in individual pipelines' tariffs. These
interim recommendations provide a common language for discussion of
these issues, and a reasonable framework to establish market-specific
standards.
27. However, these same consensus Reports highlight the need for
additional research and development before any more permanent consensus
may be forged.\25\ The Commission believes that a generic policy on gas
quality and interchangeability would help guide the industry in the
right direction. But given the areas of additional research that is
required, it would be premature to take more prescriptive actions such
as prescribing gas quality and interchangeability standards or
prescribing specific levels of the constituent elements of, or the
heating values for, the natural gas transported in pipelines.
---------------------------------------------------------------------------
\25\ We are encouraged by the efforts of the Department of
Energy in pursuing research and development in this area. Along with
the efforts of the industry, and continued voluntary collaboration,
we look forward to the improvements that will become possible with a
better understanding provided by these research efforts.
---------------------------------------------------------------------------
28. In the face of these challenges, the accomplishment of the NGC+
group in achieving consensus to submit two technical papers addressing
hydrocarbon dew point and interchangeability is worthy of praise. The
Commission commends those members of the natural gas industry who
participated in these efforts. The Commission's policy statement is
based in large part on the foundation of this group's work, and the
comments filed in this generic proceeding.
B. Statement of General Policy Regarding Interstate Pipeline Tariff
Provisions Governing Gas Quality and Interchangeability
29. The Commission's policy on gas quality and interchangeability
embodies five principles. First, only natural gas quality and
interchangeability specifications contained in a Commission-approved
gas tariff can be enforced. The Commission's authority to address
questions about tariff provisions on gas quality and interchangeability
arises under sections 4, 5 and 7 of the NGA. By law, the Commission is
responsible for ensuring that rates, charges, rules and regulations of
service are just, reasonable and not unduly discriminatory or
preferential, and that initial rates, terms and conditions of service
are required by the public convenience and necessity.\26\ Unless these
specifications are stated in the tariff, the Commission will not be
able to address gas quality and interchangeability concerns. Where gas
quality and interchangeability issues are of concern to the
transporting pipeline, tariff standards are essential terms and
conditions of service.
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\26\ 15 U.S.C. 717c, 717d and 717f (2000).
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30. Second, pipeline tariff provisions on gas quality and
interchangeability need to be flexible. Pipelines operate in dynamic
environments that frequently require quick responses to rapidly
changing situations. For example, a pipeline may be asked to transport
gas that does not meet a particular gas quality or interchangeability
specification in the pipeline's tariff. Nevertheless, if the pipeline
has the ability to transport such out-of-spec gas without jeopardizing
system operations, its tariff should be flexible enough to allow it to
do so. The Commission believes that flexible tariff provisions on
natural gas quality and interchangeability will allow pipelines to
balance safety and reliability concerns with the importance of
maximizing supply, while recognizing the evolving nature of the science
underlying gas quality and interchangeability specifications.
31. Third, pipelines and their customers should develop gas quality
and interchangeability specifications. The Commission expects that
specifications for natural gas quality and interchangeability will be
based upon sound technical, engineering and scientific considerations.
In addition, the Commission encourages pipelines and their customers to
resolve gas quality and interchangeability issues on their own, either
prior to or outside of formal Commission proceedings. This will
facilitate mutually beneficial outcomes for all parties and should not
have a detrimental impact on either current or prospective
shippers.\27\
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\27\ In this regard, the Commission notes the ``Joint Statement
of the American Gas Association and the Interstate Natural Gas
Association of America,'' filed on June 2, 2006, which outlines
their agreement on developing gas quality and interchangeability
specifications on a pipeline-by-pipeline basis, where needed, within
the next year. On June 8, APGA filed a response to the AGA-INGAA
joint statement.
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32. Fourth, in negotiating technically based solutions, pipelines
and their customers are strongly encouraged to use the NGC+ interim
guidelines as a common scientific reference point for resolving gas
quality and interchangeability issues. The interim guidelines suggest a
process for applying scientific principles to individual markets but do
not address the specifics of individual pipeline circumstances or
tariff provisions. Furthermore, the interim guidelines recognize that
additional research and development are needed to arrive at more
clearly defined limits to interchangeability specifications and to
address the need for better and more timely operational information on
natural gas quality and pipeline operations. The Commission's policy
will keep step with improved knowledge on gas quality and
interchangeability.
33. Finally, to the extent pipelines and their customers cannot
resolve disputes over gas quality and interchangeability, those
disputes can be brought before the Commission to be resolved on a case-
by-case basis, on a record of fact and technical review. In resolving
any such disputes, the Commission will give significant weight to the
NGC+ interim guidelines. In addressing disputes, the Commission will
develop a factual record, with sound technical underpinnings, which
will provide the Commission with a good foundation for resolving
disputes. The Commission recognizes that regional variation and
differing local needs cannot be accommodated with an inflexible generic
policy on gas quality and interchangeability. Rigid gas quality and
interchangeability requirements could unnecessarily restrict the
introduction of new sources of supply, which is inconsistent with the
Commission's policy of encouraging new supplies and the construction of
[[Page 35898]]
infrastructure to bring new supplies to market.\28\ The following
discussion will elaborate on how we envision this general policy being
applied in individual cases.
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\28\ See e.g., Northern Natural Gas Company, 108 FERC ] 61,083,
at P. 24 (2004) (``* * * the Commission must ensure that proposals
that are intended to address system integrity do not unnecessarily
discourage new sources of supply or impose unreasonable costs on
shippers and consumers.''), and Hackberry LNG Terminal, 101 FERC ]
61,294 (2002).
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1. Gas Quality
34. The Reports' interim recommendations identify two valid methods
that might be used to control hydrocarbon liquid dropout--the CHDP
method, and the C6+ GPM method.\29\ As a matter of policy, the
Commission believes that jurisdictional tariffs should contain
provisions that govern the quality of gas received for transportation
when necessary to manage hydrocarbon liquid dropout within acceptable
levels. Pipelines with existing tariff provisions that adequately
control hydrocarbon dropout may continue to rely on their existing
tariff.\30\ Pipelines that wish to add provisions to their tariffs, or
modify existing provisions, to control hydrocarbon dropout are strongly
encouraged to use one of the two methods found by the NGC+ to be valid.
If a pipeline wishes to propose a different method, the pipeline must
provide an explanation of how the proposed method differs from the CHDP
method described in the HDP Report. In addition, the pipeline will be
required to include in any filing to revise its gas quality standards a
comparison, in equivalent terms, of its proposed gas quality
specifications and those of each interconnecting pipeline.
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\29\ For a technical description of either of these methods, see
HDP Report, especially sections 4 through 6.
\30\ To the extent a complaint is filed alleging that an
existing pipeline tariff is not just and reasonable, the Commission
will evaluate the complaint on its specific merits.
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35. In application, either of the two methods suggested by the NGC+
task group offers a process for arriving at appropriate gas quality
specifications for natural gas accepted for transportation by a
pipeline. However, the specifications themselves must be derived to fit
the specific circumstances of each pipeline.\31\ The appropriate gas
quality specifications for different pipelines may vary depending upon
a number of factors, including pipeline configuration, geographic
location of the pipeline, access to and location of processing
facilities, flowing gas temperatures and pressures, average ambient and
ground temperatures and source of gas supply.\32\ This is a fact-
intensive exercise, and is not one that lends itself to generic
specifications. The Commission will examine the appropriate
circumstances in each individual case. That being said, the Commission
will give appropriate weight to the gas quality and interchangeability
requirements of interconnecting pipelines as well as the requirements
of markets directly served. The Commission wishes to ensure that
natural gas wholesale trade across markets is not unduly impeded by the
tariff requirements of individual pipelines. In addition, the tariff
should state the natural gas quality specifications for gas that the
pipeline will deliver to its customers.
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\31\ See HDP Report, Appendix A Parameters to be Considered in
Establishing CHDP or C6+ GPM Based Limits, and Appendix B Process
for Establishing a Cricondentherm Hydrocarbon Dew Point (CHDP)
Limit.
\32\ See, e.g., El Paso at 6 (``A policy statement would allow
the Commission to tailor its approach to reflect the complexities
that each pipeline faces in addressing HDP issues, including, for
example, reticulated pipeline systems that have bidirectional flows
and as such may not be able to easily engage in pairing, blending,
or aggregation.''), and Questar at 3-4.
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2. Interchangeability
36. In its report, the NGC+ Interchangeability Work Group recommend
interim guidelines based on a range of plus and minus four percent of
the Wobbe number based on either local historical average gas or an
established ``adjustment or target'' gas for the service territory at
issue. This basic guideline was subject to additional parameters
limiting: The maximum Wobbe number to 1,400; the maximum heating value
to 1,110 Btu/scf; maximum butanes+ to 1.5 mole percent; and maximum
total inert gases to four mole percent. These interim guidelines also
included a specific exception for service territories with demonstrated
experience with gas supplies exceeding any of the ``additional
parameters.''
37. The Interchangeability Report contains a methodology for
arriving at an appropriate interchangeability specification, based in
part on historical experience. Pipelines with existing tariff
provisions which adequately characterize interchangeability limits may
continue to rely on their existing tariff.\33\ Pipelines that wish to
add provisions to their tariffs, or modify existing provisions, to
characterize interchangeability specifications are encouraged to use
the interim guidelines proposed by the NGC+ Interchangeability Task
Group. To the extent a pipeline wishes to propose a different method,
it must explain how the proposed method differs from the interim
guidelines. In addition, the pipeline will be required to include in
any filing to revise its interchangeability standards a comparison, in
equivalent terms, of its proposed interchangeability specifications and
those of each interconnecting pipeline.
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\33\ To the extent a complaint is filed alleging that an
existing pipeline tariff is not just and reasonable, the Commission
will evaluate the complaint on its specific merits.
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38. As is the case with gas quality specifications, selection of
interchangeability limits is a fact-based exercise. In application,
either of the two methods suggested by the NGC+ task group offers a
process for arriving at appropriate limits for the interchangeability
characteristics of natural gas that may be accepted for transportation
by a pipeline. However, the limits themselves must be derived to fit
within the specific circumstances of each pipeline.\34\ The appropriate
interchangeability specifications for different pipelines may vary
depending on a number of factors, including: The historic
characteristics of natural gas delivered by the pipeline to the markets
it serves; local market practices for the use of target or adjustment
gases used to install and adjust equipment in that market; historic
variability in the characteristics of gas delivered to the market;
whether there are customer loads with special gas quality requirements,
such as a large process gas user; the type and gas quality tolerances
of the end-use equipment (including ``legacy'' equipment); and, the
tariff requirements of downstream pipelines.\35\ This fact-intensive
exercise does not lend itself to generic specifications. The Commission
will examine the appropriate circumstances in each individual case.
That being said, the Commission will give appropriate weight to the gas
quality and interchangeability requirements of interconnected pipelines
as well as the requirements of markets directly served. The Commission
wishes to ensure that natural gas wholesale trade across markets is not
unduly impeded by the tariff requirements of individual pipelines. In
addition, the tariff should state the natural gas quality
specifications for gas that the pipeline will deliver to its customers.
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\34\ See Interchangeability Report at 24-26.
\35\ See, e.g., The Florida Utilities April 1, 2005 comments.
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3. Blending
39. Given the complexity of operating an interstate pipeline, there
is substantial discretion given a pipeline to decide when and how much
to allow
[[Page 35899]]
exceptions to gas quality and interchangeability specifications to
accommodate production that may not have convenient access to gas
processing. In addition, some pipelines will waive gas quality
limitations when operating circumstances allow, enforcing strict
compliance with the tariff only when necessary. For example, a pipeline
may be able to accept rich gas containing more of the heavier
hydrocarbons than its tariff would otherwise permit by blending that
gas with leaner gas that contains very little of the heavier
hydrocarbons. However, there may be more such lean gas available for
blending on some parts of the pipeline's system than on other parts.
Furthermore, a pipeline's ability to blend supplies of varying quality
will depend on the supplies' proximity to market.
40. Pragmatically, this discretion allows the pipeline to maximize
the gas supply available to its customers while maintaining its ability
to manage gas quality and interchangeability within acceptable limits.
The Commission has found in at least one case that such actions are
``not necessarily undue discrimination under the NGA [Natural Gas
Act].'' \36\ Operational constraints in particular parts of a
pipeline's system may justify treating shippers on those parts of the
system differently than shippers on other parts of the system.\37\
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\36\ Natural Gas Pipeline Company of America, 102 FERC ] 61,234
at P. 27, and see discussion at PP. 25-33 (2003).
\37\ Consolidated Edison Company of New York v. FERC, 165 F.3d
992, 1013 (D.C. Cir. 1999).
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41. The Commission continues to believe that it is appropriate to
allow pipelines to exercise their discretion to waive strict gas
quality limits when operating conditions allow, and to enforce such
limits when operating conditions require stricter measures, as long as
it is done in a not unduly discriminatory manner.\38\ The Commission
wishes to encourage pipelines to allow blending, pairing,\39\ and other
strategies, to the extent these can be implemented on a non-
discriminatory basis and in a manner that is consistent with safe and
reliable operations. This is consistent with the Commission's policy of
minimizing any unnecessary restrictions on the supplies available to
the national gas market. Pipelines may consider ``safe harbor''
provisions and informational posting requirements as means of
minimizing the potential for undue discrimination.\40\
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\38\ The Commission's regulations require that pipelines
strictly enforce the provisions of their tariffs if those provisions
do not permit the use of discretion. In instances where the tariff
provides the pipeline with discretion, it must keep a written log
detailing the circumstances and manner in which it has exercised
discretion under its tariff, and this information must be posted on
the pipeline's website within 24 hours of when the pipeline
exercised its discretion. See 18 CFR 385.5(c)(1) and 385.5(c)(4).
\39\ The HDP Report does not use the term ``pairing,'' but
instead refers to the practice of ``contractual blending.'' It is a
paper transaction allowing a producer of gas that does not meet a
pipeline's gas quality requirements to contract to blend this gas
with the gas of another producer whose gas is in compliance with the
pipeline's gas quality specifications. These two producers' volumes
may enter the gas stream at different points and thus may not blend
directly in the pipeline. Section 3.2.5 describes contractual
blending. See also comments of El Paso Corporation's Pipeline Group
at 2 and 10; NGSA Petition at 4 n.2; and, Selected Processors at 2.
\40\ See National Gas Pipeline Company of America, 102 FERC ]
61,234 at PP. 43, 48 (2003).
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4. Merchantability
42. AGA urges the Commission to require pipelines to include a
merchantability provision in their tariffs.\41\ AGA defines the term
``merchantable'' as gas that is:
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\41\ See, e.g., AGA comments at 25-29.
consistently commercially free from objectionable matter including
odors, bacteria, dust, gums, water, hydrocarbon liquids, other
liquid or gaseous constituents that may preclude supply from being
interchangeable with historically acceptable supplies delivered into
a market area and will not cause injury or interference with
operation of existing end use equipment, pipelines and the gas
transmission and distribution infrastructure.\42\
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\42\ Id. at 27-8.
43. The Commission will not require such provisions. We do not
believe that mandating additional merchantability requirements would
provide any additional value at this time.\43\ In addition, we are
concerned that adoption of a general merchantability requirement could
come into conflict with the specifications of gas quality and
interchangeability that would be quantified under the interim processes
recommended in the NGC+ Reports. Pipeline tariff provisions that
contain detailed technical specifications for gas quality and
interchangeability may be sufficient without the addition of a general
merchantability provision; technical specifications and general
descriptions, to the extent they are present, must work together if
they are to function as intended. Neither of the NGC+ Reports included
in their consensus recommendations the adoption of a merchantability
clause. Some pipelines have merchantability provisions in their current
tariffs and some do not. As a policy matter, the Commission will
neither mandate nor prohibit such provisions.
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\43\ The Commission notes that AGA also suggested an alternative
approach in its comments, stating that ``delivered gas will be
`merchantable' gas and will meet certain specifications, such as
those set out for interchangeability, CHDP and other constituent
limits.'' AGA comments at 28. The Commission sees no value to adding
the label ``merchantable'' to gas that otherwise meets the gas
quality and interchangeability specifications set forth in the
tariff.
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C. Applicability to Section 311 Transporters
44. The Commission intends to apply this policy to statements of
operating conditions filed by entities which provide interstate
transportation services pursuant to section 311 of the Natural Gas
Policy Act of 1978 (NGPA). As a general principle, the Commission
expects that each section 311 transporter will include specific
provisions in its statement of operating conditions governing gas
quality and interchangeability.\44\
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\44\ Section 284.224, subpart G, of the Commission's regulations
authorizes LDCs and Hinshaw pipelines to perform the same types of
transactions that intrastate pipelines are authorized to perform
under section 311 of the NGPA and subpart C and D of Part 284 of the
Commission's regulations. The Commission intends that the
requirements imposed by this policy statement on section 311
intrastate pipelines would also apply to Hinshaw pipelines.
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D. New Companies Authorized Under Section 7 of the Natural Gas Act
45. The Commission intends to apply this policy in its review of
pro forma tariffs filed as part of section 7(c) certificate
applications. Applicants should ensure that their Exhibit P pro forma
tariff includes general terms and conditions addressing gas quality and
interchangeability. Recognizing that new entrants do not have historic
markets upon which to base their analysis of gas quality and
interchangeability specifications, the Commission expects section 7
applicants to include relevant information about the gas quality and
interchangeability specifications of interconnecting pipelines, and of
the competing pipelines serving customers to be served directly by the
new entrant, as well as the relevant information about the gas supplies
to be received by the new entrant for transportation or storage.
Applicants must show how they derived their gas quality and
interchangeability specifications stated in their pro forma tariffs.
E. New Companies Authorized Under Section 3 of the Natural Gas Act
46. The Commission intends to apply this policy in its review of
proposals to construct and operate new facilities for the importation
of natural gas. Applicants should include information
[[Page 35900]]
in their application which demonstrates the compatibility of their
imports with the gas quality and interchangeability requirements of all
interconnecting pipelines. To the extent service is provided pursuant
to Parts 157 or 284 of the Commission's regulations, the applicant
should make specific reference to tariff or contract provisions
governing gas quality and interchangeability and demonstrate their
compliance with this policy statement.
47. Some commenters ask the Commission to impose specific
obligations on LNG project developers regarding merchantability,
identification of adverse impacts, compensation for negative impacts,
and mitigation.\45\ However, the Commission believes that these are
issues that should be addressed, if and when problems are identified,
in specific cases.
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\45\ See, e.g., AGA, APGA, Constellation at 3, and KeySpan's
April 1 comments at 10-13.
By the Commission.
Magalie R. Salas,
Secretary.
Appendix A
Commenters
American Gas Association (AGA)
American Public Gas Association (APGA)
Appalachian Producers:
Kentucky Oil & Gas Association, Ohio Oil and Gas Association,
and the Independent Oil & Gas Association of Pennsylvania
Aux Sable Liquid Products, L.P. (Aux Sable)
BHP Billiton LNG International (BHP Billiton)
Calpine Corporation (Calpine)
Consolidated Edison Company of New York, Inc. and Orange & Rockland
Utilities, Inc.
Constellation Energy Group, Inc.
Devon Energy Corporation
Dow Chemical Company
Duke Energy Gas Transmission
Edison Electric Institute (EEI)
Electric Power Supply Association (EPSA)
El Paso Corporation's Pipeline Group
EMS Pipeline Services
Fertilizer Institute
Florida Power & Light
Florida Utilities:
Tampa Electric Company; Peoples Gas System, a Division of Tampa
Electric Company; the Associated Gas Distributors of Florida (AGDF);
and the Florida Municipal Natural Gas Association (FMNGA). The AGDF
consists of Florida Public Utilities Company; Central Florida Gas
Company; Indiantown Gas Company; Sebring Gas Systems, Inc.; St. Joe
Natural Gas Company, Inc.; and Florida City Gas. The FMNGA consists
of the City of Chattahoochee; City of Clearwater Gas System;
Crescent City Natural Gas; City of DeFuniak Springs; Geneva County
Gas District; Lake Apopka Natural Gas District; City of Leesburg;
City of Live Oak; City of Madison; Okaloosa Gas District; Palatka
Gas Authority; City of Perry; Southeast Alabama Gas District; and
City of Sunrise.
Gas Appliance Manufacturers Association (GAMA)
Gas Processors Association
General Electric Company (GE)
Gulf South Pipeline Company, LP (Gulf South)
Independent Petroleum Association of Mountain States (IPAMS)
Interstate Natural Gas Association of America (INGAA)
Independent Petroleum Association of America (IPAA)
KeySpan Corporation
Michigan Consolidated Gas Company
National Fuel Gas Supply Corporation and National Fuel Gas
Distribution Corporation
Natural Gas Supply Association (NGSA)
NiSource, Inc.
Pacific Gas and Electric Company
Process Gas Consumers Group (PGC)
Producer Coalition:
Devon Energy Corporation, Dominion Exploration & Production,
Inc., Forest Oil Corporation, The Houston Exploration Company, Kerr-
McGee Oil & Gas Corporation, Newfield Exploration Company, Spinnaker
Exploration Company, and TOTAL E&P U.S.A., Inc.
Progress Energy
Questar Pipelines
Selected Processors:
Enterprise Products Operating L.P., Williams Midstream, Dynegy
Midstream Services, Limited Partnership and Duke Energy Field
Services, LLC
Sempra Global
Shell NA LNG LLC and Shell US Gas & Power, LLC
Siemens Westinghouse Power Corporation
South Carolina Electric & Gas Company, SCANA Energy Marketing, Inc.
and Public Service Company of North Carolina, Inc. (SCANA)
South Carolina Pipeline Company and SCG Pipeline, Inc.
South Coast Air Quality Management District (SCAQMD)
Southeastern End Users Group:
Florida Cities--City of Tallahassee, Florida Gas Utility,
Gainesville Regional Utilities, JEA, Lakeland Electric, and Orlando
Utilities Commission, Florida City Gas, Florida Municipal Natural
Gas Association--Cities of Chattahoochee, DeFuniak Springs,
Leesburg, Madison, Perry and Sunrise, City of Clearwater Gas System,
Crescent City Natural Gas, Geneva County Gas District, Lake Apopka
Natural Gas District, Okaloosa Gas District, Palatka Gas Authority,
Southeast Alabama Gas District, Florida Power & Light Company,
Florida Public Utilities Company, Progress Energy, Peoples Gas
System, a Division of Tampa Electric Company, Seminole Electric
Cooperative, Inc., Southern Cities--Georgia Cities of Cartersville,
Cordele, Cuthbert, Dublin, Hawkinsville, LaGrange and Tallapoosa and
the Florida City of Tallahassee, Tampa Electric Company
Southern California Gas Company and San Diego Gas & Electric Company
Suez Energy North America
TransCanada Pipelines Limited
Utah Department of Public Utilities (UDPU)
Williston Basin Interstate Pipeline Company
Wisconsin Distributor Group:
Wisconsin Power & Light Company, City Gas Company, Madison Gas &
Electric Company, Wisconsin Gas LLC, and Wisconsin Electric Power
Company--Collectively, We Energy, and Wisconsin Public Service
Corporation
Appendix B
Summary of Comments
A. Natural Gas Producers
1. NGSA urges the Commission to move quickly to initiate a
rulemaking to adopt its proposals. NGSA also would establish a
presumption of interchangeability (with historical gas supplies) for
all gas that meets the interchangeability specifications in the NGSA
rulemaking proposal. In addition, NGSA does not support efforts by
local distribution companies (LDCs) to require pipelines to include
merchantability clauses \46\ in their tariffs.
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\46\ Several LDC commenters, including the American Gas
Association (AGA), urge the Commission to require pipelines to
include merchantability provisions in their tariffs. The issue of
merchantability is discussed in the context of LDC comments
beginning at P 37.
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2. Among independent producers, the Independent Petroleum
Association of America (IPAA) supports the NGSA proposal for a NOPR,
including the CHDP safe harbor and the interchangeability levels. In
addition, IPAA advocates a de minimis exemption for production from
small wells, where such exceptions will not affect pipeline
operations. Devon Energy, a small producer and processor, supports
the NGSA petition and supports the de minimis exemption for small
volumes, so long as the quality of delivered gas remains within the
tariff limits.\47\
---------------------------------------------------------------------------
\47\ Devon at 4.
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3. The Independent Petroleum Association of Mountain States
(IPAMS), an association of small producers in the Rocky Mountains,
opposes any rigid national standard for gas quality, citing the
different needs of customers in Salt Lake City and Denver, where its
members' gas is delivered. IPAMS also supports a small producer de
minimis exemption. However, it does not address the NGSA proposal
directly. The Appalachian Producers oppose the NGSA proposal and
assert that the presumption of interchangeability, for example,
``could easily be transformed into a requirement that natural gas
must meet those standards * * * changing the presumptive
specifications into prescriptive ones.'' \48\
---------------------------------------------------------------------------
\48\ Appalachian Producers comments at 2.
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4. Finally, the Producer Coalition \49\ supports adoption of
natural gas quality and interchangeability standards through a
formal
[[Page 35901]]
rulemaking proceeding rather than through a policy statement. The
Producer Coalition asserts that much of the controversy in setting
gas quality standards ``would be eliminated if the Commission, by
rule or policy statement, would (i) establish a uniform method for
determining CHDP limits for interstate pipelines; and (ii) determine
who pays--producers or downstream customers--for conditioning or
handling gas to accommodate the downstream temperature and pressure
cuts between the interstate pipeline grid and the gas burner tip.''
\50\
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\49\ The Producer Coalition is an ad hoc group of natural gas
producers consisting of Devon, Dominion E&P, Forest Oil, Houston
Exploration, Kerr-McGee, Newfield Exploration, Spinnaker Exploration
and TOTAL E&P.
\50\ Producer Coalition at 6.
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B. LNG Operators
5. Four LNG facility operator/developer companies filed comments
on the NGSA proposal. Both Shell and Sempra urge the Commission to
move quickly to adopt standards in order to maintain momentum from
the NGC+ efforts. Shell favors a Commission policy statement, while
Sempra supports action via a NOPR, along the lines advocated by
NGSA. Both support the interchangeability interim guidelines in the
Report instead of the NGSA proposal, because NGSA does not adopt the
4% range in the Report or the 1,110 Btu limit. In
addition, Sempra opposes a mandate for pipeline blending,
aggregation and other operational techniques for dealing with non-
standard gas. Both favor requiring pipelines to adopt gas quality
and interchangeability standards in their tariffs. Suez Energy North
America (Suez) supports a rulemaking based on the proposals in the
Reports, and it asserts that the Commission should ``craft rules
that will encourage some degree of standardization while also
leaving distinct pipeline service territory issues for determination
on each pipeline system.'' \51\
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\51\ Suez at 5.
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6. The issue of federal--state cooperation in standard-setting
is the focus of comments by BHP Billiton LNG International (BHP
Billiton), an Australian energy company that plans to build a
floating storage and regasification unit for LNG imports offshore
California to bring gas into California. BHP Billiton opposes a
proposal pending before the California Public Utilities Commission
(CPUC) \52\ in the CPUC's ongoing proceeding examining gas quality
issues. In that proceeding, a California utility has proposed tha
