Revisions to Forms, Statements, and Reporting Requirements for Natural Gas Pipelines, 54860-54872 [E7-19015]

Agencies

• DEPARTMENT OF ENERGY
• Federal Energy Regulatory Commission

[Federal Register Volume 72, Number 187 (Thursday, September 27, 2007)]
[Proposed Rules]
[Pages 54860-54872]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-19015]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 72, No. 187 / Thursday, September 27, 2007 / 
Proposed Rules

[[Page 54860]]



DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 158 and 260

[Docket No. RM07-9-000]


Revisions to Forms, Statements, and Reporting Requirements for 
Natural Gas Pipelines

September 20, 2007.
AGENCY: Federal Energy Regulatory Commission, Department of Energy.

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: In this Notice of Proposed Rulemaking, the Federal Energy 
Regulatory Commission (Commission) proposes to amend its financial 
forms, statements, and reports for natural gas companies, contained in 
FERC Form Nos. 2, 2-A and 3-Q. The proposed revisions reflect the fact 
that in the present regulatory environment, where interstate natural 
gas pipelines are no longer required to file a triennial restatement of 
rates, and the number of filed rate cases has declined sharply, FERC 
Form Nos. 2, 2-A, and 3-Q need to be expanded and otherwise revised in 
order for the Commission and the public to have sufficient information 
to assess the justness and reasonableness of pipeline rates. The 
proposed changes will enhance the forms' usefulness by updating them to 
reflect current market and cost information relevant to interstate 
natural gas pipelines and their customers. In addition, the Commission 
proposes to eliminate FERC Form No. 11.

DATES: Comments must be filed on or before November 13, 2007.

ADDRESSES: You may submit comments, identified by Docket No. RM07-9-
000, by one of the following methods:
     Agency Web site: https://www.ferc.gov. Follow the 
instructions for submitting comments via the eFiling link found in the 
Comment Procedures Section of the preamble.
     Mail: Commenters unable to file comments electronically 
must mail or hand deliver an original and 14 copies of their comments 
to: Federal Energy Regulatory Commission, Office of the Secretary, 888 
First Street, NE., Washington, DC 20426. Please refer to the Comment 
Procedures Section of the preamble for additional information on how to 
file paper comments.

FOR FURTHER INFORMATION CONTACT: 
Michelle Veloso (Technical Information), Forms Administration and Data 
Branch, Division of Financial Regulation, Office of Enforcement, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, Telephone: (202) 502-8363, E-mail: 
michelle.veloso@ferc.gov.
Scott Molony (Technical Information), Regulatory Accounting Branch, 
Division of Financial Regulation, Office of Enforcement, Federal Energy 
Regulatory Commission, 888 First Street, NE., Washington, DC 20426, 
Telephone: (202) 502-8919, E-mail: scott.molony@ferc.gov.
Jane E. Stelck (Legal Information), Office of Enforcement, Federal 
Energy Regulatory Commission, 888 First Street, NE., Washington, DC 
20426, Telephone: (202) 502-6648, E-mail: jane.stelck@ferc.gov.

SUPPLEMENTARY INFORMATION:

I. Introduction

    1. The Commission proposes to amend its forms, reports and 
statements for natural gas companies.\1\ Specifically, the Commission 
proposes changes to FERC Form No. 2 (Form 2), Annual report for major 
natural gas companies,\2\ FERC Form No. 2-A (Form 2-A), Annual report 
for nonmajor natural gas companies,\3\ and FERC Form No. 3-Q (Form 3-
Q), Quarterly financial report of electric utilities, licensees and 
natural gas companies.\4\ The Commission is proposing the changes to 
improve the forms, reports and statements to provide, in greater 
detail, the information the Commission needs to carry out its 
responsibilities under the Natural Gas Act (NGA) to ensure that rates 
are just and reasonable, and to provide pipeline customers, state 
commissions, and the public the information they need to assess the 
justness and reasonableness of pipeline rates. The proposed changes 
would require pipelines to provide additional information regarding 
their sources of revenue and amounts included in rate base, and 
identify costs related to affiliate transactions, incremental 
facilities, and discounted and negotiated rates. They would be 
effective January 1, 2008. Accordingly, companies subject to the new 
requirements would file their new Form 3-Q beginning with the first 
quarter of 2009 and their new Forms 2 and 2-A in 2009 for calendar year 
2008. Finally, the Commission proposes to eliminate the requirement to 
file FERC Form No. 11 (Form 11) and to extend the period of time to May 
18 of the year following the submittal of annual and quarterly forms to 
file the Report of Certification.\5\
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    \1\ Section 10 of the NGA, 15 U.S.C. 717g (1988), authorizes the 
Commission to prescribe rules and regulations concerning annual and 
other periodic or special reports, as necessary or appropriate for 
purposes of administering the NGA. The Commission may prescribe the 
manner and form in which such reports are to be made, and require 
from natural gas companies specific answers to all questions on 
which the Commission may need information.
    \2\ 18 CFR 260.1.
    \3\ 18 CFR 260.2.
    \4\ 18 CFR 260.300.
    \5\ See 18 CFR 158.11. The Commission is concurrently issuing a 
Notice of Inquiry (NOI) in Docket No. RM07-20-000, titled Fuel 
Retention Practices of Natural Gas Pipelines, seeking comments on 
several specific proposals for natural gas pipeline rate recovery of 
fuel and lost and unaccounted-for gas. The NOI addresses Commission 
policy regarding the method of cost recovery used by pipelines and 
seeks comments on whether that policy should be changed. While the 
instant proposed rulemaking in Docket RM07-9-000 addresses changes 
to the Commission's financial forms, the NOI addresses the method of 
recovery of fuel and seeks comments on whether it should change the 
current policy and prescribe a uniform recovery method for all 
pipelines. Therefore, there is no conflict between the two 
proposals.
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II. Background

A. General

    2. The Commission strives to ensure that its reporting requirements 
keep pace with the evolution of the natural gas industry. Before the 
advent of Order No. 636 and its progeny, interstate natural gas 
pipeline companies provided both sales and transportation services.\6\ 
Gas costs were entered into a

[[Page 54861]]

purchased gas adjustment (PGA) account and were periodically adjusted 
and passed through to customers. The quid pro quo for the ability to 
recover the gas costs through a PGA tracker was the requirement that 
the pipelines file to restate their rates every three years. The PGA 
regulations, and the triennial filing requirement therein, were 
eliminated when the Commission issued a Final Rule that changed 
pipeline filing and reporting requirements in the post-Order No. 636 
environment.\7 \
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    \6\ See Pipeline Service Obligations and Revisions to 
Regulations Governing Self-Implementing Transportation; and 
Regulation of Natural Gas Pipelines After Partial Wellhead 
Decontrol, Order No. 636, FERC Stats. & Regs. ] 30,939, order on 
reh'g, Order No. 636-A, FERC Stats. & Regs. ] 30,950, order on 
reh'g, Order No. 636-B, 61 FERC ] 61,272 (1992), order on reh'g, 62 
FERC ] 61,007 (1993), aff'd in part and remanded in part sub nom. 
United Distribution Cos. v. FERC, 88 F.3d 1105 (D.C. Cir. 1996), 
order on remand, Order No. 636-C, 78 FERC ] 61,186 (1997).
    \7\ Filing and Reporting Requirements for Interstate Natural Gas 
Company Rate Schedules and Tariffs, FERC Stats. & Regs. ] 31,025 
(1995).
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    3. In Order No. 636, the Commission restructured pipeline services 
and required pipelines to unbundle their sales and transportation 
services. Accordingly, shippers were able to buy gas at the wellhead or 
from gas marketers, and purchase pipeline capacity from other shippers 
in the secondary market, as well as from the pipeline. Order No. 636 
authorized pipelines to make unbundled commodity sales at market-based 
rates at the wellhead because it concluded that, after unbundling, 
sellers of short-term or long-term gas supplies (whether pipelines or 
other sellers) would not have market power over the sale of natural 
gas.
    4. In 1995, in Order No. 581, the Commission issued a Final Rule 
revising the filing and reporting requirements for interstate natural 
gas pipeline companies to reflect the changed regulatory environment of 
unbundled pipeline sales for resale at market-based prices and open-
access transportation of natural gas.\8\ The Commission eliminated 
outdated reporting requirements but revised Forms 2 and 2-A to provide 
financial, rate, and statistical information on transactions that it 
deemed more useful in monitoring the restructured industry.\9\
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    \8\ Revisions to Uniform System of Accounts, Forms, Statements, 
and Reporting Requirements for Natural Gas Companies, Order No. 581, 
FERC Stats. & Regs. ] 31,026 (1995), order on reh'g, Order No. 581-
A, FERC Stats. & Regs. ] 31,032 (1996).
    \9\ Id.
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    5. In 2000, in Order No. 637, the Commission again amended its 
regulations in response to the growing development of more competitive 
markets for natural gas and the transportation of natural gas.\10\ The 
rule revised the Commission's regulatory approach to pipeline pricing 
by permitting pipelines to propose peak/off-peak and term 
differentiated rate structures. Although the rule did not change the 
financial forms, it required pipelines to provide additional data on 
their Web sites, including: (1) Information regarding the pipeline's 
capacity and released capacity transactions, including names of parties 
to the contract, rate charged, and receipt and delivery points; and, 
(2) information concerning market affiliates, including an 
organizational chart showing the structure of the parent corporation 
and the position within that structure of all affiliates. These 
additional reporting requirements were designed to provide more 
transparent pricing information and to permit more effective monitoring 
for the exercise of market power and undue discrimination.\11\
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    \10\ Regulation of Short-Term Natural Gas Transportation 
Services, and Regulation of Interstate Natural Gas Transportation 
Services, Order No. 637, FERC Stats. & Regs. ] 31,091, clarified, 
Order No. 637-A, FERC Stats. & Regs. ] 31,099, reh'g denied, Order 
No. 637-B, 92 FERC ] 61,062 (2000), aff'd in part and remanded in 
part sub nom. Interstate Natural Gas Ass'n of America v. FERC, 285 
F.3d 18 (D.C. Cir. 2002), order on remand, 101 FERC ] 61,127 (2002), 
order on reh'g, 106 FERC ] 61,088 (2004), aff'd sub nom. American 
Gas Ass'n v. FERC, 428 F.3d 255 (D.C. Cir. 2005).
    \11\ Id. See also 18 CFR 284.13.
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    6. Since the Commission eliminated the triennial restatement of 
rates filing requirement in Order No. 636, there has been a decline in 
filings under NGA section 4.\12\ Of course, the Commission may, on its 
own motion, institute an investigation under NGA section 5 to determine 
if pipeline rates are just and reasonable.\13\ The Commission relies 
also on section 5 complaints, which may be filed by state public 
utility commissions or pipeline customers, to review gas rates outside 
of a section 4 rate proceeding. In a section 5 proceeding, the 
complainant has the burden of proof and must have access to the 
information needed to meet that burden. A section 5 complaint may rely 
on Forms 2, 2-A, and 3-Q financial data and that data must be 
sufficient to support a complaint.
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    \12\ 15 U.S.C. 717c.
    \13\ 15 U.S.C. 717d.
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    7. Within the past year, two section 5 complaints were filed with 
the Commission, both relying on data provided in Forms 2 and 2-A to 
argue that the pipelines' rates were unjust and unreasonable.\14\ In 
National Fuel, the complainants contended that it had been 11 years 
since the Commission had reviewed National Fuel's rates and that during 
that time the rates had become unjust and unreasonable.\15\ Relying 
upon Forms 2 and 3-Q data, the complainants prepared an analysis for 
the most recent three-year period, which allegedly demonstrated 
significant excess revenue and an equity return near 20 percent.\16\ 
National Fuel argued in response to the complaint that the Form 2 data 
relied upon by the complainants was not sufficient and that only a 
detailed cost and revenue study could provide justification for an 
investigation into a pipeline's rates under NGA section 5. Complainants 
acknowledged that the lack of certain data in Form 2 hindered the 
performance of a full rate analysis, but argued that the complaint, 
nonetheless, presented evidence sufficient to initiate an investigation 
of National Fuel's rates.\17\
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    \14\ Public Service Commission of New York, Pennsylvania Public 
Utility Commission and Pennsylvania Office of Consumer Advocate v. 
National Fuel Gas Supply Corp., 115 FERC ] 61,299 (2006) (National 
Fuel), order approving uncontested settlement, 118 FERC ] 61,091 
(2007); Panhandle Complainants v. Southwest Gas Storage Co., 117 
FERC ] 61,318 (2006) (Southwest Gas).
    \15\ National Fuel at P 7.
    \16\ Id.
    \17\ Motion for Leave to Answer and Answer of the Joint State 
Agencies to National Fuel Gas Supply Corporation's Answer to 
Complaint at 6.
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    8. In its order setting the case for hearing, the Commission found 
that the complainants had raised serious questions as to whether the 
rates established in 1995 settlements allowed National Fuel to recover 
revenue substantially in excess of its costs.\18\ The Commission 
rejected National Fuel's contention that a detailed cost and revenue 
study is the sole means of justifying an investigation into a 
pipeline's rates under section 5, and that Form 2 data could provide 
the starting point for such an investigation.\19\ However, the 
Commission denied complainants' request for summary disposition, noting 
that data extrapolated from Form 2 was, in some cases, unclear and not 
adequate to support a summary disposition.\20\
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    \18\ National Fuel at P 37.
    \19\ Id.
    \20\ Id. at P 42.
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    9. On December 21, 2006, the Commission set for hearing another 
complaint filed by a group of customers that contended that Southwest 
Gas' rates had not been reviewed in 17 years and that during that time, 
the rates had become unjust and unreasonable.\21\ Complainants 
submitted a cost and revenue study using information from Southwest 
Gas' Form 2-A, which allegedly demonstrated that the pipeline was 
earning a return on equity as high as 32 percent.\22\ The complainants 
sought an immediate rate reduction and a hearing. The Commission found 
that

[[Page 54862]]

the complainants' rate study did not support an immediate rate 
reduction, but set the matter for hearing.\23\
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    \21\ See Southwest Gas, 117 FERC at P 1.
    \22\ Id.
    \23\ Id. at P 19.
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    10. Against this backdrop, Commission staff initiated a review of 
Forms 1, 1-F, 2, 2-A, and 3-Q data in the fall of 2006. As part of this 
review, staff met with both filers and users of annual and quarterly 
reports for the purpose of reexamining the breadth of data collected by 
the forms and to determine the need for additional information, 
deletions, or other clarifications. Thereafter, on February 15, 2007, 
the Commission issued a Notice of Inquiry (NOI).\24 \
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    \24\ Assessment of Information Requirements for FERC Financial 
Forms, Notice of Inquiry, 72 FR 8316 (February 26, 2007), FERC 
Stats. & Regs. ] 35,554 (2007). While the outreach meetings 
addressed only Forms 1 and 2, the NOI invited comments from filers 
and users of Form 6 and 6-Q as well.
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B. Notice of Inquiry

    11. In the NOI, the Commission sought comment on the need for 
changes or additions to the financial information reported in the 
Commission's quarterly and annual financial reports, FERC Form Nos. 1, 
1-F, 2, 2-A, 3-Q, 6 and 6-Q applicable to the electric utility, natural 
gas, and oil pipeline industries. Specifically, the Commission asked 
commenters to address the question of whether the Commission's 
financial reports provide sufficient information to the public to 
permit an evaluation of the filers' jurisdictional rates, and whether 
these forms should otherwise be modified. The NOI posed 12 general 
questions and also invited commenters to raise other questions or 
issues that might aid the Commission's assessment of the forms.\25\ The 
12 questions are listed in Appendix B to this order.
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    \25\ NOI at P 16.
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    12. On March 28, 2007, the Commission received 35 comments from 
FERC Form Nos. 1, 1-F, 2, 2-A, 3-Q, 6 and 6-Q users and jurisdictional 
entities that file the reports.\26\ On April 27, 2007, 15 reply 
comments were filed. After reviewing the comments, the Commission has 
determined that each of the forms merits its own separate review. 
Addressing changes or amendments to all of the forms that serve the 
electric, gas, and oil pipeline industries in a single proceeding, 
would be an unwieldy task with the potential to cause confusion among 
the industries, which could delay the Commission's action. Accordingly, 
this Notice of Proposed Rulemaking (NOPR) addresses changes, additions, 
and amendments to the forms applicable to natural gas companies--Forms 
2, 2-A, and 3-Q. Potential changes or amendments to the annual and 
quarterly forms applicable to electric utilities and oil pipelines, 
Forms 1, 1-F, 6 and 6-Q will be addressed in future orders.
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    \26\ Parties who filed comments and reply comments are listed on 
Appendix C.
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C. Comments to Notice of Inquiry

    13. As noted, the Commission received 35 comments and 15 reply 
comments in response to the NOI. Eleven initial comments and two reply 
comments specifically address Forms 2, 2-A, and 3-Q data.\27\ Not 
surprisingly, as a general matter, pipeline customers and state 
commissions support revising the forms and pipelines oppose revisions 
that would require filing additional information. The Industry 
Coalition urges the Commission to revise Form 2 to require additional 
detail which, in their view, would permit a proper evaluation of 
pipelines' cost-based rates and ensure that those rates are just and 
reasonable.\28\ The Industry Coalition asks the Commission to require 
greater detail in several areas: (1) Capital structure; (2) deferred 
taxes; (3) gas purchases and sales; (4) state income tax rates; (5) 
miscellaneous assets; (6) corporate overhead costs; (7) volumes and 
revenues associated with discounted and negotiated rate services; (8) 
revenues and costs associated with at-risk facilities; and (9) 
calculation of the rate of return.\29\
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    \27\ In some instances, comments were filed which addressed more 
than one financial form.
    \28\ Initial Comments of the Industry Coalition at 4. The 
Industry Coalition is comprised of the American Public Gas 
Association, the Independent Petroleum Association of America, the 
Natural Gas Supply Association, and the Process Gas Consumers Group.
    \29\ See Industry Coalition Comments at 5-6.
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    14. In addition, the Industry Coalition states that it has 
attempted to quantify the burdens and benefits associated with each 
proposal and estimates that the burden associated with providing the 
additional material would be low to moderate. The Industry Coalition 
also asks the Commission to require types of information contained in 
Form 2 to be replicated in the quarterly Form 3-Q, to the extent 
possible. In addition, the Coalition suggests changes specific to Form 
3-Q, including (1) a separate report of fuel used for operation and 
maintenance; and (2) information that is consistent with page 520 of 
Form 2 related to fuel use.
    15. Several state agencies, including the New York State Public 
Service Commission (NYPSC), the Kansas Corporation Commission (KCC), 
the Missouri Public Service Commission (MoPSC), and the Public 
Utilities Commission of Ohio (PUCO), filed comments recommending 
changes to the forms. The KCC claims that current Form 2 data is 
inadequate and advocates the reinstatement of a periodic rate refiling 
requirement in the three to five year range.\30\ In the absence of such 
a requirement, the KCC suggests specific changes to Form 2 which are 
similar, in part, to the changes recommended by the Industry Coalition. 
KCC's proposals include the following: (1) Calculation of the 
pipeline's rate of return; (2) identification of which components of 
deferred tax and regulatory asset and liability balances are included 
in rate base; (3) detail on miscellaneous current and accrued assets; 
(4) detail concerning gas purchase and sales accounts; (5) detail 
concerning corporate administrative costs; (6) identification of 
revenues associated with negotiated rate contracts and with at-risk 
facilities; and (7) information concerning the pipeline's capital 
structure.\31\ PUCO requests that debt accounts balances for Form 2 be 
shown separately for each debt issuance and asks the Commission to make 
the data available in electronic format that can be compared and 
analyzed electronically.\32\
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    \30\ KCC Comments at 4. For purposes of this NOPR, the term 
``at-risk'' facilities has the same meaning as ``incremental'' 
facilities.
    \31\ Id. at 7.
    \32\ PUCO Comments at 3.
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    16. The NYPSC asserts that currently the forms contain no 
information related to affiliate transactions and recommends that 
utilities be required to describe and quantify each type of affiliate 
transaction, similar to the requirements adopted in Form 60 for service 
companies and recommends that a schedule, modeled on Schedule XVI, be 
added to Form 2.\33\ The NYPSC also recommends that each company report 
its contributions to other post-employment benefits and pension 
funds.\34\ As an alternative to a cost and revenue study, the NYPSC 
recommends that the Commission require pipelines to provide a more 
detailed breakdown of Accounts 480-484 Sales, according to revenues and 
quantities of gas that comprise each sale.\35\ The NYPSC also asks that 
pipelines provide additional detailed information, such as billing 
determinants for each rate schedule, the separate identification of 
revenues and costs associated with trackers or special surcharges, and 
the amount of deferred taxes included in rate base for cost-of-service 
purposes.\36\
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    \33\ NYPSC Comments at 6.
    \34\ Id. at 7.
    \35\ Id. at 9.
    \36\ Id. at 10-11.

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[[Page 54863]]

    17. MoPSC suggests that several accounts in Form 2, not currently 
required for Form 2-A filers, be added to Form 2-A, including detail of 
miscellaneous current accrued liabilities; detail of revenues from 
gathering, transmission, and storage; miscellaneous general expense; 
and charges for outside consultative services.\37\ For all of these 
accounts, the Form 2 has a threshold reporting requirement of $250,000. 
MoPSC requests that the schedules be included in Form 2-A and that the 
threshold for reporting be lowered to $50,000 or $100,000.\38\
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    \37\ Comments of MoPSC at 5-8.
    \38\ Comments of MoPSC at 7-8.
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    18. Comments opposing revisions, in part or in whole, to the annual 
and quarterly financial reports were filed by the Interstate Natural 
Gas Association of America (INGAA), the American Gas Association (AGA), 
Boardwalk Pipeline Partners, L.P. (Boardwalk), Williston Basin 
Interstate Pipeline Co. (Williston), and Washington Gas Light Company 
(Washington Gas). INGAA urges the Commission to balance the amount of 
information it needs in periodic reports for the purpose of 
administering section 5 against the burden it places on the pipelines. 
INGAA contends that the information now provided in both Forms 2 and 2-
A is sufficient for the Commission's responsibilities under the NGA. 
INGAA notes that in two recent decisions, the Commission relied on 
Forms 2 and 2-A data to initiate an investigation of pipeline rates 
under section 5.\39\ In addition, INGAA asserts that pipelines file 
other reports or postings that provide information supplemental to Form 
2, including posting an index of customers and identifying contracts 
with negotiated rates. INGAA also contends that pipeline Web sites 
provide information on pipeline capacity and discounts awarded.\40\ 
INGAA states that the Commission should be careful that an expanded 
Form 2 does not blur the distinction between sections 4 and 5, thus 
shifting the burden of proof established under section 5.\41\ Finally, 
INGAA suggests that the Commission should be wary of converting Form 2 
from a financial reporting document to the equivalent of an annual cost 
and revenue study.\42\ INGAA states that any proposal that would 
require additional information not collected in accord with the Uniform 
System of Accounts, or reported in a different format, will result in 
additional regulatory burdens.
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    \39\ INGAA Initial Comments at 5; National Fuel, 115 FERC ] 
61,299, on reconsideration, 115 FERC ] 61,368 (2006) and Southwest 
Gas, 117 FERC ] 61,318 (2006).
    \40\ Id. at 6.
    \41\ Id. at 6-7, (citing Public Service Comm'n v. FERC, 866 F.2d 
487, 490-91 (D.C. Cir. 1989)).
    \42\ Id. at 7.
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    19. Williston Basin, Boardwalk Pipeline, AGA, and Washington Gas 
concur with INGAA that Form 2 data, as now filed, provides sufficient 
information to allow users to evaluate pipeline rates. The commenters 
echo INGAA's concern that the current Form 2 not be transformed into a 
cost and revenue study, and that pipelines not be required to file an 
annual mini-rate case, thereby reversing the statutory burden of proof 
for section 5.\43\ Williston Basin suggests several technical revisions 
and requests that the Commission discontinue the Form 11 and 
incorporate that information in the Form 3-Q.\44\ Washington Gas states 
that Form 2 should remain as it is, and that if the Commission 
determines that more information is needed to monitor rates, a new form 
for reporting this ratemaking information should be created.\45\
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    \43\ Boardwalk Pipeline Comments at 5.
    \44\ Williston Basin Comments at 6-7.
    \45\ Washington Gas Comments at 3.
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    20. Only INGAA and Williston Basin filed reply comments. Both 
commenters reiterate the assertion that the information contained in 
Forms 2 and 3-Q is sufficient to allow the Commission and other users 
to adequately evaluate pipeline rates.\46\ In response to the KCC's 
complaint that pipeline rate filings have declined since the end of the 
triennial rate review, INGAA asserts that pipeline rate filings 
continue to be made.\47\ INGAA further asserts that the elimination of 
triennial rate review has had beneficial effects: (1) Customer 
settlements now dictate the timing of pipeline rate cases; (2) repeal 
of the triennial rate review is an incentive for controlling and 
reducing pipeline costs; (3) pipeline rates have remained stable for 
the last decade and have actually gone down in real (inflation 
adjusted) dollars; and (4) the quality of pipeline service has improved 
due to the increased flexibility provided by Order No. 637.\48\
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    \46\ Williston Basin Reply Comments at 2; INGAA Reply Comments 
at 2.
    \47\ Id. at 7.
    \48\ Id. at 8-9.
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    21. INGAA's reply comments also address specific proposals or 
requests for information made by the Industry Coalition, the NYPSC, the 
KCC, and MoPSC.\49\ INGAA argues that:
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    \49\ Id. at 9.
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     Some requests, e.g., more detailed information on deferred 
taxes and identification of the appropriate capital structure, would 
require filers to make the sort of subjective judgment that is involved 
in a litigated rate case,\50\
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    \50\ Id. at 10.
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     The forms are currently designed to report what has 
actually occurred, and not to make projections based on the data,\51\
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    \51\ Id. at 1.
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     Requiring a rate of return calculation and the detail 
requested on gas purchases would turn Form 2 into a mini-rate case,
     Other sources of information are available to the public, 
e.g., pipelines' operational sales and purchase reports and fuel 
tracker filings,\52\
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    \52\ Id. at 4-5.
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     If the Commission needs additional information from time 
to time, that need can be met through the Commission's audit authority 
on a case-by-case basis,\53\
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    \53\ Id. at 3.
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     Commenters may review pipelines' operational sales and 
purchase reports, cashout reconciliation reports and fuel tracker 
filings, all of which are routinely filed by pipelines,\54\
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    \54\ Id. at 13-14.
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     Pipelines already provide details of their effective 
income tax rate, and such details are disclosed in the Notes to 
Financial Statements and include the total dollar amount for taxes 
broken down between current and deferred taxes, and
     Other items, such as the calculation of the income tax of 
a particular state changing from a tax based on net income to a tax 
based on gross receipts are burdensome to calculate and subjective.\55\
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    \55\ Id. at 15-16.
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    22. INGAA states that its members have no objection to identifying 
the entity whose capital structure is now reported on page 218a of Form 
2, which provides a computation of the allowance for funds used during 
construction (AFUDC), but requiring the pipeline to state whether it 
believes this number is appropriate for a rate case would require the 
pipeline to speculate on a potentially contentious issue in a fully 
litigated rate case.\56\ Generally, INGAA contends that the information 
provided in all of the areas identified by the Industry Coalition and 
others is already burdensome, and that the information sought is, in 
many instances, available elsewhere, e.g., in the pipelines' index of 
customers and other information posted on pipelines' Web sites.\57\ 
INGAA further argues that the proposal to require pipelines to identify 
costs and revenues associated

[[Page 54864]]

with at-risk facilities could essentially impose a cost and revenue 
study obligation for these facilities and should not be required 
outside of a section 4 or 5 proceeding.\58\ Similarly, INGAA contends 
that a requirement to include billing determinants for each rate 
schedule would impose a substantial burden because it would effectively 
require the preparation of a schedule equivalent to a Schedule G, 
required for a section 4 filing.\59\
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    \56\ Id. at 11-12.
    \57\ Id. at 20.
    \58\ Id. at 22.
    \59\ Id. at 24-25.
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    23. Finally, INGAA suggests that certain items required by Form 2 
be deleted as burdensome or of limited usefulness, including: (1) Pages 
508-509, Compressor Stations; (2) page 357, Charges for Outside 
Professional and Other Consultative Services; and (3) page 261, 
Reconciliation of Reported Net Income with Taxable Income for Federal 
Income Taxes.

III. Discussion

A. General

    24. The steady decline of section 4 rate filings, the concerns 
regarding the adequacy of data in Forms 2 and 2-A expressed in both the 
National Fuel and Southwest Gas complaints, and the comments received 
in response to the NOI indicate a need to update and supplement Forms 
2, 2-A, and 3-Q. While a hiatus in section 4 rate case filings does 
not, in every instance, support a conclusion that the pipeline is 
earning excess revenues, some pipelines have not filed a section 4 rate 
case in more than a decade, and their costs of service and revenues 
have gone unreviewed as a consequence.\60\ If shippers cannot readily 
access the data they need to make informed assessments regarding the 
propriety of the rates charged, they are left without any plausible 
means of assessing the justness and reasonableness of those rates and 
are forced to accept the information provided at face value or attempt 
to initiate expensive and time-consuming section 5 proceedings to 
obtain the data.
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    \60\ The records indicate that as many as 15 major and 20 
nonmajor gas pipelines have not filed a section 4 rate case in more 
than a decade. Also, although INGAA contends that pipeline rate 
cases are quite common, a review of the cases cited by INGAA reveals 
that most were filed because prior settlement agreements required 
the filing.
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    25. The proposed additions or changes to Forms 2, 2-A and 3-Q 
require a pipeline to provide additional, detailed information 
regarding the pipeline's costs and revenues, including a reconciliation 
of gas supplied by shippers for compressor fuel and gas losses; 
disaggregation of certain cost data; provision of additional 
information related to affiliate transactions; and the distinction 
between services provided at discounted or negotiated rates and costs 
recovered through incremental, as opposed to rolled-in, rates. As noted 
above, we believe that all of the proposed changes will better 
facilitate the forms users' ability to make a meaningful assessment of 
the pipeline's cost of service and current rates. We have endeavored, 
however, to achieve a balance between the benefits these changes will 
facilitate and the imposition of any additional burden on the 
pipelines. Most of the information requested is data that is maintained 
by the pipeline and can be transferred to existing and new schedules. 
In addition, as discussed below, we are proposing the elimination of 
Form 11, which would lessen pipelines' filing requirements.
    26. Several schedules are being added to Form 2-A as well as to 
Form 2. The Commission regulates 44 pipelines that are classified as 
``nonmajor'' and required to file Form 2-A. It is no less important 
that customers of pipelines classified as nonmajor be provided with the 
information we propose to add to Form 2. Form 2-A filers now provide 
less data than do Form 2 filers. As with Form 2, the information we are 
adding to Form 2-A is information we deem necessary to enable 
customers, state commissions, and the Commission to assess existing 
pipeline rates. Complaints regarding the dearth of data have been made 
by customers of both major and nonmajor pipelines and we believe all 
are entitled to the same information.\61\
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    \61\ See, e.g., Southwest Gas, 117 FERC at P 4 (complaint filed 
by Form 2-A users).
---------------------------------------------------------------------------

    27. We have not adopted many of the commenters' proposals. For 
example, we reject the KCC's request that we resurrect the triennial 
rate restatement requirement for all pipelines and AGA's alternative 
suggestion that we create a new form to supplement Form 2.\62\ We 
reject as burdensome the Industry Coalition's and the MoPSC's requests 
that pipelines not using the rate of return on equity approved in the 
pipeline's last rate case provide the calculation and derivation of the 
return used at present. We reject also the Industry Coalition's request 
that pipelines provide additional information on capital structure used 
for ratemaking purposes since it would require the pipeline to 
speculate on the pipeline's preferred capital structure.
---------------------------------------------------------------------------

    \62\ See, e.g., Public Service Commission of New York v. FERC, 
866 F.2d 487 (D.C. Cir. 1989); see also United Distribution 
Companies v. FERC, 88 F.3d 1105, 1175-6 (D.C. Cir. 1996).
---------------------------------------------------------------------------

    28. We acknowledge INGAA's concern that an expanded Form 2 could 
blur the distinction between sections 4 and 5, and shift the burden of 
proof established under section 5, and we invite commenters to address 
this issue. However, the changes proposed herein do not affect existing 
rates nor change any rates on file. The requested data is designed to 
provide the Commission and pipeline customers with information that 
will aid their ability to make a reasonable assessment of a pipeline's 
cost of service. Along the same lines, the requested data is not the 
functional equivalent of a cost and revenue study. Therefore, the 
revised Form 2 will not be used to limit an entity's rights under the 
NGA and our regulations. Nor will the revised Form 2 change our 
obligation to rule on complaints, petitions, or other requests for 
relief based on a full record and substantial evidence.
    29. At the same time, we find no merit in INGAA's argument that 
much of the data sought by Form 2 users is available elsewhere, in 
forms and filings made before state agencies, the Commission, other 
federal agencies, or in the pipeline's tariff. We do not believe that 
users should have to piece together and interpret from myriad sources 
information that is readily available to the pipeline and can, without 
a substantial increase in burden, be incorporated into Forms 2 and 2-A. 
Also, much of the information cited by INGAA is not coterminous with 
Form 2 data and cannot be used for purposes of comparison.
    30. Additionally, as discussed below, INGAA has requested that the 
Commission eliminate three schedules from Form 2. As discussed below, 
we reject INGAA's request to eliminate information now reported in Form 
2. INGAA first requests that the Commission delete pages 508-509 of 
Form 2 which provide details on compressor stations. The schedule shows 
plant, expenses, amount of gas and usage in total hours intended to 
assist Form 2 users in calculating a depreciation analysis of remaining 
life for compressor plant. In addition, some compressor stations are 
built as part of expansion projects with incremental rates. The 
separation of costs by compressor station is a key element to assist in 
determining the appropriate allocations of costs to generate 
incremental rates. In addition, in order to provide more clarity 
regarding fuel use for compressor stations, we propose to revise pages 
508-509 of Form 2 to require pipelines to provide both the

[[Page 54865]]

amounts used and expenditures made for gas and electric power.
    31. INGAA asks that the Commission eliminate Page 357, Charges for 
Outside Professional and Other Consultative Services. As discussed 
below, the Commission is adding a new Page 358 to Forms 2 and 2-A where 
information currently provided on Page 357 would be reported. INGAA 
asserts that the schedule has no value for ratemaking purposes. The 
information required for Page 357, now proposed to be substituted by a 
new page 358, allows Form 2 users to identify the annual charges for 
outside consulting activities and the identification of associated 
company charges. The Commission believes this information is of value 
to forms users and the reporting requirement will be retained.
    32. Finally, we reject INGAA's request to eliminate page 261, 
Reconciliation of Reported Net Income With Taxable Income for Federal 
Income Taxes. The Commission believes page 261 should be retained 
because it can provide information as to book and tax timing 
differences, thereby indicating if costs are included in the revenue 
requirement which may not be deductible for tax purposes. The 
reconciliation reflects revenues reported for book purposes which are 
not included for income tax purposes. In other words, for example, 
AFUDC equity is isolated and can be used as a means of checking the 
reasonableness of the AFUDC included in the tax calculation.

B. Overview of FERC Forms 2, 2-A, 3-Q, and 11.

    33. Before describing the proposed changes, the Commission believes 
that an overview of Forms 2, 2-A, and 3-Q, as well as a related form 
(Form 11) would be helpful. As discussed above, these forms are the 
vehicles the Commission uses to obtain financial and certain 
operational information from interstate natural gas companies. The 
forms provide information concerning a company's past performance and 
its future prospects, information compiled using a standard chart of 
accounts contained in the Commission's Uniform System of Accounts 
(USofA).\63\ The forms contain schedules which include a basic set of 
financial statements: Comparative Balance Sheet, Statement of Income 
and Retained Earnings, Statement of Cash Flows, and the Statement of 
Comprehensive Income and Hedging Activities. Supporting schedules 
containing supplementary information are filed, including revenues and 
the related quantities of products sold or transported; account 
balances for various operating and maintenance expenses; selected plant 
cost data; and other information.
---------------------------------------------------------------------------

    \63\ See 18 CFR part 201.
---------------------------------------------------------------------------

    34. Currently, there are 74 Form 2 filers, 44 Form 2-A filers and 
118 Form 3-Q filers. The Form 2 is an annual reporting requirement for 
``major'' natural gas pipeline companies, i.e., natural gas companies 
that transport or store gas in excess of 50 million Dth in each of the 
three previous calendar years. The Form 2-A is an abbreviated version 
of the Form 2 for ``non-major'' natural gas pipeline companies, i.e., 
natural gas companies that do not meet the filing threshold for Form 2 
but have total gas sales or volume transactions exceeding 200,000 Dth 
in each of the three previous calendar years. Form 3-Q is a quarterly 
filing requirement for filers of Forms 2 and 2-A, which requires gas 
companies to file certain Form 2 and 2-A information on a quarterly 
basis. The increased frequency of information provided in Form 3-Q 
allows for more timely evaluations of the adequacy of existing cost-
based rates and improves the transparency of financial information 
submitted to the Commission. Finally, Form 11 is a quarterly filing 
made by natural gas companies that transport or store gas in excess of 
50 million Dth in each of the three previous years. Filers must report 
quantities shipped or stored and revenues received under each rate 
schedule for each month of the quarter.

C. Proposed Adjustments to the Annual and Quarterly Reports

    35. The proposed revisions fall into three categories of 
information. The first group, ``Acquisition and Disposition of Gas,'' 
covers revenue data that is not now included in the forms, in 
particular, reporting revenue from shipper-supplied gas. The second 
group, ``New Rate Policies and Affiliate Transactions,'' pertains to 
pipelines' affiliate transactions, discounted or negotiated rates, and 
incremental facilities. The third group, ``Rate Base and Other Key 
Cost-of-Service Components,'' involves information regarding deferred 
income tax expense, state income tax, wages and salaries, and pensions. 
All of the proposed changes are reflected in the attached schedules, 
Appendix D.
1. Acquisition and Disposition of Gas
a. Shipper-Supplied Gas
    36. As an initial matter, as noted, the issue of the appropriate 
rate methodology used by natural gas pipelines for compressor fuel and 
lost and unaccounted-for gas is before the Commission in Docket No. 
RM07-2-000, Notice of Inquiry, Fuel Retention Practices of Natural Gas 
Companies, seeking comments on whether the Commission should prescribe 
a uniform method for all pipelines to use in recovering these 
costs.\64\ In this NOPR, the Commission is not proposing a change to 
the pipelines' recovery methods; rather, it simply is proposing that 
pipelines provide forms users with detailed financial data of how each 
pipeline accounts for these costs. Therefore, there should be no 
conflict between what is proposed here with whatever is proposed in the 
RM07-2-000 proceeding.
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    \64\ See Fuel Retention Practices of Natural Gas Companies, 
Notice of Inquiry, Docket No. RM07-20-000, 120 FERC ] 61,255 (2007).
---------------------------------------------------------------------------

    37. The Commission's USofA requires that pipelines electing to 
recognize shipper-provided gas as revenue must also recognize an equal 
amount of purchased gas expense. Pipelines must credit the appropriate 
transportation revenue account (Accounts 489.1 through 489.4) and 
record an equal amount in Account 805, Other Gas Purchases. The USofA 
also requires that all gas consumed in compressor stations or used for 
other operational purposes be recognized in the appropriate expense 
accounts in accordance with the existing USofA requirements. Finally, 
for those pipelines not electing to recognize all shipper provided gas 
as revenue, the Commission requires that the value of gas received from 
shippers under tariff allowances that is not consumed in operations nor 
returnable to customers through rate tracking mechanisms be credited to 
Account 495, Other Gas Revenues, and charged to Account 805. Despite 
these accounting and reporting requirements for gas used in operations, 
gas lost, and gas sold, Forms 2 and 2-A users cannot readily determine 
the disposition and value of any shipper-supplied gas that exceeds the 
pipelines' operational needs or the source and cost of any gas acquired 
to meet deficiencies in shipper-supplied gas.
    38. The Industry Coalition, NYPSC, and the KCC all request that 
pipelines be required to provide details of gas purchases and sales, 
including an accounting of gas that pipelines retain from shippers.\65\ 
The Commission agrees that forms users should have access to this 
information in order to assess the sources of revenue recorded for gas 
sales by pipelines. With escalating gas prices and a declining number 
of full section 4 rate reviews,

[[Page 54866]]

the disposition of this gas has become an important item in the 
pipeline's cost of transportation.\66\
---------------------------------------------------------------------------

    \65\ See Industry Coalition comments at 5; NYPSC Comments at 10; 
KCC Comments at 7.
    \66\ See National Fuel, 115 FERC at P 21.
---------------------------------------------------------------------------

    39. The Commission is proposing to add a new schedule entitled 
``Shipper-Supplied Gas for the Current Quarter'' (pages 521-A and 521-
B) to Forms 2, 2-A, and 3-Q, which would require the pipeline to 
report: (1) The difference between the volume of gas received from 
shippers and the volume of gas consumed in pipeline operations each 
month; (2) the disposition of any excess and the accounting recognition 
given to such disposition including the basis of valuing the gas and 
the specific accounts charged or credited; and (3) the source of gas 
used to meet any deficiency and the accounting recognition given to the 
gas used to meet the deficiency, including the accounting basis of the 
gas and the specific account(s) charged or credited. The Commission 
also proposes to add page 520 to Form 3-Q in order to provide more 
timely reporting of this information. In addition, in order to provide 
more clarity for gas purchase activity, we are proposing to require 
pipelines to provide in a footnote to page 520, the volumes of gas 
purchased applicable to each of the gas purchase expense accounts.\67\ 
Currently, pipelines must report the dollar amount of gas purchases by 
type of purchase on the Gas Operation and Maintenance Expenses schedule 
on page 319 of Forms 2 and 2-A, and they are required to report the 
related volumes only in the aggregate on the Gas Account--Natural Gas 
schedule on page 520.
---------------------------------------------------------------------------

    \67\ 18 CFR part 201, Account Nos. 800-805.
---------------------------------------------------------------------------

b. Other Gas Dispositions
    40. The Commission collects information concerning different types 
of gas operating revenue on the schedule entitled Gas Operating 
Revenue, pages 300-301 of Forms 2 and 2-A. This schedule currently 
combines on one line sales data related to residential, commercial and 
industrial, other sales to public authorities, sales for resale and 
interdepartmental sales. The Industry Coalition and the KCC request 
that pipelines provide greater detail concerning these accounts and be 
required to separately identify these costs and provide an accounting 
for each.\68\ The Commission agrees that detail concerning these 
accounts would provide important data that would enable users to 
identify the dispositions of gas acquired by or tendered to the 
pipeline and how those transactions may affect the pipeline's cost of 
service. Accordingly, the Commission proposes to expand the detail 
provided on pages 300-301 of Forms 2 and 2-A to require filers to 
report sales amounts reported in Accounts 480 (Residential Sales); 481 
(Commercial and Industrial Sales); Account 482 (Other Sales to Public 
Authorities); Account 483 (Sales for Resale); and 484 
(Interdepartmental Sales).
---------------------------------------------------------------------------

    \68\ Industry Coalition Comments at 5; KCC Comments at 7.
---------------------------------------------------------------------------

    41. Both the Industry Coalition and the KCC seek detail concerning 
the types of revenues recorded in Account 495, Other Gas Revenues. 
Under the Commission's USofA, pipelines record in Account 495 
miscellaneous revenues derived from gas operations not includible in 
any of the other gas revenue accounts. Additionally, pipelines are 
required to report these revenues on the schedule entitled Other 
Revenues (Account 495) on page 308 of Form 2. The descriptions and 
aggregations of amounts reported by pipelines on this schedule, 
however, do not allow users of the data to obtain a meaningful 
understanding of the nature of the business activities from which the 
revenues are derived. It is important for users of the data to 
understand which customer classes or groups may be affected by the 
miscellaneous revenues.
    42. In order to provide additional information, the Commission 
proposes to modify the schedule for Account 495, Other Gas Revenues, on 
page 308 of Form 2 and add a new schedule to Form 2-A to specify that 
the following types of revenues must be separately reported on the 
schedule: (a) Commissions on sale or distribution of gas of others; (b) 
compensation for minor or incidental services provided for others; (c) 
profit or loss on sale of material and supplies not ordinarily 
purchased for resale; (d) sales of steam, water, or electricity, 
including sales or transfers to other departments; (e) miscellaneous 
royalties; (f) revenues from dehydration and other processing of gas of 
others except as provided for in the instructions to Account 495; (g) 
revenues for rights and/or benefits received from others which are 
realized through research, development, and demonstration ventures; (h) 
gains on settlements of imbalances receivables and payables; (i) 
revenues from penalties earned pursuant to tariff provisions, including 
penalties associated with cash-out settlements, and (j) revenues from 
shipper-supplied gas.
2. New Rate Policies and Affiliate Transactions
a. Affiliate Transactions
    43. Forms 2 and 2-A filers are required to disclose information 
regarding any significant financial changes, including information 
regarding sales, transfers or mergers of affiliates in the Notes to 
Financial Statements schedule page 122.1. However, forms filers are not 
required to provide detailed information regarding affiliate 
transactions. The absence of affiliate information makes it impossible 
for forms users to determine the type and extent of all affiliate 
transactions. In this regard, the NYPSC points out that at present, 
Form 2 does not require any reporting related to affiliate 
transactions.\69\ NYPSC believes that additional controls and 
disclosures of affiliate transactions are needed, not only to ensure 
that costs are just and reasonable, but to prevent cross-subsidization 
between regulated and unregulated companies.\70\ The Commission agrees 
that information concerning the nature and extent of affiliate 
transactions is important because these transactions are not conducted 
at arms' length and could provide opportunities for inappropriate 
cross-subsidization.
---------------------------------------------------------------------------

    \69\ NYPSC's Comments at 6.
    \70\ Id. at 6.
---------------------------------------------------------------------------

    44. To ensure that forms users have access to more detailed 
information regarding affiliate transactions, the Commission proposes 
several revisions. First, the Commission proposes to add a new 
Schedule, page 358, ``Transactions with Associated (Affiliated) 
Companies'' that would require filers to report associated (affiliated) 
transactions, which include administrative and general costs billed 
from the parent. The Commission believes this proposed new schedule 
would provide the transparency necessary to improve the detection of 
cross-subsidization. Second, on page 358, we propose to add the 
requirement that filers report the following: (1) A description of the 
good or service transacted; (2) the name of the Associated (Affiliated) 
Company; (3) the FERC account charged or credited; and (4) the amount 
charged or credited. We propose that where amounts billed to or from 
affiliates are based on an allocation process, filers be required to 
explain the basis of the allocation in a footnote. This would be a new 
schedule for both Forms 2 and 2-A. Finally, we propose to amend the 
instructions for page 357, Charges for Outside Professional and Other 
Consultative Services, to exclude

[[Page 54867]]

associated (affiliated) transactions, and remove the $250,000 threshold 
for reporting services. This schedule is already in existence in Form 
2, but will be a new addition to Form 2-A.
b. Incremental Pricing Policy
    45. Construction of the interstate natural gas pipeline system 
began in earnest in the 1940's. As consumption increased, pipelines 
expanded their facilities to meet the growing demand. The majority of 
these early expansions involved adding facilities that were integrated 
into the pipeline's mainline system and provided benefits to all 
customers using the system. For this reason, the cost of those 
facilities was considered to be a part of the pipeline's cost of 
serving all customers. This ``rolled-in'' approach remained the 
predominant rate methodology for new additions to existing pipeline 
systems through the early 1990s. Under a predominantly rolled-in rate 
regime, financial information reported in Forms 2 and 2-A on an 
aggregate company-wide basis was sufficient for Commission oversight of 
pipeline rates. The Commission's pricing policy for pipeline capacity 
expansions has evolved, due in part to changes in the industry brought 
about by Order No. 636, and its predecessor, Order No. 436.\71\ Current 
Commission policy requires that a pipeline be prepared to financially 
support expansion projects without relying on subsidization from 
existing customers.\72\
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    \71\ Regulation of Natural Gas Pipelines After Partial Wellhead 
Decontrol, Order No. 436, FERC Stats. & Regs. ] 30,665 (1985), 
vacated and remanded, Associated Gas Distributors v. FERC, 824 F.2d 
981 (D.C. Cir. 1987), cert. denied, 485 U.S. 1006 (1998), readopted 
on an interim basis, Order No. 500, FERC Stats. & Regs. ] 30,761 
(1987), remanded, American Gas Ass'n v. FERC, 888 F.2d 136 (D.C. 
Cir. 1989), readopted on an interim basis, Order No. 500-H, FERC 
Stats. & Regs. ]30,867 (1989), aff'd in part and remanded in part, 
American Gas Ass'n v. FERC, 912 F.2d 1496 (D.C. Cir. 1990), cert. 
denied, 498 U.S. 1084 (1991).
    \72\ See Certification of New Interstate Natural Gas Pipeline 
Facilities, Statement of Policy, 88 FERC ] 61,227 (1999), order 
clarifying policy, 90 FERC ]61,128 (2000), order clarifying policy, 
92 FERC ] 61,094 (2000) (Certificate Policy Statement).
---------------------------------------------------------------------------

    46. In concert with this changing pricing policy, the Commission 
has granted an increasing number of companies incremental and other 
rate treatments for facility expansions.\73\ Under these more recent 
pricing methods, new and existing customers pay different rates based 
on the cost of the different facilities that provide service to them. 
In the individual cases where incremental rates have been approved, the 
Commission has required the pipelines to maintain their accounting 
records so as to be able to readily identify the facilities and related 
costs used to provide service to the customers that pay the incremental 
rates.\74\ Until now, the Commission has not required the 
disaggregation of costs and revenues associated with incremental rate 
treatment in Forms 2 and 2-A. The Industry Coalition believes that a 
proper assessment of rates requires that these facilities be considered 
separately.\75\ Without this information, they claim that pipeline 
customers cannot evaluate the reasonableness of different rates that 
are determined from distinct and separate facilities.\76\
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    \73\ See, e.g., Questar Pipeline Co., 93 FERC ] 61,279 (2000); 
Independence Pipeline, et. al., 89 FERC ] 61,283 (1999); and 
Transcontinental Gas Pipeline Corp., 76 FERC ] 61,318 (1996).
    \74\ See 18 CFR 154.309.
    \75\ Industry Coalition Comments at 6.
    \76\ Id.
---------------------------------------------------------------------------

    47. The Commission agrees with the Industry Coalition, and proposes 
to add a new schedule to Forms 2 and 2-A which would provide 
information regarding a company's individual rate treatments for 
services. The proposed new schedule at page 217, entitled ``Non-
Traditional Rate Treatment Afforded New Projects,'' would report: (1) 
The name of the facility; (2) docket number under which the facility 
was approved; (3) the type of rate treatment (e.g., incremental or 
another rate treatment); (4) the amount of plant in service; (5) the 
amount of accumulated depreciation; (6) amount of accumulated deferred 
income taxes; (7) amount of operating expenses; (8) the amount of 
maintenance expenses; (9) the amount of depreciation expense; (10) 
incremental revenues; and (11) other expenses. Because the Commission 
already requires the companies to separately account for each rate 
treatment, the Commission believes the burden for the company to 
identify each facility and the associated costs would be minimal.
c. Discounted Rate Services and Negotiated Rate Services
    48. At present, certain pages in Form 2 require filers to report 
the dollar amounts and volumes associated with each type of 
transportation service provided. These are pages 300-301, Gas Operating 
Revenue; pages 302-303, Revenues from Gas Transportation of Others 
Through Gathering Facilities; pages 304-305, Revenues from Gas 
Transportation of Others Through Transmission Facilities; 306-307, 
Revenues from Storing Gas of Others; and page 308, Other Gas Revenues, 
which require filers to report the dollar amounts and volumes 
associated with each type of transportation service provided. Form 2 
does not, however, require filers to identify the volumes and revenues 
applicable to discounted, negotiated, or recourse rates. Both the 
Industry Coalition and the KCC believe that this information is 
invaluable to shippers because it would allow for the proper assessment 
and analysis of adequacy of rates.\77\
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    \77\ Industry Coalition comments at 6; see also KCC Comments at 
7.
---------------------------------------------------------------------------

    49. The Commission permits pipelines to negotiate individualized 
rates\78\ which, unlike discounted rates,\79\ are not constrained by 
the maximum and minimum rates in the pipeline's tariff.\80\ However, 
pipelines must permit shippers the option of paying the traditional 
cost-of-service recourse rates in their tariffs, instead of requiring 
them to negotiate rates for any p