Standards for Business Practices of Interstate Natural Gas Pipelines

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 284

[Docket No. RM96-1-001; Order No. 587-A]

Standards for Business Practices of Interstate Natural Gas

Pipelines

AGENCY: Federal Energy Regulatory Commission, Energy.

ACTION: Final rule; Order denying rehearing.

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SUMMARY: The Federal Energy Regulatory Commission is denying a request

for rehearing of its final rule revising the Commission's regulations

to require interstate natural gas pipelines to follow standardized

procedures for critical business practices--nominations; allocations,

balancing, and measurement; invoicing; and capacity release--and

standardized mechanisms for electronic communication between the

pipelines and those with whom they do business. (61 FR 39053 (July 26,

1996)). The order reaffirms the Commission's determination to

incorporate by reference into its regulations standards promulgated by

the Gas Industry Standards Board.

DATES: The regulations were effective August 26, 1996, and are to be

implemented based on a staggered scheduling with pro forma tariff

filings in October through December, 1996 and corresponding

implementation in April through June, 1997.

ADDRESSES: Federal Energy Regulatory Commission, 888 First Street,

N.E., Washington DC 20426.

FOR FURTHER INFORMATION CONTACT:

Michael Goldenberg, Office of the General Counsel, Federal Energy

Regulatory Commission, 888 First Street, NE, Washington, DC 20426,

(202) 208-2294

Marvin Rosenberg, Office of Economic Policy, Federal Energy Regulatory

Commission, 888 First Street, N.E., Washington, DC 20426, (202) 208-

1283

Kay Morice, Office of Pipeline Regulation, Federal Energy Regulatory

Commission, 888 First Street, N.E., Washington, DC 20426, (202) 208-

0507

SUPPLEMENTARY INFORMATION: In addition to publishing the full text of

this document in the Federal Register, the Commission provides all

interested persons an opportunity to inspect or copy the contents of

this document during normal business hours in Room 2A, 888 First

Street, N.E., Washington D.C. 20426.

The Commission Issuance Posting System (CIPS), an electronic

bulletin board service, provides access to the texts of formal

documents issued by the Commission. CIPS is available at no charge to

the user and may be accessed using a personal computer with a modem by

dialing (202) 208-1397 if dialing locally or 1-800-856-3920 if dialing

long distance. To access CIPS, set your communications software to

19200, 14400, 12000, 9600, 7200, 4800, 2400 or 1200bps, full duplex, no

parity, 8 data bits, and 1 stop bit. The full text of this document

will be available on CIPS in ASCII and WordPerfect 5.1 format. The

complete text on diskette in WordPerfect format may also be purchased

from the Commission's copy contractor, La Dorn Systems Corporation,

also located in Room 2A, 888 First Street, N.E., Washington D.C. 20426.

The Commission's bulletin board system also can be accessed through

the FedWorld system directly by modem or through the Internet. To

access the FedWorld system by modem:

Dial (703) 321-3339 and logon to the FedWorld system.

After logging on, type: /go FERC

To access the FedWorld system, through the Internet:

Telnet to: fedworld.gov

Select the option: [1] FedWorld

Logon to the FedWorld system

Type: /go FERC

or:

Point your Web Browser to: http://www.fedworld.gov

Scroll down the page to select FedWorld Telnet Site

Select the option: [1] FedWorld

[[Page 55209]]

Logon to the FedWorld system

Type: /go FERC

Before Commissioners: Elizabeth Anne Moler, Chair; Vicky A. Bailey,

James J. Hoecker, William L. Massey, and Donald F. Santa, Jr.

Issued October 21, 1996.

On July 17, 1996, the Federal Energy Regulatory Commission

(Commission) issued a final rule revising the Commission's regulations

to require interstate natural gas pipelines to follow standardized

procedures for critical business transactions between the pipelines and

their customers.1 The final rule incorporated by reference

standards promulgated by the Gas Industry Standards Board (GISB), a

consensus standards organization comprised of members from all segments

of the natural gas industry. On August 16, 1996, Natural Gas

Clearinghouse and Vastar Gas Marketing, Inc. (NGC/Vastar), filing

jointly, and Louisiana-Nevada Transit Company (LNT) filed for

rehearing. For the reasons discussed below, the rehearing requests are

denied.

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\1\ Standards for Business Practices Of Interstate Natural Gas

Pipelines, Order No. 587, 61 FR 39053 (Jul. 26, 1996), III FERC

Stats. & Regs. Regulations Preambles para. 31,039 (Jul. 17, 1996).

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Rehearing Requests

NGC/Vastar principally contend the Commission acted arbitrarily and

capriciously in giving deference to the GISB standards without offering

a reasoned analysis of the GISB standards as compared with the

alternative proposals put forward by NGC/Vastar/Conoco.2 NGC/

Vastar contend that the Commission's failure to address each of NGC/

Vastar/Conoco's proposed standards ran afoul of the Administrative

Procedure Act, because the Commission ``failed to consider an important

aspect of the problem'' 3 and ignored ``important arguments or

evidence.'' 4

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\2\ Conoco did not join in the request for rehearing.

\3\ Citing American Horse Protection Assoc. v. Yeutter, 917 F.2d

594, 598 (D.C. Cir. 1992).

\4\ Citing Natural Resources Defense Council, Inc. v. U.S.

Environmental Protection Agency, 822 F.2d 104, 111 (D.C. Cir. 1987).

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NGC/Vastar further maintain that Sec. 12 of the National Technology

Transfer and Advancement Act of 1995 (NTT&AA) 5 and OMB Circular

A-119,6 which require government agencies to use private consensus

standards, do not justify the Commission's reliance on the GISB

standards or the Commission's failure to analyze NGC/Vastar/Conoco's

alternative standards. NGC/Vastar reiterate their position that the

NTT&AA applies only to government agencies' use of private consensus

standards for procurement, not for regulation of monopoly service

providers, like pipelines.

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\5\ Pub L. No. 104-113, Sec. 12(d), 110 Stat. 775 (1996).

\6\ ''Federal Participation in the Development and Use of

Voluntary Standards'' (Oct. 20, 1993). The Circular can be obtained

from the Internet at http://www.whitehouse.gov/WH/EOP/OMB/html/

circular.html. An earlier version is available at 47 FR 49496 (Nov.

1, 1992).

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Finally, NGC/Vastar maintain the Commission exceeded its authority

in finding that pipeline tariff provisions inconsistent with the GISB

standards are unjust and unreasonable under section 5 of the Natural

Gas Act (NGA). They maintain the Commission should not find unjust and

unreasonable tariff provisions the Commission specifically approved as

part of settlement negotiations.

LNT challenges the Commission's incorporation by reference of the

GISB standards. It avers incorporation by reference unreasonably

requires LNT either to view the standards in Washington, D.C., or to

purchase the standards from GISB for a charge of $2,000 for the four

volumes, which it claims is excessive.

Discussion

The principal issues raised in the rehearing requests are whether

the Commission adequately considered the comments of NGC/Vastar and

others on the notice of proposed rulemaking (NOPR),7 and whether

the Commission is justified in giving deference to the GISB standards

and incorporating them by reference into the regulations. As to the

first issue, the Commission reviewed all the comments submitted and

determined that the GISB standards are just and reasonable. Indeed,

examination of NGC/Vastar/Conoco's comments reveals that they

fundamentally disagree with only one GISB standard. Their principal

position is that to attain maximum efficiency, some of the standards

need supplementation and additional standards are required. Rather than

rejecting NGC/Vastar/Conoco's proposed enhancements or additions, the

Commission found that many of their suggestions may indeed have merit

and deferred consideration of these issues until GISB and the industry

had a further opportunity to consider them. Since the proposed GISB

standards can be implemented without resolving the deferred issues,

providing additional opportunity for industry review causes little or

no harm and will have the benefit of helping to produce more considered

and balanced standards.

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\7\ Standards For Business Practices Of Interstate Natural Gas

Pipelines, Notice of Proposed Rulemaking, 61 FR 19211 (May 1, 1996),

IV FERC Stats. & Regs. Proposed Regulations para. 32,517 (Apr. 24,

1996).

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In reviewing the comments, the Commission was warranted in giving

greater deference to the consensus viewpoint than to the views of one

or even several parties. Giving deference to the consensus decision is

consistent with the NTT&AA. It also is warranted by the Commission's

consistent policy goal of developing standards that satisfy the needs

of the broadest possible base of industry participants.8 Deference

is due to consensus standards, first because the gas industry possesses

specialized knowledge and expertise in the areas of business practices

and computer protocols. Second, when all is said and done, it is the

industry that has to operate businesses using these standards. The

standards, therefore, should be acceptable to as many industry

participants as possible. In short, adopting business practice

standards that command a consensus of the industry is the most likely

method of providing the greatest overall benefit to the industry as a

whole. Moreover, as discussed in the final rule and below, the

Commission considered the substantive changes put forward by NGC/Conoco

and others and found that modifying the standards to try and

accommodate the concerns of the minority would be inconsistent with the

goals to be achieved through standardization.

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\8\ The Commission sought industry consensus when it began the

standardization process by setting up a technical conference to

develop standards for capacity release transactions. Standards For

Electronic Bulletin Boards Required Under Part 284 of the

Commission's Regulations, Notice of Informal Conferences, Docket No.

RM93-4-000 (March 10, 1993).

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LNT's concern is not over the substance of the standards, but goes

to the manner by which the Commission adopted the standards, and is

addressed below.

A. Deference to the GISB Standards Is Warranted and Consistent With the

NTT&AA and OMB Circular A-119

In examining the standards proposed by GISB and the comments and

alternative standards of NGC/Vastar/Conoco and others, the Commission

was warranted in giving greater weight to the consensus agreement.

Section 12 of the NTT&AA establishes governmental policy that federal

agencies shall use technical standards that are developed or adopted by

voluntary consensus standards bodies unless such use is ``inconsistent

with applicable law or otherwise impractical.'' Although, as NGC/Vastar

point out, Senator Rockefeller, a sponsor of the bill,

[[Page 55210]]

referred to government use of standards for procurement purposes,9

nothing in the final language of the Act limits its applicability to

procurement. Congressman Brown, a cosponsor of the Act, in fact,

specifically refers to the use of standards for ``procurement and

regulatory purposes.'' 10 In addition, Sec. 12 of the NTT&AA was

intended to codify OMB Circular A-119, which did not limit the policy

of using private sector standards to procurement.

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\9\ 142 Cong. Rec. S1080 (daily ed. Feb. 7, 1996).

\10\ 142 Cong. Rec. H1266 (daily ed. Feb. 27, 1996) (emphasis

added).

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Even if Sec. 12 of the NTT&AA does not strictly apply here, the

Commission is warranted in giving significant weight to the consensus

standards. Not only does the industry possess specialized knowledge of

business and electronic communication practices, but, since the

industry itself has to operate under these standards, the standards

should implement practices that are favored by the broadest cross-

section of industry members.

Indeed, well before the passage of Sec. 12 of the NTT&AA,

government agencies relied on private sector standards for regulatory

purposes, including protection of public health and safety.11

Agencies rely on industry standards for much the same reasons the

Commission has chosen to give GISB's standards great weight. Industry

possesses specialized knowledge and expertise in the relevant technical

areas, and the procedural process of consensus standards development

helps ensure that the process is open to all affected interests and

that the standards reflect a consensus of these interests.12 There

is no reason to make a distinction between the frequent use of

standards by agencies to protect the public health and safety and the

Commission's use of industry standards as part of its efforts to

regulate the terms and conditions under which a monopoly service is

provided.

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\11\ For just a few examples of the use of standards for non-

procurement purposes, see 42 CFR 405.2150, 60 FR 48039 (Sept. 18,

1995) (Health Care Financing Administration incorporation of

Association for the Advancement of Medical Instrumentation standards

for reuse of hemodialyzers); 49 CFR Part 659, 60 FR 67034 (Dec. 27,

1995) (Federal Transit Administration incorporation by reference of

APTA rail transit system safety plans); 49 CFR 192.11, 193.2005

(Department of Transportation incorporation by reference of practice

standards relating to transportation of petroleum gas and LNG); 24

CFR 200.926b, part 200, App. A, 3280.801 (Housing and Urban

Development minimum property standards and manufactured housing

standards); 16 CFR Material Approved for Incorporation by Reference,

at 483 (1996) (listing standards incorporated by Consumer Product

Safety Commission); 21 CFR 801.410 (FDA standards for impact-

resistant eye glasses).

\12\ See 142 Cong. Rec. S1081 (daily ed. Feb. 7, 1996) (remarks

of Senator Rockefeller); 142 Cong. Rec. H1266 (daily ed. Feb. 27,

1996)(remarks of Congressman Brown).

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NGC/Vastar point to language in OMB Circular A-119 cautioning

federal agencies that private standards-setting is vulnerable to abuse.

They contend the evidence NGC/Vastar/Conoco put forward in their

comments shows that the pipeline interests unfairly dominated the task

force meetings (the committees that developed and submitted draft

standards to the GISB Executive Committee for final voting).

Without repeating all the discussion in the final rule, the

Commission reviewed GISB's standards-development process and found that

GISB reasonably assured broad based approval of the standards by all

segments of the gas industry. At the Executive Committee level, the

record shows that the voting generally exceeded GISB's rigorous

consensus requirement; 13 most of the standards received virtually

unanimous support. 14 The record also shows that the Standards

Committee did not merely rubber stamp the recommendations from the

drafting committee, as suggested by NGC/Vastar. The Executive Committee

conducted preliminary sessions prior to its public meeting to debate

and refine the standards. Its public meeting lasted for two full days,

going late into the night, with the Committee making significant and

fundamental changes to the task force recommendations.

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\13\ Under GISB rules, 17 out of 25 Executive Committee members

must approve a standard with at least two affirmative votes from

each of the five industry segments. The five segments are pipelines,

local distribution companies (LDCs), producers, end-users, and

services (including marketers and third-party computer service

providers).

\14\ See Volume III of GISB's March 15, 1996 filing, Voting Work

papers.

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The Commission, however, is not ignoring potential problems with

consensus standard development, as NGC/Vastar argue. For instance,

under GISB's procedures, a concerted effort by a single interest can

prevent the adoption of a standard supported by the rest of the

industry. That is why the Commission has been particularly vigilant

about examining those areas in which GISB has failed to reach consensus

on standards. The Commission, in fact, agreed with NGC/Vastar that, in

many of these areas, standards appear necessary and instituted

procedures to have GISB and the industry develop the needed standards.

The Commission established a September 30, 1996 date for submission

of detailed reports on the additional standards, and, on that date,

GISB submitted a report containing additional approved standards and a

voting record for the standards that did not receive the necessary

votes.

B. Response to NGC/Vastar/Conoco's Comments

While GISB's standards are legitimately entitled to great weight,

the Commission did not, as NGC/Vastar/Conoco maintain, delegate to GISB

the sole responsibility to develop these standards. The Commission has

and is still taking an active role in the process. It has identified

the areas requiring standardization. And, as discussed below, the

Commission reviewed the GISB standards in light of NGC/Vastar/Conoco's

comments and those of other participants and determined that the

standards provide a just and reasonable solution to the lack of

standardization in the industry.

With the exception of the requirement for a nationwide nomination

schedule, NGC/Vastar/Conoco did not fundamentally disagree with the

GISB standards passed. Rather, their principal concerns were that a few

of the GISB standards, in their view, do not go far enough and need to

be improved and enhanced and that standards in additional areas need to

be adopted.

1. NGC/Vastar/Conoco's Objections to the GISB Standards

NGC/Vastar/Conoco raised six specific concerns with the GISB

standards in their comments on the NOPR: uniform nomination deadline;

pooling; tracking of title transfers; intra-day nominations; prior

period adjustments; and unit of measure. 15

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\15\ NGC/Vastar/Conoco also raised concerns about GISB's

adoption of internet protocols as the electronic method for

communication of the high priority data elements. They argued that,

while the use of internet protocols is a step forward, GISB did not

go far enough in using internet technology. This issue is not yet

ripe for consideration. The Commission has not yet adopted the

electronic delivery mechanism standards, because GISB had not

completed the standards in time for the final rule. The Commission,

however, did agree with some aspects of NGC/Vastar/Conoco's comments

regarding the need to eventually replace pipeline electronic

bulletin boards with a more uniform method of communication. 61 FR

39057, 39065, III FERC Stats. & Regs. Preambles at 30,063, 30,076.

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a. Uniform Nomination Deadline. GISB established a uniform

nomination deadline for the entire country, starting at 11:30 a.m. CCT

(central clock time). (Nomination Standard 1.3.2). NGC/Vastar/Conoco,

as well as others, argued a staggered nomination timeline would be more

efficient. NGC/Vastar/Conoco suggested that upstream pipelines should

go first while others suggested a regional nomination system.

As was the case with many of the standards, the Commission found

that the determination of an appropriate nomination schedule was a

matter of judgment, not fact, and accepted the

[[Page 55211]]

consensus rationale for adopting a nationwide schedule. The industry

consensus was that a nationwide timeline provides shippers with more

assurance of their transportation arrangements. A nationwide nomination

schedule enables a shipper using multiple pipelines to nominate and

schedule each link in its transaction chain at one time. It also

enables the shipper to learn quickly whether its nomination will go

through as scheduled.

A staggered schedule could leave a shipper with one (or more)

scheduled pipeline and one (or more) unscheduled. 16 For example,

under a system where nominations on upstream pipelines are processed

first, a shipper may receive confirmation of transportation on the

upstream pipeline, without knowing whether it will be able to acquire

transportation to deliver that gas to its needed destination.

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\16\ 61 FR 39061, III FERC Stats. & Regs. Preambles at 30,067-

68.

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b. Pooling. GISB's standard requires pipelines to offer one pool if

requested by a shipper or supplier. (Nomination Standard 1.3.17). NGC/

Vastar/Conoco agree with the standard, but object to the requirement

that pooling must be requested by a shipper or supplier. They suggest

pipelines may take a long time to establish pooling mechanisms and,

therefore, argue the ``shipper request'' requirement could drag out

implementation for years.

Although pooling is either already provided, or is likely to be

requested, on larger pipelines, pooling may not be needed or demanded

on smaller pipelines. The ``shipper request'' requirement helps to

ensure that pipelines do not unnecessarily establish pools that are not

needed. The ``shipper request'' requirement also should not cause any

delay in implementing pooling. The standard requires nothing more than

a request by a shipper or a supplier to trigger the obligation for the

pipeline to establish a pool. Since the tariff changes to comply with

the standards are not due to start being filed until October of 1996,

and implementation does not begin until April of 1997, there is ample

time for shippers needing pooling to make their requests, and for

implementation to be timely.

c. Title Transfer Tracking. GISB adopted two principles dealing

with title transfers 17--title transfer tracking improves

certainty and users of title transfers should bear the cost of the

service (Nomination Principles 1.1.10 and 1.1.11). But GISB failed,

after much discussion, to reach agreement on a title tracking

standard.18 NGC/Vastar/Conoco request the Commission to eliminate

the two principles because the entire issue of title transfers has been

deferred for further consideration.

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\17\ Title transfer tracking refers to keeping computerized

record of nominations showing the transfer between parties of title

to gas whether or not the gas is being physically transported on the

pipeline.

\18\ See Transcript of March 7, 1996 GISB Executive Committee

Meeting, Docket No. RM96-1-000, at 316-370 (filed March 27, 1996).

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Although the Commission adopted the principles, pipelines need not

comply with them unless, and until they are adopted as standards. NGC/

Vastar/Conoco, in fact, agree with the general principle that title

transfer tracking is important, and improves certainty,19 and the

Commission concurred, including title transfer tracking as an issue for

further consideration by GISB and the industry.20 NGC/Vastar/

Conoco have suffered no harm from adoption of the two principles, since

pipelines are not required to revise their tariffs to comply with them,

and, in any event, they are subject to revision based on the future

deliberations.

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\19\ See Comments and Proposed Alternative Standards of NGC/

Vastar/Conoco, Docket No. RM96-1-000, at 67 (May 28, 1996) (``title

transfers create liquidity in the market, which in turn enhances

reliability and competitiveness of natural gas as a fuel'').

\20\ 61 FR 19216; IV FERC Stats. & Regs. Proposed Regulations at

33,213.

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d. Intra-day Nominations. GISB's standards for intra-day

nominations (a nomination made after the nomination deadline for a gas

day) provide that pipelines must allow shippers to submit at least one

intra-day nomination four hours prior to gas flow and that intra-day

nominations can be used to request increases or decreases in total flow

and changes to receipt or delivery points for scheduled gas.

(Nomination Standards 1.3.8, 1.3.10, and 1.3.11). NGC/Vastar/Conoco

maintain that these standards, while a ``step in the right direction,''

do not go far enough to ensure equitable treatment of shippers. They

propose six revised standards covering additional areas such as bumping

rights, for example, between shippers submitting intra-day nominations

to primary points and shippers using those points as secondary points.

The Commission accepted the GISB standards as a reasonable point of

departure. NGC/Vastar/Conoco do not maintain that the GISB standards

should not be implemented as written, only that their suggested

additions may improve the efficiency of the market. The Commission

agrees that improvements probably can be made in this area as the

standards are refined. While permitting the industry to review such

revisions through the consensus process may be somewhat slower than

NGC/Vastar/Conoco would prefer, such review will lead to a better and

more considered decision.

e. Prior Period Adjustments. GISB adopted three standards dealing

with prior period adjustments (allocations, measurement, and invoices)

that impose a six-month period for the adjustment and a three-month

rebuttal period. (Flowing Gas Standards 2.3.26 and 2.3.14 and Invoicing

Standard 3.3.15.) NGC/Vastar/Conoco contend the six-month

reconciliation period does not reflect commercial realities, because

most pipelines are unable to provide adjustments that quickly, the

adjustments therefore may be inaccurate, and the six-month period is

inconsistent with companies' internal and external auditing procedures.

They recommend a two-year period for adjustments.

The consensus view of all segments of the industry, including the

pipeline segment, is that expedition of these adjustments is important

and can be made accurately within the six-month time period specified.

There is no factual basis, at this point, to determine whether these

adjustments can be made accurately. The question of how fast

reconciliation is needed and what reasonably can be accomplished is a

matter of judgment, and the Commission, therefore, chose to adopt the

position supported by the majority of the industry.21 Given the

importance of obtaining financial data promptly, the Commission is

unwilling to accept NGC/Vastar/Conoco's assumption that pipelines will

fail to perform in the manner to which they have agreed. Pipelines are

subject to the risks of alienating their own customer base as well as

possible Commission action if they fail to follow the standards.

Indeed, NGC/Vastar/Conoco's reluctance to hold the pipelines to the

speed-up in reconciliation, to which the pipelines agreed, is at odds

with the general thrust of NGC/Vastar/Conoco's arguments, on other

standards, that pipelines should be forced to do more, and do it

faster, than the consensus agreement.

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\21\ 61 FR 39062, III. FERC Stats. & Regs. Preambles at 30,068-

69.

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f. Unit of Measure. GISB adopted dekatherms as the standard unit

for nominations. (Nomination Standard 1.3.14.) It further adopted a

standard providing that, subject to regulatory and/or contractual

considerations for standardizing billing units on invoices, dekatherms

should be used for invoices

[[Page 55212]]

to be consistent with nomination standard. (Invoicing Standard 3.3.3.)

NGC/Vastar/Conoco accepted the use of dekatherms for nominations,

but contended dekatherms should not be required for billing. They

contended that this standard ignores the commercial reality that

thousands of contracts are based on Mcf and that parties such as LDCs,

intrastate pipelines, and gatherers may have state rates based on Mcf

and may not measure dekatherms. They recommended that Mcf should be

included as an optional field.

The GISB standard, on its face, is conditioned on the relevant

contractual relations between the parties, so that it will not result

in trumping those agreements in the absence of negotiations between the

parties. Thus, customers can still continue to receive invoices in Mcf

if provided by their contract. The consensus standard, however,

establishes parameters for future and renegotiated contracts to provide

consistency in the measurement and billing process, which is a

reasonable objective.

2. Deferred Issues

NGC/Vastar/Conoco's primary concern was with the standards that

fall under the heading of deferred issues: the issues the Commission

determined required further consideration by GISB and the industry.

NGC/Vastar/Conoco contended the Commission should not have deferred

resolution of these issues, but should have resolved them immediately

based on NGC/Vastar/Conoco's proposed standards. NGC/Vastar/Conoco

further contended the ``reserved'' issues are among the most complex

facing the industry and, since GISB failed to resolve them the first

time, its chances of resolving them on a second try are a ``false

hope.''

The Commission heeded the comments of NGC/Vastar/Conoco, finding

that ``many of NGC/Vastar/Conoco's points may have merit.'' 22

Where the Commission differed with NGC/Vastar/Conoco was in the process

for resolving these issues. While recognizing that the additional

standards need prompt consideration, the Commission concluded the GISB

standards could be implemented while standards in the additional areas

are being considered.23 Indeed, although NGC/Vastar/Conoco

contended that implementation of their proposed additional standards

immediately may reduce the costs of ironing out the details in later

filings, they did not suggest that implementation of the additional

standards is a prerequisite to implementation of the GISB standards.

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\22\ 61 FR 39060, III FERC Stats. & Regs. Preambles at 30,068.

\23\ 61 FR 19216, IV FERC Stats. & Regs. Proposed Regulations at

33,213.

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The Commission has determined to try to obtain resolution of

standards issues through the consensus process and is not prepared to

discard that process at this stage of the proceedings. Particularly for

complex issues, achievement of a consensus that fairly balances the

concerns of all industry segments is desirable. On its first try at

standardization, GISB and the industry had to face and resolve a wide

range of issues in a short timeframe. GISB conducted 45 meetings within

a 53 day period and reached consensus on a significant number of

critical issues. The Commission is not willing to short-circuit that

process without giving the industry a chance to consider the deferred

issues.

Moreover, the Commission could not have resolved these issues

immediately based on the existing record. Since no party had an

opportunity to respond to NGC/Vastar/Conoco's comments, the Commission

would have had to establish additional procedures to resolve the issues

in any event. The better path, therefore, is to proceed as the

Commission has done and provide the industry with additional time to

consider the issues. Even if the industry does not succeed at reaching

consensus, the review by GISB and the industry will cast additional

light on the issues involved in these complex areas, enabling the

Commission to reach a more reasoned resolution if it is required to

intervene in the process.

The Commission, however, recognized the need to monitor industry

progress on these standards to ensure that a stalemate does not impede

development of the standards. Thus, the Commission rejected calls to

extend the September 30, 1996 deadline to report to the Commission on

the industry's progress on these issues.\24\ Analysis of the reports

filed on September 30 by GISB and others should reveal whether the

industry is en route to resolving these issues or whether the

Commission should institute additional procedures.

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\24\ 61 FR 39066, III FERC Stats. & Regs. Preambles at 30,076-

79.

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C. The Commission's Sec. 5 Action Is Warranted

NGC/Vastar take issue with the Commission's finding that pipeline

tariff provisions inconsistent with the GISB standards are unjust and

unreasonable under Sec. 5 of the NGA. They maintain that a Sec. 5

finding is inappropriate since the Commission has specifically ordered

or approved many of these provisions, which were crafted as part of

extensive settlement processes.

As the Commission pointed out in the final rule, pipeline tariff

provisions governing business practices initially were crafted in

individual restructuring proceedings pursuant to Order No. 636. But

experience under these tariffs clearly showed the policy of relying on

individual, non-standardized tariff filings was not sufficient to

create the uniform pipeline grid the Commission envisioned in Order No.

636. \25\ Indeed, before initiating this rulemaking, the Commission

held a technical conference on September 21, 1995, to assess the

industry's standardization progress.\26\ At that conference, all

segments of the industry agreed that relying on individual pipeline

procedures inhibited efficiency. One participant aptly summarized the

problem:

\25\ 61 FR 39056, III. FERC Stats. & Regs. Preambles at 30,059.

\26\ Technical Conference, Standards For Electronic Bulletin

Boards Required Under Part 284 of the Commission's Regulations,

Docket No. RM93-4-000 (Sept. 21, 1995).

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Moving gas across multiple pipelines today is a logistical

nightmare. Each pipeline wants data specified in a different way.

Delays are standard operating procedure, errors are routine, and the

cost of this process is too great for all of us. * * * Let me give

you an example of the problem. Today, the 18 largest pipelines use

14 different nomenclatures to describe a pipeline receipt point.

About 80 unique data elements are required to execute a nomination

on these pipelines.\27\

\27\ Transcript of September 21, 1995 Technical Conference,

supra, note, at 44-45.

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NGC/Vastar, themselves, recognize that individual pipeline tariff

procedures are not sufficient and that ``standardization of pipeline

business practices will go a long way to making the trading of natural

gas in an integrated market more efficient, and should make gas service

more reliable.'' \28\

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\28\ Request for Rehearing, August 16, 1996, at 1.

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Through this rulemaking proceeding, the Commission sought to

correct this obstacle to efficiency by requiring standardization of

pipeline business practices. Accordingly, tariff provisions that

conflict with the Commission's standardization policy are, of

necessity, unjust and unreasonable.

D. Incorporation by Reference Is Appropriate

LNT does not object to the substance of the GISB standards, but to

the Commission's incorporation of the standards by reference into its

regulations. LNT complains that by

[[Page 55213]]

incorporating the standards by reference, rather than reprinting the

standards in the Code of Federal Regulations, the Commission has forced

it to incur either the expense of traveling to Washington, DC. to view

the standards at the Commission or the Office of the Federal Register

or the $2,000 cost of purchasing the standards from GISB. LNT maintains

the $2,000 cost is exorbitant and, therefore, argues the standards are

not reasonably available to the class of persons affected by the

regulations, contrary to the regulations promulgated by the Office of

the Federal Register.\29\

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\29\ 1 CFR 51.7(4).

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As discussed earlier, section 12 of NTT&AA establishes a government

policy under which agencies are to rely upon, and adopt, private sector

standards whenever practicable and appropriate. The Freedom of

Information Act and implementing regulations establish that the proper

method of adopting such copyrighted material is to incorporate it by

reference into the agency's regulations. \30\ To be eligible for

incorporation by reference, the document must be reasonably available

to the class of persons affected by the publication. \31\ Once adopted,

a copy must be provided to the Office of the Federal Register for

viewing, and the material must be available and readily obtainable.

Neither the statute nor the regulations require that the standards be

available at no cost. Indeed, standards incorporated by reference are

exempt from the requirement that the agency provide copies of documents

according to the agency's fee schedule. \32\

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\30\ 5 U.S.C. Sec. 553(a)(1); 1 CFR 51.7(4). See 28 U.S.C.

Sec. 1498 (government liability for patent and copyright

infringement). Other government agencies similarly incorporate

private standards by reference. See, e.g., note 11, supra.

\31\ See 5 U.S.C. 553(a)(1); 1 CFR 51.7(4).

\32\ 5 U.S.C. 553(a)(3).

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GISB, in fact, is not insisting on payment for the reproduction for

regulatory purposes of the business practice standards and the

associated datasets (data dictionaries), so small companies or

municipalities will have easy access to the standards for purposes of

reviewing and responding to pipeline tariff filings. \33\ The only

material for which GISB has restricted reproduction is the complex and

detailed ASC X12 mappings and other computer protocols and examples.

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\33\ Letter of September 12, 1996 from counsel for GISB to the

Secretary of the Commission (Docket No. RM96-1-000).

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It is common practice for standards organizations to charge for

copies of their standards in order to defray the publishing costs as

well as some of the administrative, legal, and other costs of

developing the standards.\34\ The GISB price of $2,000 covers the

complete four volume set of documents, running over 2,000 pages,

including the provision without charge for one year, of the updates and

revisions that are certain to be forthcoming. Determining an

appropriate price for such standards is not simply a matter of

calculating the direct costs of publishing the standards, but involves

consideration of the administrative, legal, and other developmental

costs as well as the anticipated number of purchasers. In this case,

this determination was made, not by an independent publishing firm, but

by those who themselves have to purchase the documents--the GISB

membership composed of firms, of varying sizes, from all segments of

the industry.\35\ The Commission has no basis to disagree with their

determination of the price. Even for small pipelines, like LNT, a

regulatory cost of $2,000, whether for legal fees or for acquiring

standards, is within the normal course of doing business. Moreover, LNT

can seek to include the costs of compliance with the GISB standards in

future rate proceedings.

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\34\ See Why There Is a Charge for Standards and Standards

Information, American National Standards Institute (explaining why

charges need to be assessed for standards even if obtained

electronically, with no publishing costs). The document is

accessible at ANSI's Internet site, http://www.ansi.org/

why__chrg.html.

\35\ Although GISB members can receive the four volume set at

the member's fee of $1,000, their yearly membership dues of $2,000

help defray the administrative, legal, and other costs of developing

the standards. See Gas Industry Standards Board Standards Action

Bulletin, September 17, 1996, at 8. The Bulletin is accessible via

GISB's Internet site at http://www.NeoSoft.com/gisb/

gisb.htm.

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The Commission orders: The requests for rehearing are denied.

By the Commission.

Lois D. Cashell,

Secretary.

[FR Doc. 96-27432 Filed 10-24-96; 8:45 am]

BILLING CODE 6717-01-P