Policy statement on Provisions Governing Natural Gas Quality and Interchangeability in Interstate Natural gas Pipeline Company Tariffs
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FERC Policy Statements › Policy statement on Provisions Governing Natural Gas Quality and Interchangeability in Interstate Natural gas Pipeline Company Tariffs
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UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: Joseph T. Kelliher, Chairman;
Nora Mead Brownell, and Suedeen G. Kelly.
Natural Gas Interchangeability
Docket No. PL04-3-000
POLICY STATEMENT ON PROVISIONS GOVERNING NATURAL GAS QUALITY
AND INTERCHANGEABILITY IN INTERSTATE NATURAL GAS PIPELINE
COMPANY TARIFFS
(Issued June 15, 2006)
I.
Introduction
1.
In this proceeding, the Commission has been exploring natural gas quality and
interchangeability issues and the impact of those issues on the natural gas companies
subject to the Commission’s jurisdiction, as well as on natural gas producers, shippers
and end-users. Based upon the information developed during this proceeding, which will
be discussed below, the Commission today announces its policy on natural gas quality
and interchangeability issues.
2.
The Commission’s intention in issuing this statement of generic policy is to
provide direction for addressing gas quality and interchangeability concerns, as well as to
provide guidance to individual companies that have concerns about these issues. The
Commission’s policy embodies five principles: (1) only natural gas quality and
interchangeability specifications contained in a Commission-approved gas tariff can be
enforced; (2) pipeline tariff provisions on gas quality and interchangeability need to be
flexible to allow pipelines to balance safety and reliability concerns with the importance
of maximizing supply, as well as recognizing the evolving nature of the science
underlying gas quality and interchangeability specifications; (3) pipelines and their
customers should develop gas quality and interchangeability specifications based on
technical requirements; (4) in negotiating technically based solutions, pipelines and their
customers are strongly encouraged to use the Natural Gas Council Plus (NGC+) interim
s recognizing the evolving nature of the science
underlying gas quality and interchangeability specifications; (3) pipelines and their
customers should develop gas quality and interchangeability specifications based on
technical requirements; (4) in negotiating technically based solutions, pipelines and their
customers are strongly encouraged to use the Natural Gas Council Plus (NGC+) interim
Docket No. PL04-3-000
- 2 -
guidelines filed with the Commission on February 28, 20051 (discussed below) as a
common reference point for resolving gas quality and interchangeability issues; and,
(5) to the extent pipelines and their customers cannot resolve disputes over gas quality
and interchangeability, those disputes can be brought before the Commission to be
resolved on a case-by-case basis, on a record of fact and technical review.
II.
Background
3.
The Commission has seen interest in natural gas quality and interchangeability
issues escalate for several years, and these issues have come before the Commission in
complaints, proposed tariff provisions and certificate proceedings. Historically, gas
quality is one of many terms and conditions of service stated in individual pipelines’
FERC-jurisdictional tariffs. The Commission has no generic policy in this area, and
individual pipelines have different standards, practices, and enforcement mechanisms.
4.
Principally methane, natural gas is commonly found in nature mixed with other
hydrocarbons and varying amounts of contaminants.2 The exact composition of natural
gas is chiefly dependent upon the geological source from which it is extracted. At
typical interstate pipeline operating pressures and temperatures, “pipeline quality” natural
gas remains in a gaseous state and pipelines, distribution facilities, and end-user
equipment are all designed to handle and burn this gas. The term “pipeline quality”
natural gas is defined in each individual pipeline’s tariff, and these definitions vary
widely from pipeline to pipeline.
5
d. At
typical interstate pipeline operating pressures and temperatures, “pipeline quality” natural
gas remains in a gaseous state and pipelines, distribution facilities, and end-user
equipment are all designed to handle and burn this gas. The term “pipeline quality”
natural gas is defined in each individual pipeline’s tariff, and these definitions vary
widely from pipeline to pipeline.
5.
Depending on the relative prices of these hydrocarbon fractions, producers may
have an economic incentive to process gas and deliver mostly pure methane as “pipeline
quality” gas to interstate pipelines. However, when economics favor sales of natural gas
1 Report on Liquid Hydrocarbon Drop Out in Natural Gas Infrastructure (HDP
Report) and Report on Natural Gas Interchangeability and Non-Combustion End Use
(Interchangeability Report).
2 The hydrocarbon gases that can be found in natural gas are (and the number of
carbon atoms in each): methane (C1), ethane (C2), propane (C3), butanes (C4), pentanes
(C5), hexanes (C6), heptanes (C7), octanes (C8) and nonanes plus (C9+). Non-
hydrocarbons in natural gas can include nitrogen (N2), carbon dioxide (CO2), helium
(He), hydrogen sulfide (H2S), water vapor (H2O), oxygen (O2), other sulfur compounds
and trace gases.
Docket No. PL04-3-000
- 3 -
over other hydrocarbons, producers may choose not to process.3 As it is transported
and distributed, unprocessed natural gas may experience changes in temperature and
pressure which cause the heavy hydrocarbons to assume a liquid form. When this
happens, pipelines and other downstream equipment may experience inefficient
operations and unsafe conditions. This problem is known as hydrocarbon liquid dropout,
and the potential for this problem to occur can be measured in terms of cricondentherm
hydrocarbon dew point (CHDP)
erience changes in temperature and
pressure which cause the heavy hydrocarbons to assume a liquid form. When this
happens, pipelines and other downstream equipment may experience inefficient
operations and unsafe conditions. This problem is known as hydrocarbon liquid dropout,
and the potential for this problem to occur can be measured in terms of cricondentherm
hydrocarbon dew point (CHDP). Gas quality, as discussed in this policy statement, is
concerned with the impact of non-methane hydrocarbons on the safe and efficient
operation of pipelines, distribution facilities, and end-user equipment.4
6.
Gas pipelines have taken different approaches to dealing with hydrocarbon liquid
dropout, as reflected in a number of pipelines’ tariffs. The HDP Report cites three
examples.5 First, about one-third of interstate pipeline tariffs specify a maximum heating
value, but this has proven to be an inadequate predictor of hydrocarbon liquid drop out.6
Second, some pipelines have addressed the potential for hydrocarbon liquid dropout by
specifying concentration limits for heavy hydrocarbons (using C5+ gallons per standard
3 When delivered, natural gas is measured in terms of its thermal value, usually
measured in British thermal units (Btus), and billed on that basis. When deciding
whether to process natural gas, producers look to the relative thermal values of the
different hydrocarbons that might be extracted in processing to determine which product
will generate the most revenue.
4 Other materials commonly found in natural gas, include contaminants, such as
water, sand, sulfur compounds, oxygen, carbon monoxide, carbon dioxide, nitrogen,
helium and other materials. While this policy statement does not address these materials,
the Commission understands that jurisdictional pipeline tariffs already include
specifications to control these elements within acceptable limits.
5 HDP Report, at sections 3.1.2 – 3.1.3, at 16
nclude contaminants, such as
water, sand, sulfur compounds, oxygen, carbon monoxide, carbon dioxide, nitrogen,
helium and other materials. While this policy statement does not address these materials,
the Commission understands that jurisdictional pipeline tariffs already include
specifications to control these elements within acceptable limits.
5 HDP Report, at sections 3.1.2 – 3.1.3, at 16.
6 The Report notes that maximum heating value alone is not a good predictor of
whether hydrocarbon liquid drop out will occur because different gases with the same
gross heating value may have different propensities for hydrocarbon liquid drop out. The
paper notes the examples of a gas with a relatively low heating value but a high hexane
concentration that may have a high probability of hydrocarbon liquid drop out in contrast
to a gas with a high heating value due to a high ethane content with a very low
probability of hydrocarbon liquid drop out.
Docket No. PL04-3-000
- 4 -
cubic feet7 or C5+ GPM) to establish the concentration limits above which the heavy
hydrocarbon level might be detrimental to pipeline operational integrity. This measure
may in some instances indicate the potential for liquid hydrocarbon drop out, but it is not
as reliable in isolation as it is in conjunction with hydrocarbon dew point. Third, a
number of pipelines have elected to establish CHDP limits to control liquid dropout.
7.
Natural gas interchangeability is also a significant consideration in the discussion
of tariff specification of “pipeline quality” gas
some instances indicate the potential for liquid hydrocarbon drop out, but it is not
as reliable in isolation as it is in conjunction with hydrocarbon dew point. Third, a
number of pipelines have elected to establish CHDP limits to control liquid dropout.
7.
Natural gas interchangeability is also a significant consideration in the discussion
of tariff specification of “pipeline quality” gas. As used by the gas industry historically,
“interchangeability” means the extent to which a substitute gas can safely and efficiently
replace gas normally used by an end-use customer in a combustion application.8 Much of
the available science and research on interchangeability that exists today originated in the
1930s and 1940s when the interstate transportation of natural gas began to supplant
manufactured gas.9 Technological innovation since that time has created more efficient,
more environmentally benign equipment, such as gas-fired turbines. Other technological
innovations, such as liquefied natural gas (LNG) storage facilities, have inherent design
limitations based on the quality of natural gas available at the time the facilities were
originally designed. How well they will operate if future gas supply characteristics differ
from those available today is unknown.
8.
Several indices have been developed over time to characterize the
interchangeability of different natural gases. One widely accepted measure of
interchangeability is the Wobbe Index, which is based on energy input and specific
gravity. Other indices incorporate fundamental combustion phenomena in their
calculations. Examples include the AGA Bulletin 36 Indices and the Weaver Indices.
These indices were created using different measurable characteristics of natural gas and
combustion experiments to measure and predict interchangeability. However, each index
has limits to the predictive value of its application
ic
gravity. Other indices incorporate fundamental combustion phenomena in their
calculations. Examples include the AGA Bulletin 36 Indices and the Weaver Indices.
These indices were created using different measurable characteristics of natural gas and
combustion experiments to measure and predict interchangeability. However, each index
has limits to the predictive value of its application. The importance of measuring
interchangeability, regardless of the index used, is that it provides a predictive correlation
between the specific measurable physical characteristics of natural gas and burner tip
performance.
7 Gallons per Million cubic feet is abbreviated GPM. See, e.g., HDP Report at
sections 1.2.7 and 3.1.
8 See, e.g., Cove Point LNG Limited Partnership, 97 FERC ¶ 61,043, at 61,197
(2001), order on reh’g, 97 FERC ¶ 61,276 (2001).
9 Interchangeability Report, at section 3.1.1.
Docket No. PL04-3-000
- 5 -
9.
During the 2000/01 winter heating season, rising natural gas prices led
producers to stop processing natural gas. As a result, pipelines began to receive a richer
quality gas containing a higher proportion of liquid and liquefiable hydrocarbons, and a
higher energy density, as measured in Btus per cubic foot of natural gas. A number of
pipelines reacted by invoking tariff provisions that authorize pipelines to issue
operational flow orders (OFOs), which required the gas to be processed before being
delivered to the pipelines. Producers objected, arguing that pipelines were attempting to
impose more stringent quality standards on some producers, but not on others.
10.
Interchangeability issues have also been raised in proceedings to authorize the
siting and operation of LNG import terminals
s to issue
operational flow orders (OFOs), which required the gas to be processed before being
delivered to the pipelines. Producers objected, arguing that pipelines were attempting to
impose more stringent quality standards on some producers, but not on others.
10.
Interchangeability issues have also been raised in proceedings to authorize the
siting and operation of LNG import terminals. In September, 2001, the Commission
issued an order reauthorizing the receipt of LNG imports at Dominion’s Cove Point LNG
facility.10 Among the issues raised was the interchangeability of this LNG with the
historic quality of gas delivered to Washington Gas Light (WGL). Ultimately, the
Commission approved a settlement between Dominion, WGL and others that specified a
maximum Btu heating content.11
III.
Procedural History
11.
In September 2003, the National Petroleum Council (NPC) completed a report on
the natural gas industry, which contained a number of findings and policy
recommendations and highlighted the increased importance of LNG in meeting expected
demand growth over the ensuing decade.12 The Commission explored the findings and
recommendations of the NPC report in an October 14, 2003 technical conference. The
Summary Report recommended that the natural gas interchangeability standards be
updated: “FERC and DOE should champion the new standards effort to allow a broader
range of LNG imports. This should be conducted with participation from LDCs [local
10 Cove Point LNG Limited Partnership, supra n.8.
11 Cove Point LNG Limited Partnership, 102 FERC ¶ 61,227 (2003). In the
context of Dominion’s proposal to expand the capacity at Cove Point, WGL now claims
that the low heavy hydrocarbon content of LNG delivered by Cove Point led to drying
and cracking seals in distribution facilities, which eventually led to gas leaks. See
Dominion Cove Point LNG, L.P., Docket No. CP05-130-000
, supra n.8.
11 Cove Point LNG Limited Partnership, 102 FERC ¶ 61,227 (2003). In the
context of Dominion’s proposal to expand the capacity at Cove Point, WGL now claims
that the low heavy hydrocarbon content of LNG delivered by Cove Point led to drying
and cracking seals in distribution facilities, which eventually led to gas leaks. See
Dominion Cove Point LNG, L.P., Docket No. CP05-130-000.
12 The National Petroleum Council (NPC) is an oil and natural gas advisory
committee to the Secretary of Energy.
Docket No. PL04-3-000
- 6 -
distribution companies], LNG purchasers, process gas users, and original equipment
manufacturers (OEMs).”13
12.
By the time the NPC report was issued, the Commission already had pending
before it a number of proceedings that raised natural gas quality or interchangeability
issues. Since that time, other proceedings involving natural gas quality or
interchangeability have been initiated. Procedurally, the gas quality and
interchangeability issues have arisen in the context of complaint proceedings,14 certificate
proceedings,15 and proposed tariff changes.16 Although each case involves unique
circumstances, collectively, these cases reveal a growing tension between the desire of
natural gas pipelines and distributors to ensure the quality of gas entering their facilities,
and the desire of producers and shippers to have their product transported without
onerous or unduly discriminatory processing requirements. Another recurring theme is
the desire of end-use customers to receive gas that will not harm their gas-fueled
equipment nor cause inefficient operations.
13.
The Commission held a public conference to discuss gas quality and
interchangeability issues on February 18, 2004. Many industry participants, representing
industry sectors from wellhead to burner tip, provided the Commission with information
on the range of complex operational concerns and issues that the market was facing
rm their gas-fueled
equipment nor cause inefficient operations.
13.
The Commission held a public conference to discuss gas quality and
interchangeability issues on February 18, 2004. Many industry participants, representing
industry sectors from wellhead to burner tip, provided the Commission with information
on the range of complex operational concerns and issues that the market was facing.
13 National Petroleum Council, Balancing Natural Gas Policy: Fueling the
Demands of a Growing Economy, Volume I, Summary of Findings and
Recommendations, September 2003, at 64.
14 See, e.g., The Toca Producers v. Southern Natural Gas Co., Docket No. RP03-
484-001; Amoco Production Company, Docket No. RP01-208-000; Southern Natural
Gas Co., Docket No. RP04-42-000 (collectively, the Toca Proceedings); Indicated
Shippers v. Trunkline Gas Company, LLC, Docket No. RP04-64-000; Indicated Shippers
v. ANR Pipeline Company, Docket No. RP04-65-000; ANR Pipeline Company, Docket
No. RP04-216-000 and RP04-435-000 (the ANR Proceedings); Indicated Shippers v.
Columbia Gulf Transmission Company, Docket No. RP04-98-000, Indicated Shippers v.
Tennessee Gas Pipeline Company, Docket No. RP04-99-000; and, AES Ocean Express
LLC v. Florida Gas Transmission Company, Docket No. RP04-249-000/-001.
15 See, e.g., Dominion Cove Point LNG, L.P., Docket No. CP05-130-000; Pearl
Crossing Pipeline LP, Docket No. CP04-376-000.
16 See, e.g., Natural Gas Pipeline Company of America, Docket Nos. RP01-503-
002, -003, 102 FERC ¶ 61,234 (2003) and 103 FERC ¶ 61,322 (2003). A December 20,
2005 Initial Decision in this proceeding is pending before the Commission.
Company, Docket No. RP04-249-000/-001.
15 See, e.g., Dominion Cove Point LNG, L.P., Docket No. CP05-130-000; Pearl
Crossing Pipeline LP, Docket No. CP04-376-000.
16 See, e.g., Natural Gas Pipeline Company of America, Docket Nos. RP01-503-
002, -003, 102 FERC ¶ 61,234 (2003) and 103 FERC ¶ 61,322 (2003). A December 20,
2005 Initial Decision in this proceeding is pending before the Commission.
Docket No. PL04-3-000
- 7 -
14.
Subsequent to the February 2004 technical conference the natural gas
industry, under the auspices of the Natural Gas Council, initiated a collaborative effort to
seek consensus on industry-wide standards for gas quality and interchangeability. This
collaborative effort made tremendous progress in identifying the underlying science,
identifying measurement techniques, and characterizing the different perspectives on the
problems different sectors face with changing or uncertain natural gas quality and
interchangeability.
15.
On February 28, 2005, the Natural Gas Council filed with the Commission two
technical papers entitled: Natural Gas Interchangeability and Non-Combustion End Use
and Liquid Hydrocarbon Drop Out in Natural Gas Infrastructure (collectively, NGC+
Reports). These papers represent the culmination of nearly a year of work by a large
group of natural gas industry stakeholders -- the NGC+ Group17 -- which worked to reach
a consensus understanding of these problems and recommendations about how they
might be managed. Both Reports suggest interim recommendations and urge additional
research.
16
ral Gas Infrastructure (collectively, NGC+
Reports). These papers represent the culmination of nearly a year of work by a large
group of natural gas industry stakeholders -- the NGC+ Group17 -- which worked to reach
a consensus understanding of these problems and recommendations about how they
might be managed. Both Reports suggest interim recommendations and urge additional
research.
16.
The Interchangeability Report defines interchangeability as:
The ability to substitute one gaseous fuel for another in a combustion application
without materially changing operational safety, efficiency, performance or
materially increasing air pollutant emissions.18
The paper goes on to provide background information on the history of the industry’s
experience with gas quality issues, and the changes it has experienced, and then reviews
various measures that have been employed to measure interchangeability. After a review
of the impacts of variable fuel quality on gas-fired appliances, the paper provides an
17 The Natural Gas Council is an organization made up of the representatives of
the trade associations of the different sectors of the natural gas industry, such as the
producers, pipelines, and local distribution companies. The NGC+ group included many
industry volunteers from the member companies of the various trade associations as well
as other industry participants interested in these issues.
18 Interchangeability Report, (February 28, 2005; refiled on March 3, 2005, and
resubmitted with appendices June 30, 2005), at 2.
http://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=10644164
ibution companies. The NGC+ group included many
industry volunteers from the member companies of the various trade associations as well
as other industry participants interested in these issues.
18 Interchangeability Report, (February 28, 2005; refiled on March 3, 2005, and
resubmitted with appendices June 30, 2005), at 2.
http://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=10644164
Docket No. PL04-3-000
- 8 -
overview of past industry efforts to measure, predict and monitor the
interchangeability of natural gases, and examines several options for managing
interchangeability.
17.
Recognizing that more research is needed, the NGC+ Interchangeability Work
Group makes interim recommendations, to be implemented pending further study and
deliberation. These interim guidelines provide for: (1) use of the local average historical
Wobbe Index average with an allowable range of variation of plus or minus four percent;
(2) subject to a maximum Wobbe Index level of 1,400; (3) a maximum heating value
limit of 1,110 Btu/scf; (4) a limit on butanes and heavier hydrocarbons (butanes+ or C4+)
of 1.5 mole percent; and (5) an upper limit on the amount of total inert gases (principally
nitrogen and carbon dioxide) of up to four mole percent. The Interchangeability Report
also recommends an exception from these interim guidelines for service territories that
could demonstrate experience with supplies exceeding these Wobbe Index levels,
Heating Value and/or Composition Limits. Companies in these service territories could
continue to use non-conforming supplies as long as use of these supplies does not unduly
jeopardize the safety of or create utilization problems for end use equipment.19
18.
NGC+ Group recommends that these guidelines be employed until research can be
completed filling in major data gaps for modern end–use appliances and the industry
forges a consensus on improved interchangeability requirements
tinue to use non-conforming supplies as long as use of these supplies does not unduly
jeopardize the safety of or create utilization problems for end use equipment.19
18.
NGC+ Group recommends that these guidelines be employed until research can be
completed filling in major data gaps for modern end–use appliances and the industry
forges a consensus on improved interchangeability requirements. The NGC+ Reports
originally forecast that it would take 2 to 3 years to complete this additional work. The
interim guidelines are for gases delivered to points in the gas transportation system most
closely associated with end users: gases delivered to local distribution companies
(LDCs). The guidelines do not necessarily apply directly to points upstream in the
transportation system where blending, gas processing, and other factors may be utilized
to allow gases outside the ranges of the guidelines to satisfy the guidelines at LDC city
gates. The NGC+ Group is continuing to investigate development of guidelines for
points upstream.
19.
The second paper, Liquid Hydrocarbon Drop Out in Natural Gas Infrastructure,
addresses the issue of controlling hydrocarbon drop out in natural gas pipeline and
distribution facilities, and other gas industry infrastructure downstream of producing
areas. The NGC+ interim recommendation on this issue is to adopt interim standards
19 Interchangeability Report at 26.
uid Hydrocarbon Drop Out in Natural Gas Infrastructure,
addresses the issue of controlling hydrocarbon drop out in natural gas pipeline and
distribution facilities, and other gas industry infrastructure downstream of producing
areas. The NGC+ interim recommendation on this issue is to adopt interim standards
19 Interchangeability Report at 26.
Docket No. PL04-3-000
- 9 -
that translate historic experience into terms of CHDP or C6+ GPM methodologies,20
taking best available historical data into account. The NGC+ also recommends that
additional research be conducted to better understand gas composition, and to develop
improved analytic equipment suitable for daily operational use.
20.
In addition to Commission action on gas quality and interchangeability, The North
American Energy Standards Board (NAESB) has considered requests that it adopt
Business Practice Standards to address natural gas quality and interchangeability. On
September 20, 2004, the Wholesale Gas Quadrant Executive Committee of NAESB
adopted standards for electronic posting of certain gas quality parameters on pipeline
websites. One month later, these standards were ratified by the NAESB membership.
On May 9, 2005, the Commission issued an order amending its regulations governing
standards for conducting business practices with interstate natural gas pipelines to
incorporate by reference the NAESB standards related to gas quality, which are part of
Version 1.7 of the NAESB consensus standards.21
21.
On May 16, 2005, the Natural Gas Supply Association (NGSA) filed a petition for
rulemaking seeking a Commission notice of proposed rulemaking (NOPR) to establish
natural gas quality and interchangeability standards. By order issued contemporaneously
with this Policy Statement in Docket No. RM06-17-000, the Commission is denying this
petition
ion 1.7 of the NAESB consensus standards.21
21.
On May 16, 2005, the Natural Gas Supply Association (NGSA) filed a petition for
rulemaking seeking a Commission notice of proposed rulemaking (NOPR) to establish
natural gas quality and interchangeability standards. By order issued contemporaneously
with this Policy Statement in Docket No. RM06-17-000, the Commission is denying this
petition. Instead of proceeding to address gas quality and interchangeability issues
through a rulemaking proceeding, the Commission instead establishes herein the
regulatory policy it will apply in individual proceedings before the Commission.
IV.
Summary of Comments
22.
The Commission solicited written comments on the NGC+ Reports and
subsequently convened a technical conference on May 17, 2005 to allow for further
public comment on and discussion of the issues raised by the Reports. In addition, the
Commission solicited comments on the Natural Gas Supply Association’s (NGSA)
May 16, 2005 petition for rulemaking. Appendix A to this Policy Statement lists
commenters on the Reports and comments received after the May 17 technical
conference addressing issues in the Reports and the NGSA Petition.
20 The phrase “C6+ GPM” stands for hexanes and heavier hydrocarbons, as
measured in gallons per million cubic feet of natural gas. Measuring and controlling for
the amount of these heavier hydrocarbons in the natural gas stream is an alternative to the
CHDP method.
21 Order No. 587-S, Standards for Business Practices of Interstate Natural Gas
Pipelines, 18 C.F.R. Part 284 (2005); FERC Statutes and Regulations ¶ 31,179.
s for hexanes and heavier hydrocarbons, as
measured in gallons per million cubic feet of natural gas. Measuring and controlling for
the amount of these heavier hydrocarbons in the natural gas stream is an alternative to the
CHDP method.
21 Order No. 587-S, Standards for Business Practices of Interstate Natural Gas
Pipelines, 18 C.F.R. Part 284 (2005); FERC Statutes and Regulations ¶ 31,179.
Docket No. PL04-3-000
- 10 -
23.
Appendix B to this Policy Statement is a summary of the comments received
on the NGC+ Reports and the NGSA Petition. Briefly, commenters articulate conflicting
views on whether mandatory nationwide standards are warranted, and if so, which
standards should be adopted. While there is a great deal of consensus on how to
articulate the problem in technical terms, opinion is divided among a number of preferred
solutions. The Interstate Natural Gas Association of America (INGAA), for example,
believes that there is no national problem with gas quality and interchangeability that
warrants a rulemaking. While urging the Commission to address gas quality and
interchangeability issues as they arise, INGAA favors a policy statement if the
Commission decides to address the issues generically. There was no unanimity within
the producer segment. The Independent Petroleum Association of America (IPAA)
supports a rulemaking and the NGSA proposal, while the Appalachian Producers and the
Independent Petroleum Association of Mountain States oppose mandatory national
standards for gas quality. The American Gas Association (AGA), the American Public
Power Association of America (APGA), and a number of LDCs ask that the Commission
require pipeline tariffs to contain merchantability standards. The Process Gas Consumers
endorse a rulemaking and the NGSA petition. The Edison Electric Institute and Siemens
Westinghouse raise concerns about the impact of interchangeability standards on DLE
turbines
Gas Association (AGA), the American Public
Power Association of America (APGA), and a number of LDCs ask that the Commission
require pipeline tariffs to contain merchantability standards. The Process Gas Consumers
endorse a rulemaking and the NGSA petition. The Edison Electric Institute and Siemens
Westinghouse raise concerns about the impact of interchangeability standards on DLE
turbines. Gas appliance manufacturers point out the importance of basing gas quality
standards on local historical gas characteristics.
V. Discussion
A.
The Problem in a Nutshell
24.
Most, if not all, interstate natural gas companies have provisions in their tariffs
governing gas quality. But as the NGC+ Reports note, “at no time has there ever been a
common set of specifications for [hydrocarbon] components such as there has been for
CO2, H2S, and water.”22 Each pipeline established its own terminology, standards,
controls, and conditions for waiver. Until relatively recently, this approach appears to
have worked reasonably well. However, gas quality and interchangeability controversies
have become more frequent.23 The Commission’s policy guidance recognizes the
importance of encouraging rather than impeding the development of natural gas
infrastructure and the movement of gas to the grid and to ultimate consumers. Thus, the
Commission believes that the policy adopted here achieves a balanced approach by
providing certainty, ensuring the safety and reliability of the nation’s gas grid, and
22 HDP Report at section 3.1.1.
23 Supra note 13.
n impeding the development of natural gas
infrastructure and the movement of gas to the grid and to ultimate consumers. Thus, the
Commission believes that the policy adopted here achieves a balanced approach by
providing certainty, ensuring the safety and reliability of the nation’s gas grid, and
22 HDP Report at section 3.1.1.
23 Supra note 13.
Docket No. PL04-3-000
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recognizing concerns about natural gas quality and interchangeability, while
providing pipelines and their customers the flexibility necessary to maximize the
introduction of new supply into the grid.
25.
The Commission believes that there are compelling reasons to provide policy
guidance on these issues. Three factors suggest that there is a need to act now. First,
processing economics can create hydrocarbon dew point problems whenever the
economics shift to favor decisions not to process natural gas. Second, establishing a
sound policy on gas quality and interchangeability issues now would lower a potential
barrier to expected increases in LNG imports.24 Third, acting now will provide a firm
regulatory policy basis for additional research and development on gas quality and
interchangeability issues.
26.
The natural gas industry, through the efforts of the NGC, has produced the NGC+
Reports that represent consensus on these topics. They offer interim approaches that can
be put in place now, to the extent well-functioning gas quality and interchangeability
provisions are not already in place in individual pipelines’ tariffs. These interim
recommendations provide a common language for discussion of these issues, and a
reasonable framework to establish market-specific standards.
27.
However, these same consensus Reports highlight the need for additional research
and development before any more permanent consensus may be forged
erchangeability
provisions are not already in place in individual pipelines’ tariffs. These interim
recommendations provide a common language for discussion of these issues, and a
reasonable framework to establish market-specific standards.
27.
However, these same consensus Reports highlight the need for additional research
and development before any more permanent consensus may be forged. 25 The
Commission believes that a generic policy on gas quality and interchangeability would
help guide the industry in the right direction. But given the areas of additional research
that is required, it would be premature to take more prescriptive actions such as
prescribing gas quality and interchangeability standards or prescribing specific levels of
the constituent elements of, or the heating values for, the natural gas transported in
pipelines.
24 The Energy Information Administration projects that by the year 2030, 4.4
trillion cubic feet equivalent (Tcf) of LNG will be imported to meet approximately 27 Tcf
in annual demand for natural gas--an eight-fold increase over the roughly 0.5 Tcf of LNG
imported in 2003. Energy Information Administration, Annual Energy Outlook 2006, at
86 (February 2006). http://www.eia.doe.gov/oiaf/aeo/pdf/0383(2006).pdf.
25 We are encouraged by the efforts of the Department of Energy in pursuing
research and development in this area. Along with the efforts of the industry, and
continued voluntary collaboration, we look forward to the improvements that will
become possible with a better understanding provided by these research efforts.
86 (February 2006). http://www.eia.doe.gov/oiaf/aeo/pdf/0383(2006).pdf.
25 We are encouraged by the efforts of the Department of Energy in pursuing
research and development in this area. Along with the efforts of the industry, and
continued voluntary collaboration, we look forward to the improvements that will
become possible with a better understanding provided by these research efforts.
Docket No. PL04-3-000
- 12 -
28.
In the face of these challenges, the accomplishment of the NGC+ group in
achieving consensus to submit two technical papers addressing hydrocarbon dew point
and interchangeability is worthy of praise. The Commission commends those members
of the natural gas industry who participated in these efforts. The Commission’s policy
statement is based in large part on the foundation of this group’s work, and the comments
filed in this generic proceeding.
B.
Statement of General Policy Regarding Interstate Pipeline Tariff
Provisions Governing Gas Quality and Interchangeability
29.
The Commission’s policy on gas quality and interchangeability embodies five
principles. First, only natural gas quality and interchangeability specifications contained
in a Commission-approved gas tariff can be enforced. The Commission’s authority to
address questions about tariff provisions on gas quality and interchangeability arises
under sections 4, 5 and 7 of the NGA. By law, the Commission is responsible for
ensuring that rates, charges, rules and regulations of service are just, reasonable and not
unduly discriminatory or preferential, and that initial rates, terms and conditions of
service are required by the public convenience and necessity.26 Unless these
specifications are stated in the tariff, the Commission will not be able to address gas
quality and interchangeability concerns. Where gas quality and interchangeability issues
are of concern to the transporting pipeline, tariff standards are essential terms and
conditions of service.
30
s, terms and conditions of
service are required by the public convenience and necessity.26 Unless these
specifications are stated in the tariff, the Commission will not be able to address gas
quality and interchangeability concerns. Where gas quality and interchangeability issues
are of concern to the transporting pipeline, tariff standards are essential terms and
conditions of service.
30.
Second, pipeline tariff provisions on gas quality and interchangeability need to be
flexible. Pipelines operate in dynamic environments that frequently require quick
responses to rapidly changing situations. For example, a pipeline may be asked to
transport gas that does not meet a particular gas quality or interchangeability specification
in the pipeline’s tariff. Nevertheless, if the pipeline has the ability to transport such out-
of-spec gas without jeopardizing system operations, its tariff should be flexible enough to
allow it to do so. The Commission believes that flexible tariff provisions on natural gas
quality and interchangeability will allow pipelines to balance safety and reliability
concerns with the importance of maximizing supply, while recognizing the evolving
nature of the science underlying gas quality and interchangeability specifications.
31.
Third, pipelines and their customers should develop gas quality and
interchangeability specifications. The Commission expects that specifications for natural
gas quality and interchangeability will be based upon sound technical, engineering and
scientific considerations. In addition, the Commission encourages pipelines and their
26 15 U.S.C. §§ 717c, 717d and 717f (2000).
customers should develop gas quality and
interchangeability specifications. The Commission expects that specifications for natural
gas quality and interchangeability will be based upon sound technical, engineering and
scientific considerations. In addition, the Commission encourages pipelines and their
26 15 U.S.C. §§ 717c, 717d and 717f (2000).
Docket No. PL04-3-000
- 13 -
customers to resolve gas quality and interchangeability issues on their own, either
prior to or outside of formal Commission proceedings. This will facilitate mutually
beneficial outcomes for all parties and should not have a detrimental impact on either
current or prospective shippers.27
32.
Fourth, in negotiating technically based solutions, pipelines and their customers
are strongly encouraged to use the NGC + interim guidelines as a common scientific
reference point for resolving gas quality and interchangeability issues. The interim
guidelines suggest a process for applying scientific principles to individual markets but
do not address the specifics of individual pipeline circumstances or tariff provisions.
Furthermore, the interim guidelines recognize that additional research and development
are needed to arrive at more clearly defined limits to interchangeability specifications and
to address the need for better and more timely operational information on natural gas
quality and pipeline operations. The Commission’s policy will keep step with improved
knowledge on gas quality and interchangeability.
33.
Finally, to the extent pipelines and their customers cannot resolve disputes over
gas quality and interchangeability, those disputes can be brought before the Commission
to be resolved on a case-by-case basis, on a record of fact and technical review. In
resolving any such disputes, the Commission will give significant weight to the NGC+
interim guidelines
uality and interchangeability.
33.
Finally, to the extent pipelines and their customers cannot resolve disputes over
gas quality and interchangeability, those disputes can be brought before the Commission
to be resolved on a case-by-case basis, on a record of fact and technical review. In
resolving any such disputes, the Commission will give significant weight to the NGC+
interim guidelines. In addressing disputes, the Commission will develop a factual record,
with sound technical underpinnings, which will provide the Commission with a good
foundation for resolving disputes. The Commission recognizes that regional variation
and differing local needs cannot be accommodated with an inflexible generic policy on
gas quality and interchangeability. Rigid gas quality and interchangeability requirements
could unnecessarily restrict the introduction of new sources of supply, which is
inconsistent with the Commission’s policy of encouraging new supplies and the
construction of infrastructure to bring new supplies to market.28The following discussion
27 In this regard, the Commission notes the “Joint Statement of the American Gas
Association and the Interstate Natural Gas Association of America,” filed on June 2,
2006, which outlines their agreement on developing gas quality and interchangeability
specifications on a pipeline-by-pipeline basis, where needed, within the next year. On
June 8, APGA filed a response to the AGA-INGAA joint statement.
28 See e.g., Northern Natural Gas Company, 108 FERC ¶ 61,083, at P. 24 (2004)
(“ … the Commission must ensure that proposals that are intended to address system
integrity do not unnecessarily discourage new sources of supply or impose unreasonable
costs on shippers and consumers.”), and Hackberry LNG Terminal, 101 FERC ¶ 61,294
June 8, APGA filed a response to the AGA-INGAA joint statement.
28 See e.g., Northern Natural Gas Company, 108 FERC ¶ 61,083, at P. 24 (2004)
(“ … the Commission must ensure that proposals that are intended to address system
integrity do not unnecessarily discourage new sources of supply or impose unreasonable
costs on shippers and consumers.”), and Hackberry LNG Terminal, 101 FERC ¶ 61,294
(2002).
Docket No. PL04-3-000
- 14 -
will elaborate on how we envision this general policy being applied in individual
cases.
1.
Gas Quality
34.
The Reports’ interim recommendations identify two valid methods that might be
used to control hydrocarbon liquid dropout--the CHDP method, and the C6+ GPM
method.29 As a matter of policy, the Commission believes that jurisdictional tariffs
should contain provisions that govern the quality of gas received for transportation when
necessary to manage hydrocarbon liquid dropout within acceptable levels. Pipelines with
existing tariff provisions that adequately control hydrocarbon dropout may continue to
rely on their existing tariff.30 Pipelines that wish to add provisions to their tariffs, or
modify existing provisions, to control hydrocarbon dropout are strongly encouraged to
use one of the two methods found by the NGC+ to be valid. If a pipeline wishes to
propose a different method, the pipeline must provide an explanation of how the
proposed method differs from the CHDP method described in the HDP Report. In
addition, the pipeline will be required to include in any filing to revise its gas quality
standards a comparison, in equivalent terms, of its proposed gas quality specifications
and those of each interconnecting pipeline.
35.
In application, either of the two methods suggested by the NGC+ task group offers
a process for arriving at appropriate gas quality specifications for natural gas accepted for
transportation by a pipeline
ed to include in any filing to revise its gas quality
standards a comparison, in equivalent terms, of its proposed gas quality specifications
and those of each interconnecting pipeline.
35.
In application, either of the two methods suggested by the NGC+ task group offers
a process for arriving at appropriate gas quality specifications for natural gas accepted for
transportation by a pipeline. However, the specifications themselves must be derived to
fit the specific circumstances of each pipeline.31 The appropriate gas quality
specifications for different pipelines may vary depending upon a number of factors,
including pipeline configuration, geographic location of the pipeline, access to and
location of processing facilities, flowing gas temperatures and pressures, average ambient
29 For a technical description of either of these methods, see HDP Report,
especially sections 4 through 6.
30 To the extent a complaint is filed alleging that an existing pipeline tariff is not
just and reasonable, the Commission will evaluate the complaint on its specific merits.
31 See HDP Report, Appendix A Parameters to be Considered in Establishing
CHDP or C6+ GPM Based Limits, and Appendix B Process for Establishing a
Cricondentherm Hydrocarbon Dew Point (CHDP) Limit.
Docket No. PL04-3-000
- 15 -
and ground temperatures and source of gas supply.32 This is a fact-intensive
exercise, and is not one that lends itself to generic specifications. The Commission will
examine the appropriate circumstances in each individual case. That being said, the
Commission will give appropriate weight to the gas quality and interchangeability
requirements of interconnecting pipelines as well as the requirements of markets directly
served. The Commission wishes to ensure that natural gas wholesale trade across
markets is not unduly impeded by the tariff requirements of individual pipelines
e circumstances in each individual case. That being said, the
Commission will give appropriate weight to the gas quality and interchangeability
requirements of interconnecting pipelines as well as the requirements of markets directly
served. The Commission wishes to ensure that natural gas wholesale trade across
markets is not unduly impeded by the tariff requirements of individual pipelines. In
addition, the tariff should state the natural gas quality specifications for gas that the
pipeline will deliver to its customers.
2.
Interchangeability
36.
In its report, the NGC+ Interchangeability Work Group recommend interim
guidelines based on a range of plus and minus four percent of the Wobbe number based
on either local historical average gas or an established “adjustment or target” gas for the
service territory at issue. This basic guideline was subject to additional parameters
limiting: the maximum Wobbe number to 1,400; the maximum heating value to 1,110
Btu/scf; maximum butanes+ to 1.5 mole percent; and maximum total inert gases to four
mole percent. These interim guidelines also included a specific exception for service
territories with demonstrated experience with gas supplies exceeding any of the
“additional parameters.”
37.
The Interchangeability Report contains a methodology for arriving at an
appropriate interchangeability specification, based in part on historical experience.
Pipelines with existing tariff provisions which adequately characterize interchangeability
limits may continue to rely on their existing tariff.33 Pipelines that wish to add provisions
to their tariffs, or modify existing provisions, to characterize interchangeability
specifications are encouraged to use the interim guidelines proposed by the NGC+
Interchangeability Task Group. To the extent a pipeline wishes to propose a different
method, it must explain how the proposed method differs from the interim guidelines
ir existing tariff.33 Pipelines that wish to add provisions
to their tariffs, or modify existing provisions, to characterize interchangeability
specifications are encouraged to use the interim guidelines proposed by the NGC+
Interchangeability Task Group. To the extent a pipeline wishes to propose a different
method, it must explain how the proposed method differs from the interim guidelines. In
addition, the pipeline will be required to include in any filing to revise its
32 See, e.g., El Paso at 6 (“A policy statement would allow the Commission to
tailor its approach to reflect the complexities that each pipeline faces in addressing HDP
issues, including, for example, reticulated pipeline systems that have bidirectional flows
and as such may not be able to easily engage in pairing, blending, or aggregation.”), and
Questar at 3-4.
33 To the extent a complaint is filed alleging that an existing pipeline tariff is not
just and reasonable, the Commission will evaluate the complaint on its specific merits.
Docket No. PL04-3-000
- 16 -
interchangeability standards a comparison, in equivalent terms, of its proposed
interchangeability specifications and those of each interconnecting pipeline.
38.
As is the case with gas quality specifications, selection of interchangeability limits
is a fact-based exercise. In application, either of the two methods suggested by the
NGC+ task group offers a process for arriving at appropriate limits for the
interchangeability characteristics of natural gas that may be accepted for transportation
by a pipeline
ose of each interconnecting pipeline.
38.
As is the case with gas quality specifications, selection of interchangeability limits
is a fact-based exercise. In application, either of the two methods suggested by the
NGC+ task group offers a process for arriving at appropriate limits for the
interchangeability characteristics of natural gas that may be accepted for transportation
by a pipeline. However, the limits themselves must be derived to fit within the specific
circumstances of each pipeline.34 The appropriate interchangeability specifications for
different pipelines may vary depending on a number of factors, including: the historic
characteristics of natural gas delivered by the pipeline to the markets it serves; local
market practices for the use of target or adjustment gases used to install and adjust
equipment in that market; historic variability in the characteristics of gas delivered to the
market; whether there are customer loads with special gas quality requirements, such as a
large process gas user; the type and gas quality tolerances of the end-use equipment
(including “legacy” equipment); and, the tariff requirements of downstream pipelines.35
This fact-intensive exercise does not lend itself to generic specifications. The
Commission will examine the appropriate circumstances in each individual case. That
being said, the Commission will give appropriate weight to the gas quality and
interchangeability requirements of interconnected pipelines as well as the requirements of
markets directly served. The Commission wishes to ensure that natural gas wholesale
trade across markets is not unduly impeded by the tariff requirements of individual
pipelines. In addition, the tariff should state the natural gas quality specifications for gas
that the pipeline will deliver to its customers.
3.
Blending
39
nts of interconnected pipelines as well as the requirements of
markets directly served. The Commission wishes to ensure that natural gas wholesale
trade across markets is not unduly impeded by the tariff requirements of individual
pipelines. In addition, the tariff should state the natural gas quality specifications for gas
that the pipeline will deliver to its customers.
3.
Blending
39.
Given the complexity of operating an interstate pipeline, there is substantial
discretion given a pipeline to decide when and how much to allow exceptions to gas
quality and interchangeability specifications to accommodate production that may not
have convenient access to gas processing. In addition, some pipelines will waive gas
quality limitations when operating circumstances allow, enforcing strict compliance with
the tariff only when necessary. For example, a pipeline may be able to accept rich gas
containing more of the heavier hydrocarbons than its tariff would otherwise permit by
blending that gas with leaner gas that contains very little of the heavier hydrocarbons.
However, there may be more such lean gas available for blending on some parts of the
34 See Interchangeability Report at 24-26.
35 See, e.g., The Florida Utilities April 1, 2005 comments.
Docket No. PL04-3-000
- 17 -
pipeline’s system than on other parts. Furthermore, a pipeline’s ability to blend
supplies of varying quality will depend on the supplies’ proximity to market.
40.
Pragmatically, this discretion allows the pipeline to maximize the gas supply
available to its customers while maintaining its ability to manage gas quality and
interchangeability within acceptable limits
et No. PL04-3-000
- 17 -
pipeline’s system than on other parts. Furthermore, a pipeline’s ability to blend
supplies of varying quality will depend on the supplies’ proximity to market.
40.
Pragmatically, this discretion allows the pipeline to maximize the gas supply
available to its customers while maintaining its ability to manage gas quality and
interchangeability within acceptable limits. The Commission has found in at least one
case that such actions are “not necessarily undue discrimination under the NGA [Natural
Gas Act].”36 Operational constraints in particular parts of a pipeline’s system may justify
treating shippers on those parts of the system differently than shippers on other parts of
the system.37
41.
The Commission continues to believe that it is appropriate to allow pipelines to
exercise their discretion to waive strict gas quality limits when operating conditions
allow, and to enforce such limits when operating conditions require stricter measures, as
long as it is done in a not unduly discriminatory manner.38 The Commission wishes to
encourage pipelines to allow blending, pairing,39 and other strategies, to the extent these
can be implemented on a non-discriminatory basis and in a manner that is consistent with
safe and reliable operations. This is consistent with the Commission’s policy of
minimizing any unnecessary restrictions on the supplies available to the national gas
36 Natural Gas Pipeline Company of America, 102 FERC ¶ 61,234 at P. 27, and
see discussion at PP. 25-33 (2003).
37 Consolidated Edison Company of New York v. FERC, 165 F.3d 992, 1013 (D.C.
Cir. 1999).
38 The Commission’s regulations require that pipelines strictly enforce the
provisions of their tariffs if those provisions do not permit the use of discretion
36 Natural Gas Pipeline Company of America, 102 FERC ¶ 61,234 at P. 27, and
see discussion at PP. 25-33 (2003).
37 Consolidated Edison Company of New York v. FERC, 165 F.3d 992, 1013 (D.C.
Cir. 1999).
38 The Commission’s regulations require that pipelines strictly enforce the
provisions of their tariffs if those provisions do not permit the use of discretion. In
instances where the tariff provides the pipeline with discretion, it must keep a written log
detailing the circumstances and manner in which it has exercised discretion under its
tariff, and this information must be posted on the pipeline’s website within 24 hours of
when the pipeline exercised its discretion. See 18 C.F.R. §§ 385.5(c)(1) and 385.5(c)(4).
39 The HDP Report does not use the term “pairing,” but instead refers to the
practice of “contractual blending.” It is a paper transaction allowing a producer of gas
that does not meet a pipeline’s gas quality requirements to contract to blend this gas with
the gas of another producer whose gas is in compliance with the pipeline’s gas quality
specifications. These two producers’ volumes may enter the gas stream at different
points and thus may not blend directly in the pipeline. Section 3.2.5 describes contractual
blending. See also comments of El Paso Corporation’s Pipeline Group at 2 and 10;
NGSA Petition at 4 n.2; and, Selected Processors at 2.
as of another producer whose gas is in compliance with the pipeline’s gas quality
specifications. These two producers’ volumes may enter the gas stream at different
points and thus may not blend directly in the pipeline. Section 3.2.5 describes contractual
blending. See also comments of El Paso Corporation’s Pipeline Group at 2 and 10;
NGSA Petition at 4 n.2; and, Selected Processors at 2.
Docket No. PL04-3-000
- 18 -
market. Pipelines may consider “safe harbor” provisions and informational posting
requirements as means of minimizing the potential for undue discrimination.40
4.
Merchantability
42.
AGA urges the Commission to require pipelines to include a merchantability
provision in their tariffs.41 AGA defines the term “merchantable” as gas that is:
consistently commercially free from objectionable matter including odors,
bacteria, dust, gums, water, hydrocarbon liquids, other liquid or gaseous
constituents that may preclude supply from being interchangeable with historically
acceptable supplies delivered into a market area and will not cause injury or
interference with operation of existing end use equipment, pipelines and the gas
transmission and distribution infrastructure.42
43.
The Commission will not require such provisions. We do not believe that
mandating additional merchantability requirements would provide any additional value at
this time.43 In addition, we are concerned that adoption of a general merchantability
requirement could come into conflict with the specifications of gas quality and
interchangeability that would be quantified under the interim processes recommended in
the NGC+ Reports. Pipeline tariff provisions that contain detailed technical
specifications for gas quality and interchangeability may be sufficient without the
addition of a general merchantability provision; technical specifications and general
descriptions, to the extent they are present, must work together if they are to function as
intended
ied under the interim processes recommended in
the NGC+ Reports. Pipeline tariff provisions that contain detailed technical
specifications for gas quality and interchangeability may be sufficient without the
addition of a general merchantability provision; technical specifications and general
descriptions, to the extent they are present, must work together if they are to function as
intended. Neither of the NGC+ Reports included in their consensus recommendations the
adoption of a merchantability clause. Some pipelines have merchantability provisions in
40 See National Gas Pipeline Company of America, 102 FERC ¶ 61,234 at PP. 43,
48 (2003).
41 See, e.g., AGA comments at 25-29.
42 Id. at 27-8.
43 The Commission notes that AGA also suggested an alternative approach in its
comments, stating that “delivered gas will be ‘merchantable’ gas and will meet certain
specifications, such as those set out for interchangeability, CHDP and other constituent
limits.” AGA comments at 28. The Commission sees no value to adding the label
“merchantable” to gas that otherwise meets the gas quality and interchangeability
specifications set forth in the tariff.
Docket No. PL04-3-000
- 19 -
their current tariffs and some do not. As a policy matter, the Commission will
neither mandate nor prohibit such provisions.
C.
Applicability to Section 311 Transporters
44.
The Commission intends to apply this policy to statements of operating conditions
filed by entities which provide interstate transportation services pursuant to section 311
of the Natural Gas Policy Act of 1978 (NGPA). As a general principle, the Commission
expects that each section 311 transporter will include specific provisions in its statement
of operating conditions governing gas quality and interchangeability.44
D.
New Companies Authorized under Section 7 of the Natural Gas Act
45
which provide interstate transportation services pursuant to section 311
of the Natural Gas Policy Act of 1978 (NGPA). As a general principle, the Commission
expects that each section 311 transporter will include specific provisions in its statement
of operating conditions governing gas quality and interchangeability.44
D.
New Companies Authorized under Section 7 of the Natural Gas Act
45.
The Commission intends to apply this policy in its review of pro forma tariffs filed
as part of section 7(c) certificate applications. Applicants should ensure that their Exhibit
P pro forma tariff includes general terms and conditions addressing gas quality and
interchangeability. Recognizing that new entrants do not have historic markets upon
which to base their analysis of gas quality and interchangeability specifications, the
Commission expects section 7 applicants to include relevant information about the gas
quality and interchangeability specifications of interconnecting pipelines, and of the
competing pipelines serving customers to be served directly by the new entrant, as well
as the relevant information about the gas supplies to be received by the new entrant for
transportation or storage. Applicants must show how they derived their gas quality and
interchangeability specifications stated in their pro forma tariffs.
E.
New Companies Authorized under Section 3 of the Natural Gas Act
46.
The Commission intends to apply this policy in its review of proposals to
construct and operate new facilities for the importation of natural gas. Applicants should
include information in their application which demonstrates the compatibility of their
imports with the gas quality and interchangeability requirements of all interconnecting
pipelines
under Section 3 of the Natural Gas Act
46.
The Commission intends to apply this policy in its review of proposals to
construct and operate new facilities for the importation of natural gas. Applicants should
include information in their application which demonstrates the compatibility of their
imports with the gas quality and interchangeability requirements of all interconnecting
pipelines. To the extent service is provided pursuant to Parts 157 or 284 of the
Commission’s regulations, the applicant should make specific reference to tariff or
44 Section 284.224, subpart G, of the Commission’s regulations authorizes LDCs
and Hinshaw pipelines to perform the same types of transactions that intrastate pipelines
are authorized to perform under section 311 of the NGPA and subpart C and D of Part
284 of the Commission’s regulations. The Commission intends that the requirements
imposed by this policy statement on section 311 intrastate pipelines would also apply to
Hinshaw pipelines.
Docket No. PL04-3-000
- 20 -
contract provisions governing gas quality and interchangeability and demonstrate
their compliance with this policy statement.
47.
Some commenters ask the Commission to impose specific obligations on LNG
project developers regarding merchantability, identification of adverse impacts,
compensation for negative impacts, and mitigation.45 However, the Commission believes
that these are issues that should be addressed, if and when problems are identified, in
specific cases.
By the Commission.
( S E A L )
Magalie R. Salas,
Secretary.
45 See, e.g., AGA, APGA, Constellation at 3, and KeySpan’s April 1 comments at
10-13.
gative impacts, and mitigation.45 However, the Commission believes
that these are issues that should be addressed, if and when problems are identified, in
specific cases.
By the Commission.
( S E A L )
Magalie R. Salas,
Secretary.
45 See, e.g., AGA, APGA, Constellation at 3, and KeySpan’s April 1 comments at
10-13.
Docket No. PL04-3-000
- 21 -
APPENDIX A
Commenters
American Gas Association (AGA)
American Public Gas Association (APGA)
Appalachian Producers:
Kentucky Oil &Gas Association, Ohio Oil and Gas Association, and the
Independent Oil & Gas Association of Pennsylvania
Aux Sable Liquid Products, L.P. (Aux Sable)
BHP Billiton LNG International (BHP Billiton)
Calpine Corporation (Calpine)
Consolidated Edison Company of New York, Inc. and Orange & Rockland Utilities, Inc.
Constellation Energy Group, Inc.
Devon Energy Corporation
Dow Chemical Company
Duke Energy Gas Transmission
Edison Electric Institute (EEI)
Electric Power Supply Association (EPSA)
El Paso Corporation’s Pipeline Group
EMS Pipeline Services
Fertilizer Institute
Florida Power & Light
Florida Utilities:
Tampa Electric Company; Peoples Gas System, a Division of Tampa Electric
Company; the Associated Gas Distributors of Florida (AGDF); and the Florida
Municipal Natural Gas Association (FMNGA). The AGDF consists of Florida
Public Utilities Company; Central Florida Gas Company; Indiantown Gas
Company; Sebring Gas Systems, Inc.; St. Joe Natural Gas Company, Inc.; and
Florida City Gas. The FMNGA consists of the City of Chattahoochee; City of
Clearwater Gas System; Crescent City Natural Gas; City of DeFuniak Springs;
Geneva County Gas District; Lake Apopka Natural Gas District; City of Leesburg;
City of Live Oak; City of Madison; Okaloosa Gas District; Palatka Gas Authority;
City of Perry; Southeast Alabama Gas District; and City of Sunrise
pany, Inc.; and
Florida City Gas. The FMNGA consists of the City of Chattahoochee; City of
Clearwater Gas System; Crescent City Natural Gas; City of DeFuniak Springs;
Geneva County Gas District; Lake Apopka Natural Gas District; City of Leesburg;
City of Live Oak; City of Madison; Okaloosa Gas District; Palatka Gas Authority;
City of Perry; Southeast Alabama Gas District; and City of Sunrise.
Gas Appliance Manufacturers Association (GAMA)
Gas Processors Association
General Electric Company (GE)
Gulf South Pipeline Company, LP (Gulf South)
Independent Petroleum Association of Mountain States (IPAMS)
Interstate Natural Gas Association of America (INGAA)
Independent Petroleum Association of America (IPAA)
Docket No. PL04-3-000
- 22 -
KeySpan Corporation
Michigan Consolidated Gas Company
National Fuel Gas Supply Corporation and National Fuel Gas Distribution Corporation
Natural Gas Supply Association (NGSA)
NiSource, Inc.
Pacific Gas and Electric Company
Process Gas Consumers Group (PGC)
Producer Coalition:
Devon Energy Corporation, Dominion Exploration & Production, Inc., Forest Oil
Corporation, The Houston Exploration Company, Kerr-McGee Oil & Gas
Corporation, Newfield Exploration Company, Spinnaker Exploration Company,
and TOTAL E&P U.S.A., Inc.
Progress Energy
Questar Pipelines
Selected Processors:
Enterprise Products Operating L.P., Williams Midstream, Dynegy Midstream
Services, Limited Partnership and Duke Energy Field Services, LLC
Sempra Global
Shell NA LNG LLC and Shell US Gas & Power, LLC
Siemens Westinghouse Power Corporation
South Carolina Electric & Gas Company, SCANA Energy Marketing, Inc. and Public
Service Company of North Carolina, Inc. (SCANA)
South Carolina Pipeline Company and SCG Pipeline, Inc
ng L.P., Williams Midstream, Dynegy Midstream
Services, Limited Partnership and Duke Energy Field Services, LLC
Sempra Global
Shell NA LNG LLC and Shell US Gas & Power, LLC
Siemens Westinghouse Power Corporation
South Carolina Electric & Gas Company, SCANA Energy Marketing, Inc. and Public
Service Company of North Carolina, Inc. (SCANA)
South Carolina Pipeline Company and SCG Pipeline, Inc.
South Coast Air Quality Management District (SCAQMD)
Southeastern End Users Group:
Florida Cities – City of Tallahassee, Florida Gas Utility, Gainesville Regional
Utilities, JEA, Lakeland Electric, and Orlando Utilities Commission, Florida City
Gas, Florida Municipal Natural Gas Association – Cities of Chattahoochee,
DeFuniak Springs, Leesburg, Madison, Perry and Sunrise, City of Clearwater Gas
System, Crescent City Natural Gas, Geneva County Gas District, Lake Apopka
Natural Gas District, Okaloosa Gas District, Palatka Gas Authority, Southeast
Alabama Gas District, Florida Power & Light Company, Florida Public Utilities
Company, Progress Energy, Peoples Gas System, a Division of Tampa Electric
Company, Seminole Electric Cooperative, Inc., Southern Cities – Georgia Cities
of Cartersville, Cordele, Cuthbert, Dublin, Hawkinsville, LaGrange and
Tallapoosa and the Florida City of Tallahassee, Tampa Electric Company
Southern California Gas Company and San Diego Gas & Electric Company
Suez Energy North America
TransCanada Pipelines Limited
Utah Department of Public Utilities (UDPU)
Williston Basin Interstate Pipeline Company
Docket No. PL04-3-000
- 23 -
Wisconsin Distributor Group:
Wisconsin Power & Light Company, City Gas Company, Madison Gas & Electric
Company, Wisconsin Gas LLC, and Wisconsin Electric Power Company –
Collectively, We Energy, and Wisconsin Public Service Corporation
America
TransCanada Pipelines Limited
Utah Department of Public Utilities (UDPU)
Williston Basin Interstate Pipeline Company
Docket No. PL04-3-000
- 23 -
Wisconsin Distributor Group:
Wisconsin Power & Light Company, City Gas Company, Madison Gas & Electric
Company, Wisconsin Gas LLC, and Wisconsin Electric Power Company –
Collectively, We Energy, and Wisconsin Public Service Corporation
Docket No. PL04-3-000
- 24 -
APPENDIX B
Summary of Comments
A.
Natural Gas Producers
1.
NGSA urges the Commission to move quickly to initiate a rulemaking to adopt its
proposals. NGSA also would establish a presumption of interchangeability (with
historical gas supplies) for all gas that meets the interchangeability specifications in the
NGSA rulemaking proposal. In addition, NGSA does not support efforts by local
distribution companies (LDCs) to require pipelines to include merchantability clauses46 in
their tariffs.
2.
Among independent producers, the Independent Petroleum Association of
America (IPAA) supports the NGSA proposal for a NOPR, including the CHDP safe
harbor and the interchangeability levels. In addition, IPAA advocates a de minimis
exemption for production from small wells, where such exceptions will not affect
pipeline operations. Devon Energy, a small producer and processor, supports the NGSA
petition and supports the de minimis exemption for small volumes, so long as the quality
of delivered gas remains within the tariff limits.47
3.
The Independent Petroleum Association of Mountain States (IPAMS), an
association of small producers in the Rocky Mountains, opposes any rigid national
standard for gas quality, citing the different needs of customers in Salt Lake City and
Denver, where its members’ gas is delivered. IPAMS also supports a small producer de
minimis exemption. However, it does not address the NGSA proposal directly
Independent Petroleum Association of Mountain States (IPAMS), an
association of small producers in the Rocky Mountains, opposes any rigid national
standard for gas quality, citing the different needs of customers in Salt Lake City and
Denver, where its members’ gas is delivered. IPAMS also supports a small producer de
minimis exemption. However, it does not address the NGSA proposal directly. The
Appalachian Producers oppose the NGSA proposal and assert that the presumption of
interchangeability, for example, “could easily be transformed into a requirement that
natural gas must meet those standards . . . changing the presumptive specifications into
prescriptive ones.”48
46 Several LDC commenters, including the American Gas Association (AGA),
urge the Commission to require pipelines to include merchantability provisions in their
tariffs. The issue of merchantability is discussed in the context of LDC comments
beginning at P 37.
47 Devon at 4.
48 Appalachian Producers comments at 2.
Docket No. PL04-3-000
- 25 -
4.
Finally, the Producer Coalition49 supports adoption of natural gas quality and
interchangeability standards through a formal rulemaking proceeding rather than through
a policy statement. The Producer Coalition asserts that much of the controversy in
setting gas quality standards “would be eliminated if the Commission, by rule or policy
statement, would (i) establish a uniform method for determining CHDP limits for
interstate pipelines; and (ii) determine who pays – producers or downstream customers –
for conditioning or handling gas to accommodate the downstream temperature and
pressure cuts between the interstate pipeline grid and the gas burner tip.”50
B.
LNG Operators
5.
Four LNG facility operator/developer companies filed comments on the NGSA
proposal. Both Shell and Sempra urge the Commission to move quickly to adopt
standards in order to maintain momentum from the NGC+ efforts
conditioning or handling gas to accommodate the downstream temperature and
pressure cuts between the interstate pipeline grid and the gas burner tip.”50
B.
LNG Operators
5.
Four LNG facility operator/developer companies filed comments on the NGSA
proposal. Both Shell and Sempra urge the Commission to move quickly to adopt
standards in order to maintain momentum from the NGC+ efforts. Shell favors a
Commission policy statement, while Sempra supports action via a NOPR, along the lines
advocated by NGSA. Both support the interchangeability interim guidelines in the
Report instead of the NGSA proposal, because NGSA does not adopt the ± 4% range in
the Report or the 1,110 Btu limit. In addition, Sempra opposes a mandate for pipeline
blending, aggregation and other operational techniques for dealing with non-standard gas.
Both favor requiring pipelines to adopt gas quality and interchangeability standards in
their tariffs. Suez Energy North America (Suez) supports a rulemaking based on the
proposals in the Reports, and it asserts that the Commission should “craft rules that will
encourage some degree of standardization while also leaving distinct pipeline service
territory issues for determination on each pipeline system.”51
6.
The issue of federal – state cooperation in standard-setting is the focus of
comments by BHP Billiton LNG International (BHP Billiton), an Australian energy
company that plans to build a floating storage and regasification unit for LNG imports
offshore California to bring gas into California. BHP Billiton opposes a proposal
pending before the California Public Utilities Commission (CPUC)52 in the CPUC’s
ongoing proceeding examining gas quality issues. In that proceeding, a California utility
49 The Producer Coalition is an ad hoc group of natural gas producers consisting of
Devon, Dominion E&P, Forest Oil, Houston Exploration, Kerr-McGee, Newfield
Exploration, Spinnaker Exploration and TOTAL E&P
Public Utilities Commission (CPUC)52 in the CPUC’s
ongoing proceeding examining gas quality issues. In that proceeding, a California utility
49 The Producer Coalition is an ad hoc group of natural gas producers consisting of
Devon, Dominion E&P, Forest Oil, Houston Exploration, Kerr-McGee, Newfield
Exploration, Spinnaker Exploration and TOTAL E&P.
50 Producer Coalition at 6.
51 Suez at 5.
52 CPUC Docket No. 04-01-025.
Docket No. PL04-3-000
- 26 -
has proposed that LNG suppliers be subject not only to the quality specifications in
utility tariffs but also to the quality specifications of any other federal, state or local
agency having “subject matter” jurisdiction over natural gas quality. BHP states that gas
quality and interchangeability “should not be subject to the whim or caprice of
governmental agencies that do not have direct regulatory authority over utilities.”53
C.
Gas Processors
7.
The Selected Processors54 support a NOPR that considers three issues: uniform
CHDP standards across interconnecting pipelines; CHDP specifications in pipeline
tariffs; and fair and non-discriminatory application of the CHDP standards for all gas
supplies. The Selected Processors would exempt interstate pipelines that do not directly
serve an end-use market from the CHDP standards. It believes that the NGSA proposal is
“vague,” and may not resolve the need for uniform CHDP standards across
interconnecting pipelines, long-term certainty through clear CHDP standards in pipeline
tariffs and the fair and non-discriminatory application of gas quality standards for all gas
supplies.55 The Selected Processors advocate a formal rulemaking proceeding and
mandatory measures for pipeline blending or pairing of non-compliant gas. They are
concerned that discretionary blending and pairing by pipelines pose the potential for
discrimination.
8
ear CHDP standards in pipeline
tariffs and the fair and non-discriminatory application of gas quality standards for all gas
supplies.55 The Selected Processors advocate a formal rulemaking proceeding and
mandatory measures for pipeline blending or pairing of non-compliant gas. They are
concerned that discretionary blending and pairing by pipelines pose the potential for
discrimination.
8.
Aux Sable Liquid Products (Aux Sable), which operates a gas processing plant at
the terminus of the Alliance Pipeline near Chicago, Illinois, supports the adoption of gas
quality and interchangeability standards through a rulemaking proceeding, but it
disagrees with the detailed regulatory text contained in the NGSA proposal.
Nevertheless, Aux Sable supports the Report recommendations, including a CHDP safe
harbor,56 and the establishment of the Wobbe Index as the basic means of determining
interchangeability.
53 BHP Billiton at 4.
54 The Selected Processors consist of Enterprise, Williams Midstream, Dynegy
Midstream and Duke Energy Field Services.
55 Selected Processors at 1.
56 While Aux Sable states that it supports the “minimum safe harbor” CDHP
method of controlling liquid drop out, the Report itself does not include a “safe harbor”
recommendation.
Docket No. PL04-3-000
- 27 -
9.
In an October 27, 2005 letter to the Chairman, the Gas Processors
Association (GPA) encourages swift resolution of the issues involved in setting gas
quality specifications to ease uncertainty in the industry with respect to the outcome of
these proceedings. Citing the loss of infrastructure that occurred in the Gulf following
last year’s hurricanes, GPA states that regulatory uncertainty adversely affects decisions
on new investment to rebuild damaged infrastructure. “The gas processing industry
desperately needs to know that fair, consistent application of gas quality specifications
will be applied for the long-term.”57
D.
Interstate Pipelines
10
e loss of infrastructure that occurred in the Gulf following
last year’s hurricanes, GPA states that regulatory uncertainty adversely affects decisions
on new investment to rebuild damaged infrastructure. “The gas processing industry
desperately needs to know that fair, consistent application of gas quality specifications
will be applied for the long-term.”57
D.
Interstate Pipelines
10.
The Interstate Natural Gas Association of America (INGAA) opposes NGSA’s
NOPR proposal, stating that gas quality and interchangeability issues are not a
nationwide problem. Rather, problems with gas quality and interchangeability can be
addressed on a pipeline-specific basis as problems arise. 58 However, if the Commission
is going to address these issues in a generic proceeding, INGAA believes it should do so
through a policy statement. It supports a presumptive 15 degree CHDP safe harbor but
wants pipelines to have the flexibility to accept gas at receipt points at different CHDP
levels (higher or lower than the NGSA proposal). INGAA would apply the CHDP
standards at pipeline receipt points rather than at delivery points. The 1,400 Wobbe
Index level standard proposed by NGSA is missing critical technical parameters (heating
value, use of historical average gas supply, and the plus or minus 4% Wobbe Index
range). INGAA would evaluate the need for a de minimis exemption for small producers
on a pipeline-by-pipeline basis. Finally, INGAA opposes a requirement for
merchantability provisions, saying that these could be used to “trump” pipeline gas
quality and interchangeability tariff provisions.
57 Letter from Mark F. Sutton, Executive Director of GPA to Chairman Kelliher
and officials at the Energy Information Administration and the Minerals Management
Service, at 2 (October 27, 2005)
ses a requirement for
merchantability provisions, saying that these could be used to “trump” pipeline gas
quality and interchangeability tariff provisions.
57 Letter from Mark F. Sutton, Executive Director of GPA to Chairman Kelliher
and officials at the Energy Information Administration and the Minerals Management
Service, at 2 (October 27, 2005).
58 In this regard, the Commission notes the “Joint Statement of the American Gas
Association and the Interstate Natural Gas Association of America,” filed on June 2,
2006, which outlines their agreement on developing gas quality and interchangeability
specifications on a pipeline-by-pipeline basis, where needed, within the next year. On
June 8, APGA filed a response to the AGA-INGAA joint statement. Subsequent
comments on the joint statement were filed by NGSA (on June 12) urging the
Commission to establish a policy for developing natural gas quality and
interchangeability standards, and by Washington Gas Light (June 13), who urged the
Commission to recognize the infrastructure impacts of changes in supply compositions in
addressing interchangeability issues.
Docket No. PL04-3-000
- 28 -
11.
Several pipeline companies filed individual comments on the Reports and the
NGSA proposal. Pipeline commenters oppose merchantability requirements, and, to the
extent any procedural tool is favored, the pipeline commenters oppose a generic
rulemaking along the lines proposed by NGSA. Instead, most support the development
of a policy statement governing gas quality and interchangeability issues. Duke Energy
Gas Transmission takes another view, arguing that these issues should be handled on a
complaint-driven basis and not through generic national standards. On providing an
exemption for small producers advocated by some producers, ANR, Southern Natural
and El Paso all assert that they have such exceptions in their gas quality tariff provisions.
12
and interchangeability issues. Duke Energy
Gas Transmission takes another view, arguing that these issues should be handled on a
complaint-driven basis and not through generic national standards. On providing an
exemption for small producers advocated by some producers, ANR, Southern Natural
and El Paso all assert that they have such exceptions in their gas quality tariff provisions.
12.
Other pipelines point to specific constraints or supply issues on their systems that
would make a generic approach particularly difficult. For example, Gulf South Pipeline
states that, due to its reticulated nature, gas cannot be pathed on its system, nor can gas
molecules be traced. This would make it very difficult for Gulf South to apply a single
CHDP minimum standard to its entire system.59
13.
Questar and Williston Basin both cite their ability to transport high HDP gas or
coal bed methane as being essential to meeting the requirements of downstream markets.
In Questar’s case, some of the gas it treats is delivered to its affiliated LDC. Questar has
made significant investment in liquid handling facilities and processing plants in order to
provide transportation service for gas coming from growing supply sources in the Green
River, Uinta and Piceance basins. Although the question of who should pay for these
facilities is the subject of an ongoing dispute with the Utah Division of Public Utilities,
Questar asserts that its ability to transport high HDP gas on its system would be adversely
affected by the CHDP safe harbor proposed in the NGSA petition.60 Similarly, Williston
Basin states that the gas it has transported on its system historically exceeds the levels in
both the Reports and the NGSA petition. In addition, Williston Basin states that applying
an inflexible gas quality standard at delivery points would impose a tremendous hardship
on the pipeline, which has 53 receipt points but over 3,100 delivery points.61
E.
LDCs
14
.60 Similarly, Williston
Basin states that the gas it has transported on its system historically exceeds the levels in
both the Reports and the NGSA petition. In addition, Williston Basin states that applying
an inflexible gas quality standard at delivery points would impose a tremendous hardship
on the pipeline, which has 53 receipt points but over 3,100 delivery points.61
E.
LDCs
14.
AGA and the American Public Gas Association (APGA), the major LDC trade
associations, oppose the NGSA petition. AGA’s original position on the NGSA petition
supported a NOPR mandating pipeline tariff provisions on gas quality and
59 Gulf South at 11-12.
60 Questar at 3-4.
61 Williston Basin at 4.
Docket No. PL04-3-000
- 29 -
interchangeability. AGA pointed to many flaws in the NGSA proposal, most of
which stem from the differences between the NGSA proposal and the Reports’ proposed
interim guidelines. AGA believes that the Commission should allow pipelines to require
gas to be processed, and it believes the CHDP should be set at the receipt points on the
pipeline system instead of at delivery points as proposed by NGSA.
15.
AGA proposed an alternative to the NGSA rulemaking proposal, outlining its own
rulemaking procedure: pipelines would amend their tariffs to adopt a CHDP level or safe
harbor CHDP developed through a pipeline-by-pipeline consensus process initiated by
the Commission’s NOPR and modeled on the collaborative process that led to the
development of the Report. AGA would rely on the Interchangeability Report’s interim
guidelines implemented in a Commission-mandated consensus process in setting
interchangeability standards.62 Since filing its comments on the NGSA petition, AGA
has collaborated with INGAA to develop an agreement on how industry stakeholders
could negotiate natural gas quality and interchangeability specifications on a pipeline-by-
pipeline basis, where needed, within the next year
’s interim
guidelines implemented in a Commission-mandated consensus process in setting
interchangeability standards.62 Since filing its comments on the NGSA petition, AGA
has collaborated with INGAA to develop an agreement on how industry stakeholders
could negotiate natural gas quality and interchangeability specifications on a pipeline-by-
pipeline basis, where needed, within the next year. This proposal, styled as a “joint
statement,” was filed on June 2, 2006.63
16.
Both AGA and APGA support requiring pipelines to include a merchantability
provision in their tariffs to protect pipeline customers from the effects of gas that is not in
compliance with tariff standards gas. This will provide pipelines flexibility to accept gas
that is not in compliance with the tariff but through blending or other means is
“merchantable” when delivered to LDCs and other end-use customers. KeySpan also
strongly endorses a requirement that pipeline tariffs include a merchantability provision.
17.
A significant number of LDCs filed comments on the Reports, the May 17
technical conference and the NGSA proposal, which most LDC commenters explicitly
oppose. Their comments are largely encompassed in the comments of AGA and APGA,
and most LDC commenters explicitly endorsed the trade association comments.
Constellation, for example, endorsed the comments of AGA and EEI. Standards based
on historical gas quality and mandatory merchantability requirements in pipeline tariffs
are supported by most LDCs. Most favor a rulemaking procedure, although NiSource
favors a policy statement for gas quality and interchangeability standards.
62 AGA at 32-36.
63 Supra at n.57. On June 8, AGPA filed a response to the AGA-INGAA joint
statement essentially agreeing with the process but opining that the parties should be able
to complete their negotiations within six months.
lemaking procedure, although NiSource
favors a policy statement for gas quality and interchangeability standards.
62 AGA at 32-36.
63 Supra at n.57. On June 8, AGPA filed a response to the AGA-INGAA joint
statement essentially agreeing with the process but opining that the parties should be able
to complete their negotiations within six months.
Docket No. PL04-3-000
- 30 -
18.
National Fuel Gas Distribution Corporation, which has a pipeline affiliate
that receives substantial quantities of Appalachian production, expresses concern about
the proposal for exempting de minimis production from gas quality standards. National
Fuel points out that the location along the pipeline and availability of blending are also
important considerations when determining whether de minimis production volumes
should be exempt from gas quality standards. “Processing requirements should be
imposed on de minimis producers as necessary, on a pipeline-by-pipeline, market-by-
market basis to maintain the historical content of gas introduced into commerce and
minimize liquid dropout.”64
19.
SCANA opposes the NGSA petition and proposes another process for developing
gas quality and interchangeability standards. Additional research would focus on
developing a nationwide baseline gas quality specification, and the industry should have
a 10 to 15 year transition period to accommodate a new nationwide baseline gas standard.
Additional focus should also be given on providing guidance to equipment manufacturers
for complying with the new nationwide baseline gas standard. SCANA asserts that
pipeline tariffs should be required to contain merchantability provisions, which would
supersede any CHDP level in the tariff. CHDP levels would be set on a pipeline-by-
pipeline basis.
20.
The Wisconsin Distributors Group65 states that the NGSA’s proposed 15 degree
CHDP safe harbor minimum might not work in the service territories of their members
aseline gas standard. SCANA asserts that
pipeline tariffs should be required to contain merchantability provisions, which would
supersede any CHDP level in the tariff. CHDP levels would be set on a pipeline-by-
pipeline basis.
20.
The Wisconsin Distributors Group65 states that the NGSA’s proposed 15 degree
CHDP safe harbor minimum might not work in the service territories of their members.
The NGSA proposal is based on average ambient ground temperatures, and in Wisconsin,
a 15 degree safe harbor might not be low enough to prevent liquid drop out. In its
comments on the Reports, the Wisconsin Distributors Group points out that much of
Wisconsin is served by Canadian gas, which has a CHDP of minus 30 degrees. However,
recognizing the interconnectedness of the interstate pipeline grid, more gas now is
coming into Wisconsin from sources other than Canada. The onus should be on each
pipeline, and its tariff should prescribe the CHDP and other gas quality criteria. Each
pipeline should ensure uniformity across its system, and each tariff should include a
merchantability provision.
64 National Fuel at 3.
65 The Wisconsin Distributors Group (WDG) is an ad hoc group of LDCs serving
natural gas customers in Wisconsin. For purposes of this proceeding, the Wisconsin
Distributors Group comprises the following: Alliant Energy – Wisconsin Power & Light
Company, City Gas Company, Madison Gas & Electric Company, Wisconsin Gas LLC
and Wisconsin Electric Power Company (collectively doing business as We Energies)
and Wisconsin Public Service Corporation.
c group of LDCs serving
natural gas customers in Wisconsin. For purposes of this proceeding, the Wisconsin
Distributors Group comprises the following: Alliant Energy – Wisconsin Power & Light
Company, City Gas Company, Madison Gas & Electric Company, Wisconsin Gas LLC
and Wisconsin Electric Power Company (collectively doing business as We Energies)
and Wisconsin Public Service Corporation.
Docket No. PL04-3-000
- 31 -
21.
The importance of interchangeability issues in the context of LNG project
development was raised by several LDC commenters. AGA asserts that the Commission
should require that LNG terminal developers be responsible for ensuring that their
product meets standards for interchangeability and that this responsibility should be
incorporated as part of the NGA section 3 or section 7 certificate processes for the review
of individual applications. APGA states that the Commission should require pipelines
that utilize LNG in their supply mix to develop tariff provisions for monitoring and
compensating for the costs incurred by communities that are near the injection of
vaporized LNG into the pipeline system. However, a couple of individual LDCs raised
issues on LNG and interchangeability that were not mentioned by the trade groups. For
example, Constellation states that it should not have to bear the cost of any modifications
to its LNG peak shaving facility that are necessary to accommodate elevated ethane
content from LNG imported into Dominion’s Cove Point LNG facility.66
22.
KeySpan proposes that the Commission require a new Gas Supply Resource
Report be included in each NGA section 3 and section 7 application, 67 a proposal
endorsed by SCANA and SCANA’s pipeline affiliates. This resource report would
identify all gas composition changes associated with the introduction of new gas supplies
from the proposed facilities and all adverse impacts on end-users associated with the
change in gas quality
on require a new Gas Supply Resource
Report be included in each NGA section 3 and section 7 application, 67 a proposal
endorsed by SCANA and SCANA’s pipeline affiliates. This resource report would
identify all gas composition changes associated with the introduction of new gas supplies
from the proposed facilities and all adverse impacts on end-users associated with the
change in gas quality. In addition, the report would consider whether specific mitigation
measures would be required to address potential adverse impacts from the new gas
stream on such facilities as LNG peak shaving facilities and dry-low-emissions (DLE)
natural gas turbines.
F.
Industrial Gas Users
23.
Among industrial gas users, Process Gas Consumers (PGC), Dow Chemical and
the Fertilizer Institute filed comments. PGC and Dow Chemical approached the NGSA
petition from completely different perspectives. PGC endorses virtually every aspect of
the proposal. It would condition its support of the 15 degree CHDP on the Commission
not “grandfathering” existing pipeline CHDP standards without additional opportunity
for comment, and it would subject “grandfathered” pipelines to the same complaint
process NGSA proposes for all other pipeline tariff standards. It also advocates a 15 to
18 month “reopener” to evaluate how the standards have worked. PGC avers that its
66 Constellation at 3.
67 KeySpan April 1 comments at 10-13.
s without additional opportunity
for comment, and it would subject “grandfathered” pipelines to the same complaint
process NGSA proposes for all other pipeline tariff standards. It also advocates a 15 to
18 month “reopener” to evaluate how the standards have worked. PGC avers that its
66 Constellation at 3.
67 KeySpan April 1 comments at 10-13.
Docket No. PL04-3-000
- 32 -
members “are prepared to shoulder the burden” of system modifications to
accommodate a 1,400 Wobbe Index level “to increase gas supplies.”68
24.
By contrast, Dow Chemical urges the Commission to be cautious in moving
forward on the NGSA proposal. It points to the severe economic consequences for
petrochemical plants when producers bypass processing their gas in order to “preserve
their entrained liquefiables for sale to downstream gas markets,” thereby depriving
petrochemical plants of critical feedstocks, such as ethane and propane.69 The Fertilizer
Institute takes no position on the NGSA proposal but states that the determination as to
where on the pipeline system gas quality standards are imposed, whether at pipeline
delivery points, as advocated by NGSA or at pipeline receipt points, as advocated by
INGAA, will have significant consequences for members of the Fertilizer Institute.
Many members of the Fertilizer Institute are directly connected to interstate pipelines
upstream of LDC city gates. If gas quality standards are imposed on gas at the LDC city
gate, these customers would not be protected.
G.
Electric Utilities, Generators and Power Marketers
25.
The Edison Electric Institute (EEI) and the Electric Power Supply Association
(EPSA) filed extensive comments in support of a NOPR process. However, both express
fundamental disagreement with NGSA’s petition and proposals for CHDP and
interchangeability standards. Both disagree with the 15 degree CHDP minimum and the
1,400 Wobbe Index level for reasons expressed by other commenters
s
25.
The Edison Electric Institute (EEI) and the Electric Power Supply Association
(EPSA) filed extensive comments in support of a NOPR process. However, both express
fundamental disagreement with NGSA’s petition and proposals for CHDP and
interchangeability standards. Both disagree with the 15 degree CHDP minimum and the
1,400 Wobbe Index level for reasons expressed by other commenters. EPSA observes
that NGSA’s proposed complaint process is tilted against those filing complaints and
states that the Commission already has in place regulations for filing complaints under
section 5 of the NGA.
26.
EEI supports the establishment of natural gas quality and interchangeability
standards through a Commission rulemaking, but it asserts that the NGSA CHDP and
Wobbe levels are “not workable.”70 Although EEI agrees with NGSA that a NOPR is the
preferable procedural framework for setting standards, it believes that natural gas
composition requirements must be based on historical deliveries, and that gas
composition requirements must be set regionally or on a pipeline-by-pipeline basis and
not nationally, as proposed by NGSA. EEI’s comments also included a lengthy study by
Combustion Science & Engineering, “Effect of Fuel Composition on Gas Turbine
68 PGC at 7.
69 Dow at 3.
70 EEI at 3.
Docket No. PL04-3-000
- 33 -
Operability and Emissions.” Among its conclusions is that turbine operators have
reported numerous operational difficulties attributed to changes in gas composition.
Because there is an inherent trade-off between NOx and combustion dynamics for the
latest generation of gas turbines, when changes in gas composition lead to increases in
NOx emissions, turbine operators will have to make operational changes to remain in
compliance with air permits.
27
bine operators have
reported numerous operational difficulties attributed to changes in gas composition.
Because there is an inherent trade-off between NOx and combustion dynamics for the
latest generation of gas turbines, when changes in gas composition lead to increases in
NOx emissions, turbine operators will have to make operational changes to remain in
compliance with air permits.
27.
The Southeastern End Users Group, an ad hoc group of LDCs and users of gas
turbines in Florida and Georgia,71 opposes the NGSA petition and endorses AGA’s
proposed process for developing gas quality and interchangeability standards. Of
particular concern is the impact of gas quality and interchangeability parameters on
operators of DLE natural gas turbines. The Southeastern End Users Group is concerned
about whether DLEs can accept wide variations in gas quality and yet remain in
compliance with emissions requirements without having to add expensive automatic
tuning and heating controls. The Southeastern End Users Group also expresses concern
about “legacy” gas equipment and asserts that any gas quality and interchangeability
standards ultimately adopted must ensure that “legacy” equipment will not be adversely
affected. They request that any generic policy adopted by the Commission not replace
case-specific decisions, such as the ongoing AES proceeding (Docket No. RP04-249-000
et al.)72
28.
Calpine and Florida Power & Light oppose the NGSA petition. Progress Energy
opposes implementation of the interim guidelines in the Reports and expresses concern
that the fuel constituent values in the interim guidelines on interchangeability could have
an adverse effect on DLE turbines. Progress Energy also believes that EPA should be
brought into the process of developing gas quality and interchangeability standards.
H.
Gas Equipment Manufacturers
29
Energy
opposes implementation of the interim guidelines in the Reports and expresses concern
that the fuel constituent values in the interim guidelines on interchangeability could have
an adverse effect on DLE turbines. Progress Energy also believes that EPA should be
brought into the process of developing gas quality and interchangeability standards.
H.
Gas Equipment Manufacturers
29.
The Gas Appliance Association of America (GAMA) and Siemens Westinghouse
represent consumer appliance manufacturers and turbine manufacturers, respectively.
Neither supports the specific Wobbe levels advocated by NGSA, supporting instead the
interim measure recommended in the report. GAMA points out that the report cited a
1992 GRI study that showed an average Wobbe Index of 1,345, and it urges the
Commission to adopt the Report’s interchangeability guidelines and its ± 4% Wobbe
Index range, instead of NGSA’s. GAMA also points out that the lack of a heating value
71 The members of the Southeastern End Users Group are listed in Appendix A.
72 Southeastern End Users Group at 8.
Docket No. PL04-3-000
- 34 -
standard in the NGSA proposal as another critical flaw. Other than to oppose
NGSA’s petition, GAMA takes no position on what procedural vehicle the Commission
should employ.
30.
Siemens Westinghouse requests that several of the interchangeability criteria set
forth in the Report interim guidelines be modified: (1) Siemens Westinghouse would set
a limit of 2.5 percent for propanes and one percent for butanes+ (compared with the
interim guideline of 1.5 percent for butanes+); (2) it requests that an additional limit be
set on the rate of change in the Wobbe Index of gas delivered to no more than two
percent per minute; (3) Siemens Westinghouse suggests that tariff provisions take into
account changes in gas quality that affect air quality; and, (4) it asks the Commission to
consider a mechanism to provide for cost recovery related to equipment
rcent for butanes+); (2) it requests that an additional limit be
set on the rate of change in the Wobbe Index of gas delivered to no more than two
percent per minute; (3) Siemens Westinghouse suggests that tariff provisions take into
account changes in gas quality that affect air quality; and, (4) it asks the Commission to
consider a mechanism to provide for cost recovery related to equipment failure caused by
gas quality or interchangeability issues. Finally, Siemens Westinghouse states that the
levels in NGSA’s proposal may be “too narrow” for certain end users, such as fuel cell
applications or natural gas vehicles.73
31.
GE states that the heavy-duty turbines it manufactures have a gas fuel
specification that defines the allowable ranges for fuel physical properties, constituents,
and contaminants, but this specification “was not written with the intent of addressing
continuous fuel variability within the allowable ranges.”74 GE states that fuel variations
of more than 5 percent from the Wobbe Index level established for the particular gas
turbine may result in the need to re-tune the combustion system. Because significant or
frequent variability may require constant monitoring with manual intervention (i.e., re-
tuning), GE is working on turbine upgrade packages that allow turbines to operate with
automatic combustion tuning for acoustic dynamics and emissions. This effort has been
spurred in part by GE’s support for LNG and the desire to develop retro-fit equipment
that will allow continuous operation by gas turbines over a range of Wobbe Index levels
“consistent with GE expected ranges for [natural gas] and LNG for the North American
Market.”75
73 Siemens Westinghouse at 3.
74 GE comments (May 12, 2005) at 1.
75 Id. at 2.
n part by GE’s support for LNG and the desire to develop retro-fit equipment
that will allow continuous operation by gas turbines over a range of Wobbe Index levels
“consistent with GE expected ranges for [natural gas] and LNG for the North American
Market.”75
73 Siemens Westinghouse at 3.
74 GE comments (May 12, 2005) at 1.
75 Id. at 2.
Docket No. PL04-3-000
- 35 -
I.
Governmental Entities
32.
The Utah Department of Public Utilities (UDPU) and the South Coast Air Quality
Management District (SCAQMD) filed comments on the Reports. UDPU’s focus is on
the quality of gas being transported by Questar Pipeline, the measures and facilities
employed by Questar to render the high HDP gas suitable for downstream customers
(including its affiliated LDC), and who should pay these costs. It complains that
Questar’s tariff requirements are set so broadly as to accommodate transporting as much
gas as possible. UDPU’s solution is for pipeline tariffs to specify quality standards for
gas that is delivered onto the system and to require the pipeline to ensure “a constant
quality” that meets the needs of the end users. UDPU would require the pipeline to
control the quality of gas entering its system.
33.
SCAQMD characterizes the Report on interchangeability as “a good start” to
understanding the issues, and it agrees that there are significant data gaps that must be
investigated. In this vein, SCAQMD recommends expedited research in these areas:
a. Emission studies of the impacts of high Btu gas on combustion
equipment, particularly larger combustion and power generation sources
b. Effects of inert gas addition on large and small equipment
c. Regional air quality impact analysis of LNG imports
d. Cost analysis of different mitigation measures
SCAQMD states that the natural gas quality standards that apply in its area are
inadequate
. Emission studies of the impacts of high Btu gas on combustion
equipment, particularly larger combustion and power generation sources
b. Effects of inert gas addition on large and small equipment
c. Regional air quality impact analysis of LNG imports
d. Cost analysis of different mitigation measures
SCAQMD states that the natural gas quality standards that apply in its area are
inadequate. They allow a heating value of up to 1,150 Btu/scf and indirectly a Wobbe
Index of approximately 1,433. In addition, SCAQMD is concerned about the air quality
impacts of high Btu LNG.76
J.
Pipeline/LNG Industry Service Providers
34.
EMS Pipeline Services provides a broad array of pipeline operations and
maintenance services, including field measurement, pipeline integrity testing, asset
management, communications, and web-based data management. EMS is the only
provider of pipeline services that filed comments, which generally support the Reports’
approaches on both gas quality and interchangeability. EMS asserts that the Commission
should encourage the industry to develop better and more comprehensive ways of
measuring gas quality and interchangeability.
76 SCAQMD at 3-4.
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