Hi All--

Attached is the Inside FERC summary of the FERC's order in the Transco 1Line / Order 637 proceeding and in the Texas Gas cash-out proceeding.

Transco is saying they won't implement "prior to April 1" but haven't decided on an implementation and training schedule as of yet. .The Order did not specify a date by which Transco had to implement.  Transco will have to make another filing to comply with this Order, so it may still be a little while before everything is finalized.  Given that the FERC did not speak to the cost of the system in this order (almost $80m), it's likely that the dollars will be subject to the on-going negotiations taking place in Transco's RP01-245 rate case proceeding.   I'll coordinate with Tammy to insure that we've got the necessary EDI testing plan in place and that we make the necessary Unify changes.

On Texas Gas, this represents a minor win for us--we had argued that Texas Gas' proposal was not consistent with Order 637 and that they should adopt a more "Transco-like" scheme that creates uncertainty w/o creating undue penalties.  Texas Gas will have to refile & we'll have another go-round between the marketing companies/producers and the LDC's on the Texas Gas system.  Will keep you posted.

Please let me know if you have any questions.

Suzanne
x54880
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TRANSCO GETS GREEN LIGHT TO IMPLEMENT 1LINE SYSTEM, OTHER RATE CHANGES

Capping a long-running debate over the 1Line proposal, Transcontinental Gas Pipe Line Corp., with only a minor exception or two, received approval from FERC to implement a new online, interactive computer system. Last month's ruling also went a long way toward completing Transco's effort to comply with orders 637 and 587.  The 1Line system was proposed to enable Transco and other subsidiaries of The Williams Cos. Inc. to put in place new practices and services, including ones related to compliance with orders 637 and 587.

According to Transco, its new scheme cannot be supported by its existing computer systems. But the commission last spring said it was not satisfied with Transco's proposal and asked for a more detailed explanation of how 1Line complies with orders 637 and 587 (IF, 2 April, 16). Looking at the 1Line plan from an order 637 and 587 perspective, FERC in the Sept. 27 order (RP01-236, et al.) found most of the scheme to its liking. It accepted Transco's proposal to change the capacity-release bidding and awarding processes, to incorporate pooling services in its tariff as a new pooling rate schedule, and to provide that any adjustments to a demand bill will be included in a subsequent demand bill, rather than the subsequent commodity bill.

The commission approved Transco's proposal on scheduling equality, which allows shippers acquiring released capacity to submit a nomination at the earliest opportunity after the acquisition of capacity. To raise its comfort level about the provision, FERC directed Transco to change the tariff to permit a shipper's nomination to coincide with the notification of the capacity release transaction and to remove restrictions on the releasing shipper's ability to specify when the release will become effective. FERC also generally was pleased with the provision directing customers to indemnify and hold harmless Transco against all claims. In response to one protester, the commission told the company to remove language that would force customers to indemnify Transco's affiliates as well.

On order 637 matters, FERC was mostly sympathetic to Transco's positions on issues such as imbalance services, operational controls and penalty revenue sharing.
FERC was less enthused with Transco's preferred approach to interaction between the pipeline's segmentation and discounting policies. Refuting the claim that it already complies with order 637 on this issue, FERC directed Transco to add language to its tariff creating a presumption that Transco can rebut a segmenting shipper's right to retain a discounted rate as long as Transco demonstrates that a segmented or secondary point is not similarly situated to point identified in the original transaction. Transco also must add a procedure to its tariff that requires requests to retain discounts to be processed within two hours.

FERC also accepted Transco's existing imbalance cash-out tolerances and tiered cash-out mechanisms, but wanted more information on proposed unauthorized overrun penalties. The pipeline has not ad-equately justified "why such substantial overrun penalties should apply on non-critical days," said the
commission. FERC rejected Transco's proposed transportation charge for imbalance trading, which the pipeline said was needed to recover what it asserts are lost transportation charges. The commission ruled that "Transco has failed to demonstrate that imbalance trades between zones necessarily results in a loss of transportation revenue." But the commission went on to say that it "may be willing to reconsider a remedy if Transco can show that shippers are abusing imbalance trading" to avoid certain charges.

Transco also was directed to justify its proposal to prohibit shippers from trading transportation imbalances and operational balancing agreement imbalances. FERC said that "it is not clear from Transco's explanation why OBA imbalances are so different from shipper transportation imbalances that the two cannot be traded."

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FERC ACCEPTED TEXAS GAS' PROPOSAL TO ELIMINATE IMBALANCES on its system by revising its cashout mechanism, while rejecting the proposed use of high/low daily pricing for cashouts. The revamped mechanism, which was developed during and after a technical conference, would enable Texas Gas Transmission Co. to "remove the incentive to engage in price arbitrage on its system," FERC said.

To stop customers from gaming its system, Texas Gas in March proposed (RP01-278) a plan to create a new monthly imbalance tier that would not be subject to cashouts, to eliminate pool-to-pool transfers in the calculation of customer imbalances, and to do away with the provision allowing a processor replacing
plant volume reduction to have its imbalances cashed out at 100% of the applicable index price. Seeing the need for the proposed changes, the commission noted that Texas Gas "has demonstrated with its data a close correlation between the imbalance and price arbitrage that has been taking place for years and has not subsided."

However, FERC rejected the idea of changing the applicable cashout price index at all tier levels to a percentage of either the highest or lowest daily price during the month. Directing Texas Gas to drop the proposed language, the order explained that daily high/low index prices "may unduly increase penalties for imbalances, which is contrary to order 637."

The order went on to say that "a less draconian measure" may be appropriate. For instance, Texas Gas could propose a mechanism "that would inject an element of uncertainty regarding the eventual price" if it wanted to provide "an incentive for shippers to remain in balance," FERC said.