Here is the other cite.

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Research Information:

Lexsee 69 FERC P61,145

Note:


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PAGE 1


                             LEXSEE 69 FERC P61,145

                           Texas-Ohio Pipeline, Inc.

             Docket Nos. CP92-217-000, CP92-217-001 and MT94-2-000

               FEDERAL ENERGY REGULATORY COMMISSION - Commission

                     69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340

                Order Issuing Certificates and Denying Rehearing

                                November 2, 1994

PANEL:
 [*1]

   Before Commissioners: Elizabeth Anne Moler, Chair; Vicky A. Bailey, James 
J.
Hoecker, William L. Massey, and Donald F. Santa, Jr.

OPINION:

   On December 3, 1991, Texas-Ohio Pipeline, Inc. (Texas-Ohio) filed an
application pursuant to section 7(c) of the Natural Gas Act (NGA) and Parts 
157
and 284 of the Commission's regulations for certificates of public convenience
and necessity to operate its facilities in interstate commerce and to perform
open-access transportation services on existing facilities known as the Hunter
Pipeline in Garrard County, Kentucky. Texas-Ohio also requested a temporary
certificate to operate the Hunter Pipeline on an interim basis pending 
issuance
of a permanent certificate.

   On January 15, 1992, the Commission issued Texas-Ohio a temporary 
certificate
authorizing service to existing customers utilizing the Hunter Pipeline; the
temporary certificate is to expire upon issuance of a final Commission order 
on
the request for a permanent blanket certificate. n1 On February 14, 1992,
Industrial Energy Services Company (IESCO) sought rehearing of the January 15
order.

   n1 Texas-Ohio Pipeline, Inc., 58 FERC 61,025 (1992).

   We will grant Texas-Ohio [*2]  a case-specific certificate pursuant to Part
157, subpart A of the Commission's regulations to operate the Hunter Pipeline 
in
interstate commerce and a blanket transportation certificate pursuant to Part
284, subpart G of the Commission's regulations. These authorizations are made
subject to compliance with the conditions set forth in this order. For the
reasons set forth below, IESCO's request for rehearing is denied.

Notices and Interventions

   Notice of Texas-Ohio's application was published in the Federal Register on
December 10, 1991 (58 Fed. Reg. 64,507). Algonquin Gas Transmission Company, 
CNG
Transmission Corporation, Elizabethtown Gas Company, Endevco Oil and Gas 
Company
(Endevco), Enron Gas Marketing, Inc., Equitrans, Inc., IESCO, O&R Energy, Inc.
(O&R Energy), Public Service Electric and Gas Company, and Texas Eastern
Transmission Corporation (TETCO) filed timely, unopposed motions to intervene.
,                                                                          
PAGE 2
                 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *2

n2 Endevco, O&R Energy, and TETCO support Texas-Ohio's application. IESCO
protests the application and requests an evidentiary hearing.

   n2 Timely, unopposed motions to intervene are granted pursuant to Rule 214 
of
the Commission's Rules of Practice and Procedure, 18 C.F.R. 385.214. [*3]

   On December 26, 1991, Texas-Ohio filed an answer to that portion of IESCO's
protest opposing the issuance of a temporary certificate. IESCO responded to
Texas-Ohio's answer on January 14, 1992. n3


   n3 Pursuant to section 385.213(2) of the Commission's regulations, 18 
C.F.R.
385.213(2), an answer to a protest is not permitted unless the Commission 
orders
otherwise. In order to have as complete a factual record as possible in this
proceeding, we will accept the December 26, 1991 and January 14, 1992 filings 
of
Texas-Ohio and IESCO, respectively.

   On February 3, 1992, Energy Marketing Exchange, Inc. filed a petition for
leave to intervene out of time. For good cause shown, and since the late
intervention will not prejudice any party to this proceeding or otherwise 
delay
the proceeding, we will grant Energy Marketing's motion to intervene out of
time.

Background

   The Hunter Pipeline is an interconnection between facilities of Tennessee 
Gas
Pipeline Company (Tennessee) and TETCO. It consists of two 1,000 horsepower
compressors and approximately 600 feet of above-ground 10-inch diameter gas
pipeline. The Hunter Pipeline is capable of transporting 60,000 Mcf per day of
natural gas.  [*4]

   Texas-Ohio constructed the Hunter Pipeline pursuant to a certificate issued
by the Kentucky Public Service Commission (Kentucky PSC) on November 19, 1990.
This authorization designated Texas-Ohio as an intrastate pipeline operating 
as
a transporting utility. However, because Texas-Ohio did not hold an 
open-season
prior to commencing transportation operations, only Texas-Ohio Gas, Inc. and 
its
sales customers acquired capacity on the Hunter Pipeline. n4 After 
constructing
the facilities, Texas-Ohio filed an application with the Commission in Docket
No. PR91-5-000 seeking approval of rates under section 311(a)(2) of the 
Natural
Gas Policy Act (NGPA). The Commission instituted rate proceedings on April 29,
1991 to determine whether Texas-Ohio's rates were fair and equitable. n5

   n4 Texas-Ohio is a wholly-owned subsidiary of Texas-Ohio Gas, Inc. (TOG), a
Houston-based marketer that ships Gulf Coast gas to northeastern industrial
end-users via Tennessee and TETCO. Prior to construction of the Hunter 
Pipeline,
TOG faced separate bottlenecks on the Tennessee and TETCO systems during the
winter heating season; the location and capacity of the Hunter Pipeline was
selected to avoid these bottlenecks.

   n5 Texas-Ohio Pipeline, Inc., 55 FERC 61,137 (1991).
 [*5]

   On June 3, 1991, Texas-Ohio suspended transportation service through the
Hunter Pipeline upon discovering that the gas being moved through those
facilities was not produced in Kentucky and, therefore, that it was engaged in
,                                                                          
PAGE 3
                 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *5

the interstate transportation of natural gas without authorization under NGA
section 7 or NGPA section 311. Subsequently, the Commission instituted an
investigation into the construction and operation of the Hunter Pipeline. That
investigation determined that from the first day of operation on December 1,
1990 through its voluntary shut-down on June 3, 1991, the Hunter Pipeline
transported gas in interstate commerce. n6 On October 19, 1993, the Commission
approved a stipulation and consent agreement in which Texas-Ohio agreed to 
pay a
$ 125,000 civil penalty and to implement a program to comply with the NGA and
NGPA. n7

   n6 Texas-Ohio received all the gas that flowed through the Hunter Pipeline
from Tennessee's interstate facility. Texas-Ohio then redelivered the gas to
TETCO's interstate facility.

   n7 Texas-Ohio Pipeline, Inc., 65 FERC 61,069 (1993).Proposal

   Texas-Ohio requests authorization to operate its facilities in interstate
[*6]  commerce and perform open-access transportation service. Texas-Ohio
proposes to charge firm shippers a transportation rate consisting of a
reservation charge of $ 1.4813 per MMBtu and a commodity charge of $ 0.0103 
per
MMBtu.

   Interruptible shippers would pay a transportation rate consisting of a
commodity charge of $ 0.059 per MMBtu. n8n8 The proposed initial rates are the
same as those which Texas-Ohio was authorized to charge during the 
effectiveness
of the temporary certificate. Texas-Ohio Pipeline, Inc., 58 FERC 61,025 at
61,059 (1992).


   Texas-Ohio states that operation of the Hunter Pipeline will permit 
shippers
to avoid bottlenecks on the systems of Tennessee and TETCO. TETCO's bottleneck
is located at a point near the Kentucky-Tennessee border. Due to this
constraint, TETCO has historically curtailed the interruptible transportation 
of
natural gas from receipt points located south of the Kentucky- Tennessee 
border
that is destined for delivery to points north during the winter heating 
season.
During the past three winter seasons, TETCO has curtailed interruptible
transportation for gas originating upstream of its Mt. Pleasant compressor
station [*7]  in Tennessee that is scheduled for delivery downstream to Zones 
C
and D.

   The bottleneck on Tennessee's system occurs in Mercer County, Pennsylvania.
As a result, gas produced and transported from receipt points south of Mercer
County cannot be transported to points north of Mercer County during certain
periods of the year. During the past four winter seasons, Tennessee has
curtailed gas moving on an interruptible basis from points upstream of 
stations
219, 237, and 313 to locations downstream of those stations.

   Texas-Ohio's facilities are positioned to avoid both bottlenecks. In this
regard, Tennessee typically has interruptible transportation capacity for
deliveries to Texas- Ohio's facilities, but has bottlenecks downstream of its
interconnection with Texas-Ohio. Conversely, TETCO has a bottleneck upstream 
of
Texas-Ohio's facilities, but has capacity for the movement of interruptible
transportation volumes downstream of its Mt. Pleasant compressor station. As
such, Texas-Ohio's facilities can be utilized to alleviate bottlenecks on two
different pipeline systems and thereby move gas to markets in the Northeast.
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PAGE 4
                 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *7


Discussion

   The Commission finds that by utilizing the Hunter [*8]  Pipeline shippers
located upstream of the TETCO bottleneck can utilize Tennessee's system to 
move
gas to Texas-Ohio for redelivery to TETCO and continued transportation
downstream. Shippers upstream of Tennessee's bottleneck, but downstream of
Texas-Ohio's facilities, can, by displacement, utilize Texas-Ohio's system to
access the TETCO system for continued transportation downstream. This
arrangement will avoid both the upstream and downstream bottlenecks and allow
continued delivery of gas to various northeast markets located off both the
TETCO and Tennessee systems. We find that the public convenience and necessity
requires issuance of a certificate pursuant to Part 157, subpart A, 
authorizing
operation of Texas-Ohio's Hunter Pipeline.

   The Commission also finds that Texas-Ohio's pro forma tariff generally
complies with the requirements for a Part 284 blanket transportation
certificate. Accordingly, we will grant Texas- Ohio's application for a Part 
284
blanket transportation certificate, subject to the conditions set forth herein
to ensure Texas-Ohio's full compliance with the conditions of Order Nos. 636,
497, and 566. Texas-Ohio's Part 284 blanket certificate will become effective
[*9]  upon Texas-Ohio's full compliance with these conditions.


I. Rates

   Texas-Ohio proposes to charge the initial rates that were approved in the
temporary certificate. Under this proposal, firm shippers would pay a
transportation rate consisting of a reservation charge of $ 1.4813 per MMBtu 
and
a commodity charge of $ 0.0103 per MMBtu. Interruptible shippers would pay a
transportation rate consisting of a commodity charge of $ 0.059 per MMBtu. The
proposed rates are based on the modified fixed variable rate design (MFV), 100
percent equity capitalization, a 15 percent return on equity, and a 10 percent
depreciation. The reservation and usage charges are based on 100 percent of 
the
system design capacity.

A. Rate Design

   Order No. 636 requires pipelines to use the straight fixed variable (SFV)
rate design methodology. n9 Texas-Ohio has not provided any evidence which 
would
support an exception to this requirement. Accordingly, we find that Texas-Ohio
should be required to use the SFV rate design methodology. Additionally, since
Texas-Ohio's cost of service does not include any variable costs, we will
require it to use $ 0.0000 as the minimum FTS usage and ITS rates. n10

   n9 See 18 C.F.R. 284.7(d).

   n10 See Gateway Pipeline Co., 55 FERC 61,488 (1991). [*10]  B. 
Capitalization
and Rate of Return

   Texas-Ohio proposes a capitalization consisting of 100 percent equity. We
find that it is appropriate to use a hypothetical capital structure consisting
of 57 percent debt and 43 percent equity; this structure is based on the 43.18
percent average equity ratio held by a group of seven major investor- owned
interstate pipelines at the end of 1993.
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PAGE 5
                 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *10


   We have generally used recent rates for Baa-rated public utility bonds to 
set
the debt costs on similar projects since Baa is the prevailing rating for
pipeline bonds. The rate for Baa utility bonds averaged 8.40 percent for the 
six
months ending July 31, 1994, with a one month average of 8.80 percent for July
1994. We find it appropriate to utilize a cost of debt of 8.50 percent.

   Texas-Ohio's proposed 15 percent rate of return on equity is excessive
considering the prevailing cost of capital. We find acceptable a rate of 
return
derived from a range of returns based upon an analysis of recent interest 
rates
and a discounted cash flow (DCF) study. The lower end of the range is 
determined
by the prevailing Baa rating for public utility bonds; as discussed above, we
will use a figure of 8.50 percent for [*11]  the most recent six months. Since
equity is riskier than debt, 100 basis points should be added to the bond 
rate,
thus bringing the lower end of the range to 9.50 percent.

   The upper end of the range is determined by a DCF analysis of a proxy group
of seven publicly held natural gas transmission companies. n11 This proxy 
group
is used because the DCF methodology requires market price data as an input in
the estimation of investor-expected equity returns. The DCF analysis for the
proxy group results in a range of equity returns of 10.77 percent to 13.41
percent, with a median return of 12.19 percent.

   n11 Coastal Corporation, El Paso Natural Gas Company, Enron Corporation,
Panhandle Eastern, Sonat Inc., Transco Energy, and Williams Companies, Inc.

   This analysis uses dividend yields and forecasts of long- term growth rates
as follows. For the first five years, the Institutional Brokerage Estimate
System (IBES) estimates of five year growth in earnings per share was used. 
For
longer-term growth (for the years 2000-2010), estimates taken from DRI/McGraw
Hill (Energy Review, Spring-Summer 1994) for growth in the natural gas 
industry
were used. A growth rate for each company in the [*12]  proxy group was
determined by averaging the two growth rates. Combining the bottom and top
figures establishes a range of 9.50 percent to 13.41 percent. The midpoint of
this range is approximately 11.50 percent.

   The Hunter Pipeline went into initial operation in 1990 and faces no
construction risk. Accordingly, we find that the company's risk is no higher
than that of the average pipeline. Therefore, we will require a rate of return
on equity of 11.5 percent, which is equal to the midpoint of the range of
reasonableness.

C. Depreciation

   Texas-Ohio proposes a book depreciation rate of 10 percent calculated on 
the
straight-line method which supports an economic life of 10 years. We believe
that the economic life of the Hunter Pipeline will depend upon gas reserves
connected to the Tennessee system and the future demand for natural gas
downstream of those facilities. We are confident that market demand and
operation of Tennessee and TETCO to service downstream markets in the 
Northeast
States will continue for the next 25 years. We also believe that the Hunter
Pipeline will operate on a permanent basis and play an important role in the
delivery of gas, especially during high demand [*13]  periods. Based on these
factors, we find that an economic life of 25 years should be used to 
calculate a
depreciation rate of four percent for the Hunter Pipeline facilities.
,                                                                          
PAGE 6
                 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *13


D. Conclusion

   We will require Texas-Ohio to modify its rates as follows. For 
interruptible
service, the minimum rate shall be $ 0.0000; the maximum rate shall be $ 
0.0518.
For firm service, the minimum reservation charge shall be $ 0.0000; the 
maximum
reservation charge shall be $ 1.5749. The usage charge for firm service shall 
be
$ 0.0000. n12 The rates approved herein are initial rates under NGA section 7;
their approval does not constitute approval of any underlying rate 
methodology,
principle, or concept to be used in any general rate change filed pursuant to
NGA section 4. These initial rates will remain in effect until such time as
Texas-Ohio files an NGA section 4 general rate proceeding. At that time, any
party or the Commission staff may propose new rates based on different
methodologies, principles or concepts.

   n12 All rates are expressed per MMBtu.

   II. Pro Forma Tariff

Texas-Ohio has applied for a blanket transportation certificate under section
284.221 of the Commission's regulations. It  [*14]  proposes to provide both
firm and interruptible transportation service. To commence service under a
blanket certificate, Texas-Ohio must file and place into effect rates, terms,
and conditions that are consistent with Part 284 of the regulations. 
Texas-Ohio
has not made a tariff filing in this proceeding; it has, however, filed pro
forma tariff sheets which indicate the form its tariff will take. Generally, 
the
pro forma tariff conforms to the Commission's requirements. As discussed 
below,
however, certain provisions are either inconsistent with the Commission's
policies or are not adequately justified. Certain specific changes that we 
will
require to be made to Texas-Ohio's pro forma tariff are set forth in an 
appendix
to this order.

A. Order No. 636

   Review of Texas-Ohio's pro forma tariff indicates a number of changes that
must be implemented to satisfy the requirements of Order No. 636. To implement
those changes, Texas-Ohio must make a tariff filing within 45 days of the date
of the issuance of this order. Also, Texas-Ohio is reminded that while certain
provisions of Order No. 636 may not apply at this time, future changes in its
operations may require tariff revisions to satisfy [*15]  the requirements of
that Order.

1. Equality of Service/Open Season

   Pipelines that offer open-access transportation service must provide those
services on a basis that is equal in quality for all gas suppliers, whether 
the
gas is purchased from the pipeline or from another seller. Section 
284.14(b)(iv)
of the Commission's regulations, 18 C.F.R. 284.14(b)(iv), requires a 
pipeline's
tariff to reflect the principle of equality of service for all gas transported
under each rate schedule.

   Texas-Ohio performs only unbundled transportation service; it does not
provide pipeline sales service. Texas-Ohio does, however, provide 
transportation
service for its affiliated marketers, TOG and Texas-Ohio West, Inc. Original
Sheet No. 6, section 3.2, of Texas-Ohio's pro forma tariff provides that
,                                                                          
PAGE 7
                 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *15

customers with an already executed firm transportation contract for service on
the Hunter Pipeline as of the effective date of the tariff shall have a 
priority
over customers executing a service agreement at a later date. Service is
otherwise offered on a first-come, first-served basis. We find that this
provision gives preferential treatment to selected customers. It is unduly
discriminatory and must be [*16]  removed from the tariff. Further, we find 
that
Texas-Ohio has never held an open-season or otherwise provided for the
non-discriminatory allocation of system capacity prior to initiating service.
Accordingly, we hold that Texas-Ohio must implement an open season within 30
days of the date of issuance of an order in this proceeding to ensure non-
discriminatory allocation of system capacity.

2. Pregranted Abandonment and Right of First Refusal

   Section 284.221(d) of the Commission's regulations, 18 C.F.R. 284.221(d),
authorizes pregranted abandonment of interruptible and short-term firm
transportation at the end of the contract. A short-term contract is one with a
term of less than one year. For long-term transportation with a term of more
than a year, section 284.14(b)(1)(xiii) requires the pipeline to establish 
right
of first refusal procedures for use upon expiration of the long-term contract.
Texas-Ohio's pro forma tariff does not comply with these requirements; it is
directed to amend its tariff accordingly.

3. Capacity Release and Electronic Bulletin Board

   Section 284.243 of the Commission's regulations, 18 C.F.R. 284.243, 
requires
interstate pipelines offering firm transportation [*17]  to establish a 
capacity
release mechanism that allows firm shippers to release all or part of their 
firm
transportation capacity rights to any person who wants to obtain that capacity
by contracting with the pipeline. The release may be temporary, permanent, or
subject to conditions (i.e., on an interruptible basis). The pipeline must
allocate released capacity to the person offering the highest rate (not over 
the
maximum rate) and offering to meet any other terms and conditions of the
release.

   Order No. 636 requires pipelines to provide timely and equal access to any
and all information necessary for buyers and sellers to arrange gas sales and
capacity release, including information regarding the availability of capacity
at receipt and delivery points, and whether capacity is available from the
pipeline directly or through capacity releasing. This information must be 
posted
on an electronic bulletin board (EBB).

   Texas-Ohio's proposed tariff lacks these provisions. It must amend its pro
forma tariff to provide a capacity release mechanism and establish an EBB.

4. Upstream Capacity

Section 284.242 of the Commission's regulations, 18 C.F.R. 284.242, provides
that an interstate [*18]  pipeline that offers transportation service on a 
firm
basis under subparts B or G of Part 284 must offer, without undue
discrimination, to assign to its firm shippers its firm transportation 
capacity,
including contract storage, on all upstream pipelines. Texas-Ohio does not
appear to hold any upstream capacity. In the tariff filing it is required to
make to comply with the requirements of Order No. 636, Texas-Ohio should state
whether it holds any capacity on upstream pipelines. If it does, Texas-Ohio 
must
,                                                                          
PAGE 8
                 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *18

revise its tariff to comply with Order No. 636.

5. Transition Costs

   Texas-Ohio's filing predates Order No. 636 and consequently makes no 
comment
regarding incurrence of transition costs. Accordingly, we will not make a
determination at this time with respect to Texas-Ohio's level of transition
costs. III. Docket No. MT94-2-000 Pursuant to our order of December 23, 1993,
Texas-Ohio filed revised tariff sheets in Docket No. MT94-2-000 to comply with
the requirements of section 250.16(b), 18 C.F.R. 250.16(b). n13 With the
exception of the items discussed below, we find that Texas-Ohio's filing
complies with those requirements. n14

   n13 Texas-Ohio Pipeline, Inc., 65 FERC 61,387 (1993). Section 250.16 of the
Commission's regulations requires interstate natural gas pipelines that
transport natural gas for others pursuant to subparts B, G, H, or K of Part 
284,
and that are affiliated in any way with a natural gas marketing or brokering
entity, to file certain information relevant to that relationship.

   n14 On June 17, 1994, Order No. 566 modified section 250.16(b) effective
August 1, 1994 by, among other things, eliminating the requirement that
pipelines (1) receive certain information from shippers in requests for
transportation service, (2) log and post on the EBB complaints made by 
shippers,
and (3) include procedures to communicate pricing and capacity information.
 [*19]

   The tariff sheets filed by Texas-Ohio do not set forth the information
required to be filed in a transportation request. Texas-Ohio contends that 
since
it is operating under a temporary certificate and is prohibited from providing
transportation service to new customers pending further action on its
application, that information is not applicable.

   While Order No. 566 eliminated certain information previously required to 
be
provided in the transportation request form, it still requires pipelines to
maintain a log of data used to allocate capacity. Texas-Ohio must comply with
this provision and file a transportation request form as specified.

   Texas-Ohio can address this deficiency by either revising existing tariff
provisions, including its FTS and ITS request form, or by incorporating the
changes into Section 16 (Order No. 497 Compliance Procedures) of its proposed
tariff. Texas-Ohio must make a compliance filing within 45 days of the 
issuance
of this order incorporating all information required by Order Nos. 497 and 
566.
Additionally, since the tariff sheets Texas-Ohio filed in Docket No. 
MT94-2-000
are not pro forma, Texas-Ohio should filed corrected tariff sheets in a form
[*20]  acceptable to become effective upon issuance of an order in this
proceeding.

IV.Environmental Matters

   On August 22, 1990, Texas-Ohio notified the Commission that it intended to
commence construction of the Hunter Pipeline and that the facilities would be
used for the transportation of natural gas under NGPA section 311(a)(2). This
notice provided the environmental information required by section 157.206(d) 
of
the Commission's regulations.

,                                                                          
PAGE 9
                 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *20

   To ensure that operation of the Hunter Pipeline compressors complies with 
the
noise requirements of section 157.206(d)(5), Texas-Ohio must perform a
post-construction sound survey of the compressor station. This survey must be
performed not later than 30 days after the date of issuance of this order. n15
Texas-Ohio's application for a Part 157, subpart A certificate to operate the
Hunter Pipeline and a Part 284, subpart G blanket transportation certificate
relies solely on the use of existing facilities; no additional construction
authorization is requested or granted. Accordingly, subject to Texas-Ohio's
compliance with section 157.206(d)(5), we conclude that approval of the 
instant
application is not a major Federal action significantly affecting [*21]  the
quality of the human environment.

   n15 Section 157.206(d)(5) provides that the noise attributable to any
compressor facility shall not exceed a day-night sound level of 55 dB(A) at 
any
existing noise-sensitive areas.V. IESCO's Protest

   In its protest and request for an evidentiary hearing, IESCO charges that
Texas-Ohio's jurisdictional status must be determined as a precondition to the
issuance of a certificate.

   IESCO states that if Texas-Ohio was not a interstate pipeline for the 
period
from November 1990 through June 3, 1991, it could not legally offer NGPA 
section
311(a)(2) service and competing sellers of gas (such as IESCO) could have been
unfairly deprived of their markets.

   The Commission's January 15, 1992 order issuing Texas-Ohio a temporary
certificate to operate the Hunter Pipeline laid to rest concerns regarding
Texas-Ohio's jurisdictional status. Further, Texas-Ohio agreed in the 
settlement
approved in the Commission's October 18, 1993, order to comply with the NGA,
NGPA, and the Commission's regulations. This order issues Texas-Ohio a case-
specific certificate pursuant to subpart A of Part 157 and a blanket
transportation certificate pursuant to subpart G of [*22]  Part 284. No
questions remain as to the jurisdictional status of Texas-Ohio.

   IESCO then complains that Texas-Ohio should have held an open-season during
which prospective shippers would have an opportunity to obtain services on the
Hunter Pipeline. As discussed above, the Commission has investigated
Texas-Ohio's operation and determined, among other things, that Texas-Ohio
notified only its marketing affiliate and the marketing affiliate's customers 
of
the availability of capacity prior to construction of the Hunter Pipeline. The
Commission's policies require Texas-Ohio to use a non-discriminatory method of
selecting customers for both firm and interruptible transportation service 
when
operating under Part 284. n16 As noted above, we are holding that Texas-Ohio
must hold an open season prior to commencing service under its Part 284 
blanket
certificate. This approach will ensure that prior notice of firm capacity is
made available to all interested parties on a contemporaneous basis and in a
non-discriminatory manner. n17

   n16 18 C.F.R. 284.8(b) and 284.9(b).

   n17 See, e.g., Pacific Gas Transmission Co., 54 FERC 61.035 at 61,154 
(1991);
ANR Storage Co., 51 FERC 61,114 at 61.304 (1990). [*23]

   IESCO next asserts that Texas-Ohio's proposed tariff does not assure that
nondiscriminatory service will be provided. We disagree. Acceptance by
,                                                                         
PAGE 10
                 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *23

Texas-Ohio of the blanket transportation certificate authorized by this order,
and as conditioned herein, will subject Texas-Ohio to the full range of the
Commission's requirements, including those prohibiting discriminatory 
practices.

   IESCO states that Texas-Ohio must be required to comply with the provisions
of the Affiliated Marketer Rule. As we noted in the order issuing a temporary
certificate, Order Nos. 497 and 497-A apply to all interstate pipelines with
affiliated marketers. Upon acceptance of the temporary certificate Texas- Ohio
became subject to the conditions of those orders. n18 Texas-Ohio's standards 
of
conduct implementing Order No. 497, filed in Docket No. MG93-5-000, have been
accepted by the Commission. n19 When Texas-Ohio complies with this order's
directions, Texas-Ohio will be in full compliance with Order No. 497.

   n18 Texas-Ohio Pipeline, Inc., 58 FERC 61.025 (1992).

   n19 Texas-Ohio Pipeline, Inc., 65 FERC 61,387 (1993); Texas- Ohio Pipeline,
Inc., 67 FERC 61,149 (1994). [*24]

   IESCO asserts that Texas-Ohio's proposed rates have not been shown to be
required by the present or future public convenience and necessity. It is
particularly concerned with the fact that Texas-Ohio seeks to depreciate its
facilities over a ten-year period. As discussed above, we agree that
Texas-Ohio's proposed rates and ten-year depreciation period are 
inappropriate,
and we have required adjustments to those figures as appropriate.

   IESCO also raises in its protest issues relating to Texas- Ohio's 
application
for a temporary certificate. Those issues were addressed in our January 15, 
1992
order issuing a temporary certificate. Issues raised by IESCO on rehearing of
that order are discussed below.

   In view of our disposition of the issues raised by IESCO, we find that 
there
are no disputed material issues of fact and, therefore, no need for an
evidentiary trial-type hearing. n20

   n20 See Arkla Gathering Services Co., 67 FERC 61,257 (1994).VI. Request for
Rehearing

   On February 14, 1992, IESCO filed a request for rehearing of the 
Commission's
January 15, 1992 order issuing Texas-Ohio a temporary certificate. IESCO
contends first that issuance of the temporary [*25]  certificate to Texas-Ohio
was unlawful on three grounds: (1) the Commission acted beyond its statutory
authority because it improperly determined that an emergency existed; (2) even
if an emergency existed, the Commission failed to make adequate findings
supported by substantial evidence; and (3) the Commission failed to resolve
jurisdictional and tariff issues in connection with issuance of the temporary
certificate.

   NGA section 7(c)(1)(B) provides that "the Commission may issue a temporary
certificate in cases of emergency, to assure maintenance of adequate service 
or
to serve particular customers without notice or hearing, pending the
determination of an application for a [permanent] certificate . . . ." The 
order
issuing a temporary certificate expressly found that an emergency exists 
within
the meaning of section 7(c)(1)(B) of the Natural Gas Act and section 157.17 of
the Commission's regulations, and that the public convenience and necessity
required the issuance of a temporary certificate authorizing Texas-Ohio's
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                 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *25

operation of the Hunter Pipeline in order to continue service to existing
customers who had been relying on that service. n21 In support thereof, the
order referenced [*26]  the fact that: (1) Raritan River Steel Company, the
largest employer in Perth Amboy, New Jersey would be forced to purchase gas 
at a
higher price and might have to close its plant with disastrous impacts on the
community; and (2) a number of entities, including the Philadelphia Housing
Authority, the Dartmouth Finishing Corporation, and various schools indicated
that they are operating under strained budgets and that the inability to
transport gas on Texas-Ohio would result in severe fiscal restraints.

   n21 Texas-Ohio Pipeline, Inc., 58 FERC 61,025 at 61,059 (1992).

   Under these circumstances, we believe that an emergency situation was shown
to exist within the standard established by NGA section 7 and that this
conclusion is appropriately supported by the evidence relied upon in the 
order.
n22

   n22 See generally, Penn-York Energy Corp., 37 FERC 61,109 (1986);
Transcontinental Gas Pipe Line Corp., 34 FERC 61,402 (1986).

   With regard to its assertion that the Commission failed to resolve certain
jurisdictional and tariff issues prior to the issuance of the temporary
certificate, IESCO complains that:  [*27]  (i) the Commission issued a 
temporary
certificate without making a finding that Texas-Ohio is a "natural gas 
company"
subject to the Commission's NGA jurisdiction; (ii) the failure to resolve the
jurisdictional issue leaves unresolved the question of whether a certificate 
of
public convenience and necessity is needed for the construction of the Hunter
Pipeline; and (iii) the Commission has left unresolved the question of whether
an open-season is required to assure non-discriminatory access to Texas-Ohio's
facility, thus precluding shippers who were denied service from any 
opportunity
to obtain service during the period that the temporary certificate is in 
effect.

   IESCO's arguments misapprehend the function of a temporary certificate. By
its very nature, issuance of a temporary certificate precedes decisions on
matters related to issuance of the permanent certificate. The issues raised by
IESCO are appropriate for decision in connection with the issuance of a
permanent certificate and we have addressed them above. n23

   n23 We in fact noted in the January 15, 1992 order that the issues raised 
by
IESCO relating to the jurisdictional status of Texas-Ohio and the provision of
service on a nondiscriminatory basis would be resolved upon consideration of 
the
application for a permanent certificate. We stressed at that time that "the
grant of a temporary certificate is made to allow the resumption of service by
specific customers previously utilizing Texas-Ohio's facilities to prevent
hardship." Texas-Ohio Pipeline, Inc., 58 FERC 61,025 at 61,060 (1992). [*28]

   IESCO also asserts that the Commission improperly refused to order an
evidentiary hearing before issuing the temporary certificate. IESCO alleges 
that
efforts in Docket No. PR91-5-000 to determine the original and ultimate
destination of gas transported by Texas-Ohio were unsuccessful. It also states
that the proceedings in Docket No. PR91-5-000 and the instant docket have been
plagued by uncertainty over the identity of Texas- Ohio's customers and the
nature of the services rendered.

   We disagree that an evidentiary hearing was required prior to the issuance 
of
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                 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *28

the temporary certificate. NGA section 7(c) does not require either notice or
hearings in conjunction with the issuance of a temporary certificate. Even 
where
the statute requires an evidentiary, trial-type hearing, it is necessary only
where material issues of fact are in dispute that cannot be resolved on the
basis of the written record. n24 The matters raised by IESCO are speculative 
or
immaterial to the decision to issue a temporary certificate to allow the
resumption of specific services to specific customers. Finally, IESCO alleges
that the Commission failed to attach conditions needed to prevent abuse of the
temporary [*29]  certificate. IESCO states that the temporary certificate 
should
have been expressly limited to serving customers previously served through the
Hunter Pipeline and that it should have included a condition for potential
refunds.

   n24 Arkla Gathering Service Co., 67 FERC 61,257 (1994).

   Our January 15, 1992 order specifically provided that the temporary
certificate is not a blanket authorization, but is limited to only those
customers with whom Texas-Ohio has existing transportation agreements. n25 The
order further specified that the grant of a temporary certificate is made to
allow the resumption of service by specific customers previously utilizing the
Hunter Pipeline. n26 Thus, the temporary certificate expressly limited service
to existing customers. Finally, the NGA does not provide for making initial
rates subject to refund.

   n25 Id. at 61,059.

   n26 Id. at 61,060.The Commission Orders:

   (A) Upon the terms and conditions of this order, a certificate of public
convenience and necessity is issued to Texas-Ohio pursuant to subpart A of 
Part
157 of the Commission's regulations, as amended from time to time, authorizing
it to operate the Hunter Pipeline [*30]  in interstate commerce.

   (B) The certificate issued in Order Paragraph (A) above is conditioned upon
Texas-Ohio's compliance with Part 154 and paragraphs (a), (c)(3), (e), and (g)
of section 157.20 of the Commission's regulations.

   (C) Upon the terms and conditions of this order, a blanket certificate of
public convenience and necessity is issued to Texas-Ohio authorizing it to
perform the activities specified in subpart G of Part 284 of the Commission's
regulations, as amended from time to time. The certificate issued to 
Texas-Ohio
in Ordering Paragraph (A) above is conditioned upon Texas-Ohio's acceptance of
this blanket certificate.

   (D) Upon the terms and conditions of this order, permission for and 
approval
of the abandonment by Texas-Ohio of the services authorized in subpart G of 
Part
284 of the Commission's regulations, as amended from time to time, are 
granted.

   (E) The certificate issued in Ordering Paragraph (C) above, the abandonment
authorized in Ordering Paragraph (D) above, and the rights granted thereunder
are conditioned on Texas-Ohio's compliance with the applicable Commission
regulations under the NGA, including Parts 154, 157, and 284, and paragraphs 
(a)
and (e)  [*31]  of section 157.20 of the Commission's regulations.

   (F) Texas-Ohio must make a filing within 45 days of the date of issuance of
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                 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *31

this order revising its tariff to implement the requirements of Order No. 636.

   (G) Texas-Ohio must make a filing in Docket No. MT94-2-000 within 45 days 
of
the date of issuance of this order revising its tariff to comply with Order 
Nos.
497 and 566.

   (H) Texas-Ohio must conduct an open-season to allocate capacity on its 
system
to initiate Part 284 transportation within 30 days of the date of issuance of
this order.

   (I) Texas-Ohio shall conduct a noise survey of its compressor station to
comply with 18 C.F.R. 157.206(d)(5) not later than 30 days after the date of
issuance of this order.

   (J) IESCO's protest and request for a hearing is denied. (K) Energy 
Marketing
Exchange's petition for leave to intervene out of time is granted.

   (L) The motions of Texas-Ohio and IESCO to file answers dated December 26,
1991 and January 14, 1992, respectively, are granted.



APPENDIX:

   APPENDIX

   Pro Forma Tariff Analysis: Specific Comments

1. Rate Schedules FTS and/or ITS

   Section 1 - Availability

In this section, Texas-Ohio reserves the right, in its sole judgement 
(exercised
on a reasonable [*32]  and non-discriminatory basis) to decline service 
whenever
it would be contrary to good operational practices or detrimental to other
customers. Texas- Ohio should revise this section to set out the specific
criteria or detrimental actions that would trigger this clause.

   Section 1.(iii) of Rate Schedules FTS and ITS requires shippers to provide
Texas-Ohio with "acceptable" evidence of, among other things, gas supply,
market, and other transportation services. The term "acceptable" is vague and
subject to unduly discriminatory interpretation. Texas-Ohio must set forth
specifically the evidence required to be "acceptable".

   Section 2- Applicability and Character of Service

Section 2.4 of Rate Schedule ITS states that transportation will be "subject 
to
curtailment or interruption as deemed necessary in Texas-Ohio's discretion." 
The
provision is vague and could result in unduly discriminatory application of
curtailment procedures. Texas-Ohio must modify the provision to detail the
specific operational characteristics and criteria used to determine the
conditions and need for curtailment.

   Section 3 - Priority and Interruption of Transportation Service

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                 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *33

Section 3.2 of Rate Schedule  [*33]  FTS provides for firm service on a first
come, first served basis. However, Texas-Ohio retains a priority for customers
with existing FTS agreements. This provision is unduly discriminatory and must
be removed from the tariff.

   Section 3.4 of Rate Schedule FTS provides that Texas-Ohio can curtail 
service
due to reasons of force majeure "or any other operational considerations to be
reasonably determined by Texas- Ohio". Texas-Ohio must set forth the specific
operational considerations it would rely upon in exercising this authority.

   In Section 3.5 of Rate Schedule FTS and Section 3.3 of Rate Schedule ITS,
Texas-Ohio proposes to suspend service if a shipper's account is unpaid for 30
days. Texas-Ohio can suspend service without prior Commission approval if a
customer fails to pay a billed amount within 30 days of the due date, but only
where 10 days notice is given and the shipper neither pays the bill nor 
provides
guarantee of payment. Texas-Ohio must modify these provisions to provide for a
10 day notice period.

   Section 4 - Requests for Transportation

Section 4.1 of Rate Schedules FTS and ITS states that a shipper must complete 
a
FTS or ITS Request Form; however, no request  [*34]  form is included.
Texas-Ohio must establish a request form as part of its tariff. That form must
comply with the requirements of Order No. 497 as set forth in section 
250.16(b)
of the Commission's regulations.

   Section 5 - Operating Conditions

Section 5.1 of Rate Schedules FTS and ITS requires shippers to provide
Texas-Ohio with estimates of gas to be transported and such other operating 
data
as Texas-Ohio may require. This section should be amended to specify what 
other
operating data may be required of shippers.

   Section 5.4 of Rate Schedules FTS and ITS specifies that Texas-Ohio will 
not
provide service on any day for which all necessary upstream and downstream
arrangements cannot be confirmed. This clause should be amended to state that
any action will be taken on a non-discriminatory basis.

   Section 6 - Rates

Section 6.2 of Rate Schedule FTS defines the monthly reservation and commodity
(usage) charge. Texas-Ohio should insert the word "maximum" in the second
sentence prior to "monthly commodity charge" and "unit commodity rate(s)".

   Section 9 - Waivers

Section 9 of Rate Schedule FTS provides that Texas-Ohio may waive any rights
hereunder or any obligations of a customer on [*35]  a basis which is not 
unduly
discriminatory.  This language creates the impression that Texas-Ohio retains
the discretion to waive default by the shipper of any provision in the tariff.
This would give Texas-Ohio excessive latitude in operating under its tariff 
and
provide an opportunity for undue discrimination among shippers. Waiver
provisions are permissible, but they must serve a functional purpose and 
operate
under a specific and clearly defined set of circumstances. Texas-Ohio must
specify the criteria it will use in determining whether to waive a particular
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                 69 F.E.R.C. P61,145; 1994 FERC LEXIS 2340, *35

provision.

   2. General Terms and Conditions

Texas-Ohio's pro forma tariff contains no scheduling or imbalance penalties.
Pipelines are permitted, but not required, to impose penalties to maintain
control of their system. If scheduling or imbalances become a problem in the
future, Texas- Ohio can make a tariff filing to propose appropriate penalties.

   Section 2 - Transporter Receipt Point(s)

   Section 2.2 provides that Texas-Ohio's obligation to receive and deliver 
gas
shall never exceed the total daily volume Shipper is able and willing to
receive. Texas-Ohio must remove the words "and willing" from this provision. 
The
phrase [*36]  is vague and could lead to discriminatory activities.

   Section 5 - Nominations and Balancing Deliveries

Section 5.1 provides that a shipper will inform Texas-Ohio daily, "or on some
other basis as Transporter may reasonably require pursuant to such other
procedures as may be established and published by Transporter from time to 
time
. . . ." of the daily gas quantity. The phrase is vague and should be replaced
with language specifying what other basis for notification is required (e.g.,
phone, fax, or telecopy).

   Section 5.2 requires shippers to give Texas-Ohio notice 24 hours in advance
"or as Transporter may designate from time to time" of any change in the daily
quantity. Texas-Ohio should specify what alternative time frame would meet its
requirements or delete this phrase.


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