Case No. 8509(z)

COVE POINT LNG LIMITED PARTNERSHIP (“COVE POINT”)

Cove Point Docket No. CP01-76, CP01-77, RP01-217 and CP01-156 not consolidated (Reactivation/Transco Interconnection)

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  The FERC erred in not recognizing the historic reliance on the Cove Point line for gas service.
  
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  The FERC erred in failing to require Cove Point to unbundle the components of the LNG service under new Rate Schedule LTD and to make available transportation service in an open season.
  
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  The FERC erred in permitting Cove Point to abandon a significant portion of its certificated service obligation under its existing Rate Schedule FPS without proceeding under Section 7(b) of the Natural Gas Act;
  
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  The FERC erred in its determination that the rate settlement provides an acceptable outcome consistent with the public interest.
  
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  The FERC erred in its finding that WG is not a party aggrieved by the level of the LTD-1 rates and the related cost shifting.
  
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  The FERC erred in characterizing the operational issues arising at the interstate pipeline interconnects with Cove Point as limited to imbalance concerns solely involving Columbia Gas Transmission.
  
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  The FERC erred in failing to consolidate this docket with the Order No. 637 docket in light of the new services being proposed here.
  
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  The FERC erred in unduly restricting potential cost recovery attributable to the introduction of LNG to the costs associated with appliance adjustment.
  

In response to a November 9, 2001 FERC motion to consider safety issues involving Cove Point, Washington Gas filed comments on November 15, 2000 supporting the development of timely and streamlined communication procedures and participated in the Nov. 16 hearing regarding necessary additional security to protect Cove Point and the surrounding facilities from attacks similar to those that occurred on September 11, 2001.

­DOMINION TRANSMISSION, INC (“DOMINION”)

Dominion Docket No. RP00-632 (Transportation Cost Rate Adjustment)

On September 29, 2000, Dominion filed a request to update its Transportation Cost Rate Adjustment through an annual adjustment mechanism. According to Dominion, the majority of the adjustment reflects a revaluation of non-purchased supply and changes to the level of non-purchased supply. Washington Gas filed an intervention and protest request on October 20, 2000, asserting that the proposed TCRA adjustment lacked sufficient detail to permit an informed evaluation. Washington Gas also noted that the prudence of the non-purchased supply increase could not be gleaned from the Dominion proposal. Dominion filed an Answer on October 23, 2000. Settlement discussions began. The primary issue of contention in the case related to DTI's proposed collection of $65 million in undercollected "System Gas Requirements" where approximately $43 million related specifically to the revaluation of "Non-Purchased Supply" or gas borrowed from system accounts in order to make up for short-falls in gas required for system operations.
On June 22, 2001, Dominion (DTI) filed a Stipulation and Agreement (S&A) resolving the issues arising out of its September 29, 2000 Annual TCRA filing (RP00-632). The S&A provided for a $0.37/Dth reduction in the FTNN TCRA demand component. The S&A was supported or not opposed by all DTI's customers. The Stipulation and Agreement was approved without modification on September 13.

Dominion Docket No. RP00-344 (Order 637 implementation filing)

On June 15, 2000, Dominion Transmission Inc. made its Order No. 637 compliance filing. On July 17, 2000, Washington Gas filed its Comments on Dominion’s proposed tariff sheets, most notably those regarding segmentation, supplemental services, and treatment of penalty revenues. Dominion met with customers to arrive at a settlement of the outstanding issues. Washington Gas was an active participant in those negotiations. Such settlement was filed on March 30,2001. The FERC issued an Order on May 31, 2001 amending DTI’s policy on transportation discounts, although no party had requested such. DTI filed for rehearing in Oct. 2001, which is pending.

TRANSCONTINENTAL GAS PIPE LINE CORPORATION (“TRANSCO”)

Transco Docket No. RP01-245 (Rate Case)

On March 1, 2001, Transco filed for a general rate increase with new rates proposed to become effective April 1, 2001. The FERC suspended the rates for the full 5-month suspension period. On August 31, Transco moved to place rates into effect subject to refund on September 1, 2001. The case is set for hearing in Spring 2002. Transco’s motion rates are based on a cost of service of $833 million, which is a $184 million increase above Transco’s previously approved cost of service. As filed the estimated annual impact to Washington Gas is $2.7 million or a 27 percent annual increase.
Primary issues in the case include 1) Transco’s proposed roll-in of a number of pipeline expansion projects, 2) the appropriate allocation of overhead “parent” costs to Transco, 3) cost of service and rate of return; 4) the appropriate level of compensation for Transco’s sale of pipeline right of way to Williams Communications for fiber placement, and 5) the removal of costs attributable to gathering/transmission facilities recently approved for transfer to Williams Field Services. Washington Gas protested the proceeding commenting that Transco failed to demonstrate that the rate increase proposed is just and reasonable and recoverable from customers. Washington Gas raised issues related to the proposed cost of service and the propriety of rolling in costs associated with incremental projects.
On November 15, 2001, testimony was filed on behalf of Washington Gas by the Transco Cost of Service Customer Group¹ (“TCG”) and the Transco storage cost allocation group². The litigation position of the storage allocation group increases the level of storage costs allocated to the transmission function based the level of balancing used by transmission shippers. Additionally, the testimony supports the conversion of the force majeure Eminence storage capacity to traditional ESS service (high deliverability storage just downstream of the production area). The testimony filed by the TCG addresses more traditional cost of service issues and includes the removal of costs allocated to Transco from its non-jurisdictional affiliate Williams Field Services. Discovery is proceeding.

Transco Docket No. CP01-34, CP01-32, CP01-103 and CP01-104, not consolidated (Gathering Facility Spindown)

Since 1996, Transco has repeatedly sought authority from the FERC to abandon certain onshore and offshore production area facilities by transferring those facilities to its affiliate, Williams Gas Processing - Gulf Coast Company, L.P. (“WGP”). WGP has in turn sought declarations that the facilities that Transco sought to abandon were non-jurisdictional gathering facilities rather than jurisdictional transportation facilities.
In the July 25, 2001 Orders, the FERC granted Transco authority to abandon its North Padre Island and Central Texas gathering systems and its North High Island-West Cameron gathering facilities, and issued declaratory orders finding that most, but not all, of the facilities to be abandoned performed a gathering function, not a transportation function and, consequently, were not subject to FERC jurisdiction under the Natural Gas Act (“NGA”). The FERC also directed Transco to remove the cost of the facilities to be abandoned from the jurisdictional rates filed by Transco in Docket No. RP01-245.
Specifically, in Docket Nos. CP01-32 and CP01-34, the FERC granted abandonment and issued a declaration of no jurisdiction with respect to all of the facilities that were the subject of Transco’s application. These included portions of the North Padre Island Gathering System and the Central Texas Gathering System. In Docket Nos. CP01-103 and CP01-104, the FERC granted abandonment as to all of the facilities that were the subject of Transco’s application, which included part of the North High Island/West Cameron Gathering System. However, in responding to WGP’s request for a declaratory order, the FERC found that the West Cameron subsystem performed primarily a transmission function and, therefore, would remain jurisdictional following abandonment by Transco and sale to WGP.

On August 31, 2001, the FERC also granted Transco’s request in Docket No. CP01-368-000 to abandon certain facilities located offshore and onshore in Louisiana and determined that a portion of these facilities would be gathering facilities exempt from the FERC jurisdiction. The FERC also directed Transco to remove the costs of the Central Louisiana facilities from its Docket No. RP01-245-000 rates.

In the Docket No. RP01-245 rate proceeding, Transco seeks to increase its jurisdictional rates by $227.8 million annually. There is no question that the rates filed in Docket No. RP01-245 include several million dollars of net plant and related depreciation, operation and maintenance expenses associated with the facilities for which Transco has received abandonment authority. While it is difficult to say precisely what costs associated with the facilities to be abandoned are included in Transco’s rate filing in Docket No. RP01-245, the information provided by Transco in its applications in Docket Nos. CP01-34 and CP01-103, indicates that the depreciated book values of the facilities to be abandoned were $34,893,250 and $21,180,514, respectively, just prior to the time the abandonment applications were filed. There are also other costs associated with the operation and maintenance of these facilities that need to be removed from the Docket No. RP01-245 rates.
On August 24, 2001, Transco filed for a Limited Stay and Rehearing of the FERC’s July 25, 2001 Order asking the FERC to lift the requirement that it eliminate the costs associated with the facilities to be abandoned from its rates because the facilities will not actually be transferred within the test period of the Docket No. RP01-245 rate case.
On September 10, 2001, Washington Gas³ a response in opposition to Transco’s request for a stay commenting that if Transco’s request is granted, it will be permitted to continue to recover the costs for the facilities to be abandoned indefinitely. Additionally, at the same time, Transco will have the opportunity to transfer these assets to its affiliate, with its affiliate having the opportunity to charge unregulated rates for the facilities found to be non-jurisdictional and regulated rates for the jurisdictional facilities.
On November 6, 2001, FERC issued a notice in response to Transco’s stay request. While FERC recognized that Transco did not comply, FERC essentially granted the stay by giving Transco the order to comply 30 days from when FERC acts on the balance of Transco’s rehearing request.

Transco Docket No. CP96-206 (Gathering Facility Spindown)

On February 21, 1996, Transco filed an application in Docket No. CP96-206 for authority to abandon numerous offshore and onshore facilities, including those at issue in these proceedings. Washington Gas intervened in the proceeding. Concurrently, WGP filed a request in Docket No. CP96-207 for a declaratory order recognizing that the facilities covered by the Docket No. CP96-206 application were non-jurisdictional gathering facilities. The applications in Docket Nos. CP96-206 and CP96-207 were dismissed without prejudice on September 25, 1996. Transco’s filings in CP01-34, CP01-35, CP01-103 and CP01-104 covering the North Padre Island and Central Texas and the north High Island-West Cameron facilities are Transco’s attempt to implement portions of the abandonments sought in Docket No. CP96-206.

Transco Docket No. CP01-417 (Station 170 Modification)

On July 27, 2001, Transco filed to modify, through the installation of turbochargers, the NOx emission limits at Compressor Station 170 in Appomattox County Virginia in order to comply the Clean Air Act Amendments. The estimated cost of the modifications is $18.7 million. Although Transco notes in its filing that the modifications can potentially increase capacity in the surrounding area, it does not intend to increase certificated capacity in the region. WG is exploring issues associated with Transco’s decision to withhold the increased capacity and will develop a position over the next couple of weeks.
On September 14, 2001, WG intervened in protest in Transco’s certificate filing as follows: 1) concern that Transco will ultimately use the potential capacity increase at the station, made possible by the addition of turbochargers, to subsidize a future expansion, 2) challenge that NOx emissions reductions are possible through the installation of HPFI only and without the use of turbochargers as proposed, 3) question the disposition of revenues associated with the possible sale of NOx emissions credits (or ozone allowances), and 4) examine Transco’s NOx reduction objectives at the station relative to the VA Clean Air Act implementation plan requirements. FERC action is pending.

Transco Docket No. RP00-481 (Order 637 Implementation Filing) and Docket No. RP01-236 (1Line new computer system filing)

On August 15, 2000, Transco filed its tariff sheets in compliance with Order No. 637. However, with respect to many of the elements addressed by Order No. 637, Transco claimed that it was already in compliance. Nevertheless, Transco proposed to expand its OFO provisions to include steps the pipeline will take prior to the issuance of an OFO. In addition, Transco proposed a mechanism to refund net penalty revenues to non-penalized firm and interruptible customers. Washington Gas intervened.
On February 28, 2001, Transco filed to revise its tariff sheets to reflect new customer services and business practices available with its new computer system, 1Line. Such tariff changes implement Order No. 637 provisions. Subsequently, Transco held a series of customer meetings. On April 19, 2001 Transco submitted its compliance filing. On September 27, 2001, FERC largely approved Transco’s implementation of Order 637. However, the Commission ordered changes to the imbalance netting and trading provisions, which are now subject to a rehearing request by Transco and other parties.

Transco Docket Nos. RP95-197 and RP97-71 (Rate Case)

On March 1, 1995, Transco filed for a general rate increase in Docket No. RP95-197 reflecting a $144 million increase in its cost of service. As filed, Transco’s proposal would have resulted in a 25 percent rate increase to Washington Gas.
The FERC accepted and suspended the proposed rate increase, to be effective September 1, 1995, subject to refund, and set the matter for hearing. The presiding judge separated the proceeding into two phases; the issues of capital structure and rate of return were set for hearing in Phase I while all remaining issues were to be heard later in Phase II.
On June 19, 1996, an offer of settlement was filed with the Commission which resolved, among the non-contesting parties, Phase II issues relating to Transco's cost of service and throughput, as well as certain cost allocation, rate design, and tariff issues. However, the settlement specifically reserved for future litigation or settlement nine issues raised in the filed testimony of the participants, including whether the costs of certain of Transco's Leidy Line facilities should be shared by all of Transco's customers, i.e., rolled into system-wide rates, or should continue to be allocated incrementally to the customers for whom those services were provided initially. The Commission approved the settlement on November 1, 1996.
Hearings on the reserved issues were held in late 1996. While Transco had not initially advocated rolled-in rates for the Leidy Line and Southern facilities, as part of its answering case, Transco concurred with other parties proposing rolled-in rates. It also proposed, for the first time, a change in the allocation of costs to the transmission component of Rate Schedule GSS storage service. Washington Gas opposed the roll-in of the Leidy Line expansion costs and the cost allocation and rate design of Rate Schedule GSS and filed testimony, as part of a group on that issue.
On November 1, 1996, while the Phase II hearing was in progress, Transco filed new tariff sheets in Docket No. RP97-71. Also in Docket No. RP97-71, Transco proposed, on a prospective basis following Commission approval, to modify its cost allocation and rate design to roll in the costs of its Leidy Line and Southern expansion facilities, which were subject to incremental pricing. Washington Gas filed a protest addressing the lack of system-wide benefits from the expansion projects and arguing that the rate increase would exceed the FERC cap under which roll-in could be supported. The roll-in proposal was consolidated with the RP95-197 case for hearing. Additionally, Washington Gas filed testimony advocating re-design of Transco's firm transportation services as well as cost of service testimony as a member of a customer group.
On November 29, 1996, the Commission issued an order in Docket No. RP97-71-000 accepting and suspending Transco's tariff sheets, to be effective May 2, 1997, subject to refund, establishing a hearing, and consolidating the issue of rolled-in rate treatment for the Leidy Line and Southern expansion facilities with the ongoing proceeding in Docket No. RP95-197-000. A second hearing in Phase II was held in June, 1997.
On March 24, 1998, the ALJ issued the initial decision rejecting Transco's proposal to roll in the costs of the Leidy Line and Southern expansions. However, on April 16, 1999, the FERC reversed ALJ’s rejection of the roll in. Washington Gas filed a request for rehearing of that order. The FERC affirmed its opinion granting roll-in in orders issued March 28 and June 13, 2001. Washington Gas has filed an appeal in the D.C. Circuit, Case No. 01-1345, of those decisions.
The April 16, 1999 order also remanded to the ALJ a number of issues concerning the implementation of rolled-in rates, which were not addressed in the initial decision since the ALJ had ruled that none of the costs of the incremental facilities should be rolled in.
On October 12, 2001, the FERC issued an order that generally upheld an April 4, 2000 initial decision on cost allocation and rate design issues related to rolling in the costs of the Leidy Line and Southern Expansion projects. However, the FERC reversed the ALJ’s decision regarding the adjustment factor used in determining the allocation of costs to bundled GSS storage service, and rejected his decision to phase in roll-in of the costs of these expansion projects over a three year period. Washington Gas filed rehearing on the Commission’s failure to reverse the ALJ’s rejection of a proposal to reallocate certain fixed storage costs to system transportation. That rehearing is pending.

Transco Docket No. RP92-137-000 (FTW proposal)

On March 2, 1992, Transco filed a general rate case in which Transco made a firm-to-wellhead (“FTW”) rate case production area rate design proposal. That proposal would allocate approximately $50 million from production area customers to market area firm transportation customers. Washington Gas, along with other major Transco customers, presented testimony, which supported retention of the current production area rate design. In July, l995, the ALJ issued his Initial Decision, which determined that Transco's proposal for firm-to-the-wellhead production area rate design is anticompetitive. Transco stated in its Brief on Exceptions that a generic policy should be adopted because different ALJs have reached different conclusions. Washington Gas in its Brief opposing Exceptions stated that Transco failed to justify its rate design and the fact that other pipelines have rate designs firm to the wellhead is immaterial.
On July 3, 1996, the FERC issued its Opinion No. 405, overruling the ALJ's Initial Decision, which rejected Transco's firm-to-wellhead production area rate design. In effect, FERC upheld the concept of a firm-to-the-wellhead rate design. However, Transco will have to make a new Section 4 filing that properly implements FERC's ruling. Washington joined others in seeking rehearing of Opinion No.405. Producers appealed that decision (which prompted this remand from the DC Circuit). While that court appeal was pending, in 1999, FERC rejected another Transco permutation on 2 part SFV rates on the grounds that it unjustly limited shippers' flexibility.
In March 2000, the DC Circuit remanded the case deciding that the contracts of the FT-conversion shippers provided for IT-feeder service and that FT-conversion shippers paid the IT-feeder rates and sent the case to the FERC to determine how the FTW proposal would abrogate the FT-conversion shippers’ contracts since the contracts permitted Transco to modify rates.
On July 31, 2000, the FERC requested briefs on certain issues in order to determine how to proceed on remand. In particular, the FERC sought information on Transco’s intent with respect to pursuing FTW service with two-part rates on its production area laterals and on the contractual rights of mainline firm shippers.
Transco filed a Brief in September 2000 wherein Transco stated that it will again seek to implement two-part FTW rates. Washington Gas filed a Reply Brief on October 30, 2000, which again opposes the implementation of FTW rates and the unjustified rate increases which would occur along with such implementation.
In an order on remand issued May 31, 2001, the FERC reaffirmed its determination in Opinion Nos. 405 and 405-A to reject Transco’s eight-year old filings in Docket Nos. RP92-137 and RP93-136 to replace “IT-feeder service” including a one-part volumetric rate on production area supply laterals with FTW two-part rates. Specifically, the FERC found Transco’s FTW proposal unacceptable in Opinion No. 405 because it would unilaterally abrogate existing contracts of so-called FT-conversion customers (former bundled sales customers who converted to firm transportation services pursuant to a 1991 unbundling settlement) by imposing a two-part rate with a reservation charge for service on the supply laterals that the pipeline had previously agreed to provide at a one-part rate. On remand, the FERC concluded that FT-conversion customers’ firm contracts with Transco do not cover service on the supply laterals and the contracts do not authorize Transco to require these customers to pay two-part rates for service on supply laterals not included in their contracts. Thus, the FTW proposal was rejected.

RULEMAKING PROCEEDINGS

Washington Gas participates in major rulemaking proceedings on its own behalf and through its membership in the American Gas Association (AGA).

Standards of Conduct Docket No. RM01-10

On September 27, the FERC issued a Notice of Proposed Rulemaking (“NOPR”) where the proposed regulations will create one set of conduct standards for the gas and electric industries. Furthermore, the standards will apply to transmission providers (pipeline and electric) and all affiliates, not just marketing affiliates. Washington Gas will participate in the development of comments submitted by AGA and anticipates filing individual comments. Comments are due on December 20, 2001.

Business Practice Standards Docket No. RM98-10-019

On Monday, November 19, AGA filed comments in support of the FERC’s proposal to synchronize the recall of capacity with the nomination schedule. AGA’s support of FERC’s proposal is based primarily on the uncertainty inherent the obligations of the supplier of last resort. Specifically, AGA noted that the ability to schedule recalled capacity more expeditiously potentially increases reliability of service for natural gas customers behind the citygate and facilitates the balancing gas deliveries at the citygate on a daily basis allowing LDCs to maximize the use of pipeline capacity. Washington Gas participated in the development of AGA’s comments.

1 Atlanta Gas Light Company, City of Danville, Consolidated Edison Company of New York, Delmarva Power & Light Company, Keyspan Energy Delivery Companies, Municipal Gas Authority of Georgia/Transco Municipal Group, New jersey Natural Gas Company, north Carolina Natural Gas Corporation, NUI utilities, Inc., PECO Energy Company, Philadelphia Gas Works, Piedmont Natural Gas Company, Public Service Electric and Gas Company, South Jersey Gas Company, UGI Utilities, Inc., and Washington Gas Light Company.

2 Atlanta Gas Light Company, Keyspan Delivery Companies, Public Service Electric & Gas Company, Virginia Natural Gas, Inc., and Washington Gas Light Company

3Along with Keyspan Delivery Companies, Atlanta Gas Light Company and Virginia Natural Gas Company, Consolidated Edison Company of New York, Delmarva Power & Light Company, Philadelphia Gas Works and Public Service Electric and Gas Company.

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