(2) Fuel conversion facilities; i.e. facilities which enable a plant which previously burned natural gas to convert to use of other fuels and facilities which enable oil-burning plants to convert to fuels other than natural gas. Such facilities would include those which alter internal plant workings, such as oil or coal burners, soot blowers. bottom ash removal systems, and concomitant air pollution control facilities, as well as facilities needed for receiving and storing the alternate fuel, which would not be necessary if the plan continued to burn gas, or oil, as originally designed.

(b) With the exception of the devices discussed and defined in paragraph (a) of this section, the Commission shall permit CWIP in rate base only after: (1) An electric utility has made application therefor, and (2) the Commission by final order has approved such application, and (3) the utility has, following (b) (1) and (2) of this section, filed to include the CWIP in its rate base in a rate case filing under section 205 of the Federal Power Act. In its application, the utility must show severe financial difficulty which cannot be otherwise alleviated without materially increasing the cost of electricity to consumers and also must show that it has met the requirements of paragraph (c) of this section. In no event shall a utility collect amounts related to CWIP under this subsection, subject to refund, prior to the issuance of a final order on rehearing approving inclusion of such amounts in rate base.

(c) As a necessary condition of meeting the requirements of (a) (1) and/or (a) (2) and/or (b) of this section, the utility must show it will discontinue the capitalization of AFUDC on such amounts of CWIP as may be permitted by this Commission to be included in jurisdictional rate base. Furthermore, a utility requesting inclusion of CWIP in rate base shall also propose accounting procedures to ensure that wholesale customers will not subsequently be charged for any corresponding AFUDC capitalized as a result of different accounting and ratemaking treatment accorded CWIP by a state commission. [Order No. 555, 41 FR 51395, Nov. 22, 1976] $2.17 Price discrimination and anticompetitive effect (price squeeze issue).

To implement compliance with the Supreme Court decision in F.P.C. v. ConWay Corp., 426 U.S. 271 (1976), aff'g

510 F. 2d 1264 (D.C. Cir. 1975) and to expedite the consideration of price squeeze issues in wholesale electric rate proceedings, the Commission adopts the following procedures for raising price squeeze issues which are to be followed unless they are demonstrated in an individual case to be inadequate:

(a) Any wholesale customer, state commission or other interested person may file petitions to intervene alleging price discrimination and anticompetitive effects of the wholesale rates. In order to have the issue of price discrimination considered in the rate proceeding, the intervening customer or other interested person must support its allegation by a prima facie case. The elements of the prima facie case shall include at a minimum:

(1) Specification of the filling utility's retail rate schedules with which the intervening wholesale customer is unable to compete due to purchased power costs;

(2) A showing that a competitive situation exists in that the wholesale customer competes in the same market as the filing utility;

(3) A showing that the retail rates are lower than the proposed wholesale rates for comparable service;

(4) The wholesale customer's prospective rate for comparable retail service, i.e. the rate necessary to recover bulk power costs (at the proposed wholesale rate) and distribution costs;

(5) An indication of the reduction in the wholesale rate necessary to eliminate the price squeeze alleged.

(b) Where price squeeze is alleged, the Commission shall, in the order granting intervention, direct the Administrative Law Judge to convene a prehearing conference within 15 days from the date of the order for the purpose of hearing intervenors' request for data required to present their case, including prima facie showing, on price squeeze issues.

(c) Within 30 days from the date of the conference the filing utility shall respond to the data requests authorized by the Administrative Law Judge.

(d) Within 30 days from the filing utility's response, the intervenors shall file their case-in-chief on price squeeze issues, which shall include their prima facie case, unless filed previously.

(e) The burden of proof (i.e. the risk of nonpersuasion) to rebut the allegations of price squeeze and to justify the proposed rates are on the utility propos

ing the rates under section 205 (e) of the Federal Power Act.

(f) In proceedings where price squeeze is an issue, the Secretary shall include the state commission, agency or body which is responsible for regulation of retail rates in the state affected in the service list maintained under 18 CFR 1.17(c).

[Order No. 563, 42 FR 16132, Mar. 25, 1977] STATEMENTS OF GENERAL POLICY AND INTERPRETATIONS UNDER THE NATURAL GAS

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§ 2.51

Export of small volumes of natural gas for non-utility use.

As a general policy regarding future applications for authorization to export natural gas pursuant to section 3 of the Natural Gas Act, the single shipment exportation of up to 100 Mcf of natural gas (at 14.73 psia and 60° F.) for scientific or experimental (non-utility) use is not inconsistent with the public interest. [Order 548, 41 FR 21442, May 26, 1976] § 2.52 Suspension of rate schedules.

The Commission, in approving and adopting the interpretation stated in § 2.4, applied it also to the suspension of rate schedules under section 4 of the Natural Gas Act.

§ 2.53

Certificate applications.

The Commission, in a letter dated December 20, 1945, addressed to all natural gas companies, stated in part:

It has come to the attention of the Commission, that certain natural gas companies subject to the jurisdiction of the Commission have constructed, and in some instances operated, facilities without having received prior authorization required by section 7 of the Natural Gas Act. The Commission, therefore, gives notice to all companies that appropriate action will be taken against any such company constructing or operating facilities in violation of the Natural Gas Act.

The Commission realizes that the problems of the reconversion period came upon the industry suddenly, but believes that the natural gas companies should now be able to plan their construction programs for the reasonable future so as to avoid the filing of multiple applications involving portions of what are essentially single extension projects. Intermittent applications for piecemeal construction are costly in time and money. Moreover, proper planning and timely application for authority to construct new facil

ities will reduce so-called emergency applications under section 7 of the Natural Gas Act, and thus provide for adequate capacity and service. Time will also be conserved if all applications are supported by complete data.

The Commission recognizes the possibility that natural gas companies may be faced with real emergency situations, and is prepared to act promptly to enable companies to deal with such contingencies when shown to exist and where the public interest demands emergency action.

(Sec. 16, 52 Stat. 830; 15 U.S.C. 7170) [Order 141, 12 F.R. 8471, Dec. 19, 1947. Redesignated by Order 147, 13 F.R. 8259, Dec. 23, 1948] § 2.55 Definition of term used in section 7(c).

For the purposes of section 7(c) of the Natural Gas Act, as amended, the word "facilities" as used therein shall be interpreted to exclude:

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(a) Auxiliary installations. tions (excluding gas compressors) which are merely auxiliary or appurtenant to an existing transmission pipe line system and which are installed only for the purpose of obtaining more efficient or more economical operation of authorized transmission facilities, such as: valves; drips; yard and station piping; cathodic protection equipment; gas cleaning, cooling and dehydration equipment; residual refining equipment; water pumping treatment and cooling equipment; electrical and communication equipment: and buildings.

(b) Replacement of facilities. Facilities which constitute the replacement of existing facilities which have or will soon become physically deteriorated or obsolete to the extent that replacement is deemed advisable: Provided, That such replacement will not result in a reduction or abandonment of service rendered by means of such facilities: Provided further, That such replacement shall have substantially equivalent designed delivery capacity as the particular facilities being replaced.

§ 2.56

Area price levels for natural gas sales by independent producers.

(a) The Commission in its Statement of General Policy No. 61-1 issued September 28, 1960, first amendment thereto issued October 25, 1960, and second amendment thereto issued December 20, 1960, stated in pertinent part:

This statement establishing rate standards for independent producers of natural gas is issued on our own motion and is based on our experience gained after six years of regulation of independent producers under the Natural Gas Act. By this statement and the appended area price schedules, Table No. 1, we will set standards for initial and increased rate filings by producers for the sale of natural gas into interstate commerce. These standards will serve as a guide to us and to interested parties in determining whether proposed initial rates should be certificated without a price condition and whether proposed rate changes should be accepted or suspended.

* It is essential, particularly in the interest of the consumer for whose protection the statute was enacted, that means be found for making the most effective use possible of the Commission's limited facilities in discharging the new and additional duties called for by the regulation of producers of natural gas. In our opinion, the price standards established by this statement will aid in effectively applying the provisions of the Act to independent producers on a simple, clear and administratively feasible basis, and in a manner fair to all whose interests are affected by Commission regulation. ・・

・・・ The geographical areas which we have used are convenient and well known. They are not necessarily in complete accord with geographical and economic factors which may be relevant to the establishment of pricing areas. As experience and changing factors may indicate, we will change or alter these areas from time to time in order to eliminate such inequities as may appear to exist because of our use of geographical boundaries.

In arriving at the price levels for the various areas set forth in the appendix to this statement, we have considered all of the relevant facts available to us. Such consideration included cost information from all decided and pending cases, existing and historical price structures, volumes of production, trends in production, price trends in the various areas over a number of years, trends in exploration and development, trends in demands, and the available markets for the gas. Of necessity, we have not set forth the adjustments to these prices which must be made to take into account every possible provision of every contract which may affect the actual price, such as Btu adjustments, conditions of delivery, etc.

The relevance of such adjustments to the basic contract price and the appropriate established price standard must be considered as each filling is made. As it becomes apparent that certain adjustments have general applicability in a specific area, the area price standard will be revised and set forth in greater detail with regard to the exact sale conditions to which the rate applies. We should, however, make it clear that these present price standards apply to pipeline quality gas as that term is generally understood in each area and, except for the Louisiana prices, are inclusive of all taxes.

Two price standards are set for each area. Initial prices in new contracts are, and in many cases by virtue of economic factors, must be higher than the prices contained in old contracts. For this reason, we have found it advisable to adopt two schedules of prices, one pertaining to initial prices in new contracts and one pertaining to escalated prices in existing contracts. It is anticipated that these differences in price levels will be reduced and eventually eliminated as subsequent experience brings about revisions in the prices in the various areas.

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These price levels pose of guidance and initial action by the Commission and their use will not deprive any party of substantive rights or fix the ultimate justness and reasonableness of any rate level. As with the areas, the prices will be adjusted from time to time as such facts as may come before us compel such adjustments. For the present, and in the absence of compelling evidence calling for other action by us, proposed initial sales of natural gas by independent producers which include rates higher than those indicated in Table No. 1 shall be denied a certificate or certificated only upon the condition that lower rates be filled, and all rate changes filled under existing contracts which call for a rate exceeding the indicated price level in Table No. 1 shall be suspended.

Where a proposed price exceeds the indicated rate level and is therefore conditioned or suspended we will, in determining whether the higher price is justified, not necessarily consider only the financial requirements of the individual producer proposing the price but will consider all of the above elements relevant to the industry generally in the area concerned. Similar evidence will also be required from purchasers or their customers who object to any of the price levels or any specific price. Our determination will be in the nature of setting a price for the gas itself from any source questioned and not necessarily a price applicable solely to the party proposing some other price. In this connection we urge that all parties who have any interest in changing an area price join in such a proceeding leading to a determination of a proper revision, if any, in an area price or in the geographical area itself. As there will undoubtedly be numerous parties with