[Federal Register: January 4, 2005 (Volume 70, Number 2)]
[Rules and Regulations]
[Page 284-291]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04ja05-6]
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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Part 358
[Docket Number RM01-10-003; Order No. 2004-C]
Standards of Conduct for Transmission Providers
Issued December 21, 2004.
AGENCY: Federal Energy Regulatory Commission.
ACTION: Final rule; order on rehearing of order no. 2004-B.
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SUMMARY: The Federal Energy Regulatory Commission (Commission)
generally reaffirms its determinations in Order Nos. 2004, 2004-A and
2004-B and grants rehearing and clarifies certain provisions. Order
Nos. 2004 et seq. require all natural gas and public utility
Transmission Providers to comply with Standards of Conduct that govern
the relationship between the natural gas and public utility
Transmission Providers and all of their Energy Affiliates.
In this order, the Commission addresses the requests for rehearing
and/or clarification of Order No. 2004-B. The Commission grants
rehearing, in part, denies rehearing, in part, and provides
clarification of Order No. 2004-B.
EFFECTIVE DATE: Revisions in this order on rehearing will be effective
February 3, 2005.
[[Page 285]]
FOR FURTHER INFORMATION CONTACT: Demetra Anas, Office of Market
Oversight and Investigations, Federal Energy Regulatory Commission, 888
First Street, NE., Washington, DC 20426, (202) 502-8178.
Before Commissioners: Pat Wood, III, Chairman; Nora Mead Brownell,
Joseph T. Kelliher, and Suedeen G. Kelly.
Order on Rehearing and Clarification
1. On November 25, 2003, the Federal Energy Regulatory Commission
issued a Final Rule adopting Standards of Conduct for Transmission
Providers (Order No. 2004 or Final Rule) \1\ which added part 358 and
revised parts 37 and 161 of the Commission's regulations. The
Commission adopted Standards of Conduct that apply uniformly to
interstate natural gas pipelines and public utilities (jointly referred
to as Transmission Providers) that were subject to the former gas
Standards of Conduct in part 161 of the Commission's regulations or the
former electric Standards of Conduct in part 37 of the Commission's
regulations.\2\ Under Order No. 2004, the Standards of Conduct govern
the relationships between Transmission Providers and all of their
Marketing and Energy Affiliates. On April 16, 2004, the Commission
affirmed the legal and policy conclusions on which Order No. 2004 was
based, granted and denied rehearing and offered clarification in Order
No. 2004-A.\3\ On August 2, 2004, the Commission issued Order No. 2004-
B, in which it addressed the requests for rehearing and/or
clarification of Order No. 2004-A.\4\
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\1\ Standards of Conduct for Transmission Providers, 68 FR 69134
(Dec. 11, 2003), III FERC Stats. & Regs. ] 31,155 (Nov. 25, 2003).
\2\ The gas standards of conduct were codified at part 161 of
the Commission's regulations, 18 CFR part 161 (2003), and the
electric standards of conduct were codified at 18 CFR 37.4 (2003).
\3\ 69 FR 23562 (Apr. 29, 2004), III FERC Stats. & Regs. ]
31,161 (Apr. 16, 2004).
\4\ 69 FR 48371 (Aug. 10, 2004), III FERC Stats. & Regs. ]
31,166 (Aug. 2, 2004).
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2. Seventeen petitioners requested rehearing or clarification of
Order No. 2004-B. As discussed below, the Commission grants rehearing,
in part, denies rehearing, in part, and provides additional
clarification. Chief among the resolutions are: (1) Granting rehearing
by allowing local distribution companies (LDCs) to participate in
hedging related to on-system sales and still qualify for exemption from
Energy Affiliate status; (2) denying rehearing regarding exemptions for
electric local distribution companies; (3) clarifying the duties of
Transmission Function Employees; (4) providing additional clarification
and granting partial rehearing regarding information to be posted on
the Internet or OASIS; (5) denying rehearing regarding the timing of
the applicability of the Standards of Conduct to newly formed
Transmission Providers; (6) and making miscellaneous corrections to the
regulatory text.
A. Definition of an Energy Affiliate
Order No. 2004, et seq.
3. The Standards of Conduct, as revised in Order Nos. 2004-A and
2004-B, defines Energy Affiliate in Sec. 358.3(d) as an affiliate
that:
(1) Engages in or is involved in transmission transactions in U.S.
energy or transmission markets; or
(2) Manages or controls transmission capacity of a Transmission
Provider in U.S. energy or transmission markets; or
(3) Buys, sells, trades or administers natural gas or electric
energy in U.S. energy or transmission markets; or
(4) Engages in financial transactions relating to the sale or
transmission of natural gas or electric energy in U.S. energy or
transmission markets.
(5) An LDC division of an electric public utility Transmission
Provider shall be considered the functional equivalent of an Energy
Affiliate, unless it qualifies for the exemption in Sec.
358.3(d)(6)(v).
(6) An Energy Affiliate does not include:
(i) A foreign affiliate that does not participate in U.S. energy
markets;
(ii) An affiliated Transmission Provider or an interconnected
foreign affiliated natural gas pipeline that is engaged in natural gas
transmission activities which are regulated by the state, provincial or
national regulatory boards of the foreign country in which such
facilities are located.
(iii) A holding, parent or service company that does not engage in
energy or natural gas commodity markets or is not involved in
transmission transactions in U.S. energy markets;
(iv) An affiliate that purchases natural gas or energy solely for
its own consumption. ``Solely for its own consumption'' does not
include the purchase of natural gas or energy for the subsequent
generation of electricity.
(v) A State-regulated local distribution company that acquires
interstate transmission capacity to purchase and resell gas only for
on-system customers, and otherwise does not engage in the activities
described in section 358.3(d)(1), (2), (3) or (4), except to the
limited extent necessary to support on-system customer sales and to
engage in de minimis sales necessary to remaining in balance under
applicable pipeline tariff requirements.
(vi) A producer, gatherer, Hinshaw pipeline or an intrastate
pipeline that makes incidental purchases or sales of de minimis volumes
of natural gas to remain in balance under applicable pipeline tariff
requirements and otherwise does not engage in the activities described
in Sec. Sec. 358.3(d)(1), (2), (3) or (4).
i. Scope of the LDC Exemption
Order No. 2004-B
4. In Order No. 2004-B, the Commission stated that an LDC would not
be able to engage in financial or futures transactions or hedging
without becoming an Energy Affiliate. The Commission expressed concern
that the LDC's access to transmission information could be unduly
preferential for the LDC when participating in such financial
transactions. The Commission also stated that it is virtually
impossible to distinguish between financial or futures transactions in
a speculative market from those needed to support on-system sales.\5\
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\5\ See Order No. 2004-B at P 18.
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Requests for Rehearing and/or Clarification and Commission Conclusions
5. AGA seeks clarification that an LDC that does not make off-
system sales except for purposes of balancing may engage in any of the
activities described in Sec. Sec. 358.3(d)(1), (2), (3), or (4),
including hedging activities undertaken in conjunction with gas-
acquisition activities to support its retail sales, without becoming an
Energy Affiliate. Specifically, AGA seeks clarification that an LDC
that engages in off-system sales only for balancing can engage in
certain types of specific ``hedging'' transactions such as gas storage,
contracts for the future delivery of natural gas, futures contracts for
natural gas, and financial instruments to stabilize or mitigate the
volatility of gas prices, without becoming an energy affiliate.
6. The Duke Pipelines, OkTex, National Fuel, the New York PSC,
Southwest Gas, and the Utah PSC and the Wyoming PSC also request
rehearing of the Commission's decision to exempt from Energy Affiliate
status only those LDCs that do not participate in wholesale market
transactions such as hedging, even when such wholesale market
transactions are entered into by the LDC only for the purposes of
supporting on-system sales.
7. National Fuel, AGA and PSC New York argue that excluding LDCs
that engage in hedging from the exemption
[[Page 286]]
from Energy Affiliate status is inconsistent with the text of
Sec. Sec. 358.3(d)(4) and (d)(6)(v).
8. Several petitioners also argue that, contrary to the
Commission's statements in Order No. 2004-B, it is possible to
distinguish between hedging and speculative financial derivative
transactions. National Fuel and AGA argue that the Commission's own
accounting regulations currently provide methods for distinguishing
between hedging and speculation, and request clarification that exempt
LDCs may utilize gas derivatives in support of on-system sales when
such transactions are properly classified either as ``normal purchases
and sales scope exception'' per part 201, General Instruction 23(A), or
as non-speculative derivatives as properly recorded in Balance Sheet
Accounts 176 or 245 per part 201, General Instructions 23(D) and (E).
National Fuel goes on to say that it and other New York LDCs are
required by the New York PSC to comply with the Commission's Uniform
System of Accounts and, as publicly traded companies, are also subject
to the Financial Accounting Standards Board (FASB) Standard Nos. 133
and 138 which impose accounting standards for the accounting of
derivatives. National Fuel states that an LDC entering into a financial
transaction to hedge price risk related to physical purchases for on-
system sales is required to concurrently designate and document the
hedge, the hedged item and the specific risk being hedged, in order to
take advantage of ``fair value'' or ``cash flow'' accounting. National
Fuel argues that these requirements would provide an adequate
accounting basis to allow hedging to be distinguished from speculation.
9. Petitioners point out that the limitations on hedging for exempt
LDCs are inconsistent with various existing and proposed local
regulations or policies that require or encourage LDCs to reduce price
volatility for their on-system customers by various methods including
hedging. OkTex argues that the existence of locally approved and
monitored gas cost stabilization programs demonstrates the lack of
reasoned basis for the conclusion that it is impossible to distinguish
between speculative and nonspeculative transactions.
10. National Fuel argues that affiliated pipelines relying on the
LDC exemption would have to limit their purchases to the spot market
which might result in increased costs to ratepayers. It also argues
that the Commission's concerns regarding improper access to
transmission information by LDCs is misplaced in the context of
transactions that support on-system sales. National Fuel argues that an
LDC with information that could potentially be of benefit would have
greater profit potential if it entered a speculative transaction,
rather than if it entered into a hedge transaction to limit price risk
for on-system sales customers. It also argues that the authorities
having jurisdiction over LDCs retail sales require that any benefit
derived from entering into such transactions must accrue to the retail
ratepayer, with no benefits to the company's shareholders.
11. Duke Pipelines and OkTex request clarification that hedging
programs would not jeopardize an LDC's exemption so long as the
programs are reviewed on a case-by-case basis by regulators and found
to be non-speculative. Utah PSC and Wyoming PSC similarly argue that
exempt LDCs should be allowed to implement price stabilization programs
which utilize hedging so long as such programs are approved and
monitored by state commissions and are for the exclusive benefit of
retail customers.
12. The Commission clarifies, as requested by National Fuel and
others, that ``normal purchases and sales,'' as those terms are
generally used for accounting purposes, are not considered to be
financial, futures, or hedging transactions under the Standards of
Conduct. Furthermore, the Commission grants rehearing and will allow
exempt LDCs to participate in financial transactions necessary for
price risk management solely for the benefit of on-system retail
customers. Petitioners have raised persuasive arguments that hedging is
an important and generally used tool needed to provide economical
retail sales service under state regulatory mandates. Further,
petitioners have convinced us that current accounting standards make
clear distinctions between hedging and speculation so as to create an
audit trail should the need arise to investigate allegations of
affiliate abuse in this area.\6\ However, we wish to be clear that we
intend to allow exempt LDCs to use hedging only to manage price risks
attributable to serving their on-system, state-regulated bundled retail
load. If an LDC engages in financial transactions on a speculative
basis for stockholder profit rather than financial transactions to
protect bundled retail ratepayers, the LDC will no longer be an exempt
Energy Affiliate.
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\6\ Should the Commission need to examine the books and records
of a Transmission Provider's LDC to ensure compliance with the
Standards of Conduct, those records should be made available upon
the Commission's request. To the extent that records are found to be
deficient, or not readily available, the affiliated Transmission
Provider shall treat the subject LDC as an Energy Affiliate that is
ineligible for exemption pursuant to Sec. 358.3(d)(6)(v).
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13. Southwest Gas seeks clarification that an LDC exempt from
Energy Affiliate status may engage in wholesale sales transactions so
long as the transmission capacity acquired by the LDC occurs on
unaffiliated interstate pipelines or on affiliated ``conduit''
pipelines that transport under part 157 certificates.
14. The Commission is denying Southwest Gas's request for
clarification. If an affiliated LDC participates in any wholesale
transactions, the affiliated LDC does not qualify for the Energy
Affiliate exemption under Sec. 358.3(d)(6)(v).\7\ As the Commission
stated in Order No. 2004-A, the purpose is to place all wholesale
market participants, affiliated and non-affiliated, on an equal
footing. LDC affiliates engaging in wholesale sales transactions
compete with non-affiliates for transmission.
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\7\ The Commission notes that on September 20, 2004, in Docket
No. TS04-222-000, the Commission granted Southwest Gas a partial
waiver of the Standards of Conduct vis-[agrave]-vis its affiliated
LDC. See Alcoa Power Generating Inc., 108 FERC ] 61,243 at P 202-203
(Alcoa).
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ii. Treatment of Gas LDCs
Order No. 2004, et seq.
15. Under Sec. 358.3(d)(6)(v), a Local Distribution Company must
be regulated by a state to qualify for exemption from status as an
Energy Affiliate.
Requests for Rehearing and/or Clarification and Commission Conclusions
16. Duke Pipelines request clarification that Canadian LDCs
regulated at the provincial level and not engaged in off-system sales
may also qualify for exemption under Sec. 358.3(d)(6)(v), consistent
with the Commission's treatment of other foreign entities and state-
regulated LDCs.\8\ The Commission is granting the Duke Pipelines'
request for clarification. The Commission will treat LDCs that are
regulated by Canadian provincial authorities as if they are state-
regulated. As a result, if provincially-regulated Canadian LDCs meet
the requirements of Sec. 358.3(d)(6)(v) they will not be treated as
Energy Affiliates if they do not participate in U.S. commodity and
transmission markets. However, as the
[[Page 287]]
Commission stated in Order No. 2004-A, a Canadian Energy Affiliate that
does business in the U.S. commodity and transmission markets should not
be afforded undue preferences or services. See Order No. 2004-A at P
97.
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\8\ In Order No. 2004-A, the Commission determined that a
foreign affiliated Transmission Provider, that is regulated by the
state, province or national regulatory board of the foreign country
in which its facilities are located will not be treated as an Energy
Affiliate. See Order No. 2004-A at P 97.
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17. Entergy seeks clarification that LDCs regulated by local
governmental bodies which regulate the rates, terms and conditions for
retail electric and natural gas service, may also qualify for the LDC
exemption. Entergy states that an LDC regulated by the City of New
Orleans, which regulates the rates, terms and conditions for retail
electric and natural gas service in New Orleans, should also be exempt
from status as an Energy Affiliate as if it were a state-regulated LDC.
The Commission is denying Entergy's request for clarification.
Entergy's request reflects a very limited, if not unique, circumstance.
Entergy has not shown that other entities are subject to local rather
than state regulation or that its regulatory situation warrants a
generic exemption. The Commission will not create a generic exemption
for LDCs subject to local regulation. Entergy, however, may file a
request for an individual waiver based on its individual circumstances.
iii. Treatment of Electric LDCs or LDC Divisions
Order No. 2004-B
18. In Order No. 2004-B, the Commission rejected requests to
clarify that electric LDCs may qualify for the exemption from the
definition of Energy Affiliate in Sec. 358.3(d)(6)(v). See Order No.
2004-B at P 26.
Requests for Rehearing and/or Clarification and Commission Conclusions
19. Entergy, National Grid, and EEI repeat their request for
clarification that the LDC exemption from Energy Affiliate status apply
to electric LDCs as well as gas LDCs, arguing that the Commission's
previous denial of such clarification in Order 2004-B was based on an
inaccurate understanding of the concerns raised. They argue that the
Commission in Order No. 2004-B addressed the question of whether exempt
electric LDCs could make de minimis off-system sales, while the
petitioners were concerned with the broader question of whether
electric LDCs were included in the LDC exemption from Energy Affiliate
status. Petitioners argue that the first clause of the LDC exemption in
Sec. 358.3(d)(6)(v) assumes that an LDC buys or sells gas, and thus
could be inferred to mean that the exemption applies only to gas LDCs.
Petitioners recommend establishing a separate exemption statement for
electric and gas LDCs, and endorse EEI's proposed language. Under EEI's
proposal, Sec. 358.3(d)(6)(v) would be clarified to refer only to gas,
and a new section would be added to create an exemption from the Energy
affiliate status as follows: ``A state-regulated electric local
distribution company or division that does not engage in the activities
described in Sec. Sec. 358.3(d)(1), (2), (3) or (4), except to the
limited extent necessary to support on-system sales.'' National Grid
argues that adoption of EEI's proposed regulatory language clarifying
the exemptions for gas and electric LDCs in Sec. 358.3(d)(6) would
ensure that employees who do not engage in Energy Affiliate activities,
such as employees serving distribution functions, are not required to
be treated as Energy Affiliate employees or separated from transmission
system information.
20. EEI states that the Commission may want to explain that the new
regulatory language it has proposed for Sec. 358.3(d)(6) does not
alter the treatment of bundled or unbundled retail sales as expressed
in prior orders.
21. National Grid also argues that the since Commission does not
require the independent functioning of distribution division employees
from transmission function employees when they are all part of the same
company, it would be illogical to require independent functioning of an
electric distribution division when the distribution function is
contained in a corporate entity separated from the affiliated
Transmission Provider.
22. Calpine submitted an answer to Entergy and EEI's request for
new regulatory language in Sec. 358.3(d)(6). Calpine argues that
Entergy and EEI are repeating a request for a stand-alone exemption
from the definition of Energy Affiliate for LDCs that the Commission
already rejected as unnecessary in Order No. 2004-B. Calpine also
argues that EEI's proposed text is too broad, and could be interpreted
to permit retail sales function employees of an LDC to purchase
capacity and power in wholesale energy markets, in competition with
non-affiliates, without regard to the Standards of Conduct, so long as
such transactions were deemed ``necessary to support on-system sales.''
23. Entergy and EEI submitted an answer to Calpine's answer, in
which they argue that Calpine has seriously misinterpreted what Entergy
and EEI intended in their requests for clarification. The regulatory
text EEI proposes, they argue, simply makes explicit the fact that
electric LDCs that do not make off-system sales can qualify for the LDC
exemption from Energy Affiliate status.
Commission Disposition
24. We will deny petitioners' requests for rehearing and grant in
part the requests for clarification of the exemption from the
definition of Energy Affiliate. The Commission will not adopt
petitioners' proposed language for an exemption for electric LDCs. The
Commission clarifies that an electric distribution division or company
that performs only distribution wires functions may be shared with the
transmission function of a Transmission Provider (wires-to-wires
services). But, if the distribution function includes retail sales
functions, a retail sales function employee cannot engage in any
wholesale sales, such as selling excess generation to a non-retail
customer without triggering Energy Affiliate status. It is not
appropriate for an entity that participates in the wholesale market to
obtain an undue preference when competing with non-affiliates for
transmission capacity. See Order No. 2004 at P 78.\9\
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\9\ See also, Order No. 889-A, 81 FERC ] 61,253 at 62,174 (1997)
(A * * * public utility has no choice pursuant to Order Nos. 888 and
888-A but to separate its wholesale power marketing function
(including power purchase transactions made by the marketing
function on behalf of wholesale native load) from the transmission
operations function. This means that those persons in the company
that are involved in wholesale power purchases as well as wholesale
sales cannot interact with the transmission personnel other than
through the OASIS. Thus, to the extent they are making purchases on
behalf of wholesale as well as bundled retail native load as part of
a single purchase, they will have to abide by the separation of
function requirement * * * [S]uch a purchase is not divisible.
Additionally, it is conceivable that there could be a separate
retail marketing function for native load and a separate wholesale
marketing function for native load * * * [I]n such cases, it would
clearly be inappropriate for the retail staff to share transmission
information with the wholesale marketing staff.).
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25. The effect of this ruling is not overly broad. Many electric
distribution divisions or companies are not Energy Affiliates because
they do not engage in nor are involved with the following activities in
U.S. energy or transmission markets: transmission transactions; manage
or control transmission capacity; buy, sell, trade, or administer
electric energy; or engage in financial transactions relating to the
sale or transmission of electric energy. As we have stated, electric
distribution divisions or companies (unlike gas LDCs) do not make
purchases or sales of electricity to remain in balance. Therefore, a
separate electric distribution division or company exemption is
unnecessary. However, the
[[Page 288]]
Commission will consider case-specific requests for exemption.\10\
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\10\ We note that National Grid has requested a case-specific
exemption in Docket No. TS04-46-000, which will be addressed
separately by the Commission.
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B. Definition of a Transmission Function Employee
Order No. 2004, et seq.
26. Section 358.3(j) defines a Transmission Function Employee as an
employee, contractor, consultant or agent of a Transmission Provider
who conducts transmission system operations or reliability functions,
including, but not limited to, those who are engaged in day-to-day
duties and responsibilities for planning, directing, organizing or
carrying out transmission-related operations. Order No. 2004-A
clarified, and Order No. 2004-B reiterated, that the Commission looks
at the actual duties and responsibilities of employees in determining
whether individuals are Transmission Function Employees.\11\
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\11\ See Order No. 2004-A at P 131 and Order No. 2004-B at P 53.
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Requests for Rehearing and/or Clarification and Commission Conclusions
27. EEI and AGA seek additional clarification of the term
Transmission Function Employee following the Commission's issuance of
Alcoa Power Generating, Inc., 108 FERC ] 61,243 (2004).\12\ Petitioners
are concerned that Commission's wording of Alcoa could be read to
suggest that all transmission rate design and transmission tariff
administration duties are deemed transmission functions. EEI and AGA
seek clarification with regard to the applicability of the designation
of Transmission Function Employee to rate design and transmission
tariff administration employees. With regard to rate design employees,
EEI and AGA request clarification that, to the extent that employees
who do not engage in other Transmission Functions, may engage in
traditional accounting and regulatory cost-of-service support
activities for designing transmission rates without becoming
Transmission Function Employees. EEI and AGA claim that for many of
their members, rate design duties are not assigned to a dedicated
staff, but rather spread over a large number of employees with other
shared roles.
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\12\ In Alcoa, the Commission addressed several requests for
exemption from the Standards of Conduct.
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28. With regard to tariff administration employees, EEI and AGA
request clarification that the Commission did not intend to make a
blanket determination that all such employees were Transmission
Function Employees, but rather that the status of each such employee
should be determined by his or her job description. EEI and AGA urge
the Commission to clarify that an employee who performs billing or
administrative support should not be deemed a Transmission Function
Employee even if the employee is located in the ``tariff
administration'' department. EEI and AGA claim that these employees are
``back-office support employees'' and do not offer transmission
service, execute service agreements, negotiate terms or service or
approve service, and should qualify for the support exemption under
Sec. 358.4(a)(4).\13\
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\13\ Under 18 CFR 358.4(a)(4), Transmission Providers are
permitted to share support employees and field and maintenance
employees with their Marketing and Energy Affiliates.
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29. With respect to rate-design employees, petitioners offer few
details about the specific duties of employees who engage in accounting
and regulatory cost-of-service support roles. Rate design is an
integral element of the transmission function. As discussed in the
Alcoa order, activities such as designing rates, administering tariffs
(which establish rates for services as well as the terms and conditions
of service for the transmission of electricity or transportation of
natural gas, including operating conditions), and calculating gas cost
adjustment charges are transmission functions that involve the planning
and carrying-out of transmission-related operations. See Alcoa at P
169. Petitioners urge the Commission to consider Ameren Services Co.,
in which the Commission permitted the sharing of rate design functions
and found that none of the rate design individuals described by a
particular company directed, organized or executed transmission/
reliability or wholesale merchant functions.\14\ Petitioners urge the
Commission to continue to review these issues on a case-by-case basis
rather than make a blanket determination that all rate design employees
are Transmission Function Employees.
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\14\ 87 FERC ] 61,145 at 61,598 (1999).
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30. The Commission grants the requested clarification, and
reiterates our prior commitment to consider the actual duties and
responsibilities of employees in determining whether they are
Transmission Function Employees. However, to provide additional
guidance to Transmission Providers, we also clarify that there are
certain rate design functions that will be considered Transmission
Functions because rates are an integral part of transmission service.
31. With regard to tariff administration employees, the Commission
clarifies that it did not make a blanket determination that all tariff
administration employees are automatically deemed Transmission Function
Employees. As previously stated, the Commission will look at the actual
duties and responsibilities of employees in determining whether they
are Transmission Function Employees. However, an employee that is
involved in certain tariff-related activities, such as determining
whether discretion may be granted under the tariff or applying tariff
provisions, is a Transmission Function Employee.
C. Independent Functioning--Treatment of Electricity Provider of Last
Resort Service (POLR)
Order No. 2004-B
32. Order 2004-A explained, in response to a request for
clarification from Cinergy, that the Commission was not prepared to
adopt a proposed rule change and amendment to the definition of
``marketing, sales or brokering'' to accord POLR service the same
treatment, on a generic basis, as the Commission had accorded bundled
retail sales, but that it would entertain case-by-case requests for
exemption of a POLR service based on the relevant facts and
circumstances.\15\
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\15\ Order No. 2004-A at P 127.
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Requests for Rehearing and/or Clarification and Commission Conclusions
33. Cinergy is concerned that Order Nos. 2000, 2000-A and 2000-B
could be interpreted to classify the retail account representatives of
its affiliates, Cincinnati Gas & Electric Company (CG&E) and Union
Light, Heat & Power Company (ULH&P), as sales and marketing employees
or Energy Affiliate employees subject to the independent functioning
and information sharing restrictions, even though CG&E provides only
POLR gas and electric services in Ohio, and ULH&P provides only bundled
gas and electric services in greater Cincinnati's Northern Kentucky
communities (where competitive retail gas and electric markets have not
been adopted).
34. Cinergy requests that the Commission find that the activities
of the account representatives do not fall within the definition of
sales and marketing employees at Sec. 358.3(e). But, if they should be
classified as sales and
[[Page 289]]
marketing employees or Energy Affiliate employees, Cinergy requests an
exemption from the independent functioning and information sharing
restrictions for their account representatives because, Cinergy argues,
in their limited roles, they cannot cause any harmful effects to the
retail or wholesale competitive marketplace.
35. As the Commission explained in Order No. 2004-A, the question
of the status of shared employees in the context of a state retail
access program or as a provider of last resort is best decided on a
case-specific basis. To the extent Cinergy seeks clarification of that
policy, Cinergy's request is denied. Further, we are not prepared to
grant any of Cinergy's requests at this time. While Cinergy has
committed to ensuring that the account representatives will not act as
conduits for passing transmission system information to its sales and
marketing personnel or to any Energy Affiliate, Cinergy also seeks an
exemption for these employees from the information sharing and
independent functioning requirements. This request for exemption
appears to be inconsistent with its no-conduit commitment. We need more
explanation as to how the no-conduit commitment will work in practice
in combination with the apparent need for an information sharing and
independent functioning exemption if the Commission were to classify
the retail account representatives as sales and marketing employees or
Energy Affiliate employees.
36. Accordingly, we direct the Secretary to redocket Cinergy's
request in the next available TS Docket, and we direct Cinergy to
explain its implementation of the no-conduit rule in the context of its
account representatives. The Commission will process this filing
subsequently as a request for waiver or exemption specific to Cinergy's
unique circumstances.
D. Information To Be Posted on the Internet or OASIS
i. Discretionary Waivers
Order No. 2004, et seq.
37. In Order No. 2004, the Commission stated that a Transmission
Provider must maintain a written log, available for Commission audit,
detailing the circumstances and manner in which it exercised its
discretion under any terms of its tariff. The Commission further
required that the Transmission Provider post the information in this
log on the OASIS or Internet Web site within 24 hours of when the
Transmission Provider exercises its discretion under any terms of the
tariff. See Sec. 358.5(c)(4) of the Commission's regulations.
Requests for Rehearing and/or Clarification and Commission Conclusions
38. INGAA seeks clarification that when discretion is exercised
under a Transmission Provider's tariff, the details contained in the
written log must be posted online on the following business day, as
opposed to within 24 hours, consistent with Sec. 385.2007. INGAA
argues, for example, that if the act of discretion occurs on a Friday
afternoon, the Transmission Provider could post the information on
Monday. INGAA submits that requiring the posting within 24 hours would
require Transmission Providers to hire additional staff to be available
on non-business days to review and post discretionary waivers that is
not justified since shippers and potential shippers would not likely be
reviewing the postings on non-business days.
39. The Commission denies INGAA's request. Under INGAA's scenario,
the Transmission Provider could wait until 5 p.m. on Monday to post the
information concerning its act of discretion that took place on Friday.
This is insufficient notice. If a Transmission Provider exercises
discretion by waiving a nomination/scheduling deadline or gas quality
provision, and the Transmission Provider posts the information on the
next business day rather than within 24 hours, the shipper or potential
shipper may not learn of the discretionary act until it is too late to
benefit from the posting. Gas control centers operate 24 hours a day,
seven days a week and daily changes occur, even on the weekends and
holidays. The goal of the requirement is to ensure that if a
Transmission Provider exercises discretion, all shippers or potential
shippers have timely access to information concerning that discretion
so that, if appropriate, they can, on a non-discriminatory basis,
obtain comparable service.
ii. Discounts
Order No. 2004, et seq.
40. Under Sec. 358.5(d), any offer of a discount for any
transmission service made by the Transmission Provider must be posted
on the OASIS or Internet Web site contemporaneously with the time that
the offer is contractually binding. One of the elements of the discount
posting includes the requirement to identify the quantity of power or
gas scheduled to be moved.\16\ Following Order No. 2004-A, INGAA
requested clarification and urges the Commission to require the posting
of the firm maximum daily contract quantity or, for interruptible
transportation, the quantity of gas to which the shipper is entitled,
instead of requiring the quantity ``scheduled.'' INGAA explained that
while the parties agree on the quantity of the shipper's entitlement at
the time they enter into the contract, they typically do not know what
quantities will actually be nominated and scheduled until later when
service begins under the contract. The Commission denied INGAA's
request in Order No. 2004-B. See Order No. 2004-B at P 131.
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\16\ Using the quantity of gas scheduled to be moved as an
element of the discount posting requirement is consistent with the
former gas standards of conduct at former 18 CFR 161.3(h)(2).
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Requests for Rehearing and/or Clarification and Commission Conclusions
41. INGAA repeats its request for clarification that Internet
postings of transmission service provided at a discount should refer to
the quantity of gas that the shipper is entitled to take under the
contract, rather than the quantity of gas that is actually scheduled.
INGAA argues that the Commission, in denying its previous request for
clarification of Order No. 2004-A, misunderstood the problem INGAA was
identifying, which is that the quantities that the contracts reference
are the maximum quantities that the contracts permit to be scheduled,
and that the actual amounts scheduled may be less than the contract
amount. INGAA argues that the requested clarification that Transmission
Providers must post the contract quantities on the Internet instead of
the scheduled quantities will ``provide other shippers with timely,
pertinent discount contract quantity information to determine whether
they are entitled to ``comparable discount'' as similarly situated
shippers.''
42. The Commission recognizes that the Transmission Provider may
not know, at the time the offer is contractually binding, the actual
quantity that will later be ``scheduled.'' However, the Commission
disagrees with INGAA's claim that the discount contract applies to the
maximum quantity that the shipper is entitled to nominate and have
scheduled at that discounted rate. Discount procedures vary
significantly among pipelines and for different types of service on the
same pipeline. Contrary to INGAA's assertion,
[[Page 290]]
the maximum daily contract amount does not always reflect the volume on
which the discount was based. For example, under umbrella-type
interruptible transportation agreements, short-term discounts are often
negotiated for less than the MDQ identified in the IT transportation
agreement, and posting the MDQ would provide misleading information
about the discount.
43. The goal of the discount requirement is to post pertinent
information so a similarly situated shipper can determine if it is
entitled to a comparable discount. There may be instances in which the
MDQ is the appropriate information to post vis-[agrave]-vis volume, but
there are also instances in which the amount scheduled more accurately
reflects the information used by the Transmission Provider as a basis
for granting a discount. With that in mind, the Commission clarifies
that the volume reported for the discount postings should be the volume
identified in the discount request or relied upon as part of the
consideration upon which a specific discount is granted. A Transmission
Provider must identify whether it is posting the volumetric information
based on the MDQ or scheduled volume. The Commission will modify the
following portion of the regulatory text at Sec. 358.5(d) by deleting
the phrase ``the quantity of power or gas scheduled to be moved,'' and
replacing it with the phrase ``the quantity of power or gas upon which
the discount is based.''
E. Applicability of the Standards of Conduct to Newly Formed
Transmission Providers
Order No. 2004-B
44. In Order No. 2004-B, the Commission established that a new
pipeline will have a reasonable time (30 days) after it accepts its
certificate of public convenience or otherwise becomes subject to the
Commission's jurisdiction (whichever comes first) to come into
compliance with the Standards of Conduct.\17\
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\17\ Order No. 2004-B at P 137.
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Requests for Rehearing and/or Clarification and Commission Conclusions
45. Tractebel and AES seek clarification that companies which have
obtained certificates allowing them to construct pipelines, but which
have not yet begun transporting natural gas for others, are not yet
natural gas companies, and therefore the Standards of Conduct do not
apply to them. Tractebel points to section 2(6) of the Natural Gas Act
and the Commission's interpretation of that section in Millennium
Pipeline Co., 100 FERC ] 61,277 at P 121 and 124, where the Commission
found that Millennium Pipeline Co. had not completed construction of
its pipeline and therefore was not yet a natural gas company. Tractebel
further argues that a pre-operational pipeline is not a Transmission
Provider as that term is defined in Sec. 358.3(2) because it has not
yet begun providing transportation service. Similarly, AES requests
clarification that it need not comply with the separation of functions
requirement until it has ``transmission function employees,'' as
defined in Sec. 358.3(j), and until it commences ``transmission,'' as
defined in Sec. 358.3(f). AES also requests clarification that in the
pre-service stage of development, it need not comply with the posting,
training or separation of function requirements contained in Standards
of Conduct. Tractebel and AES both point to the Commission's statement
in Order No. 2004-A at P 237 that ``some aspects of the Standards of
Conduct may have no meaningful applicability until the company has been
staffed and begins to perform transmission functions, such as
soliciting business, or negotiating contracts.''
46. As noted by Petitioners, the Commission previously stated that
some of the Standards of Conduct requirements may not apply until the
Transmission Provider has been staffed and begins to perform
transmission functions. However, when a Transmission Provider begins
soliciting business or negotiating, it is engaging in transmission
functions and is subject to the Standards of Conduct requirements. The
Commission's goal is to ensure that the newly formed pipeline will
provide non-discriminatory treatment and limit its ability to unduly
favor its Marketing or Energy Affiliates. If the Commission defers
applying the Standards of Conduct, a newly formed pipeline might share
employees or information with its Marketing or Energy Affiliates giving
those affiliates the ability to obtain preferential service or
treatment.
F. Exemptions
Order No. 2004, et seq.
47. In Order No. 2004, the Commission established that Transmission
Providers that did not previously obtain an exemption may request an
exemption under Sec. 358.1(d) from all or some of the requirements of
Part 358.\18\
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\18\ See Order No. 2004 at P 28.
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Requests for Rehearing and/or Clarification and Commission Conclusions
48. NGSA seeks clarification that Sec. Sec. 358.5(c) and (d)
generally should not be waived absent extraordinary circumstances
justifying such a waiver.\19\ NGSA argues that these provisions are
generally applicable standards of conduct that prevent unduly
discriminatory behavior, and that waiver of such provisions for gas
Transmission Providers that do not have Energy Affiliates inadvertently
eliminates important protections that should apply to all pipeline
operations regardless of whether any Energy Affiliate relationships
exist. Specifically, NGSA argues that the complete exemption from the
Standards of Conduct granted to Texas Gas Transmission Company (Texas
Gas) may lead to the unduly discriminatory treatment of shippers on
Texas Gas's system, and that Texas Gas should only be granted a waiver
from those Standards of Conduct that apply specifically to affiliate
relationships.\20\
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\19\ Sections 358.5(c) and (d) contain provisions requiring the
Transmission Provider to implement tariffs on a non-discriminatory
manner and to post discounts.
\20\ On September 20, 2004, in Docket No. TS04-253-000, the
Commission determined that Texas Gas Transmission Company (Texas
Gas) was not subject to Order No. 2004 because Texas Gas does not
have any Marketing or Energy Affiliates. See Alcoa at P 108. NGSA's
petition was filed in the instant docket, as well as in the TS04-253
docket, with a request for an untimely intervention, which Texas Gas
opposed.
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49. In response, Texas Gas argues that the Commission's finding is
consistent with the Commission's policy under the former Part 161
Standards of Conduct in which a Transmission Provider was not subject
to the Standards of Conduct if it had no Marketing Affiliates.\21\
Moreover, Texas Gas argues that it is still bound to provide service
that is not unduly discriminatory under the requirements of sections 4
and 5 of the Natural Gas Act (NGA). The Commission denies NGSA's
request. As Texas Gas states, the Commission's determination was
limited to a single Transmission Provider with unique circumstances. If
Texas Gas obtains a Marketing or Energy Affiliate, it must comply with
the Standards of Conduct requirements of Order No. 2004 within 30 days
of obtaining or creating a Marketing or Energy Affiliate. Finally, as
noted above, Texas Gas is bound by the provisions of sections 4 and 5
of the
[[Page 291]]
NGA to provide non-discriminatory service and the non-discriminatory
provisions of the Standards of Conduct regarding the implementation of
tariffs should serve as a guideline for Texas Gas's behavior in
complying with sections 4 and 5 of the NGA.
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\21\ See Discovery Gas Transmission LLC, 103 FERC ] 61,301 at
62,170 (2003).
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G. Miscellaneous Corrections
50. The Commission is also making some miscellaneous corrections to
typographical errors in the regulatory text. Specifically, Entergy has
pointed out that Sec. 358.4(b)(3)(vi) contains a reference to Sec.
37.3 which Entergy believes should be Sec. 37.6. The Commission
agrees, and Sec. 358.4(b)(3)(vi) is being corrected to reference Sec.
37.6. Also, Sec. 358.3(d)(6)(vi) is revised to remove ``producer'' and
replace it with ``processor'' to reflect the Commission's intent of
this provision as described in paragraph 30 of Order No. 2004-B.
By the Commission.
Linda Mitry,
Deputy Secretary.
0
In consideration of the foregoing, the Commission amends part 358,
Chapter I, Title 18 of the Code of Federal Regulations, as follows:
PART 358--STANDARDS OF CONDUCT
0
1. The authority citation for part 358 continues to read as follows:
Authority: 15 U.S.C. 717-717w, 3301-3432; 16 U.S.C. 791-825r,
2601-2645; 31 U.S.C. 9701; 42 U.S.C. 7101-7352.
Sec. 358.3 [Amended]
0
2. In Sec. 358.3(d)(6)(vi) the word ``producer'' is removed and the
word ``processor'' is inserted in its place.
Sec. 358.4 [Amended]
0
3. In Sec. 358.4(b)(3)(vi) the word ``Sec. 37.3'' is removed and the
word `` Sec. 37.6'' is inserted in its place.
Sec. 358.5 [Amended]
0
4. In Sec. 358.5(d), the words ``the quantity of power or gas
scheduled to be moved'' are removed and the words ``the quantity of
power or gas upon which the discount is based,'' are inserted in their
place.
Note: This Appendix A will not be published in the Code of
Federal Regulations.
Appendix A
List of Petitioners Requesting Rehearing or Clarification or
submitting Comments
American Gas Association (AGA)
AES Ocean Express LLC (AES)
Algonquin Gas Transmission, LLC; jointly with East Tennessee Natural
Gas, LLC; Egan Hub Storage, LLC; Gulfstream Natural Gas System,
L.L.C.; Maritimes & Northeast Pipeline, L.L.C.; and Texas Eastern
Transmission, LP (collectively, Duke Pipelines)
Calpine Corporation (Calpine)
Cinergy Services, Inc. (Cinergy)
Edison Electric Institute (EEI)
Entergy Services, Inc. (Entergy)
Interstate Natural Gas Association of America (INGAA)
National Fuel Gas Supply Corporation jointly with National Fuel Gas
Distribution Corporation (collectively, National Fuel)
National Grid USA (National Grid)
Natural Gas Supply Association (NGSA)
OkTex Pipeline Company (OkTex)
Public Service Commission of the State of New York (PSC New York)
Southwest Gas Corporation (Southwest Gas)
Tractebel Calypso Pipeline, LLC (Tractebel)
Utah Public Service Commission (Utah PSC)
Wyoming Public Service Commission (Wyoming PSC)
[FR Doc. 05-16 Filed 1-3-05; 8:45 am]
BILLING CODE 6717-01-P