• Final FERC Rule to Tighten Standards of Conduct for Transmission Providers
  • November 1, 2008
  • Law Firm: Troutman Sanders LLP - Atlanta Office
  • On Thursday, the Commission took final action on new rules revising FERC’s Standards of Conduct for natural gas and electric transmission providers. The new rules attempt to prevent undue discrimination and preference by companies in both their transmission and transportation services.

    In 2003, the Commission issued Order No. 2004 which expanded the scope of the Standards of Conduct to include energy affiliates. The United States Court of Appeals for the District of Columbia Circuit vacated Order No. 2004 as to natural gas pipelines in November 2006. The new rules are the result of the Commission’s March Notice of Proposed Rulemaking (“NOPR”) which replaced an earlier NOPR (see March 21 edition of the WER).

    The new rules eliminate some provisions of Order No. 2004 that were hard to enforce and returns to the employee functional approach originally adopted in Order No. 497 (for the gas industry) and Order No. 889 (for the electric industry). This employee functional approach replaces the corporate separation approach originally set forth in Order No. 2004 which the Commission noted was difficult for companies to comply with and for the Commission to enforce.

    Some of the new additions to the initial proposed rule include:

    • Defining marketing functions for electric and gas companies separately;
    • Guaranteeing that only sales and not purchases are included in the definition of marketing functions by eliminating the term “bids to buy;”
    • Limiting “transmission functions” to include only the day-to-day operations of a transmission system;
    • Explaining the level of involvement required for employees to be considered marketing function employees by adding the term “day-to-day;”
    • Adjusting the Standards for tariff-approved exercises of discretion for discounts by removing posting requirements;
    • Disallowing proposals prohibiting the receipt of non-public transmission function information by marketing function employees because they may be inadvertent; and
    • Broadening the category of non-public transmission function information for which only notice should be posted if the information were wrongfully disclosed to marketing function employees to include Critical Energy Infrastructure Information.

    Chairman Kelliher noted that while the Commission did not have to change the Standards of Conduct with respect to the electric industry, as the appeals court’s decision vacated the rules only as they applied to the natural gas industry, the Commission’s actions demonstrate that they are “committed to fairness in the exercise of [their] new enforcement powers.”

    The new rules try to “identify those relationships between a marketing affiliate and a transmission provider that run the greatest risk of undue discrimination and preference,” said Chairman Kelliher. Kelliher went on to say that the rules will “subject those companies to prophylactic rules designed to reduce that risk.”

    The new rule takes effect 30 days after publication in the Federal Register. The Commission’s order is available at: http://ferc.gov/whats-new/comm-meet/2008/101608/M-1.pdf.