Acknowledging the converging and consolidating natural gas and power industries, Federal Energy Regulatory Commissioners last week issued a notice of proposed rulemaking (RM01-10) combining the standards of conduct for natural gas pipelines and electric transmission providers and broadening their application to require separation of the regulated monopolies from all other company affiliates.

The rulemaking proposal was just one of a number of items addressed by the Commission in the first meeting presided over by new Chairman Pat Wood. The meeting started off with the Pledge of Allegiance — which Wood said would be standard procedure in future FERC meetings — and a moment of silence for the victims of the Sept. 11 attack on the nation.

In one discussion, the new chairman left no doubt as to where he stood on the issue of regional transmission organizations (RTO), proposing both a rulemaking to standardize their market design and structure, and a cut-off date in December for all utilities to join an RTO “or face having all market-based rate privileges by any corporate affiliate be prospectively revoked, following a Section 206 investigation.” While the item was for discussion only, Wood made clear it would be revisited.

The proposed new standards of conduct would apply to all transmission providers, including natural gas pipelines and electric transmission owners. Previously, the rules simply required creation of a firewall, including separate operations in separate locations staffed by separate personnel, between gas pipelines and their marketing affiliates. Similarly, standards of conduct had been set separating electric utilities from their marketing affiliates. The proposed rule would wall off both gas and electric transmission operations from any other affiliate, gas or electric. This would include, among others, affiliates that function as producers, asset managers, gatherers, local distribution companies or in the realm of finance.

Comments on the proposed rule are due 45 days after the rulemaking appears in the Federal Register.

In revisiting the standards of conduct, installed for interstate gas pipelines in 1987, and for electric transmission providers five years ago, the Commission noted the changes in the industry, including convergence of the gas and power companies, consolidation through mergers, and expansion of the number and nature of energy-related affiliates. Also, since most new power generation plants are natural gas-fired, the Commission pointed out the potential for market power and discrimination through vertical integration.

The Commissioners, in the open meeting Wednesday, were presented with two options regarding the application of the proposed rule to electric transmission affiliates, which still in many cases have bundled operations. One option would enforce complete separation, while a second would have exempted employees who deal in sales or purchases of bundled retail native load. Staff and Commissioners Wood,William Massey and Nora Brownell appeared to favor walling off all affiliated personnel, so they would not be privy to market information about transmission operations that other non-affiliated competitors did not have access to.

Commissioner Linda Breathitt, however, argued for continuing the exemption for personnel dealing solely with retail native load. Breathitt said that while she supported the eventual separation of the entities, she was concerned about the timing. “I see no compelling reason at this time; there have been no complaints and no evidence.” She said she thought state commissions might consider the move an infringement on their jurisdiction. “I agree with the concept philosophically, but I think there will be other opportunities later on, after we do a little more bridge-building with state commissions.”

Wood said he understood “the political issue here with respect to federal-state relations, but I think this is an opportunity for discrimination that ought to be eliminated.” Staff pointed out that if there were any problems with transmission reliability or if some small utilities had problems, waivers could be granted. Staff was questioned by the commissioners as to how much information was available to affiliate personnel. “If I am an affiliate employee dealing solely with retail native load, I can go into the control room and get all the information I want,” one staffer responded.

Wood proposed, and the commissioners ratified, a proposed rule with no exceptions, but which makes clear that in the final rule the Commission may reverse field and determine that separation of employees dealing with sales of native load is not required. Commenting parties should provide cost/benefit analysis on both sides of the question. State commissions are also invited to comment. Wood had suggested the Commission extend the separation to all sales employees, “but make it clear that if we don’t hear from people that they really want this separation, we ain’t going to do it.”

On the electric side, a transmission provider which is a member of a regional transmission organization (RTO), and has no control of the operation of the RTO, may request an exemption from the affiliate rules.

In Wednesday’s meeting the Commissioners agreed to proposed amendments to the FERC’s five-year business plan that would elevate market monitoring and mitigation to the same priority level as enhancing energy infrastructure and furthering pro competitive market structures in the United States.

Commission staff also will prepare a 12-month detailed business plan that will prioritize and set a schedule — including completion dates — for activities during the Commission’s fiscal year, from Oct. 1, 2001 through Oct. 1 2002. Wood said the 12-month plan would be put together and reviewed by two staff groups, one made up of senior staff and a second made up of junior staff and union representatives. The 12-month plan should be ready for publication in a month.

Wood said he was inspired to “get with a business plan” by then-Gov. George W. Bush when Wood was a Texas regulator.

The Commission also will be reviewing infrastructure adequacy on a regional basis. It is planning to hold an open meeting with state and federal regulators and industry on western infrastructure issues following the Western Governors Association meeting Nov. 1-2 in Seattle. Later FERC will hold additional meetings in the other regions of the country.

FERC will cooperate with the Department of Energy in two technology-oriented sessions, one to explore technology solutions such as remote metering to capturing retail and wholesale consumer demand response in mid-February and another to investigate new transmission technology in mid-January.

Don’t be surprised to see a lot of topics debated at FERC’s regular open meetings. The sunshine laws which prohibit more than two commissioners from discussing FERC business except in an open meeting, is confining, Wood said. (Usually commission staff runs back and forth among commissioners to establish positions before the meetings). Wood would like to have more discussions out in the open to work things out, and also to let the public know “not just what we are doing, but why we are doing it.”

©Copyright 2001 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.