Energy Groups: FERC Affiliate Rule Would Hobble 'Corporate Governance'

By seeking to significantly restrict the contacts of regulated natural gas pipelines and power transmission with their energy affiliates, the Federal Energy Regulatory Commission could be trading one set of problems -- affiliate misconduct -- for another set of problems dealing with "corporate governance," three energy associations warned the agency.

In a letter submitted to the Commission last week but not revealed until Monday, the American Gas Association (AGA), the Interstate Natural Gas Association of America (INGAA) and the Edison Electric Institute (EEI) said they had "serious concerns" with the agency's proposed rule that would significantly broaden existing standards of conduct by requiring both gas and electric transmission companies to wall off their operations from other corporate energy affiliates, gas or electric.

In its proposed rule, which was issued last September, FERC attempted to close any and all loopholes in existing regulations that permit pipeline and transmission providers to give affiliates undue preference or preferential access to information.

While the energy trade groups "embrace" the policy direction of the Commission, they said they were concerned about "the impact of the proposed rule on communications necessary to meet both legal and fiduciary obligations related to corporate governance."

For example, "under the proposed definition of 'energy affiliate,' communications of transmission information for corporate governance purposes from a transmission provider subsidiary to the senior management of the subsidiary's parent would be...restricted by the proposed rule," the AGA, INGAA and EEI pointed out to FERC.

Moreover, they contend the Commission's proposed rule would conflict with the Sarbanes-Oxley accounting reform law and regulations of the Securities and Exchange Commission (SEC), which require senior management to be fully informed about the financial condition of their corporation and its subsidiaries.

"We do not dispute, and we indeed embrace, the underlying policy goal of the standards of conduct -- guarding against discrimination in the provision of regulated transmission services and guarding against competitive advantage gained from preferential access to commercially valuable transmission information. We believe very strongly, however, that these regulatory goals can be achieved without upsetting the flow of information needed for corporate governance, through careful design of standards of conduct policy."

They noted that Duke Energy and Dominion Resources have offered proposals that would allow a corporation's senior management to receive "non-public transmission information," and subject them to rules and procedures to ensure the information "is not relayed inappropriately to operational elements of the company that compete in energy markets."

The trade groups urged FERC and staff to hold a technical conference to discuss the types of information corporations would need to receive to carry out "effective corporate governance."

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