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FERC NOPR Adopts Slimmed-Down Standards of Conduct

In a Notice of Proposed Rulemaking (NOPR) Thursday FERC heeded a recent court remand and adopted its slimmed-down affiliate rule in its standards of conduct, Order 497, that bars gas pipelines from giving preferential treatment solely to their marketing affiliates. The Commission also requested comments on whether the slimmed-down version of the rule should be applied to electricity utilities.

In National Fuel Gas Supply Corporation v. FERC in November, the U.S. Court of Appeals for the District of Columbia's vacated and remanded a 2004 order by the Federal Energy Regulatory Commission (FERC) that expanded the restrictions on pipeline affiliate relationships beyond just marketing affiliates. The court told FERC that it failed to provide record evidence of abuse to justify its decision to broaden its standards of conduct to include affiliates other than marketing affiliates.

Responding to the court decision earlier this month, FERC issued an interim rule readopting Order 497, which was first issued in 1988 (see Daily GPI, Jan. 11 and Nov. 20, 2006).

"Today's action shows the Commission recognizes the significance of the court in National Fuel," said Chairman Joseph Kelliher at the Commission's regular meeting Thursday. "We do not propose to maintain the expanded scope of the standards of conduct rule on natural gas pipelines. We also ask important questions as to whether we should maintain the expanded scope of the rule as it applies to electric utilities. I support application of the rule to marketing affiliates of both electric utilities and natural gas pipelines.

"The reality is that the court found the standards of conduct rule was fatally flawed in its formation, and the Commission had no more basis to expand the scope of application on electric utilities than it did on natural gas pipelines. Since the rule rests on an infirm foundation, in my view we either have to find a new foundation for application of the expanded scope of the standards of conduct rule on electric utilities, or narrow the scope to conform to what we propose today for natural gas pipelines. We seek comment in this area, and will base our decision on the record."

In the NOPR, FERC also proposed changes to the standards of conduct to facilitate integrated resource planning and competitive solicitations. The proposed changes would improve the consideration of transmission in integrated resource planning and competitive solicitations by allowing planning employees and competitive solicitation employees to access nonpublic transmission information. The Commission believes the proposed changes would improve coordination between transmission planning, generation planning and demand response programs, which are the main elements of integrated resource planning, and that the changes are necessary to improve the economics and reliability of the transmission grid.

"The proposed rule recognizes the importance of integrated resource planning in many states," said Kelliher. "Some states are requiring greater consideration of transmission in integrated resource planning. Such consideration can conflict with the standards of conduct rule... Under the proposed rule, the new category of "planning employees" who are permitted to engage in all aspects of integrated resource planning would be limited to planning for bundled retail load. We seek comment on whether the scope of these planning activities should be broadened to include providers of last resort, grandfathered wholesale contracts, and other wholesale requirements loads."

The Commission also is seeking comments on the following: whether to make permanent regulatory language regarding permissibly shared risk management employees for natural gas transmission providers and make comparable changes applicable to electric utility transmission providers; whether to make permanent the requirements for gas transmission providers to post their discretionary acts and make comparable changes applicable to electric utility transmission providers; and whether to require each transmission provider to post the name of its chief compliance officer and require employees to certify that they have completed standards of conduct training.

Comments on the proposed rule must be filed within 45 days after the date of publication in the Federal Register. Reply comments are due 65 days after publication. All comments must refer to Docket No. RM07-1-000. For details go to the FERC website at www.ferc.gov.

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