The Federal Energy Regulatory Commission on Tuesday significantly broadened the scope of energy affiliates that will be subject to the agency’s standards of conduct governing the relationships between regulated natural gas pipeline/electric transmission providers and their affiliates.
In a 206-page final rule, which closely paralleled a proposed rule issued two years ago, the Commission combined the standards of conduct for both jurisdictional gas pipelines and transmission-owning public utilities, and significantly expanded the current Order 497 regulations that bar pipeline/transmission providers from giving preferential treatment solely to their marketing and wholesale merchant affiliates.
The new rule extends the FERC restrictions against preferential treatment, information disclosure and employee sharing to a number of other affiliates of regulated pipelines/transmission providers, including traders, producers, gatherers, processors, intrastate and Hinshaw pipelines, and any affiliate making a sale for resale of natural gas or electric energy in interstate commerce [RM01-10].
“The Commission is not asserting jurisdiction over the producers, gatherers or processors” by its action, which, however, would prohibit pipeline/transmission provider affiliates from giving those affiliates preferential access to their systems, FERC said. The agency, in contrast, decided to continue to exempt local distribution companies (LDCs) that do not make off-system sales from standards of conduct regulations.
The Commission further ruled that “FERC-jurisdictional interstate natural gas pipelines coordinating transactions with affiliate FERC-jurisdictional interstate natural gas pipelines should be permitted to share transmission-function employees and information, since both are bound by the standards of conduct requirements and are prohibited from sharing transmission, customer or market information with their energy affiliates.”
Commissioner Nora M. Brownell dissented in part to what she called the “disparate treatment” that was given by the Commission to LDCs and interstate pipe affiliates. “The facts and equity support maintaining the existing exemption for affiliated producers, gatherers, processors, intrastate pipeline and Hinshaw pipelines” as well as LDCs, she said.
Moreover, “we exempt FERC jurisdictional transmission providers from the definition of energy affiliates. Consequently…affiliated jurisdictional pipelines are permitted to share transmission-function employees and information. Again, there appears to be no significant difference in the relationships to support disparate treatment,” Brownell noted.
Any affiliate of a regulated pipeline-transmission provider who buys natural gas or power for its own consumption also was excused from the regulations under the revised affiliate rule.
“However, this exception is not intended to create a loophole that circumvents the intent of the rule, and does not apply to energy affiliates that use natural gas or power to produce another source of energy,” such as generation affiliates, the order said.
On the electric side, the agency noted “a public utility transmission provider may share transmission-function employees and information with other public utility transmission providers.”
Against the recommendations of staff, FERC said it would retain an exemption to permit a utility transmission provider to share employees with its bundled retail sales business as well.
The Commission also would exempt from the affiliate rule holding and service companies that typically do not participate in the energy or transmission markets. It said it will extend this exclusion to “parent companies” that may not fall within the legal definition of “holding company” under the Public Utility Holding Company Act.
Foreign affiliates that do not engage in energy markets in the United States will not be subject to the Commission’s standards of conduct regulating the behavior between monopolies and their affiliates.
Energy companies were concerned that the strict disclosure prohibitions under the rule might prevent company directors, officers of senior managers from carrying out their responsibilities under the Sarbanes-Oxley accounting law, which requires top officials to vouch for the accuracy of information filed with the Securities and Exchange Commission.
In response, the Commission adopted the “no conduit rule” that would permit top company officials to obtain certain information as long as they do not “actively share” the information with a marketing or other energy affiliate.
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