[Federal Register Volume 59, Number 63 (Friday, April 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7815]


[[Page Unknown]]

[Federal Register: April 1, 1994]


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DEPARTMENT OF ENERGY
18 CFR Parts 161 and 250

[Docket No. RM87-5-015; Order No. 497-F]

 

Inquiry Into Alleged Anticompetitive Practices Related to 
Marketing Affiliates of Interstate Pipelines; Order Denying Rehearing 
and Granting Clarification

Issued March 24, 1994.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Final rule; order denying rehearing and granting clarification.

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SUMMARY: On December 23, 1993, in response to a number of requests for 
rehearing, the Commission issued Order No. 497-E, an order on rehearing 
of the Commission's order on remand of the court's decision in Tenneco 
Gas v. Federal Energy Regulatory Commission. On January 21, 1994, 
Florida Gas Transmission Company (FGT) filed a request for rehearing of 
Order No. 497-E.
    This order denies FGT's request for rehearing that Order No. 497-E 
only requires contemporaneous disclosure under Standard F when 
transportation information is conveyed by a pipeline to an operating 
employee of the marketing affiliate and only requires application of 
Standard E to an operating employee of the marketing affiliate. This 
order also grants FGT's request for clarification that certain types of 
field personnel, such as mechanics and technicians, who merely act at 
the direction of others and who are normally not likely to receive 
information covered under the rule, would not be considered operating 
personnel.

EFFECTIVE DATE: The final rule in this proceeding was effective January 
1, 1994.

FOR FURTHER INFORMATION CONTACT: David Faerberg, Office of the General 
Counsel, Federal Energy Regulatory Commission, 825 North Capitol Street 
NE., Washington, DC 20426, (202) 208-1275.

SUPPLEMENTARY INFORMATION: In addition to publishing the full text of 
this document in the Federal Register, the Commission also provides all 
interested persons an opportunity to inspect or copy the contents of 
this document during normal business hours in room 3104, 941 North 
Capitol Street NE., Washington, DC 20426.
    The Commission Issuance Posting System (CIPS), an electronic 
bulletin board service, provides access to the texts of formal 
documents issued by the Commission. CIPS is available at no charge to 
the user and may be accessed using a personal computer with a modem by 
dialing (202) 208-1397. To access CIPS, set your communications 
software to use 300, 1200, or 2400 bps, full duplex, no parity, 8 data 
bits and 1 stop bit. CIPS can also be accessed at 9600 bps by dialing 
(202) 208-1781. The full text of this rule will be available on CIPS 
for 30 days from the date of issuance. The complete text on diskette in 
Wordperfect format may also be purchased from the Commission's copy 
contractor, La Dorn Systems Corporation, also located in room 3104, 941 
North Capitol Street NE., Washington, DC 20426.

I. Background

    On December 4, 1992, the Commission issued Order No. 497-D1 in 
response to the opinion issued by the United States Court of Appeals 
for the District of Columbia Circuit in Tenneco Gas v. Federal Energy 
Regulatory Commission (Tenneco)2 which upheld in substantial part 
Order Nos. 497 and 497-A,3 the Commission's final rule governing 
the relationship between interstate natural gas pipelines and their 
marketing or brokering affiliates. On December 23, 1993, in response to 
a number of requests for rehearing, the Commission issued Order No. 
497-E,\4\ an order on rehearing of Order No. 497-D.
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    \1\57 FR 58978 (December 14, 1992), III FERC Stats. & Regs. 
30,958 (1992).
    \2\969 F.2d 1187 (D.C. Cir. 1992).
    \3\Inquiry Into Alleged Anticompetitive Practices Related to 
Marketing Affiliates of Interstate Pipelines, Order No. 497, 53 FR 
22139 (June 14, 1988), FERC Stats. & Regs. [Regulations Preambles 
1986-1990] 30,820 (1988), order on rehearing, Order No. 497-A, 54 
FR 52781 (December 22, 1989), FERC Stats. & Regs. [Regulations 
Preambles 1986-1990] 30,868 (1989), order extending sunset date, 
Order No. 497-B, 55 FR 53291 (December 28, 1990), FERC Stats. & 
Regs. [Regulations Preambles 1986-1990] 30,908 (1990), order 
extending sunset date and amending final rule, Order No. 497-C, 57 
FR 9 (January 2, 1992), III FERC Stats. & Regs 30,934 (1991), reh'g 
denied, 57 FR 5815, 58 FERC 61,139 (1992), aff'd in part and 
remanded in part, Tenneco Gas v. Federal Energy Regulatory 
Commission, 969 F.2d 1187 (D.C. Cir. 1992).
    \4\59 FR 243 (January 4, 1994), III FERC Stats. and Regs. 
30,987 (1993).
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    Order No. 497-E: (1) Deleted the remaining categories of gas sales 
and marketing information from the contemporaneous disclosure 
requirement; (2) affirmed the Commission's decision to eliminate the 
filing of Form 592; (3) affirmed the Commission's decision that Ozark 
Gas Transmission System is subject to Order No. 497; (4) rejected 
Hadson Gas Systems, Inc.'s argument that the Commission's procedures 
for acting on Secs. section 161.3(j) and 284.286(e) filings prohibit 
public participation; (5) required all future standards of conduct 
filings made under Sec. 161.3(j) and all requests for waiver of the 
standards to include form notices suitable for publishing in the 
Federal Register; (6) clarified what type of employee is an ``operating 
employee'' for purposes of the Order No. 497 regulations; and (7) 
extended the sunset date of Order No. 497's reporting requirements 
until June 30, 1994, because concurrently with the order the Commission 
issued a notice of proposed rulemaking (NOPR) in Docket No. RM94-6-000 
which proposed to revise Order No. 497's reporting requirements.
    On January 21, 1994, Florida Gas Transmission Company (FGT) filed a 
request for rehearing of Order No. 497-E. FGT's request is addressed 
below.

II. Discussion

A. The Scope of Standards E and F

1. Request for Rehearing
    In its December 16, 1993 order5 in FGT's restructuring 
proceeding, the Commission required FGT to eliminate the term 
``operating'' from Standards E and F in FGT's Standards of Conduct 
Procedures. FGT had revised its Order No. 497 standards of conduct to 
limit the applicability of Standards E and F to ``operating 
employees.''6 FGT states that it filed for rehearing of the 
December 16 order because it believes that the order is contrary to 
Order No. 497-E, and is using the December 16 restructuring order as a 
basis for seeking rehearing here of Order No. 497-E.
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    \5\65 FERC 61,338 (1993).
    \6\Standard E of the Commission's Standards of Conduct for 
pipelines with marketing affiliates provides that the pipeline ``may 
not disclose to its affiliate'' certain specified information. 18 
CFR 161.3(e). Standard F provides that a pipeline must 
contemporaneously provide to all potential shippers on its system 
certain specified information to the extent it provides that 
information ``to a marketing affiliate.'' 18 CFR 161.3(f). FGT's 
Standard E was changed to prohibit disclosure of the information to 
operating personnel of FGT's marketing affiliate; Standard F, to 
limit its scope to information provided to operating personnel of 
FGT's affiliate.
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    FGT claims that because of the December 16 order, communication of 
information related to transportation of natural gas from, for example, 
a filing clerk working for the pipeline to a filing clerk working for 
the marketing affiliate triggers contemporaneous disclosure under 
Standard F, even though the information has not been communicated to 
any operating employee of the marketing affiliate that could take 
action on that information in a manner that might benefit the marketing 
affiliate in the manner addressed in Order No. 497, et seq. Likewise, 
FGT states that a shared clerk in possession of such transportation-
related information covered by the rule would trigger the 
contemporaneous disclosure requirement under Standard F. FGT states 
that this would occur even though there has been no communication to an 
operating employee of the marketing affiliate with authority to take 
action on such information in a manner that might benefit the marketing 
affiliate with respect to transportation. Likewise, FGT asserts that 
under its interpretation of Order No. 497-E, the contemporaneous 
disclosure requirement under Standard F would not be triggered unless 
and until the shared clerk passed on the information to an operating 
employee of the marketing affiliate. FGT submits that if the Commission 
adopted such an interpretation, any uncertainty that was created by the 
December 16 order would be removed.
    FGT argues that there has never been an issue with respect to 
support personnel under Order No. 497 and Commission precedent 
interpreting Order No. 497. FGT contends that the contemporaneous 
disclosure rule can only be logically implemented when a support 
person, whether an employee solely of the pipeline or a shared employee 
of both, actually passes information to an operating employee of the 
marketing affiliate. FGT states that in Order No. 497, the Commission 
recognized that the potential for abuse exists because the pipelines 
could have an economic incentive to favor marketing affiliates during 
transportation transactions. FGT asserts that no potential for abuse 
can occur unless information is passed to a marketing affiliate's 
operating employee regardless of who it comes from. Accordingly, FGT 
requests clarification, or, in the alternative, rehearing, that Order 
No. 497-E requires contemporaneous disclosure under Standard F only 
when information is conveyed by the pipeline to an operating employee 
of the marketing affiliate, and requires application of Standard E to 
prohibit disclosure only to an operating employee of the marketing 
affiliate.
2. Commission Ruling
    The Commission denies FGT's request. The problem with FGT's 
argument is that it takes Commission statements that separation of 
support personnel ``to the maximum extent practicable'' is sufficient 
to prevent the abuses at which the marketing affiliates rule is aimed, 
and inappropriately applies those statements to Standards E and F. 
Contrary to FGT's assertions, Standards E and F are not limited in 
their scope to operating employees only. First, on their face, 
Standards E and F are different from Standard G because they do not 
specifically refer to operating employees. Standard E states that a 
pipeline ``may not disclose to its affiliate any information the 
pipeline receives from a nonaffiliated shipper or potential 
nonaffiliated shipper.''7 Standard F states that ``[t]o the extent 
it provides to a marketing affiliate information related to 
transportation of natural gas, [a pipeline] must provide that 
information contemporaneously to all potential shippers, affiliated and 
nonaffiliated, on its system.''8 On the other hand, Standard G 
states that [t]o the maximum extent practicable [a pipeline's] 
operating employees and the operating employees of its marketing 
affiliate must function independently of each other.''9
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    \7\18 CFR 161.3(e).
    \8\18 CFR 161.3(f), as amended by Order No. 497-E.
    \9\18 CFR 161.3(g).
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    Second, in Order No. 497-A, the Commission recognized that the 
contemporaneous disclosure requirement of Standard F was broader in 
scope than the independent functioning requirement of Standard G and 
was designed to supplement the independent functioning standard. With 
respect to the contemporaneous disclosure requirement of Standard F, 
the Commission, in clarifying that information received by employees 
shared by a pipeline and its marketing affiliated would be imputed to 
both, stated ``[a]t the outset, the Commission has concluded that this 
standard of conduct applies with respect to any employee or officer 
that is shared by the pipeline and its marketing affiliate.'' (Emphasis 
added)10 In recognizing the relationship between Standards F and 
G, the Commission stated ``organizational separation of a pipeline and 
its marketing affiliate `to the maximum extent practicable' is 
necessary to ensure against affiliate preference and the discriminatory 
dissemination of information.''11 The Commission then went on to 
state
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    \1\0FERC Stats. & Regs. [Regulations Preambles 1986-1990]  
30,868 at 31,595 (1989).
    \1\1Order No. 497-A at 31,598.
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    As a practical matter, the contemporaneous disclosure requirement 
for information received by a shared employee or officer (discussed 
above) provides a strong disincentive for a pipeline and its marketing 
affiliate to share officers or employees. For pipelines that continue 
to share employees or officers with their marketing affiliate, the 
contemporaneous disclosure requirement will allow the public to monitor 
a pipeline's adherence to this standard [i.e., Standard G] and will 
enable the Commission to enforce this requirement [i.e., the 
independent functioning of operating employees].12
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    \1\2Id.
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    Thus, by stating that the contemporaneous disclosure requirement 
was a strong disincentive for the sharing of employees, the Commission 
recognized that such a requirement was, in fact, a much broader 
requirement than the independent functioning requirement, and would 
make pipelines adhere more closely to the independent functioning 
standard.
    Third, in Tenneco v. FERC,13 in the face of arguments that the 
contemporaneous disclosure requirement was a ``sweeping, draconian 
ban,'' the court upheld Standard F to the extent that it regulated the 
exchange of transportation information. The court found that Standard F 
``reflects a reasonable effort to promote a competitive market without 
significantly harming existing efficiencies.''14 In addition, the 
court also answered arguments of petitioners asserting an inconsistency 
between Standard E, the confidentiality standard, and Standard F, the 
contemporaneous disclosure standard, and the sharing of any operating 
personnel by a pipeline and its affiliate because, for example, shared 
employees will necessarily by imputation disclose all information they 
receive from nonaffiliated shippers. The court stated that the 
Commission concluded that there were means of achieving compliance with 
the confidentiality standard that are consistent with the sharing of 
some personnel. For example, the processing of transportation requests 
could be segmented or requests could be identified solely by number 
rather than by name. The court thus found that it was ``not illogical 
or internally inconsistent for a regulatory scheme to preclude a 
pipeline from divulging to its affiliate certain kinds of information 
at the same time it permits, in certain cases and under certain 
supervisory conditions, the sharing of some personnel.''15
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    \1\3969 F.2d 1187 (D.C. Cir. 1992).
    \1\4Id. at 1199.
    \1\5Id. at 1208.
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    Nor does Order No. 497-E support FGT's request. Order No. 497-E 
stated: ``To the extent a non-operating person obtains such 
[transportation] information and provides it to the marketing 
affiliate, the pipeline would be required to disclose the information 
contemporaneously pursuant to Standard F.''16 Contrary to FGT's 
claim, that language does not state that the marketing affiliate 
recipient need be an ``operating'' employee to trigger Standard F. 
Receipt of the information by any marketing affiliate employee triggers 
Standard F.17 Further, FGT has not given any reason why a member 
of the support staff of the marketing affiliate, or a shared employee 
who is a member of the support staff, for example a filing clerk or 
telephone operator, should receive information related to 
transportation. Information is generally not conveyed without a purpose 
relating to the reason a business is in existence. Thus, the Commission 
believes it is appropriate to impute the information conveyed to the 
support staff person to an operating employee of the marketing 
affiliate. There simply is no appropriate reason for a support staff 
person to have access to the information, or have it in his or her 
possession, unless it is to be imputed to an operating employee. Any 
information conveyed is therefore subject to disclosure under the 
marketing affiliate rule.
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    \1\6Order No. 497-E at 30,996.
    \1\7FGT made a similar argument with respect to ANR Pipeline 
Company, 65 FERC  61,386 (1993). For the same reasons that Order 
497-E does not support FGT's argument, neither does the decision in 
ANR.
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    FGT also cites the language in East Tennessee Natural Gas Company, 
which stated that ``to the extent that an operating employee of a 
separated sales entity receives information concerning transportation 
matters covered by Standard F * * * the pipeline must disclose that 
information on its electronic bulletin board (EBB) to comply with 
Standard F.''18 That example was not meant to be exclusive, but 
was just an illustration of action that would trigger Standard F.
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    \1\8East Tennessee Natural Gas Company, 65 FERC  61,389 at 
63,062 (1993).
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    Finally, FGT argues that the Commission approved its February 2, 
1990 standards of conduct which contained operating employee 
limitations in Standards E and F,19 and that the Commission is now 
imposing a stricter standard on it than it has imposed on other 
pipelines. This is not the case. We have reviewed the standards of 
conduct of the pipelines subject to Order Nos. 497 et al., and only FGT 
and its pipeline affiliates limited Standards E and F to operating 
employees.20 Our earlier review of the standards of conduct filed 
by Black Marlin, Northern Natural and Transwestern did not identify 
those restrictions and we erroneously approved their standards.21 
In light of the preceding discussion as to the scope of Standards E and 
F, within 30 days of the issuance of this order, Black Marlin, Northern 
Natural and Transwestern each must show cause in its respective MG 
docket why it should not be required to remove the operating employee 
restrictions from its Standards E and F.\22\
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    \1\9Procedures of Florida Gas Transmission Company to Implement 
the Standards of Conduct. Docket No. MG88-3-003, February 2, 1990. 
FGT's two previous standards of conduct filed in 1988 did not limit 
the language of Standards E and F. ``Florida Gas Transmission 
Company's Procedures to Implement the Standards of Conduct,'' Docket 
No. MG88-3-000, September 12, 1988 and ``Procedures of Florida Gas 
Transmission Company to Implement the Standards of Conduct in 18 CFR 
161.3,'' Docket No. MG88-3-002, November 17, 1988.
    \2\0The other interstate pipelines affiliated with FGT that have 
similarly restricted Standards E and F are: Black Marlin Pipeline 
(Black Marlin) in Docket Nos. MG88-14-000 et al.; Northern Natural 
Gas Company (Northern Natural) in Docket No. MG88-7-000 et al.; and 
Transwestern Pipeline Company (Transwestern) in Docket Nos. MG88-9-
000 et al.
    \2\1Order Accepting Filings, ANR Pipeline Company, Docket No. 
MG88-44-000 et al., 55 FERC  61,260 (1991).
    \2\2A copy of this order is being served on all parties on the 
official service lists for the above-referenced MG dockets for Black 
Marlin, Northern Natural and Transwestern.
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    By denying FGT's request for rehearing of Order No. 497-E, the 
Commission is sustaining its December 16 restructuring order requiring 
FGT to remove the word ``operating'' from its Standards E and F.

B. Definition of Operating Employee

1. Request for Rehearing
    FGT points out that in Order No. 497-E the Commission defined 
``operating employee'' as:

    [A]n individual who has day-to-day duties and responsibilities 
for planning, directing, organizing, or carrying out gas-related 
operations, including gas transportation, gas sales or gas marketing 
activities.23
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    \2\3Citing, 65 FERC  61,381, slip op. at 54 (1993).

    The clarification that FGT seeks pertains to the phrase ``carrying 
out'' in the Commission's definition of ``operating employee.'' In 
determining who qualifies as an ``operating employee,'' FGT assumes 
that one must view the definition stated in Order No. 497-E in the 
context of the abuse targeted by the Commission when it promulgated 
Order No. 497. For example, FGT assumes that field personnel who 
perform duties such as maintenance of equipment, operation of 
compressors, procurement of materials, operation of valves at the 
instruction of gas control personnel, adjustment of gas flow, 
connection of wells, equipment service, installation of certain 
facilities, including meter runs and taps, and meter reading and 
testing, would clearly not fall within the Commission's definition of 
``operating employee.'' FGT states that such persons include 
measurement technicians, corrosion technicians, maintenance persons, 
mechanics, and electric and instrument technicians and their 
supervisors. FGT asserts that these types of field personnel are simply 
not the types of employees that have the ability or authority to 
benefit the marketing affiliate vis-a-vis other shippers and sellers of 
gas in the transportation of gas. FGT submits that such personnel are 
utilized for the safe and efficient operation of the pipeline, and 
their actions are for the most part ministerial in nature since they 
respond to the directives of others and the operating needs of the 
pipeline. FGT thus seeks clarification, or, in the alternative, 
rehearing that these types of personnel who merely act at the direction 
of others and who normally are not likely to receive information 
covered under the rule would be considered non-operating personnel.
2. Commission Ruling
    In Order No. 497-E, the Commission stated that ``[e]mployees with 
no direct operational responsibilities and whose duties are only 
supportive in nature need not be considered operating 
employees.''24 The personnel described by FGT are essentially 
responsible for the operation and maintenance of the pipeline's 
equipment. The Commission finds that such field personnel are 
supportive in nature and would not have direct operational 
responsibilities. Therefore, any field technicians or mechanics and 
their immediate supervisors would not be considered operating 
employees. However, to the extent supervisory field personnel have the 
ability to control a pipeline's gas operations, they would be 
considered operating employees. For example, a supervisor who oversees 
the quality of the work of several technicians or mechanics would not 
be considered an operating employee. However, if the supervisor had the 
ability to restrict or shut down the operation of a particular section 
of the pipeline, that supervisor would be considered an operating 
employee. Accordingly, FGT's request for clarification is granted. 
However, FGT should remember that even if its field personnel are not 
considered to be operating employees for purposes of the separation 
requirement of Standard G, it is still subject to the provisions of 
Standards E and F.
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    \2\4Order No. 497-E, slip op. at 54.
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The Commission Orders

    FGT's request for rehearing is denied. Clarification is granted as 
discussed above.

    By the Commission.
Lois D. Cashell,
Secretary.
[FR Doc. 94-7815 Filed 3-31-94; 8:45 am]
BILLING CODE 6717-01-P