[Federal Register Volume 59, Number 244 (Wednesday, December 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31323]


[[Page Unknown]]

[Federal Register: December 21, 1994]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 284

[Docket No. RM94-6-002; Order No. 566-B]

 

Standards of Conduct and Reporting Requirements for 
Transportation and Affiliate Transactions

Issued December 14, 1994.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Final rule; Order; Denying Rehearing.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
issuing an order denying the requests for rehearing of Order No. 566-A. 
The rehearing requests deal only with the requirement of Standard of 
Conduct H which requires natural gas pipelines to post on their 
pipeline Electronic Bulletin Boards marketing affiliate discount 
information 24 hours after gas flows. The Commission denied the 
requests to institute an earlier posting time finding that posting of 
discount transactions after gas flows strikes the proper balance 
between providing public information to detect a pattern of 
discriminatory treatment and ensuring that the posting will not produce 
adverse effects on competition between marketing affiliates and non-
affiliates.

EFFECTIVE DATE: December 14, 1994.

ADDRESSES: Federal Energy Regulatory Commission, 825 North Capitol 
Street, N.E., Washington, D.C. 20426.

FOR FURTHER INFORMATION CONTACT: Michael Goldenberg, Federal Energy 
Regulatory Commission, 825 North Capitol Street, N.E., Washington, D.C. 
20426, (202) 208-2294

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 N.E., Washington D.C. 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 19200, 14400, 12000, 9600, 7200, 4800, 2400, 1200 or 
300bps, full duplex, no parity, 8 data bits, and 1 stop bit. The full 
text of this document will be available on CIPS for 60 days from the 
date of issuance in ASCII and WordPerfect 5.1 format. After 60 days the 
document will be archived, but still accessible. 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, N.E., Washington D.C. 20426.
    On November 14, 1994, Indicated Companies,1 Natural Gas 
Clearinghouse (NGC), and Philadelphia Gas Works (Philadelphia Gas) 
filed requests for rehearing of Order No. 566-A2 as it relates to 
the requirement under Standard of Conduct H for pipelines to post on 
their pipeline Electronic Bulletin Boards (EBBs) information concerning 
discounts provided to pipeline marketing affiliates.3 Standard H 
requires pipelines to post information on marketing affiliate discounts 
within 24 hours after gas flows under the discounted transaction. The 
rehearing petitions request that the Commission revise Standard H to 
require posting when the pipeline offers a discount to a marketing 
affiliate. The Commission denies the requests for rehearing.
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    \1\Conoco, Inc., Amoco Production Company, Anadarko Petroleum 
Corporation, Marathon Oil Company, Meridian Oil, Inc., Mobil Natural 
Gas, Inc., Pennzoil Exploration and Production Company, Pennzoil 
Petroleum Company, Pennzoil Gas Marketing Company, Phillips 
Petroleum Company, Shell Gas Trading Company, Vastar Resources, 
Inc., and Vastar Gas Marketing, Inc.
    \2\Standards of Conduct and Reporting Requirements for 
Transportation and Affiliate Transactions, Order No. 566, 59 FR 
32885 (June 27, 1994), III FERC Stats. & Regs. Preambles 30,997 
(June 17, 1994); Order No. 566-A, 59 FR 52896 (Oct. 20, 1994), III 
FERC Stats. & Regs. Preambles 31,002 (Oct. 14, 1994).
    \3\18 CFR 161.3(h).
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Background

    In Order No. 497,4 the Commission promulgated Standard of 
Conduct I (now Standard H) which provided that ``if a pipeline offers a 
transportation discount to an affiliated marketer, it must make a 
comparable discount contemporaneously available to all similarly 
situated non-affiliated shippers.'' At the same time, the Commission 
promulgated Sec. 250.16 which required pipelines to file with the 
Commission information about discounts requested, offered, or provided 
to marketing affiliates within 15 days after the close of the billing 
period and to provide electronic access to such information once the 
service has begun.5 In Order No. 497-D, the Commission eliminated 
the requirement that pipelines file the marketing affiliate discount 
information with the Commission, requiring instead that the pipelines 
provide this information on their EBBs.6
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    \4\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 (Dec. 22, 1989), FERC Stats. & Regs. [Regulations Preambles 
1986-1990] 30,868 (1989), order extending sunset date, Order No. 
497-B, 55 FR 53291 (Dec. 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 (Jan. 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), order on remand, Order No. 497-D, 57 FR 58978 (Dec. 14, 
1992), III FERC Stats. & Regs. 30,958 (1992), order on reh'g and 
extending sunset date, Order No. 497-E, 59 FR 243 (Jan. 4, 1994), 
III FERC Stats. & Regs. 30,987 (Dec. 23, 1994), order on reh'g, 
Order No. 497-F, 59 FR 15336 (Apr. 1, 1994), 66 FERC 61,347 (1994), 
order extending sunset date, Order No. 497-G, 59 FR 32884 (June 27, 
1994), III FERC Stats. & Regs. Preambles 30,996 (June 17, 1994).
    \5\See 18 CFR 250.16(b)(2)(xix), 250.16(d)(4)(ii), and 
250.16(g)(2).
    \6\Order No. 497-D, III FERC Stats. & Regs. Preambles at 30,737.
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    The Commission issued two orders addressing the operative posting 
time for the marketing affiliate information. In Sunrise Energy,7 
the Commission interpreted the prior regulations as not requiring 
pipelines to provide notice of discount negotiations with marketing 
affiliates. On the other hand, in Colorado Interstate,8 the 
Commission held that to comply with the prior regulations, pipelines 
had to post offers made during negotiations on their EBBs in addition 
to posting the final offer.
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    \7\62 FERC 61,087 at 61,623 (1993), aff'd, 66 FERC 61,170 
(1994).
    \8\65 FERC 61,264 at 62,224-25 (1993).
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    In Order No. 566, the Commission followed Colorado Interstate and 
required posting of discount information when an offer to a marketing 
affiliate was made. Many pipelines sought rehearing of Order No. 566, 
contending that the prior regulations did not require posting when 
offers were made and that imposing such a requirement would result in 
disclosure of confidential competitive information which could permit 
non-affiliated marketers to steal deals being negotiated by marketing 
affiliates. For example, the pipelines argued that disclosure of 
information about discount offers to their marketing affiliates could 
enable competitors to determine the marketing affiliates' customers and 
interfere with the affiliates' negotiations.
    In Order No. 566-A, the Commission reevaluated its posting 
requirements to strike a more appropriate balance between preserving 
competition between marketing affiliates and non-affiliated shippers 
and providing for disclosure of marketing affiliate discount 
information. The Commission retained the previous requirement that a 
pipeline making a discount offer to a marketing affiliate must make a 
comparable offer contemporaneously available to similarly situated non-
affiliated shippers. The Commission, however, then provided that 
details of the discount actually provided to the marketing affiliate be 
posted on the pipeline's EBB within 24 hours of the time gas flows 
under the discount transaction.

Requests for Rehearing

    The three parties requesting rehearing contend that delaying EBB 
posting until after gas flows under a discounted transaction tilts too 
far towards protecting pipeline marketing affiliates while not 
providing sufficient protection against discrimination to non-
affiliated marketer and other competitors. They request that the 
Commission require posting of marketing affiliate discount offers at 
the time when an offer of a discount to a marketing affiliate is made.
    Indicated Companies and NGC argue that posting after gas flows does 
not sufficiently protect non-affiliated marketers during the 
negotiating period, which they characterize as the most critical 
period. They contend that if a pipeline offers a discount to a 
marketing affiliate for a sale to a particular customer, a non-
affiliated marketers may lose the sale to that customer unless the non-
affiliated marketer is contemporaneously informed of the discount 
offer.
    NGC contends that even assuming that posting of discount offers to 
marketing affiliates when the offer is made might permit non-affiliated 
marketers to enter into the bidding process with respect to a potential 
customer, the non-affiliate would not be stealing a market, but 
restoring competition. It further argues that immediate posting of 
discount offers to marketing affiliates is needed to detect unfair 
collaboration between pipelines and their marketing affiliates in which 
the affiliates know even before requesting a discount that the pipeline 
will grant whatever discount is necessary to make the sale. Finally, 
NGC requests that, if the Commission determines not to require 
contemporaneous EBB posting, the Commission should, at least, require 
posting of all offers, whether accepted or not. It suggests that offers 
rejected by marketing affiliates be posted immediately, offers that 
lapse be posted when gas would have flowed, and accepted offers be 
posted when gas flows.
    Philadelphia Gas contends that pipelines should be required to post 
marketing affiliate discount information contemporaneously with the 
discount offer to restore competitive equality between the Commission's 
capacity release system and the pipelines' sale of interruptible 
service. It asserts that LDCs are competitively disadvantaged because 
capacity release transactions must be immediately posted on pipeline 
EBBs, thereby enabling pipelines to undercut LDCs' release 
transactions, while pipeline interruptible transactions are not subject 
to a similar contemporaneous posting requirement. Philadelphia Gas 
further contends that posting prior to gas flow would benefit LDCs, and 
their customers, by permitting competitors of the marketing affiliate 
the opportunity to compete for a specific transaction.

Discussion

    The Commission denies the requests for rehearing. The Commission's 
revision to Standard H in Order No. 566-A essentially maintains the 
same regulatory scheme that existed under Order No. 497. Pipelines are 
required to make any discounts offered to marketing affiliates 
contemporaneously available to similarly situated non-affiliated 
shippers. But pipelines are not required to post detailed information 
about marketing affiliate discounts until after the transportation 
transaction has begun.
    As the Commission found in Order No. 566-A, its marketing affiliate 
regulations should strike the proper balance between the need to 
provide information about marketing affiliate discounts and the need to 
ensure that affiliates can compete on a relatively equal basis with 
non-affiliated marketers. Posting marketing affiliate discount offers 
during the negotiating process could provide non-affiliated marketers 
with competitive advantages over marketing affiliates by providing the 
non-affiliates with important competitive information about marketing 
affiliate deals. Such information could provide non-affiliated 
marketers with the opportunity to interfere in negotiations between 
pipeline marketing affiliates and customers. On the other hand, non-
affiliated marketers are not faced with a similar risk since 
information about non-affiliate deals is not publicly available to 
marketing affiliates. At the same time, posting of marketing affiliate 
information after gas flows still provides the market with sufficient 
information about marketing affiliate transactions to deter 
discriminatory treatment. The primary purpose of the posting 
requirement was to permit monitoring of marketing affiliate 
transactions, not to assist non-affiliates in their direct competition 
with marketing affiliates for particular customers.
    The Commission disagrees with the petitioners' contention that 
posting of discount offers to marketing affiliates after gas flows tips 
the competitive balance too far in favor of marketing affiliates. Non-
affiliated marketers do not need to know of offers to marketing 
affiliates to negotiate with potential customers. During the 
negotiations, non-affiliates can request discounts from the pipeline, 
and, under Standard H, the pipeline is required to provide the non-
affiliate with the discount if it has offered a discount to a marketing 
affiliate in similar circumstances. Similarly, an LDC, like 
Philadelphia Gas, is not disadvantaged by the after-the-fact posting 
requirement because it can request competing offers from non-affiliated 
marketers knowing the pipeline must provide the non-affiliate with the 
same transportation discount offered to a marketing affiliate.
    By requiring that marketing affiliate discount information is 
posted after gas flows, the Commission has established a mechanism to 
ensure that pipelines honor their obligation to provide appropriate 
discounts to non-affiliates. A pipeline is unlikely to deny a 
legitimate discount request from a non-affiliate because the pipeline 
knows that its discount to its marketing affiliate will almost 
immediately be posted on the EBB enabling the non-affiliate to detect 
potential discrimination. Posting within 24 hours of gas flow also is 
early enough so that a non-affiliate, which has negotiated its own 
independent deal with a customer, can still obtain the same discount 
for transportation, during the same time period, as the marketing 
affiliate. Thus, posting of marketing affiliate discount information 
after gas flows establishes the proper balance between the interests in 
providing sufficient public disclosure of marketing affiliate discount 
information to deter discriminatory treatment and ensuring that 
marketing affiliates can compete on an equal basis with non-affiliated 
shippers during the negotiation process.
    Philadelphia Gas argues that an earlier posting also would be 
desirable because it would, to some extent, create a better competitive 
balance between released capacity and pipeline interruptible 
transportation by requiring that some price information for 
interruptible capacity will be posted at the same time as prices for 
capacity release transactions. The Commission does not find that 
piecemeal tinkering with the marketing affiliate regulations is the 
proper method for correcting asserted deficiencies with the capacity 
release mechanism. The Commission is in the process of examining its 
capacity release program and issues relating to disclosure of prices 
for interruptible capacity are better considered as part of an overall 
review of the capacity release program.
    The Commission rejects the suggestion by NGC that the Commission, 
at least, modify the requirement to require immediate posting of 
rejected discount offers to marketing affiliates and posting of lapsed 
offers when gas would have flowed under the offer. Posting of rejected 
discount offers would violate the principle against disclosure of 
competitive information during negotiations. For example, an affiliate 
may reject one offer as a prelude to continuing negotiations toward 
obtaining a larger discount. Similarly, determining when an offer has 
lapsed would be difficult.
    The Commission fails to discern the relationship between the 
posting of discount offers to marketing affiliates and NGC's concern 
that, in most cases, the pipeline will grant whatever discount the 
marketing affiliate requires to complete a deal. In NGC's scenario, the 
marketing affiliate's discount will be posted on the pipeline's EBB 
after gas flows so that the non-affiliate can determine whether its 
request for a discount was unfairly denied.
    The Commission concludes that posting of discount transactions 
after gas flows strikes the proper balance between providing public 
information to detect a pattern of discriminatory treatment and 
ensuring that the posting will not produce adverse effects on 
competition between marketing affiliates and non-affiliates. 
Accordingly, the Commission will deny the rehearing requests.

The Commission Orders

    The requests for rehearing are denied.

    By the Commission.
Lois D. Cashell,
Secretary.
[FR Doc. 94-31323 Filed 12-20-94; 8:45 am]
BILLING CODE 6717-01-P