[Federal Register Volume 66, Number 194 (Friday, October 5, 2001)]
[Proposed Rules]
[Pages 50919-50929]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-24667]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 37, 161, 250, 284, 358

[Docket No. RM01-10-000]


Standards of Conduct for Transmission Providers; Notice of 
Proposed Rulemaking

September 27, 2001.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Federal Energy Regulatory Commission is proposing to 
promulgate new standards of conduct regulations that apply uniformly to 
natural gas pipelines and transmitting public utilities (jointly 
referred to as transmission providers) that are currently subject to 
the gas standards of conduct and the electric standards of conduct. The 
Commission is proposing to adopt one set of standards of conduct to 
govern the relationships between regulated transmission providers and 
their energy affiliates, broadening the

[[Page 50920]]

definition of an affiliate covered by the standards of conduct.

COMMENT DATE: Comments on the proposed rulemaking are due on or before 
November 19, 2001.

ADDRESSES: File written comments on the proposed rulemaking with the 
Office of the Secretary, Federal Energy Regulatory Commission, 888 
First Street, NE., Washington, DC 20426. Comments should reference 
Docket No. RM01-10-000. Comments may be filed electronically or by 
paper (an original and 16 copies, with an accompanying computer 
diskette in the prescribed format requested.)

FOR FURTHER INFORMATION CONTACT: Demetra E. Anas, Office of General 
Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 208-0178.

SUPPLEMENTARY INFORMATION: The Federal Energy Regulatory Commission is 
proposing to promulgate new standards of conduct regulations that would 
apply uniformly to natural gas pipelines and transmitting public 
utilities (jointly referred to as transmission providers) that are 
currently subject to the gas standards of conduct in part 161 of the 
Commission's regulations and the electric standards of conduct in part 
37 of the Commission's regulations.\1\ In light of the changing 
structure of the energy industry, the Commission is proposing to adopt 
one set of standards of conduct to govern the relationships between 
regulated transmission providers and all their energy affiliates, 
broadening the definition of an affiliate covered by the standards of 
conduct, from the more narrow definition in the existing regulations.
---------------------------------------------------------------------------

    \1\ The gas standards of conduct are codified at part 161 of the 
Commission's regulations, 18 CFR part 161 (2001), and the electric 
standards of conduct are codified at Sec. 37.4 of the Commission's 
regulations, 18 CFR 37.4 (2001).
---------------------------------------------------------------------------

    Electric transmission providers that do not control transmission 
facilities and participate in Commission approved regional transmission 
organizations (RTOs) under Order No. 2000,\2\ would be able to request 
an exemption from these proposed standards of conduct.
---------------------------------------------------------------------------

    \2\ Regional Transmission Organizations, Order No. 2000, 65 FR 
809 (Jan. 6, 2000), FERC Stats. & Regs., Regulation Preambles July 
1999-December 2000 para. 31,089 (Dec. 20, 1999), order on reh'g, 
Order No. 2000-A, 65 FR 12088 (Mar. 8, 2000), FERC Stats. & Regs., 
Regulation Preambles 1996-2000 para. 31,092 (Feb. 25, 2000), 
petitions for review pending sub nom., Public Utility District No. 1 
of Snohomish County, Washington v. FERC (D.C. Cir., Apr. 24, 2000 
(Nos. 00-1174, et al.)).
---------------------------------------------------------------------------

    The proposed standards of conduct would be codified in a new 
Subchapter S, the current standards of conduct at parts 37 and 161 
would be deleted, and conforming changes would also be made to other 
regulations as necessary.

I. Current Regulations

    The current standards of conduct restrict the ability of interstate 
natural gas pipelines and electric utilities (transmission providers) 
to give their marketing affiliates or wholesale merchant functions 
undue preferences over non-affiliated transportation customers.\3\ Both 
gas and electric standards of conduct rely on similar principles to 
prevent market power over transmission from being used in competitive 
commodity markets by: (1) Separating employees engaged in transmission 
services from those engaged in commodity marketing services, i.e., 
marketing or sales of natural gas or electric energy; and (2) ensuring 
that all transmission customers, affiliated and non-affiliated, are 
treated on a non-discriminatory basis. The Commission is not proposing 
to change these principles. Nor is the Commission proposing to codify 
the electric codes of conduct \4\ that guard against discrimination by 
power marketers or other affiliates that request market-based rate 
authority. As discussed later, the Commission is soliciting comments 
whether these electric codes of conduct should be codified.
---------------------------------------------------------------------------

    \3\ Section 4 of the Natural Gas Act (NGA), 15 U.S.C. 717c 
(1994), states that no natural gas company shall make or grant an 
undue preference or advantage with respect to any transportation or 
sale of natural gas subject to the Commission's jurisdiction. See 
also section 5 of the NGA, 15 U.S.C. 717d (1994). Similarly, under 
section 205 of the Federal Power Act (FPA), 16 U.S.C. 824d (1994), 
no public utility shall make or grant an undue preference with 
respect to any transmission or sale subject to the Commission's 
jurisdiction. See also section 205 of the FPA, 16 U.S.C. 824e 
(1994).
    \4\ See e.g., Heartland Energy Services, Inc., et al., 68 FERC 
para. 61,223 at 62,064-65 (1994).
---------------------------------------------------------------------------

    In 1987, when the gas pipeline standards of conduct were 
promulgated, the natural gas industry had witnessed a rapid growth of 
marketing affiliates and the Commission was concerned that pipelines 
were giving their marketing affiliates preferential treatment. As a 
result, the Commission issued the standards of conduct to give guidance 
on how pipelines can conduct transportation transactions on a non-
discriminatory basis.\5\ The Commission reserved the right to impose 
structural remedies, such as divorcement or divestiture, in specific 
cases where the circumstances demonstrate they are required.
---------------------------------------------------------------------------

    \5\ Order No. 497, 53 FR 22139 (June 14, 1988), FERC Stats. & 
Regs., Regulations Preambles 1986-1990 para. 30,820 (June 1, 1988); 
Order No. 497-A, order on reh'g, 54 FR 52781 (Dec. 22, 1989), FERC 
Stats. & Regs. Regulations Preambles 1986-1990 para. 30,868 (Dec. 
15, 1989); Order No. 497-B, order extending sunset date, 55 FR 53291 
(Dec. 28, 1990), FERC Stats. & Regs., Regulations Preambles 1986-
1990 para. 30,908 (Dec. 13, 1990); Order No. 497-C, order extending 
sunset date, 57 FR 9 (Jan. 2, 1992), FERC Stats. & Regs., 
Regulations Preambles 1991-1996 para. 30,934 (Dec. 20, 1991), reh'g 
denied, 57 FR 5815 (Feb. 18, 1992) 58 FERC para. 61,139 (Feb. 10, 
1992); Tenneco Gas. v. FERC (affirmed in part and remanded in part), 
969 F.2d 1187 (D.C. Cir. 1992); Order No. 497-D, order on remand and 
extending sunset date, 57 FR 58978 (Dec. 14, 1992), FERC Stats. & 
Regs., Regulations Preambles 1991-1996 para. 30,958 (Dec. 4, 1992); 
Order No. 497-E, order on reh'g and extending sunset date, 59 FR 243 
(Jan. 4, 1994), FERC Stats. & Regs., Regulations Preambles 1991-1996 
para. 30,987 (Dec. 23, 1993); Order No. 497-F, order denying reh'g 
and granting clarification, 59 FR 15336 (Apr. 1, 1994), 66 FERC 
para. 61,347 (Mar. 24, 1994); and Order No. 497-G, order extending 
sunset date, 59 FR 32884 (June 27, 1994), FERC Stats. & Regs., 
Regulations Preambles 1991-1996 para. 30,996 (June 17, 1994).
    See also Standards of Conduct and Reporting Requirements for 
Transportation and Affiliate Transactions, Order No. 566, 59 FR 
32885 (June 27, 1994), FERC Stats. & Regs., Regulations Preambles 
1991-1996 para. 30,997 (June 17, 1994); Order No. 566-A, order on 
reh'g., 59 FR 52896 (Oct. 20, 1994), 69 FERC para. 61,044 (Oct. 14, 
1994); Order No. 566-B, order on reh'g, 59 FR 65707 (Dec. 21, 1994), 
69 FERC para. 61,334 (Dec. 14, 1994); and Reporting Interstate 
Natural Gas Pipeline Marketing Affiliates on the Internet, Order No. 
599, 63 FR 43075 (Aug. 12, 1998), FERC Stats. & Regs., Regulations 
Preambles 1996-2000 para. 31,064 (July 30, 1998).
---------------------------------------------------------------------------

    Five years ago in Order No. 888, the Commission found that unduly 
discriminatory and anti-competitive practices existed in the electric 
industry and that transmission-owning utilities had discriminated 
against others seeking transmission access. Thus, the Commission 
required electric transmission providers to provide open-access 
transmission service.\6\ For the same reasons, the Commission 
simultaneously promulgated electric standards of conduct in Order No. 
889.\7\ The electric standards of conduct reflected the Commission's 
experiences

[[Page 50921]]

with implementation of the gas standards of conduct. One significant 
difference from the gas standards of conduct is that the electric 
standards of conduct do not prohibit transmission providers from 
assigning the responsibility for making purchases to serve bundled 
retail customers to the transmission operations and reliability 
function.\8\
---------------------------------------------------------------------------

    \6\ Promoting Wholesale Competition Through Open Access Non-
Discrimination Transmission Services by Public Utilities; Recovery 
of Stranded Costs by Public Utilities and Transmitting Utilities, 
Order No. 888, 61 FR 21,540 (May 10, 1996), FERC Stats. & Regs., 
Regulations Preambles 1991-1996 para. 31,036 (Apr 24, 1996) at 
31,692; order on reh'g, Order No. 888-A, 62 FR 12274 (Mar. 14, 
1997), FERC Stats. & Regs., Regulations Preambles 1991-1996 para. 
31,048 (Mar. 4, 1997); order on reh'g, Order No. 888-B, 81 FERC 
para. 61,248 (1997); order on reh'g, Order No. 888-C, 82 FERC para. 
61,046 (1998), aff'd in relevant part sub nom., Transmission Access 
Policy Study Group v. FERC, 225 F.3d 667 (D.C. Cir. 2000), cert. 
granted, 69 U.S.L.W. 3574 (Nos. 00-568 (in part) and 00-809), cert. 
denied (No. 00-800) (U.S. Feb. 26, 2001).
    \7\ Open Access Same-Time Information System (Formerly Real-Time 
Information Network) and Standards of Conduct, 61 FR 21737 (May 10, 
1996), FERC Stats. & Regs., Regulations Preambles 1991-1996 para. 
31,035 (Apr. 24, 1996); Order No. 889-A, order on reh'g, 62 FR 12484 
(Mar. 14, 1997), FERC Stats. & Regs., Regulations Preambles 1996-
2000 para. 31,049 (Mar. 4, 1997); Order No. 889-B, reh'g denied, 62 
FR 64715 (Dec. 9, 1997), FERC Stats. & Regs., Regulations Preambles 
1996-2000 para. 31,253 (Nov. 25, 1997).
    \8\ Order No. 889-A at 30,560.
---------------------------------------------------------------------------

    Significant changes have occurred since the standards of conduct 
were first adopted. In the gas industry, these changes include 
unbundling, capacity release, and e-commerce. Fourteen years ago, 
pipelines were primarily affiliated with marketers, whereas in today's 
world, as a result of growth and consolidations, gas pipeline companies 
have a much wider array of affiliates in all sectors of the energy 
business. The market has undergone a transformation from purchases and 
sales of the commodity--natural gas--to sophisticated, lightning-speed 
transactions involving both physical and financial transactions by 
marketing and non-marketing gas pipeline affiliates. The gas industry 
has experienced consolidations in every sector--pipelines, producers, 
marketers, LDC/utilities and industrials. Examples are the mergers of 
El Paso Energy Corporation, Sonat Inc. and the Coastal Corporation or 
the acquisitions by the Enron Corporation. Marketing affiliates and 
non-marketing affiliates, today, offer a variety of new services, such 
as bundled sales, asset management, price hedging, risk management, and 
electronic commodity trading.
    Similarly, now that the electric industry has been providing open-
access service for several years, changes in the electric industry are 
occurring, e.g., the increased number of power marketers with market-
based rates, an increased market for available transmission capacity, 
and increased number of power transactions and new and different uses 
of the transmission grid. Electric power is evolving into a more 
liquid, transparent commodity and its sale into a fast-paced 
marketplace, particularly with the development of on-line trading. The 
electric industry has witnessed large increases in the number of power 
marketers and independent generation facility developers entering the 
marketplace. Trade in bulk power markets has continued to increase 
significantly and the Nation's transmission grid is being used more 
heavily and in new ways. The electric market participants are also 
changing: there are more lightly regulated entities, such as power 
marketers and generation facilities, that are affiliated with 
traditional regulated entities (both gas and electric transmission 
providers), as well as more unaffiliated unregulated entities.
    Not only are the affiliated entities changing in size and scope, so 
are the transmission providers. The energy industry has experienced an 
increase in merger activities, as well as a convergence of the gas and 
electric industries.\9\ These industry changes mean that pipelines and 
their affiliates not only deal in gas, but also in power, much of which 
is generated using natural gas.
---------------------------------------------------------------------------

    \9\ In the past six years, the Commission received 61 electric 
merger applications, 53 of which have been approved, two are pending 
and six have been withdrawn or terminated. Several of the recent 
mergers joined gas and electric companies, such as NiSource Inc. 
with Columbia Energy Group, Koch Energy Trading Inc. with Entergy 
Power Marketing Corp., and Dominion Resources, Inc. with 
Consolidated Natural Gas Company.
---------------------------------------------------------------------------

    The Commission is concerned that a transmission provider's market 
power could be transferred to its affiliated businesses because the 
existing rules do not cover all affiliate relationships.\10\ For 
example, when Dominion Resources Inc. (an electric transmission 
provider with several affiliated power projects and generating plants) 
proposed to merge with Consolidated Natural Gas Company (CNG) (a 
natural gas pipeline with several affiliated LDCs), the Commission was 
concerned that the merger could adversely affect competition.\11\ 
Specifically, the merged entity could exercise vertical market power in 
delivered natural gas service to raise costs of rival generators or 
inhibit entry of new generators into bulk power markets. Therefore, the 
Commission required, as a condition of approving the merger, that the 
merged company apply the gas pipeline standards of conduct to all of 
its energy affiliates or submit a revised competitive merger analysis.
---------------------------------------------------------------------------

    \10\ Conversely, a transmission provider's market power could 
also be increased by virtue of the affiliate's business.
    \11\ Dominion Resources, Inc. and Consolidated Natural Gas Co., 
89 FERC para. 61,162 (1999), order on compliance filing, 91 FERC 
para. 61,140 (2000), order denying reh'g, 93 FERC para. 61,214 
(2000), appeal pending, (D.C. Cir. Jan. 19, 2001 (No. 01-1169)).
---------------------------------------------------------------------------

    Although the current standards of conduct limit transmission 
providers' ability to make or grant undue preferences to the wholesale 
merchant function of their businesses (in the electric area) or to 
their marketing affiliates, they do not cover the transmission 
providers' other non-marketing affiliates. Non-marketing affiliates 
compete against non-affiliates for transmission services, in capacity 
release transactions, in power sales, and in siting new generation.\12\ 
For example, in the gas industry, non-marketing affiliates of natural 
gas pipelines can control large amounts of capacity on their affiliated 
pipelines, yet they are not covered by the current standards of conduct 
because they do not actually hold pipeline capacity (functioning 
instead as asset managers) or they fit within one of the existing 
exceptions, e.g., producers, gatherers and local distribution 
companies. 18 CFR 161.2 (2001).
---------------------------------------------------------------------------

    \12\ A review of the data from the January 2001 Gas Index of 
Customers shows that marketing/brokering affiliates hold about 18% 
of the affiliated pipeline capacity and non-marketing affiliates 
hold an additional 19% of the affiliated pipelines' capacity.
---------------------------------------------------------------------------

    The current standards of conduct do not address the sharing of 
confidential shipper information and transportation information with 
all energy affiliates. For example, if a pipeline informs its 
affiliated asset manager about a proposed pipeline expansion or 
upcoming curtailment, the current standards of conduct do not require 
the pipeline to make that information available to non-affiliates, 
unless the asset manager is a marketing affiliate. Nor do the current 
standards address whether an electric transmission provider can share 
with its generator affiliates information about generation projects 
planned by competitors. Sharing of information between transmission 
providers and energy affiliates undermines and frustrates the efforts 
of businesses to buy, sell, build, grow, and provide competitive 
alternatives in markets where there are concerns about market power.
    On March 15, 2001, Commission staff hosted a technical conference 
in Docket No. PL00-1-000 which addressed whether current regulatory 
policy with respect to pipeline affiliates and non-affiliates, as well 
as asset managers and agents, should be revised to reflect the changing 
nature of the natural gas market and whether the Commission should 
consider revising the regulations pertaining to pipeline affiliates. 
The comments received suggest that since non-marketing pipeline 
affiliates, which are offering a wide variety of transportation-related 
services, are not subject to the current standards of conduct, 
transmission providers have the ability to grant their non-marketing 
pipeline affiliates undue preferences. The commenters also expressed 
concern that the regulated entity can transfer all the benefits of its 
regulated (monopolistic) status to its unregulated non-marketing 
affiliate, which can then use these benefits to reap unregulated 
profits from the public. See e.g., Comments in Docket No. PL00-1-000

[[Page 50922]]

submitted by Dynegy, Inc. and Amoco Production Company and BP Energy 
Company.

II. Proposed Standards of Conduct

    The proposed standards of conduct combine, revise and conform the 
current gas and electric standards of conduct found in parts 37 and 161 
of the Commission's regulations. The Commission proposes to change the 
existing regulations to reflect the evolving energy market. The 
Commission proposes to consolidate the standards of conduct and apply 
them uniformly to all transmission providers, i.e., the entities that 
are currently subject to the gas and electric standards of conduct 
under part 161 and part 37.
    In Order No. 2000, the Commission expressed a continuing concern 
about undue discrimination in electric transmission services and 
concluded that the formation of regional transmission organizations 
(RTOs) would eliminate undue discrimination in electric transmission 
services that can occur when the operation of the electric transmission 
system remains in the control of a vertically integrated utility.\13\ 
Therefore, the proposed standards of conduct would exempt a 
transmission provider that itself is a Commission-approved RTO, but 
would not automatically exempt transmission providers that are members 
of RTOs. Depending on how an RTO is structured, there may be a 
continuing need to apply the standards of conduct to electric 
transmission providers that are members of RTOs. While an RTO may 
administer or manage the transmission facilities, there may be 
instances where a transmission owner continues to physically control or 
operate the transmission facilities or control center.\14\ Unless the 
RTO has a single control center that is physically operated by the RTO, 
a transmission provider that is a member of a RTO may still have 
physical control over the transmission assets and, importantly, direct 
access to transmission information. Participation in an RTO does not 
necessarily eliminate or restrict the ability of an electric 
transmission provider from sharing information with its affiliates 
preferentially or operating facilities for the benefit of its 
affiliates. Therefore, the standards of conduct should govern the 
relationship between the transmission provider/owner, its merchant 
function and/or energy affiliates. The proposed regulations contain a 
provision whereby if a transmission provider participates in a 
Commission approved RTO and does not manage or control transmission 
facilities, it may request an exemption from the standards of conduct.
---------------------------------------------------------------------------

    \13\ See note 2.
    \14\ See Grid Florida, L.L.C., 94 FERC para. 61,363 (2001), the 
Commission permitted GridFlorida to operate a hierarchical control 
area that exercises operational control by communicating with 
control centers operated by the existing control area operators that 
work for the transmission owner. See also, PJM Interconnection, 
L.L.C. and Allegheny Power, 96 FERC para. 61,060 (2001), where the 
Commission permitted PJM-West's transmission assets to be operated 
through PJM's central control center, while the physical control of 
these transmission assets would remain with the transmission owners.
---------------------------------------------------------------------------

    In addition, the proposed standards of conduct would govern the 
relationships between the transmission providers and all of their 
energy affiliates, not just those engaged in marketing or sales 
functions.
    In Order No. 889, the Commission stated that utilities' purchases 
of power for their retail native load customers were not sales for 
resale. Therefore, those employees that engage in sales or purchases 
solely on behalf of bundled retail native load were not treated as 
wholesale merchant function employees.\15\ Under the current standards 
of conduct, employees engaged solely in a bundled sales function for 
retail native load can also perform transmission functions, and they 
may have access to all transmission, non-affiliated customer and market 
information available to the transmission provider.
---------------------------------------------------------------------------

    \15\ Order No. 889-A at 30,558. See also, American Electric 
Power Service Corporation, 81 FERC para. 61,332 at 62,514 (1997), 
order on reh'g, 82 FERC para. 61,131 (1998); order on reh'g, 83 FERC 
] 61,357 (1998).
---------------------------------------------------------------------------

    In this NOPR, the Commission is proposing to apply the standards of 
conduct to require a separation of the transmission function from all 
sales functions, including bundled retail sales and a restriction on 
preferential access to transmission information for the bundled retail 
sales function. All merchant function employees would need to be 
separated from transmission function employees, whether they are 
engaged in bundled retail sales or wholesale sales. Therefore, the 
transmission providers employees engaged in bundled sales functions for 
retail native load will be treated the same as wholesale merchant 
function employees. In addition, the transmission providers would have 
to implement measures to restrict the retail native load sales 
employees' preferential access to transmission information. In the 
final rule, the Commission may determine that this separation is not 
required. Parties are strongly urged to provide factual evidence on the 
costs and benefits of this proposal in their comments. State 
commissions are also strongly urged to provide their views as well.
    The Commission is not proposing to assert jurisdiction over the 
underlying transactions in a bundled retail sale, merely requiring the 
employees engaged in sales functions to operate independently of the 
transmission function and to restrict access to the transmission 
provider's transmission information or confidential transmission 
customer information. This would ensure that all transmission 
customers, affiliated or non-affiliated, bundled or unbundled, will 
have equal access to the transmission providers' transmission 
information.
    This Notice of Proposed Rulemaking (NOPR) does not propose any 
changes to the record keeping requirements of Sec. 250.16 of the 
Commission's regulations, 18 CFR 250.16 (2001), or the posting 
requirements of Sec. 37.4(b)(6) of the Commission's regulations, 18 CFR 
37.4(b)(6) (2001), other than to make technical and conforming 
revisions, as needed.

A. General Principles--Proposed Sec. 358.2

    The central principles of the regulations are that: (1) The 
transmission providers' employees engaged in transmission system 
operations must function independently from the transmission providers' 
sales or marketing employees and from any employees of their energy 
affiliates; and (2) the transmission providers must treat all 
transmission customers, affiliated and non-affiliated, on a non-
discriminatory basis, and cannot operate their transmission systems to 
benefit preferentially an energy affiliate. This proposed section would 
set forth these general rules.

B. Definitions--Proposed Sec. 358.3

    Proposed Sec. 358.3 combines and revises the definitions that were 
previously contained in Sec. Sec. 161.2 and 37.3. The Commission 
proposes to define a transmission provider as any public utility that 
owns, operates or controls interstate transmission facilities or any 
natural gas pipeline company subject to the current standards of 
conduct. In addition, the Commission is proposing to define an energy 
affiliate as any entity affiliated with a transmission provider (gas or 
electric) that engages in or is involved in transmission transactions 
or manages or controls transmission capacity or buys, sells, trades or 
administers natural gas or electric energy or engages in financial 
transactions relating to the sale or transmission of natural gas or 
electric energy. Under this definition, for

[[Page 50923]]

example, a transmission provider would be required to treat affiliated 
asset managers as energy affiliates.
    Currently, the gas standards of conduct exempt producers that sell 
from their own production, gatherers that sell from their own gathering 
facilities and local distribution companies (LDCs) that make on-system 
sales. 18 CFR 161.2 (2001). Under the proposed definition of energy 
affiliates, transmission providers would be required to apply the 
standards of conduct to their relationships with their affiliated 
producers, gatherers and LDCs.

C. Independent Functioning--Proposed Sec. 358.4

    The principle underlying proposed Sec. 358.4 is that when the 
employees engaged in transmission services function independently, 
there are significantly fewer opportunities to give preferential 
treatment to affiliates engaged or involved in commodity transactions 
or other business activities that compete with non-affiliated customers 
of the transmission providers.
1. Separation of Functions
    Proposed Sec. 358.4(a), which combines the separation of functions 
requirements of current Sec. Sec. 161.3(g) and 37.4(a)(1) and (2), 
ensures that the transmission function employees of the transmission 
provider function independently of the transmission provider's sales 
and marketing employees and employees of the energy affiliates. Like 
the separation of functions requirement in current Sec. 37.4(a)(1) and 
(2), employees engaged in transmission functions would be required to 
function independently; but, in the event of emergencies affecting 
system reliability, may take whatever steps are necessary to keep the 
transmission systems in operation, including, if needed, using 
affiliates' employees.
    Currently, under Sec. 37.4(a)(2), if the transmission function of 
an electric transmission provider utilizes the services of a wholesale 
merchant function employee during an emergency circumstance affecting 
system reliability, the electric transmission provider posts each such 
event on its OASIS and reports it to the Commission in an ``EY'' docket 
within 24 hours of a deviation. The Commission proposes to hold gas 
transmission providers to the same requirement under proposed 
Sec. 358.4(a). Annually, since 1998, the Commission has received 
between eight and 18 reports of emergency circumstances necessitating 
deviations from the separation of functions requirement. As the 
Commission stated in Order No. 889, if a pattern of activities 
indicates that ``emergencies'' are not authentic, the Commission will 
take strong action against the offending transmission provider.
2. Identification of Affiliates on Internet
    Proposed Sec. 358.4(b) requires all transmission providers to post 
information with respect to their marketing and sales employees and 
energy affiliates on their OASIS or Internet websites, as applicable. 
Gas pipelines already post this information with respect to their 
marketing affiliates under Sec. 161.3(l). Although the current 
regulations do not require electric transmission providers to post the 
names and addresses of their marketing affiliates on the OASIS, the 
Commission did require the posting of organizational charts and job 
descriptions when it reviewed the electric transmission providers' 
implementation of the standards of conduct.\16\
---------------------------------------------------------------------------

    \16\ American Electric Power Service Corporation, 81 FERC 
para.61,332 (1997), order on reh'g, 82 FERC para. 61,131 (1998); 
order on reh'g, 83 FERC para. 61,357 (1998).
---------------------------------------------------------------------------

    Commission staff recently reviewed pipelines' Internet websites and 
other public sources and learned that it is extremely difficult to 
obtain up-to-date information about the relationship of pipelines and 
their other affiliated shippers. Given the frequent mergers and 
acquisitions in the energy industry, and the impact on the market, it 
is important to make this organizational information available to all 
potential customers and to the Commission via posting on the OASIS or 
Internet website.
    The Commission's current policy with respect to announced mergers 
is to treat the potential merger partners as affiliates.\17\ The 
Commission requests comments whether these rules should require the 
posting of the potential merger partners on the OASIS or Internet 
Website.
---------------------------------------------------------------------------

    \17\ Revised Filing Requirements Under Part 33 of the 
Commission's Regulations, Order No. 642, 65 FR 70,983 (Nov. 28, 
2000), FERC Stats. & Regs., Regulations Preambles 1996-2000 para. 
31,111 at 31,887 (Nov. 15, 2000), reh'g denied, Order No. 642-A, 94 
FERC para. 61,289 (Mar. 15, 2001).
---------------------------------------------------------------------------

3. Transfer of Employees
    The transfer of employees between transmission and marketing or 
sales functions, or between a transmission provider and its affiliates, 
presents opportunities for the inappropriate sharing of information in 
circumvention of the standards of conduct. While a one-time transfer of 
an employee from the transmission provider to the marketing or sales 
function or energy affiliate (or vice versa) may not present the 
potential for circumvention, transferring an employee multiple times 
(i.e., cycling) is inconsistent with the independent functioning 
requirement. In K N Interstate Gas Transmission Company (KN), the 
Commission prohibited the cycling of employees and held that 
transferred employees may not use, in their new jobs, transportation 
information that is not publicly available.\18\
---------------------------------------------------------------------------

    \18\ 80 FERC para. 61,212 (1997). For example, in KN, the 
Commission suggested that a transferred employee could be restricted 
to assignments or responsibilities that would not use information 
obtained from non-affiliated or potential non-affiliated shippers or 
by showing that the transportation information has lost its 
commercial value, i.e., a ``cooling off'' period before or after the 
transfer.
---------------------------------------------------------------------------

    Proposed Sec. 358.4(c) parallels the current requirements of 
Sec. 37.4(b)(2) of the electric standards of conduct, which permits 
transmission provider employees, marketing and sales employees and 
energy affiliate employees to transfer between such functions, as long 
as such transfers are not used as a means to circumvent the standards 
of conduct. Notices of employee transfers would be posted on the OASIS 
or Internet website. The cycling of employees between the transmission 
provider, the marketing or sales unit or the energy affiliates 
facilitates the sharing of preferential information between these 
functions. The posting of transfer information provides a technique to 
detect possible improper cycling of employees.\19\ This enables the 
Commission and the public to monitor all transfers and to ensure that 
employees are not cycling between functions. The Commission requests 
comments on whether there is a need for clearer standards for transfers 
of employees among the transmission function, marketing or sales 
function and energy affiliates, and specifically, what standards the 
Commission should adopt.
---------------------------------------------------------------------------

    \19\ See e.g., Kinder Morgan Interstate Gas Transmission, 
L.L.C., et al., 90 FERC para. 61,310 (2000).
---------------------------------------------------------------------------

4. Books and Records
    Proposed Sec. 358.4(d) parallels current Sec. Sec. 161.3(j) and 
37.4(b)(6). Under this requirement transmission providers must keep 
separate books and records from those of their energy affiliates. This 
ensures that the companies operate independently. It also helps to 
ensure that the regulated companies are not used to subsidize or 
support the unregulated companies.
5. Written Procedures
    Proposed Sec. 358.4(e) replaces the requirements of 
Sec. Sec. 161.3(i) and 37.4(c). Under proposed Sec. 358.4(e), 
transmission

[[Page 50924]]

providers must file with the Commission written procedures implementing 
the standards of conduct. Merely restating the regulations or 
incorporating them by reference will not show acceptable compliance. 
The transmission providers must explain the measures they used to 
implement the standards of conduct, e.g., how transmission information 
and confidential customer information is kept secure, whether the 
standards of conduct have been distributed to employees, whether 
employees have been offered training on the standards of conduct, and 
whether employees are required to read and sign acknowledgment forms. 
The Commission solicits comments on whether it is sufficient to file 
this information with the Commission or whether it should also be 
posted on the OASIS and Internet websites. Also, the Commission 
requests comment on whether this requirement is a useful technique for 
ensuring compliance or whether the Commission should adopt other 
measures.

D. Non-Discriminatory Requirements--Proposed Sec. 358.5

    The principle underlying these requirements is that the 
transmission provider is prohibited from giving the employees of its 
affiliates or the employees engaged in marketing and sales any undue 
preferential treatment. The proposed standards specify the ways in 
which a transmission provider must ensure equal treatment and equal 
access to information.
1. Information Access
    Proposed Sec. 358.5(a), which combines Sec. Sec. 161.3(f) and 
37.4(b)(3), limits the marketing and sales employees and the energy 
affiliates' employees' access to transmission information. Proposed 
Sec. Sec. 358.5(a) and (b) are designed to prevent transmission 
providers from giving their marketing and sales employees and the 
employees of their energy affiliates undue preferences over their 
unaffiliated customers through the exchange of ``insider'' information. 
As with the current requirements, the proposal would require 
transmission providers to implement security measures to restrict 
access to transmission information.
2. Prohibited Disclosure
    Proposed Sec. 358.5(b) combines the requirements of current 
Sec. Sec. 161.3(e) and 37.4(b)(4). Transmission providers would be 
prohibited from disclosing transmission information about transmission 
system operations or information acquired from non-affiliated customers 
to their marketing and sales employees and the energy affiliates' 
employees through non-public communications. During the March 15, 2001 
Staff Affiliate Conference on gas pipeline issues, several industry 
participants expressed concerns that pipelines may be sharing 
confidential information with their non-marketing affiliates that could 
improve the affiliates' ability to secure deals or compete against non-
affiliates. For example participants suggested that, a non-marketing 
affiliate could have advance knowledge of an upcoming open season, 
which would give it the opportunity to line-up its transactions on an 
affiliated interconnecting pipeline. No specific examples of this were 
presented; however, by applying the standards of conduct to all energy 
affiliates, a transmission provider would not be permitted to share 
this type of information with its energy affiliates.
3. Implementing Tariffs
    Proposed Sec. 358.5(c) combines Sec. Sec. 161.3(a), (b), (c), (d) 
and (k) and Sec. 37.4(b)(5), under which transmission providers are 
required to treat all customers in a fair and impartial manner. For 
example, transmission providers must apply tariff provisions in a 
manner that treats all transmission customers in a non-discriminatory 
manner. Transmission providers would be prohibited from giving their 
marketing and sales employees and energy affiliates' employees 
preferential treatment, such as more flexible service.
4. Discounts
    Proposed Sec. 358.5(d) combines the requirements of 
Sec. Sec. 161.3(h) and 37.6(c)(3). Proposed Sec. 358.5(d) is consistent 
with the way electric transmission providers currently treat 
discounts--any offer of a discount for any transmission service made by 
the transmission provider must be announced to all potential customers 
solely by posting on the OASIS. These proposed rules do not change 
Sec. 37.6(c)(3) of the OASIS requirements.
    Proposed Sec. 358.5(d) would change current discounting 
requirements for natural gas pipelines, however. Currently, 
Sec. 161.3(h)(1), states that if a pipeline offers a discount to its 
marketing affiliate, the pipeline must make a comparable discount 
contemporaneously available to all similarly situated non-affiliated 
shippers. However, under current Sec. 161.3(h)(2), the pipeline is 
required to post relevant information (name of affiliate, maximum rate, 
discounted rate, delivery points, quantity of gas and conditions) on 
its Internet website within 24 hours of the time at which gas first 
flows under a discounted transaction. With the increased market 
transparency and liquidity, the Commission proposes to adopt the 
electric standard for interstate natural gas pipelines, i.e., that 
transmission providers announce all discounts (not only discounts to 
affiliates) to all potential customers via the OASIS or Internet 
website at the time of the offers. This is a simpler, quicker way of 
communicating discount information to all potential customers and 
ensures that all potential customers have contemporaneous equal access 
to current pricing information. The Commission does not propose to 
change the current policy permitting natural gas transmission providers 
to offer selective discounts.
    The Commission also solicits comments on whether it would be 
necessary to continue posting discount information for gas transactions 
under proposed Sec. 358.5(d) when rate information is required to be 
posted under Sec. Sec. 284.13(b)(1) and (2) of the Commission's 
regulations.\20\
---------------------------------------------------------------------------

    \20\ Under Sec. Sec. 284.13(b)(1) and (2), 18 CFR 284.13(b)(1) 
and (2) (2001), a pipeline must post on its Internet website, no 
later than the time of the first nomination under a transaction, 
firm contract information and interruptible agreement information, 
including the charged rate, the quantity of gas scheduled, receipt 
and delivery points, the identity of the shipper, and whether the 
shipper is affiliated.
---------------------------------------------------------------------------

III. Conforming Changes

    The Commission proposes to make conforming changes to the 
regulations to delete references to Parts 37 and 161, as necessary, and 
add references to Part 358.

IV. Additional Policy Changes

    In addition to proposing new standards of conduct, the Commission 
is soliciting comments on additional measures that may be necessary to 
limit transmission providers' abilities to grant their affiliates undue 
preferences.
    In the past, gas industry participants have expressed concern that 
pipelines' marketing affiliates were able to lock up capacity through 
discounted bids. At the March 15, 2001 Affiliate Conference, some 
participants expressed concern that the pipelines' marketing affiliates 
might outbid other potential shippers for pipeline capacity by paying 
an above-market price (where the market price is less than the maximum 
tariff rate) for available pipeline capacity. The Commission seeks 
comments on whether such bidding activities are taking place, and if 
so, how such bidding activity by marketing affiliates affects the gas 
market.

[[Page 50925]]

    At the March 15, 2001 Affiliate Conference, several industry 
participants suggested the following measures for the Commission's 
consideration: (1) Limiting the amount of capacity (by volume or by 
percentage of capacity) an affiliate can hold on a transmission 
provider; (2) revising capacity allocation policies to minimize an 
affiliate's ability to exercise market power by allocating firm 
capacity to as many shippers as possible; (3) revising the policies for 
bumping interruptible transportation; (4) prohibiting transmission 
providers from entering into profit-sharing agreements with affiliates 
and non-affiliates; (5) limiting pipelines' ability to sell call 
options on capacity to their affiliates; (6) requiring the pipelines to 
disgorge any revenues paid by a marketing affiliate in excess of the 
pipeline's opportunity costs; (7) requiring the geographic (physical) 
separation of transmission functions and affiliates; or (8) prohibiting 
affiliated power generators from connecting with affiliated pipelines. 
The Commission is seeking comments whether any of these policies are 
necessary or appropriate for the Commission to adopt.
    To date, few formal complaints have been filed against pipelines 
with respect to their relationships with their marketing affiliates and 
many of the various options or proposals discussed during the March 15, 
2001 Affiliate Conference referenced anecdotal, rather than specific, 
examples of affiliate abuse. To the extent possible, commenters should 
provide evidence that would support any measures proposed in their 
comments. In addition, comments should address the economic 
consequences of any policies supported by the commenter, e.g., the 
impact on the competitive market, whether there would be stranded costs 
to take into account, whether there could be a rate impact on captive 
customers, and whether the benefits associated with the proposed 
measures outweigh the costs.
    When promulgating Order No. 497, the Commission considered imposing 
structural remedies to limit anti-competitive behavior, such as 
divestiture (spin off the affiliate) or divorcement (prohibiting the 
affiliate from doing business on the affiliated pipeline). Although the 
Commission rejected structural remedies because they could reduce the 
choices available to buyers and sellers of gas or for moving gas in the 
market place, the Commission can always use structural remedies when it 
finds that a pipeline violates the standards of conduct. Here, the 
Commission is seeking comments on whether behavioral remedies for 
transmission providers, such as the standards of conduct or those 
mentioned above, are sufficient to limit anti-competitive behavior, or 
whether the Commission should consider imposing structural remedies. 
Comments concerning proposed structural remedies should discuss the 
impact on the competitive market and explain the economic consequences 
of the proposed remedies.
    The standards of conduct are designed to prevent a regulated 
company's market power over transmission from being used to benefit 
other aspects of its energy business, and so focuses on the 
transmission function. For public utilities, the Commission also 
imposes codes of conduct for power sales to govern the relationship 
between an investor-owned public utility and its power marketing 
affiliates. The purpose of the codes of conduct is to protect captive 
ratepayers of the investor-owned public utilities.\21\ The codes of 
conduct have been imposed as conditions to market based rate authority. 
To date, the codes of conduct have not been codified in the 
Commission's regulations. The Commission requests comments on whether 
it should codify these codes of conduct.
---------------------------------------------------------------------------

    \21\ 68 FERC at 62,062-63.
---------------------------------------------------------------------------

V. Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act \22\ requires rulemakings to contain 
either a description and analysis of the effect that a rule will have 
on small entities or to certify that the rule will not have a 
significant economic effect on a substantial number of small entities. 
Because most transmission providers do not fall within the definition 
of ``small entity,'' \23\ the Commission certifies that this rule will 
not have a significant economic impact on a substantial number of small 
entities.
---------------------------------------------------------------------------

    \23\ 5 U.S.C. 601-612 (1994).
    \24\ See 5 U.S.C. 601(3) (1994).
---------------------------------------------------------------------------

VI. Information Collection Statement

    The Office of Management and Budget (OMB) regulations require 
approval of certain information collection requirements imposed by 
agency rules.\24\ The NOPR replaces existing rules under parts 161 and 
37 with comparable rules at part 358. Under the current requirements at 
parts 161 and 37, transmission providers are posting certain 
information with respect to their marketing affiliates or wholesale 
merchant functions on their respective OASIS nodes or Internet 
websites. The NOPR also requires the transmission providers to post the 
same information on their OASIS or Internet websites with respect to 
the transmission providers' energy affiliates. This information helps 
potential customers and the Commission determine whether or not there 
has been discrimination in pipeline/affiliate/nonaffiliated 
transactions.
---------------------------------------------------------------------------

    \24\ 5 CFR 1320.13 (2001).
---------------------------------------------------------------------------

    The Commission is submitting notification of these posting 
requirements to OMB for its review and approval under section 3507(d) 
of the Paperwork Reduction Act of 1995, 44 U.S.C. 3507(d) (1994). 
Comments are solicited on the Commission's need for this information, 
whether the information will have practical utility, the accuracy of 
provided burden estimates, ways to enhance the quality, utility, and 
clarity of the information to be collected, and any suggested methods 
for minimizing respondent's burden, including the use of automated 
information techniques.
    Estimated Annual Burden:

------------------------------------------------------------------------
                             Data collection
-------------------------------------------------------------------------
                                            Hours per      Total annual
  No. respondents     No. of responses      response           hours
------------------------------------------------------------------------
257                            1                65           16,705
------------------------------------------------------------------------

    Total Annual Hours for Collection: (Reporting + Recordkeeping, (if 
appropriate)) = 16,705.
    Information Collection Costs: The Commission seeks comments on the 
costs to comply with these requirements. It has projected the average 
annualized cost per respondent to be the following: total hours divided 
by 2,080 (total work hours in a year) times $117,041 = $939,985.53.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Annual Capital/Startup costs.................................          0
Annualized Costs (Operations & Maintenance)..................   $939,985
                                                              ----------
    Total Annualized Costs...................................   $939,985
------------------------------------------------------------------------

    OMB regulations require OMB to approve certain information 
collection requirements imposed by agency rule. The Commission is 
submitting notification of this proposed rule to OMB.
    Title: FERC-592 and 717.
    Action: Proposed Collection.
    OMB Control No: 1902-0157 and 1902-173.
    Respondents: Business or other for profit.
    Frequency of Responses: On occasion.
    Necessity of the Information: The information is necessary to 
ensure that all regulated transmission providers treat all transmission 
customers in a

[[Page 50926]]

non-discriminatory basis. By requiring the posting of information 
regarding transmission, all non-affiliated customers have the ability 
to acquire information simultaneously with affiliated customers in a 
pro-competitive environment. The information also permits the market 
participants and the Commission to monitor the transmission market in a 
timely and efficient manner.
    Internal Review: The Commission has reviewed the requirements 
pertaining to natural gas pipelines and transmitting electric utilities 
and determined the proposed revisions are necessary because of the 
evolving energy market. The Commission proposes to consolidate the 
standards of conduct to govern the relationships between regulated 
transmission providers and their affiliates that engage in or are 
involved in transmission transactions or manage or control transmission 
capacity. Although the current standards of conduct limit a 
transmission provider's ability to make or grant undue preferences to 
the wholesale merchant function of their businesses (in the electric 
area) or to their marketing affiliates, they do not cover the 
transmission providers' other non-marketing affiliates.
    These requirements conform to the Commission's plan for efficient 
information collection, communication, and management within the gas 
and electric industries. The Commission has assured itself, by means of 
internal review, that there is specific, objective support for the 
burden estimates associated with the information requirements.
    Interested persons may obtain information on the reporting 
requirements by contacting: Federal Energy Regulatory Commission, 888 
First Street, NE., Washington, DC 20426, (Attention: Michael Miller, 
Office of the Chief Information Officer, Phone: (202)208-1415, fax: 
(202)208-2425, e-mail: [email protected].).
    Comments on the requirements of the subject proposed rule may also 
be sent to the Office of Information and Regulatory Affairs, Office of 
Management and Budget, Washington, DC 20503 (Attention: Desk Officer 
for the Federal Energy Regulatory Commission).27

VII. Environmental Statement

    Commission regulations require that an environmental assessment or 
an environmental impact statement be prepared for any Commission action 
that may have a significant adverse effect on the human 
environment.\25\ The Commission has categorically excluded certain 
actions from these requirements as not having a significant effect on 
the human environment.\26\ The action proposed here falls within the 
categorical exclusions provided in the Commission's regulations.\27\ 
Therefore, an environmental assessment is unnecessary and has not been 
prepared in this rulemaking.
---------------------------------------------------------------------------

    \25\ Regulations Implementing National Environmental Policy Act, 
52 FR 47897 (Dec. 17, 1987); FERC Stats. & Regs. para. 30,783 
(1987).
    \26\ 18 CFR 380.4 (2001).
    \27\ 18 CFR 380.4(a)(2)(ii) and 380.4(a)(5) (2001).
---------------------------------------------------------------------------

VIII. Public Comment Procedure

    The Commission invites all interested persons to submit written 
comments on this proposal. An original and 16 copies of such comments 
should be received by the Commission before 5 p.m November 19, 2001. 
Comments should be submitted to the Office of the Secretary, Federal 
Energy Regulatory Commission, 888 First Street, NE., Washington, DC 
20426, and should refer to Docket No. RM01-10-000.
    In addition to filing paper copies, the Commission encourages the 
filing of comments either on 3 \1/2\ inch computer diskette or via 
Internet e-mail. Comments may be filed in the following formats: 
WordPerfect 8.0 or lower version, Microsoft Word 97 or lower version, 
or ASCII format.
    For diskette filing, include the following information on the 
diskette label: Docket No. RM01-10-000; the name of the filing entity; 
the software and version used to create the file (WP, MS Word or 
ASCII); and the name and telephone number of the contact person.
    For Internet E-mail submittal, comments should be submitted to 
``[email protected]'' in the following format. On the subject 
line, specify Docket No. RM01-10-000. In the body of the E-mail 
message, include the name of the filing entity; the software and 
version used to create the file (WP, MS Word or ASCII), and the name 
and telephone number of the contact person. Attach the comment to the 
E-mail in one of the formats specified above. The Commission will send 
an automatic acknowledgment to the sender's E-mail address upon 
receipt. Questions on electronic filing should be directed to Brooks 
Carter at (202) 501-8145, e-mail address [email protected].
    Commenters should take note that, until the Commission amends its 
rules and regulations, the paper copy of the filing remains the 
official copy of the document submitted. Therefore, any discrepancies 
between the paper filing and the electronic filing or the diskette will 
be resolved by reference to the paper filing.
    All written comments will be placed in the Commission's public 
files and will be available for inspection in the Commission's Public 
Reference room at 888 First Street, NE., Washington, DC 20426, during 
regular business hours. Additionally, comments may be viewed, printed, 
or downloaded remotely via the Internet through FERC's Homepage using 
the RIMS links. User assistance is available at (202) 208-2222 or by e-
mail to [email protected].

IX. Document Availability

    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 the Commission's Public Reference Room at 888 
First Street, NE, Room 2A, Washington, DC 20426. Additionally, comments 
may be viewed and printed remotely via the Internet through FERC's Home 
page (http:///www.ferc.gov) and in FERC's Public Reference Room during 
normal business hours (8:30 a.m. to 5 p.m. Eastern time) at 888 First 
Street, NE., Room 2A, Washington, DC 20426.
    The Commission's Issuance Posting System (CIPS) provides access to 
the texts of formal documents issued by the Commission from November 
14, 1994, to the present. CIPS can be accessed via Internet through 
FERC's homepage (http:///www.ferc.gov) using the CIPS link or the 
Energy Information Online icon. Documents will be available on CIPS in 
ASCII and Word Perfect 6.1. User assistance is available at (202) 208-
0874 or e-mail to [email protected]. 
    The document is also available through the Commission's Records and 
Information Management System (RIMS), an electronic storage and 
retrieval system of documents submitted and issued by the Commission 
after November 16, 1981. Documents from November 1995 to the present 
can be viewed and printed. RIMS is available in the Public Reference 
Room or remotely via the Internet through FERC's homepage using the 
RIMS link or Energy Information Online icon. User assistance is 
available at (202) 208-2222, or by e-mail to [email protected]. 
    Finally the complete text on diskette in Word Perfect format may be 
purchased from the Commission's copy contractor, RVJ International, 
Inc., which is located in the Public Reference

[[Page 50927]]

Room at 888 First Street, NE, Room 2A, Washington, DC 20426.

List of Subjects

18 CFR Part 37

    Conflict of interests, Electric power plants, Electric utilities, 
Reporting and recordkeeping requirements.

18 CFR Part 161

    Natural gas, Reporting and recordkeeping requirements.

18 CFR Part 250

    Natural gas, Reporting and recordkeeping requirements.

18 CFR Part 284

    Natural gas, Reporting and recordkeeping requirements.

18 CFR Part 358

    Conflict of interest, Electric power plants, Electric utilities, 
Natural gas, Reporting and recordkeeping requirements.

    By direction of the Commission.
David P. Boergers,
Secretary.
    In consideration of the foregoing, the Commission proposes to amend 
Title 18 of the Code of Federal Regulations, as follows:

PART 37--OPEN ACCESS SAME-TIME INFORMATION SYSTEMS

    1. The authority citation for part 37 continues to read as follows:

    Authority: 16 U.S.C. 791-825r, 2601-2645; 31 U.S.C. 9701; 42 
U.S.C. 7101-7352.

    2. In part 37, the heading is revised to read as set forth above.


Sec. 37.4  [Removed and reserved]

    3. Section 37.4 is removed and reserved.


Sec. 37.6  [Amended]

    4. In Sec. 37.6(g)(3), the word ``Sec. 37.4(b)(2)'' is removed and 
the word ``Sec. 358.4(c)'' is added in its place and in 
Sec. 37.6(g)(4), the word ``Sec. 37.4(b)(5)(iii)'' is removed and the 
word ``Sec. 358.5(c)(4)'' is added in its place.

PART 161--STANDARDS OF CONDUCT FOR INTERSTATE PIPELINES WITH 
MARKETING AFFILIATES [REMOVED]

    5. Part 161 is removed in its entirety.

PART 250--FORMS

    6. The authority citation for part 250 continues to read as 
follows:

    Authority: 16 U.S.C. 717-717w, 3301-3432; 42 U.S.C. 7101-7352.

    7. In Sec. 250.16(a), the word ``Sec. 161.2'' is removed and the 
word ``Sec. 358.3'' is added in its place and in Sec. 250.16(e), the 
word ``Sec. 161.3'' is removed and the words ``Secs. 358.4 and 358.5'' 
are added in its place.
    8. In Sec. 284.13(a), the word ``Part 161'' is removed and the word 
``part 358'' is added in its place.
    9. In Sec. 284.286(c), the words ``Sec. 161.3(a), (b), (d), and (k) 
of this chapter and comply with Sec. 161.3((c), (e), (f), (g), (h), and 
(l) of this chapter'' are removed and the word ``part 358'' is added in 
their place.
    10. Subchapter S, part 358, is added to read as follows:

SUBCHAPTER S--STANDARDS OF CONDUCT FOR TRANSMISSION PROVIDERS

PART 358--STANDARDS OF CONDUCT

Sec.
358.1   Applicability.
358.2   General principles.
358.3   Definitions.
358.4   Independent functioning.
358.5   Non-discrimination requirements.

    Authority: 15 U.S.C. 717-717w, 3301-3432; 16 U.S.C. 791-825r, 
2601-2645; 31 U.S.C. 9701; 42 U.S.C. 7101-7352.


Sec. 358.1  Applicability.

    (a) This part applies to any interstate natural gas pipeline that 
transports gas for others pursuant to subpart A of part 157 or subparts 
B or G of part 284 of this chapter.
    (b) This part applies to any public utility that owns, operates, or 
controls facilities used for the transmission of electric energy in 
interstate commerce, except that this part does not apply to an 
electric transmission provider that is a Commission-approved Regional 
Transmission Organization (RTO). If an electric transmission owner 
participates in a Commission-approved RTO and does not operate or 
control its transmission facilities, it may request an exemption from 
this part.


Sec. 358.2  General principles.

    (a) A transmission provider's employees engaged in transmission 
system operations must function independently from the transmission 
provider's marketing and sales employees, and from any employees of its 
energy affiliates.
    (b) A transmission providers must treat all transmission customers, 
affiliated and non-affiliated, on a non-discriminatory basis, and must 
not operate its transmission system to preferentially benefit an energy 
affiliate.


Sec. 358.3  Definitions.

    (a) Transmission provider means:
    (1) Any public utility that owns, operates or controls facilities 
used for the transmission of electric energy in interstate commerce or 
(2) Any interstate natural gas pipeline that transports gas for others 
pursuant to subpart A of part 157 or subparts B or G of part 284 of 
this chapter.
    (b) Affiliate means:
    (1) Another person which controls, is controlled by or is under 
common control with, such person, and
    (2) For any exempt wholesale generator, as defined under section 
32(a) of the Public Utility Holding Company Act of 1935, as amended, 
the same as provided in section 214 of the Federal Power Act.
    (c) Control (including the terms ``controlling,'' ``controlled 
by,'' and ``under common control with'') as used in this part and 
Sec. 250.16 of this chapter, includes, but is not limited to, the 
possession, directly or indirectly and whether acting alone or in 
conjunction with others, of the authority to direct or cause the 
direction of the management or policies of a company. A voting interest 
of 10 percent or more creates a rebuttable presumption of control.
    (d) Energy Affiliate means an affiliate of a transmission provider 
that:
    (1) Engages in or is involved in transmission transactions; or
    (2) Manages or controls transmission capacity of a transmission 
provider; or
    (3) Buys, sells, trades or administers natural gas or electric 
energy; or
    (4) Engages in financial transactions relating to the sale or 
transmission of natural gas or electric energy.
    (e) Marketing, sales or brokering means a sale for resale of 
natural gas or electric energy in interstate commerce. Sales and 
marketing employee or unit includes:
    (1) Any pipeline's sales operating unit, to the extent provided in 
Sec. 284.286 of this chapter, and
    (2) An electric transmission provider's sales unit, including those 
employees that engage in wholesale merchant sales or bundled retail 
sales.
    (f) Transmission includes storage, exchange, backhaul, 
displacement, network or point-to-point service, reliability service, 
ancillary services or other methods of transportation or the 
interconnection with jurisdictional transmission.
    (g) Transmission Customer means any eligible customer, shipper or 
designated agent that can or does execute a transmission service 
agreement or can or does receive transmission service, including all 
persons who have pending

[[Page 50928]]

requests for transmission service or for information regarding 
transmission.
    (h) Reseller means any transmission customer who offers to sell 
transmission capacity it has purchased.
    (i) Open Access Same-time Information System or OASIS refers to the 
Internet location where a public utility posts the information, by 
electronic means, required by part 37 of this chapter.
    (j) Internet website refers to the Internet location where a 
natural gas pipeline posts the information, by electronic means, 
required by Secs. 284.12 and 284.13 of this chapter.


Sec. 358.4  Independent functioning.

    (a) Separation of functions. (1) Except in emergency circumstances 
affecting system reliability, the transmission function employees of 
the transmission provider must function independently of the 
transmission provider's marketing or sales employees, and its energy 
affiliates' employees.
    (2) Notwithstanding any other provisions in this section, in 
emergency circumstances affecting system reliability, transmission 
providers may take whatever steps are necessary to keep the system in 
operation. Transmission providers must report to the Commission and 
post on the OASIS or Internet website, as applicable, each emergency 
that resulted in any deviation from the standards of conduct, within 24 
hours of such deviation.
    (3) The transmission provider is prohibited from permitting its 
sales and marketing employees or employees of its energy affiliates 
from:
    (i) Conducting transmission system operations or reliability 
functions; and
    (ii) Having access to the system control center or similar 
facilities used for transmission operations or reliability functions 
that differs in any way from the access available to other transmission 
customers.
    (b) Identifying affiliates on the public Internet. (1) A 
transmission provider must post the names and addresses of its sales 
and marketing units and energy affiliates on its OASIS or Internet 
website.
    (2) A transmission provider must post on its OASIS or Internet 
website, as applicable, a complete list of the facilities shared by the 
transmission provider and its marketing or sales units or any energy 
affiliates, including the types of facilities shared and their 
addresses.
    (3) A transmission provider must post comprehensive organizational 
charts showing:
    (i) The organizational structure of the parent corporation with the 
relative position in the corporate structure of the transmission 
provider, marketing and sales units and any energy affiliates;
    (ii) For the transmission provider, the business units, job titles 
and descriptions, and chain of command for all positions, including 
officers and directors, with the exception of clerical, maintenance, 
and field positions. The job titles and descriptions must include the 
employee's title, the employee's duties, whether the employee is 
involved in transmission or sales, and the name of the supervisory 
employees who manage non-clerical employees involved in transmission or 
sales.
    (iii) For all employees who are engaged in transmission functions 
for the transmission provider and marketing or sales functions or who 
are engaged in transmission functions for the transmission provider and 
are employed by any of the energy affiliates, the transmission provider 
must post the name of the business unit within the marketing or sales 
unit or the energy affiliate, the organizational structure in which the 
employee is located, the employee's name, job title and job description 
in the marketing or sales unit or energy affiliate, and the employee's 
position within the chain of command of the marketing or sales unit or 
energy affiliate.
    (iv) The transmission provider must update the information on its 
OASIS or Internet website, as applicable, required by Secs. 358.4(1), 
(2) and (3) within three business days of any change, posting the date 
on which the information was updated.
    (v) All OASIS or Internet website postings required by part 358 
must comply, as applicable, with the requirements of Sec. 37.3 or 
Secs. 284.12(a) and (c)(3)(v) of this chapter.
    (c) Transfers. Employees of the transmission provider, marketing or 
sales unit or energy affiliates are not precluded from transferring 
among such functions as long as such transfer is not used as a means to 
circumvent the standards of conduct. Notices of any employee transfer 
must be posted on the OASIS or Internet website, as applicable. The 
information to be posted must include: the name of the transferring 
employee, the respective titles held while performing each function 
(i.e., on behalf of the Transmission Provider, Marketing Function or 
Energy Affiliate), and the effective date of the transfer. The 
information posted under this section must remain on the OASIS or 
Internet website, as applicable, for 90 days.
    (d) Books and records. A transmission provider must maintain its 
books of account and records (as prescribed under parts 101, 125, 201 
and 225 of this chapter) separately from those of its energy affiliates 
and these must be available for Commission inspections.
    (e) Written procedures. The transmission provider must file with 
the Commission and post on the OASIS or Internet website, current 
written procedures implementing the standards of conduct in such detail 
as will enable customers and the Commission to determine that the 
transmission provider is in compliance with the requirements of this 
section.


Sec. 358.5  Non-discrimination requirements.

    (a) Information access. (1) The transmission provider must ensure 
that any employee of the transmission provider engaged in marketing or 
sales or any employee of any energy affiliate may only have access to 
that information available to the transmission provider's transmission 
customers (i.e., the information posted on the OASIS or Internet 
website, as applicable), and must not have access to any information 
about the transmission provider's transmission system that is not 
available to all users of an OASIS or Internet website, as applicable.
    (2) The transmission provider must ensure that any employee of the 
transmission provider engaged in marketing or sales or any employee of 
any energy affiliate is prohibited from obtaining information about the 
transmission provider's transmission system (including, but not limited 
to, information about available transmission capability, price, 
curtailments, ancillary services, balancing, maintenance activity, 
capacity expansion plans or similar information) through access to 
information not posted on the OASIS or Internet website or that is not 
otherwise also available to the general public without restriction.
    (b) Prohibited disclosure. (1) An employee of the transmission 
provider may not disclose to its marketing or sales employees, or to 
employees of the transmission provider's energy affiliates any 
information concerning the transmission system of the transmission 
provider or the transmission system of another (including, but not 
limited to, information received from non-affiliates or information 
about available transmission capability, price, curtailments, ancillary 
services, balancing, maintenance activity, capacity expansion plans, or 
similar information) through non-public communications conducted off 
the OASIS or Internet website, through access to information not posted 
on the OASIS or Internet Website that is not

[[Page 50929]]

contemporaneously available to the public, or through information on 
the OASIS or Internet website that is not at the same time publicly 
available.
    (2) A transmission provider may not share any information, acquired 
from nonaffiliated transmission customers or potential nonaffiliated 
transmission customers, or developed in the course of responding to 
requests for transmission or ancillary service on the OASIS or Internet 
website, with its marketing or sales employees or energy affiliate 
employees, except to the limited extent information is required to be 
posted on the OASIS or Internet website in response to a request for 
transmission service or ancillary services.
    (3) If an employee of the transmission provider discloses 
information in a manner contrary to the requirements Sec. 358.5(b)(1) 
and (2), the transmission provider must immediately post such 
information on the OASIS or Internet website.
    (c) Implementing tariffs. (1) A transmission provider must strictly 
enforce all tariff provisions relating to the sale or purchase of open 
access transmission service, if these tariff provisions do not permit 
the use of discretion.
    (2) A transmission provider must apply all tariff provisions 
relating to the sale or purchase of open access transmission service in 
a fair and impartial manner that treats all transmission customers in a 
non-discriminatory manner, if these tariff provisions permit the use of 
discretion.
    (3) A transmission provider must process all similar requests for 
transmission in the same manner and within the same period of time.
    (4) The transmission provider must maintain a written log, 
available for Commission audit, detailing the circumstances and manner 
in which it exercised its discretion under any terms of the tariff. The 
information contained in this log is to be posted on the OASIS or 
Internet website within 24-hours of when a transmission provider 
exercises its discretion under any terms of the tariff.
    (5) The transmission provider may not, through its tariffs or 
otherwise, give preference to its own marketing or sales function or to 
any energy affiliate, over any other wholesale customer in matters 
relating to the sale or purchase of transmission service (including, 
but not limited to, issues of price, curtailments, scheduling, 
priority, ancillary services, or balancing).
    (d) Discounts. Any offer of a discount for any transmission service 
made by the transmission provider must be posted on the OASIS or 
Internet website contemporaneously with the offer. The posting must 
include: The name of the customer involved in the discount and whether 
it is an affiliate or whether an affiliate is involved in the 
transaction, the rate offered; the maximum rate; the time period for 
which the discount would apply; the quantity of power or gas scheduled 
to be moved; the delivery points under the transaction; and any 
conditions or requirements applicable to the discount. The posting must 
remain on the OASIS or Internet website for 60 days from the date of 
posting.

[FR Doc. 01-24667 Filed 10-4-01; 8:45 am]
BILLING CODE 6717-01-P