[Federal Register Volume 68, Number 129 (Monday, July 7, 2003)]
[Proposed Rules]
[Pages 40207-40213]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-16820]


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

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 284

[Docket No. RM03-10-000]


Amendments to Blanket Sales Certificates

June 26, 2003.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Notice of proposed rulemaking.

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

SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
proposing to amend the blanket certificates for unbundled gas sales 
services held by interstate natural gas pipelines and the blanket 
marketing certificates held by persons making sales for resale of gas 
at negotiated rates in interstate commerce to require that pipelines 
and all sellers for resale adhere to a code of conduct with respect to 
gas sales. The purpose of the proposed revisions is to ensure the 
integrity of the gas sales market that remains within the Commission's 
jurisdiction. The notice of proposed rulemaking (NOPR) is another part 
of the Commission's continuing effort to restore confidence in the 
nation's energy markets.

DATES: Comments are due August 6, 2003.

ADDRESSES: Comments may be filed electronically via the eFiling link on 
the Commission's Web site at http://www.ferc.gov. Commenters unable to 
file comments electronically must send an original and 14 copies of 
their comments to: Federal Energy Regulatory Commission, Office of the 
Secretary, 888 First Street NE., Washington, DC 20426. Refer to the 
Comment Procedures section of the preamble for additional information 
on how to file comments.

FOR FURTHER INFORMATION CONTACT: David Faerberg, Office of the General 
Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-8275, [email protected];
    Horatio Cipkus, Office of Markets, Tariffs and Rates, Federal 
Energy Regulatory Commission, 888 First Street, NE., Washington, DC 
20426, (202) 502-8927, [email protected].

SUPPLEMENTARY INFORMATION: 

Before Commissioners: Pat Wood, III, Chairman; William L. Massey, 
and Nora Mead Brownell.

[[Page 40208]]

I. Introduction

    1. The Federal Energy Regulatory Commission (Commission) is 
proposing to amend the blanket certificates for unbundled gas sales 
services held by interstate natural gas pipelines and the blanket 
marketing certificates held by persons making sales for resale of gas 
at negotiated rates in interstate commerce to require that pipelines 
and all sellers for resale adhere to a code of conduct with respect to 
gas sales. The purpose of the proposed revisions is to ensure the 
integrity of the gas sales market that remains within the Commission's 
jurisdiction. This notice of proposed rulemaking (NOPR) is another part 
of the Commission's continuing effort to restore confidence in the 
nation's energy markets. Contemporaneously with this NOPR, the 
Commission is also issuing an order proposing to require sellers of 
electricity at market-based rates to adhere to certain behavioral rules 
when making sales of electricity.

II. Background

    2. A decade ago, as a result of changes in the natural gas 
industry, Congressional legislation and various Commission rulemaking 
proceedings restructuring the gas industry, the Commission issued 
blanket certificates to allow pipelines and other persons selling 
natural gas to make sales for resale of natural gas at market-based or 
negotiated rates. These certificates were granted in two final rules 
issued by the Commission: Order No. 636 \1\ and Order No. 547.\2\
---------------------------------------------------------------------------

    \1\ Order No. 636, Pipeline Service Obligations and Revisions to 
Regulations Governing Self-Implementing Transportation Under part 
284 of the Commission's regulations, and Regulation of Natural Gas 
Pipelines After Partial Wellhead Decontrol, FERC. Stats. & Regs. ] 
30,939 (1992), order on reh'g, Order No. 636-A, FERC. Stats. & Regs. 
] 30,950 (1992), order on reh'g, Order No. 636-B, 61 FERC. ] 61,272 
(1992), aff'd in part, rev'd in part, United Distribution. Cos. v. 
FERC, 88 F.3d 1105 (DC Cir. 1996), cert. denied, 137 L. Ed. 2d 845, 
117 S. Ct. 1723, 117 S. Ct. 1724 (1997), on remand, Order No. 636-C, 
78 FERC. ] 61,186 (1997), order on reh'g, Order No. 636-D, 83 FERC ] 
61,210 (1998).
    \2\ Regulations Governing Blanket Marketer Sales Certificates, 
FERC Stats. & Regs. ] 30,957 (1992), order on reh'g and 
clarification, 62 FERC ] 61,239 (1993).
---------------------------------------------------------------------------

    3. In Order No. 636, the Commission required all pipelines that 
provide open-access transportation to offer their sales services on an 
unbundled basis. To this end, the Commission issued to pipelines 
holding a blanket transportation certificate under subpart G of part 
284 of the Commission's regulations, or performing transportation under 
subpart B, a blanket certificate authorizing firm and interruptible 
sales for resale.\3\ The Commission required that all firm and 
interruptible sales services be provided as unbundled services under 
the blanket sales certificate. The Commission found that this form of 
regulation would enable the pipelines to compete directly with other 
gas sellers on the same terms at prices determined in a competitive 
market. The unbundled sales services were also afforded pregranted 
abandonment.
---------------------------------------------------------------------------

    \3\ 18 CFR 284.281-287 (2002).
---------------------------------------------------------------------------

    4. In Order No. 636, the Commission authorized pipelines to make 
unbundled sales at market-based rates because it concluded that, after 
unbundling, sellers of short-term or long-term firm gas supplies 
(whether they be pipelines or other sellers) will not have market power 
over the sale of natural gas. The Commission's determination was also 
based on Congress' express finding that a competitive market exists for 
gas at the wellhead and in the field. The Commission indicated that it 
was instituting light-handed regulation, relying upon market forces at 
the wellhead or in the field to constrain unbundled pipeline sales for 
resale gas prices within the Natural Gas Act's ``just and reasonable'' 
standard. In addition, the requirement that pipelines provide open 
access transportation from the wellhead to the market also permitted 
the Commission to exercise light-handed regulation over jurisdictional 
gas sales. Finally, the Commission stated that it would be regulating 
the pipeline sales in the same manner as it had done for sales for 
resale by marketers.
    5. The Commission also determined that a pipeline as a gas merchant 
would be the functional equivalent of a pipeline's marketing affiliate. 
The Commission concluded that Order No. 497's \4\ standards of conduct 
would apply to the relationship between the pipeline transportation 
function and its merchant function. Accordingly, the regulations 
issuing pipelines blanket sales certificates included standards of 
conduct and reporting requirements. The purpose of imposing Order No. 
497's requirements was to ensure that the pipeline did not favor itself 
as a merchant over other gas suppliers in performing its transportation 
function.
---------------------------------------------------------------------------

    \4\ Inquiry Into Alleged Anticompetitive Practices Related to 
Marketing Affiliates of Interstate Pipelines, Order No. 497, 53 FR 
22139 (June 14, 1988), FERC Statutes and Regulations, Regulation 
Preambles 1986-1990 ] 30,820 (1988), order on rehearing, Order No. 
497-A , 54 FR 52781 (Dec. 22, 1989), FERC Statutes and Regulations, 
Regulation Preambles 1986-1990 ] 30,868 (1989), order extending 
sunset date, Order No. 497-B, 55 FR 53291 (Dec. 28, 1990), FERC 
Statutes and Regulations, Regulation Preambles 1986-1990 ] 30,908 
(1990), order extending sunset date and amending final rule, Order 
No. 497-C, 57 FR 9 (Jan. 2, 1992), FERC Statutes and Regulations ] 
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 (DC Cir. 1992), order on 
remand, Order No. 497-D, 57 FR 58978 (Dec. 14, 1992), FERC Statutes 
and Regulations ] 30,958 (1992), order on reh'g and extending sunset 
date, Order No. 497-E, 59 FR 243 (Jan. 4, 1994), FERC Statutes and 
Regulations ] 30,987 (Dec. 23, 1994), order on reh'g, Order No. 497-
F, 59 FR 15336 (Apr. 1, 1994), 66 FERC ] 61,347 (1994).
---------------------------------------------------------------------------

    6. In Order No. 547, as part of the industry restructuring begun by 
Order No. 636, the Commission issued blanket certificates to all 
persons who are not interstate pipelines authorizing them to make 
jurisdictional gas sales for resale at negotiated rates with pregranted 
abandonment.\5\ The blanket certificates were issued by operation of 
the rule itself and there was no requirement for persons to file 
applications seeking such authorization. The Commission determined that 
the competitive gas commodity market would lead all gas suppliers to 
charge rates that are sensitive to the gas sales market and cognizant 
of the variety of options available to gas purchasers. The Commission 
further stated that, in a competitive market, the basis for the rate to 
be negotiated between a willing buyer and seller is a commercial, not 
regulatory, matter. The requirement that pipelines provide open access 
transportation from the wellhead to the market also permitted the 
Commission to exercise light-handed regulation over jurisdictional gas 
sales. The Commission also determined that marketing certificates 
issued by the final rule are of a limited jurisdiction. The Commission 
held that the holders of marketing certificates are not subject to any 
other regulation under the Natural Gas Act jurisdiction of the 
Commission by virtue of transactions under the certificates.
---------------------------------------------------------------------------

    \5\ 18 CFR 284.401-402 (2002).
---------------------------------------------------------------------------

III. Events in Western Energy Markets in 2000

    7. In March 2003, in Docket No. PA02-2-000, the Commission Staff 
concluded its Fact Finding Investigation of Potential Manipulation of 
Electric and Gas Prices and issued a Final Report on Price Manipulation 
in Western Markets (Final Report). A key conclusion of the Final Report 
is that markets for natural gas and electricity in California are 
inextricably linked, and that dysfunctions in each fed off one another 
during the California energy crisis. Staff found that spot gas prices 
rose to extraordinary levels, facilitating the unprecedented price 
increase in the electricity market. The Final Report found that 
dysfunctions in the natural

[[Page 40209]]

gas market appear to stem, at least in part, from efforts to manipulate 
price indices compiled by trade publications. The Final Report stated 
that reporting of false data and wash trading are examples of efforts 
to manipulate published price indices.
    8. While the Final Report contained numerous recommendations which 
will not be discussed here, the Staff did recommend that 
Sec. Sec. 284.284 and 284.402 of the Commission's regulations be 
amended to provide explicit guidelines or prohibitions for trading 
natural gas under Commission blanket certificates. The specific 
recommendations include: (1) Conditioning natural gas companies' 
blanket certificates on providing accurate and honest information to 
entities that publish price indices; (2) conditioning blanket 
certificates on retaining all relevant data for three years for 
reconstruction of price indices; (3) establishing rules banning any 
form of prearranged wash trading; and (4) prohibiting the reporting of 
trades between affiliates to industry indices.

IV. The Commission's Proposal

A. Introduction

    9. Over the past decade, the combination of wellhead decontrol 
mandated by Congress, open access transportation and the unbundling of 
pipeline gas sales from transportation increased efficiency and 
competition both in the gas commodity market and the transportation 
market. The Commission's open access and unbundling initiatives were 
supplemented by the actions of state regulators who also saw the need 
to begin to open local distribution company (LDC) systems by allowing 
large industrial and commercial customers to purchase their own gas and 
transport that gas both on the interstate pipeline and on the LDC's 
facilities. As a result of the Commission and state open access and 
unbundling efforts, more efficient and competitive markets developed 
that would reduce overall gas prices to customers.
    10. The Commission's NGA jurisdiction to regulate the prices 
charged by sellers of natural gas has been substantially narrowed by 
the Natural Gas Policy Act of 1978 (NGPA) and Congress' subsequent 
enactment of the Natural Gas Wellhead Decontrol Act of 1989. The end 
result of these statutory provisions is that the only sales of natural 
gas that the Commission currently has jurisdiction to regulate are 
sales for resale of domestic gas by pipelines, local distribution 
companies (LDCs), or their affiliates so long as they do not produce 
the gas that they sell.\6\ The Commission believes that reliance on 
competition for gas sales within its jurisdiction has been successful. 
It has been shown that the wellhead deregulation and reliance on 
competition in the natural gas industry has provided substantial 
economic benefits, including among other things, ``[l]ower national 
energy costs to consumers by over $600 billion as compared to 
continuation of tight regulations.'' \7\ However, the Commission 
believes that, in light of Staff's determinations in the Final Report, 
it is the Commission's responsibility to ensure the integrity of the 
gas sales market that remains within the Commission's jurisdiction. 
Accordingly, pursuant to the Commission's authority under section 7 of 
the Natural Gas Act, the Commission proposes to revise Sec. 284.288 of 
its regulations, which is currently reserved, to require that pipelines 
providing unbundled sales service adhere to a code of conduct when 
making gas sales. The Commission also proposes to add a new 
Sec. 284.403 to part 284, subpart L to require persons holding blanket 
marketing certificates under Sec. 284.402 to adhere to a code of 
conduct when making gas sales.\8\
---------------------------------------------------------------------------

    \6\ See, Reporting of Natural Gas Sales to the California 
Market, 96 FERC ] 61,119 at 61,463, reh'g, 97 FERC ] 61,029 (2001), 
and San Diego Gas and Electric Company, et al., 101 FERC ] 61,161 at 
P 10 (2002).
    \7\ Center for the Advancement of Energy Markets, California 
Here We Come: The Lessons Learned from Natural Gas Deregulation by 
Dr. Rodney Lemon (August 2001).
    \8\ Section 284.5 of the Commission's regulations also states 
that ``[t]he Commission may prospectively, by rule or order, impose 
such further terms and conditions as it deems appropriate on 
transactions authorized by this part.''
---------------------------------------------------------------------------

B. Proposed Code of Conduct

    11. As a general matter, the Commission will prohibit pipelines 
making unbundled gas sales and persons making sales for resale in 
interstate commerce from engaging in actions or transactions without a 
legitimate business purpose that manipulate or attempt to manipulate 
market prices, market conditions, or market rules for natural gas or 
that result in prices that do not reflect the legitimate forces of 
supply and demand. The prohibited actions or transactions include but 
are not limited to pre-arranged offsetting trades of the same product 
among the same parties, which involve no economic risk, and no net 
change in beneficial ownership (sometimes called ``wash trades'') and 
collusion with another party for the purpose of creating market prices 
at levels differing from those set by market forces. The Commission 
considers a legitimate business purpose to be an action consistent with 
appropriate behavior in a competitive market which is taken to further 
a firm's business objectives without engaging in manipulative, illegal, 
or otherwise anti-competitive acts. Engaging in manipulation, for 
example, in order to maximize profits is not a legitimate business 
purpose.
    12. The Final Report found that wash trading adversely affected the 
California energy markets. A wash trade is a prearranged pair of trades 
of the same product between the same parties or an affiliate of a 
party, involving no economic risk and no net change in beneficial 
ownership between the parties or any affiliate. Such transactions do 
not appear to serve any legitimate business purpose. The Staff found 
that wash trading damages the integrity of the market because it can, 
among other things, create false liquidity, send false price signals, 
increase trading revenue figures, and adversely affect index prices 
reported for a market.
    13. The Commission will require that blanket sales certificate 
holders provide complete, accurate and factual information when 
reporting transactions to publishers of gas price indices. The blanket 
sales certificate holder must notify the Commission of whether it 
engages in such reporting. The basis for this condition is the Final 
Report's finding that the process for reporting natural gas prices 
indices was fundamentally flawed. Staff found that gas traders had the 
ability and incentive to manipulate published prices because natural 
gas was the fuel input for generators that set the price for 
electricity in California. Further, the Commission could not 
independently verify price indices and there did not appear to be a 
systematic, reliable verification process employed by publishers of 
natural gas price indices. The Commission finds that accurate price 
indices are necessary in order to have a properly functioning 
competitive gas market.
    14. In addition, the Commission is considering various options for 
addressing concerns regarding the validity of price indices. On April 
24, 2002, we convened a public conference in Docket No. AD03-7-000, 
together with the Commodity Futures Trading Commission (CFTC), to 
consider natural gas price formation issues, including the development 
of alternative index formation models. At that conference and from 
comments submitted thereafter, we have received valuable

[[Page 40210]]

input helping us refine the options available. We are hopeful that the 
process begun on April 24th will lead to a solution. To that end, we 
have conducted a follow-up conference, also with CFTC participation, 
for both natural gas and electricity indices at which we further 
explored the options presented and attempted to move toward a consensus 
solution.
    15. While we have indicated herein that we are considering 
requiring jurisdictional entities to report transactions to an entity 
responsible for index creation, we note that our efforts toward 
resolution of this issue will be in Docket No. AD03-7-000. Proposed 
284.288(a)(1) and 284.403(a)(1) state that pipelines and blanket 
marketing certificate holders will be required to adhere to other 
standards or requirements as the Commission may order. Based upon our 
review of the record developed in Docket No. AD03-7-000, we may issue 
such an order to be implemented at the same time as the rules set forth 
herein.
    16. The Commission will require blanket sales certificate holders 
to retain all relevant data for three years for reconstruction of price 
indices. This condition is also related to the Staff's findings that 
natural gas price indices were manipulated. During its investigation 
Staff found that there were significant barriers to the verification of 
natural gas price indices due, in large part, to the fact that many gas 
traders did not retain business records of their transactions for any 
significant length of time. Requiring pipelines and other 
jurisdictional gas sellers to maintain such records should promote 
transparent markets and either reduce or eliminate manipulation of gas 
price indices.
    17. The Commission will also prohibit blanket sales certificate 
holders from reporting any transactions between affiliates to industry 
indices. The Final Report determined, as with wash trades, that there 
are certain types of transactions between affiliates that do not appear 
to have any legitimate business purpose. For example, the Final Report 
identified certain transactions between Enron affiliates that were 
completed at prices different from the true market and involved no net 
gain or loss to Enron as a whole. Staff found that transactions between 
affiliates were designed to give the impression of volatility or to 
affect average prices reported through market indices. Arms length 
transactions, on the other hand, provide useful price information to 
the broader market and provide a firm foundation for buyers and 
sellers.

C. Jurisdictional and Procedural Issues

    18. The Commission is concerned with the effect of the proposed 
regulations on the natural gas market. Since the Commission's NGA 
jurisdiction to regulate the prices charged by sellers of natural gas 
has been substantially narrowed, the Commission seeks comment on 
whether application of the code of conduct to only part of the natural 
gas market will have any adverse effects on the natural gas market. For 
example, could jurisdictional sellers of natural gas restructure their 
businesses so as to avoid adherence to the code of conduct, could 
blanket certificate holders face a competitive disadvantage due to 
compliance with the code of conduct, or could there be any negative 
impact on natural gas prices?
    19. Sections 284.288(b) and 284.403(b) require that pipelines and 
blanket marketing certificate holders notify the Commission whether or 
not they engage in reporting transactions to publishers of gas indices. 
In order to comply with this requirement, pipelines and blanket 
marketing certificate holders must submit a filing with the Commission 
within 30 days after the effective date of the rule indicating whether 
or not they are engaging in such reporting. Any person who does not 
submit a filing with the Commission and continues to make gas sales 
would be making them without Commission authority and would be subject 
to the Commission taking remedial action.

D. Remedies

    20. The Commission proposes that violation of the code of conduct 
may result in the disgorgement of unjust profits, suspension or 
revocation of the blanket sales certificate or other appropriate non-
monetary remedies. The Commission seeks comment on this issue.
    21. The Commission also proposes a time limit in which a person may 
file a complaint against a blanket sales certificate holder for 
violation of the code of conduct. A person will be required to file a 
complaint against the certificate holder no later than 60 days after 
the end of the calendar quarter in which the alleged violation 
occurred, unless that person could not have known of the alleged 
violation, in which case the 60-day time limit will run from the 
discovery of the alleged violation. The Commission believes this 
properly balances the interests of persons who may have been adversely 
affected by violations of the code of conduct against the needs of 
blanket sales certificate holders for finality in their gas sales 
transactions. The 60-day time limit would not apply to any action or 
investigation initiated by the Commission or its Staff.

V. Information Collection Statement

    22. The proposed rule would require jurisdictional gas sellers to 
retain certain records for three years and also require them to notify 
the Commission whether or not they engage in the reporting of natural 
gas sales transactions to publishers of gas indices. The collection of 
information contained in this proposed rule has been submitted to the 
Office of Management and Budget (OMB) for review under the section 
3507(d) of the Paperwork Reduction Act of 1995.\9\ OMB's regulations 
require OMB to approve certain information collection requirements 
imposed by agency rule.\10\ The Commission identifies the information 
provided for under this rule as FERC-549.
---------------------------------------------------------------------------

    \9\ 44 U.S.C. 3507(d).
    \10\ 5 CFR 1320.11.
---------------------------------------------------------------------------

    23. Comments are solicited on the need for this information, 
whether the information will have practical utility, the accuracy of 
the provided burden estimates, ways to enhance the quality, utility, 
and clarity of the information to be collected, and any suggested 
methods for minimizing respondents' burden, including the use of 
automated information techniques. The burden estimates for complying 
with this proposed rule are as follows:

[[Page 40211]]



----------------------------------------------------------------------------------------------------------------
                                                                                                        Total
                     Data collection                          Number of     Number of    Hours per      annual
                                                             respondents    responses     response      hours
----------------------------------------------------------------------------------------------------------------
FERC-549:
(Reporting)..............................................             222          222            1          222
(Recordkeeping)..........................................             222          222            2          444
                                                          -----------------
    Totals...............................................  ..............  ...........            3          666
----------------------------------------------------------------------------------------------------------------

Total annual hours for Collection (reporting + recordkeeping) = 666.

    Information Collection Costs: The Commission seeks comments on the 
cost to comply with these requirements. It has projected the average 
annualized cost of all respondents to be:

Annualized Capital Startup Costs: 666 / 2080 x $117,041 = $37,475.

This is a one time cost for the implementation of the proposed 
requirements.
    24. OMB's regulations require it to approve certain information 
collection requirements imposed by agency rule. The Commission is 
submitting notification of this proposed rule to OMB.
    Title: FERC-549, Gas Pipeline Rates: Natural Gas Policy Act, 
Section 311 Transactions.
    Action: Proposed Data Collection.
    OMB Control No. 1902-0086.
    25. Respondents will not be penalized for failure to respond to the 
collection of information unless the collection of information displays 
a valid OMB control number or the Commission has provided justification 
as to why the control number should not be displayed.
    Respondents: Businesses or other for profit.
    Frequency of Responses: On occasion.
    Necessity of Information: The proposed rule would revise the 
Commission's regulations to require that pipelines who provide 
unbundled sales service or persons holding blanket marketing 
certificates adhere to a code of conduct when making gas sales. In 
addition, the Commission will require blanket sales certificate holders 
to maintain certain data for a period of three years. The addition of 
the codes of conduct, retention of data and standards for accuracy are 
efforts by the Commission to ensure the integrity of the natural gas 
market that remains within its jurisdiction.
    Internal review: The Commission has reviewed the requirements 
pertaining to blanket sales certificates and has determined the 
proposed revisions are necessary to ensure the integrity of the gas 
sales market that remains within its jurisdiction. These requirements 
conform to the Commission's plan for efficient information collection, 
communication, and management within the natural gas industry. 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.
    26. Interested persons may obtain information on the information 
requirements by contacting the following: Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426 (Attention: 
Michael Miller, Office of the Executive Director, Phone (202) 502-8415, 
fax: (202) 273-0873, e-mail: [email protected].)
    27. For submitting comments concerning the collection of 
information(s) and the associated burden estimate(s), please send your 
comments to the contact listed above and to the Office of Management 
and Budget, Office of Information and Regulatory Affairs, Washington, 
DC 20503, (Attention: Desk Officer for the Federal Energy Regulatory 
Commission, phone: (202) 395-7856, fax: (202) 395-7285).

VI. Environmental Analysis

    28. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment.\11\ The 
Commission has categorically excluded certain actions from these 
requirements as not having a significant effect on the human 
environment.\12\ The actions proposed to be taken here fall within 
categorical exclusions in the Commission's regulations for rules that 
are clarifying, corrective, or procedural, for information gathering, 
analysis, and dissemination, and for sales, exchange, and 
transportation of natural gas that requires no construction of 
facilities.\13\ Therefore, an environmental assessment is unnecessary 
and has not been prepared in this rulemaking.
---------------------------------------------------------------------------

    \11\ Order No. 486, Regulations Implementing the National 
Environmental Policy Act, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & 
Regs. Preambles 1986-1990 ] 30,783 (1987).
    \12\ 18 CFR 380.4.
    \13\ See 18 CFR 380.4(a)(2)(ii), 380.4(a)(5), 380.4(a)(27).
---------------------------------------------------------------------------

VII. Regulatory Flexibility Act Certification

    29. The Regulatory Flexibility Act of 1980 (RFA) \14\ generally 
requires a description and analysis of final rules that will have 
significant economic impact on a substantial number of small entities. 
The Commission is not required to make such analyses if a rule would 
not have such an effect.\15\
---------------------------------------------------------------------------

    \14\ 5 U.S.C. 601-612.
    \15\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    30. The Commission does not believe that this rule would have such 
an impact on small entities. Most of the entities required to comply 
with the proposed regulations would be pipelines, LDCs or their 
affiliates who do not meet the RFA's definition of a small entity 
whether or not they are under the Commission's jurisdiction.\16\ It is 
likely that any small entities selling natural gas would be making gas 
sales that are no longer subject to the Commission's jurisdiction. 
Therefore, the Commission certifies that this rule will not have a 
significant economic impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \16\ 5 U.S.C. 601(3).
---------------------------------------------------------------------------

VIII. Comment Procedures

    31. The Commission invites interested persons to submit comments on 
the matters and issues proposed in this notice to be adopted, including 
any related matters or alternative proposals that commenters may wish 
to discuss. Comments are due 30 days from publication in the Federal 
Register. Comments must refer to Docket No. RM03-10-000 and must 
include the commenter's name, the organization they represent, if 
applicable, and their address in their comments. Comments may be filed 
either in electronic or paper format.
    32. Comments may be filed electronically via the eFiling link on 
the Commission's Web site at http://www.ferc.gov. The Commission 
accepts most standard word processing formats and commenters may attach 
additional files with supporting information in certain other file 
formats. Commenters filing electronically do not need to make

[[Page 40212]]

a paper filing. Commenters that are not able to file comments 
electronically must send an original and 14 copies of their comments 
to: Federal Energy Regulatory Commission, Office of the Secretary, 888 
First Street NE., Washington, DC 20426.
    33. All comments will be placed in the Commission's public files 
and may be viewed, printed, or downloaded remotely as described in the 
Document Availability section below. Commenters on this proposal are 
not required to serve copies of their comments on other commenters.

IX. Document Availability

    34. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document 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.
    35. From FERC's Home Page on the Internet, this information is 
available in the Federal Energy Regulatory Records Information System 
(FERRIS). The full text of this document is available on FERRIS in PDF 
and WordPerfect format for viewing, printing, and/or downloading. To 
access this document in FERRIS, type the docket number excluding the 
last three digits of this document in the docket number field.
    36. For assistance with FERRIS, the FERRIS helpline can be reached 
at 1-866-208-3676, TTY (202) 502-8659, or at 
[email protected].

List of Subjects in 18 CFR Part 284

    Continental shelf; Incorporation by reference; Natural gas; 
Reporting and recordkeeping requirements.

    By direction of the Commission. Commissioner Massey concurred in 
part with a separate statement attached. Commissioner Brownell 
concurred with a separate statement attached.
Magalie R. Salas,
Secretary.
    In consideration of the foregoing, the Commission proposes to amend 
part 284, Chapter I, Title 18, Code of Federal Regulations, as follows.

PART 284--CERTAIN SALES AND TRANSPORTATION OF NATURAL GAS UNDER THE 
NATURAL GAS POLICY ACT OF 1978 AND RELATED AUTHORITIES

    1. The authority citation for part 284 continues to read as 
follows:

    Authority: 15 U.S.C. 717-717w, 3301-3432; 42 U.S.C. 7101-7532; 
43 U.S.C.1331-1356.

    2. Section 284.288 is added to read as follows:


Sec.  284.288  Code of conduct for unbundled sales service.

    (a) A pipeline that provides unbundled natural gas sales service 
under Sec.  284.284 is prohibited from engaging in actions or 
transactions without a legitimate business purpose that manipulate or 
attempt to manipulate market prices, market conditions, or market rules 
for natural gas or that result in prices that do not reflect the 
legitimate forces of supply and demand. Prohibited actions and 
transactions include but are not limited to:
    (1) Pre-arranged offsetting trades of the same product among the 
same parties, which involve no economic risk, and no net change in 
beneficial ownership (sometimes called ``wash trades''); and
    (2) Collusion with another party for the purpose of creating market 
prices at levels differing from those set by market forces.
    (b) To the extent a pipeline that provides unbundled natural gas 
sales service under Sec.  284.284 engages in reporting of transactions 
to publishers of gas price indices, the pipeline shall provide 
complete, accurate and factual information to any such publisher. The 
pipeline shall notify the Commission of whether it engages in such 
reporting for all sales. In addition, the pipeline shall adhere to such 
other standards and requirements for price reporting as the Commission 
may order;
    (c) A pipeline that provides unbundled natural gas sales service 
under Sec.  284.284 must retain all relevant data and information 
necessary for the reconstruction of price indices for three years;
    (d) A pipeline that provides unbundled natural gas sales service 
under Sec.  284.284 is prohibited from reporting any natural gas sales 
transactions between the pipeline and its affiliates to industry 
indices.
    (e) Violation of the preceding paragraphs may result in 
disgorgement of unjust profits, suspension or revocation of a 
pipeline's blanket certificate under Sec.  284.284 or other appropriate 
non-monetary remedies.
    (f) Any person filing a complaint against a pipeline for violation 
of paragraphs (a) through (d) of this section must do so no later than 
60 days after the end of the calendar quarter in which the alleged 
violation occurred unless that person could not have known of the 
alleged violation, in which case the 60-day time limit will run from 
the discovery of the alleged violation.


Sec.  284.402  [Amended]

    3. The second sentence of paragraph (a) of Sec.  284.402 is 
removed.
    4. Section 284.403 is added to read as follows:


Sec.  284.403  Code of conduct for persons holding blanket marketing 
certificates.

    (a) Any person making natural gas sales for resale in interstate 
commerce pursuant to Sec.  284.402 is prohibited from engaging in 
actions or transactions without a legitimate business purpose that 
manipulate or attempt to manipulate market prices, market conditions, 
or market rules for natural gas or that result in prices that do not 
reflect the legitimate forces of supply and demand. Prohibited actions 
and transactions include but are not limited to:
    (1) Pre-arranged offsetting trades of the same product among the 
same parties, which involve no economic risk, and no net change in 
beneficial ownership (sometimes called ``wash trades''); and
    (2) Collusion with another party for the purpose of creating market 
prices at levels differing from those set by market forces.
    (b) To the extent a blanket marketing certificate holder engages in 
reporting of transactions to publishers of gas price indices, the 
blanket certificate holder shall provide complete, accurate and factual 
information to any such publisher. The blanket marketing certificate 
holder shall notify the Commission of whether it engages in such 
reporting for all sales. In addition, the blanket marketing certificate 
holder shall adhere to such other standards and requirements for price 
reporting as the Commission may order;
    (c) A blanket marketing certificate holder must retain all relevant 
data and information necessary for the reconstruction of price indices 
for three years;
    (d) A blanket marketing certificate holder is prohibited from 
reporting any natural gas sales transactions between the blanket 
marketing certificate holder and its affiliates to industry indices.
    (e) Violation of the preceding paragraphs may result in 
disgorgement of unjust profits, suspension or revocation of a persons's 
blanket certificate under Sec.  284.402 or other appropriate non-
monetary remedies.
    (f) Any person filing a complaint against a blanket marketing 
certificate holder for violation of paragraphs (a) through (d) of this 
section must do so no

[[Page 40213]]

later than 60 days after the end of the calendar quarter in which the 
alleged violation occurred unless that person could not have known of 
the alleged violation, in which case the 60-day time limit will run 
from the discovery of the alleged violation.

Massey, Commissioner, concurring in part:

    I wholeheartedly support conditions to all market-based tariffs 
that declare manipulation off limits. Such outrageous behavior has 
cast a pall over the promise of energy markets and has brought some 
companies to dire financial straits. These tariff conditions should 
deter bad behavior in the future. If they fail to do so, then at 
least the Commission will have industry wide legal tools to provide 
appropriate remedies. I commend Chairman Wood's strong leadership in 
developing this proposal.
    I am writing separately to express my concern with one aspect of 
today's proposal. I would not limit the monetary penalty for tariff 
violations to disgorgement of unjust profits. Market manipulation 
can raise the market prices paid by all market participants and 
collected by all sellers. The Natural Gas Act requires that all 
rates and charges be just and reasonable. Where the market has been 
manipulated so as to affect the market price, that price is not just 
and reasonable and is therefore unlawful. Simply requiring that bad 
actors disgorge their individual profits does not make the market 
whole because all sellers received the unlawful price caused by the 
manipulation. The narrow remedy of profit disgorgement is not an 
adequate remedy for the adverse effect of the bad behavior on the 
market price, and may not be an adequate deterrent to future 
behavior. The appropriate remedy may be that the manipulating seller 
makes the market whole.\1\ Unfortunately, today's order appears to 
take this remedy off of the table. I would prefer to tailor the 
remedy to the circumstances of each case. I encourage comments on 
this issue.
---------------------------------------------------------------------------

    \1\ The Commission has accepted the make the market whole remedy 
as part of a settlement for withholding generation from the 
California PX market. See 102 FERC ] 61,108 (2003).
---------------------------------------------------------------------------

    For these reasons, I concur in part with today's order.

William L. Massey,

Commissioner.

Brownell, Commissioner, concurring:

    Today we issue a Notice of Proposed Rulemaking (NOPR) to amend 
the blanket certificates for unbundled gas sales service held by 
persons making sales for resale at negotiated rates in interstate 
commerce to require that sellers adhere to a code of conduct. The 
stated purpose of the proposed revisions is to ensure the integrity 
of the gas market that remains within the Commission's jurisdiction. 
Importantly, the NOPR attempts to balance three goals:
    [sbull] Effective remedies on behalf of customers in the event 
anti-competitive behavior or other market abuses occur;
    [sbull] Clearly delineated ``rules of the road'' to persons 
making sales for resale at negotiated rates in interstate commerce, 
at the same time, not impairing the Commission's ability to provide 
remedies for market abuses whose precise form and form can not be 
envisioned today; and
    [sbull] Reasonable bounds within which conditions on market 
conduct will be implemented so as not to create unlimited regulatory 
uncertainty for individual market participants or harm to the 
marketplace in general.
    I appreciate the need to balance these goals but still have some 
fundamental concerns about the proposal, particularly Sections 
284.288(a) and 284.403(a). Scarcity pricing is a market response to 
a supply and demand imbalance. What constitutes legitimate forces of 
supply and demand and what defines scarcity pricing? I also fear 
that as the precise definition of manipulation develops over time we 
will end up with overly proscriptive ``rules of the road'' that will 
dampen innovative, legitimate business tools. Finally, I am 
concerned the proposed regulations could lead to the segmentation of 
the as commodity market. The only sales of natural gas that the 
Commission currently has jurisdiction to regulate are sales for 
resale of domestic gas by pipelines, local distribution companies, 
or their affiliates so long as they do not produce the gas that they 
sell. Could blanket certificate holders face a competitive 
disadvantage due to compliance with the code of conduct, or could 
there be any negative impact on natural gas prices? I ask for your 
comment on whether application of the code of conduct to only part 
of the natural gas market will have any adverse effects on the 
natural gas market.

Nora Mead Brownell,

Commissioner.

[FR Doc. 03-16820 Filed 7-3-03; 8:45 am]
BILLING CODE 6717-01-P