[Federal Register Volume 72, Number 58 (Tuesday, March 27, 2007)]
[Rules and Regulations]
[Pages 14235-14239]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-5497]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 358

[Docket No. RM07-6-001; Order No. 690-A]


Order on Clarification and Rehearing

Issued March 21, 2007.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Final rule.

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SUMMARY: This order responds to four requests for clarification or, in 
the alternative, rehearing of the interim rule which the Federal Energy 
Regulatory Commission issued on January 9, 2007. The Commission issued 
the interim rule in response to the decision of the United States Court 
of Appeals for the District of Columbia vacating and remanding the 
standards of conduct rule, Order No. 2004, as applicable to interstate 
natural gas pipelines, in National Fuel Gas Supply Corporation v. FERC, 
468 F.3d 831 (D.C. Cir. 2006).
    In this order, the Commission grants clarification that the 
standards of conduct for natural gas transmission providers under the 
interim rule apply only to natural gas transmission providers that are 
affiliated with a marketing or brokering entity that conducts 
transportation transactions on such natural gas transmission provider's 
pipeline. The Commission also grants clarification that the definition 
for a marketing or brokering entity for a natural gas transmission 
provider is identical to the definition under the pre-Order No. 2004 
standards of conduct. With regards to the other issues for which 
clarification or rehearing is sought, the Commission will defer 
consideration of these matters in this proceeding and address them 
contemporaneously with the rulemaking proceeding in Docket No. RM07-1-
000.

EFFECTIVE DATE: This rule is effective on March 27, 2007.

FOR FURTHER INFORMATION CONTACT:

Stuart Fischer, Office of Enforcement, Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426, Telephone: 
(202) 502-8517, E-mail: [email protected].

[[Page 14236]]

Deme Anas, Office of Enforcement, Federal Energy Regulatory Commission, 
888 First Street, NE., Washington, DC 20426, Telephone: (202) 502-8178, 
E-mail: [email protected].

SUPPLEMENTARY INFORMATION: Before Commissioners: Joseph T. Kelliher, 
Chairman; Suedeen G. Kelly, Marc Spitzer, Philip D. Moeller, and Jon 
Wellinghoff.

Standards of Conduct for Transmission Providers

I. Introduction

    1. On January 9, 2007, the Commission issued an interim rule 
promulgating interim standards of conduct regulations that govern the 
relationship between natural gas transmission providers and their 
marketing affiliates.\1\ The Commission issued the interim rule to 
respond to the decision of the United States Court of Appeals for the 
District of Columbia concerning the Standards of Conduct for 
Transmission Providers under Order No. 2004.\2\ The purpose of the 
interim rule was to repromulgate the standards of conduct not 
challenged in the National Fuel appeal in the interim while the 
Commission considered how to respond to the court's decision on a 
permanent basis. Subsequently, on January 18, 2007, the Commission 
issued a Notice of Proposed Rulemaking (NOPR) in which the Commission 
proposed making the provisions of the interim rule permanent, as well 
as proposing other changes to the standards of conduct for natural gas 
and electric transmission providers.\3\ The Commission invited comments 
on the proposals in the NOPR, and comments are due on March 30, 
2007.\4\
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    \1\ Standards of Conduct for Transmission Providers, Order No. 
690, 72 FR 2427 (Jan. 19, 2007); FERC Stats. & Regs. ] 31,327 
(2007). (Interim Rule). The Commission issued an errata notice on 
January 22, 2007 that made corrections to paragraph 18 and the 
regulatory text.
    \2\ Standards of Conduct for Transmission Providers, Order No. 
2004, FERC Stats. & Regs., Regulations Preambles ] 31,155 (2003), 
order on reh'g, Order No. 2004-A, III FERC Stats. & Regs. ] 31,161 
(2004), 107 FERC ] 61,032 (2004), order on reh'g, Order No. 2004-B, 
III FERC Stats. & Regs. ] 31,166 (2004), 108 FERC ] 61,118 (2004), 
order on reh'g, Order No. 2004-C, 109 FERC ] 61,325 (2004), order on 
reh'g, Order No. 2004-D, 110 FERC ] 61,320 (2005), vacated and 
remanded as it applies to natural gas pipelines, National Fuel Gas 
Supply Corporation v. FERC, 468 F.3d 831 (D.C. Cir. 2006) (National 
Fuel).
    \3\ Standards of Conduct for Transmission Providers, 72 FR 3958 
(Jan. 29, 2007), FERC Stats. & Regs. ] 32,611 (2007).
    \4\ On March 1, 2007, the Commission issued an order extending 
the deadline for submitting initial comments by 15 days to March 30, 
2007 and extending the deadline for submitting reply comments an 
additional 10 days to April 30, 2007.
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    2. Four petitioners, the Interstate Natural Gas Association of 
America (INGAA), CenterPoint Energy Gas Transmission Company 
(CenterPoint), the National Fuel Companies (National Fuel) and Spectra 
Energy Transmission, LLC (Spectra) (petitioners or four petitioners), 
filed requests for clarification or, in the alternative, rehearing of 
the interim rule.\5\ INGAA and CenterPoint seek expedited consideration 
so that a decision is issued prior to the comment deadline for the 
NOPR. As discussed below, the Commission grants clarification that the 
standards of conduct for natural gas transmission providers under the 
interim rule apply only to natural gas transmission providers that are 
affiliated with a marketing or brokering entity that conducts 
transportation transactions on such natural gas transmission provider's 
pipeline, and that the definition for ``marketing or brokering'' is 
consistent with the definition of that term under the natural gas 
transmission standards of conduct prior to Order No. 2004. The 
Commission will amend the regulatory text accordingly to reflect these 
clarifications. With regards to the other issues for which 
clarification or rehearing is sought, the Commission will address those 
issues contemporaneously with the rulemaking proceeding in Docket No. 
RM07-1-000.
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    \5\ CenterPoint incorporated by reference INGAA's filing.
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II. The D.C. Circuit's Decision in National Fuel

    3. In National Fuel, the court found that the Commission did not 
support the standards of conduct's expansive definition of energy 
affiliates, vacated Order Nos. 2004, 2004-A, 2004-B, 2004-C and 2004-D 
(collectively referred to as Order No. 2004) as applied to natural gas 
pipelines, and remanded the orders to the Commission.\6\ Specifically, 
the court rejected the Commission's extension of the standards of 
conduct beyond pipelines' relationships with their marketing affiliates 
to govern pipelines' relationships with numerous non-marketing 
affiliates, such as producers, gatherers, and local distribution 
companies (non-marketing energy affiliates), as well as extending the 
standards of conduct to affiliates that do not ship on their affiliated 
pipelines.\7\ In light of these findings, the court found moot the 
other issues raised on appeal.\8\
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    \6\ National Fuel, slip op. at 4. Order No. 2004 was not 
appealed as it applies to electric utility transmission providers.
    \7\ Id., slip op. at 25.
    \8\ Id., slip op. at 4.
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III. The Interim Rule

    4. In the interim rule, the Commission repromulgated the standards 
of conduct not challenged in the National Fuel appeal and adopted or 
revised other provisions of the standards of conduct that had been the 
subject of the appeal, while the Commission considers how to respond to 
the court's decision on a permanent basis.\9\ The Commission intended 
the interim rule to eliminate any uncertainty about how the standards 
of conduct apply to natural gas transmission providers while the 
Commission developed a final rule.\10\ The Commission adhered to both 
the letter and the spirit of the court's decision in National Fuel by 
fashioning an interim rule under which the standards of conduct do not 
apply to the relationship between natural gas transmission providers 
and non-marketing energy affiliates, which is the aspect of the 
standards of conduct that the court found infirm.\11\
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    \9\ Interim Rule at P 2.
    \10\ Id.
    \11\ Id. at P 5 and 7.
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    5. Although the DC Circuit did not consider petitioners' other 
issues on appeal, under the interim rule the Commission treated each of 
those issues as if the court had also overturned those sections. 
Specifically, for natural gas transmission providers, the interim rule: 
(1) Omitted restrictions on shared risk management employees \12\ and 
(2) revised the requirement for logging waivers of tariff provisions so 
that it was identical to the Order No. 497 requirements.\13\ The 
Commission also incorporated modifications consistent with petitioners' 
appeals of two issues discussed in the preamble of Order No. 2004, but 
not codified in regulatory text.

[[Page 14237]]

Specifically, the interim rule stated that: (1) Natural gas 
transmission providers could treat lawyers as permissibly shared 
employees; and (2) newly certificated natural gas pipeline transmission 
providers would not be required to observe the standards of conduct 
until they commence transmission services.\14\
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    \12\ Section 358.4(a)(6) of the Commission's regulations states 
that ``Transmission Providers are permitted to share risk management 
employees that are not engaged in Transmission Functions or sales or 
commodity Functions with their Marketing and Energy Affiliates.'' 18 
CFR 358.4(a)(6). The interim rule modified this provision by adding 
a second sentence that states, ``This provision does not apply to 
natural gas transmission providers.''
    \13\ Section 358.5(c)(4) of the Commission's regulations states 
that ``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 web site within 24 hours of when a Transmission 
Provider exercises its discretion under any terms of the tariff.'' 
18 CFR 358.5(c)(4). The interim rule changed 18 CFR 358.5(c)(4) by 
renumbering it as 18 CFR 358.5(c)(4)(i) and added a new provision in 
18 CFR 358.5(c)(4)(ii) as follows: ``[N]atural gas Transmission 
Providers must maintain a written log of waivers that the natural 
gas Transmission Provider grants with respect to tariff provisions 
that provide for such discretionary waivers and provide the log to 
any person requesting it within 24 hours of the request.'' 18 CFR 
358.5(c)(4)(ii).
    \14\ Former 18 CFR 161.3(k); Interim Rule at P 22.
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    6. The Commission issued the interim rule consistent with the three 
factors articulated in Mid-Tex Electric Cooperative, Inc. v. FERC (Mid-
Tex) \15\ for issuing an interim rule without prior notice and comment 
under the Administrative Procedure Act.\16\ First, the Commission 
stressed that the interim rule was not intended to serve as a permanent 
rule and that it was commencing a rulemaking proceeding through the 
issuance of a NOPR (issued nine days after the interim rule).\17\ 
Second, the interim rule followed the court's opinion in National Fuel 
because, for natural gas pipelines, it eliminated the provisions of 
Order No. 2004 that were subject to appeal and instead adopted 
provisions originally promulgated in Order No. 497, which was upheld in 
relevant part by the court in Tenneco Gas v. FERC.\18\ Third, the 
Commission issued the interim rule to avoid regulatory confusion. When 
the Commission adopted Order No. 2004, it rescinded the standards of 
conduct promulgated by Order No. 497. Because National Fuel vacated 
Order No. 2004 as applied to natural gas transmission providers, 
without the interim rule there would have been no existing regulations 
governing the relationship between natural gas transmission providers 
and their marketing affiliates. Such a situation would not have been in 
the public interest because the standards of conduct have for almost 
two decades played an important role in the Commission's program to 
ensure non-discriminatory access by pipeline customers to competitive 
natural gas markets.\19\
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    \15\ Mid-Tex Electric Cooperative, Inc. v. FERC, 822 F.2d 1123 
(DC Cir. 1987).
    \16\ Interim Rule at P 3-6.
    \17\ Id. at P 6.
    \18\ Order No. 497, 53 FR 22139 (June 14, 1988), FERC Stats. & 
Regs., Regulations Preambles 1986-1990 ] 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 ] 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 ] 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 ] 30,934 (Dec. 20, 1991), reh'g 
denied, 57 FR 5815 (Feb. 18, 1992), 58 FERC ] 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 ] 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 
] 30,987 (Dec. 23, 1993); Order No. 497-F, order denying reh'g and 
granting clarification, 59 FR 15336 (Apr. 1, 1994), 66 FERC ] 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 ] 30,996 (June 17, 1994).
    \19\ Interim Rule at P 6.
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IV. Petitions for Clarification and Rehearing

    7. Petitioners filed requests for clarification or rehearing on 
five issues. First, the four petitioners seek clarification or 
rehearing as to whether the interim rule limits the application of the 
standards of conduct to natural gas transmission providers that are 
affiliated with a marketing or brokering entity that conducts 
transportation transactions on such natural gas transmission provider's 
pipeline. The four petitioners contend that under Order No. 497, a 
natural gas transmission provider was not subject to the standards of 
conduct if its marketing affiliate did not engage in transportation 
transactions on its pipeline. INGAA states that if the Commission 
intended the interim rule to return to the pre-Order No. 2004 standards 
of conduct requirements for natural gas pipelines, this condition must 
be included or the interim rule should not have been issued without 
notice or comment. All four petitioners request that Sec.  358.1 of the 
interim rule be amended to include the language from the prior 
standards of conduct in former Sec.  161.1, which limited the 
application of the standards of conduct to natural gas transmission 
providers which conduct transportation transactions with its marketing 
or brokering affiliates.\20\
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    \20\ Former 18 CFR 161.1 stated that ``This part applies to any 
interstate natural gas pipeline that transports gas for others 
pursuant to subpart A of part 157, and subparts B or G or part 284 
and is affiliated in any way with a natural gas marketing or 
brokering entity and conducts transportation transactions with its 
marketing or brokering affiliate.''
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    8. Second, the petitioners assert that the Commission erred in 
defining marketing affiliate in Sec.  358.3(k) of the Commission's 
regulations. INGAA contends that the definition of ``Marketing 
Affiliate'' in Sec.  358.3(k) should treat natural gas pipeline 
transmission providers separately from electric transmission providers: 
for natural gas transmission providers, the definition of marketing 
affiliate should reference the definition of ``marketing or brokering'' 
in Sec.  358.3(l). For electric transmission providers, the definition 
of marketing affiliate should reference the definition of ``marketing, 
sales, or brokering'' in Sec.  358.3(e). This change, INGAA contends, 
would make clear that Sec.  358.3(e)'s definition of ``marketing, sales 
or brokering'' is not relevant to identifying the marketing affiliates 
of natural gas transmission providers. INGAA asserts that sales of 
electric energy were not part of the definition of ``marketing or 
brokering'' under the former natural gas standards of conduct under 
Order No. 497, and thus should not apply to natural gas transmission 
providers under the interim rule. All four petitioners support an 
identical language change to the definition of marketing affiliate in 
Sec.  358.3(k) to clarify this point.
    9. Third, the four petitioners contend that Sec.  358.1(e) of the 
Commission's regulations promulgated in the interim rule has the 
unintended consequence of including more entities as marketing 
affiliates than under the prior gas standards of conduct.\21\ 
Specifically, INGAA and National Fuel contend that an entity that falls 
under one of the exceptions to the definition of an energy affiliate 
under Sec.  358.3(d)(6) of the Commission's regulations could now be 
considered to be classified as a marketing affiliate of a gas pipeline.
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    \21\ Section 358.1(e) of the Commission's regulations states 
that the standards of conduct do not govern the relationship between 
a natural gas transmission provider and its energy affiliate. 18 CFR 
358.1(e).
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    10. Fourth, the four petitioners contend that the Commission erred 
by amending Sec.  358.4(a)(6) of the Commission's regulations to 
remove, for natural gas transmission providers, the exception allowing 
transmission providers to share risk management employees with 
marketing and energy affiliates provided that the risk managers are not 
engaged in transmission functions or sales or commodity functions. 
INGAA contends it appealed this issue to the D.C. Circuit on the 
grounds that the Commission had imposed too many restrictions on the 
sharing of risk management personnel. As such, the four petitioners 
contend that the Commission should add a provision that expressly 
permits natural gas transmission providers to share risk management 
employees with their marketing affiliates.
    11. Finally, the four petitioners request that the Commission 
clarify the effect of restoring the language of former Sec.  161.3(k) 
of the Commission's regulations, requiring natural gas transmission 
providers to maintain a waiver log, in new Sec.  358.5(c)(4)(ii) of the 
Commission's regulations. Specifically, they assert that the current 
provision (as well as the prior provision in Sec.  161.3(k))

[[Page 14238]]

apply only to granting waivers under the tariff and does not apply to 
acts of discretion under the tariff. INGAA requests that the Commission 
clarify that a pipeline will be in compliance with the interim rule if 
the pipeline logs waivers, but not every act of discretion, in a 
situation when (1) a pipeline tariff expressly permits the pipeline to 
waive a specific tariff requirement; and (2) the pipeline waives a 
tariff requirement.

V. Commission Determination

    12. As noted earlier, the Commission's intent in promulgating the 
interim rule with respect to natural gas transmission providers was to 
restore the pre-Order No. 2004 standards of conduct in order to avoid a 
regulatory gap once the D.C. Circuit issued its decision in National 
Fuel vacating Order No. 2004 as applied to natural gas transmission 
providers. The interim rule was intended to be a temporary measure 
while the Commission promulgated permanent regulations in light of 
National Fuel, a process the Commission started in the NOPR in Docket 
No. RM07-1-000. The Commission did not intend for the interim rule to 
create any new standards of conduct obligations or new exceptions for 
natural gas transmission providers that were not in place prior to 
Order No. 2004.
    13. As such, the Commission will grant clarification to revise the 
standards of conduct regulations under the interim rule to reflect the 
prior standards of conduct for natural gas transmission providers under 
Order No. 497. Specifically, the Commission agrees with the requests 
to: (a) Revise Sec.  358.1 to include the language from former Sec.  
161.1 limiting the standards of conduct to natural gas transmission 
providers that conduct transmission transactions with their marketing 
or brokering affiliates; and (b) revise the definition of ``marketing 
affiliate'' in Sec.  358.3(k) to tie it to the definition of 
``marketing and brokering'' for natural gas transmission provider in 
Sec.  358.3(l) (which uses the definition under Order No. 497). With 
respect to entities covered by the standards of conduct, these 
clarifications reflect the Commission's intent that the scope of the 
interim rule track the scope of the standards of conduct requirements 
for natural gas transmission providers in Order No. 497.
    14. Accordingly, the standards of conduct will not govern the 
relationship of a natural gas transmission provider and its affiliate 
that engages in marketing or brokering activities (as defined in Sec.  
358.3(l)) if that affiliate does not conduct transportation 
transactions on that natural gas transmission provider's pipeline. Also 
the standards of conduct do not govern the relationship between a 
natural gas transmission provider and its electric affiliate that 
engages in electric marketing, sales or brokering activities (as 
defined in Sec.  358.3(e)) as long as that electric affiliate does not 
(i) Engage in natural gas marketing activities under Sec.  358.3(l) and 
(ii) conduct transportation transactions on the affiliated natural gas 
transmission provider's pipeline.
    15. The Commission intends to address the remainder of the issues 
raised by the four petitioners contemporaneously with the rulemaking 
proceeding in Docket No. RM07-1-000. Unlike the requests for which the 
Commission is granting clarification, the four petitioners' remaining 
requests do not seek to have the Commission restore the language of the 
standards of conduct for natural gas transmission providers as it 
existed prior to Order No. 2004. Instead, the four petitioners' 
remaining requests seek rehearing by asserting that certain provisions 
in Order No. 2004 which the court had vacated should be applicable to 
them or by seeking interpretations of language that the Commission 
restored from Order No. 497. As such, the consideration of such issues 
goes beyond the scope of what the Commission intended in the interim 
rule, namely, to restore the rules in place prior to National Fuel 
until the current rulemaking proceeding is completed. The Commission 
believes that consideration of the remaining issues with the rulemaking 
proceeding in Docket No. RM07-1-000 will lead to a more efficient 
disposition of the four petitioners' remaining contentions, because 
they relate to which provisions of Order No. 2004 should be retained 
and how they should be interpreted. Again, the Commission affirms that 
the clarifications made to the standards of conduct for natural gas 
transmission providers in the interim rule were not intended to create 
new standards of conduct requirements beyond the requirements prior to 
Order No. 2004.

VI. Document Availability

    16. 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.
    17. From FERC's Home Page on the Internet, this information is 
available on eLibrary. The full text of this document is available on 
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or 
downloading. To access this document in eLibrary, type the docket 
number excluding the last three digits of this document in the docket 
number field.
    18. User assistance is available for eLibrary and the FERC's Web 
site during normal business hours from our Help line at (202) 502-8222 
or the Public Reference Room at (202) 502-8371 Press 0, TTY (202) 502-
8659. E-Mail the Public Reference Room at 
[email protected].

VII. Effective Date

    19. These revisions in this order on clarification and rehearing 
are effective on March 27, 2007.

List of Subjects in 18 CFR Part 358

    Natural gas, Reporting and recordkeeping requirements.

    By the Commission.
Philis J. Posey,
Acting Secretary.

0
In consideration of the foregoing, the Commission amends part 358, 
Chapter I, Title 18, Code of Federal Regulations, to read as follows:

PART 358--STANDARDS OF CONDUCT

0
1. The authority citation for part 358 continues to read as follows:

    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.


0
2. In Sec.  358.1, paragraph (a) is revised to read as follows:


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 and is affiliated in any way with a 
marketing or brokering entity and conducts transportation transactions 
with its marketing or brokering affiliate.
* * * * *

0
3. In Sec.  358.3, paragraph (k) is revised to read as follows:


Sec.  358.3  Definitions.

* * * * *
    (k) Marketing Affiliate means an Affiliate as that term is defined 
in Sec.  358.3(b) or a unit that--
    (1) With respect to a natural gas pipeline Transmission Provider, 
engages in ``marketing and brokering'' activities

[[Page 14239]]

as those terms are defined at Sec.  358.3(l); and
    (2) With respect to an electric Transmission Provider, engages in 
marketing, sales or brokering activities as those terms are defined at 
Sec.  358.3(e).
* * * * *
[FR Doc. E7-5497 Filed 3-26-07; 8:45 am]
BILLING CODE 6717-01-P