[Federal Register Volume 73, Number 60 (Thursday, March 27, 2008)]
[Proposed Rules]
[Pages 16228-16243]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-6261]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 358

[Docket No. RM07-1-000]


Standards of Conduct for Transmission Providers

March 21, 2008.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
proposing to revise its Standards of Conduct for transmission providers 
to make them clearer and to refocus the rules on the areas where there 
is the greatest potential for affiliate abuse. By doing so, we will 
make compliance less elusive and facilitate Commission enforcement. We 
also propose to conform the Standards to the decision of the U.S. Court 
of Appeals for the D.C. Circuit in National Fuel Gas Supply Corporation 
v. FERC, 468 F.3d 831 (D.C. Cir. 2006). On January 18, 2007, the 
Commission issued a Notice of Proposed Rulemaking (initial NOPR), and 
received both initial and reply comments from interested persons. After 
giving consideration to these comments and to our own experience in 
enforcing the Standards, the Commission believes it to be necessary and 
appropriate to modify the approach proposed in the initial NOPR. The 
Commission is therefore issuing a new NOPR, and invites all interested 
persons to submit comments in response to the regulations proposed 
herein.

DATES: Comments are due May 12, 2008.

ADDRESSES: You may submit comments, identified by docket number by any 
of the following methods:
     Agency Web Site: http://ferc.gov. Documents created 
electronically using word processing software should be filed in native 
applications or print-to-PDF format and not in a scanned format.
     Mail/Hand Delivery: Commenters unable to file comments 
electronically must mail or hand deliver an original and 14 copies of 
their comments to: Federal Energy Regulatory Commission, Secretary of 
the Commission, 888 First Street, NE., Washington, DC 20426.

FOR FURTHER INFORMATION CONTACT: Kathryn Kuhlen, Office of Enforcement, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, [email protected], (202) 502-6855.

Table of Contents

 
                                                               Paragraph
                                                                  No.
 
I. Introduction.............................................           1
II. Background..............................................           6
III. Discussion.............................................          11
 A. The Need for Reform.....................................          11
 B. The Independent Functioning Rule........................          22
 C. The No Conduit Rule.....................................          46
 D. The Transparency Rule...................................          50
 E. Miscellaneous...........................................          56
IV. Applicability of the Proposed Rule and Compliance                 65
 Procedures.................................................
V. Information Collection Statement.........................          67
VI. Environmental Analysis..................................          73
VII. Regulatory Flexibility Act.............................          74
VIII. Comment Procedures....................................          75
IX. Document Availability...................................          79
Appendix A: Table of Commenters and Abbreviations for
 Commenters.................................................
Appendix B: Comparison of Current and Proposed Regulatory
 Text.......................................................
 

I. Introduction

    1. The Federal Energy Regulatory Commission is proposing to reform 
its Standards of Conduct for Transmission Providers. The primary 
purpose of our proposed reforms is to strengthen the Standards by 
making them clearer and by refocusing the rules on the areas where 
there is the greatest potential for affiliate abuse. By doing so, we 
also will make compliance less elusive and subjective for regulated 
entities, and facilitate enforcement of the Standards by the 
Commission. We also propose to reform our regulations to comply with 
the U.S. Court of Appeals for the D.C. Circuit decision in National 
Fuel Gas Supply Corp. v. FERC, 468 F.3d 831 (D.C. Cir. 2006).
    2. On January 18, 2007, the Commission issued a Notice of Proposed 
Rulemaking (initial NOPR) to modify the Standards. The primary purpose 
of the initial NOPR was to remedy the defects identified by the D.C. 
Circuit in National Fuel, particularly the court's rejection of the 
Standards' treatment of Energy Affiliates of natural gas pipelines. The 
Commission also sought to remedy other specific flaws in the Standards, 
such as by removing impediments to integrated resource planning. In 
proposing these reforms we did not, however, undertake a broader review 
of the Standards to determine whether they were continuing to prevent 
affiliate abuse in the manner most likely to foster compliance and 
enhance enforcement. Based on comments received on the NOPR, as well as 
the comments received at our recent

[[Page 16229]]

enforcement conference,\1\ we now believe that such a broader review is 
necessary. We therefore propose further reforms herein and seek comment 
on them from all interested persons.
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    \1\ Conference on Enforcement Policy, Docket No. AD07-13-000 
(Nov. 16, 2007) (enforcement conference).
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    3. Our revised NOPR proposes to combine the best elements of the 
Standards adopted in Order Nos. 497 and 889 with those adopted by the 
Commission in Order No. 2004.\2\ Order Nos. 497 \3\ and 889 \4\ 
established a functional separation between transmission and merchant 
personnel for natural gas and electric transmission providers that was 
relatively clear and that worked well for many years. Order No. 2004 
altered this approach in three main ways: (i) First, to expand the 
scope of the Standards to include Energy Affiliates, (ii) second, to 
adopt a corporate separation approach to accommodate the addition of 
Energy Affiliates, and (iii) third, to adopt a single set of standards 
applicable to both natural gas and electric industries. The National 
Fuel court rejected the first reform as applied to the natural gas 
industry and, by doing so, undercut the need for the second reform. The 
court did not upset the third reason for reform and we continue to 
believe there is no reason why separate standards should apply to each 
industry, although our proposed regulations do take into account 
differences between the industries in discrete areas.
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    \2\ Standards of Conduct for Transmission Providers, Order No. 
2004, FERC Stats. & Regs., Regulations Preambles 2001-2005 ] 31,155 
(2003), order on reh'g, Order No. 2004-A, FERC Stats. & Regs., 
Regulations Preambles 2001-2005 ] 31,161 (2004), order on reh'g, 
Order No. 2004-B, FERC Stats. & Regs., Regulations Preambles 2001-
2005 ] 31,166 (2004), order on reh'g, Order No. 2004-C, FERC Stats. 
& Regs., Regulations Preambles 2001-2005 ] 31,172 (2004), order on 
reh'g, Order No. 2004-D, 110 FERC ] 61,320 (2005), vacated and 
remanded as it applies to natural gas pipelines sub nom. Nat'l Fuel 
Gas Supply Corporation v. FERC, 468 F.3d 831 (D.C. Cir. 2006); 
Standards of Conduct for Transmission Providers, Order No. 690, 72 
FR 2427 (Jan. 19, 2007), FERC Stats. & Regs ] 31,237, order on 
reh'g, Order No. 690-A, 72 FR 14235 (Mar. 27, 2007), FERC Stats. & 
Regs. ] 31,243 (2007); see also Standards of Conduct for 
Transmission Providers, Notice of Proposed Rulemaking, 72 FR 3958 
(Jan. 29, 2007), FERC Stats. & Regs. ] 32,611 (2007).
    \3\ Inquiry Into Alleged Anticompetitive Practices Related to 
Marketing Affiliates of Interstate Pipelines, Order No. 497, 53 FR 
22139 (1988), FERC Stats. & Regs., Regulations Preambles 1986-1990 ] 
30,820 (1988); Order No. 497-A, order on reh'g, 54 FR 52781 (1989), 
FERC Stats. & Regs., Regulations Preambles 1986-1990 ] 30,868 
(1989); Order No. 497-B, order extending sunset date, 55 FR 53291 
(1990), FERC Stats. & Regs., Regulations Preambles 1986-1990 ] 
30,908 (1990); Order No. 497-C, order extending sunset date, 57 FR 9 
(1992), FERC Stats. & Regs., Regulations Preambles 1991-1996 ] 
30,934 (1991), reh'g denied, 57 FR 5815 (1992), 58 FERC ] 61,139 
(1992); aff'd in part and remanded in part sub nom. Tenneco Gas v. 
FERC, 969 F.2d 1187 (D.C. Cir. 1992) (collectively, Order No. 497).
    \4\ Open Access Same-Time Information System (Formerly Real-Time 
Information Network) and Standards of Conduct, Order No. 889, 61 FR 
21737 (May 10, 1996), FERC Stats. & Regs., Regulations Preambles 
Jan. 1991-June 1996 ] 31,035 (Apr. 24, 1996); Order No. 889-A, order 
on reh'g, 62 FR 12484 (Mar. 14, 1997), FERC Stats. & Regs., 
Regulations Preambles July 1996-December 2000 ] 31,049 (Mar. 4, 
1997); Order No. 889-B, reh'g denied, 62 FR 64715 (Dec. 9, 1997), 81 
FERC ] 61,253 (Nov. 25, 1997) (collectively, Order No. 889).
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    4. Nevertheless, we believe this single set of standards should 
more closely resemble the functional approach that was adopted in Order 
Nos. 497 and 889. Our experience with implementing and enforcing the 
Standards, as well as the record of this proceeding, demonstrates that 
this approach is the one most likely to foster compliance and 
strengthen enforcement of the Standards. The ``corporate separation'' 
adopted by Order No. 2004 has not proven workable and was adopted to 
facilitate the regulation of Energy Affiliates,\5\ a step that is no 
longer appropriate given the decision in National Fuel.
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    \5\ Order No. 2004 at P 92.
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    5. In addition to combining the best elements of Orders 497, 889 
and 2004, we also, as explained below, propose to simplify and 
streamline the Standards to facilitate compliance and enhance 
enforcement. With our new civil penalty authority, we are mindful of 
the fact that our regulations must be as clear as possible, as 
participants in the enforcement conference repeatedly noted. We also 
propose to strengthen enforcement of the Standards by proposing 
additional transparency to aid in the detection of affiliate abuse. 
Although we believe many of the existing elements of the Standards 
should be retained, the reforms we are proposing, together with the 
simplification and clarification we believe to be imperative, 
necessitate reissuing the entire part 358 of the Code of Federal 
Regulations as a stand-alone document.

II. Background

    6. The Commission first adopted Standards of Conduct in 1988, in 
Order No. 497. These initial Standards prohibited interstate natural 
gas pipelines from giving their marketing affiliates or wholesale 
merchant functions undue preference over non-affiliated customers. 
Citing demonstrated record abuses, the U.S. Court of Appeals for the 
D.C. Circuit upheld these Standards in 1992.\6\ The Commission adopted 
similar Standards for the electric industry in 1996, in Order No. 889, 
prohibiting public utilities from giving undue preference to their 
marketing affiliates or wholesale merchant functions. Both the electric 
and gas Standards sought to deter undue preference by: (i) Separating a 
transmission provider's employees engaged in transmission services from 
those engaged in its marketing services, and (ii) requiring that all 
transmission customers, affiliated and non-affiliated, be treated on a 
non-discriminatory basis.
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    \6\ Tenneco Gas v. FERC, 969 F.2d 1187 (D.C. Cir. 1992) 
(Tenneco).
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    7. Changes in both the electric and gas industries, in particular 
the unbundling of sales from transportation in the gas industry and the 
increase in the number of power marketers in the electric industry, led 
the Commission in 2003 to issue Order No. 2004, which broadened the 
Standards to include a new category of affiliate, the Energy 
Affiliate.\7\ The new Standards were made applicable to both the 
electric and gas industries, and provided that the transmission 
employees of a transmission provider \8\ must function independently 
not only from the company's marketing affiliates but from its Energy 
Affiliates as well, and that transmission providers may not treat 
either their Energy Affiliates or their marketing affiliates on a 
preferential basis. Order No. 2004 also imposed requirements to 
publicly post information concerning a transmission provider's Energy 
Affiliates.
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    \7\ The new Standards defined an Energy Affiliate as an 
affiliate of a Transmission Provider that (1) engages in or is 
involved in transmission transactions in U.S. energy or transmission 
markets; or (2) manages or controls transmission capacity of a 
Transmission Provider in U.S. energy or transmission markets; or (3) 
buys, sells, trades or administers natural gas or electric energy in 
U.S. energy or transmission markets; or (4) engages in financial 
transactions relating to the sale or transmission of natural gas or 
electric energy in U.S. energy or transmission markets. 18 CFR 
358.3(d). Certain categories of entities were excluded from this 
definition in following subsections of the regulations.
    \8\ A Transmission Provider was defined as (1) any public 
utility that owns, operates or controls facilities used for 
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 
the same chapter of the regulations. 18 CFR 358.3(a).
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    8. On appeal by members of the natural gas industry, the U.S. Court 
of Appeals for the D.C. Circuit overturned the Standards as applicable 
to gas transmission providers, on the grounds that the evidence of 
abuse by Energy Affiliates cited by the Commission was not in the 
record.\9\ The court noted that the dissenting Commissioners in Order 
No. 2004 had expressed the concern that the Order would diminish 
industry

[[Page 16230]]

efficiencies without advancing the FERC policy of preventing unduly 
discriminatory behavior.\10\
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    \9\ National Fuel at 841.
    \10\ Id. at 838.
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    9. The Commission issued an Interim Rule on January 9, 2007,\11\ 
and set about developing new Standards that would cure the defects 
identified by the D.C. Circuit in National Fuel. On January 18, 2007, 
the Commission issued its initial NOPR,\12\ requesting comment on 
whether the concept of Energy Affiliates should be retained for the 
electric industry, proposing the creation of two new categories of 
employees denominated as Competitive Solicitation Employees and 
Planning Employees, carrying over the Interim Rule's new definition of 
marketing to cover asset managers, and making numerous other proposals. 
The Commission received thousands of pages of both initial and reply 
comments from some 95 individuals, companies, and organizations, which 
are listed in Appendix A.
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    \11\ Standards of Conduct for Transmission Providers, Order No. 
690, 72 FR 2427 (Jan. 19, 2007); FERC Stats. & Regs. ] 31,237 (Jan. 
9, 2007) (Interim Rule); clarified by, Standards of Conduct for 
Transmission Providers, Order No. 690-A, 72 FR 14235 (Mar. 27, 
2007); FERC Stats. & Regs. ] 31,243 (2007) (Order on Clarification 
and Rehearing).
    \12\ Standards of Conduct for Transmission Providers, 72 FR 3958 
(Jan. 29, 2007), FERC Stats. & Regs. ] 32,611 (2007) (initial NOPR).
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    10. As noted above, consideration of these comments, coupled with 
our own experience in administering the Standards, has persuaded us to 
modify the approach advanced in the initial NOPR. For that reason, we 
now issue a new NOPR, and invite comment both on its general approach 
and on its specific provisions.

III. Discussion

A. The Need for Reform

    11. The purpose of this revised NOPR is to strengthen the Standards 
by making our rules clearer and refocusing them on the areas where 
there is the greatest potential for affiliate abuse. In so doing, we 
will facilitate compliance by regulated entities and enhance Commission 
enforcement. We propose to accomplish this objective by combining the 
best elements of Order Nos. 497 and 889, on the one hand, and Order No. 
2004, on the other. In particular, we propose to return to the approach 
of separating, by function, the transmission personnel from the 
marketing personnel that was adopted in Order Nos. 497 and 889 and 
worked well for many years, while also retaining a single set of 
standards for both natural gas and electric industries, as envisioned 
by Order No. 2004. We also propose to further clarify and streamline 
the Standards to enhance compliance and enforcement of our rules, and 
to increase transparency in the area of transmission/affiliate 
interactions to aid in the detection of any undue discrimination.
    12. We believe these broader reforms are superior to the 
incremental reforms proposed in our initial NOPR for two principal 
reasons. First, we propose to return to the functional separation of 
transmission and merchant personnel adopted in Order Nos. 497 and 889, 
because it worked well for many years. Although Order No. 2004 
abandoned this approach in favor of a ``corporate separation,'' it did 
so because of jurisdictional concerns created by the addition of Energy 
Affiliates to our regulations, not because the functional approach had 
proven inadequate in preventing affiliate abuse.\13\
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    \13\ The Commission stated: ``While it may be less costly for 
some companies to implement the [functional] approach * * * the 
Commission is concerned that it does not have the jurisdiction to 
direct unregulated Energy Affiliates on how to structure their 
functions, operations and communications.'' Order No. 2004 at P 93.
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    13. Now that the D.C. Circuit has rejected the addition of Energy 
Affiliates for lack of evidence (and no commenter has provided 
sufficient evidence to reinstate it), it is no longer appropriate to 
retain the corporate separation approach adopted in Order No. 2004. 
Furthermore, there is good reason to rescind it. The corporate 
separation approach has proven so difficult to implement that it has 
generated scores of ``waiver'' requests (most of which were granted) 
and has otherwise frustrated compliance by diverting the industry's 
focus from the very reason why the Standards were necessary in the 
first place--the conflict of interest between the functions of 
transmission and merchant activities.
    14. The initial NOPR was itself evidence of the problem we now seek 
to remedy. Since the adoption of Order No. 2004, the corporate 
separation approach had, as we found in the initial NOPR, impeded 
legitimate integrated resource planning and competitive 
solicitations.\14\ To address this problem, we proposed there to create 
two new exemptions for these activities. Yet, by failing to address the 
underlying cause of that problem--the corporate separation approach--
we, again, created additional exemptions and complexity to a rule 
already burdened with so many waivers, exemptions and complexity that 
both compliance and enforcement have been frustrated. By proposing to 
return to the functional approach that had proven effective prior to 
Order No. 2004, we can accommodate such legitimate activities without 
creating yet another set of exemptions.
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    \14\ Southern Company Services, Inc., among other commenters in 
the Order No. 2004 docket, described the difficulties that arise 
when all the employees of a marketing affiliate, including its 
planning employees, are prohibited from receiving transmission 
information: ``Planning new generation and transmission capacity 
requires selecting the right combination and location of both 
generation and transmission. Coordinated and integrated planning is 
required because the siting of new generation is integrally related 
to transmission considerations and vice versa * * *. Accordingly, 
the costs, characteristics and locations of generation and 
transmission must be considered together in order to ensure the 
provision of service to customers on a reliable and least cost 
basis.'' Comments of Southern Company Services, Inc., Docket No. 
RM01-10-000 at p. 16 (Dec. 20, 2001).
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    15. Second, we believe this broader reform of our existing 
Standards is necessary to make them clearer in an era where the 
Commission possesses substantial civil penalty authority. Soon after 
the adoption of the Energy Policy Act of 2005 (EPAct 2005),\15\ the 
Commission heard significant concerns from the regulated community that 
the existing Standards contained so many ambiguities that they impeded 
compliance and left companies--including those with the best cultures 
of compliance--exposed to significant civil penalties. We responded to 
those concerns by holding a public technical conference in Phoenix, 
Arizona, attended by all of the Commissioners serving at the time. The 
consistent message from regulated entities at this conference was best 
captured by an energy attorney who stated that ``there is no area 
[besides the Standards] where I practice law where there is a greater 
number of times I am asked the question and I don't have the answer, 
and that is a real problem when you are talking about corporate 
governance.'' \16\
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    \15\ Pub. L. No. 109-58, 119 Stat. 594 (2005).
    \16\ Standards of Conduct Conference and Workshop (April 7, 
2006), transcript at p. 61.
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    16. Nearly two years later, we heard the same concerns at our 
enforcement conference in Washington, DC. Several panelists expressed 
concern about the ambiguities in our Standards. These concerns were 
also supported in comments submitted on behalf of six industry trade 
groups, who placed the Standards at the top of their list of ambiguous 
rules that hinder compliance.\17\ As these six groups and another trade 
association emphasized, a ``[l]ack of clarity sows confusion, creates 
unnecessary risk and chills legitimate

[[Page 16231]]

market behavior because market participants are reticent to engage in 
certain types of transactions where the rules are unclear.'' \18\
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    \17\ Comments at 20, submitted by The American Gas Association, 
Edison Electric Institute, Electric Power Supply Association, 
Independent Petroleum Association of America, Interstate Natural Gas 
Association of America, and Natural Gas Supply Association, Docket 
No. AD07-13-000 (Dec. 17, 2007).
    \18\ White Paper at 6, submitted by The American Gas 
Association, Edison Electric Institute, Electric Power Supply 
Association, Independent Petroleum Association of America, 
Interstate Natural Gas Association of America, Natural Gas Supply 
Association and Process Gas Consumers Group, Docket No. AD07-13-000 
(Nov. 14, 2007).
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    17. We agree, and we have more than an adequate record to support 
the conclusion that the existing Standards are too complex to 
facilitate compliance or support our enforcement efforts. Since 
issuance of the NOPR in Order No. 2004, the Commission has held no less 
than four conferences devoted to explication and discussion of the 
Standards.\19\ Of the ten requests for No Action Letters submitted to 
the Commission since 2005, seven have involved the Standards.\20\ And 
Commission staff has received so many calls regarding the 
interpretation and application of the Standards, that the Commission 
has posted on its public Web site a 30-page document entitled 
``Frequently Asked Questions about Order No. 2004.''
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    \19\ May 21, 2002 in Washington, DC; May 10, 2004 in Houston, 
Texas; May 6, 2005 in Chicago, Illinois; and April 7, 2006 in 
Scottsdale, Arizona.
    \20\ No Action Letters can be sought for matters involving the 
Standards of Conduct, Codes of Conduct (now Affiliate Restrictions), 
Market Behavior Rules, and the Anti-Manipulation Rules.
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    18. The complexity and unworkability of the current Standards is 
also evident in the fact that since issuance of Order No. 2004, the 
Commission has received 107 requests for waiver from various aspects of 
the Standards, the vast majority of which have been granted. 
Interpretation of the Standards has thus consumed thousands of hours of 
staff time. It has also proven so elusive to the industry that it has 
engendered numerous conferences by law firms and trade associations, 
greatly outstripping comparable areas of Commission compliance in 
resources and money.
    19. The complexity and over breadth of the current Standards has 
also made it more difficult for transmission providers to reasonably 
manage their business, an effect which the Commission never intended. 
As the court in Tenneco noted, vertical integration can produce 
efficiencies of operation, and advantages given to an affiliate are not 
improper if they do not amount to exercises of market power.\21\ 
Unnecessarily balkanizing employees one from another and erecting 
barriers to the free flow of information can thwart perfectly 
legitimate efficiencies, a consequence which disadvantages not only the 
companies involved but ultimately consumers as well, in the form of 
higher rates. Executives of transmission providers can also be impeded 
in making necessary business decisions for fear they may transgress the 
Standards by assembling needed data or by meeting to discuss the merits 
of potential investments. This fear has been exacerbated by the 
Commission's civil penalty authority, granted by Congress in EPAct 
2005. As we explained above, the regulated community has consistently 
argued that the Standards are too ambiguous to facilitate compliance, 
particularly in an era where significant civil penalties may attach to 
violations.
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    \21\ Tenneco at 1201.
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    20. Therefore, in this NOPR we take the approach of structuring the 
Standards to establish per se rules that address the greatest prospect 
for undue preference. However, this streamlined approach does not 
diminish our ability to rectify and sanction, where necessary, 
instances of undue discrimination and preference.\22\ The core 
prohibitions against undue preference are rooted in sections 205 and 
206 of the FPA and sections 4 and 5 of the NGA,\23\ and the Commission 
possesses the full panoply of statutory remedies to address violations 
of these statutes, whether or not they are specifically addressed in 
the per se regulations of the Standards. Since enforcement of both the 
Standards and the statutory prohibitions against undue discrimination 
and preference will be greatly assisted by transparency, we also 
include in the proposed Standards provisions to make apparent any 
instances of communication and undue preference between transmission 
function employees and marketing function employees. These provisions 
require either the public posting of information regarding such 
communications or the maintenance of contemporaneous records for review 
by the Commission.
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    \22\ Whereas failure to comply with a per se rule of the 
Standards automatically establishes a sanctionable violation, an 
alleged violation of the Federal Power Act (FPA), 16 U.S.C. 824d-
824e (2000) or the Natural Gas Act (NGA), 15 U.S.C. 717c-717d (2000) 
would require an investigation into both the facts and the 
surrounding circumstances to determine if, in fact, an undue 
discrimination occurred.
    \23\ Sections 205 and 206 of the FPA state that no public 
utility shall make or grant an undue preference with respect to any 
transmission or sale of electric energy subject to the Commission's 
jurisdiction. Similarly, sections 4 and 5 of the NGA state 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.
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    21. We propose regulations that adopt the three core elements which 
we believe to be appropriate for per se rules: The independent 
functioning rule, the no conduit rule, and the transparency rule. We 
address these below.

B. The Independent Functioning Rule

    22. Order No. 2004 continued the policy, established in Order Nos. 
497 and 889, of requiring transmission providers to function 
independently from their marketing employees or marketing affiliates. 
This practice has been well-established for close to twenty years, and 
it is our sense that both pipelines and public utilities understand the 
general concept of independent functioning. We continue to believe this 
policy is the most effective manner of preventing undue preference by a 
transmission provider, and we will carry forward the requirement of 
independent functioning in these proposed Standards.\24\
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    \24\ See proposed 18 CFR 358.5(a).
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    23. Nevertheless, we believe a basic alteration in its methodology 
is warranted. The Standards' existing method for separating 
transmission function employees from marketing function employees 
relies on the corporate functional approach,\25\ under which a 
transmission provider must function independently from an affiliate 
which engages in marketing.\26\ This is a departure from the method 
adopted in Order Nos. 497 and 889. Order No. 497 required that 
interstate natural gas pipelines, to the maximum extent practicable, 
ensure that their operating employees and the operating employees of 
their marketing affiliates function independently of each other.\27\ 
Order No. 889 required that, except in emergency circumstances, the 
employees of the transmission provider engaged in transmission system 
operations must function independently of its employees, or the 
employees of any of its affiliates, who engage in wholesale merchant 
functions (i.e., wholesale sales and purchases of electric energy).\28\ 
Thus, the prohibition keyed off the job function of the employee, 
rather than by whom he or she was employed.
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    \25\ Order No. 2004 designates this approach as the Energy 
Affiliate approach. Order No. 2004 at P 92-94.
    \26\ Id. P 92-94.
    \27\ Order No. 497, formerly codified at 18 CFR 161.3(g).
    \28\ Order No. 889, formerly codified at 18 CFR 37.4(a).
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    24. This approach was altered in Order No. 2004, which required 
transmission function employees to function independently of personnel 
employed by the transmission provider's marketing affiliates or Energy

[[Page 16232]]

Affiliates.\29\ Because there are many individuals employed by 
transmission providers' marketing affiliates who are not involved in 
the core activities that give rise to the potential for undue 
preference, we have over the years exempted whole categories of 
employees from this restriction and allowed them to be shared between 
the transmission provider and its marketing affiliate. These include 
officers and members of the board of directors, support employees, 
field and maintenance employees, and risk management employees.\30\ We 
observed that these employees are not generally in a position to give a 
marketing affiliate an undue preference, and that the sharing of these 
employees has allowed the transmission provider to realize efficiencies 
not otherwise available to it.\31\ Carrying forward this approach in 
the initial NOPR, we suggested the creation of two new categories of 
exempted employees, the Planning Employee and the Competitive 
Solicitation Employee.\32\
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    \29\ Order No. 2004, formerly codified at 18 CFR 358.4(a)(1). In 
its comments, Edison Electric Institute describes the difficulty 
with this approach: ``The corporate functional approach * * * uses 
the evaluation of individual employees to determine what a whole 
corporation (or division, etc.) does. If an employee performs Energy 
or Marketing Affiliate Activities, the whole corporation (or 
division) is deemed an Energy or Marketing Affiliate, and every 
other employee within the corporation is then subject to the rules 
by association, regardless of what they do and the function they 
perform, unless they fit into an exempt category. Because these 
exempt categories are vague and difficult to implement the 
corporate-functional approach ends up with restrictions that apply 
to more employees than necessary to meet the objectives of the 
rules.'' Comments of the Edison Electric Institute, Docket No. RM07-
1-000 at pp. 20-21 (Mar. 30, 2007).
    \30\ Much debate has also been engendered as to whether 
employees such as lawyers, accountants, and rate design personnel 
should be exempted. See initial NOPR at P 278-98.
    \31\ See, e.g., Order No. 2004 at P 97.
    \32\ Initial NOPR at P 42 and 54.
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    25. This proliferation of exemptions has had the unfortunate side 
effect of removing the certainty that might otherwise be enjoyed as to 
which persons an employee may properly interact with and which persons 
he or she may not. Furthermore, it undermines the legitimacy of the 
Standards, as employees may find nonsensical the prohibition against 
interacting with personnel who have nothing to do with sensitive 
marketing or transmission information.
    26. The crux of the problem is that currently the prohibited 
category of marketing affiliate includes all employees of the 
affiliate, whether engaged in sales or not. To avoid such broad 
inclusion, many commenters have proposed that the Commission adopt an 
``employee functional approach'' rather than a corporate functional 
approach, whereby the Standards would apply to each individual employee 
based on that employee's job function, not on the company or division 
where the employee is employed.\33\
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    \33\ See EEI at 19 for a discussion of this approach. EEI was 
supported by Tucson Electric at 4, APS at 3, PSC of New Mexico at 1-
2, Entergy at 1-2, E.ON at 7, Portland General at 1, Northwestern at 
1. Other commenters support a similar functional approach: Idaho 
Power at 3, Southern Co. Services at 4-8, Keyspan at 3-4, SCE at 3-
5, Western Utilities Compliance Group at 2-3. TAPS is in accord, 
providing the meaning of marketing is expanded. TAPS Reply at 7-8.
---------------------------------------------------------------------------

    27. This proposal was also advanced by commenters in Order No. 
2004. It was rejected at that time because the Standards were being 
expanded to cover Energy Affiliates, and it was felt that the employee 
functional approach might require a shared responsibility on the part 
of potentially non-jurisdictional entities.\34\ That reason no longer 
exists. We believe the D.C. Circuit's reason for overturning the 
prohibitions relating to natural gas Energy Affiliates applies equally 
to electric Energy Affiliates, and we propose abandoning the concept of 
Energy Affiliate, as discussed more fully below. Therefore, the 
concerns of Order No. 2004 regarding jurisdictional access to Energy 
Affiliates are rendered moot.
---------------------------------------------------------------------------

    \34\ Order No. 2004 at P 92.
---------------------------------------------------------------------------

    28. The employee functional approach accomplishes directly the goal 
of identifying which employees ought not to interact with one another, 
whereas the corporate functional approach attempts to accomplish that 
objective indirectly, by focusing on the nature of the employing 
entity. This casts too wide a net and ensnares employees who do not 
perform sensitive functions. Commission staff has expended much effort 
in attempting to clarify for companies which employees may interact 
with one another and which may not. In one case, for example, 
coordination of generation dispatch and transmission service 
reservations were both conducted out of the same system operating 
center, in order to realize cost and communication efficiencies. This 
necessitated a series of orders by the Commission to deal with employee 
classification problems under the Standards.\35\ In another instance, 
marketing affiliate employees who ran a generating plant needed access 
to a transmission substation but were barred from doing so under the 
Standards, even though they performed no marketing functions. A waiver 
was needed in this case,\36\ and questions as to precisely which 
employees were covered by the waiver consumed a good deal of staff's 
attention.\37\ Personnel in the nuclear power industry were so confused 
about permitted communications that the Commission, in order for 
companies to comply with the requirements of the U.S. Nuclear 
Regulatory Commission, had to issue an order granting permission for 
transmission providers to communicate with affiliated nuclear power 
plants.\38\ The Commission has also expended considerable effort in 
clarifying for companies whether given entities qualify as Energy 
Affiliates, a status that barred their employees from interacting with 
transmission function employees.\39\
---------------------------------------------------------------------------

    \35\ See Audit of Standards of Conduct, Code of Conduct, OASIS & 
Transmission Practices, Duke Energy Corporation, Docket No. PA03-15-
000 at pp. 6-8 (Jan. 21, 2005).
    \36\ Algonquin Gas Transmission, L.L.C., 111 FERC ] 61,099, at P 
21-32 (2005).
    \37\ See Audit of Standards of Conduct, Code of Conduct, and 
Open Access Transmission Tariff Requirements at Florida Power and 
Light Company, Docket No. PA05-7-000 at pp. 6-10 (May 12, 2006).
    \38\ Interpretive Order Relating to the Standards of Conduct, 
114 FERC ] 61,155 (2006) (Interpretive Order), clarified in 115 FERC 
] 61,202 (2006).
    \39\ See, e.g., Alcoa Power Generating Inc., 108 FERC ] 61,243, 
at P 29-35, 42-56, 136-46 (2004), reh'g granted in part as to 
unrelated issue, Nat'l Fuel Gas Supply Corp., 116 FERC ] 61,048 
(2006); High Island Offshore System, L.L.C., 116 FERC ] 61,047, at P 
59-68 (2006).
---------------------------------------------------------------------------

    29. The employee functional approach, by pinpointing precisely 
which employees need to function independently one from another, has 
the added benefit of making the purpose of the prohibition more readily 
apparent. It should also make it easier for employees to comply with 
the Standards, since they will likely know an individual's job 
function, whereas they may not know by which subsidiary of an umbrella 
organization a given individual is employed.
    30. Therefore, we propose adopting the employee functional 
approach, and define the two groups of employees who must function 
independently of each other as ``transmission function employees'' \40\ 
and ``marketing function employees'' \41\ (whether employed within the 
corporate structure of the transmission provider or by an affiliate of 
the transmission provider). The definitions of these terms are 
discussed in the following sections. We also propose to continue the 
general prohibition against marketing function employees conducting 
transmission functions, or having discriminatory access to the 
transmission provider's system control center.\42\ Furthermore, we add 
the converse prohibition, that a

[[Page 16233]]

transmission function employee may not conduct marketing functions.\43\
---------------------------------------------------------------------------

    \40\See proposed section 358.3(i).
    \41\See proposed section 358.3(d).
    \42\See proposed 18 CFR 358.5(c)(1).
    \43\See proposed 18 CFR 358.5(c)(2).
---------------------------------------------------------------------------

1. Transmission Function Employee
    31. We propose defining a transmission function employee as an 
employee, contractor, consultant or agent of a transmission provider 
who engages in transmission functions.\44\ ``Transmission functions'' 
are defined as the conduct of transmission system operations and the 
planning, directing, organizing or carrying out of transmission 
operations, including the granting and denying of transmission service 
requests.\45\
---------------------------------------------------------------------------

    \44\ See proposed 18 CFR 358.3(i).
    \45\ See proposed 18 CFR 358.3(h).
---------------------------------------------------------------------------

    32. We believe this definition, when coupled with the definition of 
``marketing functions'' discussed below, addresses the concerns raised 
by the industry regarding the obstacles the Standards place in the way 
of system planning. We stressed in Order Nos. 890 and 890-A not only 
the critical importance of long-range planning, but also the 
desirability of a coordinated and open planning process.\46\ 
Unnecessary restrictions on employee interactions militate against that 
objective. However, because we are returning to the functional 
separation approach adopted in Order No. 889, and because a marketing 
function employee is one who is actively and personally engaged in 
marketing activities, an employee who performs merely a planning 
function and is not ``engaged in'' making wholesale offers, bids or 
sales does not fall within the prohibited category. He or she is 
therefore free to discuss system planning, including state-mandated 
Integrated Resource Planning, with transmission function employees.
---------------------------------------------------------------------------

    \46\ Preventing Undue Discrimination and Preference in 
Transmission Service, Order No. 890, FERC Stats. & Regs. ] 31,241, 
at P 425 (2007), order on reh'g and clarification, Order No. 890-A, 
FERC Statutes and Regulations ] 31,261, at P 171 (2007).
---------------------------------------------------------------------------

    33. With respect to employee interactions regarding reliability 
functions, we deem it the first order of business on the part of a 
transmission provider to ensure reliability of operations. Indeed, 
pursuant to Congressional mandate in EPAct 2005, Reliability Standards 
have been promulgated by the Commission-certified Electric Reliability 
Organization \47\ and approved by the Commission, violation of which 
can subject a transmission provider to substantial civil penalties of 
up to $1 million a day.\48\ Several Reliability Standards require an 
electric transmission provider to coordinate operations with entities 
that may include marketing affiliates and, thus, marketing function 
employees.\49\ We therefore provide an exception to the independent 
functioning rule for the exchange of information necessary to maintain 
or restore operation of the transmission system. Exchanges of 
information pursuant to this exception should be made only to the same 
extent that a transmission provider would exchange information with 
similarly situated marketing function employees of a non-affilated 
entity. We also propose requiring that a contemporaneous record be made 
of exchanges pursuant to this exception, except in emergency 
situations, when a record may be prepared after the fact.\50\ 
Furthermore, transmission function employees will still be subject to 
the no conduit rule discussed below, and thus will be required to 
distinguish between information concerning reliability activities and 
other transmission function information.
---------------------------------------------------------------------------

    \47\ The North American Electric Reliability Corporation was 
certified as the Electric Reliability Organization, pursuant to 
section 215 of the FPA, in North American Electric Reliability 
Corp., 116 FERC ] 61,062, order on reh'g and compliance, 117 FERC ] 
61,126 (2006).
    \48\ Mandatory Reliability Standards for the Bulk-Power System, 
Order No. 693, FERC Statutes and Regulations ] 31,242 (2007), order 
on reh'g, Order No. 693-A, 120 FERC ] 61,053 (2007), codified at 18 
CFR part 40.
    \49\ See, e.g., Reliability Standard TOP-003-0 (balancing 
authorities, transmission operators and generator operators shall 
plan and coordinate scheduled outages of system voltage regulating 
equipment and telemetering and control equipment); Reliability 
Standard TOP-002-2 (generator operator shall coordinate current-day, 
next-day and seasonal operations with its host balancing authority 
and transmission service provider).
    \50\ See proposed section 358.7(h).
---------------------------------------------------------------------------

    34. If an employee spends any but a de minimis amount of time 
engaged in transmission functions, he or she will be considered a 
transmission function employee. However, a supervisor, officer or 
director who is not actively and personally engaged in transmission 
functions will not be considered a transmission function employee.\51\ 
Such an individual will, of course, have access to transmission 
function information, and will be barred from sharing it with marketing 
function employees under the no conduit rule discussed below. Inasmuch 
as different organizations use different titles for the same job 
function, we decline to propose a cutoff for supervisory personnel 
based on job title, and instead propose a functional approach based on 
actual involvement in the activities themselves. For instance, if a 
transmission department supervisor is charged with the general 
responsibility of overseeing system control center personnel, but does 
not himself engage in system operations or grant or deny transmission 
service requests, he would not be a transmission function employee. But 
if he is involved in system operations or the processing of 
transmission service requests, or engages in decision-making regarding 
system operations or the processing of transmission service requests, 
he would be a transmission function employee even if he also has 
supervisory responsibilities.
---------------------------------------------------------------------------

    \51\ See proposed 18 CFR 358.3(i).
---------------------------------------------------------------------------

2. Marketing Function Employee
    35. The current Standards do not contain a definition of marketing 
function employee, although they do define ``marketing affiliate,'' 
``marketing, sales or brokering,'' and ``marketing or brokering.'' We 
propose to simplify these concepts and, in accordance with our employee 
functional approach, eliminate the definition of marketing affiliate. 
We propose to define a marketing function employee as an employee, 
contractor, consultant or agent of a transmission provider or of an 
affiliate of a transmission provider who engages in marketing 
functions.\52\ ``Marketing functions'' are defined as the sale for 
resale in interstate commerce, or the submission of offers or bids to 
buy or sell natural gas or electric energy or capacity, demand 
response, virtual electric or gas supply or demand, or financial 
transmission rights in interstate commerce, all as subject to certain 
exemptions.\53\ We also propose to revise the existing definition of 
``affiliate'' to conform to the current definition set forth in 18 CFR 
35.43(a)(1).\54\
---------------------------------------------------------------------------

    \52\ See proposed 18 CFR 358.3(d).
    \53\ See proposed 18 CFR 358.3(c). This definition is a variant 
of a suggestion by TAPS. We note that it is unnecessary to include 
in the list of products another item mentioned by TAPS, that of 
ancillary services, as these are included in the definition of sales 
of electric energy. TAPS Reply at 8. We decline to include the 
suggested category of sites for generating capacity, as this 
category is far afield from the concept of marketing energy.
    \54\ See proposed 18 CFR 358.3(a). This definition was 
promulgated in Cross-Subsidization Restrictions on Affiliate 
Transactions, Order No. 707, 73 Fed. Reg. 11,013 (Feb. 29, 2008), 
FERC Stats. & Regs. ] 31,263 (2008).
---------------------------------------------------------------------------

    36. In the past, the following categories have been exempted from 
the definition of marketing: (i) Bundled retail sales, (ii) incidental 
purchases or sales of natural gas to operate interstate natural gas 
pipeline transmission facilities, (iii) sales of natural gas solely 
from the transmission provider's own production, (iv) sales of natural 
gas solely from the transmission provider's

[[Page 16234]]

own gathering or processing facilities, or (v) sales by an intrastate 
natural gas pipeline or local distribution company making an on-system 
sale. The comments did not suggest deleting these exemptions, and we 
propose to carry them forward in this reissued NOPR.\55\
---------------------------------------------------------------------------

    \55\ See proposed 18 CFR 358.3(c)(1)-(5).
---------------------------------------------------------------------------

    37. We also note that a question has arisen whether providers of 
last resort (POLR), which are transmission providers that are charged 
with serving retail customers when the customers choose not to purchase 
from other suppliers, should likewise be exempted. We declined to 
accord POLRs a generic exemption in Order No. 2004-C, instead stating 
we would consider their status on a case-by-case basis. Commenters 
supporting the exemption pointed out that POLR service constitutes 
bundled retail sales, and thus should fall within the exemption for 
that category.\56\ Commenters opposing the exemption presented 
theoretical instances of abuse, but not actual instances.\57\ In the 
absence of actual evidence of abuse, we believe the general exemption 
for bundled retail sales should also apply to transmission providers 
acting as POLRs, and therefore propose to include POLRs in the list of 
exempt marketing functions.\58\
---------------------------------------------------------------------------

    \56\ Northwestern at 5-6, Ameren at 25-28.
    \57\ Illinois Commerce Commission Reply at 6-7, Retail Energy 
Supply Association at 5-7.
    \58\ See proposed 18 CFR 358.3(c)(1).
---------------------------------------------------------------------------

    38. Similarly as with respect to transmission function employees, 
if an employee spends any but a de minimis amount of time engaged in 
marketing functions, he or she will be considered a marketing function 
employee. However, a supervisor, officer or director who is not 
actively and personally engaged in marketing functions will not be 
considered a marketing function employee.\59\ For instance, if a 
manager has supervisory responsibility over employees engaged in making 
offers or sales of electric energy or natural gas, but does not engage 
in making offers or sales himself, he would not be a marketing function 
employee. However, if he both supervises others and engages in making 
offers or sales himself, or engages in decision-making regarding offers 
or sales, he would be a marketing function employee.
---------------------------------------------------------------------------

    \59\ See proposed 18 CFR 358.3(d).
---------------------------------------------------------------------------

    39. We note that our revised approach to the independent 
functioning rule resolves the question of whether asset managers should 
be subject to the Standards. In the initial NOPR, the Commission 
proposed expanding the definition of ``marketing, sales or brokering'' 
to include entities that manage or control transmission capacity, such 
as asset managers or agents. A number of comments were received on this 
subject, and several commenters noted that no evidence of abuse by 
asset managers had been presented in the initial NOPR record. These 
commenters point out that in the absence of such evidence, inclusion of 
asset managers in the category of proscribed affiliates would run afoul 
of the infirmity noted in National Fuel regarding Energy 
Affiliates.\60\
---------------------------------------------------------------------------

    \60\ Nevada Companies at 13, citing P 21 of the NOPR. See also 
National Fuel Companies at 5-6, Spectra at 10-13, Williston at 9-10, 
Sequent at 4-5.
---------------------------------------------------------------------------

    40. It is not necessary to reach this issue under our proposal, as 
our definition of marketing function employee reaches only those 
employees of an asset manager, whether that asset manager is a 
contractor, consultant, agent or affiliate, who may be directly engaged 
in wholesale marketing. Therefore, it is only those specific employees 
of an asset manager who must function independently of a transmission 
provider's transmission function employees. This simplification 
regarding asset managers illustrates another advantage to our proposed 
employee functional approach. If a company finds it more efficient to 
have fewer subsidiaries and combine multiple functions in a given 
affiliate, it need not avoid doing so simply to shield the affiliate's 
non-marketing employees from the restrictions imposed by the Standards.
3. Shared Employees
    41. Employees such as attorneys, accountants, risk management 
personnel and rate design employees do not fall within the scope of the 
independent functioning rule, so long as they are acting in their roles 
as attorneys, accountants, risk management personnel or rate design 
employees, rather than as transmission function employees or marketing 
function employees. Thus, there is no longer a need for the concept of 
``shared employees.'' Of course, as discussed below, such employees 
remain subject to the no conduit rule and may not pass non-public 
transmission function information to marketing function employees.
    42. Furthermore, field employees will no longer need to be exempt 
from the independent functioning rule, as such employees, while 
qualifying as transmission function employees by virtue of being 
engaged in transmission system operations, will not be in a position to 
interact with marketing function employees. In those rare cases where 
marketing function employees may also operate generation and need to 
confer with transmission function employees, we propose a specific 
exception to the no conduit rule, as discussed below.
4. Permitted Interactions
    43. We recognize, based on lengthy experience of our Audits and 
Investigations staff in the Office of Enforcement, that there may be 
instances where transmission function employees must communicate with 
marketing function employees.\61\ For instance, it is not infrequently 
the case that the merchant function of a public utility not only 
engages in marketing the company's electric power, but also operates 
its generating plants. Under our proposal, the number of operational 
employees who would qualify as marketing function employees will be 
greatly reduced. However, it is possible, as noted above, that there 
may be some overlap between sales and operations. In such cases, it is 
essential that the employees who supervise the operation of the 
generating plants be able to discuss the plants' operational status 
with transmission function employees, as such information will affect 
flows and availability on the company's transmission system. Therefore, 
for these occasions as well as for the reliability situations discussed 
above, we include an exception to the independent functioning 
requirement for communications between transmission function employees 
and marketing function employees.\62\ Exchanges of information pursuant 
to this exception, as in the case of exchanges regarding reliability, 
should be made only to the same extent that a transmission provider 
would exchange information with similarly situated marketing function 
employees of a non-affiliated entity. In order to prevent and monitor 
for potential abuse, we also include a requirement that contemporaneous 
records of such dispatch or reliability communications between 
transmission function employees and marketing function employees be 
maintained by the company and made available to Commission staff on 
request, as described in our discussion below on the transparency 
rule.\63\ It will be the responsibility of the Chief Compliance

[[Page 16235]]

Officer to ensure that such records are made and retained.
---------------------------------------------------------------------------

    \61\ As noted, we have already provided for necessary 
communications between employees of a transmission provider and its 
affiliated nuclear power plant in the Interpretive Order.
    \62\ See proposed 18 CFR 358.5(b).
    \63\ See proposed 18 CFR 358.7(h).
---------------------------------------------------------------------------

5. Energy Affiliates
    44. The concept of Energy Affiliates was added to the Standards in 
Order No. 2004. In that Order, we required pipelines and public 
utilities to function independently from their Energy Affiliates as 
well as from their marketing affiliates, and restricted the sharing of 
information by transmission providers with their Energy Affiliates. It 
was this addition which led the court in National Fuel to vacate the 
order with respect to the gas industry, on the grounds there was no 
record evidence of abuse by Energy Affiliates.
    45. Our proposed adoption of the employee functional approach 
renders moot the question of whether the concept of Energy Affiliates 
should be retained for the electric industry. We no longer propose 
separating employees from transmission activities by virtue of their 
being employed by either a marketing affiliate or an Energy Affiliate, 
but rather by their job as a marketing function employee. Moreover, we 
note that commenters who supported retention of the concept of Energy 
Affiliates did not provide the Commission with evidence of actual 
abuse. That being the case, the same reasoning as was employed in 
National Fuel with respect to the natural gas industry would likely 
prevail on appeal of any order that restricted communications between 
public utilities and their Energy Affiliates. For that reason as well, 
we decline to apply the concept of Energy Affiliates to the electric 
industry.

C. The No Conduit Rule

    46. We propose strengthening the proscriptions against the exchange 
of prohibited information in several ways. In addition to the current 
prohibition against transmission function employees disclosing non-
public transmission function information to marketing function 
employees,\64\ we propose prohibiting marketing function employees from 
receiving non-public transmission function information from any 
source.\65\ And in addition to the current prohibition against a 
transmission provider using anyone as a conduit for the improper 
disclosure of non-public transmission function information, we propose 
prohibiting both an employee of a transmission provider and also an 
employee of an affiliate engaged in marketing functions from disclosing 
non-public transmission function information to marketing function 
employees.\66\ The expansion of the no conduit rule \67\ is designed to 
reach all sources of a prohibited informational exchange. It also 
encompasses many employees who do not fall within the scope of the 
independent functioning rule. For instance, although under our proposal 
there is no requirement that lawyers employed by a transmission 
provider need to function independently of the company's marketing 
function employees, such lawyers must avoid serving as a conduit for 
passing transmission function information to a marketing function 
employee.
---------------------------------------------------------------------------

    \64\ The current Standards prohibit transmission provider's 
employees from disclosing non-public information about the 
transmission system to marketing or Energy Affiliates. 18 CFR 
358.5(b).
    \65\ See proposed Sec.  358.6(a)(2).
    \66\ See proposed Sec.  358.6(a)(4).
    \67\ In the current Standards, the no conduit prohibition refers 
only to the use of another person by the transmission provider or 
its employees to pass prohibited information to a marketing 
affiliate or Energy Affiliate. 18 CFR 358.5(b)(7). In the proposed 
Standards, the term ``no conduit rule'' refers to the entire set of 
prohibitions on informational exchanges, including transmission 
provider employees, marketing affiliate employees and employees of 
other entities.
---------------------------------------------------------------------------

    47. As a safety valve, we also include an exemption to the no 
conduit rule that parallels the exemption provided under the 
independent functioning rule. Thus, the exchange of transmission 
function information with marketing function employees is permitted 
where the information regards generation necessary to perform 
generation dispatch, or is necessary to maintain or restore operation 
of the transmission system.\68\ In such cases, a contemporaneous record 
is to be made of the exchange, except in emergency circumstances, when 
the record can be made after the fact.\69\
---------------------------------------------------------------------------

    \68\ See proposed 18 CFR 358.6(b).
    \69\ See proposed 18 CFR 358.7(h).
---------------------------------------------------------------------------

    48. Compliance with proscriptions on the exchange of information 
should be greatly facilitated by the existing requirement that 
transmission providers designate a Chief Compliance Officer. Such 
officers are responsible, in the first instance, for fielding any 
questions from employees regarding the nature of transmission function 
information or the persons to whom it may be passed, for preventing 
prohibited exchanges of information, and for curing any prohibited 
exchanges by public posting of the information. We proposed in the 
initial NOPR that a transmission provider post the name of its Chief 
Compliance Officer on its OASIS or Internet Web site, due to 
difficulties Commission staff had experienced in identifying the Chief 
Compliance Officers of several transmission providers. We carry forward 
that proposal here.\70\
---------------------------------------------------------------------------

    \70\ See proposed 18 CFR 358.8(c)(2).
---------------------------------------------------------------------------

    49. We also propose retaining from the existing regulations the 
requirement that transmission providers train their employees on 
compliance with the Standards, and propose carrying forward from the 
initial NOPR the requirement that completion of such training be 
certified. We also propose that such training be conducted 
annually.\71\ Most employees should received some training, as all 
employees are forbidden from passing designated information to 
prohibited employees, but the bulk of the training will need to be 
concentrated on transmission function employees, marketing function 
employees, and those employees who are privy to transmission function 
information. Such employees would include lawyers, accountants, risk 
management personnel, and members of the rate design department. Since 
the actual restrictions in the Standards will now match the abuses 
sought to be avoided, such training should be relatively 
straightforward and easy for employees to comprehend.
---------------------------------------------------------------------------

    \71\ See proposed 18 CFR 358.8(c)(1).
---------------------------------------------------------------------------

D. The Transparency Rule

    50. The reason behind the no conduit rule's prohibitions on receipt 
and disclosure of information is to prevent undue discrimination and 
undue preference by a transmission provider towards its marketing 
affiliate or division. But undue preferences can occur only if the 
prohibited information is not generally available to the competitors of 
such affiliates or divisions. Therefore, a transmission provider may 
comply with the prohibitions on passing transmission function 
information to marketing function employees by making such information 
publicly available. As EPSA remarks in its comments, the simultaneous 
disclosure of non-public transmission-related information to affiliates 
and to the public provides a ``Gordian Knot'' solution to undue 
discrimination in the provision of sensitive information.\72\
---------------------------------------------------------------------------

    \72\ EPSA at 4-5.
---------------------------------------------------------------------------

    51. As currently provided in the regulations, in the event 
prohibited information is inadvertently passed to a prohibited 
employee, the violation can be cured by immediately posting such 
information on the transmission provider's Open Access Same-time 
Information System (OASIS) in the case of the electric industry, or on 
its Internet website, in the case of the natural gas

[[Page 16236]]

industry.\73\ However, if the unauthorized disclosure includes non-
public transmission customer information (a subset of transmission 
function information), we propose that the posting consist only of a 
notice that such information has been disclosed, in order to preserve 
its confidentiality and prevent further potential harm to that 
customer.\74\ We also propose to carry forward from the existing 
regulations the exceptions for a marketing employee's specific requests 
for transmission service and for situations where a transmission 
customer voluntarily consents to the release of its information.\75\ In 
those cases where, despite the independent functioning rule, 
transmission function employees must interact with marketing function 
employees, as where the latter are also responsible for the maintenance 
and dispatch of generating units or need to be involved in maintaining 
reliability, we have proposed requiring the contemporaneous recording 
of such conversations, so that the Commission may ascertain that no 
prohibited information was passed in the course of otherwise 
permissible discussions. Depending on the circumstances, such 
recordation could consist of hand-written or typed notes, electronic 
recording such as e-mails and text messages, telephone recordings, or 
the like. It is recommended that for all planned communications, the 
Chief Compliance Officer designate one of the attendees to such 
conversations as the person charged with the responsibility for 
recording the conversation or taking notes. The Chief Compliance 
Officer must be responsible for retaining these records in an 
accessible form, and the transmission provider must make them available 
to Commission staff upon request. The Commission proposes that the 
records be maintained for a period of five years.\76\
---------------------------------------------------------------------------

    \73\ See proposed 18 CFR 358.7(a)(1).
    \74\ See proposed 18 CFR 358.7(a)(2).
    \75\ See proposed 18 CFR 358.7(b)-(c).
    \76\ See proposed 18 CFR 358.7(h).
---------------------------------------------------------------------------

    52. In accordance with the general aim of preventing undue 
preference, we propose retaining the existing regulation that a log be 
kept of any exercises of discretion or acts of waiver on the part of 
transmission providers. These should also be made available to 
Commission staff upon request.\77\ Similarly, we proposed to retain the 
existing requirement that any offer of a discount must be posted on the 
transmission provider's OASIS or Internet Web site.\78\
---------------------------------------------------------------------------

    \77\ See proposed 18 CFR 358.4(4).
    \78\ See proposed 18 CFR 358.4(b).
---------------------------------------------------------------------------

    53. We also propose certain modifications to the posting 
requirements for transmission providers. We propose the elimination of 
an organizational chart, which is no longer necessary in the absence of 
a requirement to bring Energy Affiliates within the scope of the 
Standards. However, affiliates that employ marketing function employees 
still need to be listed.\79\ Another proposed modification is to 
provide for a temporary suspension of posting requirements in the case 
of emergencies.\80\ Commission staff has received requests for waivers 
in the wake of Hurricane Katrina and other natural disasters, when 
transmission providers found it impossible to keep up with their normal 
posting requirements. At such times, they should not be further 
burdened with the necessity of seeking a waiver.
---------------------------------------------------------------------------

    \79\ See proposed 18 CFR 358.7(e)(l).
    \80\ See proposed 18 CFR 358.7(g)(2).
---------------------------------------------------------------------------

    54. We also propose to continue the existing requirements 
concerning the posting of written implementation procedures for the 
Standards, certain merger information (modifying the information to 
account for the deletion of the concept of Energy Affiliates), and 
employee transfer information.\81\
---------------------------------------------------------------------------

    \81\ See proposed 18 CFR 358.7(d)-(f).
---------------------------------------------------------------------------

    55. The combination of public disclosure and contemporaneous 
recording required by the transparency rule should go a long way toward 
providing the Commission and market participants with the information 
needed to identify violations of the per se rules of the Standards, for 
which no further investigation would be needed. It also should enhance 
the ability of the Commission to monitor other behavior which may not 
be covered by the Standards themselves but which could be considered 
undue discrimination or preference under the FPA or NGA.

E. Miscellaneous

1. General Principles
    56. We propose to modify the statement of general principles 
currently found in 18 CFR 358.2 to reflect statutory language regarding 
the prohibition against undue discrimination and undue preference.\82\ 
We also propose to include statements of principle that reflect the 
three core rules we propose here, those being the independent 
functioning rule, the no conduit rule, and the transparency rule.\83\
---------------------------------------------------------------------------

    \82\ The statutory language is contained in sections 205 and 206 
of the FPA and sections 4 and 5 of the NGA.
    \83\ See proposed 18 CFR 358.2.
---------------------------------------------------------------------------

2. Non-Discrimination Requirements
    57. We propose to carry forward the existing regulations regarding 
the non-discrimination and non-preference requirements imposed on 
transmission providers, with some minor wording changes and combining 
of sections for simplicity and clarity.\84\ While these requirements 
are in large part self-evident, as they reiterate statutory provisions, 
we believe that reiteration is helpful to emphasize the relationship of 
the Standards to the statutory prohibition against undue 
discrimination.
---------------------------------------------------------------------------

    \84\ See proposed 18 CFR 358.4.
---------------------------------------------------------------------------

3. Applicability
    58. In the paragraphs concerning applicability of the standards, we 
propose modifying Sec.  358.1(a) to conform to the definitions proposed 
here, but otherwise to retain the restriction on applicability only to 
those pipelines that conduct transportation transactions with their 
marketing affiliates. We request comment as to whether this section and 
the following Sec.  358.1(b), dealing with electric transmission 
providers, should be made parallel by deleting this provision (or in 
some other way). While a pipeline might conceivably have marketing 
affiliates with which it does not conduct transportation transactions, 
we note that pipelines need no longer be concerned with the inability 
to share information with the officers of such marketing affiliates, 
under our proposed reform of the independent functioning rule.
    59. We propose to continue the existing exemption from the 
Standards for regional transmission organizations (RTOs) and 
independent system operators (ISOs). We also propose to continue the 
present ability of transmission owners that are members of RTOs and 
ISOs to apply for a waiver from the Standards if they do not operate or 
control their transmission facilities and have no access to 
transmission function information.\85\
---------------------------------------------------------------------------

    \85\ See proposed 18 CFR 358.1(c).
---------------------------------------------------------------------------

    60. The initial NOPR raised the question as to when a new natural 
gas transmission provider should become subject to the Standards. Under 
Order No. 497, a natural gas transmission provider became subject to 
the Standards when it commenced transportation transactions with its 
marketing or brokering affiliate.\86\ In Order No. 2004-B, the 
Commission stated that a new interstate pipeline should observe the 
Standards when the pipeline is granted and accepts a certificate of 
public convenience and

[[Page 16237]]

necessity and becomes subject to the Commission's jurisdiction under 
the NGA.\87\ This was one of the items appealed by the gas industry, 
and although it was not addressed in the National Fuel decision, it was 
vacated sub silencio. In the Interim Rule, the Commission did not 
require natural gas transmission providers to observe the Standards 
until such time as they commenced transportation transactions with 
their marketing affiliates.\88\
---------------------------------------------------------------------------

    \86\ Former 18 CFR 161.3.
    \87\ Order No. 2004-B at P 137.
    \88\ Interim Rule at P 26.
---------------------------------------------------------------------------

    61. As we observed in the initial NOPR, we do not have any evidence 
that affiliate abuse has occurred in the time period before 
transportation commences. Therefore, we propose not to require new 
natural gas transmission providers to observe the Standards until the 
earlier of the date they have a rate on file with the Commission, or 
the date on which they commence transportation transactions. We propose 
to apply the same rule to electric transmission providers.\89\
---------------------------------------------------------------------------

    \89\ See proposed 18 CFR 358.8(a).
---------------------------------------------------------------------------

4. Updates and Ministerial Corrections
    62. We carry forward proposals from the initial NOPR to delete 
outdated references, such as those referring to the date for submitting 
a plan and a schedule for implementing the Standards.\90\ We also 
revise language from the existing regulations where necessary to 
correct such ministerial matters as grammar and punctuation, and to 
account for the new definitions we propose here. Finally, we propose to 
reorganize sections where necessary to place related provisions in 
their logical sequence. For example, provisions regarding Energy 
Affiliates have been deleted, and provisions involving posting 
requirements have been gathered together in Sec.  358.7, the 
transparency rule.
---------------------------------------------------------------------------

    \90\ See proposed 18 CFR 358.8(b).
---------------------------------------------------------------------------

    63. We propose modifying the section on definitions by providing 
new definitions that conform with the reforms proposed in this NOPR, 
deleting existing definitions no longer needed in light of our new 
proposals, and placing the definitions in alphabetical order.\91\ We 
propose to carry forward the current definitions of ``transmission 
provider,'' but request comment on whether the separate definitions for 
electric and gas should be made parallel by referring to the applicable 
sections of the Code of Federal Regulations in each definition.\92\
---------------------------------------------------------------------------

    \91\ See proposed 18 CFR 358.3.
    \92\ See proposed 18 CFR 358.3(k).
---------------------------------------------------------------------------

    64. Except as noted above, we propose retaining the bulk of the 
existing requirements for posting notices on the OASIS or Internet Web 
site, with minor wording revisions for clarity.\93\ We propose 
retaining the requirement regarding the maintenance of books and 
records.\94\ With minor wording changes to reflect our proposed new 
definitions, we also propose to retain the requirement that written 
procedures be posted on the OASIS or Internet Web site and be 
distributed to selected employees.\95\ However, we propose to delete 
the current requirement that such written procedures also be filed with 
the Commission.
---------------------------------------------------------------------------

    \93\ See proposed 18 CFR 358.7(d)-(g).
    \94\ See proposed 18 CFR 358.8 (d).
    \95\ See proposed 18 CFR 358.7(d) and 358.8(b).
---------------------------------------------------------------------------

IV. Applicability of the Proposed Rule and Compliance Procedures

    65. The Commission has a responsibility under FPA sections 205 and 
206 and NGA sections 4 and 5 to ensure that the rates, charges, 
classifications, and service of public utilities (and any rule, 
regulation, practice, or contract affecting any of these) are just and 
reasonable and not unduly discriminatory or preferential, and to remedy 
undue discrimination and undue preference in the provision of such 
services. In fulfilling its responsibilities under FPA sections 205 and 
206 and NGA sections 4 and 5, the Commission is required to address, 
and has the authority to remedy, undue discrimination and undue 
preference. Our action in this NOPR proposes to fulfill those 
responsibilities by proposing reforms to the Standards, which are 
designed to provide per se rules preventing undue discrimination and 
undue preference by transmission providers in the sale for resale of 
natural gas and electric energy.
    66. The Commission proposes to apply the Final Rule in this 
proceeding to all transmission providers, who will be required to abide 
by its provisions, including the designation of a Chief Compliance 
Officer and the provision of training to its employees. Records of 
compliance are required to be maintained by the transmission provider 
for inspection by the Commission.

V. Information Collection Statement

    67. The Office of Management and Budget (OMB) regulations require 
approval of certain information collection requirements imposed by 
agency rules.\96\
---------------------------------------------------------------------------

    \96\ 5 CFR 1320.11.
---------------------------------------------------------------------------

    68. Previously, the Commission submitted to OMB the information 
collection requirements arising from the Standards of Compliance 
adopted in Order No. 2004. OMB approved those requirements.\97\ The 
revisions to the Standards proposed in this issuance are modifications 
of already approved information collection procedures, and do not 
impose any significant additional information collection burden on 
industry participants. Many of the changes consist merely of the 
rewording of definitions and the reordering of the various information 
collection requirements. Some information collection requirements have 
been deleted, such as the posting of organizational charts. A 
requirement has been added concerning the maintenance of records 
regarding certain informational exchanges between transmission function 
employees and marketing function employees, as well as a requirement 
regarding the posting of contact information regarding the 
identification of the Chief Compliance Officer. Neither of these should 
impose a significant burden on the transmission providers. In fact, by 
proposing that the Standards will no longer govern the relationship 
between transmission providers and their Energy Affiliates, the overall 
information collection burden will likely decrease.
---------------------------------------------------------------------------

    \97\ Letter from OMB to the Commission (Jan. 20, 2004) (OMB 
Control Number 1902-0157); ``Notice of Action'' letter from OMB to 
the Commission (Jan. 20, 2004) (OMB Control Number 1902-0173).
---------------------------------------------------------------------------

    69. The Commission is submitting notification of the information 
collection requirements imposed in the NOPR to OMB for its review and 
approval under section 3507(d) of the Paperwork Reduction Act of 
1995.\98\ 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 of minimizing respondent's burden, including the use 
of automated information techniques.
---------------------------------------------------------------------------

    \98\ 44 U.S.C. 3507(d) (2000 and Supp. V 2005).
---------------------------------------------------------------------------

    70. 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.: 1902-0157-1902-173.
    Respondents: Business or other for profit.

[[Page 16238]]

    Frequency of Responses: On occasion.
    Necessity of the Information: The information is necessary to 
ensure that all regulated transmission providers treat all transmission 
customers on a non-discriminatory basis.
    Internal Review: The Commission has reviewed the requirements 
pertaining to natural gas pipelines and transmitting electric utilities 
and determined the proposed revisions are necessary to clarify the 
Standards, enhance compliance, increase efficiencies, and conform with 
a recent court decision.
    71. These requirements conform to the Commission's plan for 
efficient information collection, communication, and management with 
the natural gas and electric utility 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.
    72. 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) 502-8415, fax: 
(202) 208-2425, e-mail: [email protected].] Comments on the 
requirements of the proposed rule also may 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].

VI. Environmental Analysis

    73. 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.\99\ The 
Commission concludes that neither an Environmental Assessment nor an 
Environmental Impact Statement is required for this NOPR under Sec.  
380.4 of the Commission's regulations for certain actions. The actions 
proposed here fall within the categorical exclusions because this rule 
is clarifying and corrective, does not substantially change the effect 
of the regulations being amended and calls for information gathering 
and dissemination.\100\ Therefore, an environmental assessment is 
unnecessary and has not been prepared for this rulemaking.
---------------------------------------------------------------------------

    \99\ Order No. 486, Regulations Implementing the National 
Environmental Policy Act of 1969, FERC Stats. & Regs. ] 30,783 
(1987).
    \100\ 18 CFR 380.4(a)(2)(ii) and 380.4(a)(5) (2007).
---------------------------------------------------------------------------

VII. Regulatory Flexibility Act

    74. The Regulatory Flexibility Act of 1980 (RFA) \101\ generally 
requires a description and analysis of final rules that will have 
significant economic impact on a substantial number of small entities. 
Because most transmission providers do not fall within the definition 
of ``small entity,'' \102\ the Commission certifies that this rule will 
not have a significant economic impact on a substantial number of small 
entities. Furthermore, small entities may seek a waiver of these 
requirements, and those small entities that have already received a 
waiver of the Standards would be unaffected by the requirements of this 
proposed rulemaking.
---------------------------------------------------------------------------

    \101\ 5 U.S.C. 601-612 (2000 and Supp. V 2005).
    \102\ See 5 U.S.C. 601(3) and (6) (2000 and Supp. V 2005).
---------------------------------------------------------------------------

VIII. Comment Procedures

    75. 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 May 12, 2008. Comments must refer to 
Docket No. RM07-1-000, and must include the commenter's name, the 
organization he or she represents, if applicable, and his or her 
address.
    76. The Commission encourages comments to 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. Documents created electronically using word processing 
software should be filed in native applications or print-to-PDF format 
and not in a scanned format. Commenters filing electronically do not 
need to make a paper filing.
    77. Commenters who are not able to file comments electronically 
must send an original and 14 copies of their comments to: Federal 
Energy Regulatory Commission, Secretary of the Commission, 888 First 
Street, NE., Washington, DC 20426.
    78. 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 reissued NOPR 
are not required to serve copies of their comments on other commenters.

IX. Document Availability

    79. 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.
    80. 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.
    81. User assistance is available for eLibrary and the FERC's Web 
site during normal business hours from FERC Online Support at 202-502-
6652 (toll free at 1-866-208-3676) or e-mail at: 
[email protected], or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. E-mail the Public Reference Room at: 
[email protected].

List of Subjects in 18 CFR Part 358

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

    By direction of the Commission.
Nathaniel J. Davis, Sr.,
Deputy Secretary.

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

PART 358--STANDARDS OF CONDUCT

Sec.
358.1 Applicability.
358.2 General principles.
358.3 Definitions.
358.4 Non-discrimination requirements.
358.5 Independent functioning rule.
358.6 No conduit rule.
358.7 Transparency rule.
358.8 Implementation 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 and conducts transmission 
transactions with an affiliate that engages in marketing functions.
    (b) This part applies to any public utility that owns, operates, or 
controls facilities used for the transmission of electric energy in 
interstate commerce.

[[Page 16239]]

    (c) This part does not apply to a public utility transmission 
provider that is a Commission-approved Independent System Operator 
(ISO) or Regional Transmission Organization (RTO). If a public utility 
transmission owner participates in a Commission-approved ISO or RTO and 
does not operate or control its transmission system and has no access 
to transmission function information, it may request an exemption from 
this part.
    (d) A transmission provider may file a request for an exemption 
from all or some of the requirements of this part for good cause.


Sec.  358.2  General principles.

    (a) A transmission provider must treat all transmission customers, 
affiliated and non-affiliated, on a not unduly discriminatory basis, 
and must not make or grant any undue preference or advantage to any 
person or subject any person to any undue prejudice or disadvantage 
with respect to any transportation of natural gas or transmission of 
electric energy in interstate commerce, or with respect to the 
wholesale sale of natural gas or of electric energy in interstate 
commerce.
    (b) A transmission provider's transmission function employees must 
function independently from its marketing function employees, except as 
permitted in this part or otherwise permitted by Commission order.
    (c) Transmission function information may not be passed to or 
received by a transmission provider's marketing function employees, 
unless such information has been made public, except as permitted in 
this part or otherwise permitted by Commission order.
    (d) A transmission provider must create, and maintain for a period 
of five years, records of permitted communications between transmission 
function employees and marketing function employees.


Sec.  358.3  Definitions.

    (a) Affiliate of a specified company means:
    (1) A division that operates as a functional unit of the specified 
company or, for any person other than an exempt wholesale generator:
    (i) Any person that directly or indirectly owns, controls, or holds 
with power to vote, 10 percent or more of the outstanding voting 
securities of the specified company;
    (ii) Any company 10 percent or more of whose outstanding voting 
securities are owned, controlled, or held with power to vote, directly 
or indirectly, by the specified company;
    (iii) Any person or class of persons that the Commission 
determines, after appropriate notice and opportunity for hearing, to 
stand in such relation to the specified company that there is liable to 
be an absence of arm's-length bargaining in transactions between them 
as to make it necessary or appropriate in the public interest or for 
the protection of investors or consumers that the person be treated as 
an affiliate; and
    (iv) Any person that is under common control with the specified 
company.
    (v) For purposes of paragraph (a)(1)(iv) of this section, owning, 
controlling or holding with power to vote, less than 10 percent of the 
outstanding voting securities of a specified company creates a 
rebuttable presumption of lack of control.
    (2) For any exempt wholesale generator (as defined under Sec.  
366.1 of this chapter), consistent with section 214 of the Federal 
Power Act (16 U.S.C. 824m), which provides that ``affiliate'' shall 
have the same meaning as provided in section 2(a) of the Public Utility 
Holding Company Act of 1935 (15 U.S.C. 79b(a)(11)):
    (i) Any person that directly or indirectly owns, controls, or holds 
with power to vote, 5 percent or more of the outstanding voting 
securities of the specified company;
    (ii) Any company 5 percent or more of whose outstanding voting 
securities are owned, controlled, or held with power to vote, directly 
or indirectly, by the specified company;
    (iii) Any individual who is an officer or director of the specified 
company, or of any company which is an affiliate thereof under 
paragraph (a)(2)(i) of this section; and
    (iv) any person or class of persons that the Commission determines, 
after appropriate notice and opportunity for hearing, to stand in such 
relation to the specified company that there is liable to be an absence 
of arm's-length bargaining in transactions between them as to make it 
necessary or appropriate in the public interest or for the protection 
of investors or consumers that the person be treated as an affiliate.
    (b) Internet Web site refers to the Internet location where an 
interstate natural gas pipeline posts the information, by electronic 
means, required by Sec. Sec.  284.12 and 284.13 of this chapter.
    (c) Marketing functions means the sale for resale in interstate 
commerce, or the submission of offers or bids to buy or sell natural 
gas or electric energy or capacity, demand response, virtual electric 
or gas supply or demand, or financial transmission rights in interstate 
commerce, subject to the following exemptions:
    (1) Bundled retail sales, including sales of electric energy made 
by providers of last resort (POLRs),
    (2) Incidental purchases or sales of natural gas to operate 
interstate natural gas pipeline transmission facilities,
    (3) Sales of natural gas solely from the transmission provider's 
own production,
    (4) Sales of natural gas solely from the transmission provider's 
own gathering or processing facilities, and
    (5) Sales by an intrastate natural gas pipeline or local 
distribution company making an on-system sale.
    (d) Marketing function employee means an employee, contractor, 
consultant or agent of a transmission provider or of an affiliate of a 
transmission provider who actively and personally engages in marketing 
functions. An officer, director or other supervisory employee is not 
considered to be a marketing function employee if he or she does not 
actively and personally engage in marketing functions.
    (e) 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.
    (f) Transmission means electric transmission, network or point-to-
point service, ancillary services or other methods of electric 
transmission, or the interconnection with jurisdictional transmission 
facilities, under part 35 of this chapter; and natural gas 
transportation, storage, exchange, backhaul, or displacement service 
provided pursuant to subpart A of part 157 or subparts B or G of part 
284 of this chapter.
    (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 requests for transmission service or for 
information regarding transmission.
    (h) Transmission functions means transmission system operations and 
the planning, directing, organizing or carrying out of transmission 
operations, including the granting and denying of transmission service 
requests.
    (i) Transmission function employee means an employee, contractor, 
consultant or agent of a transmission provider who actively and 
personally engages in transmission functions. An officer, director or 
other supervisory employee is not considered to be a transmission 
function employee if he or

[[Page 16240]]

she does not actively and personally engage in transmission functions.
    (j) Transmission function information means information relating to 
transmission functions.
    (k) 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.
    (3) A transmission provider does not include a natural gas storage 
provider authorized to charge market-based rates that is not 
interconnected with the jurisdictional facilities of any affiliated 
interstate natural gas pipeline, has no exclusive franchise area, no 
captive ratepayers and no market power.
    (l) Transmission service means the provision of any transmission as 
defined in Sec.  358.3(f).


Sec.  358.4  Non-discrimination requirements.

    (a) Implementing tariffs. (1) A transmission provider must strictly 
enforce all tariff provisions relating to the sale or purchase of open 
access transmission service, if the 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 not unduly discriminatory manner, if the tariff 
provisions permit the use of discretion.
    (3) A transmission provider may not, through its tariffs or 
otherwise, give undue preference to any person 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).
    (4) A transmission provider must process all similar requests for 
transmission in the same manner and within the same period of time.
    (5) A transmission provider must post on the OASIS or Internet Web 
site, as applicable, notice of each waiver of a tariff provision that 
it grants, and notice of each exercise of discretion that it exercises, 
detailing the circumstances and manner under which the waiver or 
exercise of discretion occurred. The posting must be made within one 
business day of the act of a waiver or exercise of discretion. The 
transmission provider must also maintain a log of the acts of waiver 
and exercises of discretion, and must make it available to the 
Commission upon request. The records must be kept for a period of five 
years from the date of each act of waiver or exercise of discretion.
    (b) Discounts. A transmission provider must post any offer of a 
discount for any transmission service made on the OASIS or Internet Web 
site, as applicable, contemporaneous with the time that the offer is 
contractually binding. The posting must remain on the OASIS or Internet 
Web site for 60 days from the date of posting. The posting must 
include:
    (1) The name of the customer involved in the discount and whether 
it is an affiliate or whether an affiliate is involved in the 
transaction;
    (2) The rate offered;
    (3) The maximum rate;
    (4) The time period for which the discount would apply;
    (5) The quantity of power or gas upon which the discount is based;
    (6) The delivery points under the transaction; and
    (7) Any conditions or requirements applicable to the discount.


Sec.  358.5  Independent functioning rule.

    (a) General rule. Except as permitted in this part or otherwise 
permitted by Commission order, a transmission provider's transmission 
function employees must function independently of its marketing 
function employees.
    (b) Exemption for permitted information exchanges. Notwithstanding 
the requirements of paragraph (a) of this section, a transmission 
provider's transmission function employees and marketing function 
employees may exchange certain information, in which case the 
transmission provider must make a contemporaneous record of the 
information exchange, subject to an exception for emergency 
circumstances, as provided in Sec.  358.7(h). The permitted information 
is as follows:
    (1) Information regarding generation necessary to perform 
generation dispatch, or
    (2) Information necessary to maintain or restore operation of the 
transmission system.
    (c) Separation of functions. (1) A transmission provider is 
prohibited from permitting its marketing function employees to:
    (i) Conduct transmission functions; or
    (ii) Have access to the system control center or similar facilities 
used for transmission operations that differs in any way from the 
access available to other transmission customers.
    (2) A transmission provider is prohibited from permitting its 
transmission function employees to conduct marketing functions.


Sec.  358.6  No conduit rule.

    (a) Prohibited disclosure and receipt. (1) A transmission 
provider's transmission function employees are prohibited from 
disclosing non-public transmission function information to their 
transmission provider's marketing function employees.
    (2) A transmission provider's marketing function employees are 
prohibited from receiving non-public transmission function information 
from any source.
    (3) A transmission provider is prohibited from using anyone as a 
conduit for the disclosure of non-public transmission function 
information to its marketing function employees.
    (4) An employee of a transmission provider, and an employee of an 
affiliate of a transmission provider that is engaged in marketing 
functions, is prohibited from disclosing non-public transmission 
function information to any of the transmission provider's marketing 
function employees.
    (b) Exemption for permitted information exchanges. Notwithstanding 
the requirements of paragraph (a) of this section, a transmission 
provider's transmission function employees and marketing function 
employees may exchange certain information, in which case the 
transmission provider must make a contemporaneous record of the 
information exchange, subject to an exception for emergency 
circumstances, as provided in Sec.  358.7(h). The permitted information 
is as follows:
    (1) Information regarding generation necessary to perform 
generation dispatch, or
    (2) Information necessary to maintain or restore operation of the 
transmission system.


Sec.  358.7  Transparency rule.

    (a) Contemporaneous disclosure. (1) If a transmission provider 
discloses non-public transmission function information, other than non-
public transmission customer information, in a manner contrary to the 
requirements of Sec.  358.6(a), the transmission provider must 
immediately post the information that was disclosed on the OASIS or 
Internet Web site, as applicable.
    (2) If a transmission provider discloses non-public transmission 
customer information in a manner contrary to the requirements of Sec.  
358.6(a), the transmission provider must immediately post notice on the 
OASIS or Internet website, as applicable, that non-public transmission 
customer information was disclosed.
    (b) Exception for specific transaction information. A transmission 
provider is

[[Page 16241]]

not required to contemporaneously disclose information covered by Sec.  
358.6(a) if the information relates solely to a marketing function 
employee's specific request for transmission service.
    (c) Voluntary consent provision. A transmission customer may 
voluntarily consent, in writing, to allow the transmission provider to 
disclose the transmission customer's information to the transmission 
provider's marketing function employees. If the transmission customer 
authorizes the transmission provider to disclose its information to 
marketing function employees, the transmission provider must post 
notice on the OASIS or Internet website of that consent along with a 
statement that it did not provide any preferences, either operational 
or rate-related, in exchange for that voluntary consent.
    (d) Posting written procedures on the public Internet. A 
transmission provider must post on the OASIS or Internet website, as 
applicable, current written procedures implementing the standards of 
conduct.
    (e) Identification of affiliate information on the public Internet.
    (1) A transmission provider must post on its OASIS or Internet 
website, as applicable, the names and addresses of all its affiliates 
that employ or retain marketing function employees.
    (2) A transmission provider must post on its OASIS or Internet 
website, as applicable, a complete list of the employee-staffed 
facilities shared by the transmission provider and any of its 
affiliates that employ or retain marketing function employees. The list 
must include the types of facilities shared and the addresses of the 
facilities.
    (3) The transmission provider must post information concerning 
potential merger partners as affiliates that may employ or retain 
marketing function employees, within seven days after the potential 
merger is announced.
    (f) Identification of employee information on the public Internet.
    (1) A transmission provider must post on its OASIS or Internet 
website, as applicable, the job titles and job descriptions of its 
transmission function employees, with the exception of clerical, 
maintenance, and field positions.
    (2) A transmission provider must post a notice on the OASIS or 
Internet website, as applicable, of any transfer of a transmission 
function employee to a position as a marketing function employee, or 
any transfer of a marketing function employee to a position as a 
transmission function employee. The information posted under this 
section must remain on the OASIS or Internet Web site, as applicable, 
for 90 days. No such job transfer may be used as a means to circumvent 
any provision of this part. The information to be posted must include:
    (i) The name of the transferring employee,
    (ii) The respective titles held while performing each function 
(i.e., as a transmission function employee and as a marketing function 
employee), and
    (iii) The effective date of the transfer.
    (g) Timing and general requirements of postings on the public 
Internet.
    (1) A transmission provider must update on its OASIS or Internet 
Web site, as applicable, the information required by Sec.  358.7 within 
seven business days of any change, and post the date on which the 
information was updated.
    (2) In the event an emergency, such as a flood, fire or hurricane, 
severely disrupts a transmission provider's normal business operations, 
the posting requirements in this part may be suspended by the 
transmission provider. If the disruption lasts longer than one month, 
the transmission provider must so notify the Commission and may seek a 
further exemption from the posting requirements.
    (3) All OASIS or Internet Web site postings required by this part 
must comply, as applicable, with the requirements of Sec.  37.6 or 
Sec.  284.12(a) and (b)(3)(v) of this chapter, and must be sufficiently 
prominent as to be readily accessible.
    (h) Recordation of permitted information exchanges. Notwithstanding 
the requirements of Sec. Sec.  358.5(a) and 358.6(a), a transmission 
provider's transmission function employees and marketing function 
employees may exchange certain information, in which case the 
transmission provider must make and retain a contemporaneous record of 
all such exchanges except in emergency circumstances, in which case a 
record must be made of the exchange as soon as practicable after the 
fact. The transmission provider shall make the record available to the 
Commission upon request. The record may consist of hand-written or 
typed notes, electronic records such as e-mails and text messages, 
recorded telephone exchanges, and the like, and must be retained for a 
period of five years. The permitted information is as follows:
    (1) Information regarding generation necessary to perform 
generation dispatch, or
    (2) Information necessary to maintain or restore operation of the 
transmission system.


Sec.  358.8  Implementation requirements.

    (a) Effective date. A transmission provider must be in full 
compliance with the standards of conduct by the earlier of:
    (1) The date it has a rate on file with the Commission, or
    (2) The date it commences transmission transactions.
    (b) Compliance measures and written procedures.
    (1) A transmission provider must implement measures to ensure that 
the requirements of Sec. Sec.  358.5(a) and 358.6(a) are observed by 
its employees and by the employees of its affiliates.
    (2) A transmission provider must distribute the written procedures 
referred to in Sec.  358.7(d) to all its transmission function 
employees, marketing function employees, officers, directors, 
supervisory employees, and any other employees likely to become privy 
to transmission function information.
    (c) Training and compliance personnel.
    (1) A transmission provider must provide annual training on the 
standards of conduct to all the employees listed in paragraph (b)(2) of 
this section. The transmission provider must provide training on the 
standards of conduct to new employees in the categories listed in 
paragraph (b)(2) of this section, within the first 30 days of their 
employment. The transmission provider must require each employee who 
has taken the training to certify electronically or in writing that s/
he has completed the training.
    (2) A transmission provider must designate a Chief Compliance 
Officer who will be responsible for standards of conduct compliance. 
The transmission provider must post the name of the Chief Compliance 
Officer and provide his or her contact information on the OASIS or 
Internet Web site, as applicable.
    (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 affiliates that 
employ or retain marketing function employees, and these must be 
available for Commission inspections.

    Note: The following appendix will not be published in the Code 
of Federal Regulations.

Appendix A: Table of Commenters and Abbreviations for Commenters

    An asterisk indicates that the commenter filed both initial and 
reply comments.

[[Page 16242]]



----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
1. Missouri Public Service Commission.........  Missouri PSC.
2. Comments of the State of Alaska on Notice    Alaska.
 of Proposed Rulemaking.
3. Rulemaking Comments of New Mexico Attorney   New Mexico AG.
 General Office.
4. Rulemaking Comment of National Association   NARUC.
 of Regulatory Utility Commissioners*.
5. Notice of Intervention of California Public  California PUC.
 Utilities Commission*.
6. Initial Comments of * * * the Public         PUC of Ohio.
 Utilities Commission of Ohio.
7. Joint Comments of the Washington Utilities   Washington, Idaho and Oregon state commissions.
 and Transportation Commission, the Idaho
 Public Utilities Commission, and the PUC of
 Oregon*.
8. Georgia Public Service Commissioner Stan     Commissioner Wise.
 Wise.
9. Rulemaking Comment of South Carolina Public  Santee Cooper.
 Service Authority.
10. Initial Comments of the Natural Gas Supply  NGSA.
 Association*.
11. Initial Comments of the American Gas        AGA.
 Association*.
12. Rulemaking Comment of Interstate Natural    INGAA.
 Gas Association of America*.
13. Comments of Texas Pipeline Association....  Texas Pipeline Ass'n.
14. Comments of the American Public Gas         APGA.
 Association*.
15. Initial Comments of the National Fuel       National Fuel Companies.
 Companies*.
16. Rulemaking Comment of Spectra Energy        Spectra.
 Transmission, LLC.
17. Rulemaking Comments of Enbridge Energy      Enbridge.
 Partners, L.P. and Enbridge, Inc.
18. Initial Comments of Williams Four Corners   Williams.
 LLC.
19. Rulemaking Comment of Questar Market        Questar Market Resources.
 Resources, INC.
20. Rulemaking Comment of Questar Gas Company.  Questar Gas Co.
21. Comments of Boardwalk Pipeline Partners,    Boardwalk.
 LP.
22. Rulemaking Comments of Williston Basin      Williston.
 Interstate Pipeline Company.
23. Comments Of NiSource Inc..................  NiSource.
24. Rulemaking Comment of Alliance Pipeline     Alliance.
 L.P.
25. Rulemaking Comment of USG Pipeline          USG.
 Company, et al.
26. Initial Comments of Exxon Mobil             ExxonMobil.
 Corporation.
27. Rulemaking Comment of DCP Midstream, LP...  DCP Midstream.
28. Initial Comments of El Paso Corporation...  El Paso.
29. Rulemaking Comment of Northwest Natural     Northwest Natural.
 Gas Company and KB Pipeline Company.
30. Initial Comments of Southwest Gas           Southwest Gas.
 Corporation.
31. Rulemaking Comment of New Jersey Resources  NJ Resources.
 Corporation.
32. Initial Comments of Sequent Energy          Sequent.
 Management, LP.
33. Comments of CenterPoint Energy Gas          CenterPoint.
 Transmission Company.
34. Comments of KO Transmission Company.......  KO Transmission.
35. Rulemaking Comment of Dominion Resources    Dominion Resources.
 Services, Inc.
36. Comments of Suez Energy North America, Inc  Suez.
37. Comments of Edison Electric Institute*....  EEI.
38. Rulemaking Comment of the Large Public      LPPC.
 Power Council*.
39. Comments of the Electric Power Supply       EPSA.
 Association*.
40. Rulemaking Comment of Transmission          TDU Systems.
 Dependent Utility Systems*.
41. Comments of the American Public Power       APPA.
 Association*.
42. Rulemaking Comments of National Rural       NRECA.
 Electric Cooperative Association.
43. Rulemaking Comment of Southwest Area        SWAT.
 Transmission Sub-Regional Planning Group*.
44. Rulemaking Comment of Retail Energy Supply  Retail Energy Supply Ass'n.
 Association*.
45. Rulemaking Comment of Transmission Access   TAPS.
 Policy Study Group*.
46. Rulemaking Comment of the Western           Western Utilities Compliance Group.
 Utilities*.
47. Rulemaking Comment of Idaho Power Company.  Idaho Power.
48. Rulemaking Comment of Tucson Electric       Tucson Electric.
 Power Company.
49. Initial Comments of Nevada Power Company    Nevada Companies.
 and Sierra Pacific Power Company.
50. Rulemaking Comment of Arizona Public        Arizona PSC.
 Service Company.
51. Comments of Public Service Co. of New       PSC of New Mexico.
 Mexico.
52. Joint Initial Comments of Community Power   CPA.
 Alliance Members (i.e., Entergy Services,
 Inc.; Salt River Project Ag. Imp. and Power
 Dist.; Progress Energy; and, Southern Co.)*.
53. Initial Comments of Southern Company        Southern Co. Services.
 Services, Inc.
54. Comments of Entergy Services, Inc.........  Entergy.
55. Rulemaking Comment of The AES Corporation.  AES.
56. Rulemaking Comment of E.ON U.S. LLC.......  E.ON.
57. Comments of Reliant Energy, Inc...........  Reliant.
58. Comments of DTE Energy Company............  DTE.
59. Rulemaking Comments of PSEG Energy          PSEG.
 Resources & Trade LLC, et al.
60. Rulemaking Comment of KeySpan Corporation.  KeySpan.
61. Rulemaking Comment of Bonneville Power      Bonneville.
 Administration*.
62. Comments of the Transmission Agency of      TANC.
 Northern California*.
63. Rulemaking Comment of Portland General      Portland General.
 Electric Company.
64. Rulemaking Comment of Florida Power &       Florida Power & Light.
 Light Company.
65. Rulemaking Comment of FPL Group, Inc......  FPL Group.
66. Rulemaking Comment of Otter Tail Power      Otter Tail.
 Company.
67. Comments of Wisconsin Electric Power        Wisconsin Electric.
 Company.
68. Rulemaking Comment of Puget Sound Energy,   Puget Sound.
 Inc.
69. Rulemaking Comment of Exelon Corporation..  Exelon.
70. Rulemaking Comment of NSTAR Electric & Gas  NSTAR.
 Corporation.
71. Comments of NorthWestern Corporation......  NorthWestern.
72. Rulemaking Comment of the Indicated New     Indicated NY TOs.
 York Transmission Owners.
73. Comments of FirstEnergy Service Company...  FirstEnergy.
74. Rulemaking Comments of American             American Trans. Co.
 Transmission Company LLC.

[[Page 16243]]

 
75. Joint Comments of Progress Energy, Inc.,    Progress.
 ElectriCities of North Carolina, Inc. and
 North Carolina Electric Membership
 Corporation.
76. Motion To Intervene And Comments of         PG&E.
 Pacific Gas & Electric Company.
77. Comments of Ameren Services Company.......  Ameren.
78. Initial Comments of Oklahoma Gas and        Oklahoma Gas & Electric.
 Electric Company.
79. Rulemaking Comment of Southern California   SCE.
 Edison Company.
80. Rulemaking Comment of Morgan Stanley        MSCGI.
 Capital Group Inc.*.
81. Comments of National Grid USA.............  National Grid.
82. Rulemaking Comment of MidAmerican Energy    MidAmerican.
 Company, PacifiCorp, Kern River Gas
 Transmission Company, and Northern Natural
 Gas Company.
83. Initial Comments of SCANA Corp............  SCANA.
84. Rulemaking Comment of Xcel Energy Services  Xcel.
 Inc.
85. Comments of Sempra........................  Sempra.
86. Florida Public Service Commission (Reply    Florida PSC.
 comments only).
87. ITC--Mich. Electric Transmission (Reply     ITC.
 comments only).
88. Federal Trade Commission (Reply comments    FTC.
 only).
89. Alabama PSC (Reply comments only).........  Alabama PSC.
90. Chevron (Reply comments only).............  Chevron.
91. Aux Sable Liquids (Reply comments only)...  Aux Sable.
92. Calypso/Broadwater (Reply comments only)..  Calypso.
93. Anadarko*.................................  Anadarko.
94. BG E&P Alaska (Reply comments only).......  BG E&P Alaska.
95. Fayetteville (Reply comments only)........  Fayetteville.
----------------------------------------------------------------------------------------------------------------

 [FR Doc. E8-6261 Filed 3-26-08; 8:45 am]
BILLING CODE 6717-01-P