[Federal Register: January 29, 2007 (Volume 72, Number 18)]
[Proposed Rules]
[Page 3958-3974]
[DOCID:fr29ja07-14]

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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

January 18, 2007.
AGENCY: Federal Energy Regulatory Commission; DOE.

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: The purpose of this Notice of Proposed Rulemaking is to
propose permanent regulations regarding the standards of conduct
consistent with the decision of the United States Court of Appeals of
the District of Columbia in National Fuel Gas Supply Corporation v.
FERC, 468 F.3d 831 (2006), regarding natural gas pipelines. On January
9, 2007, the Commission issued an interim rule regarding the standards
of conduct in response to the court's decision. The Commission is
soliciting comments regarding whether or not the interim rule should be
made permanent for natural gas transmission providers. The Commission
is also soliciting comments regarding comparable changes for electric
utility transmission providers: specifically, whether or not the
standards of conduct should govern the relationship between electric
utility transmission providers and their energy affiliates. Also, the
Commission is proposing to: revise the definition of marketing, sales
or brokering; make permanent the changes adopted in the interim rule
for risk management employees and discretionary waivers; remove the
regulations that permit the transmission provider to share information
necessary to maintain the operations of its transmission system with
its energy affiliates; add and revise various regulations to facilitate
integrated resource planning and competitive solicitations; revise the
regulations to require each transmission provider to post the name of
its chief compliance officer, to delete outdated references, and to
require that transmission provider employees certify that they have
completed standards of conduct training; and, revise the definition of
affiliate regarding exempt wholesale generators.

DATES: Comments must be filed on or before March 15, 2007. Reply
comments must be filed on or before April 4, 2007.

ADDRESSES: You may submit comments identified by Docket No. RM07-1-000,
by one of the following methods:
     Agency Web Site: http://ferc.gov. Follow the instructions

for submitting comments via the eFiling link found in the Comment
Procedures Section of the preamble.
     Mail: Commenters unable to file comments electronically
must mail or hand deliver an original and 14 copies of their comments
to the Federal Energy Regulatory Commission, Office of the Secretary,
888 First Street, NE., Washington, DC 20426. Please refer to the
Comment Procedures Section of the preamble for additional information
on how to file paper comments.

FOR FURTHER INFORMATION CONTACT:

Eric Ciccoretti, Office of Enforcement, Federal Energy Regulatory
Commission, 888 First Street, NE., Washington, DC 20426, Telephone:
(202) 502-8493, E-mail<EMAIL_ADDRESS>Deme Anas, Office of Enforcement, Federal Energy Regulatory Commission,
888 First Street, NE., Washington, DC 20426, Telephone:<PHONE_NUMBER>,
E-mail<EMAIL_ADDRESS>Stuart Fischer, Office of Enforcement, Federal Energy Regulatory
Commission, 888 First Street, NE., Washington, DC 20426, Telephone:
(202) 502-8517, E-mail<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

I. Introduction

    1. The Federal Energy Regulatory Commission (Commission) is
proposing to adopt standards of conduct regulations that govern the
relationship between natural gas transmission providers and their
marketing affiliates in light of the decision of the United States
Court of Appeals for the District of Columbia Circuit concerning the
standards of conduct for transmission providers under Order No.
2004.\1\ In National Fuel Gas Supply Corporation v. FERC (National
Fuel),\2\ the court determined that the Commission did not support the
standards of conduct's definition of energy affiliate and vacated Order
Nos. 2004, 2004-A, 2004-B, 2004-C and 2004-D (collectively referred to
as Order No. 2004) as applied to natural gas pipelines and remanded the
orders to the Commission.\3\ Specifically, the court rejected the
Commission's attempt to extend the standards of conduct beyond
pipelines' relationships with their marketing affiliates to also govern
pipelines' relationships with numerous non-marketing affiliates, such
as producers, gatherers, and local distribution companies (energy
affiliates). In light of this, the court found moot the other issues
raised on appeal.\4\
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    \1\ On November 25, 2003, the Commission added Part 358 to the
regulations adopting standards of conduct that apply uniformly to
natural gas and electric utility transmission providers. 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, order on reh'g, Order No. 2004-D, 110
FERC ] 61,320 (2005), remanded as it applies to natural gas
pipelines, National Fuel Gas Supply Corporation v. FERC, 468 F.3d
831, (D.C. Cir. Nov. 17, 2006).
    \2\ National Fuel, slip op. at 4.
    \3\ Id.
    \4\ Id.
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    2. On January 9, 2007, the Commission issued an interim rule that
promulgated temporary regulations consistent with the court's decision,
but designed to prevent a regulatory gap with respect to standards of
conduct for natural gas transmission providers and their marketing
affiliates.\5\ The purpose of this Notice of Proposed Rulemaking (NOPR)
is to propose permanent regulations consistent with the court's
decision regarding natural gas pipelines. The Commission is also
soliciting comments regarding whether or not to make comparable changes
for electric utility transmission providers. With respect to both
industries, the Commission seeks evidence regarding the scope of the
rules, including application of the rules to energy affiliates. This
issuance will provide a forum to develop the appropriate record for any
future action. Moreover, because we are initiating a rulemaking
proceeding, the Commission also takes this opportunity to propose
additional changes to the standards of conduct, including, among other
things, proposing provisions to facilitate integrated resource planning
and competitive solicitations for electric utility transmission
providers.
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    \5\ Standards of Conduct for Transmission Providers, Order No.
690, 72 FR 2427 (Jan. 19, 2007); FERC Stats. & Regs. ] 31,327 (Jan.
9, 2007).
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    3. In this NOPR, the Commission proposes to make permanent the
interim regulations that made the standards of conduct inapplicable to
the relationship between natural gas pipeline transmission providers
and their energy affiliates. The Commission also proposes to: (1) To
revise the definition of marketing, sales or brokering at Sec.
358.3(e) of the Commission's regulations; (2) make permanent the
changes adopted in the interim rule for Sec.  358.4(a)(6) of the
Commission's regulations regarding risk management employees and
Sec. Sec.  358.5(c)(4)(i) and (ii) of the Commission's regulations
regarding discretionary waivers; (3) remove Sec.  358.5(b)(8) of the
Commission's regulations, which permits the transmission provider to
share information necessary to maintain the operations of its
transmission system with its energy affiliates; (4) add and revise
various sections to facilitate integrated resource planning and
competitive solicitations; (5) revise Sec.  358.4(e) of the
Commission's regulations to require each transmission provider to post
the name of its chief compliance officer, to delete outdated
references, and to require that transmission provider employees certify
that they have completed standards of conduct training; and (6) revise
the definition of affiliate regarding exempt wholesale generators at
Sec.  358.3(b)(2) of the Commission's regulations.

A. Order No. 2004

    4. Prior to Order No. 2004, the Commission had two separate sets of
regulations governing standards of conduct for transmission providers.
The regulations applicable to natural gas pipelines were issued in
Order No. 497 in 1988,\6\ under sections 4 and 5 of the Natural Gas
Act.\7\ In 1996, the Commission issued Order No. 889,\8\ which created
standards of conduct regulations applicable to electric utilities under
sections 205 and 206 of the Federal Power Act.\9\ Both rules had the
same goal--to prevent transmission providers from wielding their market
power over transmission to give undue preference or unduly
discriminatory treatment in favor of their marketing affiliates over
non-affiliates. Both rules employed the same general approach, e.g.,
requiring employees engaged in transmission services to function
independently from employees of its marketing affiliates and imposing
prohibitions restricting transmission providers from sharing certain
information with their marketing affiliates. The rules were designed to
ensure that affiliated and non-affiliated transmission customers were
treated on an equal basis. However, the standards of conduct under
Order Nos. 497 and 889 contained some differences, particularly with
respect to the

information sharing prohibitions and posting requirements.
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    \6\ 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).
    \7\ 15 U.S.C. 717c and 717d; see also former 18 CFR part 161
(2003).
    \8\ 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 1996-2000 ] 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).
    \9\ 16 U.S.C. 824d and 824e; see also former 18 CFR 37.4 (2003).
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    5. In Order No. 2004, the Commission revised the standards of
conduct so that one set of regulations applied uniformly to both
natural gas and electric utility transmission providers and their
affiliates.\10\ In doing so, the Commission noted several reasons for
issuing new standards of conduct.\11\ In Order No. 2004, the Commission
also expanded the coverage of the standards of conduct to govern the
relationships between transmission providers and energy affiliates.\12\
Previously, the standards of conduct governed the relationships between
transmission providers and their marketing affiliates.\13\
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    \10\ 18 CFR 358.3(a)(1) and (2) (definition of transmission
provider).
    \11\ Order No. 2004 at P 6-15.
    \12\ Section 358.3(d) defined energy affiliate as any affiliate
which is engaged or involved in transmission transactions; manages
or controls pipeline capacity; buys, sells, trades or administers
natural gas or electric energy in domestic energy or transmission
markets; and engages in financial transactions relating to the sale
or transmission of natural gas or electric energy in such markets.
18 CFR 358.3(d).
    \13\ Under Order No. 497, marketing included affiliates and
business divisions engaged in making sales for resale of natural gas
in interstate commerce (former 18 CFR 161.2(c)); and under Order No.
889, marketing covered affiliates and business divisions engaged in
making sales for resale of electric energy in interstate commerce
(former 18 CFR 37.3(e)).
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B. Matters Appealed

    6. Five issues were appealed from Order No. 2004: (1) The extension
of the standards of conduct to cover the relationship between natural
gas transmission providers and their energy affiliates under Sec.
358.3(d); (2) the scope of the restrictions on sharing risk management
employees between natural gas pipeline transmission providers and their
marketing/energy affiliates under Sec.  358.4(a)(6); (3) the scope of
the restrictions on sharing lawyers between natural gas pipeline
transmission providers and their marketing/energy affiliates; (4) the
scope of the requirement for natural gas pipeline transmission
providers to post all discretionary acts under Sec.  358.5(c)(4); and
(5) the timing as to when newly certificated pipelines become subject
to the standards of conduct.

C. The Court's Decision

    7. In National Fuel, the court vacated Order No. 2004 as applicable
to natural gas pipelines because of the expansion of the standards of
conduct to include energy affiliates. The court explained that the
Commission relied on both theoretical grounds and on record evidence to
justify this expansion. The court concluded that the Commission's
record evidence did not withstand scrutiny and, thus, concluded the
expansion was arbitrary and capricious in violation of the
Administrative Procedure Act.\14\ The court vacated Order No. 2004 as
applicable to natural gas pipelines. In light of this disposition, the
court did not address the other four issues raised on appeal regarding
Order No. 2004.
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    \14\ National Fuel, slip op. at 4.
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II. Discussion

    8. The NOPR proposes to make changes to Part 358 (discussed in
greater detail below) consistent with National Fuel, seeks comment on
other issues, and clarifies that waivers or exemptions that the
Commission issued under Order No. 2004 remain valid and are not
negatively impacted by the National Fuel decision.

A. Partially Repromulgating Part 358

    9. Order No. 2004 codified many case-by-case exceptions that had
evolved during the implementation of Order Nos. 497 and 889. These
provisions included: codifying exceptions to the independent
functioning requirement;\15\ revising information sharing prohibitions
to reflect practical considerations \16\ and emergency
circumstances;\17\ codifying a training requirement;\18\ revising and
imposing new posting requirements to improve transparency;\19\ and
requiring transmission providers to designate a chief compliance
officer.\20\ The NOPR proposes to re-adopt those sections of Part 358
that were not appealed and not found infirm in National Fuel.
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    \15\ 18 CFR 358.4.
    \16\ 18 CFR 358.5(b)(6) and (8).
    \17\ 18 CFR 358.4(a)(2).
    \18\ 18 CFR 358.4(e)(5).
    \19\ 18 CFR 358.5(a) and (b).
    \20\ 18 CFR 358.4(e)(6).
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B. The Definition of Energy Affiliates

    10. Because the court's decision focused on the Commission's lack
of evidence to support expanding the standards of conduct to govern the
relationship between natural gas transmission providers and their non-
marketing affiliates, the interim rule added a new provision stating
that the standards of conduct do not govern the relationship between
natural gas transmission providers and their energy affiliates.\21\ In
this NOPR, consistent with the court's decision, the Commission
proposes to retain this provision on a permanent basis for natural gas
transmission providers. We seek comment on whether this is sufficient
to protect customers.
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    \21\ Interim 18 CFR 358.1(e) states: ``The Standards of Conduct
in this part do not govern the relationship between a natural gas
Transmission Provider and its energy affiliates.''
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    11. The Commission also is seeking comment on the current
restrictions relating to energy affiliates of electric utility
transmission providers. The court in National Fuel did not address this
issue because electric utility transmission providers did not appeal
Order No. 2004. However, the Commission believes it is important to
address the issue here.
    12. The Commission has reviewed the existing regulations, the
rationale for promulgating them, and other modifications being
discussed herein concerning whether or not to eliminate the
restrictions on energy affiliates of electric utility transmission
providers. If we were to eliminate these restrictions, the non-
marketing energy affiliates of electric transmission providers would no
longer be subject to the standards of conduct. However, since we have
not yet received comments on the issue or engaged in outreach, this
NOPR does not suggest regulatory text on this issue. We intend to
carefully examine any comments received on this issue and weigh them
heavily in our deliberations on a Final Rule.
    13. When the Commission adopted the definition of energy affiliate
in Order No. 2004, the Commission focused most closely on examples of
the potential for undue discrimination in favor of energy affiliates of
natural gas pipelines, rather than of electric utility transmission
providers.\22\ Although the Commission noted certain violations of
Order No. 889 by electric utility transmission providers,\23\ these
instances involved undue preferences given to an electric transmission
provider's merchant function. As we discuss further below, the
definition of marketing affiliate expressly includes an electric
transmission provider's merchant function and the Commission sees no
reason to delete that important protection.\24\ Furthermore, in an area
where the Commission made findings of undue discrimination that was not
covered by Order No. 889--undue preferences given to asset managers--we
are proposing, as discussed below, to broaden the definition of
marketing affiliate so that the standards of conduct explicitly
prohibit such undue preferences.
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    \22\ Order No. 2004 at P 10-11.
    \23\ Order No. 2004 at P 14.
    \24\ 18 CFR 358.3(c)(2).
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    14. Over the past three years, the Commission has engaged in
extensive outreach and consultation with the industry regarding the
standards of

conduct. This outreach has included three public technical conferences
(held in Houston, Chicago, and Scottsdale, Arizona) and numerous
meetings between industry participants and our staff. Over the course
of this outreach, we have received information and comments on many
important issues arising under the standards of conduct. However, this
outreach did not cover the issue addressed here--energy affiliate
restrictions for electric utility transmission providers. Accordingly,
the Commission seeks comment on whether applying the standards of
conduct to the relationship between electric utility transmission
providers and their marketing affiliates, but not to their energy
affiliates would be sufficient to protect customers. Commenters who
believe that it is appropriate to retain the standards of conduct for
the relationship between electric utility transmission providers and
their energy affiliates should submit evidence to support continued
application of the definition of energy affiliates to electric utility
transmission providers. Commenters who believe that we should not apply
the standards of conduct to the relationship between electric utility
transmission providers and their energy affiliates should provide
support for their position that customers will be sufficiently
protected from undue discrimination.
    15. Commenters should include a focus on the type of energy
affiliate that they are discussing. Making the standards of conduct
inapplicable to electric utility transmission providers and their
energy affiliates would affect the relationship between a transmission
provider and the following types of non-marketing energy affiliates
(except as otherwise noted):
    a. Affiliated asset managers; \25\
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    \25\ See 18 CFR 358.3(d)(1) (``involved in transmission
transactions''). Below, the Commission proposes to separately make
the relationship between transmission providers and asset managers
subject to the standards of conduct by expanding the definition of
marketing affiliate.
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    b. Affiliated transmission customers that do not make sales for
resale; \26\
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    \26\ See 18 CFR 358.3(d)(1) (``engages in * * * transmission
transactions''); Order No. 2004-A at P 44.
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    c. Affiliated gas entities, e.g., affiliated producers, affiliated
gatherers, affiliated gas Local Distribution Companies (LDCs), and
affiliated intrastate pipelines;
    d. Affiliated financial institutions that do not engage in physical
transactions, but only financial transactions; \27\
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    \27\ See 18 CFR 358.3(d)(4).
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    e. Affiliated entities that aggregate and re-sell transmission
capacity without making sales for resales of energy; \28\
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    \28\ See 18 CFR 358.3(d)(1).
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    f. Affiliated electric LDCs; \29\
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    \29\ See 18 CFR 358.3(d)(5); Order No. 2004-C at P 24-25.
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    g. Affiliated electronic trading platforms; \30\ and,
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    \30\ See 18 CFR 358.3(d)(1); Order No. 2004-A at P 4.
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    h. Affiliated entities that buy, trade or administer electric
energy.\31\
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    \31\ See 18 CFR 358.3(d)(3) (``buys, sells, trades or
administers electric energy''). The Commission believes that the
relationship with affiliates that make wholesale sales of electric
energy in interstate commerce is governed by the definition of
marketing. See 18 CFR 358.3(k).
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    The Commission seeks comments on whether the standards of conduct
should continue to apply to these relationships.
    16. In addition, the Commission seeks comment, particularly from
companies subject to both sets of standards, on whether it is desirable
to maintain consistency between the standards of conduct applicable to
natural gas transmission providers and electric utility transmission
providers. We note that retaining the energy affiliate restriction for
electric transmission providers, but not for natural gas transmission
providers, would create, for some companies, inconsistent rules for
different subsidiaries within a holding company. For example, an energy
affiliate of an electric utility transmission provider would be
restricted in communicating with that transmission provider, but if a
natural gas transmission provider owned that same energy affiliate
there would be no such restriction. Similarly, if a holding company
owned both electric utility and natural gas transmission providers, two
differing sets of rules would apply within the same holding company
system. The electric transmission provider would be precluded from
dealing with all energy affiliates in that system, whereas the natural
gas pipeline company would not. Uniformity could lessen the compliance
burden on the industry and ease oversight of compliance by the
Commission staff, but the Commission recognizes that uniformity does
not override the Commission's mandate for customer protection.
    17. Under the Natural Gas Act and the Federal Power Act, the
Commission has the statutory mandate to prevent and remedy undue
discrimination.\32\ Even absent the standards of conduct regulations
promulgated under that authority, the Commission has the authority to
prevent and remedy a transmission provider's undue preference or
advantage granted in favor of its affiliates. If a transmission
provider provides an undue preference or advantage in favor of an
affiliate that is not covered by the standards of conduct, that undue
preference may still be prohibited by the Natural Gas Act or Federal
Power Act.
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    \32\ Sections 4 and 5 of the Natural Gas Act, 15 U.S.C. 717c and
717e, 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. Similarly,
under sections 205 and 206 of the Federal Power Act, 16 U.S.C. 824d
and 824e, no public utility shall make or grant an undue preference
with respect to any transmission or sale subject to the Commission's
jurisdiction.
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    18. We are not disturbing the fundamental protections to consumers
and competitors of electric transmission providers that were adopted in
Order No. 889 and retained in Order No. 2004. It will continue to be
unlawful for electric utility transmission providers to provide any
undue preference to their merchant function or any affiliate that owns
generation or sells electricity. These are the core protections that
customers and competitors have long supported and that we retain here.
It also will continue to be unlawful for electric transmission
providers to provide any undue preference to an affiliate selling or
trading natural gas. Each of these protections is covered explicitly by
the definition of marketing affiliate and is left undisturbed.

C. Revising the Definition of Marketing, Sales or Brokering

    19. The interim rule adopted a temporary regulation for natural gas
pipeline transmission providers at Sec.  358.3(l) that mirrored the
exceptions to the definition of marketing that were found in Order No.
497.\33\ Accordingly, marketing means a sale of natural gas to any
person or entity by a seller that is not an interstate pipeline, except
when: (1) The seller is selling gas solely from its own production; (2)
the seller is selling gas solely from its own gathering or processing
facilities; or (3) the seller is an intrastate natural gas pipeline or
a local distribution company making an on-system sale. The NOPR
proposes to remove the interim regulation codified at Sec.  358.3(l)
and incorporate those

exceptions in the definition of ``Marketing, sales or brokering'' for
natural gas transmission providers currently located at Sec.  358.3(e).
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    \33\ Interim 18 CFR 358.3(l) states:
    Marketing or brokering means a sale of natural gas to any person
or entity by a seller that is not an interstate pipeline, except
when:
    (1) the seller is selling gas solely from its own production;
    (2) The seller is selling gas solely from its own gathering or
processing facilities; or
    (3) The seller is an intrastate natural gas pipeline or a local
distribution company making an on-system sale.
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    20. The electric utility and natural gas industries differ in
certain respects that are relevant to the energy affiliate issue. The
Commission is proposing, consistent with the National Fuel decision, to
revise the definition of marketing affiliate to include certain
exceptions that were adopted in Order No. 497, but deleted in Order No.
2004. These exceptions would remove standards of conduct restrictions
for a natural gas pipeline with respect to an affiliate's sales of gas
from its own production, gathering or processing facilities. However,
sales of electricity from a transmission provider's own ``production''
facilities--i.e., the generating plants operated by its merchant
function--were already covered in Order No. 889 and, hence, Order No.
2004 did not represent a change in this regard. Thus, we do not propose
to disturb this longstanding customer protection, and will therefore
retain the Order No. 2004 definition of marketing affiliate that
explicitly covers an electric utility transmission provider's merchant
function. We also note that the gathering and processing exceptions are
also inapplicable to electric utility transmission providers and,
hence, require no comparable change. We seek comment on these revised
definitions of marketing affiliate for natural gas and electric
transmission providers.
    21. The Commission also is proposing to expand the definition of
marketing, sales or brokering to include entities that manage or
control transmission capacity, such as asset managers or agents.\34\
Frequently, asset managers and agents are involved extensively in
transmission transactions, they stand in the shoes of the transmission
customer and act as nominating/balancing agent, and have access to all
the transmission customer's transmission information.\35\ The
Commission is proposing to include asset managers/agents within the
definition of marketing based on information gathered during
investigations by the Commission's Enforcement staff. In each of these
matters, staff investigated, among other issues, asset managers/agents
that were also marketing affiliates and whether the asset managers
received an undue preference from their affiliated transmission
providers. All of these matters concluded with settlements approved by
the Commission, including the payment by American Electric Power
Company, Inc. (AEP) of $21 million, the largest civil penalty in
Commission history,\36\ and the payment by Cleco Corporation of the
largest civil penalty under section 214 of the Federal Power Act.\37\
The third settlement, involving South Carolina Electric and Gas Company
(SCEG), resulted in SCEG agreeing to a compliance plan.\38\ Because
these investigations were resolved by settlements, the Commission never
made any specific findings that asset managers/agents and their
affiliates engaged in undue discrimination. Still, the activities
identified by staff provide a sufficient basis for the Commission to
propose to include asset managers/agents in the definition of marketing
affiliates. That is the case even though the settled investigations
involved asset managers who were also marketing affiliates. However, a
review of the voluntary consent postings \39\ on several transmission
providers' OASIS and Internet Web sites shows that sometimes asset
managers are marketing affiliates, but that sometimes they are not.\40\
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    \34\ Generally, asset managers manage or control gas or electric
assets, often including a transmission customer's capacity. Agents
frequently are authorized to act in the place of transmission
customers with respect to specified transmission-related activities
such as nominations, scheduling or billing.
    \35\ In the investigation of Cleco Corporation, Commission staff
observed that corporation's asset manager performed the following
services for Cleco Corporation: (1) Transmission scheduling
services; (2) resource coordination and delivery of power trading
and ancillary services; (3) fuel purchases for generation use; (4)
marketing and customer relations services; (5) commodity trading;
(6) monitoring, energy management, scheduling, dispatch and
accounting and billing services; (7) interaffiliate billing; (8)
retail and wholesale marketing; and (9) energy trading. Cleco
Corporation, 104 FERC ] 61,025 (2003) (Cleco).
    \36\ American Electric Power Company, Inc., 110 FERC ] 61,061
(2005).
    \37\ See Cleco, supra note 35.
    \38\ South Carolina Electric & Gas Company, 111 FERC ] 61,217
(2005).
    \39\ Currently, 18 CFR 358.5(b)(4) requires a transmission
provider to post notice if a non-affiliated transmission customer
voluntarily consents, in writing, to allow the transmission provider
to share the non-affiliated transmission customer's information with
a marketing or energy affiliate. 18 CFR 358.5(b)(4).
    \40\ For example, El Paso Natural Gas Company's voluntary
consent postings on its Internet Web site identify that non-
affiliated customers have voluntarily consented to allow El Paso to
disclose their respective information to El Paso's marketing and
energy affiliates, e.g., El Paso Field Services, L.P. (an energy
affiliate) and El Paso Marketing L.P. (a marketing affiliate.)
http://tebb.epenergy.com/ebbepg/notices/noticeView.asp?sPipelineCode=EPNG&sSubC
 (Dec. 8, 2006). Similar

notices of asset management agreements or agency agreements can be
found at the voluntary consent links of the OASIS or Internet Web
sites for National Fuel Gas Supply Corp., Texas Eastern
Transmission, LP, Tennessee Gas Pipeline Company, Potomac Electric
Power Company, and Dominion Transmission Inc.
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    22. The Commission believes that the standards of conduct should
govern the relationship between transmission providers and their
affiliated asset managers. It would likely be unduly discriminatory to
permit a transmission provider to inform its affiliated asset manager
about an upcoming curtailment or outage, unless all other non-
affiliated asset managers or transmission customers have comparable
access to that information. Including affiliated asset managers/agents
in the definition of marketing would ensure that all asset managers are
treated in a comparable fashion. The Commission is soliciting comments
on whether to include this provision in the definition of marketing and
encourages commenters to identify potential harm of including or not
including asset managers/agents in the definition of marketing. For
that purpose, proposed Sec.  358.3(e) reads as follows:

    Marketing, sales or brokering means a sale for resale of natural
gas or electric energy in interstate commerce in U.S. energy or
transmission markets. Marketing also includes managing or
controlling transmission capacity of a third-party as an asset
manager or agent.
    (1) A sales and marketing employee or unit includes:
    (i) An interstate natural gas pipeline's sales operating unit,
to the extent provided in Sec.  284.286 of this chapter, and
    (ii) An electric public utility Transmission Provider's energy
sales unit, unless such unit engages solely in bundled retail sales.
    (2) Marketing or sales does not include incidental purchases or
sales of natural gas to operate interstate natural gas pipeline
transmission facilities.
    (3) Marketing means a sale of natural gas to any person or
entity by a seller that is not an interstate pipeline, except where:
    (i) The seller is selling gas solely from its own production;
    (ii) The seller is selling gas solely from its own gathering or
processing facilities; or
    (iii) The seller is an intrastate natural gas pipeline or a
local distribution company making an on-system sale.

D. Exceptions to the Independent Functioning Requirement--Risk
Management Employees and Lawyers

    23. Section 358.4 requires, except in emergency circumstances, the
transmission function employees \41\ of the transmission provider to
function independently of the marketing affiliates' employees.
Notwithstanding

this requirement, since 1988, the Commission has developed a body of
case law, permitting certain types of employees to be shared between a
transmission provider and its marketing affiliate. At the request of
industry participants, Order No. 2004 reiterated these holdings by
codifying exceptions to the independent functioning requirement that
permit the sharing of officers and members of the board of directors
(directors),\42\ support employees,\43\ field and maintenance
employees,\44\ and risk management employees.\45\ Although industry
participants urged the Commission to codify a general exception
regarding the sharing of lawyers, the Commission did not do so stating
that, if a lawyer participated in transmission policy decisions on
behalf of a transmission provider, he or she would be considered a
transmission function employee (and hence, not permissibly shared).\46\
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    \41\ Section 358.3(j) of the Commission's regulations currently
defines transmission function employee as an employee, contractor,
consultant or agent of a transmission provider who conducts
transmission system operations or reliability functions, including,
but not limited to, those who are engaged in day-to-day duties and
responsibilities for planning, directing, organizing or carrying out
transmission-related operations.
    \42\ 18 CFR 358.4(a)(5).
    \43\ 18 CFR 358.4(a)(4).
    \44\ 18 CFR 358.4(a)(4).
    \45\ 18 CFR 358.4(a)(6).
    \46\ Order No. 2004-A at P 157.
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    24. In describing these exceptions, the Commission stated that the
sharing of these non-transmission functions allowed the transmission
provider to realize the benefits of cost saving through integration
where the shared employees do not have duties or responsibilities
relating to transmission, and generally would not be in a position to
give a marketing affiliate an undue preference.\47\ The Commission also
stated that the exception allowing the sharing of officers and
directors facilitated corporate governance activities, but that, to the
extent a senior officer or director conducts transmission functions or
is involved in planning, directing or organizing transmission
functions, the officer's or director's status does not automatically
exempt him/her from also being a transmission function employee.\48\ In
Order No. 2004-A, the Commission stated that, although it permitted the
sharing of these categories of employees, it would evaluate, in
compliance audits and investigations, employees' actual duties to
determine whether the transmission provider is appropriately applying
the exception.\49\ In other words, regardless of an individual's title
or how his or her responsibilities are labeled, if that individual is
engaged in day-to-day duties and responsibilities for planning,
directing, organizing or carrying out transmission-related operations,
that individual is a transmission function employee (and may not be
permissibly shared).
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    \47\ Order No. 2004 at P 97.
    \48\ Order No. 2004-B at P 57.
    \49\ Order No. 2004-A at P 134.
---------------------------------------------------------------------------

    25. Petitioners appealed the codification of the exception for
permissibly shared risk management employees and the preamble
discussion in Order No. 2004 regarding permissibly shared lawyers. As
mentioned above, in National Fuel, the court did not address these
matters, and, accordingly, sub silencio, invalidated these aspects of
Order No. 2004. Accordingly, the Commission is seeking comment on
whether to make permanent changes adopted by the interim rule by
retaining Sec.  358.4(a)(6).\50\ The Commission also seeks comments on
whether to make this change applicable to electric public utility
transmission providers. The Commission is also seeking comments on
whether additional guidance with respect to permissibly shared
employees, such as shared risk management employees, lawyers and
officers and directors, would be helpful given the different structure,
sizes and operations of the various transmission providers.
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    \50\ Interim 18 CFR 358.4(a)(6) reads: ``Transmission Providers
are permitted to share risk management employees that are not
engaged in Transmission Functions or sales or commodity functions
with their Marketing and Energy Affiliates. This provision does not
apply to natural gas transmission providers.''
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E. Discretionary Tariff Provision

    26. In Order No. 2004, the Commission required each transmission
provider to maintain a log detailing the circumstances and manner in
which it exercised discretion under any terms of its tariff and post
that information on its OASIS or Internet Web site.\51\ The regulatory
language in Order No. 2004 was substantively identical to the
requirement under Order No. 889, but it was different than the
requirement under Order No. 497. Former Sec.  161.3(k) promulgated in
Order No. 497 required a pipeline to maintain a written log of waivers
that the pipeline grants with respect to tariff provisions that provide
for such discretionary waivers and provide the log to any person
requesting it within 24 hours of the request. On appeal, one of the
petitioners claimed that Sec.  358.5(c)(4) was broader than former
Sec.  161.3(k), arguing that there was a significant difference between
granting waivers of tariff provisions that provide for such
discretionary waivers (former Sec.  161.3(k)) and exercising discretion
under any terms of its tariff (Sec.  358.5(c)(4)).
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    \51\ 18 CFR 358.5(c)(4).
---------------------------------------------------------------------------

    27. To comply with the court's mandate in National Fuel, the
interim rule modified Sec.  358.5(c)(4)(i) \52\ so that it only applies
to electric transmission providers and added a separate provision for
natural gas transmission providers at Sec.  358.5(c)(4)(i) that
provides that natural gas transmission providers must maintain a
written log of waivers that the natural gas transmission provider
grants with respect to tariff provisions that provide for such
discretionary waivers and provide the log to any person requesting it
within 24 hours of the request. The purpose of the discretionary waiver
posting requirement is to enable transmission customers to determine
whether they are similarly situated and potentially entitled to
comparable treatment by the transmission provider.
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    \52\ Section 358.5(c)(4)(i) provides that Electric Transmission
Providers must maintain a written log, available for Commission
audit, detailing the circumstances and manner in which they
exercised their discretion under any terms of the tariff. The
information contained in this log is to be posted on the OASIS or
Internet Web site within 24 hours of when a Transmission Provider
exercises its discretion under any terms of the tariff. 18 CFR
358.5(c)(4)(i).
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    28. As mentioned above, in National Fuel, the court did not address
this matter, and, accordingly, sub silencio, invalidated this aspect of
Order No. 2004. The Commission is faced with making permanent this
requirement for electric transmission providers, while having different
requirements for natural gas transmission providers. Accordingly, the
Commission is seeking comment on whether to make permanent changes
adopted in the interim rule by retaining Sec. Sec.  358.5(c)(4)(i) and
(ii) and seeking suggestions on what type of requirement is appropriate
to give similarly situated customers sufficient information to
determine whether they are being treated in a non-discriminatory
fashion with respect to a transmission provider's discretionary
activities. The Commission also encourages commenters to include
suggestions on how we can craft the scope of the discretionary waiver
requirement to minimize the burden on transmission providers while
balancing the need for transparency in the market.

F. Timing of When a New Natural Gas Transmission Provider Becomes
Subject to the Standards of Conduct

    29. Under Order No 497, a natural gas transmission provider became
subject to the standards of conduct when the transmission provider
commenced transportation transactions with its marketing or brokering
affiliate.\53\ In the preamble of Order No. 2004, the Commission stated
that newly

certificated transmission providers would become subject to the
standards of conduct when the transmission providers begin soliciting
business or negotiating contracts as those are activities which the
Commission considers transmission function activities. In Order No.
2004-B, the Commission stated that a new interstate pipeline should
observe the standards of conduct when the pipeline is granted and
accepts a certificate of public convenience and necessity and becomes
subject to the Commission's jurisdiction under the Natural Gas Act.\54\
The Commission stated that its goal was to ensure that newly formed
pipelines provide non-discriminatory treatment and limit their ability
to unduly favor their marketing and energy affiliates.\55\ The timing
of applicability of the standards of conduct was one of the items
appealed, but not addressed in the National Fuel decision and vacated
sub silencio. In the interim rule, the Commission did not require
natural gas transmission providers to observe the standards of conduct
until they commence transportation transactions with their marketing
affiliates.
---------------------------------------------------------------------------

    \53\ Former 18 CFR 161.1 (2003).
    \54\ Order No. 2004-B at P 136.
    \55\ Order No. 2004-C at P 46.
---------------------------------------------------------------------------

    30. The issue on appeal was whether the Commission could apply the
standards of conduct to a holder of a certificate that has not yet
commenced transportation of natural gas. The Commission does not have
any evidence that affiliate abuse has occurred in the time period
before transportation commences, but believes there is clearly an
incentive for the transmission provider to give an undue preference to
its affiliates. A transmission provider must observe the non-
discrimination provisions of sections 4 and 5 of the Natural Gas Act
(and sections 205 and 206 of the Federal Power Act). The Commission
seeks comment on when a transmission provider should be required to
comply with the standards of conduct and is proposing the following
modification to Sec.  358.4(e)(2).

    Each Transmission Provider must be in full compliance with the
standards of conduct within 30 days of becoming subject to the
Commission's jurisdiction.

G. Revising Sec.  358.5(b)(8)

    31. Currently, Sec.  358.5(b)(8) states that a transmission
provider is permitted to share information necessary to maintain the
operations of the transmission system with its energy affiliates. In
the Order No. 2004 proceeding, natural gas commenters asked the
Commission to adopt a provision allowing communication of operational
information with energy affiliates, such a producers, gatherers or
LDCs. They argued that prohibiting the sharing of operational
information might endanger the reliability of the gas transmission
systems.\56\ Accordingly, Order No. 2004 codified current Sec.
358.5(b)(8). In Order No. 2004, the Commission provided additional
clarification explaining that this provision permits a transmission
provider to share day-to-day, operational-type information with
interconnected energy affiliates necessary to maintain the pipelines'
operations, such information includes confirmations, nominations and
schedulers with upstream producers and gathering facilities,
operational data relating to interconnection points and communications
related to the maintenance of interconnected facilities. The Commission
added that it expected that these types of communications would take
place between the operators of the pipeline or gas control
facilities.\57\ As the Commission is proposing that the standards of
conduct will no longer govern the relationship between natural gas
transmission providers and their energy affiliates, it appears that
this provision is no longer necessary because communications between a
natural gas transmission provider and its affiliated/interconnected
gatherer(s), \58\producer(s) and LDCs are not restricted by the
standards of conduct. Therefore, the Commission proposes to delete
Sec.  358.5(b)(8) from the regulations and seeks comments on this
proposal.
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    \56\ For electric transmission providers, a provision allowing
communications relating to generation dispatch exists at 18 CFR
358.5(b)(6) of the Commission's regulations.
    \57\ Order No. 2004-A at P 203.
    \58\ Under section 201(e) of the Federal Power Act, a public
utility is ``any person who owns or operates facilities subject to
the jurisdiction of the Commission.'' 16 U.S.C. 824(e). The
standards of conduct apply to a public utility that is a
transmission provider, which is defined as ``any public utility that
owns, operates or controls facilities used for the transmission of
electric energy in interstate commerce'' in addition to certain
interstate natural gas pipelines. 18 CFR 358.3(a).
---------------------------------------------------------------------------

H. Changes To Facilitate Integrated Resource Planning and Competitive
Solicitations

    32. Since Order No. 2004 was issued, industry participants have
sought staff guidance on standards of conduct requirements to assist
with their compliance efforts. To provide further guidance, the
Commission held three standards of conduct technical conferences, the
most recent being held on April 7, 2006, and staff posted a
``Frequently Asked Questions'' (FAQs) page on the Commission's Internet
Web site. Following the April 7, 2006 technical conference, staff began
a series of outreach meetings with various industry participants,
including public utilities, industry trade associations and state
commissions, to discuss ways for the Commission to address the
applicability of the standards of conduct in the context of business
activity that the Commission did not address in Order No. 2004, such as
integrated resource planning and competitive solicitations.
    33. To address integrated resource planning and competitive
solicitations, the Commission proposes to make changes to the standards
of conduct intended to make public utilities \58\ integrated resource
planning and procurement more accurate and efficient, particularly in
their consideration of electric transmission. The standards of conduct
apply to ``any public utility that owns, operates or controls
facilities used for the transmission of electric energy in interstate
commerce,'' but do not apply to independent system operators (ISOs) or
regional transmission organizations (RTOs).\59\ In conducting
integrated resource planning, a public utility evaluates its current
and future mix of generation, transmission, demand-side management and
other resources to meet future demand while minimizing costs, ensuring
reliability, and complying with a state's environmental requirements.
As an example, integrated resource planning may help a public utility
or state commission choose to meet load growth through the addition of
a new generation resource, a new demand resource, or through new
transmission resources. There is a wide variety of methods for
conducting integrated resource planning. Some states require public
utilities to periodically submit an integrated resource plan. Such
submissions are typically subject to some review and comment by the
public and review and approval by the applicable state commission.
---------------------------------------------------------------------------

    \58\ Under section 201(e) of the Federal Power Act, a public
utility is ``any person who owns or operates facilities subject to
the jurisdiction of the Commission.'' 16 U.S.C. 824(e). The
standards of conduct apply to a public utility that is a
transmission provider, which is defined as ``any public utility that
owns, operates or controls facilities used for the transmission of
electric energy in interstate commerce'' in addition to certain
interstate natural gas pipelines. 18 CFR 358.3(a).
    \59\ 18 CFR 358.1(b).
---------------------------------------------------------------------------

    34. The Commission believes that improved coordination between
transmission planning, generation planning and demand response
programs, which are the main elements of integrated resource planning,
is

necessary to improve the economics and reliability of the transmission
grid. In the next several years, reliability concerns are expected to
grow as transmission investment has lagged behind load growth.\60\ As
recently stated by North American Electric Reliability Council (NERC),
``[b]ulk power system reliability and adequacy depends on close
coordination of generation and transmission planning and demand
response programs.'' \61\ The Commission also understands that some
states are requiring greater consideration of transmission in public
utilities' integrated resource planning. In consideration of these
developments, the Commission seeks to ensure that the evaluation of
transmission in public utilities' planning and procurement is as
accurate and efficient as possible. The Commission proposes to create a
category of employees under the standards of conduct, ``planning
employees,'' who are permitted to engage in all aspects of ``integrated
resource planning'' for bundled retail load, to receive non-public
transmission information, and to interact with transmission function
employees, provided that the integrated resource planning is conducted
pursuant to state mandate.
---------------------------------------------------------------------------

    \60\ After an extensive assessment, the NERC recently concluded
that ``[e]xpansion and strengthening of the transmission system
continues to lag demand growth and expansion of generating resources
in most areas.'' NERC, 2006 Long-Term Reliability Assessment, at p.
7 (Oct. 16, 2006). See also Promoting Transmission Investment
through Pricing Reform, Order No. 679, 71 FR 43293 (July 31, 2006),
FERC Stats. & Regs. ] 31,222, at P 10 (July 20, 2006) (citations
omitted) (observing that transmission investment has declined while
load has doubled), order on reh'g, Order No. 679-A, 117 FERC ]
61,327 (Dec. 22, 2006).
    \61\ NERC, 2006 Long-Term Reliability Assessment, at p. 8; see
also id. at p. 13 (``In the long term, reliable transmission will
depend upon the close coordination of generation and transmission
planning and construction and the adoption of longer term planning
horizons * * * '').
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    35. The Commission also understands that transmission concerns are
becoming a greater factor in resource procurement. A public utility's
integrated resource plan often serves as the road map for the public
utility's resource procurement. For instance, a public utility may
present an integrated resource plan that specifically calls for long-
term procurement of a certain type of energy resource through a
competitive solicitation. Such competitive solicitations may also be
subject to state review and, if they result in the award of long-term
contract to an affiliate, review by the Commission.\62\ The Commission
understands the importance of ensuring that the evaluation of
transmission in procurement is as accurate and efficient as possible.
The Commission also proposes to create a category of employees under
the standards of conduct, ``competitive solicitation employees,'' who
are permitted to conduct competitive solicitations intended to serve
bundled retail load, and to receive non-public transmission information
and to interact with transmission function employees in order to
evaluate proposals submitted in a competitive solicitation.
---------------------------------------------------------------------------

    \62\ See, e.g., Southern California Edison on behalf of
Mountainview Power Co., LLC, 106 FERC ] 61,183, at P 58 (2004)
(setting forth criteria for section 205 review of affiliate sales
for contracts of one year or longer), order on reh'g, 109 FERC ]
61,086, order on reh'g, 110 FERC ] 61,319 (2005).
---------------------------------------------------------------------------

    36. These Commission proposals to relax the standards of conduct to
facilitate integrated resource planning and competitive solicitations
are consistent with the treatment of bundled retail load in the
standards of conduct as outlined in Order No. 2004. The standards of
conduct exempt from the definition of marketing affiliate employees,
those employees involved ``solely in bundled retail sales.'' \63\ As
such, bundled retail sales employees are not subject to the standards
of conduct in most respects. In an extension of this policy, the
Commission's proposals are restricted to integrated resource planning
for, and competitive solicitations to procure supply to serve, bundled
retail load.
---------------------------------------------------------------------------

    \63\ 18 CFR 358.3(e)(2).
---------------------------------------------------------------------------

    37. In proposing to facilitate integrated resource planning and
competitive solicitations through changes to the standards of conduct,
the Commission is mindful of the goal of the standards of conduct to
prevent undue preferences, specifically by preventing transmission
providers from providing unduly preferential treatment to their
marketing and energy affiliates. Thus, the Commission will place
restrictions on both planning employees and competitive solicitation
employees in order to prevent those employees from providing an undue
preference to the transmission provider's marketing and energy
affiliates. The Commission seeks to strike a balance between the goal
of diminishing opportunities for undue preferences with the goal of
improving the efficiency and accuracy of integrated resource planning
and competitive solicitations. Along these lines, as discussed below,
the Commission seeks comment on whether or not the proposal to limit
the new categories of planning employees and competitive solicitation
employees to perform their functions only for bundled retail load is
necessary to prevent undue discrimination.
1. Integrated Resource Planning--Planning Employees
    38. In its outreach regarding integrated resource planning, staff
heard a common refrain from public utilities, that the standards of
conduct restrict their ability to conduct integrated resource planning
because they restrict access to non-public transmission information and
restrict transmission function employees from interacting with
employees conducting integrated resource planning. Similarly, in its
comments on the Open Access Transmission Tariff (OATT) Reform NOPR,\64\
the National Association of Regulatory Utility Commissioners called for
``allow[ing] communications between resource and transmission planners
for the purpose of developing long-term resource planning documents to
satisfy State-commission integrated resource planning
requirements.''\65\
---------------------------------------------------------------------------

    \64\ Preventing Undue Discrimination and Preference in
Transmission Service, Docket No. RM05-25-000, 71 FR 32635 (June 6,
2006), 71 FR 39251 (July 12, 2006), FERC Stats. & Regs. ] 32,603
(May 19, 2006) (OATT Reform NOPR).
    \65\ Comments of National Association of Regulatory Utility
Commissioners, Preventing Undue Discrimination and Preference in
Transmission Service, Docket No. RM05-25-000, at p. 12 (filed Aug.
8, 2006).
---------------------------------------------------------------------------

    39. The information sharing prohibitions of the standards of
conduct affect the type of transmission information that planners use
to conduct integrated resource planning. Public utilities relying on
marketing or energy affiliate employees to perform their integrated
resource planning are prohibited from obtaining non-public transmission
information from the transmission provider and, instead, use publicly-
available information. In staff's outreach sessions, some public
utilities raised concerns, for example, that this prohibition precludes
long-term planners from obtaining information about generation projects
in the interconnection queue, or from obtaining information regarding
planned retirements of generation. With incomplete transmission
information, public utilities contended, transmission analysis for
integrated resource planning is incomplete. As a result, they added,
the IRP process is less efficient and more costly, and the resulting
integrated resource plan is inferior. Public utilities contended, in
effect, that the information sharing prohibitions of the standards of
conduct create a gap between the transmission information needed to
conduct integrated resource planning and the transmission information
available to their employees

who conduct integrated resource planning.
    40. Public utilities also asserted that the independent functioning
requirement of the standards of conduct hinders integrated resource
planning because the requirement prohibits planners from working with
transmission function employees and taking advantage of their
understanding of the transmission system.
    41. The Commission seeks comment on whether and how the standards
of conduct preclude those who conduct integrated resource planning from
obtaining needed transmission information. Commenters should explain
what types of information, if any, cannot reach such planners under the
current standards of conduct and how such information assists in
creating an accurate integrated resource plan. The Commission also
seeks comment on whether planning employees would also need access to
non-public customer information in addition to non-public transmission
information.
    42. The Commission proposes to create a new category of employees
called ``planning employees'' who would be permitted to direct,
organize, and carry out all aspects of integrated resource planning
including aspects related to transmission and generation planning. For
the purpose of conducting integrated resource planning, planning
employees would be permitted to receive non-public transmission
information (but not non-public customer information) from the
transmission provider and to interact with transmission function
employees. \66\ In order to allow planning employees to interact with
transmission function employees, planning employees would be exempt
from the independent functioning requirement. The Commission seeks
comment on the creation of this category, including the potential
benefit and harm to the market.
---------------------------------------------------------------------------

    \66\ To the extent that transmission function employees disclose
non-public transmission information that is not related to
integrated resource planning, the transmission provider must observe
the posting requirements of 18 CFR 358.5(b)(2).
---------------------------------------------------------------------------

    43. To ensure that an undue preference is not given to marketing or
energy affiliates, the Commission also proposes several restrictions
and limitations. As part of this proposal, the Commission would add a
definition for the term ``integrated resource planning'' to the
standards of conduct, which would serve to describe and delineate the
types of resource planning activities in which planning employees could
participate. The definition is intended to include all integrated
resource planning to serve bundled retail load conducted by public
utilities that is mandated by the states. The Commission does not
intend to exclude from this definition any state's mandated integrated
resource planning to serve bundled retail load.\67\
---------------------------------------------------------------------------

    \67\ The Commission also understands that some states refer to
integrated resource planning by different terms.
---------------------------------------------------------------------------

    44. We understand that some public utilities conduct integrated
resource planning that is not subject to state review. Under the
proposed regulations, if a public utility conducts integrated resource
planning that is not required by state mandate, it could not take
advantage of the planning employees category. The Commission also seeks
comment on this limitation. For example, are there states that do not
have an explicit integrated resource planning mandate, but that,
nonetheless, review and approve integrated resource plans prepared and
submitted by the public utilities?
    45. The Commission also proposes to limit the definition of
``integrated resource planning'' to planning that is designed to meet
``future bundled retail load obligations.'' This limitation cabins the
work of planning employees to work on bundled retail load obligations
and, thereby, precludes them from working on a public utility's other
load obligations, such as wholesale load obligations arising from
contract. By this limitation, the Commission seeks to ensure that the
benefits of this proposal accrue to a public utility in service of its
retail customers and not to benefit a utility in competition with other
wholesale market participants. We seek comments on whether or not this
limitation is necessary to prevent undue discrimination.
    46. To further restrict opportunities for planning employees to
provide undue preferences to the transmission provider's marketing or
energy affiliates, planning employees would be subject to the ``no-
conduit rule;'' that is, they could not relay any non-public
transmission information received to any marketing or energy affiliate.
Planning employees also would be restricted from participating in the
sales or purchases of energy, capacity, ancillary services or
transmission services to ensure that they did not use their access to
transmission information and to transmission function employees to
benefit the public utility or its affiliates in transactions with other
market participants. In other words, if the integrated resource
planning involves bundled retail load and is the result of a state
mandate, the planning and the employees conducting it are not subject
to all of the usual restrictions of the standards of conduct, although
they would be subject to other restrictions outlined here.
    47. The Commission seeks comment on whether planning employees
should be restricted to planning for bundled retail load or whether
they should also be permitted to plan for Provider of Last Resort
(POLR) load, grandfathered wholesale requirements contracts, and
wholesale full requirements load. Commenters addressing this issue
should indicate the type of load for which they conduct integrated
resource planning or for which their state requires integrated resource
planning, e.g., only for bundled retail load, or for bundled retail
load, POLR load, and wholesale requirements load.\68\ We note that for
purposes of Order No. 888 and the Commission's enforcement practices,
we have treated pre-1996, grandfathered wholesale requirements
contracts similar to how we have treated bundled retail load.\69\ We
seek comments on whether or not the Commission should continue this
practice for integrated resource planning. Commenters should also
address whether the Commission could sufficiently facilitate integrated
resource planning by limiting the definition of integrated resource
planning in the regulations to planning only for bundled retail load.
Commenters should address whether it is more cost-effective and
efficient to permit planning employees to conduct integrated resource
planning for obligations other than bundled retail sales and what, if
any, protections should be put in place to guard against undue
preferences to marketing and energy affiliates. Does limiting planning
employees to bundled retail sales load unnecessarily divide a utility's
integrated resource planning?
---------------------------------------------------------------------------

    \68\ Here, the Commission delineates integrated resource
planning by type of load or contract. Staff research indicates that
some state regulations do not delineate the scope of their
integrated resource planning requirement in the same way. For
instance, some states require that a utility conduct integrated
resource planning for its ``customers'' without any delineation
between wholesale or retail customers. Other states require planning
for ``wholesale customers'' without delineation between wholesale
requirements customers and other wholesale customers. To assist in
clarification of this issue, commenters should delineate precisely
the scope of a state's planning requirements.
    \69\ Cf. 18 CFR 35.28(c)(2)(i) and (ii).
---------------------------------------------------------------------------

    48. Under this proposal, public utility transmission providers that
no longer have bundled retail load obligations but have POLR
obligations because they operate in states that have retail access or
retail choice would not be permitted to share non-public transmission

information to conduct integrated resource planning.\70\ In Order No.
2004-A, the Commission rejected a generic request to treat POLR service
obligations under state law as equivalent to a transmission provider's
bundled retail sales obligations, which would have exempted POLR
service from the definition of marketing affiliate.\71\ The Commission
also indicated that it would entertain case-by-case requests for
exemption of POLR service. In several instances, the Commission has
granted requests by transmission providers that, under specific
conditions, the POLR service should be accorded the same treatment as
bundled retail sales.\72\ The Commission seeks comment on whether
utilities with POLR service obligations also should be allowed to take
advantage of the planning employees category, or whether expanding the
category to include POLR service obligations might harm competition or
give marketing or energy affiliates an undue preference.
---------------------------------------------------------------------------

    \70\ The standards of conduct apply to merchant functions that
are engaged in sales or purchases of power that will be resold at
retail under state retail choice programs. Order No. 2004 at P 78.
    \71\ See Order No. 2004-A at P 127.
    \72\ See, e.g., Cinergy Services, Inc., 111 FERC ] 61,512
(2005).
---------------------------------------------------------------------------

    49. Finally, we are concerned that planning employees not be used
in a manner that unduly discriminates against non-affiliated wholesale
suppliers. Specifically, in permitting planning employees access to
non-public transmission information and to transmission function
employees, we are concerned that such access could be used to favor
utility-owned generation over purchases from non-affiliates. For
example, in the IRP process, planning employees could use non-public
transmission information to evaluate only self-build options and ignore
any consideration of purchases from third parties. Such an action would
be inconsistent with the underlying purpose of the proposal, which is
to increase the economic use of the grid by allowing planning employees
to integrate the consideration of economic alternatives.
    50. To address this concern, the Commission proposes to limit the
definition of integrated resource planning to instances in which the
IRP process includes evaluation of third-party resources. The proposed
limit is designed to balance the goal of facilitating least-cost
resource procurement with the concern that the planning employees
category not be used to discriminate against non-affiliates. We wish to
clarify, however, that such a limitation does not mean the Commission
intends to supervise or otherwise prescribe the manner in which states
consider third-party resources as part of their IRP processes or that
the Commission intends a final integrated resource plan to necessarily
include third-party resources. The states are in the best position to
make those decisions as they are responsible for resource procurement
for bundled retail load. Therefore, the Commission will not second-
guess the manner in which states evaluate third-party resources; we
only require that such resources be considered if a public utility
seeks to use the planning employees category.\73\
---------------------------------------------------------------------------

    \73\ This approach is consistent with the category being created
below for competitive solicitations. We would permit competitive
solicitation employees to have access to non-public transmission
information and transmission function employees because, in those
situations, the utility has allowed participation by third-party
suppliers.
---------------------------------------------------------------------------

    51. We seek comment on the foregoing restrictions placed on
planning employees' activities. In their comments, commenters should
address the balance the Commission is trying to achieve between
providing planning employees with sufficient access to transmission
information and to transmission function employees to conduct accurate
and efficient integrated resource planning while at the same time
ensuring that such access does not enlarge opportunities for planning
employees to provide undue preferences to the transmission provider's
marketing or energy affiliates. Thus, commenters who believe that the
restrictions go too far should explain why, and, also, explain why the
restrictions are unnecessary to prevent granting an undue preference.
Likewise, commenters who believe that the restrictions do not go far
enough to prevent the granting of undue preferences should explain why
and articulate how further restrictions can be fashioned while still
providing planning employees with sufficient access to transmission
information and to transmission function employees. Finally, commenters
supporting the restrictions should explain the basis for their support.
We urge commenters to be as specific as possible in their comments.
2. Competitive Solicitation Employees
    52. In staff's outreach sessions, some public utilities also
asserted that the standards of conduct hinder their ability to conduct
efficient competitive solicitations, which are often conducted pursuant
to an integrated resource plan. Some public utilities contended that
the standards of conduct hinder their ability to evaluate the
transmission impacts and costs of proposals responsive to competitive
solicitations.
    53. In raising this concern, some public utilities focused on the
independent functioning requirement of the standards of conduct,
because this requirement prohibits transmission function employees from
working with bid evaluators to determine the transmission costs of bids
responsive to a competitive solicitation. To make the evaluation of
transmission costs more accurate, public utilities that conduct
competitive solicitations seek to allow greater interaction between
transmission function employees and those employees who conduct
competitive solicitations. In staff's outreach, some public utilities
contended that greater interaction would allow employees conducting
competitive solicitations to engage in an iterative method for
determining the ``all-in'' costs of a bid or combination of bids, i.e.,
the ``net effect of a portfolio.'' For instance, two 100-MW projects
evaluated together may cost less in transmission upgrades than the same
two projects would cost if calculated separately because one may
alleviate a constraint caused by the other. Through an iterative
method, bid evaluators could, for example, submit a portfolio of bid
options to transmission function employees, receive feedback on
transmission costs related to the portfolio, refine the portfolio, and
re-submit it to transmission function employees for further evaluation,
and, if necessary, repeat these steps until a complete evaluation is
achieved. In sum, some public utilities contended that, currently, they
are unable to obtain an accurate picture of the true transmission costs
of a bid and may not select the least-cost proposal.
    54. The Commission proposes to add a new category of ``competitive
solicitation employees,'' who would be permitted to direct, organize
and execute certain ``competitive solicitations.'' Under this proposal,
competitive solicitation employees could obtain non-public transmission
information (but not non-public customer information) from the
transmission provider to the extent necessary to evaluate bids or
proposals responsive to a competitive solicitation.\74\ The Commission
does not believe that competitive solicitation employees have a need
for non-public customer information. To the same extent, competitive
solicitation employees could interact with

transmission function employees. In order to allow competitive
solicitation employees to interact with transmission function
employees, competitive solicitation employees would be exempt from the
independent functioning requirement.
---------------------------------------------------------------------------

    \74\ To the extent that transmission function employees disclose
transmission information that is not related to competitive
solicitations, the transmission provider must observe the posting
requirements of 18 CFR 358.5(b)(3).
---------------------------------------------------------------------------

    55. To ensure that an undue preference is not given to marketing or
energy affiliates, the Commission proposes several restrictions and
limitations.\75\ The term ``competitive solicitations'' would be
defined as a solicitation by a public utility to obtain energy,
capacity, or ancillary services to serve bundled retail load pursuant
to an integrated resource plan. The definition would be limited to
competitive solicitations that: (1) Are for the purposes of meeting
bundled retail load and (2) are made pursuant to a state-mandated
integrated resource plan. The Commission intends the first limitation
to ensure that competitive solicitation employees are acting for the
benefit of bundled retail load customers and not obtaining energy,
capacity, or ancillary services for the purpose of meeting a public
utility's other obligations. The Commission intends the second
limitation to ensure that the public utility does not use competitive
solicitation employees for any attempt to obtain energy, capacity or
ancillary services. Thus, this limitation ensures that competitive
solicitation employees are used only for relatively major procurements
by virtue of their having been conducted as part of integrated resource
planning. This limitation on competitive solicitations would also
ensure state involvement as integrated resource planning is defined as
planning undertaken pursuant to state mandate.
---------------------------------------------------------------------------

    \75\ If a utility's competitive solicitation results in the
award of a contract to its affiliate, the Commission will review the
resulting contract under the guidelines set forth in Allegheny
Energy Supply Company, LLC, 108 FERC ] 61,082, at P 22 (2004).
---------------------------------------------------------------------------

    56. The Commission seeks comment on the type of load and contracts
that would fall within the definition of a competitive solicitation
and, thereby, be eligible to be supplied through a competitive
solicitation that benefits from non-public transmission information and
access to transmission function employees and what, if any, other
protections should be put in place to guard against undue preferences
to marketing and energy affiliates. As noted above, for purposes of
Order No. 888 and the Commission's enforcement practices, we have
treated pre-1996, grandfathered wholesale requirements contracts
similar to how we have treated bundled retail load. We seek comments on
whether or not the Commission should continue this practice for
competitive solicitations. Should load arising from POLR obligations or
from wholesale requirements contracts, full or partial, be supplied
through such a competitive solicitation? The Commission recognizes that
supply obtained for bundled retail sales sometimes is used to make
wholesale sales, for instance, when bundled retail load decreases. Does
this make restricting competitive solicitations to bundled retail sales
unworkable?
    57. In order to protect against the potential for undue
preferences, the Commission proposes further restrictions on
competitive solicitation employees' activities similar to the
restrictions on planning employees. Competitive solicitation employees
would be subject to the ``no-conduit rule,'' that is, they could not
relay any non-public transmission information received to any marketing
or energy affiliate.\76\ Competitive solicitation employees also would
be restricted from participating in the sales or purchases of energy,
capacity, ancillary services or transmission services, other than in
competitive solicitations, to ensure that they do not use their access
to non-public transmission information and to transmission function
employees to benefit the public utility or its affiliates in
transactions with other market participants. Competitive solicitation
employees could not direct, organize, or participate in the development
of a bid, or proposal submitted in a competitive solicitation or a
benchmark used in a competitive solicitation. Further, analogous to the
no-conduit rule, competitive solicitation employees could not provide
any non-public bid or competitive solicitation information to marketing
or energy affiliates. In other words, if the competitive solicitation
involves bundled retail load and is the result of a state-mandated
integrated resource plan, the competitive solicitation and the
employees conducting it are not subject to all of the usual
restrictions of the standards of conduct, although they would be
subject to other restrictions outlined here.
---------------------------------------------------------------------------

    \76\ Proposed 18 CFR 358.5(b)(9).
---------------------------------------------------------------------------

    58. The Commission seeks comment on its competitive solicitation
employees proposal and the restrictions that should apply to their
activities, including the potential benefit and harm to the market,
specifically, whether competitive solicitation employees would need
access to non-public customer information in addition to non-public
transmission information. The Commission would permit planning
employees to serve as competitive solicitation employees and vice-
versa. The Commission seeks comment on whether employees should be
permitted to serve in both capacities. Because competitive solicitation
employees would have access to non-public transmission information and
to transmission function employees only for the purpose of conducting a
competitive solicitation, the Commission expects that competitive
solicitation employees would not need this access until after responses
to a competitive solicitation are received. The Commission seeks
comment on this restriction.
    59. This proposed category of competitive solicitation employees
may increase the opportunities to provide an undue preference that is
not sufficiently offset by the proposed restrictions on the activities
of competitive solicitation employees. Concerns about undue preferences
are greater in the competitive solicitation process than in the IRP
process, because an undue preference provided in a competitive
solicitation can lead to a more concrete, nearer-term benefit, e.g., a
contract, than a similar preference granted in the IRP process, which
has a longer term focus and typically results in non-binding
recommendations. Further, competitive solicitation employees may be
evaluating third-party proposals in competition with proposals by
affiliates or proposals by the public utility to build itself the
resources required. Thus, it is important to ensure that competitive
solicitation employees do not provide an undue preference, particularly
through the use of non-public transmission information or access to
transmission function employees, throughout the competitive
solicitation process from design through contract award.\77\
Accordingly, the Commission seeks comments on whether its proposal
strikes an appropriate balance between allowing access to transmission
information and to transmission function employees while at the same
time including appropriate restrictions to prevent undue preferences.
---------------------------------------------------------------------------

    \77\ This concern about undue preference is lessened in states
that require an independent evaluator to play a role in a public
utility's competitive solicitation.
---------------------------------------------------------------------------

    60. The Commission seeks comment on whether, instead of having
separate categories for planning employees and for competitive
solicitation employees, it should establish one category to include
both sets of employees. States and utilities treat integrated resource
planning and competitive solicitations

differently in some respects; in other respects, the two are treated
together. Commenters should explain whether they would use the same
personnel for each category. Commenters should also address whether
keeping the categories separate assists in preventing undue
discrimination. Commenters advocating a single category for both
planning and competitive solicitation employees should describe the
permissible activities for such employees and set forth the
restrictions that would apply to their activities.
3. Specific Proposals
    61. In light of the discussion above, the Commission proposes the
following regulatory changes. We propose the following revision to the
definition of Transmission Function employee in Sec.  358.3(j):

    Transmission Function employee means an employee, contractor,
consultant or agent of a Transmission Provider, other than a
Planning Employee as defined in Sec.  358.3(o), who conducts
transmission system operations or reliability functions, including,
but not limited to, those who are engaged in day-to-day duties and
responsibilities for planning, directing, organizing or carrying out
transmission-related operations.

    We propose the following additions to the definitions in Sec.
358.3:

    (1) Integrated Resource Planning means a process to establish a
plan, required by state law, regulation or other state mandate, for
a public utility to meet its future bundled retail load obligations
that evaluates a range of alternatives that includes consideration
of third party resources.
    (2) Competitive Solicitation means a solicitation by a public
utility to obtain energy, capacity, or ancillary services for the
purposes of meeting the public utility's bundled retail load
obligations pursuant to an Integrated Resource Planning obligation.
    (3) Competitive Solicitation Employee means an employee,
contractor, consultant or agent of a public utility who directs,
organizes, or executes the public utility's Competitive
Solicitations.
    (4) Planning Employee means an employee, contractor, consultant
or agent of a public utility who directs, organizes or conducts the
public utility's Integrated Resource Planning.

    We propose the following additions to the Independent Functioning
section, Sec.  358.4:

    (1) A Transmission Function employee may interact with a
Planning Employee for the purpose of engaging in Integrated Resource
Planning. A Planning Employee, who receives non-public transmission
information pursuant to Sec.  358.5(b)(8) or who interacts with a
Transmission Function employee, must not:
    (i) Participate in sales of energy, capacity or ancillary
services or in sales of transmission services, including directing,
organizing, or otherwise preparing a bid, benchmark, or proposal by
the public utility or by the public utility's Marketing or Energy
Affiliates to supply energy, capacity or ancillary services;
    (ii) Participate in purchases of energy, capacity or ancillary
services or of purchases of transmission services other than in a
Competitive Solicitation on behalf of its public utility
Transmission Provider; or
    (iii) Participate in non-planning transmission functions.
    (2) A Transmission Function employee may interact with a
Competitive Solicitation Employee for the purpose of evaluating the
transmission component of bids or proposals considered in a
Competitive Solicitation. A Competitive Solicitation Employee, who
receives non-public transmission information pursuant to Sec.
358.5(b)(9) or who interacts with a Transmission Function employee,
must not:
    (i) Provide any non-public bid, proposal, or Competitive
Solicitation information to the Marketing or Energy Affiliate
employees;
    (ii) Participate in sales of energy, capacity, ancillary
services or in sales of transmission services, including directing,
organizing, or otherwise preparing a bid, benchmark, or proposal by
the public utility or by the public utility's Marketing or Energy
Affiliates to supply energy, capacity or ancillary services; or
    (iii) Participate in any purchases of energy, capacity or
ancillary services or of transmission services other than a
Competitive Solicitation on behalf of its public utility
Transmission Provider.

    We propose the following additions to the Non-Discrimination
Requirements section in Sec.  358.5(b):

    (1) A Transmission Provider may share transmission information
covered by Sec. Sec.  358.5(a) and (b)(1) with Planning Employees to
the extent those employees need that information to direct, organize
or carry out Integrated Resource Planning, provided that such
employees do not act as a conduit to share such information with any
Marketing or Energy Affiliates.
    (2) A Transmission Provider may share transmission information
covered by Sec. Sec.  358.5(a) and (b)(1) with Competitive
Solicitation Employees to the extent those employees need that
information to direct, organize, or execute Competitive
Solicitations, provided that such employees do not act as a conduit
to share such information with any Marketing or Energy Affiliates.

I. Changes to the Definition of Exempt Wholesale Generator

    62. Currently, the standards of conduct define affiliate for an
exempt wholesale generator (EWG) by referring to section 32a of Public
Utility Holding Company Act of 1935 (PUHCA) and section 214 of the
Federal Power Act (which in turn references, section 2(a) of
PUHCA).\78\ With respect to the standards of conduct, a determination
of affiliation for EWGs is based on whether one company controls five
percent or more of its stock.\79\ The Commission proposes changes to
the definition of affiliate with respect to EWGs in light of the repeal
of the PUHCA. Specifically, the Commission proposes to make conforming
changes to the definition of EWG to delete the reference to PUHCA and
direct the reader to 18 CFR 366.1, which contains a definition of EWG
and a definition of affiliate that applies to an EWG.\80\
---------------------------------------------------------------------------

    \78\ 18 CFR 358.3(b)(2).
    \79\ For non-EWG affiliates, a voting interest of 10 percent or
more creates a rebuttable presumption of control or affiliation. 18
CFR 358.3(c).
    \80\ 18 CFR 366.1 implements the Public Utility Holding Company
Act of 2005. (PUHCA 2005). The Energy Policy Act of 2005 (EPAct
2005), Pub. L. No. 109-58, 119 Stat. 594 (2005), repealed PUHCA, 15
U.S.C. 79a et seq. (2000), and enacted the Public Utility Holding
Company Act of 2005 (PUHCA 2005), EPAct 2005 at 1261 et seq.
---------------------------------------------------------------------------

    63. Accordingly, the Commission proposes that Sec.  358.3(b)(2)
will read as follows:

    For any exempt wholesale generator (as defined under Sec.  366.1
of this chapter), an affiliate means the same as the definition of
``affiliate'' provided in Sec.  366.1 of this chapter.

J. Revisions to Written Procedures

    64. The Commission proposes several changes to the written
procedures required of a transmission provider to delete outdated
references, to clarify training certification, and to post the name of
a transmission provider's chief compliance officer.
    65. Currently, Sec.  358.4(e)(1) of the Commission's regulations
reads:

    By February 9, 2004, each Transmission Provider is required to
file with the Commission and post on the OASIS or Internet website a
plan and schedule for implementing the standards of conduct.

    Currently, Sec.  358.4(e)(3) of the Commission's regulations reads:

    The Transmission Provider must post on the OASIS or Internet
website, current written procedures implementing the standards of
conduct in such detail as will enable customers and the Commission
to determine that the Transmission Provider is in compliance with
the requirements of this section by September 22, 2004 or within 30
days of becoming subject to the requirements of part 358.

The Commission proposes to delete Sec.  358.4(e)(1) because the date
for submitting a plan and schedule for implementing the standards of
conduct has passed and the Commission does not need a new plan and
schedule with respect to Sec.  358.4(e)(3). The Commission proposes
deleting ``by September 22, 2004 or'' because that date has passed and
we are proposing to require in Sec.  358.4(e)(3) that a transmission
provider must comply with the

standards of conduct within 30 days of becoming subject to the
requirements of part 358.
    66. Section 358(e)(5) of the Commission's regulations require
training on the standards of conduct for certain employees of the
transmission provider. Those employees are required to ``sign a
document or certify electronically that s/he has participated in the
training.'' In order to ensure that such employees not only participate
in, but, also, complete such training, the Commission proposes
replacing the words ``participated in'' with the word ``completed'' so
that the applicable sentence would read: ``The Transmission Provider
must require each employee to sign a document or certify electronically
signifying that s/he has completed the training.'' \81\
---------------------------------------------------------------------------

    \81\ Proposed 18 CFR 358.3(e)(5).
---------------------------------------------------------------------------

    67. Section 358.4(e)(6) requires transmission providers to
designate a chief compliance officer who will be responsible for
standards of conduct compliance. Recently, Commission staff has tried
to identify the name of the chief compliance officers of several
transmission providers, and noticed that some transmission providers do
not publicly identify the name of the chief compliance officer.
Therefore, the Commission proposes to add the following sentence to
Sec.  358.4(e)(6) as follows: ``Transmission Providers must post the
name of the Chief Compliance Officer and provide contact information on
the OASIS or Internet Web site, as applicable.''

III. Information Collection Statement

    68. The Office of Management and Budget (OMB) regulations require
approval of certain information collection requirements imposed by
agency rules.\82\ In this NOPR, the Commission proposes to reinstate
the provisions remanded by the court in National Fuel.
---------------------------------------------------------------------------

    \82\ 5 CFR 1320.11.
---------------------------------------------------------------------------

    69. Previously, the Commission submitted to OMB the information
collection requirements arising from the standards of conduct adopted
in Order No. 2004. OMB approved those requirements.\83\ The revisions
to the standards of conduct proposed in this issuance do not impose any
additional information collection burden on industry participants. In
fact, by proposing that the standards of conduct will no longer govern
the relationship between transmission providers and their energy
affiliates, the information collection burden will likely decrease.
---------------------------------------------------------------------------

    \83\ 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).
---------------------------------------------------------------------------

    70. 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.\84\ 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.
---------------------------------------------------------------------------

    \84\ 44 U.S.C. 3507(d).
---------------------------------------------------------------------------

    71. OMB regulations require OMB to approve certain information
collection requirements imposed by agency rule. The Commission is
submitting notification of this proposed rule to OMB.
    Title: FERC-592 and 717.
    Action: Proposed Collection.
    OMB Control No: 1902-0157 and 1902-173.
    Respondents: Business or other for profit.
    Frequency of Responses: On occasion.
    Necessity of the Information: The information is necessary to
ensure that all regulated transmission providers treat all transmission
customers 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 because of changes
in transmission provider practices and in the energy market. The
Commission proposes to revise the standards of conduct to be consistent
with the recent court decisions and to make certain transmission
provider practices more efficient and less costly.
    72. These requirements conform to the Commission's plan for
efficient information collection, communication, and management within
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.
    73. 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:<PHONE_NUMBER>, fax:
(202) 208-2425, e-mail<EMAIL_ADDRESS>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].

IV. Environmental Analysis

    74. 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.\85\ The
Commission has categorically excluded certain actions from these
requirements as not having a significant effect on the human
environment.\86\ The action proposed here falls within the categorical
exclusions provided in the Commission's regulations because this rule
is clarifying and corrective and does not substantially change the
effect of the regulations being amended.\87\ Therefore, an
environmental assessment is unnecessary and has not been prepared in
this rulemaking.
---------------------------------------------------------------------------

    \85\ Regulations Implementing the National Environmental Policy
Act, Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs.
Preambles 1986-1990 ] 30,783 (1987).
    \86\ 18 CFR 380.4.
    \87\ 18 CFR 380.4(a)(2)(ii) and 380.4(a)(5).
---------------------------------------------------------------------------

V. Regulatory Flexibility Act

    75. The Regulatory Flexibility Act of 1980 (RFA) \88\ 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,'' \89\ the Commission certifies that this rule will
not have a significant economic impact on a substantial number of small
entities.
---------------------------------------------------------------------------

    \88\ 5 U.S.C. 601-612.
    \89\ See 5 U.S.C. 601(3).
---------------------------------------------------------------------------

VI. Comment Procedures

    76. 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 must be filed on or before March 15, 2007. Reply
comments must be filed on or before April 4, 2007. Comments and reply
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.
    77. Comments may be filed electronically via the eFiling link on
the

Commission's Web site at http://www.ferc.gov. The Commission accepts

most standard word processing formats, and commenters may attach
additional files with supporting information in certain other file
formats. Commenters filing electronically do not need to make a paper
filing.
    78. Commenters who are not able to file comments electronically
must send an original and 14 copies of their comments to: Federal
Energy Regulatory Commission, Office of the Secretary, 888 First
Street, NE., Washington, DC 20426.
    79. 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 NOPR are not
required to serve copies of their comments on other commenters.

VII. Document Availability

    80. 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.
    81. 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.
    82. User assistance is available for eLibrary and the FERC's Web
site during normal business hours from our Help line at<PHONE_NUMBER>
or the Public Reference Room at<PHONE_NUMBER> Press 0, TTY (202) 502-
8659. E-Mail the Public Reference Room at
<EMAIL_ADDRESS>

List of Subjects in 18 CFR Part 358

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

    By direction of the Commission.
Magalie R. Salas,
Secretary.
    In consideration of the foregoing, the Commission proposes to
revise part 358, Chapter I, Title 18, Code of Federal Regulations, as
follows:

PART 358--STANDARDS

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

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

Sec.  358.1  Applicability.

    (a) This part applies to any interstate natural gas pipeline that
transports gas for others pursuant to subpart A of part 157 or subparts
B or G of part 284 of this chapter.
    (b) This part applies to any public utility that owns, operates, or
controls facilities used for the transmission of electric energy in
interstate commerce.
    (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 facilities and has no
access to transmission, customer or market information covered by Sec.
358.5(b), 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.
    (e) The Standards of Conduct in this part do not govern the
relationship between a natural gas Transmission Provider as defined in
Sec.  358.3(a)(2) and its Energy Affiliates.

Sec.  358.2  General principles.

    (a) A Transmission Provider's employees engaged in transmission
system operations must function independent from employees of its
Marketing and Energy Affiliates.
    (b) A Transmission Provider must treat all transmission customers,
affiliated and non-affiliated, on a non-discriminatory basis, and must
not operate its transmission system to preferentially benefit Marketing
and Energy Affiliates.

Sec.  358.3  Definitions.

    (a) Transmission Provider means:
    (1) Any public utility that owns, operates or controls facilities
used for the transmission of electric energy in interstate commerce; or
    (2) Any interstate natural gas pipeline that transports gas for
others pursuant to subpart A of part 157 or subparts B or G of part 284
of this chapter.
    (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.
    (b) Affiliate means:
    (1) Another person which controls, is controlled by or is under
common control with, such person. An affiliate includes a division that
operates as a functional unit,
    (2) For any exempt wholesale generator (as defined under Sec.
366.1 of this chapter), an affiliate means the same as the definition
of ``affiliate'' provided in Sec.  366.1 of this chapter.
    (c) Control (including the terms ``controlling,'' ``controlled
by,'' and ``under common control with'') as used in this part and Sec.
250.16 of this chapter, includes, but is not limited to, the
possession, directly or indirectly and whether acting alone or in
conjunction with others, of the authority to direct or cause the
direction of the management or policies of a company. A voting interest
of 10 percent or more creates a rebuttable presumption of control.
    (d) Energy Affiliate means an affiliate of a Transmission Provider
that:
    (1) Engages in or is involved in transmission transactions 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.
    (5) An LDC division of an electric public utility Transmission
Provider shall be considered the functional equivalent of an Energy
Affiliate, unless it qualifies for the exemption in Sec.
358.3(d)(6)(v).
    (6) An Energy Affiliate does not include:
    (i) A foreign affiliate that does not participate in U.S. energy
markets;
    (ii) An affiliated Transmission Provider or an interconnected
foreign affiliated natural gas pipeline that is engaged in natural gas
transmission activities that are regulated by the state, provincial or
national regulatory boards of the foreign country in which such
facilities are located.
    (iii) A holding, parent or service company that does not engage in
energy or natural gas commodity markets or is not involved in
transmission transactions in U.S. energy markets;

    (iv) An affiliate that purchases natural gas or energy solely for
its own consumption. ``Solely for its own consumption'' does not
include the purchase of natural gas or energy for the subsequent
generation of electricity.
    (v) A State-regulated local distribution company that acquires
interstate transmission capacity to purchase and resell gas only for
on-system sales, and otherwise does not engage in the activities
described in Sec.  358.3(d)(1), (2), (3) or (4), except to the limited
extent necessary to support on-system sales and to engage in de minimis
sales necessary to remain in balance under applicable pipeline tariff
requirements.
    (vi) A processor, gatherer, Hinshaw pipeline or an intrastate
pipeline that makes incidental purchases or sales of de minimis volumes
of natural gas to remain in balance under applicable pipeline tariff
requirements and otherwise does not engage in the activities described
in Sec. Sec.  358.3(d)(1), (2), (3) or (4).
    (e) Marketing, sales or brokering means a sale for resale of
natural gas or electric energy in interstate commerce in U.S. energy or
transmission markets. Marketing also includes managing or controlling
transmission capacity of a third-party as an asset manager or agent.
    (1) A sales and marketing employee or unit includes:
    (i) An interstate natural gas pipeline's sales operating unit, to
the extent provided in Sec.  284.286 of this chapter, and
    (ii) A public utility Transmission Provider's energy sales unit,
unless such unit engages solely in bundled retail sales.
    (2) Marketing or sales does not include incidental purchases or
sales of natural gas to operate interstate natural gas pipeline
transmission facilities.
    (3) Marketing means a sale of natural gas to any person or entity
by a seller that is not an interstate pipeline, except where:
    (i) The seller is selling gas solely from its own production;
    (ii) The seller is selling gas solely from its own gathering or
processing facilities; or
    (iii) The seller is an intrastate natural gas pipeline or a local
distribution company making an on-system sale.
    (f) Transmission means 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;
and electric transmission, network or point-to-point service,
reliability service, ancillary services or other methods of
transportation or the interconnection with jurisdictional transmission
facilities.
    (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) 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.
    (i) 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.
    (j) Transmission Function employee means an employee, contractor,
consultant or agent of a Transmission Provider, other than a Planning
Employee as defined in Sec.  358.3(o), who conducts transmission system
operations or reliability functions, including, but not limited to,
those who are engaged in day-to-day duties and responsibilities for
planning, directing, organizing or carrying out transmission-related
operations.
    (k) Marketing Affiliate means an Affiliate as that term is defined
in Sec.  358.3(b) or a unit that engages in marketing, sales or
brokering activities as those terms are defined at Sec.  358.3(e).
    (l) Integrated Resource Planning means a process to establish a
plan, required by state law, regulation or other state mandate, for a
public utility to meet its future bundled retail load obligations that
evaluates a range of alternatives that includes consideration of third
party resources.
    (m) Competitive Solicitation means a solicitation by a public
utility to obtain energy, capacity, or ancillary services for the
purposes of meeting the public utility's bundled retail load
obligations pursuant to an Integrated Resource Planning obligation.
    (n) Competitive Solicitation Employee means an employee,
contractor, consultant or agent of a public utility who directs,
organizes, or executes the public utility's Competitive Solicitations.
    (o) Planning Employee means an employee, contractor, consultant or
agent of a public utility who directs, organizes or conducts the public
utility's Integrated Resource Planning.

Sec.  358.4  Independent functioning.

    (a) Separation of functions. (1) Except in emergency circumstances
affecting system reliability, the transmission function employees of
the Transmission Provider must function independently of the
Transmission Provider's Marketing or Energy Affiliates' employees.
    (2) Notwithstanding any other provisions in this section, in
emergency circumstances affecting system reliability, a Transmission
Provider may take whatever steps are necessary to keep the system in
operation. Transmission Providers must report to the Commission and
post on the OASIS or Internet Web site, as applicable, each emergency
that resulted in any deviation from the standards of conduct, within 24
hours of such deviation.
    (3) The Transmission Provider is prohibited from permitting the
employees of its Marketing or Energy Affiliates from:
    (i) Conducting transmission system operations or reliability
functions; and
    (ii) Having access to the system control center or similar
facilities used for transmission operations or reliability functions
that differs in any way from the access available to other transmission
customers.
    (4) Transmission Providers are permitted to share support employees
and field and maintenance employees with their Marketing and Energy
Affiliates.
    (5) Transmission Providers are permitted to share with their
Marketing or Energy Affiliates senior officers and directors who are
not ``Transmission Function Employees'' as that term is defined in
Sec.  358.3(j). A Transmission Provider may share transmission
information covered by Sec. Sec.  358.5(a) and (b) with its shared
senior officers and directors provided that they do not participate in
directing, organizing or executing transmission system operations or
marketing functions; or act as a conduit to share such information with
a Marketing or Energy Affiliate.
    (6) Transmission Providers are permitted to share risk management
employees that are not engaged in Transmission Functions or sales or
commodity functions with their Marketing and Energy Affiliates. This
provision does not apply to natural gas transmission providers.
    (7) A Transmission Function employee may interact with a Planning
Employee for the purpose of engaging in Integrated Resource Planning. A
Planning Employee, who receives non-public transmission information
pursuant to Sec.  358.5(b)(8) or who interacts with a Transmission
Function employee, must not:
    (i) Participate in sales of energy, capacity or ancillary services
or in sales

of transmission services, including directing, organizing, or otherwise
preparing a bid, benchmark, or proposal by the public utility or by the
public utility's Marketing or Energy Affiliates to supply energy,
capacity or ancillary services;
    (ii) Participate in purchases of energy, capacity or ancillary
services or of purchases of transmission services other than in a
Competitive Solicitation on behalf of its public utility Transmission
Provider; or
    (iii) Participate in non-planning transmission functions.
    (8) A Transmission Function employee may interact with a
Competitive Solicitation Employee for the purpose of evaluating the
transmission component of bids or proposals considered in a Competitive
Solicitation. A Competitive Solicitation Employee, who receives non-
public transmission information pursuant to Sec.  358.5(b)(9) or who
interacts with a Transmission Function employee, must not:
    (i) Provide any non-public bid, proposal, or Competitive
Solicitation information to the Marketing or Energy Affiliate
employees;
    (ii) Participate in sales of energy, capacity, ancillary services
or in sales of transmission services, including directing, organizing,
or otherwise preparing a bid, benchmark, or proposal by the public
utility or by the public utility's Marketing or Energy Affiliates to
supply energy, capacity or ancillary services; or
    (iii) Participate in any purchases of energy, capacity or ancillary
services or of transmission services other than a Competitive
Solicitation on behalf of its public utility Transmission Provider.
    (b) Identifying affiliates on the public Internet. (1) A
Transmission Provider must post the names and addresses of Marketing
and Energy Affiliates on its OASIS or Internet Web site.
    (2) A Transmission Provider must post on its OASIS or Internet Web
site, as applicable, a complete list of the facilities shared by the
Transmission Provider and its Marketing and Energy Affiliates,
including the types of facilities shared and their addresses.
    (3) A Transmission Provider must post comprehensive organizational
charts showing:
    (i) The organizational structure of the parent corporation with the
relative position in the corporate structure of the Transmission
Provider, Marketing and Energy Affiliates;
    (ii) For the Transmission Provider, the business units, job titles
and descriptions, and chain of command for all positions, including
officers and directors, with the exception of clerical, maintenance,
and field positions. The job titles and descriptions must include the
employee's title, the employee's duties, whether the employee is
involved in transmission or sales, and the name of the supervisory
employees who manage non-clerical employees involved in transmission or
sales.
    (iii) For all employees who are engaged in transmission functions
for the Transmission Provider and marketing or sales functions or who
are engaged in transmission functions for the Transmission Provider and
are employed by any of the Energy Affiliates, the Transmission Provider
must post the name of the business unit within the marketing or sales
unit or the Energy Affiliate, the organizational structure in which the
employee is located, the employee's name, job title and job description
in the marketing or sales unit or Energy Affiliate, and the employee's
position within the chain of command of the Marketing or Energy
Affiliate.
    (iv) The Transmission Provider must update the information on its
OASIS or Internet Web site, as applicable, required by Sec. Sec.
358.4(b)(1), (2) and (3) within seven business days of any change, and
post the date on which the information was updated.
    (v) The Transmission Provider must post information concerning
potential merger partners as affiliates within seven days after the
potential merger is announced.
    (vi) All OASIS or Internet Web site postings required by part 358
must comply, as applicable, with the requirements of Sec.  37.6 or
Sec. Sec.  284.12(a) and (c)(3)(v) of this chapter.
    (c) Transfers. Employees of the Transmission Provider, Marketing or
Energy Affiliates are not precluded from transferring among such
functions as long as such transfer is not used as a means to circumvent
the Standards of Conduct. Notices of any employee transfers between the
Transmission Provider, on the one hand, and the Marketing or Energy
Affiliates on the other, must be posted on the OASIS or Internet Web
site, as applicable. The information to be posted must include: the
name of the transferring employee, the respective titles held while
performing each function (i.e., on behalf of the Transmission Provider,
Marketing or Energy Affiliate), and the effective date of the transfer.
The information posted under this section must remain on the OASIS or
Internet Web site, as applicable, for 90 days.
    (d) Books and records. A Transmission Provider must maintain its
books of account and records (as prescribed under parts 101, 125, 201
and 225 of this chapter) separately from those of its Energy Affiliates
and these must be available for Commission inspections.
    (e) Written procedures. (1) [Reserved.]
    (2) Each Transmission Provider must be in full compliance with the
standards of conduct within 30 days of becoming subject to the
Commission's jurisdiction.
    (3) The Transmission Provider must post on the OASIS or Internet
Web site, current written procedures implementing the standards of
conduct in such detail as will enable customers and the Commission to
determine that the Transmission Provider is in compliance with the
requirements of this section within 30 days of becoming subject to the
requirements of part 358.
    (4) Transmission Providers will distribute the written procedures
to all Transmission Provider employees and employees of the Marketing
and Energy Affiliates.
    (5) Transmission Providers shall train officers and directors as
well as employees with access to transmission information or
information concerning gas or electric purchases, sales or marketing
functions. The Transmission Provider must require each employee to sign
a document or certify electronically signifying that s/he has completed
the training.
    (6) Transmission Providers are required to designate a Chief
Compliance Officer who will be responsible for standards of conduct
compliance. Transmission Providers must post the name of the Chief
Compliance Officer and provide contact information on the OASIS or
Internet Web site, as applicable.

Sec.  358.5  Non-discrimination requirements.

    (a) Information access. (1) The Transmission Provider must ensure
that any employee of its Marketing or Energy Affiliate may only have
access to that information available to the Transmission Provider's
transmission customers (i.e., the information posted on the OASIS or
Internet Web site, as applicable), and must not have access to any
information about the Transmission Provider's transmission system that
is not available to all users of an OASIS or Internet Web site, as
applicable.
    (2) The Transmission Provider must ensure that any employee of its
Marketing or Energy Affiliate is prohibited from obtaining information
about the Transmission Provider's transmission system (including, but
not limited to, information about available transmission capability,
price, curtailments, storage, ancillary services,

balancing, maintenance activity, capacity expansion plans or similar
information) through access to information not posted on the OASIS or
Internet Web site or that is not otherwise also available to the
general public without restriction.
    (b) Prohibited disclosure. (1) An employee of the Transmission
Provider may not disclose to its Marketing or Energy Affiliates any
information concerning the transmission system of the Transmission