Report of the Natural Gas Regulation & Compliance Committee

Article excerpt

This report summarizes decisions and policy developments that have occurred in the area of natural gas regulation from July 1, 2008 to June 30, 2009.*

I. RULEMAKING ACTIONS

A. Standards of Conduct

On October 16, 2008, the Federal Energy Regulatory Commission (FERC) issued Order No. 7171 promulgating regulations on the Standards of Conduct governing the relationship between a transmission provider and its marketing function employees and the marketing function employees of its affiliates. The Order was intended to clarify and refocus the Standards of Conduct to areas with the greatest potential for abuse.2 The Order was additionally designed to conform the FERCs original Standards of Conduct to the U.S. Court of Appeals for the D.C. Circuit's ruling in the National Fuel decision.3 As proposed in the Notice of Proposed Rulemaking in this proceeding (NOPR),4 the FERC abandoned the concept of energy affiliates and, in its stead, adopted the "employee functional approach"5 for detennining applicability of the Standards of Conduct, the approach previously relied upon in Order Nos. 4976 and 8897.

The FERC claimed that, under Order No. 717, it was not establishing a new standard of review or imposing different evidentiary burdens specific to the Standards of Conduct.8 The FERC clarified that the revised Standards of Conduct are not intended to contain an exhaustive list of ways in which undue preference may arise and that an entity's compliance with the Standards of Conduct in other respects will not serve as a defense to a violation of the Natural Gas Act's prohibition on undue discrimination.9

1. Applicability

The FERC excluded Part 157 pipelines from the scope of the Standards of Conduct, relying on the determination that pipelines operating only under Part 157 cannot discriminate because such pipelines can only transport for specific shippers under the authorized terms of their certificates.10

Indicating that the core abuse to which the Standards of Conduct is directed is that of undue preference in favor of a transmission provider's affiliate, the FERC also excluded from applicability an electric utility that does not engage in transmission transactions with a marketing affiliate, thus unifying the regulatory expectations for pipelines and public utilities." The effective date for a transmission provider not currently engaging in transmission transactions with its affiliate to be in compliance is the date that the transmission provider commences transmission transactions with an affiliate that engages in marketing functions.12

Waivers from the Standards of Conduct, which had been granted under the previously existing regulation, were deemed to continue in full force and effect unless rendered moot by revisions contained in Order No. 717.13

2. Definitions

Many previously existing definitions were revised in an effort to provide additional clarity. The FERC clarified that transmission function activities can be identified by and are characterized by "day-to-day" responsibilities focused on short-term, real-time results. Individuals who are not typically involved in day-to-day transmission function activities fall outside the scope of the definitions of a "transmission function employee". Activities focused on longrange planning are not considered activities subject to the Standards of Conduct, although decisions made in advance of real-time, but directed at real-time operations are still considered to be subject to the Standards of Conduct.14 The FERC included in Order No. 717 unique definitions for electric and gas marketing functions15 and clarified specific terms used within the context of those definitions as a response to issues raised during the comment period of the NOPR.

The FERC enhanced the definition of a marketing function employee by including the phrase "on a day-to-day basis" to the definition.16 For further clarification, the FERC introduced the phrase "actively and personally engaged" within both the marketing function employee and transmission function employee definitions as a threshold for determining the level of activity required for an employee to be categorized within either group. …