131 FERC ¶ 61,033 

UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

18 CFR Part 35 

[Docket No. RM10-20-000] 

Market-Based Rate Affiliate Restrictions 

(April 15, 2010) 

AGENCY: Federal Energy Regulatory Commission. 

ACTION: Notice of Proposed Rulemaking. 

SUMMARY: The Federal Energy Regulatory Commission (Commission) proposes to 

amend its regulations to revise its regulations governing market-based rates for public 

utilities pursuant to section 205 of the Federal Power Act (FPA). The Commission 

proposes to clarify that employees that determine the timing of scheduled outages, or that 

engage in economic dispatch, fuel procurement, or resource planning may not be shared 

under the market-based rate affiliate restrictions codified in Order No. 697. 

DATES: Comments are due [Insert_date that is 60 days after publication in the

FEDERAL REGISTER]. 

ADDRESSES: You may submit comments, identified by docket number by any of the 

following methods: 

 Agency Web Site: http://www.ferc.gov. Documents created electronically using 

word processing software should be filed in native applications or print-to-PDF 

format and not in a scanned format. 
Docket No. RM10-20-000 - 2 - 

 Mail/Hand Delivery: Commenters unable to file comments electronically must 

mail or hand deliver an original and 14 copies of their comments to: Federal 

Energy Regulatory Commission, Secretary of the Commission, 888 First Street, 

NE, Washington, DC 20426. 

FOR FURTHER INFORMATION CONTACT: 

Michelle Barnaby (Technical Information) 

Office of Energy Market Regulation 

Federal Energy Regulatory Commission 

888 First Street, N.E. 

Washington, DC 20426 

(202) 502-8407 

Paige Bullard (Legal Information) 

Office of the General Counsel 

Federal Energy Regulatory Commission 

888 First Street, N.E. 

Washington, DC 20426 

(202) 502-6462 

SUPPLEMENTARY INFORMATION:
131 FERC ¶ 61.033 

UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Market-Based Rate Affiliate Restrictions Docket No. RM10-20-000 

NOTICE OF PROPOSED RULEMAKING 

(April 15, 2010) 

I. Introduction

1. In this order, the Federal Energy Regulatory Commission (Commission) is 

proposing to revise § 35.39 of its regulations promulgated in Order No. 6971

 in order to 

reflect the clarification provided in an order to be issued concurrently with this order in 

response to the Compliance Working Group’s2

 concerns regarding compliance with the 

 1 Market-Based Rates for Wholesale Sales of Electric Energy, Capacity and 

Ancillary Services by Public Utilities, Order No. 697, FERC Stats. & Regs. ¶ 31,252 

(Order No. 697), clarified, 121 FERC ¶ 61,260 (2007), order on reh’g, Order No. 697-A, 

FERC Stats. & Regs. ¶ 31,268, clarified, 124 FERC ¶ 61,055, order on reh’g, Order 

No. 697-B, FERC Stats. & Regs. ¶ 31,285 (2008), order on reh’g, Order No. 697-C, 

FERC Stats. & Regs. ¶ 31,291 (2009), order on reh’g, Order No. 697-D, FERC Stats. & 

Regs. ¶ 31,305 (2010). 

2

 The Compliance Working Group states that it consists of 27 energy companies, 

which include integrated electric businesses, merchant generators, marketing and trading 

businesses, and natural gas distributors, and explains that the group was formed in mid2008 “to develop a model [Commission] compliance program guide.” Compliance 

Working Group Request for Clarification, Docket No. RM04-7-007, at 2 (filed Mar. 9, 

2009); Compliance Working Group Amended Request for Clarification, Docket No. 

RM04-7-007, at 3 (filed Oct. 28, 2009). The members of the Compliance Working 

Group taking part in its request for clarification are: Allegheny Energy, Inc., American 

Electric Power Company, Inc., Cleco Corporation, Consumers Energy Company, 

(continued...) 
Docket No. RM10-20-000 - 2 -

market-based rate affiliate restrictions codified in Order No. 697.3

 Specifically, the 

Commission is proposing to revise the separation of functions and information sharing 

provisions of those affiliate restrictions to explicitly state that employees that determine 

the timing of scheduled outages or that engage in economic dispatch, fuel procurement, 

or resource planning may not be shared under the Commission’s market-based rate 

affiliate restrictions adopted in Order No. 697. 

II. Background

2. In Order No. 697, the Commission adopted affiliate restrictions that govern the 

relationship between franchised public utilities with captive customers and their “marketregulated” affiliates, i.e., affiliates whose power sales are regulated in whole or in part on 

a market-based rate basis. These market-based rate affiliate restrictions govern the 

separation of functions, the sharing of market information, sales of non-power goods or 

services, and power brokering. The Commission requires that, as a condition of receiving 

and retaining market-based rate authority, sellers comply with these affiliate restrictions 

unless explicitly permitted by Commission rule or order. Failure to satisfy the conditions 

 

Dominion Resources, Inc., Duke Energy Corporation, Edison International, El Paso 

Electric Company, Energy East Corp., Entergy Corporation, Exelon Corporation, 

FirstEnergy Corp., FPL Group, Inc., Pacific Gas and Electric Co., Progress Energy, Inc., 

Public Service Enterprise Group Incorporated, and Westar Energy, Inc. 

3 Market-Based Rates for Wholesale Sales of Electric Energy, Capacity and 

Ancillary Services By Public Utilities, 131 FERC ¶ 61,021 (2010) (April 15 Clarification 

Order). 
Docket No. RM10-20-000 - 3 -

set forth in these affiliate restrictions constitutes a violation of the market-based rate 

tariff.4

3. On March 9, 2009, the Compliance Working Group submitted a request for 

clarification in the Commission’s market-based rate rulemaking proceeding regarding 

which employees can be shared for purposes of compliance with the Commission’s 

market-based rate affiliate restrictions. On October 28, 2009, the Compliance Working 

Group submitted an amended request for clarification. In response to the Compliance 

Working Group’s request, the Commission is providing clarification regarding which 

employees may not be shared under these affiliate restrictions.5

 In this Notice of 

Proposed Rulemaking (NOPR), we propose to revise the text of the separation of 

functions and information sharing provisions of the affiliate restrictions contained in § 

35.39 of the Commission’s regulations in order to reflect the clarification provided in 

response to the Compliance Working Group’s request. 

III. Discussion 

4. Under the separation of functions requirement in the market-based rate affiliate 

restrictions, employees of market-regulated power sales affiliates must operate 

separately, to the maximum extent practical, from employees of affiliated franchised 

 4

 Order No. 697, FERC Stats. & Regs. ¶ 31,252 at P 549-550. 

5

 April 15 Clarification Order, 131 FERC ¶ 61,021. 
Docket No. RM10-20-000 - 4 -

 

utilities with captive customers.6

 Order No. 697 exempts certain categories of employees 

from this separation of functions requirement. Employees in these categories are 

permitted to be shared, and Order No. 697 gives examples of permissibly “shared 

employees” that are drawn from Order No. 2004, which established the Standards of 

Conduct rules that were in effect at the time that Order No. 697 was issued.7

 In 

particular, the market-based rate affiliate restrictions provide that “Franchised public 

utilities with captive customers are permitted to share support employees, and field and 

maintenance employees with their market-regulated power sales affiliates. Franchised 

public utilities with captive customers are also permitted to share senior officers and 

boards of directors with their market-regulated power sales affiliates; provided, however, 

that the shared officers and boards of directors must not participate in directing, 

6

 18 CFR 35.39(c)(2)(i). 

7

 Order No. 697, FERC Stats. & Regs. ¶ 31,252 at P 561-566 (citing Standards of 

Conduct for Transmission Providers, Order No. 2004, FERC Stats. & Regs. ¶ 31,155, at 

P 96, 99-101, 145-146 (2003), order on reh’g, Order No. 2004-A, FERC Stats. & Regs. 

¶ 31,161, at P 134, order on reh’g, Order No. 2004-B, FERC Stats. & Regs. ¶ 31,166, 

order on reh’g, Order No. 2004-C, FERC Stats. & Regs. ¶ 31,172 (2004), order on reh’g, 

Order No. 2004-D, 110 FERC ¶ 61,320 (2005), vacated and remanded as it applies to 

natural gas pipelines sub nom. National Fuel Gas Supply Corp. v. FERC, 468 F.3d 831 

(D.C. Cir. 2006); see id. P 562 (citing 18 CFR 358.4(a)(5) (Order 2004-era Standards of 

Conduct)). 
Docket No. RM10-20-000 - 5 -

 

organizing or executing generation or market functions.”8

 Moreover, under the 

information sharing restriction, “[a] franchised public utility with captive customers may 

not share market information with a market-regulated power sales affiliate if the sharing 

could be used to the detriment of captive customers, unless simultaneously disclosed to 

the public.” However, “[p]ermissibly shared support employees, field and maintenance 

employees and senior officers and board of directors under § 35.39(c)(2)(ii) may have 

access to information covered by the prohibition of § 35.39(d)(1), subject to the noconduit provision in § 35.39(g).”9

5. In its request for clarification, the Compliance Working Group asked the 

Commission to clarify which employees are permissibly “shared employees” for 

purposes of the Commission’s market-based rate affiliate restrictions. Specifically, it 

suggests that the Commission should interpret these affiliate restrictions to permit sharing 

of employees who are neither “transmission function employees” nor “marketing 

function employees” under the Standards of Conduct.10 The Compliance Working Group 

8

 18 CFR 35.39(c)(2)(ii); see also Order No. 697, FERC Stats. & Regs. ¶ 31,252 at 

P 562. 

9

 18 CFR 35.39(d). 

10 Standards of Conduct for Transmission Providers, Order No. 717, FERC Stats. 

& Regs. ¶ 31,280 (2008) (Standards of Conduct Final Rule), order on reh’g, Order 

No. 717-A, FERC Stats. & Regs. ¶ 31,297, order on reh’g, Order No. 717-B, 129 FERC 

¶ 61,123 (2009). As discussed below, “transmission function employees” and 

(continued...) 
Docket No. RM10-20-000 - 6 -

 

stated that the issue arose because shared employees under the market-based rate affiliate 

restrictions are defined by reference to shared employees under the Order No. 2004-era 

Standards of Conduct, but as of the effective date of the Standards of Conduct Final Rule, 

November 26, 2008, the Standards of Conduct no longer use the concept of shared 

employees. The Compliance Working Group therefore claimed that this inconsistency 

poses a compliance conundrum that needs to be addressed in order to enable companies 

and their employees to understand, and comply with, the market-based rate affiliate 

restrictions. 

6. As explained in the April 15 Clarification Order, we are denying the Compliance 

Working Group’s request that the Commission interpret the market-based rate affiliate 

restrictions to permit the sharing of employees who are neither transmission function 

employees nor marketing function employees under the Standards of Conduct. However, 

in order to address the Compliance Working Group’s concerns regarding compliance 

with the market-based rate affiliate restrictions, the April 15 Clarification Order provides 

guidance regarding which employees may not be shared under the affiliate restrictions.11

“marketing function employees” are defined terms under the Standards of Conduct. See

18 CFR 358.3(d); 358.3(i). 

11 April 15 Clarification Order, 131 FERC ¶ 61,021 at P 39-42. 
Docket No. RM10-20-000 - 7 -

7. Specifically, in the April 15 Clarification Order the Commission denies the 

Compliance Working Group’s request that it interpret the market-based rate affiliate 

restrictions to permit the sharing of employees who are neither transmission function 

employees nor marketing function employees under the Standards of Conduct because 

the Standards of Conduct definition of “marketing function employee” does not include 

certain employees who may not be shared under the market-based rate affiliate 

restrictions (for instance, employees that make economic dispatch decisions or that 

determine the timing of scheduled outages). Thus, the Commission explains that granting 

the Compliance Working Group’s requested interpretation would permit market-based 

rate sellers to share employees that may not currently be shared under the affiliate 

restrictions. 

8. The April 15 Clarification Order explains that “marketing function employee” is 

not a defined term in the market-based rate regulations adopted in Order No. 697, and 

explains that the restrictions on which employees may be shared under the market-based 

rate affiliate restrictions are not limited to those employees who are engaged in sales. It 

states that as clarified in Order No. 697-A, under the market-based rate affiliate 

restrictions, “shared employees may not be involved in decisions regarding the marketing 

or sale of electricity from the facilities, may not make economic dispatch decisions, and 
Docket No. RM10-20-000 - 8 -

 

may not determine the timing of scheduled outages for facilities.”12 In this regard, the 

April 15 Clarification Order explains that responsibility for economic dispatch or the 

timing of scheduled outages, for example, is not a “marketing function” under the 

Standards of Conduct and, therefore, engaging in these activities would not cause an 

employee to be a marketing function employee subject to the Independent Functioning 

Rule under the Standards of Conduct (and therefore, those employees could be shared). 

Thus, consistent with the Commission’s determinations in Order No. 697-A, the April 15 

Clarification Order clarifies that, for purposes of compliance with the market-based rate 

affiliate restrictions, a franchised public utility with captive customers and its marketregulated power sales affiliates may not share employees that make economic dispatch 

decisions or that determine the timing of scheduled outages.13 

9. In addition, as explained in the April 15 Clarification Order, franchised public 

utilities with captive customers should be prohibited from sharing employees that engage 

in resource planning or fuel procurement with their market-regulated power sales 

affiliates. If the franchised public utility and its market-regulated power sales affiliate are 

permitted to share employees that make strategic decisions about future generation 

12 April 15 Clarification Order 131 FERC ¶ 61,021 at P 37 (citing Order 

No. 697-A, FERC Stats. & Regs. ¶ 31,268 at P 253). 

13 Order No. 697-A, FERC Stats. & Regs. ¶ 31,268 at P 253. 
Docket No. RM10-20-000 - 9 -

supply, such as deciding when and/or where to build or acquire generating capacity, such 

strategic decision making by a shared employee could result in generation being built or 

acquired for the benefit of the market-regulated power sales affiliate, and at the expense 

of the captive customers of the franchised public utility. In this regard, the Commission 

notes that the corporate entity has an inherent incentive to decrease its market-regulated 

power sales affiliate’s costs in order to maximize profits for shareholders. 

10. Similarly, a shared employee that procures fuel for both the franchised public 

utility and the market-regulated power sales affiliate may have the incentive to allocate 

purchases of lower priced fuel supplies to the market regulated power sales affiliate while 

allocating purchases of higher priced fuel supplies to the franchised public utility. By 

contrast, if the two entities are required to independently procure fuel, they would 

compete for the market’s best priced fuel. 

11. Therefore, given that the definition of marketing function employee under the 

Standards of Conduct does not specifically address employees that determine the timing 

of scheduled outages or that engage in economic dispatch, fuel procurement, or resource 

planning, the April 15 Clarification Order clarifies that employees engaging in these 
Docket No. RM10-20-000 - 10 -

 

activities14 are prohibited from being shared under the market-based rate affiliate 

restrictions, absent an explicit waiver from the Commission. 

12. In order to reflect this clarification, we propose to revise § 35.39 of our 

regulations in order to clarify that employees that determine the timing of scheduled 

outages or that engage in economic dispatch, fuel procurement, or resource planning may 

not be shared under the market-based rate affiliate restrictions. Accordingly, we propose 

to revise the separation of functions provision contained in § 35.39(c)(2)(ii) of the 

regulations to include the provision that franchised public utilities with captive customers 

are prohibited from sharing employees that determine the timing of scheduled outages or 

that engage in economic dispatch, fuel procurement, or resource planning with their 

market-regulated power sales affiliates. 

13. We also propose to revise the information sharing provision contained in § 

35.39(d)(2) of the regulations to include the provision that employees that determine the 

timing of scheduled outages or that engage in economic dispatch, fuel procurement, or 

resource planning may not have access to information covered by the prohibition of § 

35.39(d)(1). 

14 The prohibition on sharing employees that engage in resource planning applies 

only to the sharing of employees between a franchised public utility and its marketregulated power sales affiliate, and is not intended to alter resource planning activities by 

transmission providers that are permitted under the Standards of Conduct Final Rule. 
Docket No. RM10-20-000 - 11 -

IV. Information Collection Statement

14. The Office of Management and Budget’s (OMB) regulations require that OMB 

approve certain information collection and data retention requirements imposed by an 

agency.15 Order No. 697’s revisions to the information collection requirements for 

market-based rate sellers were approved under FERC-919 “Market-Based Rates for 

Wholesale Sales of Electric Energy, Capacity and Ancillary Services by Public Utilities” 

OMB Control Nos. 1902-0234. While this order proposes to revise the regulations for 

the market-based rate program in order to provide clarification, it does not add to the 

existing information collection requirements. Accordingly, a copy of this order will be 

sent to OMB for informational purposes only. 

V. Environmental Analysis

15. 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.16 The Commission has categorically excluded certain 

actions from this requirement as not having a significant effect on the human 

 

ons Implementing the National Environmental Policy Act of 1969

15 5 CFR 1320.11. 

16 Regulati , 

Order No. 486, FERC Stats. & Regs., Regulations Preambles July 1996 – December 2000 

¶ 30,783 (1987). 
Docket No. RM10-20-000 - 12 -

n the 

t 

ification. 

environment.17 The actions proposed here fall within the categorical exclusions i

Commission’s regulations for rules that are clarifying, corrective, or procedural, or do no

substantially change the effect of legislation or regulations being amended.18 In addition, 

the proposed rule is categorically excluded as an electric rate filing submitted by a public 

utility under sections 205 and 206 of the FPA.19 As explained above, this proposed rule

revises the regulations for the market-based rate program in order to provide clar

Accordingly, no environmental assessment is necessary and none has been prepared in 

this NOPR. 

VI. Regulatory Flexibility Act Analysis

16. The Regulatory Flexibility Act of 1980 (RFA)20 generally requires a description 

and analysis of final rules that will have significant economic impact on a substantial 

number of small entities. The RFA mandates consideration of regulatory alternatives that 

accomplish the stated objectives of a proposed rule and that minimize any significant 

economic impact on a substantial number of small entities. Most filing companies 

 17 18 CFR 380.4. 

18 See 18 CFR 380.4(a)(2)(ii). 

5). 19 18 CFR 380.4(a)(1

20 5 U.S.C. 601-12. 
Docket No. RM10-20-000 - 13 -

sed 

he 

l number of 

gulatory flexibility analysis is required. 

regulated by the Commission do not fall within the RFA’s definition of small entity.21 

Moreover, as noted above, this proposed rule revises the regulations for the market-ba

rate program in order to provide clarification of an existing requirement that affected 

entities, including small entities, are currently required to comply with. Because t

proposed revisions clarify an existing requirement, and do not add to the existing 

information collection or filing requirements, the Commission concludes that the 

proposed rule will not have a significant economic impact on a substantia

small entities. As a result, no re

VII. Comment Procedures

17. The Commission invites interested persons to submit comments on the matters an

issues proposed in this notice to be adopted, including any related matters or alternative 

proposals that commenters may wish to discuss. Comments are due [Insert Date that 

60 days after publication in the FEDERAL REGISTER]. Comments must refer to 

Docket No. RM10-20-000, and must include the commenters’ nam

d 

is 

e, the organization 

they represent, if applicable, and their address in their comments. 

18. The Commission encourages comments to be filed electronically via the eFiling

link on the Commission’s web site at http://www.ferc.gov. The Commission accepts 

 

Section 3 of the Small Business Act defines a “small-business concern” as a business 

21 5 U.S.C. 601(3), citing to section 3 of the Small Business Act, 15 U.S.C. 632. 

which is independently owned and operated and which is not dominant in its field of 

operation. 
Docket No. RM10-20-000 - 14 -

rd 

ing software should be filed in native applications or print-to-PDF format and not 

d an 

 remotely as described in the Document Availability section 

posal are not required to serve copies of their comments 

most standard word processing formats. Documents created electronically using wo

process

in a scanned format. Commenters filing electronically do not need to make a paper

filing. 

19. Commenters that are not able to file comments electronically must sen

original and 14 copies of their comments to: Federal Energy Regulatory Commission, 

Secretary of the Commission; 888 First Street, NE, Washington, DC 20426. 

20. All comments will be placed in the Commission’s public files and may be viewed,

printed, or downloaded

below. Commenters on this pro

on other commenters. 

VIII. Document Availability

21. 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 the Commission’s Home Page 

(http://www.ferc.gov) and in the Commission’s Public Reference Room during normal 

able 

on eLibrary. The full text of this document is available on eLibrary in PDF and 

business hours (8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street, NE, Room 2A, 

Washington, DC 20426. 

22. From the Commission’s Home Page on the Internet, this information is avail
Docket No. RM10-20-000 - 15 -

number excluding the last three digits of this 

6-

Microsoft Word format for viewing, printing, and/or downloading. To access this 

document in eLibrary, type the docket 

document in the docket number field. 

23. User assistance is available for eLibrary and the Commission’s web site during 

normal business hours from FERC Online Support at (202) 502-6652 (toll free at 1-86

208-3676) or e-mail at ferconlinesupport@ferc.gov, or the Public Reference R

(202) 502-8371, TTY (202) 502-8

oom at 

659. E-mail the Public Reference Room at 

public.referenceroom@ferc.gov. 

List of subjects in 18 CFR Part 35

Electric power rates, Electric utilities, Reporting and recordkeeping requirements. 

 of the Commission. 

S E A L ) 

Nathaniel J. Davis, Sr., 

Deputy Secretary. 

By direction

( 
Docket No. RM10-20-000 - 16 -

 In consideration of the foregoing, the Commission proposes to amend part 35, 

Chapter I, Title 18, Code of Federal Regulations, as follows: 

PART 35 – FILING OF RATE SCHEDULES AND TARIFFS 

1. The authority citation for part 35 continues to read as follows: 

Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42 U.S.C. 7101-

7352. 

2. In § 35.39, paragraphs (c)(2)(ii) and (d)(2) are revised to read as follows: 

§ 35.39 Affiliate restrictions. 

* * * * *

 (c) Separation of functions.

* * * * * 

 (ii) Franchised public utilities with captive customers are permitted to share 

support employees, and field and maintenance employees with their market-regulated 

power sales affiliates. Franchised public utilities with captive customers are also 

permitted to share senior officers and boards of directors with their market-regulated 

power sales affiliates; provided, however, that the shared officers and boards of directors 

must not participate in directing, organizing or executing generation or market functions. 

Franchised public utilities with captive customers are prohibited from sharing employees 

that determine the timing of scheduled outages or that engage in economic dispatch, fuel 

procurement, or resource planning with their market-regulated power sales affiliates. 
Docket No. RM10-20-000 - 17 -

 * * * * * 

 (d) Information sharing.

 * * * * *

 (2) Permissibly shared support employees, field and maintenance employees 

and senior officers and board of directors under §§ 35.39(c)(2)(ii) may have access to 

information covered by the prohibition of § 35.39(d)(1), subject to the no-conduit 

provision in § 35.39(g). Employees that determine the timing of scheduled outages or 

that engage in economic dispatch, fuel procurement, or resource planning may not have 

access to information covered by the prohibition of § 35.39(d)(1). 

 * * * * *