107 FERC ¶61,032 

UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

18 CFR Part 358 

[Docket Number RM01-10-001; Order No. 2004-A] 

Standards of Conduct for Transmission Providers 

(Issued April 16, 2004) 

AGENCY: Federal Energy Regulatory Commission 

ACTION: Final Rule; Order on Rehearing 

SUMMARY: The Federal Energy Regulatory Commission (Commission) generally 

reaffirms its determinations in Order No. 2004 and grants rehearing and clarifies certain 

provisions. Order No. 2004 requires all natural gas and public utility Transmission 

Providers to comply with Standards of Conduct that govern the relationship between the 

natural gas and public utility Transmission Providers and all of their Energy Affiliates. 

In this order, the Commission addresses the requests for rehearing and/or 

clarification of Order No. 2004. The Commission grants rehearing, in part, denies 

rehearing, in part, and provides clarification of Order No. 2004. This order (1) clarifies 

the definition of Energy Affiliate; (2) further codifies the definition of “Marketing 

Affiliate;” (3) clarifies which Field and Maintenance employees a Transmission Provider 

may share with its Energy Affiliates; (4) clarifies that a Transmission Provider may share 

with its Energy Affiliates information necessary to maintain the operations of the 

transmission system; (5) codifies the exception that permits a Transmission Provider to 

share senior officers and directors with its Marketing and Energy Affiliates; (6) codifies 

the exception that permits a Transmission Provider to share the risk management function 

with its Marketing and Energy Affiliates; (7) codifies that a Transmission Provider may 

share information with certain employees it shares with its Marketing and Energy 

Affiliates; and (8) defers the implementation date to September 1, 2004. 

EFFECTIVE DATE: Revisions in this order on rehearing will be effective [insert date 30 

days after publication in the FEDERAL REGISTER]. 
Docket No. RM01-10-001 - 2 - 

FOR FURTHER INFORMATION CONTACT:

Demetra Anas 

Office of Market Oversight and Investigations 

Federal Energy Regulatory Commission 

888 First Street, N.E. 

Washington, D.C. 20426 

(202) 502-8178 

SUPPLEMENTARY INFORMATION:
Docket No. RM01-10-001 - 3 - 

TABLE OF CONTENTS

 Page Number 

I. BACKGROUND...................................................................................................................3

II. NEED FOR THE RULE.......................................................................................................5

III. ANALYSIS OF REQUESTS FOR REHEARING AND/OR CLARIFICATION...........21

A. Applicability of the Standards of Conduct ....................................................................22

B. Definition of a Transmission Provider...........................................................................25

C. Definition of an Energy Affiliate....................................................................................30

i. Defining the Phrase “Engages in or is Involved in Transmission Transactions” ........30

ii. LDCs as Energy Affiliates ..........................................................................................32

iii. Producers, Gatherers, and Processors ........................................................................45

iv. Intrastate and Hinshaw Pipelines ...............................................................................54

v. Affiliated and Foreign Transmission Providers ..........................................................56

vi. Holding or Parent Companies ....................................................................................58

vii. Service Companies....................................................................................................62

viii. Affiliates Buying Power for Themselves.................................................................66

D. Definition of Marketing, Sales or Brokering.................................................................67

i. Treatment of Retail Sales Employees .........................................................................69

ii. Treatment of Electricity Provider of Last Resort Service (POLR)............................71

E. Definition of a Transmission Function Employee.........................................................73

F. Definition of Marketing Affiliate...................................................................................76

G. Independent Functioning ...............................................................................................76

i. Sharing of Senior Officers and Directors.....................................................................77

ii. Sharing of Field and Maintenance Personnel..............................................................81

iii. Risk Management Employees....................................................................................82

iv. Lawyers as Transmission Function Employees ........................................................86

H. Identification of Affiliates on Internet...........................................................................87

i. Posting Organizational Charts.....................................................................................87

ii. Posting of Merger Information....................................................................................91

iii. Transfer of Employees ...............................................................................................92

iv. Posting Standards of Conduct Procedures ................................................................93

v. Training ......................................................................................................................96

vi. Chief Compliance Officer .........................................................................................98

I. Information Access and Disclosure Prohibitions............................................................99

i. No Conduit Rule........................................................................................................102

ii. Crucial Operating Information Exemption ..............................................................104

iii. Transaction Specific Exemption .............................................................................108

iv. Voluntary Consent Exemption .................................................................................111

v. Posting of Shared Information Requirement............................................................113

J. Discounts.......................................................................................................................115
Docket No. RM01-10-001 - 4 - 

K. Accounting Treatment for Compliance Costs .........................................................117

L. Request for Extension of Time ................................................................................118

M. Typographical Corrections......................................................................................118

N. Applicability of the Standards of Conduct to Newly Formed Transmission 

Providers............................................................................................................................119

IV. DOCUMENT AVAILABILITY.....................................................................................120

V. EFFECTIVE DATE.........................................................................................................121
107 FERC ¶61,032 

UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Before Commissioners: Pat Wood, III, Chairman; 

 Nora Mead Brownell, Joseph T. Kelliher, 

 and Suedeen G. Kelly. 

Standards of Conduct for Transmission Providers RM01-10-001 

ORDER ON REHEARING AND CLARIFICATION 

(Issued April 16, 2004) 

1. On November 25, 2003, the Federal Energy Regulatory Commission issued a 

Final Rule adopting Standards of Conduct for Transmission Providers (Order No. 2004 or 

Final Rule)1

 which added Part 358 and revised Parts 37 and 161 of the Commission’s 

regulations.2

 The Commission adopted Standards of Conduct that apply uniformly to 

interstate natural gas pipelines and public utilities (jointly referred to as Transmission 

Providers) that were subject to the former gas Standards of Conduct in Part 161 of the 

Commission's regulations or the former electric Standards of Conduct in Part 37 of the 

Commission's regulations.3

 Under Order No. 2004, the Standards of Conduct govern the 

 1

Standards of Conduct for Transmission Providers, 68 FR 69134 (Dec. 11, 2003), 

III FERC Stats. & Regs., ¶ 31,155 (Nov. 25, 2003). 

2

The Commission also made minor conforming changes in Parts 250 and 284. 

3

The gas standards of conduct were codified at Part 161 of the Commission's 

regulations, 18 CFR part 161 (2003), and the electric standards of conduct were codified 

at 18 CFR 37.4 (2003). 
Docket No. RM01-10-001 - 2 - 

relationships between Transmission Providers and all of their Marketing and Energy 

Affiliates. The Commission affirms here the legal and policy conclusions on which 

Order No. 2004 is based. The goal of the Standards of Conduct for Transmission 

Providers is to prevent undue discrimination. In this order, the Commission addresses the 

requests for rehearing and/or clarification of Order No. 2004. As discussed below, the 

Commission grants rehearing, in part, denies rehearing, in part, and provides clarification 

of Order No. 2004. This order (1) clarifies the definition of Energy Affiliate; (2) further 

codifies the definition of “Marketing Affiliate;” (3) clarifies which Field and 

Maintenance employees a Transmission Provider may share with its Energy Affiliates; 

(4) clarifies that a Transmission Provider may share with its Energy Affiliates 

information necessary to maintain the operations of the transmission system; (5) codifies 

the exception that permits a Transmission Provider to share senior officers and directors 

with its Marketing and Energy Affiliates; (6) codifies the exception that permits a 

Transmission Provider to share the risk management function with its Marketing and 

Energy Affiliates; (7) codifies that a Transmission Provider may share information with 

certain employees it shares with its Marketing and Energy Affiliates; and (8) defers the 

implementation date to September 1, 2004. 
Docket No. RM01-10-001 - 3 - 

I. BACKGROUND 

2. Following issuance of Order No. 637,4

 the Commission hosted a public conference 

on March 15, 2001, to discuss how the changes in the natural gas market affect the way 

in which the Commission should regulate transactions between pipelines and their 

affiliates, capacity managers and agents. Industry representatives urged the Commission 

to: (1) apply the standards of conduct to all affiliates; (2) prohibit affiliates from holding 

capacity on affiliated pipelines; (3) limit an affiliate’s capacity market share; or (4) take 

no action vis-à-vis affiliate relationships. Several industry representatives expressed a 

fear of retaliation for filing a complaint or inadequate resources to pursue complaints that 

result only prospective remedies.5

 Commenters also expressed concern that regulated 

entities can transfer all the benefits of their regulated (monopolistic) status to their 

unregulated affiliates, which can then use these benefits to reap unregulated profits from 

the public.6

 

 4

Regulation of Short-Term Natural Gas Transportation Services, Order No. 637, 

Final Rule, 65 FR 10156 (Feb. 25, 2000), FERC Stats. & Regs., Regulations Preambles 

July 1996 – December 2000 ¶ 31,091 (Feb. 9, 2000), Order No. 637-A, order on reh’g, 

65 FR 35705 (June 5, 2000), FERC Stats. & Regs., Regulations Preambles July 1996 – 

December 2000 ¶ 31,099 (May 19, 2000). 

5

See, e.g., January 5, 2001 comments of Dynegy, Inc. and National Association of 

State Utility Consumer Advocates in PL00-1-000. 

6

See, e.g., January 5, 2001 comments of Dynegy, Inc. and Amoco Production 

Company and BP Energy in PL00-1-000. 
Docket No. RM01-10-001 - 4 - 

3. On September 27, 2001, the Commission issued a Notice of Proposed Rulemaking 

(NOPR) in this proceeding.7

 Following review of the comments, in April 2002, the 

Commission published an "Analysis of the Major Issues Raised in the Comments” 

(Major Issues Analysis). At the request of commenters, the Commission also hosted a 

full-day technical conference in May 2002 giving interested persons the opportunity to 

discuss issues raised in the NOPR and the Major Issues Analysis. Panelists, interested 

persons and Commission staff discussed a variety of issues including: the impact of 

requiring the independent functioning between Transmission Providers and their Energy 

Affiliates; whether there were other ways to prevent discriminatory behavior; information 

disclosure issues; and proposed revisions to regulatory text and the definition of Energy 

Affiliate. About 100 interested persons submitted additional comments and/or draft 

regulatory text. On November 25, 2003, the Commission issued Order No. 2004, which 

became effective on February 9, 2004. Sixty-eight requests for rehearing and 

clarification and comments have been filed.8

 

 7

Standards of Conduct for Transmission Providers, 66 FR 50919 (Oct. 5, 2001), 

IV FERC Stats. & Regs. ¶ 32,555 (Sept. 27, 2001). 

8

Appendix A contains a list of each person that requested rehearing or clarification 

of Order No. 2004 or submitted additional comments regarding Order No. 2004. The 

abbreviations for the participants are identified in Appendix A. 
Docket No. RM01-10-001 - 5 - 

II. NEED FOR THE RULE 

Final Rule

4. The Final Rule identified a number of changes in the energy, natural gas, power 

and transmission markets that supported the need for enhancing the Standards of 

Conduct, including, but not limited to, open-access transmission, unbundling, changing 

commodity markets, increased mergers, convergence of gas and electric industries, asset 

management, electronic commodity trading and an increase in power marketers or 

entities with market-based rate authority. The gas industry also experienced 

consolidations in every sector – pipelines, producers, marketers and local distribution 

companies (LDCs)/utilities. 

5. The Commission noted that a Transmission Provider could transfer its market 

power to its affiliated businesses because the former standards of conduct did not cover 

all affiliate relationships. Non-marketing affiliates of Transmission Providers compete 

against non-affiliates for transmission services, in capacity release transactions, in 

commodity and futures markets, in power sales, and in siting new generation. In 

addition, in the natural gas industry, non-marketing affiliates of interstate natural gas 

pipelines, such as asset managers, control large amounts of capacity on their affiliated 

pipelines, yet they were not covered by the former standards of conduct because they do 

not actually hold pipeline capacity. Non-marketing affiliates can also abuse preferential 
Docket No. RM01-10-001 - 6 - 

access to information about the Transmission Provider either as shippers or traders in the 

transmission or commodity marketplace. 

6. The Standards of Conduct under former parts 37 and 161 did not address the 

sharing of information by Transmission Providers with Energy Affiliates. The Final Rule 

found that the preferential sharing of information between Transmission Providers and 

Energy Affiliates undermines and frustrates the efforts of independent businesses to buy, 

sell, build, grow and provide competitive alternatives. The Commission was concerned, 

for example, that an interstate natural gas pipeline could inform its affiliated asset 

manager about a proposed pipeline expansion or upcoming curtailment before the 

Transmission Provider revealed that information to the asset manager’s competition. The 

Commission stated that Transmission Providers’ unduly preferential behavior towards 

their Energy Affiliates violates the statutory prohibitions against undue discrimination or 

preferences in the provision of interstate transmission services,9

 and adopted the 

regulations in Final Rule to prevent such violations. 

7. Given the need to maintain the reliability of the electric transmission and natural 

gas pipeline systems throughout the United States, the Commission noted that the Final 

 9

Sections 4 and 5 of the Natural Gas Act (NGA), 15 U.S.C. 717c and 717e (2000), 

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 (FPA), 

16 U.S.C. 824d and 824e (2000), no public utility shall make or grant an undue 

preference with respect to any transmission or sale subject to the Commission's 

jurisdiction. 
Docket No. RM01-10-001 - 7 - 

Rule does not obstruct the free flow of information from any affiliated or non-affiliated 

customer to the transmission system operator. The Final Rule did not limit the ability of 

transmission system operators or pipeline system operators to work together with each 

other and affiliated or non-affiliated customers to reserve and schedule transmission or 

pipeline capacity usage on a non-discriminatory basis, nor did it limit the ability of 

system operators to issue any and all service-related directives to any customer, as 

necessary. And, during system emergencies, the Final Rule relaxed limitations on the 

flow of transmission information from the Transmission Provider to its Marketing or 

Energy Affiliates to facilitate any necessary reliability-related communications. 

8. Many petitioners support the Final Rule and state that it is necessary. For 

example, Dominion states that the new regulations appropriately addressed changes in the 

industry and appropriately balanced the potential misuse of a Transmission Provider’s 

market power against losing efficiencies of integrated operations. NiSource called Order 

No. 2004 a “substantial improvement” over the NOPR. Similarly APGA, APPA, CAPP, 

IPAA, IOGA-WV, NASUCA, NGSA, PGC and Transmission Dependent Utilities 

Systems welcomed the Final Rule and urged the Commission to refrain from taking any 

action that would diminish this important initiative. They claim that their silence on 

rehearing reflects satisfaction with the direction of Order No. 2004. NASUCA states that 

the reason there have been very few complaints about anti-competitive behavior favoring 

affiliates other than Marketing Affiliates is because such behavior would not have 

violated the former standards of conduct.
Docket No. RM01-10-001 - 8 - 

Requests for Rehearing and/or Clarification and Commission Conclusions

9. El Paso, INGAA, Questar and Williams argue on rehearing that the Final Rule is 

overbroad and unsupported by substantial evidence. INGAA also argues that the industry 

changes cited by the Commission have been pro-competitive and do not justify the rule. 

Further, INGAA claims that the new services described in the Final Rule, such as 

capacity release, e-commerce and asset management are not new phenomena. 

10. The Commission finds that the Final Rule is needed. The FPA and NGA require 

the Commission to prevent unduly discriminatory transmission service. For the 

Commission to meet that goal, the Standards of Conduct must guide the relationships 

between Transmission Providers and their affiliates that would use transmission 

information to compete unfairly with non-affiliates. As the identity of affiliates that 

engage in such competition has changed over time, the Standards of Conduct have had to 

change as well. Thus, the former standards of conduct focused on preventing the 

Transmission Provider from giving its merchant affiliate undue preferences by restricting 

the behavior between the Transmission Provider and its marketing affiliate or wholesale 

merchant function or affiliated power marketer. 10 The 1988 natural gas Standards of 

 10Many marketing affiliates were originally created to help interstate natural gas 

pipelines that had historically offered bundled sales and transportation services, move 

towards transportation-only services, and sell gas supply committed under long-term 

take-or-pay contracts. 
Docket No. RM01-10-001 - 9 - 

Conduct in Order No. 49711 reflected market changes in the natural gas industry during 

the last half of the 1980s, as the natural gas industry reacted to natural gas wellhead price 

decontrol, long-term contract reformation, and open-access transportation. The 1996 

 11Order No. 497, 53 FR 22139 (June 14, 1988), FERC Stats. & Regs., Regulations 

Preambles 1986-1990 ¶ 30,820 (June 1, 1988); Order No. 497-A, order on reh'g, 54 FR 

52781 (Dec. 22, 1989), FERC Stats. & Regs., Regulations Preambles 1986-1990 ¶ 30,868 

(Dec. 15, 1989); Order No. 497-B, order extending sunset date, 55 FR 53291 (Dec. 28, 

1990), FERC Stats. & Regs., Regulations Preambles 1986-1990 ¶ 30,908 (Dec. 13, 

1990); Order No. 497-C, order extending sunset date, 57 FR 9 (Jan. 2, 1992), FERC 

Stats. & Regs., Regulations Preambles 1991-1996 ¶ 30,934 (Dec. 20, 1991), reh'g denied, 

57 FR 5815 (Feb. 18, 1992), 58 FERC ¶ 61,139 (Feb. 10, 1992); Tenneco Gas v. FERC 

(affirmed in part and remanded in part), 969 F.2d 1187 (D.C. Cir. 1992); Order No. 

497-D, order on remand and extending sunset date, 57 FR 58978 (Dec. 14, 1992), FERC 

Stats. & Regs., Regulations Preambles 1991-1996 ¶ 30,958 (Dec. 4, 1992); Order No. 

497-E, order on reh'g and extending sunset date, 59 FR 243 (Jan. 4, 1994), FERC Stats. 

& Regs., Regulations Preambles 1991-1996 ¶ 30,987 (Dec. 23, 1993); Order No. 497-F, 

order denying reh'g and granting clarification, 59 FR 15336 (Apr. 1, 1994), 66 FERC 

¶ 61,347 (Mar. 24, 1994); and Order No. 497-G, order extending sunset date, 59 FR 

32884 (June 27, 1994), FERC Stats. & Regs., Regulations Preambles 1991-1996 ¶ 30,996 

(June 17, 1994). 

See also Standards of Conduct and Reporting Requirements for Transportation and 

Affiliate Transactions, Order No. 566, 59 FR 32885 (June 27, 1994), FERC Stats. & 

Regs., Regulations Preambles 1991-1996 ¶ 30,997 (June 17, 1994); Order No. 566-A, 

order on reh'g, 59 FR 52896 (Oct. 20, 1994), 69 FERC ¶ 61,044 (Oct. 14, 1994); Order 

No. 566-B, order on reh'g, 59 FR 65707 (Dec. 21, 1994), 69 FERC ¶ 61,334 (Dec. 14, 

1994); and Reporting Interstate Natural Gas Pipeline Marketing Affiliates on the Internet, 

Order No. 599, 63 FR 43075 (Aug. 12, 1998), FERC Stats. & Regs., Regulations 

Preambles 1996-2000 ¶ 31,064 (July 30, 1998). 
Docket No. RM01-10-001 - 10 - 

electric Standards of Conduct in Order No. 88912 were a companion to Order No. 888, 

which required public utilities to offer open access transmission service. 

11. For example, Transmission Providers have economic incentives to unduly prefer 

agents or asset managers. Specifically, the introduction of a natural gas futures market 

by NYMEX in 1990, and the evolution of the use of these financial markets to hedge has 

prompted customers to use agents or asset managers to manage price risk. This allows 

those affiliates to aggregate, manage and control significant volumes of interstate pipeline 

capacity. 

 

12Open Access Same-Time Information System (Formerly Real-Time Information 

Network) and Standards of Conduct, 61 FR 21737 (May 10, 1996), FERC Stats. & Regs., 

Regulations Preambles 1991-1996 ¶ 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), FERC Stats. & Regs., Regulations Preambles 1996-2000 ¶ 31,253 (Nov. 25, 

1997). 

See also Promoting Wholesale Competition Through Open Access NonDiscrimination Transmission Services by Public Utilities; Recovery of Stranded Costs by 

Public Utilities and Transmitting Utilities, Order No. 888, 61 FR 21540 (May 10, 1996), 

FERC Stats. & Regs., Regulations Preambles 1991-1996 ¶ 31,036 (Apr. 24, 1996) at 

31,692; order on reh'g, Order No. 888-A, 62 FR 12274 (Mar. 14, 1997), FERC Stats. & 

Regs., Regulations Preambles 1991-1996 ¶ 31,048 (Mar. 4, 1997); order on reh'g, Order 

No. 888-B, 81 FERC ¶ 61,248 (1997); order on reh'g, Order No. 888-C, 82 FERC 

¶ 61,046 (1998), aff'd in relevant part sub nom., Transmission Access Policy Study 

Group v. FERC, 225 F.3d 667 (D.C. Cir. 2000), cert. granted, 69 U.S.L.W. 3574 (Nos. 

00-568 (in part) and 00-809), cert. denied (No. 00-800) (U.S. Feb. 26, 2001). 
Docket No. RM01-10-001 - 11 - 

12. In the past, agency arrangements have been abused. For example, when 

Transcontinental Gas Pipeline Company authorized Williams Energy Marketing and 

Trading (WEM&T), its marketing affiliate, to act as agent for its merchant functions 

sales, it also gave WEM&T access to its nonaffiliated customers’ contract data, invoice 

data, and transportation data. That information was not made available to non-affiliated 

customers.13 Agency agreements were also a factor in the violations where an affiliated 

power marketer was acting as agent for Cleco Power LLC (Cleco) and its affiliated 

electric wholesale generators (EWGs). Through the agency agreements, the affiliated 

power marketer performed for Cleco and its affiliated EWGs a variety of services, 

including: resource coordination, commodity trading, retail and wholesale marketing, 

monitoring energy management, transmission scheduling services, optimizing the use of 

transmission paths to decrease transmission needed from outside the control area and 

market test power. Because the agency agreements empowered the affiliated power 

marketer, it had superior access to customer and transmission information, and shared 

employees with the Transmission Provider.14

13. The guidance provided by the Final Rule will compel Transmission Providers to 

provide no more information to affiliated agents and asset managers than the 

Transmission Providers provide to non-affiliates. Such requirements need to be spelled 

 13Transcontinental Gas Pipe Line Corporation, et al., 102 FERC ¶ 61,302 (2003). 

14Cleco Corp., 104 FERC ¶ 61,125 (2003). 
Docket No. RM01-10-001 - 12 - 

out in the Standards of Conduct to give Transmission Providers a clear understanding of 

their obligations to provide non-discriminatory service, as required by the NGA and the 

FPA. 

14. The Final Rule also properly takes into account the convergence of the gas and 

electric industries.15 Over the past decade, newly constructed electric generation has 

chosen natural gas as the fuel of choice. Mergers of electric utilities with natural gas 

companies have created corporate families with business activities across both 

industries.16 Transmission Providers have economic incentives to favor any affiliate that 

is involved in transmission on their systems, not only those that directly market natural 

gas or power. Indeed, in some regions, notably California and the Northeast, the 

interdependence of natural gas and wholesale electric markets has raised concerns about 

reliability and prices of converging supply and demand forces in the two industries.17 As 

a result, the Standards of Conduct properly apply to Energy Affiliates across industries. 

 15Final Rule at P 8. 

16For example, NiSource, Inc. merged with Columbia Energy Group, Dominion 

Resources, Inc. merged with Consolidated Natural Gas Company, Duke Energy merged 

with the Coastal Companies, and Enron Corporation merged with Portland General 

Electric. 

17See e.g., “New England Maintains Deliveries Despite Record Demand, Bitter 

Cold,” Natural Gas Intelligence, January 19, 2004, p. 1. 
Docket No. RM01-10-001 - 13 - 

INGAA argues that there is no harm to the market from Transmission Providers’ 

interaction with their Energy Affiliates, particularly with natural gas producers, gas 

processors, gatherers and intrastate pipelines. The Commission disagrees. 

15. For example, under the Final Rule, producer affiliates are Energy Affiliates, which 

reflects their significant control over pipeline capacity. Historically, in the late 1980s, 

producers and producer affiliates held very little capacity on natural gas Transmission 

Providers. But, as the role of marketers in the industry has decreased, producers have 

increased significantly the amount of capacity they hold on interstate natural gas 

pipelines. In 1998, only three producers were among the top 20 marketers.18 However, 

by the fourth quarter of 2003, 14 of the top 20 marketers were producers.19 Of the 14 

producer/marketers, nine of them are affiliated with natural gas Transmission Providers. 

16. Contrary to INGAA’s argument, the Commission need not wait until there have 

been many adjudicated cases of unduly discriminatory conduct between producers or 

asset managers, on the one hand, and their affiliated Transmission Providers on the other 

hand before the Commission can issue Standards of Conduct that prevent them from 

straying into violations. The economic incentives for Transmission Providers to favor 

their Energy Affiliates are real. 

 18Inside F.E.R.C. Gas Market Report, June 25, 1999, p. 12. 

19There are no Marketing Affiliates in the list of the top 20 marketers for the fourth 

quarter of 2003. Gas Daily, March 23, 2004, p. 6. 
Docket No. RM01-10-001 - 14 - 

17. While the Commission’s actions have encouraged competition, competition has 

not eliminated the economic incentives that encourage a Transmission Provider to give its 

affiliates unduly preferential treatment. Rather, the evolution of wholesale energy 

markets has created new commercial methods of doing business, and along with them, 

new opportunities for Transmission Provider affiliates to profit from unduly preferential 

information or transmission access. Given the increased competition, a Transmission 

Provider may have more incentive to give its affiliate preferential service or preferential 

access to information to benefit the corporate family. Moreover, those who operate the 

transmission infrastructure continue to face limited competition and in most parts of the 

country, continue to hold significant market power. Now the Commission is concerned 

that Transmission Providers may be giving Energy Affiliates other than Marketing 

Affiliates unduly preferential treatment. 

18. Unduly preferential behavior can and does harm customers. Although harm to the 

market is difficult to quantify, 20 the Commission has been able to quantify harm 

 20For example, the Commission could not quantify the harm when the Public 

Service Company of New Mexico failed to comply with the independent functioning 

requirement of the standards of conduct; when Ameren Corporation’s transmission 

employees engaged in non-public, off-OASIS communications with wholesale merchant 

function employees and other customers; or when PacifiCorp allowed its wholesale 

merchant function employees to participate in bi-weekly meetings with transmission 

employees regarding reliability. See April 25, 2000 Letter from John Delaware, Deputy 

Director and Chief Accountant, to Public Service Company of New Mexico in Docket 

No. FA99-9-000; September 27, 2002 Letter from John Delaware, Deputy Director and 

Chief Accountant to Ameren Corporation in Docket Nos. FA01-5-000, FA01-6-000 and 

(continued) 
Docket No. RM01-10-001 - 15 - 

resulting from unduly preferential treatment in some cases. For example, Idaho Power 

Company gave its marketing affiliate unduly preferential access to its transmission 

system by treating the marketing affiliate’s transmission requests as if the service was 

needed for native load. This unduly preferential behavior in favor of Idaho Power 

Company’s merchant affiliate harmed the retail customers of Idaho in the amount of 

$5.8 million.21 In another example, the retail customers of Louisiana were harmed 

approximately $2.1 million when Cleco Power favored its affiliates.22 The Commission 

is ensuring that Transmission Providers do not give their Energy Affiliates similar unduly 

preferential treatment. 

19. INGAA and the New York State Department also argue that the Commission 

failed to adequately consider the costs of compliance and did not conduct an extensive 

cost-benefit analysis. Contrary to these assertions, the Commission did consider the costs 

of compliance, and revised some of the proposals originally included in the NOPR, in 

part, to appropriately balance the costs of complying with the Standards of Conduct. The 

Commission reduced the costs of compliance by permitting integrated activities wherever 

possible without compromising the goals of the Final Rule. For example, the 

 

FA01-7-000; See December 18, 2003 Letter from William Hederman, Director of the 

Office of Market Oversight and Investigations, to PacifiCorp in Docket No. PA04-5-000. 

21Idaho Power Co., IDACORP Energy, L.P., and IDACORP, Inc., 103 FERC 

¶ 61,182 (2003). 

22Cleco Corp., 104 FERC ¶ 61,125 (2003). 
Docket No. RM01-10-001 - 16 - 

Commission permitted Transmission Providers and their Marketing and Energy Affiliates 

to share field and maintenance employees and support employees with appropriate 

safeguards. The Commission also permitted Transmission Providers and their Marketing 

and Energy Affiliates to share computer systems, Energy Management System (EMS) 

and Supervisory Control and Data Acquisition (SCADA) as long as transmission and 

customer information itself is not shared. 

20. The Commission has given interested persons the opportunity to identify their 

estimated costs to comply with the Standards of Conduct. Transmission Providers 

claimed that it would cost them between $75,000 to $300 million to comply with the 

Standards of Conduct as originally proposed in the NOPR.23 The Commission also 

encouraged Transmission Providers to submit estimates of costs in the Notice soliciting 

comments after the May 21, 2002 Conference,24 and the Final Rule encouraged 

Transmission Providers to include in their Informational Filings estimates of the costs 

associated with complying with the Final Rule. A review of comments and Informational 

Filings confirms that changes incorporated in the Final Rule have decreased the 

Transmission Providers’ costs of complying with the Standards of Conduct.25 For 

 23Major Issues Analysis at pp. 13-15 and Final Rule at P 114. 

24April 25, 2002 Notice of Staff Conference in Docket No. RM01-10-000. 

25Review of the Transmission Providers’ Informational Filings in their respective 

“TS” dockets reveals the following estimated costs to comply with the Standards of 

Conduct: (a) 5 Transmission Providers stated that the costs would be “minimal,” but did 

(continued) 
Docket No. RM01-10-001 - 17 - 

example, Cinergy, which originally anticipated annual costs of $36,000,000-

$39,000,000,26 now estimates its annual costs at approximately $225,000.27 Similarly, 

Alliance, which originally anticipated one-time compliance costs of $20-$30 million,28

now estimates its compliance cost at $250,000.29 Finally, Kinder Morgan Pipelines, 

which originally anticipated an increase of $22,600,000 annually and $5.8 million in a 

one-time cost to comply,30 now estimates that it will cost approximately $200,000 for all 

four Kinder Morgan Pipelines if their rehearing requests are granted and $400,000-

$500,000 if their rehearing requests are denied.31 As discussed in the NOPR, the Major 

 

not give dollar figures; (b) 27 Transmission Providers stated it would cost them less than 

$50,000; (c) 29 Transmission Providers stated it would cost them between $50,000-

$100,000; (d) 69 Transmission Providers stated it would cost them between $100,000-

$500,000; (e) 11 Transmission Providers stated it would cost them between $500,000-

$1,000,000; and (f) 12 Transmission Providers stated it would cost them more than 

$1,000,000. These include Questar Pipeline, which alone claimed higher costs from the 

Final Rule than from the NOPR. 

26June 2, 2002 Supplemental Comments of Cinergy Services, Inc. in Docket No. 

RM01-10-000. 

27February 9, 2004 Informational Filing by Cinergy Services, Inc. in Docket No. 

TS04-43-000. 

28June 14, 2002 Post-Technical Conference Comments of Alliance Pipeline L.P. in 

Docket No. RM01-10-000. 

29February 9, 2004 Informational Filing of Alliance Pipeline L.P. in Docket No. 

TS04-84-000. 

30June 28, 2002 Comments of Kinder Morgan, Inc. in Docket No. RM01-10-000. 

31February 9, 2004 Informational Filing of Kinder Morgan Interstate Gas 

Transmission, L.L.C in Docket No. TS04-88-000. 
Docket No. RM01-10-001 - 18 - 

Issues Analysis and the Final Rule, the Commission has considered the costs of 

compliance with the revised Standards of Conduct, and finds, on balance, that the costs 

are reasonable to achieve the Commission’s goal of preventing unduly discriminatory 

behavior in a competitive market. Further, clarifications made in this order will further 

reduce some of the compliance costs. 

21. INGAA also challenges the Commission’s review and analysis of the Index of 

Customers data32 listed in the Final Rule.33 These data identify the amount of capacity 

affiliates held on their affiliated gas pipelines. INGAA argues that the Commission 

should have calculated the total amount of the capacity held by affiliates compared to the 

total amount of pipeline capacity on an aggregate basis, rather than calculating the 

percentage of capacity held by an affiliate on its affiliated Transmission Provider. 

INGAA also use a volume-weighted average, rather than a simple average. 

22. Evaluating the amount of capacity held by an affiliate on its affiliated 

Transmission Provider is a more accurate indication of the natural gas Transmission 

Provider’s incentives to give its affiliate an undue preference. In some instances, a 

 32Although INGAA also urges the Commission to publish its analysis of the Index 

of Customers data, it was able to duplicate the Commission’s calculations and make its 

own calculations and analysis from the publicly available information in the October 

2003 Index of Customers. At INGAA’s urging, the Commission is attaching its updated 

analysis to the Order on Rehearing. 

33Final Rule at P 10 and 67. 
Docket No. RM01-10-001 - 19 - 

volume-weighted average minimizes the apparent incentives of Transmission Providers 

to favor their Energy Affiliates. 34 And the impact of Energy Affiliates other than 

Marketing Affiliates is pronounced. Producers’ roles have evolved and, now, Gas Daily 

reported that producers have solidified their hold on marketer rankings as traditional 

marketers have vanished.35 

23. Consideration of INGAA’s concerns caused the Commission to look closer at the 

shipper data from the October 2003 Index of Customers information. The Commission 

found that of 87 pipelines examined, 58 had contracts with their affiliates for firm 

transportation, firm storage or both types of services. Of the 18 pipelines with LDC 

affiliate contracts, the affiliated LDCs held about 46 percent of the contracted capacity on 

those 18 pipelines and 48 percent of the pipelines’ contracted storage capacity.36 On nine 

 34For example, under INGAA’s analysis using a volume-weighted calculation, 

production affiliates held only 1.6 percent of the capacity on all 87 gas Transmission 

Providers. However, using a simple average calculation, 16 production affiliates held 

37 percent of the capacity on their affiliate gas Transmission Providers with production 

affiliates. 

35Gas Daily, “Producers solidify hold on marketer rankings,” March 23, 2004. 

36Carnegie Interstate Pipeline Company, CenterPoint Energy Gas Transmission, 

Columbia Gas Transmission Corporation, Columbia Gulf Transmission Company, 

Dominion Transmission, Inc., Eastern Shore Natural Gas Company, Equitrans, L.P., 

Granite State Gas Transmission Inc., Guardian Pipeline L.L.C., Kinder Morgan Interstate 

Gas Transmission Company, Mississippi River Transmission Corp., National Fuel Gas 

Supply Corp., Paiute Pipeline Company, Panhandle Eastern Pipeline Company, Questar 

Pipeline Company, Vector Pipeline, L.P., Westgas Interstate Inc., and Williston Basin 

Interstate Pipeline. 
Docket No. RM01-10-001 - 20 - 

of these 18 pipelines, LDC affiliates held in excess of 50 percent of the contracted firm 

transmission capacity. Of the 16 natural gas pipelines affiliated with natural gas 

producers, producer affiliates held about 37 percent of the firm transportation capacity.37 

On six of these pipelines, producer affiliates held more than 60 percent of the firm 

transportation capacity. These data paint a very different picture than the aggregate, 

volume-weighted data produced by INGAA. The Commission’s analysis more 

accurately reflects the relationship between an individual Transmission Provider and its 

Marketing or Energy Affiliates.

24. Moreover, the Index of Customer data does not always identify the level of an 

affiliate’s involvement, either as an asset manager or agent or as a replacement shipper. 

For example, review of Texas Eastern Transmission Company’s Capacity Release 

information from January 1, 2002 through July 31, 2003, shows that Duke Energy 

Trading Company, an affiliated marketer, released capacity to Energy Plus, another 

marketing affiliate, on 141 occasions and Energy Plus released capacity to Duke Energy 

Trading Company on 47 occasions, yet a comparable review of Texas Eastern’s Index of 

Customers does not identify Energy Plus as an affiliate holding firm pipeline capacity. 

 37CenterPoint Energy Gas Transmission, Chandeleur Pipe Line Company, 

Columbia Gas Transmission Corporation, Dauphin Island Gathering Partners, Destin 

Pipeline Company, L.L.C., Equitrans L.P., Garden Banks Gas Pipeline, L.L.C., 

Maritimes & Northeast Pipeline L.L.C., Mississippi Canyon Gas Pipeline, L.L.C., 

National Fuel Gas Supply Corporation, Northwest Pipeline Corporation, Nautilus 

Pipeline Company, L.L.C., Sabine Pipe Line L.L.C., TransColorado Gas Transmission 

Company, Venice Gathering System, L.L.C., and Wyoming Interstate Company, Ltd. 
Docket No. RM01-10-001 - 21 - 

25. BP argues that the Final Rule did not impose sufficient restrictions or prohibitions 

on Transmission Providers. Specifically, BP argues that the Commission should have 

adopted pipeline allocation procedures for affiliates holding capacity on affiliated gas 

pipeline Transmission Providers. The Commission denies rehearing. While the 

Commission considered additional measures, such as those recommended by BP, it 

decided not to adopt them on a generic basis. However, the Commission will consider 

additional remedies on a case-by-case basis if a Transmission Provider violates the 

Standards of Conduct. 

III. ANALYSIS OF REQUESTS FOR REHEARING AND/OR CLARIFICATION 

26. The Commission has received many requests for rehearing or clarification with 

alternative requests for waiver, partial waiver or exemption with respect to individual 

Transmission Providers’ specific circumstances. Many petitioners also filed requests for 

waiver, partial waiver or exemption in their individual “TS” filings on the same issues.38 

The Commission will address the individual requests for exemption, waiver or partial 

waiver in orders in the individual “TS” filings, and in this order will address the generic 

issues. 

 38On January 16, 2004, the Commission issued a notice that it had created the 

docket prefix “TS” or Transmission Standards for all Informational Filings and requests 

for waiver or exemption under Order No. 2004. 
Docket No. RM01-10-001 - 22 - 

A. Applicability of the Standards of Conduct 

Final Rule

27. Pursuant to §§ 358.1(a), (b) and (c), the Standards of Conduct apply to 

Transmission Providers, but not to Commission-approved Independent System Operators 

(ISOs) or Regional Transmission Organizations (RTOs). Section 358.1(c) also provides 

that a public utility transmission owner that participates in a Commission-approved RTO 

or ISO and does not operate or control its transmission facilities and has no access to 

transmission, customer or market information covered by § 358.5(b) may request an 

exemption from the Standards of Conduct.39 The Final Rule also states that the Standards 

of Conduct also apply to non-public utility Transmission Providers40 through the 

 39This approach, rather than a codified exemption, recognizes that: 

If a Transmission Provider operates transmission facilities, regardless of whether it 

belongs to an RTO/ISO, it has the ability to provide an undue preference to an 

affiliate and has access to valuable transmission information. Unless the ISO or 

RTO has a control center and field employees dedicated to the operation and 

maintenance of all transmission facilities under its operation, a Transmission 

Provider may be responsible for the operation of the transmission assets (under the 

direction of the ISO or RTO) and, more importantly, have direct access to 

transmission information. Participation in an ISO or RTO does not necessarily 

prevent a Transmission Provider from sharing information with its affiliates 

preferentially or preferentially operating facilities for the benefit of its Energy 

Affiliates. 

Final Rule at P 20. No petitioner sought rehearing on this point. 

40See Final Rule at P 28. 
Docket No. RM01-10-001 - 23 - 

reciprocity provisions of Order No. 888.41 Generation and transmission cooperatives 

(G&T) are not subject to the Standards of Conduct consistent with the policies 

established under Order No. 888.42 

28. In the Final Rule, the Commission continues the exemptions and partial waivers of 

the Standards of Conduct for the entities that previously received exemptions or partial 

waivers under Order No. 889 or Order No. 497, and states that Transmission Providers 

may request waivers or exemptions from all or some of the requirements of Part 358 for 

good cause. See 18 CFR § 358.1(d). 

Requests for Rehearing and/or Clarification and Commission Conclusions

29. BP requests clarification that the Commission will grant exemptions only for good 

cause. The Commission grants the request for clarification. As discussed in the Final 

 41Promoting Wholesale Competition Through Open Access Non-Discrimination 

Transmission Service by Public Utilities and Recovery of Stranded Costs by Public 

Utilities and Transmitting Utilities, Order No. 888, FERC Stats. & Regs., Regulations 

Preambles January 1991 – June 1996 ¶ 31,036 (1996), order on reh’g, Order No. 888-A, 

FERC Stats. & Regs., Regulations Preambles July 1996 – Dec. 2000 ¶ 31,048 (1997), 

order on reh’g, Order No. 888-B, 81 FERC ¶ 61,248 (1997), order on reh’g, Order No. 

888-C, 82 FERC ¶ 61,046 (1998), aff’d in relevant part sub nom. Transmission Access 

Policy Group, et al. v. FERC, 225 F.3d 667 (D.C. Cir. 2000), aff’d sub nom. New York, 

et al. v. FERC, 535 U.S. 1 (2002). 

42Order No. 888-A, FERC Stats. & Regs., Regulations Preambles July 1996 – 

December 2000 ¶ 31, 048 at 30,366. In Order No. 888-A, the Commission clarified that 

if a distribution cooperative sought open access transmission service from a Transmission 

Provider, only the distribution cooperative (not its member distribution cooperatives) 

would be required to offer transmission service. The Commission excluded from the 

definition of affiliate distribution cooperative members of a generation and transmission 

cooperative. 
Docket No. RM01-10-001 - 24 - 

Rule, the Commission will review the merits of each exemption request to determine 

whether a Transmission Provider qualifies for a full or partial waiver of the Standards of 

Conduct. See Final Rule at P 27. 

30. USG and B-R request rehearing of the Commission’s decision not to categorically 

exempt small pipelines, for example, those less than 25 miles long, with limited 

operations that serve one or a few affiliated and/or non-affiliated customers. The 

Commission grants rehearing. The Commission will exempt small pipelines, based on 

the size of the company, the number of employees and level of interest in transportation 

on the pipeline, and where appropriate, whether the company has separated to the 

maximum extent practicable from its Marketing or Energy Affiliates. These are the 

criteria the Commission used in determining whether small pipelines qualified for partial 

exemptions from the requirements of Order No. 497.43 

31. Applying these criteria to the circumstances on USG and B-R, the Commission 

finds that partial exemptions are appropriate. The information in B-R’s request for 

exemption in Docket No. TS04-183-000 indicates that B-R is 17-mile pipeline, is 

managed by U.S. Gypsum (its affiliate) and does not have any employees, is a free-flow, 

delivery only pipeline that is not interconnected with any other pipeline. Similarly, the 

information in USG’s request for exemption in Docket No. TS04-103-000 indicates that 

 43See e.g., Ringwood Gathering Company, 55 FERC ¶ 61,300 (1991), Caprock 

Pipeline Company, et al., 58 FERC ¶ 61,141 (1992). 
Docket No. RM01-10-001 - 25 - 

USG is a 13-mile pipeline, is also managed by U.S. Gypsum and does not have any 

employees, is a free-flow, delivery only pipeline that is not interconnected with any other 

pipeline. USG and B-R are exempt from the Independent Functioning requirements of 

section 358.4 and the information disclosure prohibitions in section 358.5(a) and (b). 

They are not exempt from the remainder of the Standards of Conduct. 

32. WPSC and UPPC request clarification that Order No. 2004 does not prohibit a 

future request for an exemption from the Standards of Conduct. The Commission so 

clarifies. Order No. 2004 does not limit the time for filing requests for exemptions or 

waivers. 

B. Definition of a Transmission Provider 

Final Rule

33. Section 358.3(a) defines a Transmission Provider as: “(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.” 

34. The Final Rule codified two general principles concerning Transmission 

Providers’ behavior. The first requires Transmission Providers’ employees engaged in 

transmission system operations to function independently from the employees of the 

Transmission Providers’ Marketing or Energy Affiliates. The second, in essence, the 

golden rule, is that a Transmission Provider must treat all transmission customers, 
Docket No. RM01-10-001 - 26 - 

affiliated and non-affiliated, on a non-discriminatory basis, and cannot operate its 

transmission system to benefit preferentially a Marketing or Energy Affiliate. See Final 

Rule at P 30. 

Requests for Rehearing and/or Clarification and Commission Conclusions

35. NASUCA requests reconsideration of the Commission’s decision not to classify 

Hinshaw44 or intrastate pipelines as Transmission Providers under the Standards of 

Conduct. NASUCA argues that section 311 of the Natural Gas Policy Act of 1978 

(NGPA)45 authorizes the Commission to condition the certificates that authorize these 

pipelines to engage in transmission transactions. NASUCA claims that intrastate 

pipelines have the same incentives to transfer market power to their Energy Affiliates as 

do other Transmission Providers. NASUCA argues that requiring the independent 

functioning of employees would limit the opportunities for intrastate pipelines to give 

preferential treatment to marketing affiliates that compete with non-affiliated shippers on 

intrastate pipelines. NASUCA claims that discriminatory intrastate transactions have the 

potential to distort wholesale markets, and may fall between the cracks of Federal and 

State regulation. 

 44Hinshaw pipelines are exempt from Commission regulation under the NGA, but 

they may have limited jurisdiction certificates to provide interstate transportation services 

like an intrastate pipeline under the Natural Gas Policy Act of 1978. See Order No. 

63, FERC Stats. & Regs., Regulations Preambles 1977-1981 ¶ 30,118 (1980) 

4515 U.S.C. 3371 (2000). 
Docket No. RM01-10-001 - 27 - 

36. The Commission denies rehearing requested by NASUCA and will not classify 

intrastate and Hinshaws pipelines as Transmission Providers under the Standards of 

Conduct. As will be discussed further below, Hinshaws are State-regulated entities and 

are also frequently local distribution companies (LDCs). Not including Hinshaws in the 

definition of Transmission Provider is consistent with our treatment of LDCs. Both are 

regulated by States, which have jurisdiction to prevent undue discrimination on such 

facilities. Similarly, intrastate pipelines are regulated by the States and States may 

require them to observe separation of functions and non-disclosure requirements with 

respect to intrastate transactions. As discussed further below, both intrastate and 

Hinshaw pipelines may be classified as Energy Affiliates if they engage in Energy 

Affiliate activities described in § 358.3(d), and Transmission Providers subject to the 

Commission’s jurisdiction must observe the separation of functions and disclosure 

requirements of the Standards of Conduct with respect to them. Consequently, no 

compelling purpose will be served by defining Hinshaws and intrastate pipelines as 

Transmission Providers. 

37. WPSC and UPPC request clarification that ownership of a financial interest in 

transmission facilities, by an entity that does not directly own, operate or control 

transmission facilities does not make the entity a Transmission Provider.46 The 

 46Based on the pleading, it appears that WPSC and UPPC own financial interests 

in ATCLLC, a Transmission Provider, which is a transmission-owning member of 

Midwestern Independent System Operator (MISO), but they do not directly own any 

(continued) 
Docket No. RM01-10-001 - 28 - 

Commission clarifies that an entity that owns a financial interest in transmission 

facilities, but does not otherwise own, operate or control transmission facilities, is not a 

Transmission Provider, as defined. Although, owning a financial interest or controlling 

10 percent or more of the voting interest47 would make WPSC and UPPC an Affiliate of 

the Transmission Provider. 

38. Encana argues on rehearing that Transmission Providers with no market power 

should be exempt from the requirements of Order No. 2004, particularly independent 

storage providers that are not interconnected with the facilities of affiliated pipelines. 

Encana argues that such storage providers cannot exercise market power, having: no 

market power (as found by Commission order); no exclusive franchise area; no captive 

ratepayers; no cost-of service; no guaranteed rate of return; no ability to cross-subsidize 

at-risk business with ratepayer contributions; and no affiliation with any Transmission 

Provider to which it interconnects. 

39. The Commission grants Encana’s request to generically exempt from the 

definition of Transmission Provider natural gas storage providers authorized to charge 

market-based rates that are not interconnected with the jurisdictional facilities of any 

 

transmission facilities. WPSC’s and UPPC’s request to withdraw their previous 

standards of conduct under Order No. 889 is pending before the Commission in Docket 

No. TS04-130-000, and will be addressed in a separate order on the merits of the request. 

47Control is defined at 18 CFR 358.3(c) and Affiliate is defined at 18 CFR 

358.3(b). 
Docket No. RM01-10-001 - 29 - 

affiliated interstate natural gas pipeline, have no exclusive franchise area, no captive 

ratepayers and no market power. Such storage providers will be treated as Energy 

Affiliates if they are affiliated with any Transmission Providers. 

40. NW Natural and Kelso Beaver request rehearing of the definition of Transmission 

Provider to the extent that it covers non-open access natural gas pipelines that transport 

gas for others solely under subpart A of part 157 of the Commission’s regulations. These 

entities were not previously subject to the former standards of conduct, and petitioners 

argue that the original notice did not propose to expand the Standards of Conduct to 

cover entities that had not previously been subject to the rule. They also argue that the 

majority of pipelines certificated under part 157 are small and serve one or few 

customers.48

41. The Commission denies rehearing. Contrary to petitioners’ assertion, the 

regulatory text in the NOPR gave notice that the Commission proposed that the Standards 

of Conduct would govern the behavior of natural gas pipelines providing transmission 

service under part 157 of the Commission’s regulations.49 Such pipelines may seek an 

exemption or waiver on a case-by-case basis. 

 48NW Natural and Kelso Beaver also filed a joint request for exemption in Docket 

No. TS04-2-000, which the Commission will address by separate order. 

49FERC Stats. & Regs., Proposed Regulations 1999 – 2003 at 34,093 
Docket No. RM01-10-001 - 30 - 

C. Definition of an Energy Affiliate 

Final Rule

42. The Final Rule defined Energy Affiliate in § 358.3(d) as an affiliate 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 energy affiliate does not include: 

(i) A foreign affiliate that does not participate in U.S. energy markets; 

(ii) An affiliated Transmission Provider; or 

(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; or 

(iv) An affiliate that purchases natural gas or energy solely for its own 

consumption and does not use an affiliated Transmission Provider for transmission 

of natural gas or energy; or 

(v) A state-regulated local distribution company that does not make any offsystem sales. 

i. Defining the Phrase “Engages in or is Involved in Transmission 

Transactions” 

Requests for Rehearing and/or Clarification and Commission Conclusions

43. INGAA, Cinergy, Dominion and Entergy urge the Commission to provide 

additional clarification on the meaning of § 358.3(d)(1) because the Commission did not 
Docket No. RM01-10-001 - 31 - 

define the meaning of the terms “engages in” or “is involved in.” INGAA argues that 

those phrases do not sufficiently describe the activities that would make an Affiliate an 

Energy Affiliate. 

44. The Commission grants petitioners’ clarification request. The term “engages in” 

transmission transactions means the Affiliate holds (or is requesting) transmission 

capacity on a Transmission Provider as a shipper or customer or buys or sells 

transmission capacity in the secondary capacity market. When the Commission uses the 

phrase “involved in” it means acting as agent, asset manager, broker or in some fashion 

managing, controlling or aggregating capacity on behalf of transmission customers or 

shippers. Other transmission-related interactions between a Transmission Provider and 

its interconnected Affiliate, such as confirming nominations and schedules with upstream 

producers and gathering facilities, exchanging operational data relating to interconnection 

points, and communications relating to maintenance of interconnected facilities are not 

included in the definition of the terms “engaged in” or “involved in.” This clarification 

has the practical effect of addressing many of the concerns raised by interconnected 

gatherers, processors or intrastate pipelines. The majority of gatherers, processors and 

intrastate pipelines do not participate in the activities described in § 358.3(d) and, thus, 

they will no longer be treated as Energy Affiliates. As discussed further below, this 

clarification will reduce the number of gatherers, processors, intrastate pipelines and 

Hinshaw pipelines that are Energy Affiliates under the rule. 
Docket No. RM01-10-001 - 32 - 

ii. LDCs as Energy Affiliates 

Requests for Rehearing and/or Clarification and Commission Conclusions

45. INGAA argues that the expanded definition of Energy Affiliate in Order No. 2004 

applies to entities that are not subject to the Commission’s jurisdiction. Similarly, New 

York State Department argues that the imposition of Standards of Conduct on LDCs’ 

employees not engaged in sales for resale is an unlawful exercise of jurisdiction, contrary 

to section 1(c) of the NGA and section 201 of the FPA. New York State Department 

reads the Final Rule as subjecting the entire retail distribution unit to Federal regulation if 

the electric distribution unit sells excess energy through the New York Independent 

System Operator (NYISO). 

46. The Commission disagrees with INGAA’s and New York State Department’s 

assertions that the Commission is attempting to exercise jurisdiction over nonjurisdictional activities. The Standards of Conduct are imposed only on Transmission 

Providers, not Marketing or Energy Affiliates. The Commission has very clear statutory 

mandates to ensure that interstate commerce in natural gas and electricity takes place at 

rates and terms and conditions of service that are just and reasonable and not unduly 

discriminatory or preferential.50

 50See section 4 of the NGA and section 205 of the FPA. 
Docket No. RM01-10-001 - 33 - 

47. The Standards of Conduct apply to a Transmission Provider’s relationship with 

an affiliated LDC (gas and/or electric) that makes off-system sales. In response to the 

New York State Department, the Commission finds that if a retail sales function also 

engages in off-system sales of excess electric power in the wholesale market, the 

Transmission Provider must observe the Standards of Conduct vis-à-vis the retail sales 

function.51 However, that retail sales function itself does not become subject to Federal 

jurisdiction. Further, the Commission sees no conflict between the Standards of Conduct 

and New York’s State-imposed standards of conduct which govern the behavior of New 

York’s LDCs. In our view, these Standards of Conduct will complement each other 

rather than conflict. 

48. This rule does not regulate – directly or indirectly – the provision of rates, terms 

and conditions of service for local distribution, production, gathering, processing or 

intrastate transmission. The Standards of Conduct provide rules that help define 

activities that would be unduly discriminatory or preferential in a Transmission 

Provider’s conduct towards affiliates that are also involved in interstate natural gas and 

wholesale electricity markets. Preventing such violations is at the heart of the 

Commission’s statutory mandate, and the Commission has not exceeded this mandate in 

limiting Transmission Providers’ interactions with other Energy Affiliates. 

 51A Transmission Provider that is a member of the NYISO, relinquishes control 

over its operations to the NYISO and does not have access to transmission or customer 

information may request an exemption from the Standards of Conduct. 
Docket No. RM01-10-001 - 34 - 

a. Regulatory Text of the LDC Exemption 

49. The preamble discussion in the Final Rule, which exempts from the definition of 

Energy Affiliate State-regulated LDCs that solely engage in retail service and make no 

off-system sales (Final Rule at P 44) does not exactly track the regulatory text in 

§ 358.3(d)(5)(v), which exempts from the definition of Energy Affiliate State-regulated 

LDCs that do not engage in off-system sales. CenterPoint notes this inconsistency and 

argues that LDCs should be allowed to participate in wholesale energy market activities 

other than off-system sales, such as asset management.52 

50. For example, under CenterPoint’s proposal, a State-regulated affiliated LDC that 

does not engage in off-system sales, but manages or controls transmission capacity of 

another, buys, sells, trades, or administers natural gas or electric energy, or engages in 

financial transactions relating to the sale or transmission of natural gas or electricity 

would be exempt from the definition of Energy Affiliate. 

51. The Commission will not extend the LDC exemption to include an LDC that 

engages in Energy Affiliate activities that are not directly related to its State-regulated 

retail sales functions. Such Energy Affiliate activities include, acting as a merchant, 

agent, or asset-manager for others. Moreover the Commission will amend the regulation 

at § 358.3(d)(5)(v) to clarify that a State-regulated LDC is exempt from the definition of 

 52See February 9, 2004 Informational Filing of CenterPoint Energy Gas 

Transmission Company in Docket No. TS04-2-000. 
Docket No. RM01-10-001 - 35 - 

Energy Affiliate if it provides solely retail service and engages in no off-system or other 

Energy Affiliate activities. This is consistent with the discussion in the preamble of the 

Final Rule at P 44. The new regulatory text will exempt: “A State-regulated local 

distribution company that acquires interstate transmission capacity to purchase and resell 

gas only for on-system customers, and otherwise does not engage in the activities 

described in §§ 358.3(d)(1), (2), (3) or (4)... .” 

b. Retention of the LDC Exemption 

52. IOGA-WV argues that the Commission erred in exempting any LDCs from the 

definition of Energy Affiliate. IOGA-WV argues that in Appalachia, integrated natural 

gas companies utilize their affiliated LDCs to share information and dominate the 

interstate natural gas market. IOGA-WV argues that LDCs can easily avoid the 

constraints of the Final Rule, without making off-system sales. IOGA-WV argues that 

LDCs can create marketing affiliates which make off-system sales while allowing their 

parent LDCs to continue to qualify for the exemption in the definition of Energy 

Affiliate, and thereby circumvent the Standards of Conduct. IOGA-WV argues that 

§ 358.3(d)(5)(v) should be amended to eliminate this loophole. 

53. The Commission denies rehearing on this issue. The Commission does not find 

that this is a realistic concern. And, any sales from the LDC to its marketing affiliate 

would be off-system sales and void the LDC’s exemption from the Standards of Conduct. 
Docket No. RM01-10-001 - 36 - 

Any marketing affiliate of the LDC would also be the affiliated Transmission Provider’s 

Marketing or Energy Affiliate. In either case, an exemption from the definition of 

Energy Affiliate would not apply. 

c. Scope of the LDC exemption 

54. Questar supports the exemption granted to State-regulated LDCs provided they do 

not make off-system sales. 

55. On the other hand, AGA, Dominion, INGAA, National Fuel-Distribution, National 

Fuel-Supply, New York State Department, NICOR, NiSource, NW Natural and Kelso 

Beaver, ONEOK, PA-OCA, PS&EG, and Xcel argue that the Commission erred in 

exempting from the definition of Energy Affiliate only LDCs that make no off-system 

sales. They argue that to the extent LDCs make off-system sales on non-affiliated 

Transmission Providers, there is no threat of affiliate abuse. AGA and PA-OCA argue 

that prohibiting LDCs from making off-system sales will increase costs to the LDCs’ 

retail customers or impose additional compliance costs on LDCs. AGA also argues that 

“this formulation of the exemption is contrary to the way in which the Commission 

applied the exemption for local distribution companies in Order No. 497.” (footnote 

omitted.) AGA also cites to National Fuel Gas Supply Corp., 64 FERC ¶ 61,192 at 

62,582 (1993), where under the previous rules, the Commission did not treat National 

Fuel-Distribution (an affiliated LDC) as a marketing affiliate to the extent its off-system 

sales were not transported by its affiliated pipeline, National Fuel-Supply. AGA argues 

that LDCs, faced with State-mandated obligations to serve, must stand ready to meet 
Docket No. RM01-10-001 - 37 - 

peak load requirements. Off-peak, AGA argues, LDCs need the flexibility to make 

off-system sales (and capacity releases) to minimize their costs. 

56. Dominion argues that “it is difficult to envision a material advantage that a 

pipeline could provide its affiliated LDC with respect to off-system sales that do not 

involve that pipeline.”53 Dominion adds that if a pipeline were to find a way to afford an 

affiliate an advantage on another pipeline, “its action would likely violate the 

Commission’s open access regulations, the antitrust laws, or other laws and regulations.” 

57. National Fuel-Distribution argues that restricting an LDC’s firm participation in 

off-system sales would reduce market efficiencies, increase the cost of gas to the LDC’s 

customers, and reduce price transparency. National Fuel-Distribution states that 

99 percent of its off-system sales are conducted in the daily gas market and argues that 

the probability of its affiliated pipeline, National Fuel-Supply, having any information 

that could affect the market, if divulged, is remote. In addition, National FuelDistribution claims the affiliated LDC will gain no advantage over a non-affiliated LDC 

with affiliated pipeline information. 

58. NW Natural and Kelso Beaver argue that it is arbitrary and capricious to subject it 

to compliance with the Standards of Conduct if it chooses to make off-system sales, 

while non-affiliated LDCs face no such burden. 

 53Dominion at p. 12. 
Docket No. RM01-10-001 - 38 - 

59. The Commission denies rehearing requested by those who seek to expand the 

LDC exception to include those LDCs that make off-system sales which are not 

transported on an affiliated Transmission Provider. The Commission does not agree that 

in these circumstances there can be no harm. 

60. Under the expansion of the LDC exemption sought by petitioners, Transmission 

Providers would be free to share transmission-related and customers’ market information 

with their affiliated LDCs. In most states, large natural gas customers often take 

advantage of retail transportation programs by purchasing natural gas from competing 

wholesale suppliers; the local LDC also competes for these markets. Any LDC making 

off-system wholesale sales has a powerful incentive to maximize its revenues in those 

sales regardless of whether the sales take place on its affiliated Transmission Provider’s 

system or off-system.54 An LDC which makes off-system sales would be in a position to 

benefit from preferential information as would any other marketer. 

61. The Commission recognizes that an LDC serving only its on-system customers 

must comply with pipeline balancing requirements and may be required to buy or sell de 

minimus quantities of natural gas in the wholesale commodity market, purchase shortterm park and loan and storage services, buy or sell imbalances in the pipeline’s cash out 

 54To the extent an LDC can reduce its costs of purchasing natural gas through offsystem sales, this may reduce cost to retail ratepayers—a laudable goal—to the extent 

those cost savings are passed through the retail rates. However, some states permit the 

revenues from off-system sales to be shared with stockholders. Under these 

circumstances, the benefits of off-system sales to retail ratepayers claimed by petitioners 

is overstated because these benefits are shared with the LDC’s stockholders. 
Docket No. RM01-10-001 - 39 - 

mechanism, or take other steps to meet pipeline tariff balancing tolerances on a daily or 

monthly basis. LDCs with limited participation in wholesale markets to satisfy these 

needs will continue to be exempt from the definition of Energy Affiliate as long as they 

are not participating in the other activities described in § 358.3(d). 

62. The Commission also notes that the level of LDCs’ off-system sales varies 

significantly. For example, National Fuel-Distribution, the affiliated LDC of National 

Gas-Supply, makes off-system sales of approximately $63,000,000.55

63. In some circumstances transmission activities on the affiliated Transmission 

Provider will have a large and direct impact on the prices of natural gas and wholesale 

electricity on points upstream or downstream of the affiliated Transmission Provider’s 

system.56 For example, an operational flow order (OFO) on one of the three large 

 55National Fuel Gas Company, 2002 Annual Report and Form 10-K. 

56Energy Information Administration, “Northeast Pipeline Restrictions Ease 

Following Weather Reprieve,” Natural Gas Weekly Update (January 22, 2004). 

(“Operational Flow Orders (OFOs), which can vary significantly in severity, were issued 

by a variety of pipelines last week during the record cold snap in the Northeast. When 

these restrictions are in place, customers without firm contracted capacity on the pipeline 

generally are interrupted and cannot access Gulf supplies because transportation through 

the pipeline grid is not available. Thus, prices in the Northeast and Gulf region become 

disconnected as customers in the Northeast without firm contracted capacity seek 

incremental supplies only in local market areas. The result last week was that prices at 

some Northeast trading locations spiked to $45 per MMBtu or more for gas deliveries the 

following day.”) See also Energy NewsData, Western Price Survey, “Spring 

Housekeeping Stymies Some Shipping” (April 12, 2002). (“Gas prices were skewed by a 

host of maintenance on pipelines and storage facilities coming out of the Rocky 

Mountains. Aside from some maintenance on El Paso’s San Juan lateral the temporary 

closure of the big Clay Basin storage facility in northeast Utah meant that shippers 

without firm capacity on West-bound pipelines had no place to put their supplies. The 

(continued) 
Docket No. RM01-10-001 - 40 - 

interstate natural gas pipelines serving New York City-area markets or on one of the 

regional storage fields could have a direct and significant affect on the price of gas in that 

market. In today’s spot markets, advance information of an OFO would allow an LDC to 

use that knowledge to position itself at the expense of other market participants. 

64. It would be difficult for an LDC whose shared employees operated both the 

Transmission Provider and LDC systems not to have advance notice of a Transmission 

Provider’s OFO. An affiliated LDC would have a head start in responding to an OFO, 

and would have a first shot at the spot market to sell off stranded supply or purchase 

needed make-up supply. Any advantage afforded by transmission information not 

available to non-affiliates would come at the expense of other wholesale market 

competitors. When the LDC does not make off-system sales, this degree of vertical 

integration does not harm wholesale markets or non-affiliated competitors. 

65. Contrary to National Fuel-Distribution’s argument, early knowledge of events or 

circumstances on an affiliated pipeline system has value. As noted by National FuelDistribution, daily trading occurs over a compressed time period. Other market 

participants have little time to obtain rapidly breaking news that can affect spot prices. 

 

San Juan Basin index price plummeted to $0.99/MMBtu Tuesday and pipelines were 

ordering their customers to follow their reservations or face penalties.”) 
Docket No. RM01-10-001 - 41 - 

Yet the affiliated LDC, were it not considered an Energy Affiliate, would have the ability 

to get the relevant news first, and act on it before other market participants had access to 

the information. Contrary to National Fuel-Distribution’s assertion, this would be an 

unduly preferential advantage. 

66. As to NW Natural’s and Kelso Beaver’s assertions that they are placed at a 

competitive disadvantage relative to non-affiliated LDCs making off-system sales, the 

Commission disagrees. The Standards of Conduct do not put affiliated LDCs at a 

disadvantage with respect to non-affiliated LDCs. Rather, affiliates and non-affiliates are 

on an equal footing because all market participants will have the same access to 

transmission information and transmission services. Non-affiliated market participants 

do not have access to the Transmission Providers’ transmission or customer information. 

The petitioners have not provided any explanation why an affiliated LDC that is 

participating in the wholesale sales market or is providing asset management services for 

a customer is entitled to unduly preferential access to the Transmission Providers’ 

transmission or customer information. 

67. The Commission wishes to make clear that it is not the purpose or the effect of this 

Final Rule to prohibit LDCs from making off-system sales. Rather, if an LDC chooses to 

make off-system sales, its affiliated Transmission Provider must comply with the 

Standards of Conduct vis-à-vis its affiliated LDC as an Energy Affiliate. The 

Transmission Provider’s compliance with the Standards of Conduct places all wholesale 

market participants, affiliated and non-affiliated, on an equal footing. 
Docket No. RM01-10-001 - 42 - 

d. Treatment of LDC Divisions 

68. AGA requests clarification whether the LDC division of an electric Transmission 

Provider would be considered an Energy Affiliate because the division does not meet the 

definition of “Affiliate” in § 358.3(b). The Commission clarifies that an LDC division of 

an electric Transmission Provider shall be considered the functional equivalent of an 

Energy Affiliate if it engages in the activities described in §§ 358.3(d)(1), (2), (3) or (4), 

and codifies this at § 353.3(d)(5). Although the division is not technically an “affiliate,” 

it is functionally equivalent to an affiliate. This is consistent with § 284.286, where the 

Commission treats a pipeline’s sales operating unit as if it were a marketing affiliate for 

purposes of the Standards of Conduct. 

69. PSEG makes a similar request for rehearing arguing that the Hinshaw pipeline 

division of an electric Transmission Provider is not an “Affiliate” and thus the 

relationship between an electric Transmission Provider and its Hinshaw pipeline 

division57 should not be governed by the Standards of Conduct. PSEG claims that the 

Commission should not be concerned about the relationship between an electric 

 57PSEG claims that its Hinshaw pipeline division possesses a limited-jurisdiction 

certificate from the Commission under Order No. 63. 
Docket No. RM01-10-001 - 43 - 

Transmission Provider and its Hinshaw pipeline division because there is no potential for 

abuse. Further, PSEG argues that it would be unduly burdensome citing its joint 

operations between its wires and pipes divisions in storm restoration efforts, customer 

operations/call centers and applicance service operations. 

70. The Commission denies PSEG’s request to categorically exclude an electric 

Transmission Provider’s Hinshaw gas pipeline division from the definition of Energy 

Affiliate. There are instances in which the Commission is concerned about the 

relationship between the electric Transmission Providers and gas divisions. For example, 

to the extent a combined electric/gas utility’s Hinshaw pipeline affiliate provided 

transportation services delivering natural gas to third-party independent generators which 

compete in the same wholesale markets for electricity, either directly, or indirectly, 

through the release of interstate transmission capacity on an upstream pipeline, the events 

of its day-to-day operation,58 would have an impact on the competitors and markets for 

wholesale electricity in that region. The Hinshaw pipeline also collects information 

about the natural gas scheduled to flow to the competing generators, and to the natural 

gas-fired generation operated and self-scheduled by the combination utility’s electric 

Transmission Provider. Knowledge of sudden changes in the availability of natural gas 

transmission capacity could be of competitive value to the electric Transmission Provider 

 58These events might include capacity constraints caused by competing demands, 

scheduled maintenance, unscheduled equipment breakdowns, and unexpected significant 

fluctuations in demand or supply. 
Docket No. RM01-10-001 - 44 - 

(in the wholesale real-time markets), the Hinshaw pipeline (the NYMEX futures 

exchange and spot markets), and to each of its Energy Affiliates (in all three areas) if it 

could be acquired shortly before such knowledge became publicly available. However, 

in the example of shared services that PSEG raises, employees who provide storm 

restoration efforts, staff customer operations/retail call centers and appliance service 

operations would be the types of support or field and maintenance employees that could 

be shared under § 358.4(a)(4). 

71. The Commission will revise the definition of Affiliate at § 358.3(b) to incorporate 

this clarification as follows: “[a]n Affiliate includes a division that operates as a 

functional unit.” 

e. Applicability of the Standards of Conduct to Special Purpose 

Certificated Interstate Service 

72. National Fuel-Distribution raises the issue of its status as a holder of limitedjurisdictional certificates authorizing interstate exchanges and NGA section 7(f) 

authorizations. Specifically, National Fuel-Distribution also raises the issue of whether 

its status under its special purpose interstate exchange certificate or NGA section 7(f) 

service area determinations subject it to being considered as either a Transmission 

Provider or an Energy Affiliate. National Fuel-Distribution asks the Commission to 
Docket No. RM01-10-001 - 45 - 

clarify that this is not the case. The Commission clarifies that National FuelDistribution’s special purpose interstate exchange certificate and NGA section 7(f) 

service area determinations do not make it either a Transmission Provider or an Energy 

Affiliate. 

iii. Producers, Gatherers, and Processors 

Final Rule

73. In the Final Rule, the Commission defines Energy Affiliate to include any affiliate 

of a Transmission Provider that conducts any of the following activities in U.S. energy 

markets: engages in or is involved in transmission transactions; manages or controls 

transmission capacity; buys, sells, trades, or administers natural gas or electric energy; or 

engages in financial transactions relating to the sale or transmission of natural gas or 

electric energy (collectively Energy Affiliate activities).59 Producers, gatherers and 

processors that perform such activities are Energy Affiliates as defined in the Final Rule. 

 59These are the characteristics of an Energy Affiliate, as defined in 18 CFR 

358.3(d). 
Docket No. RM01-10-001 - 46 - 

Requests for Rehearing and/or Clarification and Commission Conclusions

Gatherers and Processors

74. Petitioners60 assert that gatherers and processors performing their traditional 

functions do not hold transmission capacity on affiliated pipelines and, similar to the 

LDCs, should not be considered Energy Affiliates. Several petitioners argue that it is 

inconsistent for the Commission to treat gatherers and processors differently than LDCs. 

Questar argues that gatherers and processors should not be defined as Energy Affiliates if 

they do not sell natural gas for resale, buy natural gas only for consumption of their own 

processing operational needs and do not ship natural gas on their affiliated interstate 

pipelines. 

75. Shell Transmission and others argue that elimination of the prior exception from 

the Standards of Conduct issued under Order No. 497 for producers, gatherers, and 

processors will lead to significant duplication of costs for multiple offshore pipeline and 

gathering lines that are currently operated from one common operations center with 

consolidated staff (e.g., contract administrators, engineers, gas control operators). 

76. INGAA, CenterPoint, Dominion, Duke Energy and El Paso argue that it is 

important to allow affiliated pipelines, gatherers, producers, and processors to share 

information during planning and financing of new infrastructure to ensure that needed 

 60CenterPoint, El Paso, Questar, Shell Transmission, Williston Basin and 

Williams. 
Docket No. RM01-10-001 - 47 - 

supplies are brought efficiently and promptly to market, especially during periods of tight 

supply. Duke, Shell Transmission and Shell Offshore argue that separation of gathering 

functions from transmission functions, and the associated restrictions on 

communications, will impede pipeline operations. A number of small independent 

producers request that the Commission allow gatherers to buy the gas that the 

independent producers sell without converting the gatherers into Energy Affiliates. 61

77. The Commission clarifies that gatherers and processors that are not involved in or 

engage in transmission transactions; do not manage or control transmission capacity; do 

not buy, sell, trade or administer natural gas or electric energy; and do not engage in 

financial transactions relating to the sale or transmission or natural gas or electric energy 

are not Energy Affiliates. If a gatherer or processor merely provides a gathering or 

processing service and only purchases natural gas to supply operational needs (such as 

compression fuel), and does not engage in any of the other activities described above, it is 

not an Energy Affiliate. In these roles, gatherers and processors provide services to 

wholesale market participants but do not compete with them. When their operations are 

limited to this service-provider role, they are not defined as Energy Affiliates and do not 

 61 Letters were addressed to Chairman Pat Wood from Mr. Bruce Morain, INOK 

Investments, L.L.C. (dated February 18, 2004); Mr. Jerry G. Kerr, Plymouth Resources, 

Inc. (dated February 24, 2004); Mr. Web Carr, C and E Operators, Inc. (dated February 

27, 2004); Mr. Carlos Barton “Scooter” Griffin, Jr. – President, GeoVest Incorporated 

(February 20, 2004), Mr. Robert T. Wilson, AGS Oil and Gas Ventures, Inc. (dated 

February 12, 2004); and C & L Oil and Gas Corp (dated March 9, 2004). Each of these 

letters has been placed in the public record in Docket No. RM01-10-000. 
Docket No. RM01-10-001 - 48 - 

become subject to the separation of functions requirement and information disclosure 

prohibitions of the Standards of Conduct. However, gatherers or processors that buy gas 

for resale or hold or manage transmission capacity are Energy Affiliates as defined in 

§ 358.3(d)(3). 

78. Further, the Final Rule neither prohibits nor hinders the kinds of cooperation and 

communications Shell Transmission notes among its producing and gathering affiliates, 

such as producer personnel at platforms routinely performing field maintenance and 

operation activities, such as launching pigs on behalf of gathering affiliates or sharing 

operational status information. Many of the petitioners’ concerns regarding defining 

producers, gatherers and processors as Energy Affiliates focus on the sharing of field and 

maintenance personnel and the sharing of operational information. As discussed in more 

detail below, the Commission is providing additional clarifications that address the 

petitioners’ concerns regarding the sharing of information and field and maintenance 

employees between a Transmission Provider and its Marketing or Energy Affiliates.62

79. The Commission will not, however, grant a blanket exemption from the Standards 

of Conduct for gatherers or processors. 

 62See also the discussions of the Sharing of Field and Maintenance Personnel, and 

Critical Operating Information Exceptions, below. 
Docket No. RM01-10-001 - 49 - 

80. Specifically, CenterPoint argues that: 

Although a trading or financial affiliate might benefit from preferential 

access to information about the interstate pipeline’s operations (by trading 

in natural gas or a related financial instrument whose value may be affected 

by a constraint on the pipeline), a similar benefit is unlikely to be conferred 

on a traditional gatherer.63

The Commission agrees with CenterPoint in both aspects of its argument: trading and 

financial affiliates might benefit from preferential access to information about an 

interstate pipeline’s operations; and a gatherer that does not conduct Energy Affiliate 

activities is unlikely to benefit from such information in the wholesale energy 

marketplace. 

81. Accordingly, the Commission will continue to include producers, gatherers and 

processors in the definition of Energy Affiliate to the extent they engage in Energy 

Affiliate activities. A gatherer or processor is in a position to profit from preferential 

information if it engages in Energy Affiliate activities. Under the Commission’s 

regulations, a gatherer or processor is not limited to selling at the terminus of its own 

physical facilities. Similarly, any entity, including a gatherer or processor, may also buy 

and sell energy futures traded on the NYMEX. Allowing preferential access to 

 63CenterPoint at pp. 8-9. 
Docket No. RM01-10-001 - 50 - 

information about transmission capacity or third party customers would confer an undue 

competitive advantage on such an entity. A gatherer or processor which also participates 

in Energy Affiliate activities is indistinguishable from any other Energy Affiliate in this 

regard. 

82. Furthermore, preferential access to market information gives Transmission 

Provider affiliates fuller, more complete, and more timely information about market 

conditions, potentially contestable markets and the prices other market participants will 

be willing to accept.64 The Commission finds that such preferential access to information 

is contrary to the Commission’s statutory mandate to prevent undue discrimination or 

preferences. 

 64In addition, this information will be available to the Transmission Provider 

affiliates at little or no cost. Transmission Providers acquire market-relevant information 

in the normal course of operating transmission facilities, with the expenses of this 

information collection generally recovered through their regulated cost-based rates. In 

contrast, independent wholesale market participants incur significant costs to gather 

market intelligence of inferior scope and completeness. Absent Commission-mandated 

disclosure of transmission information, much of this market information will not be 

available to independent wholesale market participants at any price. And under the 

Commission’s requirements, sensitive information is often protected from disclosure, or 

subject to delays in disclosure to protect shippers from competitive harm. For 

independent wholesale market participants, the market is opaque, blurry and constantly 

changing, but for affiliates allowed to share employees or information with a 

Transmission Provider, the market will be transparent and relatively clear. 
Docket No. RM01-10-001 - 51 - 

83. The Commission’s ruling here does not prohibit gatherers or processors from 

buying or selling natural gas. The Standards of Conduct do not prohibit those activities. 

Rather, a Transmission Provider must observe the Standards of Conduct vis-à-vis 

gatherers and processors that choose to participate in wholesale commodity markets or 

engage in Energy Affiliate activities to ensure that the Transmission Provider treats its 

affiliated entities the same way it treats non-affiliated entities. 

Producers

84. The Commission denies rehearing to the extent petitioners argue that producers 

should be exempt from definition as Energy Affiliates. Natural gas producers affiliated 

with Transmission Providers are Energy Affiliates as defined in § 358.3(d). Producers 

are perhaps the largest marketers of natural gas.65 First sales of natural gas are fully 

deregulated.66 In addition, like any other willing entity in the natural gas industry, 

producers are authorized to make sales for resale.67 These sales take place at points 

throughout the interstate natural gas delivery network, not just at the point of production 

 65Gas Daily, “Producers solidify hold on marketer rankings,” March 23, 2004, p. 1 

and p. 12. See also, Gas Daily, “Midtier players dominate Q3 marketer rankings,” 

December 9, 2003. (Producers BP, Shell and ConocoPhillips were ranked first, third and 

fourth, representing nearly 40 percent of the total reported volumes used in the rankings 

of 22 marketers. Thirteen of the top 22 marketers listed were producers.) 

66Natural Gas Wellhead Decontrol Act of 1989, Pub L. No. 101-60, 103 Stat. 157 

(1989). 

6718 CFR 284.402 (2003). 
Docket No. RM01-10-001 - 52 - 

in the producing fields. Affiliated producers, because they have the same opportunities to 

exploit Transmission Provider information for undue advantage, are Energy Affiliates 

under the Final Rule. 

85. Contrary to the concerns of petitioners, defining producers as Energy Affiliates 

will not subject them to inappropriate public release of competitively-sensitive 

information under the Standards of Conduct. An affiliated producer seeking information 

about the potential expansion of infrastructure necessary to secure connections to new 

production is afforded the same confidential treatment as any other shipper seeking new 

service under the transaction-specific protections of the Final Rule.68 To the extent an 

affiliated producer is neither a potential shipper nor supporting the request of a potential 

shipper, its access to information on capacity or the availability of service to transport 

new supplies will be appropriately limited to the same information available to any other 

party. 

86. Open access interstate natural gas pipelines are required to post on their Internet 

websites timely and accurate information about available capacity and services.69 Those 

who believe that posted information does not meet the requirements of the Commission’s 

 68 See 18 CFR 358.5(b)(5) (“A Transmission Provider is not required to 

contemporaneously disclose to all transmission customers or potential transmission 

customers information covered by § 358.5(b)(1) if it relates solely to a Marketing or 

Energy Affiliate’s specific request for transmission service.”) 

69 See 18 CFR 284.13 (2003). 
Docket No. RM01-10-001 - 53 - 

regulations requiring disclosure of available capacity70 may contact the Commission’s 

Enforcement Hotline or file a formal complaint. The Commission does not believe that 

the equitable treatment afforded transmission information will hinder the development of 

new infrastructure.71

87. Dominion requests the Commission to exclude from the definition of an Energy 

Affiliate a producer that sells its own production to another affiliated company. The 

Commission denies Dominion’s request. Dominion has not provided any justification 

why a Transmission Provider should be allowed to share employees and transportation or 

customer information with its affiliated producer. Specifically, the Commission is 

concerned that a Transmission Provider’s non-affiliated customers could be harmed if a 

Transmission Provider could freely share customer information with affiliated producers. 

Nor has Dominion explained why the producer’s sale to an affiliate eliminates the 

Commission’s concerns about affiliate abuse.

 70 Id.

71 To the extent posted information is not sufficient for producers’ needs, this 

concern is appropriately addressed to the Transmission Providers, affiliated and 

otherwise, who may wish to consider the needs of their customers and other industry 

stakeholders for timely and adequate information about available capacity and system 

capabilities on their Internet website postings. 
Docket No. RM01-10-001 - 54 - 

iv. Intrastate and Hinshaw Pipelines 

The Final Rule

88. Intrastate and Hinshaw pipelines are included in the definition of Energy Affiliate 

to the extent that they engage in or are involved in transmission transactions in U.S. 

energy markets or participate in the other activities described in § 358.3(d). Allowing 

such intrastate pipeline or Hinshaw pipeline to have preferential access to a transmission 

system or information would be inconsistent with the prohibitions against undue 

preferences or discrimination in section 4 of the NGA in the provision of interstate 

transportation service. 

Requests for Rehearing and/or Clarification and Commission Conclusions

89. Several petitioners72 request clarification that LDCs which are also Hinshaw 

pipelines will nonetheless continue to qualify for the LDC exemption from Energy 

Affiliate status. They argue that Hinshaws are State-regulated and nearly always are 

LDCs. Empire argues that a Hinshaw pipeline, by definition, must be regulated by a 

State to qualify for the Hinshaw exemption. 

90. Saltville and SCG argue that there is no difference between a Hinshaw pipeline 

and an LDC in terms of their relationship with jurisdictional pipelines, and therefore there 

is no basis for this asymmetrical regulation. Questar argues that Hinshaw pipelines 

 72See, e.g., AGA, Dominion, Duke Energy, Empire, INGAA, Kinder Morgan 

Pipelines, National Fuel-Distribution, National Fuel-Supply, NICOR, Questar, Southwest 

Gas, and Xcel. 
Docket No. RM01-10-001 - 55 - 

which are also State-regulated LDCs should not be counted as Energy Affiliates under 

the Standards of Conduct. To do so, Questar argues, would destroy vertical integration 

efficiencies, increase costs,73 reduce service reliability, reduce firm transportation 

capacity by 105,000 Dth per day, or more, and reduce the service flexibility available to 

all shippers. 

91. Kinder Morgan Pipelines argue that even Hinshaw pipelines which are not LDCs 

should be exempt because they are State regulated and analogous to affiliated 

Transmission Providers, which are not defined as Energy Affiliates. 

92. Kinder Morgan Pipelines argue that intrastate pipelines, including Hinshaw 

pipelines, which provide State-regulated intrastate transportation, bundled commodity 

sales, and interstate transportation pursuant to section 311 of the NGPA, but do not make 

any off-system sales should be excluded from the definition of Energy Affiliate.74 The 

Texas Pipeline Association, an association of nineteen intrastate natural gas pipelines 

operating in Texas, and Williams also object to categorizing intrastate pipelines and 

Hinshaw pipelines as Energy Affiliates. 

 73Questar argues that full separation of functions would require the construction of 

new pipeline facilities costing $44 million, which would increase Questar’s annual costof-service by $14.4 million. 

74Kinder Morgan Pipelines also filed a request for exemption in Docket No. TS04-

249-000, which the Commission will consider by separate order. 
Docket No. RM01-10-001 - 56 - 

93. The Commission agrees generally with the requests that an LDC’s status as a 

Hinshaw pipeline does not invalidate its treatment as an LDC under the Standards of 

Conduct. Hinshaw pipelines are typically LDCs, regulated by State commissions, and 

primarily focused on providing retail service within their States. To the extent Hinshaw 

pipelines are state-regulated LDCs, make no off-system sales and do not engage in any of 

the activities described in § 358.3(d), they are not Energy Affiliates. However, as is the 

case for LDCs, Hinshaw pipelines which make off-system sales or participate in Energy 

Affiliate activities will continue to be defined as Energy Affiliates. 

94. The Commission clarifies that intrastate pipelines that do not engage in Energy 

Affiliate activities described in § 358.3(d) are not defined as Energy Affiliates. To the 

extent that an intrastate pipeline makes sales or hold interstate transmission capacity or 

engages in Energy Affiliate activities, they are Energy Affiliates. 

v. Affiliated and Foreign Transmission Providers 

Final Rule

95. Section 358.3(d)(5)(ii) excludes affiliated Transmission Providers from the 

definition of Energy Affiliate because they are already subject to the requirements of the 

Standards of Conduct. Section 358.3(d)(5)(i) excludes foreign affiliates that do not 

participate in U.S. energy markets. In the Final Rule, the Commission also stated that 

affiliated gas pipeline Transmission Providers that cross the United States international 

border will not be treated as Energy Affiliates as long as neither the Transmission 
Docket No. RM01-10-001 - 57 - 

Provider nor the affiliated international pipeline shares employees or information with its 

Marketing or Energy Affiliate.75 However, this was not codified in the regulatory text for 

§ 358.3(d)(5)(i). 

Requests for Rehearing and/or Clarification and Commission Conclusion

96. INGAA requests clarification because foreign affiliated Transmission Providers do 

not fit within the definition of a “Transmission Provider,” which transmits energy or gas 

in U.S. interstate commerce under parts 157 or 284 of the Commission’s regulations. See

18 CFR § 358.3(a). INGAA and Enbridge also argue that the Commission cannot 

regulate the behavior of foreign affiliated pipelines. 

97. The Commission is granting rehearing and revising the regulatory text to better 

reflect our intent that foreign affiliates that engage in transmission activities that cross the 

U.S. international border, which activities are regulated by the state, province or national 

regulatory board of the foreign country in which the facilities are located, will not be 

treated as Energy Affiliates. Nonetheless, a Transmission Provider cannot use a foreign 

affiliate as a conduit to circumvent the independent functioning requirement or 

information sharing prohibitions of the Standards of Conduct. Contrary to petitioners’ 

assertions, the Commission is not regulating the behavior of a foreign corporation, but 

merely regulating the behavior of the jurisdictional Transmission Provider. The 

Commission does not prohibit Canadian pipelines from sharing Canadian transmission 

 75Final Rule at P 60. 
Docket No. RM01-10-001 - 58 - 

information or employees with its Canadian Affiliates. However, a Transmission 

Provider may not share information and employees with its Canadian-affiliated 

Transmission Provider if it is a conduit for sharing information with an Energy Affiliate 

doing business in the U.S. commodity or transmission markets. A Canadian Energy 

Affiliate that does business in the U.S. commodity and transmission markets should not 

be afforded undue preferences or services.

vi. Holding or Parent Companies 

Final Rule

98. Section 358.3(d)(5)(iii) excludes from the definition of Energy Affiliate, 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.76

Requests for Rehearing and/or Clarification and Commission Conclusion

99. NiSource, Dominion, EEI, INGAA and AGA request clarification that a parent or 

holding company does not become an Energy Affiliate of a Transmission Provider by 

acting as a guarantor on a contract or approving financial expenditures for the subsidiary 

 76Generally, a holding company is registered with the Securities and Exchange 

Commission under the Public Utility Holding Company Act of 1935. A parent company 

or corporation is a company or corporation with multiple subsidiaries and/or controls 

other companies. A service company is usually a subsidiary of a holding or parent 

company/corporation that generally provides shared services to the parent or holding 

company’s subsidiaries and/or affiliates and/or serves as a mechanism to employ all 

corporate employees. 
Docket No. RM01-10-001 - 59 - 

Transmission Provider. EEI states that if such parent or holding companies providing 

financial security are deemed to be Energy Affiliates, few entities will qualify for the 

exemption. The petitioners argue that the parent/holding company is not engaged in a 

financial transaction and thus should not become an Energy Affiliate. Similarly, National 

Fuel-Distribution and Duke Energy request clarification that the performance of 

corporate functions by a parent or holding company will not make the parent or holding 

company an Energy Affiliate. On the other hand, NASUCA argues that service 

companies that engage in financial transactions should be included in the definition of 

Energy Affiliate. 

100. One of the roles of a parent or holding company is to act as guarantor or provide 

financial security for its subsidiaries. Generally, when a parent or holding company acts 

as guarantor for a Transmission Provider or its Marketing or Energy Affiliate, the parent 

or holding company is not engaging in any transmission transactions or in energy or 

natural gas commodity markets. Thus, the Commission clarifies that it is permissible for 

a parent or holding company to act as guarantor or to provide financial security for its 

subsidiaries without becoming an Energy Affiliate. A parent or holding company may 

also approve the financial expenditures for its affiliated Transmission Provider. But, as 

discussed later, when a parent or holding company engages in financial transactions that 

are the functional equivalent of physical transactions in the commodity market, it acts as 

an Energy Affiliate under the Standards of Conduct. 
Docket No. RM01-10-001 - 60 - 

101. Duke Energy, INGAA and Kinder Morgan Pipelines request rehearing of the 

Commission’s decision to exclude only parent or holding companies that are not involved 

in energy or natural gas markets or transmission transactions. They argue that a parent or 

holding company should not be considered an Energy Affiliate if it is involved in energy 

or transmission transactions. The Commission rejects this request for a categorical 

exemption because parent or holding companies could then be used to circumvent the 

Standards of Conduct. However, on a case-by-case basis, the Commission will consider 

specific requests. 

Requests for Clarification Regarding Parent Companies 

102. CenterPoint requests clarification that certain divisions of a parent company could 

be Energy Affiliates while the remainder of the parent company would not be considered 

an Energy Affiliate. The Commission cannot answer this question generically. The 

Commission will review this issue on a case-by-case basis after evaluating the individual 

structure of the Transmission Provider and its parent company. 

103. Duke Energy requests that the Commission clarify how it will treat a parent 

company that is also a Transmission Provider. At Duke Energy, the electric utility 

Transmission Provider, which engages in retail and wholesale sales, is a division of the 

parent company, which is also the parent company for several natural gas Transmission 

Providers. Because the parent company is also the electric public utility that engages in 

wholesale sales of power, Duke Energy is concerned that its parent company does not 

qualify for the parent company exemption. Duke Energy proposes that the Commission 
Docket No. RM01-10-001 - 61 - 

treat its parent company as an affiliated Transmission Provider. Under this scenario, 

Duke Energy pipeline subsidiaries will be permitted to provide non-public information to 

Duke Energy management for corporate governance purposes; but Duke Energy will be 

prohibited from sharing such information with the sales or marketing unit of Duke 

Energy or of any other Energy Affiliate. Duke Energy argues that this is also consistent 

with the codification at § 358.4(a)(5) that allows a Transmission Provider to share senior 

officers and directors with their Marketing and Energy Affiliates. 

104. Duke Energy’s proposal is an acceptable means to comply with the Standards of 

Conduct. As a parent company/Transmission Provider, Duke Energy is subject to the 

independent functioning requirements and information sharing prohibitions of the 

Standards of Conduct. It is already required to put in place mechanisms to ensure that the 

unit/division that engages in wholesale sales of power functions independently and does 

not have access to transmission or customer information. 

105. Kinder Morgan Pipelines also ask for clarification that its parent company, which 

has LDC assets, qualifies for the parent company exemption. The fact that the LDC is a 

parent company is no reason to exempt it from its status as an Energy Affiliate. Unlike 

the situation at Duke Energy, where the parent company/Transmission Provider is 

responsible for implementing all of the Standards of Conduct, Kinder Morgan Pipelines 

on the other hand are seeking an exemption from the Standards of Conduct. As an LDC 

making off-system sales, it falls squarely within the definition of Energy Affiliate. 

Therefore, the Commission denies Kinder Morgan Pipelines’ request. However, the 
Docket No. RM01-10-001 - 62 - 

Commission will consider individual requests if the parent company/LDC can 

demonstrate an acceptable level of independent functioning for the LDC division and 

ensure that there are adequate safeguards to restrict the sharing of transmission and 

customer information. 

106. Finally, Enbridge urges the Commission to clarify that a foreign parent company 

can use the parent company exemption if it otherwise qualifies. The Commission so 

clarifies. 

vii. Service Companies 

Final Rule 

107. The Final Rule excludes from the definition of Energy Affiliate service companies 

that do not engage in energy or natural gas commodity markets or are not involved in 

transmission transactions in U.S. energy markets. See 18 CFR § 358.3(d)(5)(iii). The 

Final Rule also states that if a Transmission Provider utilizes a service corporation or 

other subsidiary as the mechanism for employment, all the employees assigned, dedicated 

or working on behalf of a particular entity, such as a Transmission Provider or Energy 

Affiliate, are subject to the Standards of Conduct requirements as if they were directly 

employed by the Transmission Provider or Energy Affiliate.77

 77Final Rule at P 57. 
Docket No. RM01-10-001 - 63 - 

Requests for Rehearing and/or Clarification and Commission Conclusions

108. SCG requests that the Standards of Conduct not apply to service company 

employees. In addition, Dominion requests clarification that only service company 

employees who devote all or nearly all of their time to a Transmission Provider or Energy 

Affiliate will be subject to the Standards of Conduct. 

109. NASUCA, on the other hand, wants clarification that all employees of the 

Transmission Provider, Marketing or Energy Affiliate will be covered by the definition of 

Energy Affiliate. NASUCA also argues that service (or parent or holding) companies 

that engage in financial transactions relating to the sale or transmission of natural gas or 

electric energy should not be exempt from the definition of Energy Affiliate. NASUCA 

expresses concern that financial transactions that are the functional equivalent of physical 

transactions are not subject to the Standards of Conduct and could enable transmission or 

customer information about counterparties to a transaction to be passed among Energy 

Affiliates. 

110. The Commission rejects SCG’s rehearing request. Service company employees 

are properly subject to the Standards of Conduct if they are working on behalf of the 

Transmission Provider or Energy Affiliates. Otherwise, such service companies would 

become mechanisms by which to circumvent the Standards of Conduct. Employees 

working on behalf of a Transmission Provider or its Marketing or Energy Affiliates are 

subject to the Standards of Conduct as if those individuals were directly employed by the 
Docket No. RM01-10-001 - 64 - 

respective companies. If service company employees only provide support services, they 

can be shared. But, if they have any energy-affiliated or transmission-related functions, 

they cannot be shared. 

111. With respect to NASUCA’s concerns, service (or parent/holding) companies may 

engage in certain types of financial activities that include capital funding, 

creditworthiness and risk management type activities, as discussed herein. However, 

when a service company (or parent/holding company) engages in financial transactions 

that may be functionally equivalent to physical transactions in the commodity and 

transmission markets, it will be treated as an Energy Affiliate. For example, the purchase 

or sale of financial transmission rights in an RTO or trading in NYMEX natural gas or 

electric futures will give a service company a stake in wholesale energy markets because 

they are engaging in wholesale commodity activities. Whenever the service company has 

such a stake, it will be treated as an Energy Affiliate under the Standards of Conduct.

112. Cinergy, Enbridge, Entergy, NiSource, Southern and Xcel raise a concern that 

when employees of a service company are assigned to an Energy Affiliate, the service 

company could be deemed to be “involved” or “engaged” in transmission transactions on 

behalf of an affiliate. Xcel claims that service companies regularly employ transmission 

and marketing employees, but segregate employees to comply with the Standards of 

Conduct, which is consistent with the preamble language of the Final Rule at 

Paragraph 57, but not the service company exemption included in the regulatory text at 
Docket No. RM01-10-001 - 65 - 

§ 358.3(d)(5)(iii). Cinergy requests clarification that only those service company 

employees who are assigned, dedicated or working on behalf of the Transmission 

Provider or Energy Affiliate, and not the entire service company will be subject to the 

Standards of Conduct. 

113. EEI requests clarification on the functions that can be shared in a service 

company. Similarly, Enbridge, INGAA, NICOR, NiSource and Southern request 

clarification that service companies, such as those with operating control centers that 

conduct operations on behalf of Transmission Providers or which have a substantial 

number of employees assigned to perform Energy Affiliate functions, are not themselves 

Energy Affiliates. 

114. The Commission clarifies that a service company will not become an Energy 

Affiliate merely by providing Transmission or Marketing or Energy Affiliate employees. 

However, the service company must segregate those employees if they are assigned to 

those functions. Service companies use an assortment of mechanisms to assign 

employees to their affiliates, such as work orders, loans, and agency agreements. While 

the service company does not necessarily become an Energy Affiliate, the Transmission 

Provider is ultimately responsible to ensure that all employees assigned or dedicated to it 

observe the independent functioning and information sharing prohibitions of the 

Standards of Conduct. 
Docket No. RM01-10-001 - 66 - 

115. EEI requests clarification that, when a service company acts as agent for a 

Transmission Provider, it is not involved in energy markets or transmission transactions. 

In several investigations of entities that violated the former standards of conduct, the 

Commission discovered that agency agreements resulted in improper sharing of 

information or abusing native load preferences.78 Agency agreements can also be used to 

aggregate control over transmission capacity. Therefore, the Commission clarifies that a 

service company may act as agent for its affiliated Transmission Provider, Marketing or 

Energy Affiliate without becoming an Energy Affiliate so long as the service company is 

involved in only non-energy related activities, e.g., acting as an agent to lease office 

space or to obtain cleaning service. However, if the service company/agent is involved in 

energy-related activities, it is an Energy Affiliate. 

viii. Affiliates Buying Power for Themselves 

Final Rule

116. Section 358.3(d)(5)(iv) excludes from the definition of Energy Affiliate, “an 

affiliate that purchases natural gas or energy solely for its own consumption and does not 

use an affiliated Transmission Provider for transmission of that natural gas or energy.” 

 78See Transcontinental Gas Pipe Line Corp., 102 FERC ¶ 61,302 (2003) 

(Transco); Idaho Power Corp., 103 FERC ¶ 61,182 (2003) (Idaho Power); and Cleco 

Corp., 104 FERC ¶ 61,125 (2003) (Cleco). 
Docket No. RM01-10-001 - 67 - 

Requests for Rehearing and/or Clarification and Commission Conclusions

117. EEI argues that an affiliate should not be prohibited from using its affiliated 

Transmission Provider if it is buying power or gas for its own consumption. EEI argues 

that the term “using” is unclear and should be revised to reflect the Commission’s 

concern with the affiliate “arranging” transmission on the affiliated Transmission 

Provider. 

118. The Commission clarifies that the affiliate may use an affiliated Transmission 

Provider to buy power or gas for its own consumption. However, to ensure that the 

Transmission Provider does not provide undue preferences to an affiliate, the 

Transmission Provider must treat the affiliate as an Energy Affiliate unless the gas or 

power is for its own consumption. Therefore, an electric generator that is using electric 

energy or natural gas transported on the affiliated Transmission Provider for the 

subsequent generation of electricity will not be exempt from the definition of Energy 

Affiliate. 

D. Definition of Marketing, Sales or Brokering 

Final Rule

119. Section 358.3(e) defines marketing, sales or brokering as “a sale for resale of 

natural gas or electric energy in interstate commerce.” A sales and marketing employee 

or unit includes: (1) an interstate natural gas pipeline’s sales operating unit, to the extent 
Docket No. RM01-10-001 - 68 - 

provided in § 284.286 of this chapter, 79 and (2) a public utility Transmission Provider’s 

energy sales unit, unless such unit engages solely in bundled retail sales.80 See 18 CFR 

§§ 358.3(e) (1) and (2). 

120. The Final Rule retains the exemption of Order No. 889, which permits sharing 

between the bundled retail sales function and the public utility Transmission Provider’s 

interstate transmission function. However, the Final Rule emphasizes, that the Standards 

of Conduct will apply to merchant employees who are engaged in sales or purchase of 

power that will be resold at retail pursuant to state retail access programs.81 In the Final 

Rule, the Commission also emphasizes that if a retail sales function employee engages in 

any wholesale sales, such as selling excess generation to a non-retail customer, the retail 

 79Section 284.286 of the Commission's regulations currently requires an interstate 

natural gas pipeline to separate its interstate transmission function from its unbundled 

sales service, essentially treating the pipeline's sales business as the equivalent of an 

affiliated marketing company. See 18 CFR 284.286 (2003). 

80The term bundled retail sales employees means those employees of the public 

utility Transmission Provider or its affiliates who market or sell the bundled electric 

energy product (including generation, transmission, and distribution) delivered to the 

transmission provider’s firm and non-firm retail customers. 

81In Order No. 888-A, “if unbundled retail transmission in interstate commerce 

occurs voluntarily by a public utility or as a result of a state retail access program, the 

Commission has exclusive jurisdiction over the rates, terms and conditions of such 

transmission.” FERC Stats. & Regs., Regulation Preambles January 1991-June 1996 

¶ 31,036 at 31,781. See also, American Electric Power Service Corporation, 81 FERC 

¶ 61,332 (1997), order on reh’g, 82 FERC ¶ 61,131 (1998), order on reh’g, 82 FERC 

¶31,357 (1998). See also, New York et al. v. FERC et al., 535 U.S. 1 (2002). 
Docket No. RM01-10-001 - 69 - 

function will be treated as a wholesale merchant function.82 It is not appropriate for an 

entity that participates in the wholesale market to obtain an undue preference when 

competing with non-affiliates for transmission capacity. When a wholesale merchant 

function does take advantage of its affiliate status, customers, competitors and the market 

are harmed. Therefore, as stated in the Final Rule, if a retail sales unit engages in any

wholesale sales, the separation of functions requirement will apply.83

i. Treatment of Retail Sales Employees 

Requests for Rehearing and/or Clarification and Commission Conclusions

121. Calpine and TAPS request rehearing of the Commission’s decision to retain the 

exemption of Order Nos. 888 and 889. Calpine claims that the Commission failed to 

carry out its statutory duties under section 205 of the FPA by allowing the Transmission 

Provider to use the same employees for its interstate transmission business and bundled 

retail business. Similarly, TAPS argues that the Commission identified discrimination 

and failed to remedy it. TAPS argues that the Commission has the jurisdiction to 

eliminate the loophole and should do so. 

 82See Final Rule at P 78-79. 

83The Commission wants to prevent an employee that is shared between the 

bundled retail sales function and the wholesale merchant function from taking advantage 

of the preferences afforded retail service or utilizing information that may be shared with 

the retail function but not the wholesale function. 
Docket No. RM01-10-001 - 70 - 

122. Calpine also urges the Commission to limit retail sales function employees from 

getting any undue preferences when they go into the wholesale market to buy power to 

satisfy native load. Calpine claims that when retail sales function employees buy power 

to serve native load, they have an incentive to favor their own generation or to grant a 

preference to affiliated wholesale suppliers over competitive suppliers. 

123. The Commission rejects petitioners’ request for rehearing. An electric public 

utility Transmission Provider engaging in bundled retail sales is providing a service that 

is somewhat similar to the service provided by an LDC when it makes on-system sales. 

Where an electric public utility Transmission Provider’s wholesale merchant function 

solely engages in bundled retail sales, the Transmission Provider is not required to treat 

its merchant function as a Marketing Affiliate. Similarly, if a natural gas Transmission 

Provider’s affiliated LDC solely makes on-system sales, the Transmission Provider is not 

required to treat the LDC as an Energy Affiliate. As stated in the Final Rule, a public 

utility Transmission Provider is permitted to use the same employees for its interstate 

transmission business and its bundled retail sales business.84 However, when the 

merchant function of an electric public utility Transmission Provider participates in the 

wholesale market, the Transmission Provider must treat the merchant function as a 

Marketing Affiliate. 

 84Final Rule at P 78. 
Docket No. RM01-10-001 - 71 - 

 ii. Treatment of Electricity Provider of Last Resort Service (POLR) 

Requests for Clarification and Commission Conclusion

124. Cinergy seeks clarification that a Transmission Provider serving as the Provider of 

Last Resort (POLR) in a State that has adopted a retail choice program is permitted to 

continue to serve retail customers as it had prior to the introduction of competitive retail 

electric service. Essentially, Cinergy wants POLR employees to fall outside the 

definition of marketing or sales unit personnel under Order No. 2004 because, in 

Cinergy's view, POLR service is essentially the same as the bundled retail sales service 

for which Order No. 2004 provides an exemption.85

125. Cinergy claims that CG&E, its affiliate located in Ohio, provides unbundled 

electric transmission service with the prices of electric generation supply, transmission 

and distribution separately stated and regulated pursuant to Ohio's electric retail 

competition program. Cinergy suggests that, other than the Ohio requirement to allow 

retail customers to purchase electric generation from an alternative supplier, CG&E’s 

POLR service is a "package" of electric generation, transmission and distribution service 

virtually identical to the bundled retail service offered by another Cinergy affiliate, PSI, 

in Indiana, which has not adopted a retail choice program.

 85Section 358.3(e)(2) states “sales and marketing employee or unit includes . . . 

[a] public utility Transmission Provider’s energy sales unit, unless such unit engages 

solely in bundled retail sales.” 
Docket No. RM01-10-001 - 72 - 

126. Cinergy contends further that CG&E's Account Representatives, who support 

Cinergy’s retail customers, are subject to the independent functioning requirement of the 

Standards of Conduct because they provide services related to POLR generation, 

regulated distribution and transmission services. Cinergy also states that in Ohio, the 

competitive retail electric affiliates must be separate from the Transmission Function and 

Ohio has promulgated a code of conduct to prevent competitive advantages to affiliates.86 

Cinergy claims that CG&E's POLR employees do not reserve or schedule transmission 

service; these functions are handled by Cinergy's marketing unit, which observes the 

Standards of Conduct. 

127. The Commission is not prepared to adopt Cinergy's proposed rule change and 

amendment to the definition of "marketing, sales or brokering" to accord POLR service 

the same treatment, on a generic basis, as the Commission has accorded bundled retail 

sales. Since the details surrounding CG&E's POLR service or the POLR services of 

other Transmission Providers are not available, the Commission will not modify the 

definition of "marketing, sales or brokering" to allow automatic exemptions in all cases. 

Nonetheless, the Commission does not rule out the possibility that a particular POLR 

service deserves treatment equivalent to that accorded bundled retail sales treatment. 

 86See Cinergy at p. 9, referencing Ohio Rev. Code Ann. section 4928.17 

(Anderson 2003) and Ohio Admin Code section 5901; 1-20-16. 
Docket No. RM01-10-001 - 73 - 

Accordingly, the Commission will entertain case-by-case requests for exemption of a 

POLR service based on the relevant facts and circumstances. 

E. Definition of a Transmission Function Employee 

Final Rule

128. Section 358.3(j) defines the term “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. 

Requests for Rehearing and/or Clarification and Commission Conclusions

129. INGAA and Dominion request clarification on whether the Commission intended 

that the term “operating employee” (at P 112) of the Final Rule have the same meaning as 

by the term “Transmission Function Employee.” Similarly, INGAA is also concerned 

that Paragraph 120 of Final Rule states that a Transmission Function Employee is 

“participating in directing, organizing or executing transmission system or reliability 

functions of a Transmission Provider,” but that phrase is not identical to the language 

contained in the definition of Transmission Function Employee in § 358.3(j). 

LG&E/KU urge the Commission to replace the phrase “including day-to-day duties and 

activities...” in the definition of Transmission Function Employee with “defined as 

the...” LG&E states that by using the phrase “including day-to-day” there is still some 
Docket No. RM01-10-001 - 74 - 

doubt as to whether certain employees, specifically officers and directors, would be 

considered Transmission Function Employees because the term “including” implies that 

this is not an exhaustive list of the types of activities that could be considered 

transmission functions. 

130. Order No. 2004 replaced the term “operating employee,” which was originally 

defined in Order Nos. 497-E and 497-F, with the term “Transmission Function 

Employee.” The term “operating employee” and “Transmission Function Employee” are 

not identical. In Order No. 497-E, the Commission defined “operating employee” as “an 

individual who has day-to-day duties and responsibilities for planning, directing, 

organizing, or carrying out gas-related operations, including gas transportation, gas sales 

or gas marketing activities.”87 “Operating employee” was used in discussions for both a 

Transmission Provider as well as its Marketing Affiliate, hence the references to gas sales 

or gas marketing activities. Whereas the term “Transmission Function Employee” is 

defined 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, 

 87Order No. 497-E, FERC Stats. & Regs., Regulations Preambles January 1991 – 

June 1996 ¶ 30,987 at 30,996. 
Docket No. RM01-10-001 - 75 - 

directing organizing or carrying out transmission-related operations.” See 18 CFR 

§ 358.3(j). Consequently, the term “operating employee” also covered employees 

engaged in gas sales or marketing functions whereas the term Transmission Function 

employees does not.

131. With respect to LG&E/KU’s specific question, the discussion at Paragraph 120 of 

the Final Rule was intended to provide additional guidance on the definition of the term 

Transmission Function Employee, which uses the phrase “including, but not limited to.” 

There is no real distinction between the preamble discussion and the regulatory text 

because the regulatory text did not attempt to capture every activity of a Transmission 

Function Employee. As the Commission stated in the preamble of the Final Rule, and in 

a series of cases interpreting the term “operating employee,” this definition includes, but 

is not limited to, employees engaged in “day-to-day” activities. There may be 

“Transmission Function Employees” who do not engage in “day-to-day” activities, but 

are performing, on less frequent, but equally as significant basis, transmission functions, 

such as organizing expansion of capacity or deciding on whether to construct an 

interconnection. In the past, the Commission looked at the actual duties and 

responsibilities of the individuals. For example, when considering the responsibilities of 

a particular officer, the Commission evaluated whether he participated in directing, 
Docket No. RM01-10-001 - 76 - 

organizing or executing transmission or wholesale merchant functions, including whether 

he had direct access to transmission or reliability information on the EMS or other 

databases and whether he approved contracts or transactions.88

F. Definition of Marketing Affiliate 

132. Several petitioners, including Dominion, state on rehearing that the Commission 

did not define the term “Marketing Affiliate,” although it is used in the Final Rule and in 

the regulatory text. Dominion urges the Commission to adopt a formal definition of the 

term Marketing Affiliate to promote understanding. 

133. The Final Rule defines marketing at 18 CFR § 358.3(e) and affiliate at 18 CFR 

§ 358.3(b). However, since the Commission uses the term Marketing Affiliate 

throughout the Final Rule and regulatory text, the Commission is adopting Dominion’s 

request and will codify a definition of Marketing Affiliate at § 358.3(k): “Marketing 

Affiliate means an Affiliate as that term is defined in § 358.3(b) or a unit that engages in 

marketing, sales or brokering activities as that term is defined in § 358.3(e).” 

G. Independent Functioning 

134. One of the most significant elements of the Standards of Conduct is the 

requirement that the Transmission Provider function independent of its Marketing and 

Energy Affiliates. The independent functioning of the Transmission Provider limits its 

 88See Ameren Services Company, 87 FERC ¶ 61,145 at 61,600 (1999). 
Docket No. RM01-10-001 - 77 - 

ability to give its Marketing and Energy Affiliates unduly preferential service or access to 

information. However, the Commission also recognizes that a Transmission Provider 

and its Marketing and Energy Affiliate should be permitted to share employees to 

conduct corporate governance functions, to take advantage of the efficiencies of 

corporate integration and to respond to emergency circumstances. As a result, the 

Commission has permitted the sharing of officers and directors, support service 

employees, and field and maintenance employees between a Transmission Provider and 

its Marketing/Energy Affiliates in most circumstances. Although the Commission has 

permitted sharing for the categories of employees noted above, the Commission will 

evaluate in compliance audits and investigations, employees’ actual functions and duties 

to determine whether the Transmission Provider is appropriately applying this exemption. 

i. Sharing of Senior Officers and Directors 

Final Rule

135. In the Final Rule, the Commission stated that it would allow senior officers and 

directors who do not engage in transmission functions, or have day-to-day duties and 

responsibilities for planning, directing, organizing or carrying out transmission-related 

operations to maintain such positions with the Transmission Provider and its Marketing 

or Energy Affiliates. The Commission, however, cautioned that shared executives may 

not serve as conduits for sharing transmission, customer or market information with a 

Marketing or Energy Affiliate. 
Docket No. RM01-10-001 - 78 - 

Requests for Rehearing and/or Clarification and Commission Conclusions

136. On rehearing, AGA, Cinergy, Dominion, Duke Energy, EEI, Entergy, INGAA, 

NICOR, NiSource and Shell Offshore request that the Commission codify the exemption 

for senior officers and directors in the regulatory text. The Commission agrees with this 

request and will codify the exception at § 358.4(a)(5) as follows: Transmission Providers 

are permitted to share with their Marketing and Energy Affiliates senior officers and 

directors who are not “Transmission Function Employees ” as that term is defined in 

§ 358.3(j). 

137. LG&E/KU argue that the codification for the senior officers and directors 

exemption should be broader in scope. They argue that certain executives may have dual 

supervisory responsibility for the company’s transmission and merchant functions with a 

fiduciary obligation to manage both functions. 

138. The Commission denies LG&E/KU’s request. An executive who has day-to-day 

transmission-related responsibilities should not have a role in Marketing or Energy 

Affiliates. The Final Rule has taken into account the fiduciary obligation of high-level 

officers and directors (who may be shared) by adopting the more flexible “no conduit” 

rule regarding the sharing of information rather than the more stringent “automatic 

imputation” rule. See Discussion in Final Rule at P 144-150. This enables the limited 

number of shared officers and directors to oversee all functions of the company without 
Docket No. RM01-10-001 - 79 - 

violating the Standards of Conduct. If LG&E/KU or any Transmission Provider has a 

specific concern about the roles of its executive employees, the Transmission Provider 

can seek clarification from the Commission as to whether sharing is permitted under this 

Final Rule. 

139. Duke Energy also requests that when the Commission codify the officers and 

directors section, it also clarify that the information sharing prohibitions do not limit 

officers’ and directors’ ability obtain information necessary to engage in corporate 

governance functions. The Commission also incorporates regulatory text in § 358.4(a)(5) 

to better reflect that the Commission does not intend to restrict corporate governance 

functions as follows: “A Transmission Provider may share transmission information 

covered by §§ 358.5(a) and (b) with its senior officers and directors provided that they do 

not (1) participate in directing, organizing or executing transmission system operations or 

marketing functions; or (2) act as a conduit to share such information with a Marketing or 

Energy Affiliate. 

140. Williams filed a motion for clarification that incorporates a proposal to revise the 

Final Rule to create a two-tier exemption for senior officers and directors to facilitate 

corporate governance functions. Under Williams’ proposal, the “Group A” category 

would include directors of the parent company, the Chief Executive Officer (CEO), the 

Chief Finance Officer (CFO) and the General Counsel, who would have unfettered access 

to information to discharge their corporate governance duties. Williams proposes that 

these individuals never be considered Transmission Function employees even if they 
Docket No. RM01-10-001 - 80 - 

occasionally engage in some Transmission Functions, such as approving a significant 

transaction for a particular business unit. Williams proposes that “Group B” would 

include a small group of senior officers who are involved in the day-to-day operations of 

their respective business units, including Gas Pipelines (transmission), Midstream, 

Exploration and Production and Power. Williams argues that the Group A officers need 

input and advice from the Group B officers and should jointly constitute an “Executive 

Officer Team.” Williams proposes seven “protections” for the Group B officers that it 

argues are consistent with the Commission’s goals of Order No. 2004. Allegheny, 

Cinergy, Duquesne, KCPL and PGE filed motions in support of Williams’ request. 

However, INGAA and El Paso urged the Commission to avoid imposing Williams’ 

suggested approach on a generic basis to other companies. INGAA and El Paso caution 

the Commission not to assume that the approach proposed by Williams is appropriate or 

workable for all companies. Similarly, EEI similarly states while that the Williams 

approach may address corporate governance concerns at Williams, the Commission 

should not assume that the Williams’ approach is appropriate for all companies. 

141. The Commission denies Williams’ proposal for revision. As discussed in the 

Final Rule, the Commission has already taken into account the need for the CEO and 

CFO to comply with the certification requirements of section 302 and section 906 of the 

Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act) by adopting the no-conduit rule. The 

Commission clarifies that in most circumstances, the “Group A” executives Williams 

identifies would not be Transmission Function Employees, as that term is defined. The 
Docket No. RM01-10-001 - 81 - 

CEO, CFO or General Counsel of a company would not become a “Transmission 

Function Employee” by approving major capital expenditures for the company. The 

Commission will not approve the creation of an “Executive Officer Team” that includes 

“Transmission Function Employees” and employees of a Marketing or Energy Affiliate 

that do not qualify for shared treatment. The goals of Order No. 2004 cannot be achieved 

if Group B employees who are involved in the day-to-day operations of the Marketing or 

Energy Affiliates had access to the Transmission Providers’ transmission and customer 

information. 

ii. Sharing of Field and Maintenance Personnel 

Final Rule

142. Section 358.4(a)(4) codifies the Commission’s historical policy of allowing 

Transmission Providers to share field and maintenance personnel with their Marketing 

and Energy Affiliates. 

Requests for Rehearing and Clarification and Commission Conclusions

143. INGAA, Dominion, NiSource and Shell Gas seek clarification that a “field 

supervisor” who has the ability to restrict or shut down the operation of a particular 

section of a pipeline will not be treated as an operating employee, despite the language of 

Order No. 497-F.89 INGAA claims that virtually any field employee may restrict or shut 

 89In Order No 497-F, the Commission stated, “to the extent that supervisory field 

personnel have the ability to control a pipeline’s gas operations, they would be 

considered operating employees.” Order No. 497-F, 66 FERC ¶ 61,347 at 62,167. 
Docket No. RM01-10-001 - 82 - 

down the operation of a particular stretch of pipeline in a particular set of circumstances, 

and that this function alone should not render those field personnel “Transmission 

Function Employees.” In lieu of controlling the flow on the pipeline, INGAA and 

Dominion urge the Commission to adopt a definition that would be limited to those 

supervisory employees who may plan to shut down a pipeline in advance or may choose 

to shut down based on economic factors. 

144. In addition, Dominion urges the Commission to clarify that the exception for field 

and maintenance employees also applies to technicians, mechanics and their immediate 

supervisors who are responsible for electric transmission activities. 

145. The Commission clarifies that shared field personnel may include field supervisors 

who do not take part in advance planning for facility shut downs or are involved in 

shutting down facilities based on economic reasons. 

146. The Commission also clarifies that the field and maintenance employees exception 

also applies to technicians, mechanics and their immediate supervisors who are 

responsible for electric transmission activities. 

iii. Risk Management Employees 

Final Rule 

147. The Final Rule prohibits the sharing of risk management employees who are 

operating employees of either the Transmission Providers or their Marketing or Energy 
Docket No. RM01-10-001 - 83 - 

Affiliates.90 The Final Rule also prohibits risk management employees from being a 

conduit for improperly sharing information because they are in a position to use 

transmission, customer and market information to give Marketing and Energy Affiliates 

undue advantages. 

Requests for Rehearing and/or Clarification and Commission Conclusions

148. SCG and its affiliate SCE&G request rehearing of the prohibition against sharing 

risk management employees who are also operating employees of the Transmission 

Provider or Marketing or Energy Affiliate. 

149. Cinergy, NiSource, Dominion, Duke Energy, EEI and Entergy request that the 

Commission codify that risk management employees can be shared so long as they are 

not operating employees of the Transmission Provider or Marketing or Energy Affiliate. 

150. Dominion, INGAA and NiSource urge the Commission to clarify that the types of 

risk management functions described in the Final Rule do not constitute transmission 

functions.91 INGAA also urges that risk management employees should be permitted to 

make general appraisals of creditworthiness of particular counterparties (governed by 

business standards and not tariffs) and set appropriate exposure limits to which 

 90Final Rule at P 112. 

91In the Final Rule, the Commission identified various examples of risk 

management functions, including: (1) managing corporate-wide business risk exposure of 

the corporation and/or its affiliates; (2) business risk exposure for third parties; 

(3) managing overall corporate investment for the entire corporation; (4) assessing credit 

risk for counter-parties; (5) approving expansion projects; and (6) establishing spending, 

trading and capital authorities for each business unit. Final Rule at P 109. 
Docket No. RM01-10-001 - 84 - 

corporations are willing to be exposed. Similarly, Dominion argues that managing 

corporate-wide risk and investment, approving expansions and establishing spending 

limits should not be considered risk management functions. Dominion and INGAA also 

urge the Commission to permit the management of corporate exposure including 

financial transactions for the sole purpose of hedging risks. 

151. The Commission rejects the rehearing requests of SCG and SCE&G. Risk 

management employees will have access to valuable transmission, customer and market 

information that can be used to the detriment of third parties. 

152. As per the request of several petitioners, the Commission will codify the exception 

that permits Transmission Providers to share risk management employees with their 

Marketing and Energy Affiliates at § 358.4(a)(6). 

153. With respect to the petitioners’ requests to identify certain risk management 

activities that can be shared between a Transmission Provider and its Marketing and 

Energy Affiliates, the Commission finds that it is permissible for the risk management 

function to: (1) manage corporate-wide business risk exposure of the corporation and/or 

its affiliates; (2) evaluate business risk exposure for third parties on an aggregate basis; 

(3) manage overall corporate investment for the entire corporation; (4) approve expansion 

projects; and (5) establish spending, trading and capital authorities for each business unit. 

However, the risk management function is not permitted to assess creditworthiness of a 
Docket No. RM01-10-001 - 85 - 

particular customer under a pipeline’s tariff. This is consistent with the Commission’s 

previously articulated policy, in which the Commission held that the “act of deciding 

whether a potential shipper can become an actual shipper by satisfying the 

creditworthiness requirements under [a pipeline’s] tariff is a transportation function.” 92 

154. While risk management function employees are permitted to engage in the types 

of activities identified in the preceding paragraphs, the employee must pay particular 

attention to communications with Marketing and Energy Affiliates. Certainly, 

transmission and customer information are not a part of setting corporate-wide limits or 

managing corporate investment. A risk management function employee can not share 

transmission or customer information obtained from the Transmission Provider with its 

Marketing or Energy Affiliates. For example, the risk management function employee 

can communicate to the Marketing or Energy Affiliate that Company X has reached or 

exceeded its corporate-wide credit limit or its credit rating has been downgraded by nonaffiliated financial rating entities, but the risk management function employee is 

prohibited from telling the Marketing or Energy Affiliate that Company X has reached or 

exceeded its corporate-wide credit limit because it had not paid its transmission fees. The 

 92See Vector Pipeline, L.P., 97 FERC ¶ 61,085 (2001). 
Docket No. RM01-10-001 - 86 - 

distinction is subtle, but important. The Commission will not permit the risk 

management function employee to be used as a vehicle to share information with the 

Marketing or Energy Affiliates that the Transmission Provider is prohibited from sharing 

under § 358.5(a). 

iv. Lawyers as Transmission Function Employees 

Final Rule

155. The Final Rule does not prohibit a Transmission Provider from sharing support 

employees with its Marketing and Energy Affiliates. But, if employees, such as lawyers, 

are engaging in transmission functions, they are not “support” staff; rather, they are 

Transmission Function Employees who are subject to the Standards of Conduct. The 

Commission will not permit a Transmission Provider to label individuals or categories of 

employees as “support” to circumvent the independent functioning requirement. 

Requests for Rehearing and/or Clarification and Commission Response

156. Dominion, INGAA, Entergy and SCE&G requested clarification on when lawyers 

become Transmission Function Employees. Entergy argues that when lawyers provide 

legal or regulatory advice or set policy they should not become Transmission Function 

Employees. Dominion urges the Commission to clarify that lawyers can be considered 

shared support employees, and only if they engage in transmission functions would they 

be considered Transmission Function Employees and could not be shared. 
Docket No. RM01-10-001 - 87 - 

157. The Commission clarifies that if lawyers participate in transmission policy 

decisions on behalf of a Transmission Provider, the Commission considers that activity as 

a Transmission Function and the lawyer is a Transmission Function Employee. For 

example, a lawyer who participates in a decision on whether the Transmission Provider 

should seek a contract with a customer is acting as a Transmission Function Employee. 

If, however, the lawyer is asked to implement the Transmission Provider’s business 

decision and negotiate a contract with that customer, the lawyer would not be a 

Transmission Function Employee. 

H. Identification of Affiliates on Internet 

i. Posting Organizational Charts. 

Final Rule

158. Section 358.4(b) requires all Transmission Providers to post information, 

including organizational charts and job descriptions, with respect to Marketing and 

Energy Affiliates on their OASIS or Internet websites. 

159. Specifically, § 358.4(b)(3) requires Transmission Providers to post organizational 

charts and job descriptions on their respective Internet websites or OASIS. The 

Transmission Provider is also required to update the organizational charts and job 

descriptions within seven business days of a change. In addition, where a Transmission 

Provider shares clerical, field or maintenance employees with its Marketing or Energy 

Affiliates, the Transmission Provider must clearly identify the business units for the 
Docket No. RM01-10-001 - 88 - 

shared employees and provide a description of the shared services functions or 

responsibilities; but it is not required to provide names or job descriptions for the clerical 

or field or maintenance employees. See 18 CFR § 358.4(b)(3)(ii). 

Requests for Rehearing and/or Clarification and Commission Conclusions

160. Shell Gas requests that the Commission reconsider the website postings and 

argues that the complexity of organizational charts for affiliates is an unjustified burden. 

161. On the other hand, Calpine urges the Commission to require Transmission 

Providers to post full identification of all affiliates with a statement of each affiliate’s 

activities and a designation of which affiliates are considered by the Transmission 

Provider to be Marketing Affiliate or providing wholesale merchant functions. Calpine 

further urges the Commission to require the Transmission Provider to post, for each 

affiliate it claims to be exempt from the definition of Energy Affiliate, a full and 

complete explanation for the basis of the determination. 

162. Duke Energy requests that the Commission clarify that the requirement to post 

Transmission Provider job titles applies only to employees involved in transmission or 

wholesale sales functions and their managers. Dominion notes that the Final Rule 

contemplated (at P 125) a Transmission Provider posting organizational charts and job 

descriptions for business units that are shared between a Transmission Provider and its 

affiliated Marketing or Energy Affiliates and urges the Commission to codify this 

requirement.
Docket No. RM01-10-001 - 89 - 

163. The purpose of posting organizational charts and job descriptions is to provide a 

mechanism for the Commission and market participants to determine whether the 

Transmission Provider is functioning independently of its Marketing and Energy 

Affiliates. This transparency is an integral component of the independent functioning 

requirement. Hence, the requirement to post an organizational chart that identifies the 

parent corporation with the relative position in the corporate structure of the 

Transmission Provider, Marketing and Energy Affiliates. See 18 CFR § 358.4(b)(3)(i). 

When posting the business unit for the Transmission Provider as required by 

§ 358.4(b)(3)(ii), it must identify whether any of those business units are shared with the 

Marketing or Energy Affiliates. If a corporation uses a service company as the 

employment mechanism for the Transmission Provider and its Marketing or Energy 

Affiliates, the organizational charts should clearly specify those circumstances. 

Similarly, if a corporation uses both functional and structural organizational charts for its 

management, the organizational charts must accurately reflect its operations. Support 

units that are shared between a Transmission Provider and its Marketing or Energy 

Affiliates must be clearly identified. 

164. Several petitioners, including EEI, argue that the Commission should eliminate 

the requirement of § 358.4(b)(3)(ii) to post employees that are shared between the 

Transmission Provider and Energy or Marketing Affiliates since Transmission Providers 

are not permitted to share employees. The Commission rejects petitioners’ request. 

There may be circumstances where a Transmission Provider will be permitted to share 
Docket No. RM01-10-001 - 90 - 

employees with its Marketing or Energy Affiliates, such as when officers and directors 

are shared or when a Transmission Provider obtains a partial waiver. Therefore, the 

Commission will retain the requirement to post shared employees. 

165. In addition, the organizational charts should accurately reflect when Transmission 

Providers use service company employees to staff the Transmission Provider or its 

Marketing or Energy Affiliates. The organizational charts should be well organized and 

self-explanatory and company specific acronyms should be explained in a legend. In 

several recent investigations, the Commission found that organizational charts and job 

descriptions were incomplete, inaccurate or difficult to understand, and in some 

instances, did not include all the required job titles, names of managers and job 

descriptions.93

166. EEI also urges the Commission to reconsider the time when information should be 

posted and recommends that the Commission require the information to be updated 

within 14 days, rather than the seven days in the Final Rule. The Commission already 

considered EEI’s request in the comments to the NOPR. Originally, the Commission 

proposed that the OASIS and Internet websites be updated within three days. However, 

upon consideration of the petitioners’ requests for additional time to update the 

 93 See Transco supra note 86. See also National Fuel Gas Supply Corporation, 

103 FERC ¶ 61,192 (2003). 
Docket No. RM01-10-001 - 91 - 

information, the Commission balanced the need for transparency and updated 

information with the Transmission Providers’ ability to actually update the information 

and determined that updating the information within seven days was the appropriate 

balance. 

167. Southwest Gas also requests clarification whether the posting requirements apply 

to a Transmission Provider that has no Marketing or Energy Affiliate. The Commission 

clarifies that the Transmission Provider should still post the information (as well as 

develop procedures and designate a Chief Compliance Officer). 

ii. Posting of Merger Information 

Final Rule

168. Section 358.4(b) requires the Transmission Provider to post the name(s) and 

address(es) of potential merger partner(s) and Energy Affiliates on the OASIS or Internet 

website. This is consistent with the Commission’s current policy, which treats potential 

merger partners as affiliates.94

 94Revised Filing Requirements Under Part 33 of the Commission's Regulations, 

Order No. 642, 65 FR 70983 (Nov. 28, 2000), FERC Stats. & Regs., Regulations 

Preambles 1996-2000 ¶ 31,111 at 31,887 (Nov. 15, 2000), reh'g denied, Order No. 

642-A, 94 FERC ¶ 61,289 (2001). 
Docket No. RM01-10-001 - 92 - 

Requests for Clarification and Commission Conclusion

169. Several petitioners query whether it is acceptable to put a link to potential merger 

partners’ websites in lieu of posting all the required information on its own website. The 

Commission finds that it is acceptable, so long as the link sends the user directly to the 

appropriate location and is kept up to date. 

170. Dominion also requests clarification regarding the timing of the posting of merger 

information because the regulatory text at § 358.4(b)(3)(iv) requires the posting within 

seven days of when the merger is announced, but the preamble discussion stated that the 

merger information should be posted within seven days after a potential merger is 

announced. See Final Rule at P 127. The Commission clarifies that the information 

should be posted within seven days of when a potential merger is announced and will 

revise the regulatory text to reflect the discussion in the preamble of the Final Rule and 

herein. 

iii. Transfer of Employees 

Final Rule

171. Section 358.4(c) requires a Transmission Provider to post notices of employee 

transfers on the OASIS or Internet website. 
Docket No. RM01-10-001 - 93 - 

Requests for Rehearing and/or Clarification and Commission Conclusions

172. Dominion requests clarification on whether the Transmission Provider is also 

required to post the transfers between the Marketing and Energy Affiliates. Dominion 

argues that the regulatory text at § 358.4(c) does not accurately reflect the discussion in 

the Final Rule at P 128. 

173. The Commission so clarifies. The Final Rule is intended to capture the transfers 

between a Transmission Provider on the one hand and its Marketing or Energy Affiliates 

on the other. The first line of regulatory text at § 358.4(c) is, therefore, revised, as 

follows: “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 website, as 

applicable.”95

iv. Posting Standards of Conduct Procedures 

Final Rule

174. Section 358.4(e) requires Transmission Providers to post written procedures 

implementing the Standards of Conduct on their OASIS or Internet websites in lieu of 

filing them with the Commission. 

 95 The remainder of the regulatory text at 18 CFR 358.4(c) remains the same. 
Docket No. RM01-10-001 - 94 - 

Requests for Rehearing and/or Clarification and Commission Conclusions

175. Shell Offshore and Xcel request rehearing and would require Transmission 

Providers to submit their compliance procedures to the Commission for review and 

approval. Petitioners argue that there is no assurance that the Transmission Providers’ 

Standards of Conduct procedures will conform to the Commission’s intent in Order No. 

2004. They ask that the Commission provide a formal review procedure under which the 

Commission will review and approve each Transmission Provider’s compliance 

procedures. Shell Offshore claims that, over the years, the Commission often required 

several “rounds” of compliance filings before it approved a Transmission Provider’s 

Standards of Conduct procedures. 

176. The Commission denies rehearing. Previously, the Commission gave little generic 

guidance on acceptable implementation of the Standards of Conduct. In the Final Rule, 

the Commission identified the types of information that should be included in the 

compliance procedures,96 and we provide more guidance herein.97

 96Final Rule at P 36. 

97A Transmission Provider is required to prepare written procedures explaining 

how it will comply with each of the Standards of Conduct and distribute the procedures 

to its employees. At a minimum, the Standards of Conduct procedures should: 

(1) identify and explain the measures the Transmission Provider uses to keep secure 

transmission information and confidential customer information, such as locked file 

rooms, card-key access to control center and/or password restricted databases (more 

extensive information should be included where the Transmission Provider also shares 

facilities, including computer facilities, with its Marketing or Energy Affiliates); 

(2) identify the Chief Compliance Officer, describe his or her general duties and 

functions, and provide contact information; (3) identify any categories of employees 

(continued) 
Docket No. RM01-10-001 - 95 - 

177. Moreover, posting the written procedures on the OASIS or Internet website gives 

users immediate access to the information and does not create additional administrative 

burdens for the Commission. Commission staff will be monitoring Standards of Conduct 

compliance closely. Although some petitioners expressed concern that the Hotline may 

not provide consistent advice or adequate mechanisms to respond to inquiries regarding 

the Standards of Conduct, the Commission finds that the Hotline is experienced in 

providing advice on and interpreting the Standards of Conduct. 

178. NiSource requests clarification on where an electric utility Transmission Provider 

that no longer has an OASIS, presumably because it participates in an RTO or ISO with 

an OASIS, should post the required information. The Commission clarifies that the 

Transmission Provider should make arrangements, as is the current practice for some, to 

have the OASIS provider, e.g., the RTO or ISO, include a link to the Transmission 

Provider’s information. The link should be directly to the information postings, so the 

user does not have to search the website for the relevant information.

 

shared between the Transmission Provider and its Marketing or Energy Affiliates (it is 

not necessary to identify the names of the shared support employees); (4) identify 

procedures that will be used to make sure that the names and address of its Marketing and 

Energy Affiliates, organizational charts and job descriptions, merger, transfer, tariff 

waiver and discount information are kept up-to-date on the OASIS or Internet website, 

and are archived consistent with the requirements of Parts 37 and 284 of the 

Commission’s regulations; and (5) identify procedures to ensure that information, 

including documents and communications, are retained to demonstrate that the 

Transmission Provider is in compliance with the Standards of Conduct. 
Docket No. RM01-10-001 - 96 - 

v. Training 

Final Rule

179. At the request of petitioners, the Final Rule included a provision, at § 358.4(e)(5), 

that formalizes the requirement to train employees in the Standards of Conduct as 

follows: Transmission Providers shall require all their employees to attend training and 

sign an affidavit certifying that they have been trained regarding the Standards of 

Conduct requirements.” 

Requests for Rehearing and/or Clarification and Commission Conclusions

180. Petitioners that request rehearing and clarification focus on two issues with regard 

to training: (1) who should be trained; and (2) what types of training and certification are 

acceptable. INGAA and Alliance argue that a Transmission Provider should not be 

required to distribute the Standards of Conduct to the employees of its Marketing and 

Energy Affiliates because the Transmission Provider may not know the names of all 

those employees. 

181. Some petitioners, including Alliance, BP, Cinergy, Dominion, Duke Energy, EEI, 

Entergy and INGAA, argue that training all employees would include employees who 

have no involvement in energy, gas, power or transmission functions and/or do not have 

access to information related to those functions. The Commission clarifies that it is the 

Transmission Provider’s responsibility to ensure that all Transmission Provider 
Docket No. RM01-10-001 - 97 - 

employees and Marketing and Energy Affiliate employees with access to information 

about transmission, energy, power or marketing receive a copy of the Standards of 

Conduct and training. 

182. EEI notes that the regulatory text requires training of all employees while the 

preamble identified several categories of employees who should be trained, such as 

shared support employees and risk management employees. EEI urges that training 

cover: (1) Transmission Function employees (and not all employees of the Transmission 

Provider); (2) Marketing Affiliate Employees; (3) shared support employees; (4) risk 

management employees who support the Marketing and Energy Affiliates; and (5) shared 

management employees. EEI also claims that some union contracts contain provisions 

restricting the ability to require the signing of affidavits by union employees. Also, 

according to EEI, for some workers, training does not seem appropriate, e.g., cafeteria, 

building maintenance and field workers. 

183. One of the goals of training of a broad group of employees is to ensure that 

employees with access to information about transmission, energy, power, gas or 

marketing functions understand the restrictions on sharing information and the 

prohibition on acting as a conduit for sharing information. For those employees without 

access to information about transmission, energy, or natural gas functions, however, 

training will not be required. 
Docket No. RM01-10-001 - 98 - 

184. The purpose of distributing the Standards of Conduct and training is to ensure that 

employees are knowledgeable about their obligations under the Standards of Conduct. 

The Transmission Provider may implement this requirement by ensuring that the 

Marketing and Energy Affiliates distribute the Standards of Conduct to their employees, 

either in paper copy or electronically. As suggested by INGAA, this can be 

accomplished by sending a copy of the written procedures to the person designated to 

receive service at each of the Marketing and Energy Affiliates. The Chief Compliance 

Officer will be responsible for following up with the Marketing and Energy Affiliates to 

ensure that the Standards of Conduct were actually distributed to the appropriate 

employees. 

185. Computer-based or electronic training is an acceptable method of training, as is a 

computer-generated certificate of training, in lieu of an affidavit from the employee 

certifying she or he has been trained.98 The Chief Compliance Officer will be responsible 

for ensuring that employees participate in the Standards of Conduct training. 

vi. Chief Compliance Officer 

Final Rule

186. Section 358.4(e)(6) requires Transmission Providers to designate Chief 

Compliance Officers who will be responsible for Standards of Conduct compliance. 

 98With some computer-based training programs, a certificate of completion is 

generated when the student completes the entire training program. 
Docket No. RM01-10-001 - 99 - 

Requests for Clarification and Commission Conclusions

187. Entergy expresses concern that a Chief Compliance Officer, who may be a lawyer, 

does not become a Transmission Function Employee because she or he is involved in 

directing policy. Rather, Entergy urges that the Chief Compliance Officer be bound by 

the no-conduit rule for information she or he has access to. A Chief Compliance Officer 

does not become a Transmission Function Employee when she or he is involved in 

organizing a Transmission Provider’s policies and procedures to comply with the 

Standards of Conduct. She or he will have access to transmission and customer 

information and is prohibited from being a conduit for sharing this information with the 

Marketing or Energy Affiliates. 

188. NiSource requests clarification that one Chief Compliance Officer may be 

appointed for several affiliated Transmission Providers within the same corporate family. 

The Commission so clarifies. Several affiliated Transmission Providers within the same 

corporate family may designate the same Chief Compliance Officer who will be 

responsible for Standards of Conduct compliance activities. 

I. Information Access and Disclosure Prohibitions 

189. Section 358.5(a) requires Transmission Providers to ensure that employees of their 

Marketing and Energy Affiliates have access only to that information that is made 

available to the Transmission Providers’ other transmission customers (i.e., information 
Docket No. RM01-10-001 - 100 - 

posted on an OASIS or Internet website, concerning transmission capability, price, 

curtailments, storage, ancillary services, balancing, maintenance activity, capacity 

expansion plans or similar information). 

190. The Final Rule also prohibits a Transmission Provider from disclosing to the 

employee of the Transmission Provider’s Marketing or Energy Affiliates any information 

concerning the transmission system of the Transmission Provider or the transmission 

system of another Transmission Provider. 99 The Final Rule also prohibits the 

Transmission Provider from sharing any information acquired from non-affiliated 

transmission customers or potential non-affiliated transmission customers or developed in 

the course of responding to requests for transmission or ancillary services on the OASIS 

or Internet website with employees of its Marketing of Energy Affiliates except to the 

limited extent information is required to be posted on the OASIS or Internet website in 

response to a request for transmission service or ancillary service.100 

191. The Commission established the following specific exemptions from the 

information disclosure prohibitions that permit a Transmission Provider to communicate 

with its Marketing or Energy Affiliate: (1) information relating to specific transactions 

(transaction specific exemption);101 (2) crucial operating information (crucial operating 

 9918 CFR 358.5(b)(1). 

10018 CFR 358.5(b)(2). 

10118 CFR 358.5(b)(5). 
Docket No. RM01-10-001 - 101 - 

information exemption);102 (3) information regarding a customer with that customer’s 

voluntary consent (voluntary consent exemption);103 and (4) certain limited generation 

information necessary to perform generation dispatch (generation dispatch exemption).104 

Requests for Rehearing and/or Clarification and Commission Conclusions

192. Duke Energy argues the Commission to clarify that the Standards of Conduct do 

not interfere with the ability of co-owners of jointly-venture gas pipeline Transmission 

Providers to communicate with each other regarding the operations of the jointly owned 

pipeline.105 Duke Energy explains that a bar on communication of transmission 

information could prevent a pipeline operator from sharing information with the 

Transmission Provider’s management committee. Duke Energy argues that if the Final 

Rule prohibits such communications, then business partners will not be able to manage 

their investments, thus inhibiting additional corporate infrastructure development. 

193. The Commission denies Duke Energy’s request for rehearing. Duke Energy 

seems to be concerned that the rule prohibits pipeline-to-pipeline information that is 

necessary for operations. That is not the case. Transmission Providers may share 

 10218 CFR 358.5(b)(8). 

10318 CFR 358.5(b)(4). 

10418 CFR 358.5(b)(6). 

105Duke Energy explains that many joint-venture pipelines are operated by a 

management committee that makes operating decisions for the pipeline. 
Docket No. RM01-10-001 - 102 - 

information with affiliated Transmission providers (an affiliated Transmission Provider is 

not considered an Energy Affiliate) and may share crucial operating information 

consistent with § 358.3(b)(8)). 

i. No Conduit Rule 

Final Rule

194. Section 358.5(b)(7) provides that neither a Transmission Provider nor an 

employee of a Transmission Provider is permitted to use anyone as a conduit for sharing 

information covered by the prohibitions of § 358.5(b)(1) and (2) with a Marketing or 

Energy Affiliate. The Final Rule also states that the Commission would adopt the 

“No-Conduit Rule” vis-à-vis shared employees.106

Requests for Rehearing and/or Clarification and Commission Conclusions

195. Petitioners, including EEI, Entergy, Cinergy and Duke Energy, argue that, 

although the discussion in the Final Rule purportedly adopts the “no conduit” rule, the 

regulatory text for § 358.5(b)(7) operates like an “automatic imputation” rule because it 

does not expressly permit the disclosure of information to permissibly shared employees, 

such as shared officers and directors. See Final Rule at P 145-150. 

 106See Final Rule at P 145-150. Under a “no-conduit rule,” an employee that may 

be shared by a Transmission Provider and its Marketing or Energy Affiliate could receive 

transmission or customer information as long as the shared employee did not act as a 

conduit for sharing the information with the Marketing or Energy Affiliate. 
Docket No. RM01-10-001 - 103 - 

196. According to petitioners, the no-conduit rule has two purposes: (1) to prohibit the 

Transmission Provider from using anyone as a conduit to share transmission or customer 

information with a Marketing or Energy Affiliate; and (2) to allow certain information to 

be shared with shared, non-operating employees, such as officers and directors, as long as 

those employees are not a conduit for sharing transmission or customer information with 

a Marketing or Energy Affiliate. 

197. The Commission grants petitioners’ request. Sections 358.5(b)(1) and (2) 

expressly prohibit a Transmission Provider from sharing certain information with its 

Marketing or Energy Affiliates. Notwithstanding the prohibitions of §§ 358.5(b)(1) and 

(2), the Commission intends to allow a Transmission Provider to share such information 

with employees that may be shared so that they can engage in certain functions, e.g., 

corporate governance, risk management or certain “support-type” services. Accordingly, 

the Commission is adopting additional regulatory text to reflect its intent to adopt the 

no-conduit rule in § 358.5(b)(7), as follows: “A Transmission Provider may share 

information covered by §§ 358.5(b)(1) and (2) with employees permitted to be shared 

under §§ 358.4(a)(4), (5) and (6) provided that such employees do not act as a conduit to 

share such information with any Marketing or Energy Affiliates.” 
Docket No. RM01-10-001 - 104 - 

ii. Crucial Operating Information Exemption 

Final Rule

198. In the Final Rule, § 358.5(b)(8) permits a Transmission Provider to share crucial 

operating information with its Energy Affiliates to maintain the reliability of the 

transmission system. 

Requests for Rehearing and/or Clarification and Commission Conclusions

199. Many petitioners, including Shell Gas, Duke Energy, NiSource, INGAA, and 

El Paso, challenge the Commission’s decision to limit shared information to crucial 

operating information and argue that such a limitation may jeopardize a Transmission 

Provider’s ability to operate safely by limiting the Transmission Providers’ ability to 

communicate with interconnected facility operators. They argue that Transmission 

Providers should be allowed to share crucial operating information during circumstances 

other than those needed to maintain the reliability of the transmission system for a variety 

of reasons, including to confirm nominations. NiSource encourages the Commission to 

revise the regulatory text to include information transmitted between interconnected 

parties, whether affiliated or not, as needed to maintain normal operating conditions, to 

ensure system integrity or to ensure safe and reliable operations. 

200. New York State Department seeks clarification that the general prohibition of 

§ 358.4(a)(1) which provides that, except in emergency circumstances affecting system 

reliability, the Transmission Function Employees of the Transmission Provider must 
Docket No. RM01-10-001 - 105 - 

function independently of the Transmission Provider’s Marketing or Energy Affiliates’ 

employees, and is not intended to limit the specific exemption for sharing “crucial 

operating information” with an Energy Affiliate to maintain the reliability of the 

transmission system on a daily basis as provided in § 358.5(b)(8). 

201. NiSource and Xcel request the Commission to clarify the types of operating 

information that may be shared or, in the alternative, require Transmission Providers to 

specify or list the operational information they intend to share in their respective 

Standards of Conduct. El Paso suggests that such a list include operational information 

regarding future expansions and how and when capacity will be available in the future. 

According to petitioners, the failure to require such a listing will create uncertainty as to 

what information will, or will not, be shared. INGAA and El Paso claim that companies 

need to be able to communicate with affiliates about future expansions and how and 

when capacity could be made available in the future, and to have a free exchange of 

operating information between a pipeline and its upstream affiliates. 

202. NiSource and Shell Offshore challenge the Commission’s suggestion that entities 

consult the Hotline as a source for guidance on a permissible communications. They 

argue that the Hotline may get inundated with calls and may give inconsistent advice. 

They question what a Transmission Provider should do if it does not agree with the 

Hotline’s advice. 
Docket No. RM01-10-001 - 106 - 

203. It appears that several petitioners have interpreted the phrase “crucial operating 

information to maintain the reliability of the transmission system” to mean information 

only needed during emergency circumstances to maintain system reliability. That was 

not the Commission’s intent in the Final Rule. “Crucial” operating information is that 

information necessary to operate and maintain the transmission system on a day-to-day 

basis; it does not include transmission or marketing information that would give a 

Transmission Provider’s Marketing or Energy Affiliate undue preference over a 

Transmission Provider’s nonaffiliated customers in the energy marketplace. In using the 

term “crucial operating information,” the Commission intended that Transmission 

Providers would be permitted to share day-to-day operational-type information with 

interconnected Energy Affiliates necessary to maintain the pipelines’ operations; such 

information includes confirmations, nominations and schedules with upstream producers 

and gathering facilities, operational data relating to interconnection points, and 

communications relating to maintenance of interconnected facilities. The Commission 

expects that these types of communications will take place between the operators of the 

pipeline or gas control facilities. Those operators are prohibited from being a conduit for 

sharing transmission or customer information with other employees of the Marketing or 

Energy Affiliates. To better reflect the Commission’s intent, the Commission is revising 

the regulatory text at § 358.5(b)(8) as follows: “A Transmission Provider is permitted to 

share information necessary to maintain the operations of the transmission system with its 

Energy Affiliates.” 
Docket No. RM01-10-001 - 107 - 

204. The Commission declines to develop a list of the types of operating information 

that would be deemed “crucial” operating information. Such a list, whether created by 

the Commission, or created and posted by the Transmission Provider, likely would not 

identify all types of crucial operating information. 

205. The Commission rejects petitioners’ challenge to the Enforcement Hotline’s 

ability to handle questions about crucial operating information. A Transmission Provider 

that does not agree with advice offered by the Enforcement Hotline is free to file a 

request for declaratory order or a complaint with the Commission. 

206. Finally, Entergy argues that the Final Rule fails to codify a specific exemption to 

allow sharing of certain information required to comply with requirements imposed on 

operators of nuclear generating facilities by the Nuclear Regulatory Commission. The 

Commission declines to revise the regulatory text of § 358.5(b)(6) as requested by 

Entergy. The Commission stated in the Final Rule that a Transmission Provider will be 

permitted to share information required by other regulatory agencies such as NRC with 

its Energy Affiliate.107 This type of information is covered by the crucial operating 

information exemption in § 358.5(b)(8), and further codification is not necessary. 

 107 Final Rule at P 155. 
Docket No. RM01-10-001 - 108 - 

iii. Transaction Specific Exemption 

Final Rule

207. In the Final Rule, the Commission retained the “transaction specific exemption” 

by codifying it in § 358.5(b)(5). Under the exemption, Transmission Providers do not 

have to contemporaneously disclose information covered by § 358.5(b)(1) if it relates 

solely to a Marketing or Energy Affiliate’s specific request for transmission service. 

Requests for Rehearing and/or Clarification and Commission Conclusions

208. INGAA, National Fuel-Supply and Shell Offshore each request that the 

Commission clarify whether the transaction specific exemption covers requests by the 

Marketing or Energy Affiliate for the expansion or extension of the Transmission 

Provider’s existing system, interconnection requests or discussions about building new 

infrastructure. Shell Offshore states that it is concerned about its ability to discuss 

available capacity or new capacity solutions for transportation of gas from reserves that 

have yet to be discovered or developed. Shell Offshore is concerned that such general 

discussions with a Marketing or Energy Affiliate would have to be disclosed because 

they do not fit within the scope of the transaction specific exemption. Similarly, National 

Fuel-Supply is concerned that not all requests seeking the establishment of an 

interconnection and the construction of related facilities are associated with a specific 

request for transportation service. 
Docket No. RM01-10-001 - 109 - 

209. The Commission addressed a similar concern about the transaction specific 

exemption in its recent Order on Rehearing of Order No. 2003, the Standardization of 

Generator Interconnection Agreements and Procedures.108 In that proceeding, the 

Commission addressed a request for clarification as to whether a Transmission Provider 

would violate the Standards of Conduct if it shared technical information regarding its 

transmission system with an interconnection customer that is an affiliate. The 

Commission noted that the definition of “Transmission Service” under § 358.3(f) 

includes interconnection service. Final Rule at P 105.

210. The Commission is balancing its concerns that a Transmission Provider will abuse 

its relationship with a Marketing or Energy Affiliate by providing it unduly preferential 

access to information about potential expansion plans or new production areas against the 

need to facilitate infrastructure development by allowing the Transmission Provider to 

coordinate construction and planning with an interconnecting gatherer, pipeline or 

producer. Therefore, the Commission clarifies that “Transmission” also includes an 

interconnection to facilitate gas transportation service. Thus, discussions between a 

natural gas Transmission Provider and an Energy Affiliate to provide an interconnection 

or expansion for the Energy Affiliate would be covered by the transaction specific 

exception. Interconnecting entities may discuss, the location, practicality and cost of 

 108Standardization of Generator Interconnection Agreements and Procedures, 

Order No. 2003, 68 FR 49845 (Aug. 19, 2003), III FERC Stats. & Regs. ¶ 31,146 (2003), 

order on reh’g, 106 FERC ¶ 61,220 (2004). 
Docket No. RM01-10-001 - 110 - 

potential interconnections with an affiliated Transmission Provider. The purpose of this 

is to encourage the Transmission Provider and an interconnecting Energy Affiliate to 

work together to develop additional infrastructure and facilitate development of 

production. 

211. However, consistent with the requirements of Order No. 2003-A, the Commission 

will require the following additional safeguards to ensure that the Transmission Provider 

does not give its Energy Affiliate an undue preference. Specifically, when a 

Transmission Provider and an Energy Affiliate participate in scoping meetings or 

discussions about capacity expansion or new development, the Transmission Provider 

must: (1) post an advance notice to the public on its OASIS or Internet website of its 

intent to conduct a meeting with its Energy Affiliate; (2) transcribe the meeting in its 

entirety; and (3) retain the transcript of the scoping meeting for three years and make it 

available to the Commission upon request. 

212. Of course, Transmission Providers must provide interconnection and expansion 

service in a non-discriminatory fashion to similarly situated non-affiliated requestors. 

Moreover, a Transmission Provider cannot provide advance information to a Marketing 

or Energy Affiliate regarding a general expansion project because that would not be 

transaction-specific and such information would give the Marketing or Energy Affiliate 

an undue competitive advantage. 
Docket No. RM01-10-001 - 111 - 

213. National Fuel-Supply also requests the Commission to “cure the ambiguity in the 

regulatory text” that limits the exemption to a Marketing or Energy Affiliate’s specific 

“request” for transmission service in § 358.5(b)(5). National Fuel-Supply states that, in a 

narrow sense, a “request” for transmission is satisfied when a pipeline and a shipper enter 

into a transportation agreement. National Fuel-Supply suggests that the Commission 

revise the regulatory text to include an agreement resulting from a specific request. The 

Commission denies National Fuel-Supply’s request to revise the regulatory text, but 

clarifies that by using the term “relate” in the phrase “if it relates solely to a Marketing or 

Energy Affiliate’s specific request for transmission service,” the Commission intended to 

include the corresponding transportation service agreements that result from a “request.” 

iv. Voluntary Consent Exemption 

Final Rule

214. Section 358.5(b)(4) provides that a non-affiliated transmission customer may 

voluntarily consent, in writing, to allow a Transmission Provider to share that customer’s 

information with a Marketing or Energy Affiliate. 

Requests for Rehearing and/or Clarification and Commission Conclusions

215. BP argues that the Commission should eliminate the “voluntary consent” 

exemption because, in the natural gas area, there is no business reason why a customer 

would allow the Transmission Provider to share that customer’s information with a 

Transmission Provider’s Marketing or Energy Affiliate. According to BP, Transmission 
Docket No. RM01-10-001 - 112 - 

Providers could coerce the customer to consent; therefore, such consent is not truly 

voluntary. BP proposes that the Commission require Transmission Providers to post any 

voluntary consent on their OASIS or Internet websites along with a statement that no 

tying arrangement was required and that no preferences, either operational or rate-related, 

were granted for the voluntary consent. 

216. The Commission denies BP’s request to eliminate the voluntary consent 

exemption. As discussed in the Final Rule, the Commission has permitted customers, in 

writing, to allow a Transmission Provider to share the non-affiliate’s information with a 

Marketing Affiliate.109 There are circumstances where a customer authorizes the 

Marketing Affiliate to act as its agent or asset manager regarding transmission 

transactions on the affiliated Transmission Provider. For example, a municipality may 

authorize a Marketing Affiliate to perform its scheduling or nominations on the 

Transmission Provider. The Commission does not intend to discourage these types of 

services. Customers may use an affiliate to provide it these services. The customer must 

provide the Transmission Provider, in writing, permission for that entity to act on its 

behalf and/or authorize the Transmission Provider to share the customer’s information 

with that entity. 

 109Final Rule at P 156. 
Docket No. RM01-10-001 - 113 - 

217. However, the Commission will adopt BP’s second proposal. If a transmission 

customer voluntarily authorizes the Transmission Provider to share the customer’s 

information with a Marketing or Energy Affiliate, the Transmission Provider is required 

to post notice on the OASIS or Internet website of that consent along with a statement 

that it did not provide any preferences, either operational or rate-related, in exchange for 

that voluntary consent. 

218. Finally, customers who feel “coerced” can file a complaint with the Commission 

or seek informal resolution through the Enforcement Hotline. 

v. Posting of Shared Information Requirement 

Final Rule

219. Section 358.5(b)(3) provides that, if a Transmission Provider’s employee discloses 

information in a manner contrary to the Standards of Conduct requirements of 

§§ 358.5(b)(1) and (2) (the information sharing and disclosing prohibitions), the 

Transmission Provider must immediately post this information on its OASIS or Internet 

website. 

Requests for Rehearing and/or Clarification and Commission Conclusions

220. El Paso, INGAA and Shell Gas argue that it will be impractical for pipelines to 

post contemporaneously the numerous intra-day communications and information shared 

and disclosed between a pipeline and its Marketing or Energy Affiliates. El Paso argues 

that operational information by necessity must be communicated in real-time and 

continuously between operators of interconnected natural gas systems. They argue 
Docket No. RM01-10-001 - 114 - 

further that it is inefficient for the Transmission Provider to post and report each time its 

gas control personnel communicates with gatherers. They also argue that this posting 

requirement will harm Energy Affiliates by disclosing sensitive information that might 

reveal the marketing strategies of the Energy Affiliate. NiSource requests that the 

Commission clarify that any public utility that no longer maintains an OASIS must post 

the shared information on its website. 

221. The petitioners’ arguments assume that the crucial operating exemption does not 

allow them to share various day-to-day communications with interconnecting affiliates, 

and, thus, they are required to post information relating to those communications on the 

OASIS or Internet website under § 358.5(b)(3). 

222. As discussed above, the Transmission Provider may share certain information with 

its Energy Affiliates covered under § 358.5(b)(8) without triggering the posting 

requirements under § 358.5(b)(3). The clarification above addresses the petitioners’ 

concerns about voluminous intra-day communications. 

223. The Commission emphasizes that if a Transmission Provider does disclose 

information contrary to the Standards of Conduct, it must immediately post that 

information on the OASIS or Internet website. Contemporaneous posting and 

transparency are one of the most effective deterrents to favoritism, undue discrimination 

and anti-competitive conduct. 

224. Finally, we clarify that, in the event a Transmission Provider does not maintain an 

OASIS, it must post the shared information on an Internet website. 
Docket No. RM01-10-001 - 115 - 

J. Discounts 

Final Rule

225. Section 358.5(d) requires a Transmission Provider to post on its OASIS or Internet 

website, any offer of a discount at the conclusion of negotiations, “contemporaneous with 

the time that the offer is contractually binding.” In the Final Rule, the Commission stated 

that this result balances the importance of equal and timely access to discount 

information with clarity. The Commission noted that the former requirement to post gas 

discounts within 24 hours of gas flow110 was too late to afford a non-affiliated competitor 

the opportunity to negotiate a comparable deal in today's fast-paced markets. 

Requests for Rehearing and/or Clarification and Commission Conclusions

226. INGAA, NiSource and National Fuel-Supply separately request the Commission 

to clarify that in the context of a precedent agreement, the requirement to post discounts 

should not occur until the conditions in the precedent agreement are satisfied. They 

argue that to hold otherwise would place a chilling effect on contract negotiations and 

note that a precedent agreement is not binding until all of the conditions are met. 

227. The Commission denies the proposal to delay the posting requirement for 

discounts of precedent agreement until all of the terms and conditions are met. This 

would be an exemption that would swallow the rule because the purpose of the timing of 

 110 Former 18 CFR 161.3(h)(2) of the Commission’s regulations. 
Docket No. RM01-10-001 - 116 - 

the posting requirement is that it provides time for a non-affiliated competitor to 

negotiate a comparable discount. The Commission clarifies that a Transmission Provider 

must comply with the discount posting requirement at the time a precedent agreement 

containing the discount has been reached. 

228. Shell Offshore requests that the Commission clarify whether “contractually 

binding” means legally executed, asserting that the “conclusion of negotiations” is not a 

defined term or term of art. NiSource requests that the Commission clarify that the 

posting of discounts is not required until both parties are bound to the contract. NiSource 

argues that the posting should not be made at the time of the offer and that under contract 

law it could be argued that that a Transmission Provider could be bound when it extends 

the discount offer. 

229. The Commission clarifies that the time the offer is contractually binding means the 

time that both parties are bound. 

230. NiSource also asks the Commission to clarify that the posting requirements in 

Order No. 637 remain applicable to discounts given to non-affiliated customers. Under 

Order No. 637, discounts must be posted prior to the first nomination on a new or 

amended contract. The Commission clarifies that the Final Rule does not affect the 

posting requirements for non-affiliate discounts under Order No. 637. 
Docket No. RM01-10-001 - 117 - 

K. Accounting Treatment for Compliance Costs 

231. The Final Rule was silent on the accounting treatment to be used for compliance 

costs. 

232. Xcel requests that the Commission allow Transmission Providers to record their 

compliance costs as regulatory assets in Account No. 182.3, Other Regulatory Assets, 

with amortization of the compliance costs over a period of years in future FERC 

jurisdictional rates. Xcel argues that anticipated compliance costs will be substantial and 

are not reflected in its currently effective transmission rates. Allowing such accounting 

treatment under the Uniform System of Accounts, Xcel argues, will promote compliance 

by providing jurisdictional entities a means to recover the initial and ongoing compliance 

costs over time. Xcel notes as support for its position that the Commission allowed 

regulatory asset treatment for market start-up costs incurred by the Midwest Independent 

System Operator (MISO).

233. The Commission denies rehearing. The Commission will not make a generic 

determination that regulatory asset accounting treatment is appropriate for the costs 

incurred to implement the Standards of Conduct, nor agree to allow the amortization of 

those costs over a period of years in a Transmission Provider’s future FERC 

jurisdictional rates. The Commission’s determination in MISO does not support Xcel’s 

position. In MISO, the Commission responded to concerns about the ability of member 

public utilities to recover costs billed by MISO but incurred by the public utilities. Here 
Docket No. RM01-10-001 - 118 - 

the issue is costs directly incurred by a Transmission Provider to operate and administer 

its transmission system. The costs at issue here are like the costs of implementing 

business practice standards, which are not treated as regulatory assets. 

L. Request for Extension of Time 

234. On March 22, 2004, EEI submitted a motion for an extension of time for 

compliance with Order No. 2004. EEI argues that the Commission should defer the 

deadline for compliance with Order No. 2004 until September 1, 2004. Alternatively, 

EEI urges the Commission to consider extending the time for training of employees 

under section 358.4(e)(5) and the posting requirements under § 358.4(b) until September 

1, 1004. EEI argues that if a rehearing order changes the rules after training has 

occurred, Transmission Providers would have to revise their training programs or 

modules. The Commission grants EEI’s request to extend the deadline for compliance 

with Order No. 2004. See 18 CFR 358.4(e)(2). 

M. Typographical Corrections 

235. The Commission is also making some corrections to the regulatory text to reflect 

the term “Marketing Affiliate,” and to correct typographical errors. 
Docket No. RM01-10-001 - 119 - 

N. Applicability of the Standards of Conduct to Newly Formed Transmission 

Providers 

236. The Commission will also address the issue of when a newly created Transmission 

Provider becomes subject to part 358 Standards of Conduct. The Commission clarifies 

that the Standards of Conduct apply to any Transmission Provider, including those which 

have not yet begun operations. The statutory requirement that Transmission Providers 

act in a manner that is not unduly discriminatory or preferential applies before the 

Transmission Provider begins to provide transmission services. For example, it has 

become a common practice for project sponsors of new interstate natural gas pipeline 

projects to hold open seasons to reach the largest economically feasible market for their 

enterprises, and to avoid creating perceptions of undue discrimination during project 

development. As a general principle, the Commission believes that new Transmission 

Providers should take the appropriate steps to comply with the Standards of Conduct as 

soon as practicable. 

237. A newly-formed company will, of course, take the requirements of Part 358 into 

account when establishing its initial corporate organization. However, the Commission 

recognizes that some aspects of the Standards of Conduct may have no meaningful 

applicability until the company has been staffed and begins to perform transmission 

functions, such as soliciting business, or negotiating contracts. To the extent a 

prospective Transmission Provider is unsure of the adequacy of its compliance with the 

Standards of Conduct, it may seek specific guidance from the Commission. 
Docket No. RM01-10-001 - 120 - 

IV. DOCUMENT AVAILABILITY 

238. In addition to publishing the full text of this document in the Federal Register, the 

Commission also 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 

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

Washington, D.C. 20426. 

239. From the Commission’s home page on the Internet, this information is available in 

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

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

normal business hours from FERC Online Support (by phone at (866) 208-3676 (toll 

free) or for TTY, contact (202) 502-8659, or by e-mail at FERCOnlineSupport@ferc.gov. 
Docket No. RM01-10-001 - 121 - 

V. EFFECTIVE DATE 

241. The revisions in this order on rehearing will be effective [insert date that is 30 

days after publication in the FEDERAL REGISTER]. 

List of Subjects in 18 CFR Part 358

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

requirements. 

By the Commission. Commissioners Brownell and Kelliher dissenting in part with 

 separate statements attached. 

( S E A L ) 

 Magalie R. Salas, 

 Secretary. 

 

 
Docket No. RM01-10-001 - 122 - 

 In consideration of the foregoing, the Commission revises Part 358, Chapter I, 

Title 18 of the Code of Federal Regulations, as follows: 

Part 358 -- STANDARDS OF CONDUCT 

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

Authority: 15 USC 717-717w, 3301-3432; 16 USC 791-825r, 2601-2645; 31 USC 

9701; 42 USC 7101-7352. 

2. In § 358.1, paragraph (c), the word “§ 385.5(b)” is removed and the word “§ 358.5(b)” 

is inserted in its place. 

3. Section 358.2 is revised as follows: 

§ 358.2 General principles. 

 (a) A Transmission Provider's employees engaged in transmission system 

operations must function independent from the 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 its Marketing or Energy Affiliates. 

4. In § 358.3, paragraph (a)(3) is added, paragraph (b)(1) is revised, paragraph (d)(5) is 

redesignated as (d)(6), a new paragraph (d)(5) is added, redesignated paragraphs (d)(6)(ii) 

and (d)(6)(v) are revised and a new paragraph (k) is added to read as follows: 
Docket No. RM01-10-001 - 123 - 

§ 358.3 Definitions. 

(a) * * * 

(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 rate payers and no market power. 

* * * * *

 (b) * * * 

 (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, and 

* * * * *

 (d) * * * 

 (5) An LDC division of an electric public utility Transmission Provider shall be 

considered the functional equivalent of an Energy Affiliate. 

 (6) * * * 

(ii) An affiliated Transmission Provider or an interconnected foreign 

affiliated natural gas pipeline that is engaged in natural gas transmission activities 

which are regulated by the state, provincial or national regulatory boards of the 

foreign country in which such facilities are located.

* * * * * 
Docket No. RM01-10-001 - 124 - 

 (v) A State-regulated local distribution company that acquires interstate 

transmission capacity to purchase and resell gas only for on-system customers, and 

otherwise does not engage in the activities described in §§ 358.3(d)(1), (2), (3) or (4), 

except to the limited extent necessary to support on-system customer sales and to engage 

in de minimus sales necessary to remaining in balance under applicable pipeline tariff 

requirements.

* * * * * 

 (k) Marketing Affiliate means an Affiliate as that term is defined in § 358.3(b) or a 

unit that engages in marketing, sales or brokering activities as those terms are defined at § 

358.3(e). 

5. In § 358.4, paragraphs (a)(5) and (a)(6) are added and paragraphs (b)(1), (b)(2), 

(b)(3)(i), (b)(3)(iii), (b)(3)(iv), (b)(3)(v), (c), (e)(2) and (e)(5) are revised to read as 

follows: 

§ 358.4 Independent functioning. 

 (a) Separation of functions.

* * * * * 

 (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 § 358.3(j). A Transmission Provider may share transmission 

information covered by § 358.5(a) and (b) with its senior officers and directors provided 

that they do not participate in directing, organizing or executing transmission system 
Docket No. RM01-10-001 - 125 - 

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. 

 (b) * * * 

 (1) A Transmission Provider must post the names and addresses of Marketing and 

Energy Affiliates on its OASIS or Internet website. 

 (2) A Transmission Provider must post on its OASIS or Internet website, 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) * * * 

 (i) The organizational structure of the parent corporation with the relative position 

in the corporate structure of the Transmission Provider, Marketing and Energy Affiliates; 

* * * * * 

 (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 
Docket No. RM01-10-001 - 126 - 

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 website, as applicable, required by §§ 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. 

* * * * * 

 (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 

website, 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 website, as applicable, for 90 days. 

* * * * * 
Docket No. RM01-10-001 - 127 - 

 (e) * * * 

 (2) Each Transmission Provider must be in full compliance with the Standards of 

Conduct by September 1, 2004. 

 (5) Transmission Providers shall require all of their employees to attend training 

and sign an affidavit certifying that they have been trained regarding the standards of 

conduct requirements. Electronic certification is an acceptable substitute for an affidavit. 

* * * * * 

6. In § 358.5, paragraphs (a)(1), (a)(2), (b)(1), (b)(2), (b)(4), (b)(7), (b)(8), (c)(5) and (d) 

are revised to read as follows:

§ 358.5 Non-discrimination requirements. 

 (a) * * * 

 (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 

website, 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 website, 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, 
Docket No. RM01-10-001 - 128 - 

maintenance activity, capacity expansion plans or similar information) through access to 

information not posted on the OASIS or Internet website or that is not otherwise also 

available to the general public without restriction. 

 (b) * * * 

 (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 Provider or the transmission system of another (including, but not limited 

to, information received from non-affiliates or information about available transmission 

capability, price, curtailments, storage, ancillary services, balancing, maintenance 

activity, capacity expansion plans, or similar information) through non-public 

communications conducted off the OASIS or Internet website, through access to 

information not posted on the OASIS or Internet website that is not contemporaneously 

available to the public, or through information on the OASIS or Internet website that is 

not at the same time publicly available. 

 (2) A Transmission Provider may not share any information, acquired from nonaffiliated transmission customers or potential non-affiliated transmission customers, or 

developed in the course of responding to requests for transmission or ancillary service on 

the OASIS or Internet website, with employees of its Marketing or Energy Affiliates, 

except to the limited extent information is required to be posted on the OASIS or Internet 

website in response to a request for transmission service or ancillary services. 

* * * * * 
Docket No. RM01-10-001 - 129 - 

 (4) A non-affiliated transmission customer may voluntarily consent, in writing, to 

allow the Transmission Provider to share the non-affiliated customer's information with a 

Marketing or Energy Affiliate. If a non-affiliated customer authorizes the Transmission 

Provider to share its information with a Marketing or Energy Affiliate, the Transmission 

Provider must post notice on the OASIS or Internet website of that consent along with a 

statement that it did not provide any preferences, either operational or rate-related, in 

exchange for that voluntary consent. 

* * * * * 

 (7) Neither a Transmission Provider nor an employee of a Transmission Provider 

is permitted to use anyone as a conduit for sharing information covered by the 

prohibitions of §§ 358.5(b)(1) and (2) with a marketing or Energy Affiliate. A 

Transmission Provider may share information covered by §§ 358.5(b)(1) and (2) with 

employees permitted to be shared under §§ 358.4(a)(4), (5) and (6) provided that such 

employees do not act as a conduit to share such information with any Marketing or 

Energy Affiliates. 

 (8) A Transmission Provider is permitted to share information necessary to 

maintain the operations of the transmission system with its Energy Affiliates. 

 (c) * * * 

 (5) The Transmission Provider may not, through its tariffs or otherwise, give 

preference to its Marketing or Energy Affiliate, over any other wholesale customer in 
Docket No. RM01-10-001 - 130 - 

matters relating to the sale or purchase of transmission service (including, but not limited 

to, issues of price, curtailments, scheduling, priority, ancillary services, or balancing). 

(d) Discounts. 

 Any offer of a discount for any transmission service made by the Transmission 

Provider must be posted on the OASIS or Internet website contemporaneous with the 

time that the offer is contractually binding. The posting must include: the name of the 

customer involved in the discount and whether it is an affiliate or whether an affiliate is 

involved in the transaction, the rate offered; the maximum rate; the time period for which 

the discount would apply; the quantity of power or gas scheduled to be moved; the 

delivery points under the transaction; and any conditions or requirements applicable to 

the discount. The posting must remain on the OASIS or Internet website for 60 days 

from the date of posting. 
Docket No. RM01-10-001 - 131 - 

NOTE: The following Attachments will not be published in the Code of Federal 

Regulations. 

ATTACHMENT A 

List of Petitioners Requesting Rehearing or Clarification or Submitting Comments 

AGS Oil and Gas Ventures, Inc. (AGS) 

Allegheny Energy, Inc. (Allegheny) 

Alliance Pipeline, LP (Alliance) 

American Gas Association (AGA) 

American Public Gas Association (APGA) 

American Public Power Association (APPA) 

BP America Production and BP Energy Company (BP) 

Canadian Association of Petroleum Producers (CAPP) 

C and E Operators, Inc. (C&E) 

C and L Oil and Gas Corp (C&L) 

Calpine Corporation (Calpine) 

CenterPoint Energy Gas Transmission Company (CenterPoint) 

Cinergy Services, Inc. (Cinergy) 

Dominion Resources, Inc. (Dominion) 

Duquesne Light Company (Duquesne) 

Duke Energy Corporation (Duke Energy) 

Edison Electric Institute (EEI) 

El Paso Corporation (El Paso) 

Empire District Electric Co. (Empire) 

Enbridge, Inc. (Enbridge) 

Encana Gas Storage Inc. (Encana) 

Entergy Services, Inc. (Entergy) 

Fairview Production Co. 

Florida Power and Light (FPL) 

GeoVest Incorporated (GeoVest) 

Independent Oil & Gas Association of West Virginia (IOGA-WV) 

Independent Petroleum Association of America (IPAA) 

Independent Producers Association (IPA) 

INOK Investments (INOK) 

Interstate Natural Gas Association of America (INGAA) 

Jack Forrester 

Kansas City Power and Light (KCPL) 

Kinder Morgan Interstate Pipelines (Kinder Morgan Pipelines) 

LG&E Energy Corporation and Kentucky Utilities Company (LG&E/KU) 
Docket No. RM01-10-001 - 132 - 

National Association of State Utility Consumer Advocates (NASUCA) 

National Fuel Gas Distribution Corporation (National Fuel – Distribution) 

National Fuel Gas Supply Corporation (National Fuel – Supply) 

National Grid USA (National Grid) 

National Rural Electric Cooperative Association (NRECA) 

Natural Gas Supply Association (NGSA) 

New York State Public Service Commission (New York State Department) 

NICOR Gas (NICOR) 

NiSource, Inc. (NiSource) 

Northwest Natural Gas Company and Kelso Beaver Pipeline Company (NW Natural and 

Kelso Beaver) 

ONEOK 

Pennsylvania Office of Consumer Advocate (PA-OCA) 

Plymouth Resources, Inc. (Plymouth) 

Portland General Electric (PGE) 

Process Gas Consumers (PGC) 

PSEG Companies (PSEG) 

Questar Pipeline Co., Questar Gas Co., Questar Regulated Services Co. (Questar) 

Saltville Gas Storage Co., LLC (Saltville) 

SCG Pipeline Inc. (SCG) 

Shell Gas Transmission, LLC (Shell Transmission) 

Shell Offshore, Inc. (Shell Offshore) 

South Carolina Electric & Gas Co. (SCE&G) 

Southern Company Services, Inc. (Southern) 

Southwest Gas Corporation (Southwest Gas) 

Texas Pipeline Association (Texas Pipeline Association) 

Transmission Access Policy Study Group (TAPS) 

Transmission Dependent Utilities Systems 

Transmission Group 

USG Pipeline Company, B-R Pipeline and US Gypsum Company (USG and B-R) 

Utah Associated Municipal Power Systems (Utah Munis) 

Williams Companies (Williams) 

Williston Basin Interstate Pipeline Company (Williston Basin) 

Wisconsin Public Service Corp. and Upper Peninsula Power Co. (WPSC and UPPC) 

XCEL Energy Services, Inc. (Xcel) 
ATTACHMENT B 

Staff Analysis of Interstate Natural Gas Pipeline Index of Customers Data

 Staff compiled index of customers data from all 87 pipelines for which it was 

available for the October 1, 2003 filing. 

 Staff identified 63 pipelines which had reported affiliated transactions. Staff noted 

that 5 of these pipelines had contracts only with Transmission Provider affiliates and 

removed these from the study as a special category. The remaining 58 pipelines were 

then examined in more detail. 

 Staff then identified the type of affiliation, e.g., marketer, LDC, producer, for each 

customer from publicly available information. 

 The table “Summary of Natural Gas Pipeline Affiliate Information” shows 

summary affiliate information by pipeline and type of affiliation. Totals are shown also 

for all 58 pipelines examined. The information was derived from the detailed affiliated 

customer data as follows: 

- Table rows labeled “Affil Vols (MMBtu)” are simply total volumes by 

affiliation type for individual pipelines or the group of 58 pipelines aggregated 

from the data for individual affiliated customers 

- Table rows for each pipeline labeled “Pct of P/L Total Vols” are the affiliate 

volumes shown divided by the total contracted volumes for the pipeline 

- The table row labeled “Pct of Relevant PL Tot Vols (WA)” for the group of 58 

pipelines are the affiliate volumes shown divided by the total contracted 

volumes only for those pipelines that have affiliated customers of the type 

shown in that column of the table. This is a weighted average. 

- The Table row labeled “Pct of Relevant PL Tot Vols (SA) is the simple 

average of the “% of P/L Total Vols” figures for each pipeline with data in that 

column. 

 Some pipelines have more than one type of affiliate, and would be included in the 

summary information compiled under each affiliate type. 
 Summary of Natural Gas Pipeline Affiliate Information 

 Source: Oct 2003 Index of Customers  Transpo Storage Transpo  Transportation Storage Marketing Marketing Producer  Pipeline Item Affiliate Affiliate Affiliate Affiliate Affiliate  All Pipelines (58 PLs) Affil Vols (MMBtu) 21,842,719 345,328,545 6,737,835 102,025,929 2,695,111  % of Relevant PL Tot Vols (SA) 38 57 19 44 37  % of Relevant PL Tot Vols (WA) 17 34 6 15 9  ALLIANCE PIPELINE L.P. Affil Vols (MMBtu) 188,559 . 188,559 . .  % of P/L Total Vols 13 . 13 . .  ANR PIPELINE COMPANY Affil Vols (MMBtu) 78,000 . 21,000 . .  % of P/L Total Vols 1 . 0 . .  CARNEGIE INTERSTATE PIPELINE CO. Affil Vols (MMBtu) 13,000 . . . .  % of P/L Total Vols 57 . . . .  CENTERPOINT ENERGY GAS TRANSMISSI Affil Vols (MMBtu) 1,249,309 17,543,333 32,929 . 20,000  % of P/L Total Vols 39 100 1 . 1  CENTRAL NEW YORK OIL AND GAS COMP Affil Vols (MMBtu) . 11,900,000 . 11,900,000 .  % of P/L Total Vols . 100 . 100 .  CHANDELEUR PIPE LINE COMPANY Affil Vols (MMBtu) 210,000 . . . 210,000  % of P/L Total Vols 77 . . . 77  CLEAR CREEK STORAGE COMPANY L.L. Affil Vols (MMBtu) . 8,000,000 . 8,000,000 .  % of P/L Total Vols . 100 . 100 .  COLORADO INTERSTATE GAS COMPANY Affil Vols (MMBtu) 100,000 . 100,000 . .  % of P/L Total Vols 3 . 3 . .  COLUMBIA GAS TRANSMISSION CORPORA Affil Vols (MMBtu) 5,411,834 126,689,688 3,338 . 567  % of P/L Total Vols 42 51 0 . 0  COLUMBIA GULF TRANSMISSION COMPAN Affil Vols (MMBtu) 587,039 . 10,000 . .  % of P/L Total Vols 18 . 0 . .  CROSSROADS PIPELINE COMPANY Affil Vols (MMBtu) 8,700 . 8,700 . .  % of P/L Total Vols 9 . 9 . .  DAUPHIN ISLAND GATHERING PARTNERS Affil Vols (MMBtu) 28,440 . 28,440 . 28,440  % of P/L Total Vols 14 . 14 . 14  DESTIN PIPELINE COMPANY L.L.C. Affil Vols (MMBtu) 301,800 . . . 301,800  % of P/L Total Vols 63 . . . 63  DOMINION COVE POINT LNG LP Affil Vols (MMBtu) 95,000 . 95,000 . . 

 % of P/L Total Vols 7 . 7 . . 
 Summary of Natural Gas Pipeline Affiliate Information 

 Source: Oct 2003 Index of Customers  Transpo Storage Transpo  Transportation Storage Marketing Marketing Producer  Pipeline Item Affiliate Affiliate Affiliate Affiliate Affiliate  DOMINION TRANSMISSION INC. Affil Vols (MMBtu) 1,515,633 44,749,533 211,630 5,970,000 .  % of P/L Total Vols 28 16 4 2 .  EASTERN SHORE NATURAL GAS COMPANY Affil Vols (MMBtu) 45,465 255,803 . . .  % of P/L Total Vols 41 74 . . .  EGAN HUB PARTNERS L.P. Affil Vols (MMBtu) . 3,000,000 . 3,000,000 .  % of P/L Total Vols . 18 . 18 .  EL PASO NATURAL GAS COMPANY Affil Vols (MMBtu) 132,112 . 132,112 . .  % of P/L Total Vols 2 . 2 . .  ENBRIDGE PIPELINES (ALATENN) L.L. Affil Vols (MMBtu) 700 . 700 . .  % of P/L Total Vols 1 . 1 . .  EQUITRANS L.P. Affil Vols (MMBtu) 579,920 15,006,619 34,985 3,859,049 206,000  % of P/L Total Vols 89 63 5 16 31  FLORIDA GAS TRANSMISSION Affil Vols (MMBtu) 21,000 . 21,000 . .  % of P/L Total Vols 1 . 1 . .  GARDEN BANKS GAS PIPELINE LLC Affil Vols (MMBtu) 209,102 . . . 209,102  % of P/L Total Vols 76 . . . 76  GRANITE STATE GAS TRANSMISSION I Affil Vols (MMBtu) 105,400 . . . .  % of P/L Total Vols 92 . . . .  GREAT LAKES GAS TRANSMISSION LIMI Affil Vols (MMBtu) 93,540 . 93,540 . .  % of P/L Total Vols 2 . 2 . .  GUARDIAN PIPELINE L.L.C. Affil Vols (MMBtu) 1,302,500 . 2,500 . .  % of P/L Total Vols 99 . 0 . .  GULF SOUTH PIPELINE COMPANY LP Affil Vols (MMBtu) 340,000 26,865,998 340,000 26,865,998 .  % of P/L Total Vols 14 90 14 90 .  KINDER MORGAN INTERSTATE GAS TRAN Affil Vols (MMBtu) 171,470 2,179,485 . . .  % of P/L Total Vols 21 54 . . .  KO TRANSMISSION COMPANY Affil Vols (MMBtu) 218,000 . 218,000 . .  % of P/L Total Vols 80 . 80 . .  MARITIMES & NORTHEAST PIPELINE L Affil Vols (MMBtu) 199,335 . 199,335 . 185,335  % of P/L Total Vols 30 . 30 . 28 
 Summary of Natural Gas Pipeline Affiliate Information 

 Source: Oct 2003 Index of Customers  Transpo Storage Transpo  Transportation Storage Marketing Marketing Producer  Pipeline Item Affiliate Affiliate Affiliate Affiliate Affiliate  MIDWESTERN GAS TRANSMISSION Affil Vols (MMBtu) 1,600 . 1,600 . .  % of P/L Total Vols 0 . 0 . .  MIGC INC. Affil Vols (MMBtu) 90,000 . 90,000 . .  % of P/L Total Vols 69 . 69 . .  MISSISSIPPI CANYON GAS PIPELINE Affil Vols (MMBtu) 558,518 . . . 558,518  % of P/L Total Vols 85 . . . 85  MISSISSIPPI RIVER TRANSMISSION CO Affil Vols (MMBtu) 53,710 1,725,989 12,887 650,444 .  % of P/L Total Vols 3 5 1 2 .  MOJAVE PIPELINE COMPANY Affil Vols (MMBtu) 24,000 . 24,000 . .  % of P/L Total Vols 6 . 6 . .  NATIONAL FUEL GAS SUPPLY CORPORAT Affil Vols (MMBtu) 1,252,530 34,650,281 73,882 3,255,000 73,882  % of P/L Total Vols 57 51 3 5 3  NAUTILUS PIPELINE COMPANY LLC Affil Vols (MMBtu) 277,648 . . . 277,648  % of P/L Total Vols 74 . . . 74  NORTHERN NATURAL GAS COMPANY Affil Vols (MMBtu) 1,660,004 11,314,460 1,660,004 11,314,460 .  % of P/L Total Vols 10 17 10 17 .  NORTHWEST PIPELINE CORPORATION Affil Vols (MMBtu) 15,635 . 15,635 . 15,635  % of P/L Total Vols 0 . 0 . 0  OZARK GAS TRANSMISSION L.L.C. Affil Vols (MMBtu) 197,380 . 197,380 . .  % of P/L Total Vols 85 . 85 . .  PAIUTE PIPELINE COMPANY Affil Vols (MMBtu) 81,100 400,571 . . .  % of P/L Total Vols 51 82 . . .  PANHANDLE EASTERN PIPE LINE COMPA Affil Vols (MMBtu) 27,880 1,471,800 . . .  % of P/L Total Vols 1 2 . . .  PG&E GAS TRANSMISSON NORTHWEST CO Affil Vols (MMBtu) 654,668 . 609,968 . .  % of P/L Total Vols 21 . 20 . .  PINE NEEDLE LNG COMPANY LLC Affil Vols (MMBtu) . 3,255,000 . 3,255,000 .  % of P/L Total Vols . 79 . 79 .  PORTLAND NATURAL GAS TRANSMISSION Affil Vols (MMBtu) 60,000 . 15,000 . .  % of P/L Total Vols 28 . 7 . . 
 Summary of Natural Gas Pipeline Affiliate Information 

 Source: Oct 2003 Index of Customers  Transpo Storage Transpo  Transportation Storage Marketing Marketing Producer  Pipeline Item Affiliate Affiliate Affiliate Affiliate Affiliate  QUESTAR PIPELINE COMPANY Affil Vols (MMBtu) 929,080 16,412,368 929,080 16,412,368 .  % of P/L Total Vols 61 31 61 31 .  SABINE PIPE LINE LLC Affil Vols (MMBtu) 64,000 . 64,000 . 60,000  % of P/L Total Vols 72 . 72 . 67  TENNESSEE GAS PIPELINE COMPANY Affil Vols (MMBtu) 213,565 6,403,610 161,500 6,403,610 .  % of P/L Total Vols 3 8 2 8 .  TEXAS EASTERN TRANSMISSION LP Affil Vols (MMBtu) 40,400 . 35,400 . .  % of P/L Total Vols 1 . 1 . .  TOTAL PEAKING SERVICES LLC Affil Vols (MMBtu) 72,000 1,140,000 72,000 1,140,000 .  % of P/L Total Vols 100 100 100 100 .  TRANSCOLORADO GAS TRANSMISSION CO Affil Vols (MMBtu) 125,000 . . . 125,000  % of P/L Total Vols 18 . . . 18  TRANSCONTINENTAL GAS PIPELINE COR Affil Vols (MMBtu) 457,630 . 457,630 . .  % of P/L Total Vols 7 . 7 . .  TRANSWESTERN PIPELINE COMPANY Affil Vols (MMBtu) 25,000 . 25,000 . .  % of P/L Total Vols 0 . 0 . .  TUSCARORA GAS TRANSMISSION COMPAN Affil Vols (MMBtu) 127,101 . 127,101 . .  % of P/L Total Vols 77 . 77 . .  VECTOR PIPELINE L.P. Affil Vols (MMBtu) 768,000 . 405,000 . .  % of P/L Total Vols 64 . 34 . .  VENICE GATHERING SYSTEM L.L.C. Affil Vols (MMBtu) 297,010 . . . 297,010  % of P/L Total Vols 40 . . . 40  WESTGAS INTERSTATE INC. Affil Vols (MMBtu) 11,372 . . . .  % of P/L Total Vols 85 . . . .  WILLISTON BASIN INTERSTATE PIPELI Affil Vols (MMBtu) 425,856 12,364,007 19,000 . .  % of P/L Total Vols 92 100 4 . .  WYOMING INTERSTATE COMPANY LTD. Affil Vols (MMBtu) 126,174 . . . 126,174  % of P/L Total Vols 7 . . . 7 
UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Standards of Conduct for Docket No. RM01-10-001; 

Transmission Providers Order No. 2004-A 

(Issued April 16, 2004) 

BROWNELL, Commissioner, dissenting in part

1. For the reasons set forth in my dissent in part to Order No. 2004, Standards of 

Conduct for Transmission Providers, 68 FR 69134 (Dec 11, 2003), III FERC Stats. & 

Regs. ¶31,155 (Nov. 25, 2003), I would have retained the existing exemptions under 

Order No. 497 for affiliated producers, gatherers, processors, intrastate pipelines, and 

Hinshaw pipelines. 

2. For these reasons, I respectfully dissent in part. 

 Nora Mead Brownell 

 Commissioner 
UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Standards of Conduct for Transmission Providers RM01-10-001 

(Issued April 16, 2004) 

KELLIHER, Commissioner, dissenting in part: 

I am writing separately to explain my reasoning with respect to the Standards of Conduct 

Final Rule. I support the Rehearing Order, but do so with some discomfort, because I believe the 

rehearing order improves what is a flawed Final Rule. 

In my view, the flaw in the Standards of Conduct Final Rule is the lack of record 

evidence to support expanding the scope beyond Marketing Affiliates. The basis for the rule is 

the observation that “significant changes have occurred [in the electricity and gas industries] 

since the standards of conduct were first adopted”1

, that there has been a proliferation of energy 

affiliates2, and a suspicion that affiliate abuse is occurring in the dealings between Transmission 

Providers and Energy Affiliates. 

I agree significant changes have occurred in the electricity and gas industries, and 

pipelines and utilities do have a wider array of energy affiliates than previously. However, 

suspicion is not a sufficient basis for expanding the scope of Standards of Conduct beyond 

Marketing Affiliates. 

The Final Rule and the Rehearing Order cite a number of instances where affiliate abuse 

has occurred. The cases cited by the orders all relate to preference in dealings between a 

Transmission Provider and a Marketing Affiliate, not other Energy Affiliates. I do not see how a 

record of affiliate abuse limited to Marketing Affiliates argues in favor of expanding the scope of 

the rule beyond Marketing Affiliates. To my mind, it argues in favor of keeping the scope of the 

rule where it was. Indeed, there appears to be no factual basis to support expanding the scope 

beyond Marketing Affiliates. 

With respect to the discrete policy calls made in the rehearing order, I largely agree with 

them. I would have gone further in some areas in limiting application of the Standards of 

Conduct. In particular, I would have expanded the scope of the local distribution company 

exemption to include local distribution companies that make no off-system sales on affiliated 

pipelines. The prospect of affiliate abuse involving off-system sales on nonaffiliated pipelines 

 1 Standards of Conduct for Transmission Providers, 68 FR 69,134 (December 11, 2003), 

III FERC Stats. & Regs., ¶ 31,155 at ¶ 6 (Nov. 25, 2003). 

2 Id.
appears remote. Of course, there is no record of affiliate abuse involving such sales. 

Commission policy has promoted off-system sales in order to encourage greater 

efficiency and enable local distribution companies to lower their costs. In my view, expanding 

the local distribution company exemption would have been consistent with this policy direction. 

The Rehearing Order notes that National Fuel-Distribution made $63 million in off-system sales. 

It is worth observing that all of those sales were made on nonaffiliated pipelines. 

In addition, I would have granted an exemption to Part 157 pipelines. These pipelines 

serve one or few customers, and the prospect of affiliate abuse appears remote. There certainly 

is no record of affiliate abuse to merit applying the Standards of Conduct to Part 157 pipelines. 

Finally, I also would have granted the rehearing request by The Williams Companies to 

clarify the role of senior officers and directors in managing their companies in a manner 

consistent with their fiduciary duties and principles of sound corporate governance. Under the 

Final Rule, senior officers and directors may be shared between a transmission business unit and 

the marketing unit or energy affiliate only if they “do not engage in transmission functions”.3

 

Commission case law suggests that a senior officer or director who approves even a limited 

number of transactions or investments would become an “operating” employee of a 

Transmission Provider, and could not qualify as a shared employee. Currently, decisions on 

large transactions and investments are often reserved to senior corporate officers and directors. 

The Final Rule forces these corporate officers to make a Hobson’s choice: either they continue to 

make these decisions, and thereby become construed as operating employees of a Transmission 

Provider, and are thereby disqualified to serve as a shared employee, with all the resultant 

limitations on information sharing, or they divest themselves of responsibility to make these 

decisions. I believe the Final Rule may impede the ability of corporate management to engage in 

informed decisionmaking, and runs counter to principles of sound corporate governance. 

Two years ago, the U.S. Court of Appeals for the District of Columbia Circuit overturned 

a Commission order extending application of Standards of Conduct beyond the marketing 

affiliates of Dominion Resources. In part, the Court was concerned that doing so would 

“destroy[] ... [corporate] efficiencies” without justification.4

 I have some of the same concerns 

about the Final Rule. 

To be clear, I support the goal of the Standard of Conduct Final Rule, namely the 

prevention of unduly discriminatory behavior. However, for the reasons stated above, I do not 

believe the Final Rule advances this goal. 

 

 ____________________ 

 Joseph Kelliher 

 3 Id. at ¶ 104. 

4 Dominion Resources, Inc. v. FERC, 286 F.3d 586, 593 (D.C. Cir. 2002).