Document ID: FERC-2010-0544-0001
Agency: ferc
Document Type: Proposed Rule
Title: Market-Based Rate Affiliate Restrictions
Posted Date: 2010-04-21T04:00Z

[Federal Register: April 21, 2010 (Volume 75, Number 76)]
[Proposed Rules]               
[Page 20796-20799]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21ap10-18]                         

[[Page 20796]]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM10-20-000]

 
Market-Based Rate Affiliate Restrictions

April 15, 2010.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) proposes 
to amend its regulations to revise its regulations governing market-
based rates for public utilities pursuant to section 205 of the Federal 
Power Act (FPA). The Commission proposes to clarify that employees that 
determine the timing of scheduled outages, or that engage in economic 
dispatch, fuel procurement, or resource planning may not be shared 
under the market-based rate affiliate restrictions codified in Order 
No. 697.

DATES: Comments are due June 21, 2010.

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

FOR FURTHER INFORMATION CONTACT: 

Michelle Barnaby (Technical Information), Office of Energy Market 
Regulation, Federal Energy Regulatory Commission, 888 First Street, 
NE., Washington, DC 20426, (202) 502-8407.
Paige Bullard (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-6462.

SUPPLEMENTARY INFORMATION: 

Notice of Proposed Rulemaking

April 15, 2010.

I. Introduction

    1. In this order, the Federal Energy Regulatory Commission 
(Commission) is proposing to revise Sec.  35.39 of its regulations 
promulgated in Order No. 697 \1\ in order to reflect the clarification 
provided in an order to be issued concurrently with this order in 
response to the Compliance Working Group's \2\ concerns regarding 
compliance with the market-based rate affiliate restrictions codified 
in Order No. 697.\3\ Specifically, the Commission is proposing to 
revise the separation of functions and information sharing provisions 
of those affiliate restrictions to explicitly state that employees that 
determine the timing of scheduled outages or that engage in economic 
dispatch, fuel procurement, or resource planning may not be shared 
under the Commission's market-based rate affiliate restrictions adopted 
in Order No. 697.
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    \1\ Market-Based Rates for Wholesale Sales of Electric Energy, 
Capacity and Ancillary Services by Public Utilities, Order No. 697, 
FERC Stats. & Regs. ] 31,252 (Order No. 697), clarified, 121 FERC ] 
61,260 (2007), order on reh'g, Order No. 697-A, FERC Stats. & Regs. 
] 31,268, clarified, 124 FERC ] 61,055, order on reh'g, Order No. 
697-B, FERC Stats. & Regs. ] 31,285 (2008), order on reh'g, Order 
No. 697-C, FERC Stats. & Regs. ] 31,291 (2009), order on reh'g, 
Order No. 697-D, FERC Stats. & Regs. ] 31,305 (2010).
    \2\ The Compliance Working Group states that it consists of 27 
energy companies, which include integrated electric businesses, 
merchant generators, marketing and trading businesses, and natural 
gas distributors, and explains that the group was formed in mid-2008 
``to develop a model [Commission] compliance program guide.'' 
Compliance Working Group Request for Clarification, Docket No. RM04-
7-007, at 2 (filed Mar. 9, 2009); Compliance Working Group Amended 
Request for Clarification, Docket No. RM04-7-007, at 3 (filed Oct. 
28, 2009). The members of the Compliance Working Group taking part 
in its request for clarification are: Allegheny Energy, Inc., 
American Electric Power Company, Inc., Cleco Corporation, Consumers 
Energy Company, Dominion Resources, Inc., Duke Energy Corporation, 
Edison International, El Paso Electric Company, Energy East Corp., 
Entergy Corporation, Exelon Corporation, FirstEnergy Corp., FPL 
Group, Inc., Pacific Gas and Electric Co., Progress Energy, Inc., 
Public Service Enterprise Group Incorporated, and Westar Energy, 
Inc.
    \3\ Market-Based Rates for Wholesale Sales of Electric Energy, 
Capacity and Ancillary Services By Public Utilities, 131 FERC ] 
61,021 (2010) (April 15 Clarification Order).
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II. Background

    2. In Order No. 697, the Commission adopted affiliate restrictions 
that govern the relationship between franchised public utilities with 
captive customers and their ``market-regulated'' affiliates, i.e., 
affiliates whose power sales are regulated in whole or in part on a 
market-based rate basis. These market-based rate affiliate restrictions 
govern the separation of functions, the sharing of market information, 
sales of non-power goods or services, and power brokering. The 
Commission requires that, as a condition of receiving and retaining 
market-based rate authority, sellers comply with these affiliate 
restrictions unless explicitly permitted by Commission rule or order. 
Failure to satisfy the conditions set forth in these affiliate 
restrictions constitutes a violation of the market-based rate 
tariff.\4\
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    \4\ Order No. 697, FERC Stats. & Regs. ] 31,252 at P 549-550.
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    3. On March 9, 2009, the Compliance Working Group submitted a 
request for clarification in the Commission's market-based rate 
rulemaking proceeding regarding which employees can be shared for 
purposes of compliance with the Commission's market-based rate 
affiliate restrictions. On October 28, 2009, the Compliance Working 
Group submitted an amended request for clarification. In response to 
the Compliance Working Group's request, the Commission is providing 
clarification regarding which employees may not be shared under these 
affiliate restrictions.\5\ In this Notice of Proposed Rulemaking 
(NOPR), we propose to revise the text of the separation of functions 
and information sharing provisions of the affiliate restrictions 
contained in Sec.  35.39 of the Commission's regulations in order to 
reflect the clarification provided in response to the Compliance 
Working Group's request.
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    \5\ April 15 Clarification Order, 131 FERC ] 61,021.
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III. Discussion

    4. Under the separation of functions requirement in the market-
based rate affiliate restrictions, employees of market-regulated power 
sales affiliates must operate separately, to the maximum extent 
practical, from employees of affiliated franchised utilities with 
captive customers.\6\ Order No. 697 exempts certain categories of 
employees from this separation of functions requirement. Employees in 
these categories are permitted to be shared, and Order No. 697 gives 
examples of permissibly ``shared employees'' that are drawn from Order 
No. 2004, which established the Standards of Conduct rules that were in 
effect at the time that Order No. 697 was issued.\7\ In particular, the 
market-based rate affiliate restrictions provide that

[[Page 20797]]

``Franchised public utilities with captive customers are permitted to 
share support employees, and field and maintenance employees with their 
market-regulated power sales affiliates. Franchised public utilities 
with captive customers are also permitted to share senior officers and 
boards of directors with their market-regulated power sales affiliates; 
provided, however, that the shared officers and boards of directors 
must not participate in directing, organizing or executing generation 
or market functions.'' \8\ Moreover, under the information sharing 
restriction, ``[a] franchised public utility with captive customers may 
not share market information with a market-regulated power sales 
affiliate if the sharing could be used to the detriment of captive 
customers, unless simultaneously disclosed to the public.'' However, 
``[p]ermissibly shared support employees, field and maintenance 
employees and senior officers and board of directors under Sec.  
35.39(c)(2)(ii) may have access to information covered by the 
prohibition of Sec.  35.39(d)(1), subject to the no-conduit provision 
in Sec.  35.39(g).'' \9\
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    \6\ 18 CFR 35.39(c)(2)(i).
    \7\ Order No. 697, FERC Stats. & Regs. ] 31,252 at P 561-566 
(citing Standards of Conduct for Transmission Providers, Order No. 
2004, FERC Stats. & Regs. ] 31,155, at P 96, 99-101, 145-146 (2003), 
order on reh'g, Order No. 2004-A, FERC Stats. & Regs. ] 31,161, at P 
134, order on reh'g, Order No. 2004-B, FERC Stats. & Regs. ] 31,166, 
order on reh'g, Order No. 2004-C, FERC Stats. & Regs. ] 31,172 
(2004), order on reh'g, Order No. 2004-D, 110 FERC ] 61,320 (2005), 
vacated and remanded as it applies to natural gas pipelines sub nom. 
National Fuel Gas Supply Corp. v. FERC, 468 F.3d 831 (D.C. Cir. 
2006); see id. P 562 (citing 18 CFR 358.4(a)(5) (Order 2004-era 
Standards of Conduct)).
    \8\ 18 CFR 35.39(c)(2)(ii); see also Order No. 697, FERC Stats. 
& Regs. ] 31,252 at P 562.
    \9\ 18 CFR 35.39(d).
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    5. In its request for clarification, the Compliance Working Group 
asked the Commission to clarify which employees are permissibly 
``shared employees'' for purposes of the Commission's market-based rate 
affiliate restrictions. Specifically, it suggests that the Commission 
should interpret these affiliate restrictions to permit sharing of 
employees who are neither ``transmission function employees'' nor 
``marketing function employees'' under the Standards of Conduct.\10\ 
The Compliance Working Group stated that the issue arose because shared 
employees under the market-based rate affiliate restrictions are 
defined by reference to shared employees under the Order No. 2004-era 
Standards of Conduct, but as of the effective date of the Standards of 
Conduct Final Rule, November 26, 2008, the Standards of Conduct no 
longer use the concept of shared employees. The Compliance Working 
Group therefore claimed that this inconsistency poses a compliance 
conundrum that needs to be addressed in order to enable companies and 
their employees to understand, and comply with, the market-based rate 
affiliate restrictions.
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    \10\ Standards of Conduct for Transmission Providers, Order No. 
717, FERC Stats. & Regs. ] 31,280 (2008) (Standards of Conduct Final 
Rule), order on reh'g, Order No. 717-A, FERC Stats. & Regs. ] 
31,297, order on reh'g, Order No. 717-B, 129 FERC ] 61,123 (2009). 
As discussed below, ``transmission function employees'' and 
``marketing function employees'' are defined terms under the 
Standards of Conduct. See 18 CFR 358.3(d); 358.3(i).
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    6. As explained in the April 15 Clarification Order, we are denying 
the Compliance Working Group's request that the Commission interpret 
the market-based rate affiliate restrictions to permit the sharing of 
employees who are neither transmission function employees nor marketing 
function employees under the Standards of Conduct. However, in order to 
address the Compliance Working Group's concerns regarding compliance 
with the market-based rate affiliate restrictions, the April 15 
Clarification Order provides guidance regarding which employees may not 
be shared under the affiliate restrictions.\11\
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    \11\ April 15 Clarification Order, 131 FERC ] 61,021 at P 39-42.
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    7. Specifically, in the April 15 Clarification Order the Commission 
denies the Compliance Working Group's request that it interpret the 
market-based rate affiliate restrictions to permit the sharing of 
employees who are neither transmission function employees nor marketing 
function employees under the Standards of Conduct because the Standards 
of Conduct definition of ``marketing function employee'' does not 
include certain employees who may not be shared under the market-based 
rate affiliate restrictions (for instance, employees that make economic 
dispatch decisions or that determine the timing of scheduled outages). 
Thus, the Commission explains that granting the Compliance Working 
Group's requested interpretation would permit market-based rate sellers 
to share employees that may not currently be shared under the affiliate 
restrictions.
    8. The April 15 Clarification Order explains that ``marketing 
function employee'' is not a defined term in the market-based rate 
regulations adopted in Order No. 697, and explains that the 
restrictions on which employees may be shared under the market-based 
rate affiliate restrictions are not limited to those employees who are 
engaged in sales. It states that as clarified in Order No. 697-A, under 
the market-based rate affiliate restrictions, ``shared employees may 
not be involved in decisions regarding the marketing or sale of 
electricity from the facilities, may not make economic dispatch 
decisions, and may not determine the timing of scheduled outages for 
facilities.'' \12\ In this regard, the April 15 Clarification Order 
explains that responsibility for economic dispatch or the timing of 
scheduled outages, for example, is not a ``marketing function'' under 
the Standards of Conduct and, therefore, engaging in these activities 
would not cause an employee to be a marketing function employee subject 
to the Independent Functioning Rule under the Standards of Conduct (and 
therefore, those employees could be shared). Thus, consistent with the 
Commission's determinations in Order No. 697-A, the April 15 
Clarification Order clarifies that, for purposes of compliance with the 
market-based rate affiliate restrictions, a franchised public utility 
with captive customers and its market-regulated power sales affiliates 
may not share employees that make economic dispatch decisions or that 
determine the timing of scheduled outages.\13\
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    \12\ April 15 Clarification Order 131 FERC ] 61,021 at P 37 
(citing Order No. 697-A, FERC Stats. & Regs. ] 31,268 at P 253).
    \13\ Order No. 697-A, FERC Stats. & Regs. ] 31,268 at P 253.
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    9. In addition, as explained in the April 15 Clarification Order, 
franchised public utilities with captive customers should be prohibited 
from sharing employees that engage in resource planning or fuel 
procurement with their market-regulated power sales affiliates. If the 
franchised public utility and its market-regulated power sales 
affiliate are permitted to share employees that make strategic 
decisions about future generation supply, such as deciding when and/or 
where to build or acquire generating capacity, such strategic decision 
making by a shared employee could result in generation being built or 
acquired for the benefit of the market-regulated power sales affiliate, 
and at the expense of the captive customers of the franchised public 
utility. In this regard, the Commission notes that the corporate entity 
has an inherent incentive to decrease its market-regulated power sales 
affiliate's costs in order to maximize profits for shareholders.
    10. Similarly, a shared employee that procures fuel for both the 
franchised public utility and the market-regulated power sales 
affiliate may have the incentive to allocate purchases of lower priced 
fuel supplies to the market regulated power sales affiliate while 
allocating purchases of higher priced fuel supplies to the franchised 
public utility. By contrast, if the two entities are required to 
independently procure fuel, they would compete for the market's best 
priced fuel.
    11. Therefore, given that the definition of marketing function 
employee under the Standards of Conduct does not specifically address

[[Page 20798]]

employees that determine the timing of scheduled outages or that engage 
in economic dispatch, fuel procurement, or resource planning, the April 
15 Clarification Order clarifies that employees engaging in these 
activities \14\ are prohibited from being shared under the market-based 
rate affiliate restrictions, absent an explicit waiver from the 
Commission.
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    \14\ The prohibition on sharing employees that engage in 
resource planning applies only to the sharing of employees between a 
franchised public utility and its market-regulated power sales 
affiliate, and is not intended to alter resource planning activities 
by transmission providers that are permitted under the Standards of 
Conduct Final Rule.
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    12. In order to reflect this clarification, we propose to revise 
Sec.  35.39 of our regulations in order to clarify that employees that 
determine the timing of scheduled outages or that engage in economic 
dispatch, fuel procurement, or resource planning may not be shared 
under the market-based rate affiliate restrictions. Accordingly, we 
propose to revise the separation of functions provision contained in 
Sec.  35.39(c)(2)(ii) of the regulations to include the provision that 
franchised public utilities with captive customers are prohibited from 
sharing employees that determine the timing of scheduled outages or 
that engage in economic dispatch, fuel procurement, or resource 
planning with their market-regulated power sales affiliates.
    13. We also propose to revise the information sharing provision 
contained in Sec.  35.39(d)(2) of the regulations to include the 
provision that employees that determine the timing of scheduled outages 
or that engage in economic dispatch, fuel procurement, or resource 
planning may not have access to information covered by the prohibition 
of Sec.  35.39(d)(1).

IV. Information Collection Statement

    14. The Office of Management and Budget's (OMB) regulations require 
that OMB approve certain information collection and data retention 
requirements imposed by an agency.\15\ Order No. 697's revisions to the 
information collection requirements for market-based rate sellers were 
approved under FERC-919 ``Market-Based Rates for Wholesale Sales of 
Electric Energy, Capacity and Ancillary Services by Public Utilities'' 
OMB Control Nos. 1902-0234. While this order proposes to revise the 
regulations for the market-based rate program in order to provide 
clarification, it does not add to the existing information collection 
requirements. Accordingly, a copy of this order will be sent to OMB for 
informational purposes only.
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    \15\ 5 CFR 1320.11.
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V. Environmental Analysis

    15. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment.\16\ The 
Commission has categorically excluded certain actions from this 
requirement as not having a significant effect on the human 
environment.\17\ The actions proposed here fall within the categorical 
exclusions in the Commission's regulations for rules that are 
clarifying, corrective, or procedural, or do not substantially change 
the effect of legislation or regulations being amended.\18\ In 
addition, the proposed rule is categorically excluded as an electric 
rate filing submitted by a public utility under sections 205 and 206 of 
the FPA.\19\ As explained above, this proposed rule revises the 
regulations for the market-based rate program in order to provide 
clarification. Accordingly, no environmental assessment is necessary 
and none has been prepared in this NOPR.
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    \16\ Regulations Implementing the National Environmental Policy 
Act of 1969, Order No. 486, FERC Stats. & Regs., Regulations 
Preambles July 1996-December 2000 ] 30,783 (1987).
    \17\ 18 CFR 380.4.
    \18\ See 18 CFR 380.4(a)(2)(ii).
    \19\ 18 CFR 380.4(a)(15).
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VI. Regulatory Flexibility Act Analysis

    16. The Regulatory Flexibility Act of 1980 (RFA) \20\ generally 
requires a description and analysis of final rules that will have 
significant economic impact on a substantial number of small entities. 
The RFA mandates consideration of regulatory alternatives that 
accomplish the stated objectives of a proposed rule and that minimize 
any significant economic impact on a substantial number of small 
entities. Most filing companies regulated by the Commission do not fall 
within the RFA's definition of small entity.\21\ Moreover, as noted 
above, this proposed rule revises the regulations for the market-based 
rate program in order to provide clarification of an existing 
requirement that affected entities, including small entities, are 
currently required to comply with. Because the proposed revisions 
clarify an existing requirement, and do not add to the existing 
information collection or filing requirements, the Commission concludes 
that the proposed rule will not have a significant economic impact on a 
substantial number of small entities. As a result, no regulatory 
flexibility analysis is required.
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    \20\ 5 U.S.C. 601-12.
    \21\ 5 U.S.C. 601(3), citing to section 3 of the Small Business 
Act, 15 U.S.C. 632. Section 3 of the Small Business Act defines a 
``small-business concern'' as a business which is independently 
owned and operated and which is not dominant in its field of 
operation.
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VII. Comment Procedures

    17. The Commission invites interested persons to submit comments on 
the matters and issues proposed in this notice to be adopted, including 
any related matters or alternative proposals that commenters may wish 
to discuss. Comments are due June 21, 2010. Comments must refer to 
Docket No. RM10-20-000, and must include the commenters' name, the 
organization they represent, if applicable, and their address in their 
comments.
    18. The Commission encourages comments to be filed electronically 
via the eFiling link on the Commission's Web site at http://
www.ferc.gov. The Commission accepts most standard word processing 
formats. Documents created electronically using word processing 
software should be filed in native applications or print-to-PDF format 
and not in a scanned format. Commenters filing electronically do not 
need to make a paper filing.
    19. Commenters that are not able to file comments electronically 
must send an original and 14 copies of their comments to: Federal 
Energy Regulatory Commission, Secretary of the Commission; 888 First 
Street, NE., Washington, DC 20426.
    20. All comments will be placed in the Commission's public files 
and may be viewed, printed, or downloaded remotely as described in the 
Document Availability section below. Commenters on this proposal are 
not required to serve copies of their comments on other commenters.

VIII. Document Availability

    21. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through the Commission's Home Page (http://www.ferc.gov) and 
in the Commission's Public Reference Room during normal business hours 
(8:30 a.m. to 5 p.m. Eastern time) at 888 First Street, NE., Room 2A, 
Washington, DC 20426.
    22. From the Commission's Home Page on the Internet, this 
information is available on eLibrary. The full text of this document is 
available on eLibrary in PDF and Microsoft Word format for viewing, 
printing, and/or downloading. To access this document in eLibrary,

[[Page 20799]]

type the docket number excluding the last three digits of this document 
in the docket number field.
    23. User assistance is available for eLibrary and the Commission's 
Web site during normal business hours from FERC Online Support at (202) 
502-6652 (toll free at 1-866-208-3676) or e-mail at 
ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. E-mail the Public Reference Room at 
public.referenceroom@ferc.gov.

List of subjects in 18 CFR Part 35

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

    By direction of the Commission.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
    In consideration of the foregoing, the Commission proposes to amend 
part 35, Chapter I, Title 18, Code of Federal Regulations, as follows:

PART 35--FILING OF RATE SCHEDULES AND TARIFFS

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

    Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42 
U.S.C. 7101-7352.

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

Sec.  35.39  Affiliate restrictions.

* * * * *
    (c) * * *
    (2) * * *
    (ii) Franchised public utilities with captive customers are 
permitted to share support employees, and field and maintenance 
employees with their market-regulated power sales affiliates. 
Franchised public utilities with captive customers are also permitted 
to share senior officers and boards of directors with their market-
regulated power sales affiliates; provided, however, that the shared 
officers and boards of directors must not participate in directing, 
organizing or executing generation or market functions. Franchised 
public utilities with captive customers are prohibited from sharing 
employees that determine the timing of scheduled outages or that engage 
in economic dispatch, fuel procurement, or resource planning with their 
market-regulated power sales affiliates.
* * * * *
    (d) * * *
    (2) Permissibly shared support employees, field and maintenance 
employees and senior officers and board of directors under Sec.  
35.39(c)(2)(ii) may have access to information covered by the 
prohibition of Sec.  35.39(d)(1), subject to the no-conduit provision 
in Sec.  35.39(g). Employees that determine the timing of scheduled 
outages or that engage in economic dispatch, fuel procurement, or 
resource planning may not have access to information covered by the 
prohibition of Sec.  35.39(d)(1).
* * * * *
[FR Doc. 2010-9083 Filed 4-20-10; 8:45 am]
BILLING CODE 6717-01-P