Standards of Conduct for Transmission Providers, 63796-63832 [E8-25105]

Agencies

• DEPARTMENT OF ENERGY
• Federal Energy Regulatory Commission

[Federal Register Volume 73, Number 208 (Monday, October 27, 2008)]
[Rules and Regulations]
[Pages 63796-63832]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-25105]



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Part III





Department of Energy





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Federal Energy Regulatory Commission



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18 CFR Part 358



Standards of Conduct for Transmission Providers; Final Rule

Federal Register / Vol. 73, No. 208 / Monday, October 27, 2008 / 
Rules and Regulations

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 358

[Docket No. RM07-1-000; Order No. 717]


Standards of Conduct for Transmission Providers

Issued October 16, 2008.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Final rule.

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SUMMARY: The Federal Energy Regulatory Commission is amending its 
regulations adopted on an interim basis in Order No. 690, in order to 
make them clearer and to refocus the rules on the areas where there is 
the greatest potential for abuse. The Final Rule is designed to foster 
compliance, facilitate Commission enforcement, and conform the 
Standards of Conduct to the decision of the U.S. Court of Appeals for 
the DC Circuit in National Fuel Gas Supply Corporation v. FERC, 468 F. 
3d 831 (DC Cir. 2006). Specifically, the Final Rule eliminates the 
concept of energy affiliates and eliminates the corporate separation 
approach in favor of the employee functional approach used in Order 
Nos. 497 and 889.

DATES: Effective Date: This rule will become effective November 26, 
2008.

FOR FURTHER INFORMATION CONTACT:
Kathryn Kuhlen, Office of Enforcement, Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426, 
Kathryn.Kuhlen@FERC.gov, (202) 502-6855.
Jamie A. Jordan, Office of Enforcement, Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426, 
Jamie.Jordan@FERC.gov (202) 502-6628.

                            Table of Contents
 
                                                               Paragraph
                                                                Number
 
I. Introduction.............................................           1
II. Background..............................................           3
III. Discussion.............................................           9
    A. Overall Approach.....................................           9
        1. Commission Proposal..............................           9
        2. Comments.........................................          10
        3. Commission Determination.........................          12
    B. Jurisdiction and Applicability of the Standards......          13
        1. Applicability to Pipelines Operating Under Part            13
         157................................................
        2. Applicability to Pipelines with No Marketing               16
         Affiliate Transactions.............................
        3. Commencement Date................................          24
        4. Waivers from Coverage of the Standards...........          27
    C. Independent Functioning Rule.........................          34
        1. Transmission Functions...........................          37
        2. Transmission Function Employee...................          41
        3. Marketing Functions..............................          50
        4. Marketing Function Employee......................          97
        5. Supervisors, Managers and Corporate Executives...         106
        6. Elimination of Shared Employees Concept..........         122
        7. Long-Range Planning and Procurement..............         134
        8. Exclusion for Permitted Information Exchanges....         152
    D. The No Conduit Rule..................................         187
        1. Commission Proposal..............................         188
        2. Comments.........................................         189
        3. Commission Determination.........................         197
    E. Transparency Rule....................................         204
        1. Waivers and Exercises of Discretion..............         205
        2. Other Posting Requirements.......................         218
    F. Other Definitions....................................         249
        1. Affiliate........................................         250
        2. Transmission.....................................         259
        3. Transmission Customer............................         265
        4. Transmission Function Information................         267
        5. Transmission Provider............................         277
    G. Per Se Violation.....................................         283
        1. Commission Proposal..............................         284
        2. Comments.........................................         285
        3. Commission Determination.........................         291
    H. Training Requirements................................         295
        1. Commission Proposal..............................         295
        2. Comments.........................................         296
        3. Commission Determination.........................         305
    I. Compliance Date......................................         310
    J. Miscellaneous Matters................................         313
        1. Comments.........................................         313
        2. Commission Determination.........................         314
IV. Information Collection Statement........................         318
V. Environmental Analysis...................................         324
VI. Regulatory Flexibility Act..............................         325
VII. Document Availability..................................         326
VIII. Effective Date and Congressional Notification.........         329

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Regulatory Text
Appendix A
 

Before Commissioners: Joseph T. Kelliher, Chairman; Svedeen G. 
Kelly, Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff.

I. Introduction

    1. This Final Rule amends the Standards of Conduct for Transmission 
Providers (the Standards of Conduct or the Standards) to make them 
clearer and to refocus the rules on the areas where there is the 
greatest potential for abuse. The Standards have substantially evolved 
over the twenty years since they were first adopted for the gas 
industry in 1988. During that time, the Commission added numerous 
exceptions and additions to the original regulations (and to the 
regulations adopted for the electric industry in 1996), including 
revisions made in Order No. 2004,\1\ in which the Commission combined 
the separate Standards for the gas and electric industry, expanded the 
scope of the Standards to include the new concept of energy affiliates, 
and adopted a corporate separation approach to the relationship of 
transmission providers and their marketing arms. The cumulative effect 
of many of these changes rendered the Standards as a whole difficult 
for regulated entities to apply and for the Commission to enforce. 
Furthermore, on appeal of Order No. 2004, the U.S. Court of Appeals for 
the DC Circuit disapproved of the expansion of the Standards to include 
energy affiliates, and vacated Order No. 2004 as it applied to the gas 
industry.\2\
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    \1\ Standards of Conduct for Transmission Providers, Order No. 
2004, FERC Stats. & Regs., Regulations Preambles 2001-2005 ] 31,155 
(2003), order on reh'g, Order No. 2004-A, FERC Stats. & Regs., 
Regulations Preambles 2001-2005 ] 31,161 (2004), order on reh'g, 
Order No. 2004-B, FERC Stats. & Regs., Regulations Preambles 2001-
2005 ] 31,166 (2004), order on reh'g, Order No. 2004-C, FERC Stats. 
& Regs., Regulations Preambles 2001-2005 ] 31,172 (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. Nat'l Fuel 
Gas Supply Corporation v. FERC, 468 F.3d 831 (DC Cir. 2006) 
(National Fuel).
    \2\ National Fuel, 468 F. 3d at 845.
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    2. The reforms adopted in this Final Rule are designed to eliminate 
the elements that have rendered the Standards difficult to enforce and 
apply. They combine the best elements of Order No. 2004 (especially the 
integration of gas and electric Standards, an element not contested in 
National Fuel), with those of the Standards originally adopted for the 
gas industry in Order No. 497 \3\ and for the electric industry in 
Order No. 889.\4\ Specifically, the Final Rule (i) eliminates the 
concept of energy affiliates and (ii) eliminates the corporate 
separation approach in favor of the employee functional approach used 
in Order Nos. 497 and 889. In addition, the reforms adopted here 
conform the Standards to the National Fuel opinion. At bottom, these 
reforms, by making the Standards clearer and by refocusing them on the 
areas where there is the greatest potential for affiliate abuse, will 
make compliance less elusive and subjective for regulated entities, and 
will facilitate enforcement of the Standards by the Commission.
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    \3\ Inquiry Into Alleged Anticompetitive Practices Related to 
Marketing Affiliates of Interstate Pipelines, Order No. 497, 53 FR 
22139 (1988), FERC Stats. & Regs., Regulations Preambles 1986-1990 ] 
30,820 (1988); Order No. 497-A, order on reh'g, 54 FR 52781 (1989), 
FERC Stats & Regs., Regulations Preambles 1986-1990 ] 30,868 (1989); 
Order No. 497-B, order extending sunset date, 55 FR 53291 (1990), 
FERC Stats. & Regs., Regulations Preambles 1986-1990 ] 30,908 
(1990); Order No. 497-C, order extending sunset date, 57 FR 9 
(1992), FERC Stats. & Regs., Regulations Preambles 1991-1996 ] 
30,934 (1991), reh'g denied, 57 FR 5815 (1992), 58 FERC ] 61,139 
(1992); aff'd in part and remanded in part sub nom. Tenneco Gas v. 
FERC, 969 F.2d 1187 (DC Cir. 1992) (collectively, Order No. 497) 
(Tenneco).
    \4\ Open Access Same-Time Information System (Formerly Real-Time 
Information Network) and Standards of Conduct, Order No. 889, 61 FR 
21737 (May 10, 1996), FERC Stats. & Regs., Regulations Preambles 
January 1991-June 1996 ] 31,035 (1996); Order No. 889-A, order on 
reh'g, 62 FR 12484 (Mar. 14, 1997), FERC Stats. & Regs., Regulations 
Preambles July 1996--December 2000 ] 31,049 (1997); Order No. 889-B, 
reh'g denied, 62 FR 64715 (Dec. 9, 1997), 81 FERC ] 61,253 (1997) 
(collectively, Order No. 889).
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II. Background

    3. The Commission first adopted Standards of Conduct in 1988, in 
Order No. 497. These initial Standards prohibited interstate natural 
gas pipelines from giving their marketing affiliates or wholesale 
merchant functions undue preferences over non-affiliated customers. 
Citing demonstrated record abuses, the U.S. Court of Appeals for the DC 
Circuit upheld these Standards in 1992.\5\ The Commission adopted 
similar Standards for the electric industry in 1996, in Order No. 889, 
prohibiting public utilities from giving undue preferences to their 
marketing affiliates or wholesale merchant functions. Both the electric 
and gas Standards sought to deter undue preferences by: (i) Separating 
a transmission provider's employees engaged in transmission services 
from those engaged in its marketing services, and (ii) requiring that 
all transmission customers, affiliated and non-affiliated, be treated 
on a non-discriminatory basis.
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    \5\ Tenneco, 969 F. 2d at 1214.
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    4. Changes in both the electric and gas industries, in particular 
the unbundling of sales from transportation in the gas industry and the 
increase in the number of power marketers in the electric industry, led 
the Commission in 2003 to issue Order No. 2004, which broadened the 
Standards to include a new category of affiliate, the energy 
affiliate.\6\ The new Standards were made applicable to both the 
electric and gas industries, and provided that the transmission 
employees of a transmission provider \7\ must function independently 
not only from the company's marketing affiliates but from its energy 
affiliates as well, and that transmission providers may not treat 
either their energy affiliates or their marketing affiliates on a 
preferential basis. Order No. 2004 also imposed requirements to 
publicly post information concerning a transmission provider's energy 
affiliates.
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    \6\ The new Standards defined an Energy Affiliate as an 
affiliate of a transmission provider that (1) engages in or is 
involved in transmission transactions in U.S. energy or transmission 
markets; (2) manages or controls transmission capacity of a 
transmission provider in U.S. energy or transmission markets; (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. 18 CFR 
358.3(d). Certain categories of entities were excluded from this 
definition in following subsections of the regulations.
    \7\ A transmission provider was defined as (1) any public 
utility that owns, operates or controls facilities used for 
transmission of electric energy in interstate commerce; or (2) any 
interstate natural gas pipeline that transports gas for others 
pursuant to subpart A or part 157 or subparts B or G of part 284 of 
the same chapter of the regulations. 18 CFR 358.3(a).
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    5. On appeal by members of the natural gas industry, the U.S. Court 
of Appeals for the DC Circuit overturned the Standards as applicable to 
gas transmission providers, on the grounds that the evidence of energy 
affiliate

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abuse cited by the Commission was not in the record.\8\ The court noted 
that the dissenting Commissioners in Order No. 2004 had expressed 
concern that the Order would diminish industry efficiencies without 
advancing the FERC policy of preventing unduly discriminatory 
behavior.\9\
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    \8\ National Fuel, 468 F. 3d at 841.
    \9\ Id. at 838.
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    6. The Commission issued an Interim Rule on January 9, 2007,\10\ 
which repromulgated the portions of the Standards not challenged in 
National Fuel. The Commission then set about determining how to respond 
to the DC Circuit's order on a permanent basis. On January 18, 2007, 
the Commission issued its initial NOPR,\11\ requesting comment on 
whether the concept of energy affiliates should be retained for the 
electric industry, proposing the creation of two new categories of 
employees denominated as Competitive Solicitation Employees and 
Planning Employees, carrying over the Interim Rule's new definition of 
marketing to cover asset managers, and making numerous other proposals. 
The Commission received thousands of pages of both initial and reply 
comments from some 95 individuals, companies, and organizations.
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    \10\ Standards of Conduct for Transmission Providers, Order No. 
690, 72 FR 2427 (Jan. 19, 2007); FERC Stats. & Regs. ] 31,237 (2007) 
(Interim Rule); clarified by, Standards of Conduct for transmission 
providers, Order No. 690-A, 72 FR 14235 (Mar. 27, 2007); FERC Stats. 
& Regs. ] 31,243 (2007) (Order on Clarification and Rehearing).
    \11\ Standards of Conduct for Transmission Providers, 72 FR 3958 
(Jan. 29, 2007), FERC Stats. & Regs. ] 32,611 (2007) (initial NOPR).
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    7. Consideration of these comments, coupled with the Commission's 
own experience in administering the Standards, persuaded the Commission 
to modify the approach advanced in the initial NOPR. For that reason, 
the Commission issued a new NOPR on March 27, 2008,\12\ and invited 
comment both on its general approach and on its specific provisions. In 
the NOPR, the Commission proposed to return to the approach of 
separating by function transmission personnel from marketing personnel, 
an approach that had been adopted in Order Nos. 497 and 889. The 
Commission also proposed to clarify and streamline the Standards in 
order to enhance compliance and enforcement, and to increase 
transparency in the area of transmission/affiliate interactions that 
would aid in the detection of any undue discrimination. Comments were 
received from 62 companies and organizations, which are listed in 
Appendix A.\13\ The vast majority of the comments were laudatory both 
of the Commission's efforts to simplify and clarify the Standards, and 
of the general approaches taken by the Commission to achieve that goal.
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    \12\ Standards of Conduct for Transmission Providers, 73 Fed. 
Reg. 16,228 (March 27, 2008), FERC Stats. & Regs. ] 32,630 (2008) 
(NOPR).
    \13\ The acronyms used throughout are defined in Appendix A.
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    8. Notwithstanding general agreement with the Commission's overall 
approach, many commenters submitted requests for clarification and 
modifications. In most instances, the modifications proposed were 
advanced with the stated goal either to make the Standards even 
clearer, or to address matters which some entities believed had fallen 
between the cracks in the transition from the existing Standards to a 
more streamlined approach. The Commission has carefully considered 
these comments and agrees that in several areas, modifications to the 
regulatory text are needed. This Final Rule adopts the overall approach 
set forth in the NOPR, but modifies the regulatory text to better 
achieve the goals of clarity and enforceability. It also provides 
clarifications in several areas in order to aid regulated entities in 
applying the Standards.

III. Discussion

A. Overall Approach

1. Commission Proposal
    9. The NOPR proposed to simplify and clarify the Standards, and in 
particular to: (i) Eliminate the concept of energy affiliates, and (ii) 
eliminate the corporate separation approach to separating a 
transmission provider's transmission function employees from its 
marketing function employees, instead returning to the employee 
functional approach utilized in Order Nos. 497 and 889. The NOPR 
pointed out that the corporate separation approach had proven difficult 
to implement, as evidenced by the scores of waiver requests submitted 
to the Commission, and impeded legitimate integrated resource planning 
and competitive solicitations, as reflected in the concerns raised by 
the electric industry in particular and also by state commissions. The 
Commission also found that the existing Standards are too complex to 
facilitate compliance or support enforcement efforts, and have had the 
unintended effect of making it more difficult for transmission 
providers to reasonably manage their businesses.
2. Comments
    10. The vast majority of commenters agreed with the Commission's 
goals of simplifying the Standards in order to achieve greater clarity, 
efficiencies of operation, and ease of compliance. They also applauded 
the proposed return to the employee functional approach, stating that 
it would better promote regulatory certainty than had the corporate 
separation approach.\14\
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    \14\ Most commenters expressly support the change in approach to 
the independent functioning rule from ``corporate separation'' to 
``employee functional,'' including ALCOA; Ameren; AGA; APPA; ATC; 
Arizona PSC; Bonneville; CenterPoint; Chandeleur; California PUC 
(particularly supporting the Commission's efforts to remove 
impediments to integrated resource planning); Destin; Dominion 
Resources; Duke; E.ON; EEI; El Paso; EPSA; Idaho Power; FirstEnergy; 
INGAA; Iroquois; Kinder Morgan; LPPC; MidAmerican; NARUC; National 
Grid; NGSA; New York PSC; Nisource; NCPA; PG&E; PSEG; Puget Sound; 
SMUD; Salt River; SCE; Southern Co. Services; Spectra; TAPS; TANC; 
TDU Systems; Vectren; WA UTC; Western Utilities Compliance Group; 
Wisconsin Electric; and Xcel.
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    11. No commenters proposed that the corporate separation approach 
be continued, and no commenters requested continuation of the energy 
affiliate concept. The FTC, however, contended that behavioral rules, 
including the employee functional approach, cannot fully achieve 
independent functioning because such an approach remains vulnerable to 
subtle events of discrimination and preference that may be difficult to 
detect and document.\15\ The FTC and ITC recommend instead that the 
Commission require vertically integrated firms to structurally unbundle 
transmission and place operation of the transmission function in the 
hands of the relevant Regional Transmission Organization (RTO) or 
Independent System Operator (ISO).\16\
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    \15\ FTC at 6-7.
    \16\ FTC at 9-10; ITC Reply at 4-5.
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3. Commission Determination
    12. The overwhelming support from commenters on the NOPR's overall 
approach confirms the Commission's conviction that simplifying and 
clarifying the Standards in the manner proposed will best achieve the 
twin goals of compliance and enforcement. The Commission therefore 
adopts the employee functional approach, as set forth in the regulatory 
text, and eliminates the concept of energy affiliates. Specifics and 
definitions regarding the employee functional approach, as well as 
other matters, are discussed below. With respect to the comments of the 
FTC and ITC, there has been no demonstration that the proposed rules 
are inadequate to address the potential for undue preferences. Nor do 
we believe this proceeding is the proper forum to

[[Page 63799]]

address issues as complex and far-reaching as those raised by the FTC 
and ITC.

B. Jurisdiction and Applicability of the Standards

1. Applicability to Pipelines Operating Under Part 157
a. Commission Proposal
    13. In the NOPR, the Commission carried forward from the existing 
Standards the essence of the language in section 358.1 governing the 
applicability of the Standards to interstate natural gas pipelines. The 
proposed text reads in pertinent part: ``This part applies to any 
interstate natural gas pipeline that transports gas for others pursuant 
to subpart A of part 157 or subparts B or G of part 284 of this chapter 
and conducts transmission transactions with an affiliate that engages 
in marketing functions.'' Likewise, the definition of transmission 
provider in proposed section 358.3(k), insofar as it pertains to the 
gas industry, reads as follows: ``Any interstate natural gas pipeline 
that transports gas for others pursuant to subpart A of part 157 or 
subparts B or G of part 284 of this chapter.''
b. Comments
    14. Hampshire Gas and Northwest Natural object that the texts of 
proposed sections 358.1(a) and 358.3(k) bring within the ambit of the 
Standards certain gas pipelines that did not fall within the Standards 
as issued under Order No. 497.\17\ They contend that the NOPR's use of 
the word ``or'' instead of ``and'' in proposed section 358.1(a) expands 
the ambit of the regulations to any pipeline that transports gas either 
under subpart A of part 157 or under subpart B or G of part 284. Both 
commenters note that a pipeline operating only under part 157 does not 
have the authority to provide open access transportation, as it may 
only transport for specific authorized shippers, and thus it is not 
possible for a part 157 pipeline to engage in discrimination in favor 
of an affiliate. Hampshire and Northwest Natural urge the Commission to 
change the Standards' applicability to cover only those pipelines that 
operate under both parts 157 and 284.\18\
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    \17\ Hampshire Gas at 6-9; Northwest Natural at 3-7.
    \18\ Id.
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c. Commission Determination
    15. The current Standards, as well as the proposed Standards, 
contain the word ``or'' instead of ``and'' in sections 358.1(a) and 
358.3(k)(2). The fact that the Commission is returning to the employee 
functional approach used in Order No. 497 does not automatically mean, 
however, that it must resurrect all other aspects of Order No. 497. 
Each provision must be considered on a case-by-case basis. The 
Commission has evaluated the comments contending that part 157 
pipelines should not be included in the ambit of section 358.1(a), and 
determines that their position is well-taken. Pipelines operating only 
under part 157 cannot discriminate in favor of an affiliate, because 
such pipelines can only transport for specific shippers authorized by 
their certificates. Put another way, in this Final Rule, we are 
concerned about the relationship between pipelines and their shippers 
where the pipelines are providing transportation service pursuant to 
part 284 blanket certificate authorization and open access rules, which 
give the pipelines the flexibility to discriminate in favor of their 
affiliates because they may commence and terminate service without ex 
ante review by market participants or the Commission. By contrast, the 
very few pipelines that are not part 284 open-access transporters must 
receive shipper-specific certificate authorization from the Commission, 
which must find the service is required by the public convenience and 
necessity under Section 7 of the Natural Gas Act. Accordingly, part 157 
transporters do not have the flexibility that could lead to 
discriminating unduly in favor of their affiliates. The Commission will 
therefore eliminate the reference to part 157, leaving only interstate 
pipelines that transport gas for others pursuant to subparts B or G of 
part 284 subject to the Standards and within the scope of the 
definition of transmission provider. Accordingly, the Standards now 
apply to those pipelines subject to the Commission's open access rules 
under part 284.
2. Applicability to Pipelines With No Marketing Affiliate Transactions
a. Commission Proposal
    16. The NOPR requested comment as to whether the statement of the 
Standards' applicability to interstate pipelines in section 358.1(a) 
should parallel the statement of the Standards' applicability to the 
electric industry set forth in section 358.1(b).\19\ The language in 
question reads: ``and conducts transmission transactions with an 
affiliate that engages in marketing functions.''
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    \19\ NOPR at P 58.
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b. Comments
    17. INGAA asserts that the cited language is essential, because it 
exempts those pipelines with affiliates that have marketing function 
employees, but with which the pipeline conducts only non-transmission 
transactions. INGAA argues that these non-transmission transactions do 
not pose the potential for the types of abuse the rules seek to 
prevent. According to INGAA, the cited language also ensures that the 
proposed Standards operate within the boundaries set forth in National 
Fuel, by not extending coverage to relationships and transactions for 
which the Commission has no record evidence of undue discrimination or 
preference.\20\
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    \20\ INGAA at 9-12.
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    18. NGSA argues that the limitation in the current language implies 
an exemption from the Standards for sales of gas in which the gas is 
not shipped using capacity held or controlled by the seller's 
affiliated transmission provider. NGSA urges the Commission to either: 
(i) Clarify that the No Conduit Rule (and the Standards generally) 
would nonetheless apply to such gas sellers when they share the same 
facilities or trading floor with marketing function employees who are 
not exempt from the Standards, or (ii) require entities that house 
exempt marketing function employees in the same facility as non-exempt 
marketing function employees to provide some physical separation 
between the two groups, to prevent uncontrolled flow of restricted 
information.\21\
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    \21\ NGSA Reply Comments at 12-14.
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    19. While agreeing with INGAA, other commenters would apply the 
conditional language in section 358.1(a) to public utilities as well as 
pipelines, thereby limiting the Standards' application to both public 
utilities and interstate natural gas pipelines that conduct 
transportation transactions with marketing affiliates.\22\
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    \22\ Nisource at 25-28; DCP Midstream at 2; Southwest Gas at 18-
20.
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c. Commission Determination
    20. The Commission agrees with INGAA that there is no evidence in 
the record to suggest that pipelines that do not conduct transmission 
transactions with an affiliate engaged in marketing functions are in a 
position to engage in the type of affiliate abuse to which the 
Standards are directed. Therefore, the Commission will retain the 
language in section 358.1(a) that sets forth this limitation.
    21. The Commission disagrees with NGSA's contention that certain 
sales of gas have, by implication, been made

[[Page 63800]]

exempt. The Commission is not exempting any sales of gas; the Standards 
apply to conduct, not to products. Section 358.1 addresses which 
pipelines and which electric utilities fall within the ambit of the 
Standards. A pipeline may have some marketing affiliates with which it 
conducts transmission transactions, and some with which it does not. A 
pipeline that conducts transmission transactions with a marketing 
affiliate must comply with the Standards, including the No Conduit 
Rule.
    22. If a pipeline has affiliates of both types (some with which it 
conducts transmission transactions and some with which it does not), 
the pipeline must ensure that there is no prohibited communication with 
marketing function employees, in accordance with the requirements of 
the No Conduit Rule. The pipeline can determine how best to ensure 
compliance with the regulation, and we decline to order physical 
separation of employees on a generic basis. We might consider it on a 
case-specific basis, however, in the event the Commission found a 
violation.\23\
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    \23\ C.f., e.g., Southern Co. Serv. Inc., 117 FERC ] 61,021 
(2006).
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    23. The Commission agrees with those commenters that suggest 
parallelism between the electric and gas industries could be achieved 
by also applying to public utilities the limitation applicable to 
pipelines. Because the core abuse to which the Standards are directed 
is that of undue preference in favor of an affiliate (defined to 
include divisions of the transmission provider as well as separate 
corporate entities), a public utility that does not engage in any 
transmission transactions with a marketing affiliate should be excluded 
from the Standards' coverage, just as should a pipeline. Therefore, the 
Commission modifies the language of section 358.1(b) accordingly.
3. Commencement Date
a. Commission Proposal
    24. The Commission proposed in section 358.8(a) that a transmission 
provider must comply with the Standards as of the earlier of the date 
it has a rate on file with the Commission or the date it commences 
transmission transactions.
b. Comments
    25. INGAA and APGA disagree with the commencement date proposed in 
section 358.8(a). INGAA asserts that the Standards should not apply to 
a pipeline unless and until the pipeline engages in transportation 
transactions with a marketing or brokering affiliate. INGAA believes 
that proposed section 358.8(a) is inconsistent with the Standards' 
purpose of preventing preferential treatment and with proposed section 
358.1(a), which applies the Standards only to pipelines conducting 
transmission transactions with an affiliate engaging in marketing 
functions.\24\ Conversely, APGA would have the Standards apply to a 
newly-certificated pipeline as soon as the pipeline begins soliciting 
customers or negotiating contracts, rather than deferring compliance 
until such time as the pipeline commences transportation.\25\
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    \24\ INGAA at 58-61.
    \25\ APGA at 8-10.
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c. Commission Determination
    26. The Commission believes that INGAA's comments on this point are 
well-taken. Under section 358.1, a pipeline that does not conduct 
transmission transactions with an affiliate that engages in marketing 
functions need not comply with the Standards. In this Final Rule, we 
expand that same provision to apply to public utilities as well, as 
discussed above. Therefore, we will modify the effective date upon 
which a transmission provider must be in full compliance with the 
Standards to provide that a transmission provider must comply with the 
Standards on the date it commences transmission transactions with an 
affiliate that engages in marketing functions. See section 358.8(a).
4. Waivers From Coverage of the Standards
a. Commission Proposal
    27. In the NOPR, the Commission did not address the issue of 
whether existing waivers from the Standards should apply to the new 
Standards.
b. Comments
    28. Numerous commenters request that the Commission clarify that 
existing waivers from the application of the current Standards remain 
in effect upon finalization of this rulemaking, to the extent they 
remain relevant.\26\ Questar further requests that exemptions and 
waivers granted under Order No. 2004 be functionally adapted to the 
rules as proposed in the NOPR.\27\
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    \26\ AGA at 26; INGAA at 61-62; New York PSC at 5-6; National 
Grid at 28-29; Northwest Natural at 6-7; Questar at 2; TDU Systems 
at 18; Unitil at 4-5. New York PSC adds that without such 
confirmation, existing sales activities authorized under the 
standing waivers may be disrupted at the expense of the public 
interest. New York PSC at 5. New York PSC offers the example of 
National Fuel Gas Distribution Corporation (NFGD), which it states 
received a waiver to make off-system sales from contract storage 
located on an affiliated pipeline system to marketers who resell 
that gas to NFGD's retail customer under a New York PSC-approved 
retail choice program. New York PSC states that uncertainty 
regarding status of the waiver may compel NFGD to terminate those 
sales. Id. at 5-6.
    \27\ Questar at 2.
---------------------------------------------------------------------------

    29. Northwest Natural requests that the Commission broaden existing 
waivers from ``partial'' to ``full'' for pipelines that provide 
transportation for a single affiliated shipper.\28\ Similarly, USG 
believes that pipelines transporting gas only for affiliated shippers 
should be exempted from the rules. It recommends that the Commission 
either amend proposed section 358.1(a) to exclude pipelines that do not 
serve unaffiliated customers, amend the exceptions to the proposed 
definition of ``marketing functions,'' or grant USG and B-R Pipeline a 
waiver.\29\
---------------------------------------------------------------------------

    \28\ Northwest Natural at 7.
    \29\ USG at 10-12.
---------------------------------------------------------------------------

    30. With regards to the Commission's continued willingness to 
consider requests for waivers, Unitil seeks clarification that the 
Commission will continue to consider requests for waivers by entities 
that would have qualified for waivers under the requirements of Order 
Nos. 889, 497, or 2004.\30\ TDU Systems supports the Commission's 
proposal to allow transmission owners who are members of RTOs and ISOs, 
do not operate or control their transmission facilities, and have no 
access to transmission function information, to request waivers from 
the Standards.\31\
---------------------------------------------------------------------------

    \30\ Unitil at 4-5.
    \31\ TDU Systems at 17.
---------------------------------------------------------------------------

c. Commission Determination
    31. The Commission agrees that it would be both burdensome and 
unfair to require entities that have already received waivers from the 
Standards on a case-by-case basis to file their requests again. 
Therefore, existing waivers relating to the Standards shall continue in 
full force and effect.
    32. The determination as to whether a waiver is appropriate for an 
entity that serves only a single, affiliated customer is best made on 
an individual basis. Any entity that believes it is entitled to a 
waiver may apply for one, and any entity that has already received a 
full or partial waiver may continue to rely upon it. This Final Rule is 
not the appropriate vehicle to grant or modify individual waivers for 
specific entities, as requested by Questar and USG. We note, however, 
that many of the waivers previously granted transmission providers may 
be rendered moot by the revisions made here to the Standards.

[[Page 63801]]

    33. The Commission clarifies that nothing in this Final Rule 
precludes an entity from seeking a waiver. Indeed, section 358.1(d) 
specifically so provides. If an entity believes it is entitled to a 
waiver but has not yet applied for one, it is thus free to do so. The 
appropriateness of granting such a waiver will be based on the facts 
and circumstances of the individual case, examined in light of the 
specific provisions and stated principles of the Standards adopted in 
this Final Rule.

C. Independent Functioning Rule

    34. In the NOPR, the Commission proposed to continue the policy, 
established in Order Nos. 497 and 889 and referred to as the 
Independent Functioning Rule, of requiring the transmission function 
employees of a transmission provider to function independently of the 
marketing employees of the transmission provider. However, the NOPR 
proposed eliminating the corporate separation approach to the 
Independent Functioning Rule, which was adopted in Order No. 2004, and 
replacing it with the employee functional approach previously utilized 
in Order Nos. 497 and 889. Under the NOPR proposal, the relevant 
consideration for purposes of applying the Independent Functioning Rule 
is the function performed by the employee himself (or herself). Thus, 
while under the current Standards any employee of a marketing or energy 
affiliate is prohibited from interacting with transmission function 
employees, the proposed Standards restricted the category of employees 
who must function independently from transmission function employees to 
those who actively and personally engage in marketing functions.
    35. To implement this approach, the NOPR proposed definitions of 
certain key terms, the principal two being ``transmission functions'' 
and ``marketing functions.'' The definitions of ``transmission function 
employee,'' ``marketing function employee,'' ``transmission function 
information'' and ``marketing function information'' all keyed off 
these two core definitions.
    36. Commenters generally approved of the NOPR approach, but raised 
certain concerns about the manner of its implementation and about the 
proposed definitions of terms. They also requested clarification on 
various matters. These topics are addressed below.
1. Transmission Functions
a. Commission Proposal
    37. The NOPR proposed to define ``transmission functions'' as 
``transmission system operations and the planning, directing, 
organizing or carrying out of transmission operations, including the 
granting and denying of transmission service requests.'' See proposed 
section 358.3(h).
b. Comments
    38. ALCOA requests clarification that the word ``planning'' in the 
definition of transmission function applies only to planning associated 
with transmission operations. ALCOA proposes that the Commission refine 
the term ``planning,'' as used in this definition, so that it is 
limited to current, near-term and real-time operations, and requests 
that the Commission exclude long-range system planning.\32\
---------------------------------------------------------------------------

    \32\ ALCOA at 4.
---------------------------------------------------------------------------

    39. In asserting that the proposed definition of transmission 
functions is ambiguous, National Grid urges the Commission to adopt a 
more precise definition of ``transmission function'' that encompasses 
those activities that directly affect open access, i.e., real-time 
control of the transmission system; planning of electric transmission 
facilities or expansions; and the receipt, processing and granting of 
transmission service requests.\33\ For other functions that could 
reasonably be interpreted to relate to transmission, National Grid 
posits, the No-Conduit Rule will prevent abuses.\34\ Furthermore, 
National Grid requests clarification of the scope of the phrases 
``operations,'' ``transmission system operations,'' and ``transmission 
operations.'' \35\
---------------------------------------------------------------------------

    \33\ National Grid would exclude the planning of gas 
transmission from the scope of the definition because pipeline open 
seasons allow all interested parties to seek capacity in gas 
expansion projects; it states that such conversations therefore do 
not create concerns about preferential sharing of information. 
Alternatively, it suggests that the definition of transmission 
function could expressly exempt natural gas transmission planning 
discussions that involve projects subject to an open season. 
National Grid at 9-10.
    \34\ National Grid at 7-11.
    \35\ Id. at 9.
---------------------------------------------------------------------------

c. Commission Determination
    40. The proposed NOPR definition of ``transmission functions'' 
carries over the principal concepts contained in the existing 
definition of ``transmission function employee'' (there is no 
definition of the term ``transmission functions'' in the existing 
Standards). We agree, however, that additional language may be needed 
to clarify that the Commission intends the definition to apply to day-
to-day operations, not long-range planning. Therefore, we will modify 
the definition in section 383.3(h) to read: ``the planning, directing, 
organizing or carrying out of day-to-day transmission operations, 
including the granting and denying of transmission service requests.'' 
This modification focuses the definition on those areas most 
susceptible to affiliate abuse. Furthermore, information about long-
range activities, such as planned transmission lines, are likely 
already to be in the public sphere.\36\ The definition we adopt in this 
Final Rule is directed at short-term real time operations, including 
those decisions made in advance of real time but directed at real time 
operations. To the extent the Commission's prior cases and No Action 
Letters are in accord with this principle, they may be consulted for 
guidance as to individual activities in question.
---------------------------------------------------------------------------

    \36\ Issues relating to long-range planning are governed by 
other Commission actions, such as in Order No. 890 for electric 
utilities and in the long-standing policies regarding open seasons 
subject to certificate policies for gas pipelines. See, e.g., Gulf 
Crossing Pipeline Co., LLC, 123 FERC ] 61,100 at P 105 (2008).
---------------------------------------------------------------------------

2. Transmission Function Employee
a. Commission Proposal
    41. In the NOPR, the Commission proposed to define transmission 
function employee as: ``an employee, contractor, consultant or agent of 
a transmission provider who actively and personally engages in 
transmission functions.'' See proposed section 358.3(i).
b. Comments
    42. Many commenters disagreed with the proposed classification of 
field, maintenance, and construction employees as ``transmission 
function employees'' \37\ for a variety of reasons, including the fact 
that field employees do not actively and personally engage in system 
operations \38\ and do not have access to transmission information.\39\ 
Similarly, MidAmerican requests that the definition of transmission 
function employee expressly exclude the following categories: Engineers 
who plan, design and oversee construction of transmission facilities; 
construction workers who build transmission facilities; engineers who 
make engineering decisions regarding the operation and maintenance of 
transmission facilities; engineers who determine whether transmission

[[Page 63802]]

requests can be accommodated by the existing transmission system; 
utility line workers who operate, repair and maintain transmission 
facilities according to orders; and clerical staff and mapping 
personnel who draw plans for and process communications about 
transmission facilities.\40\
---------------------------------------------------------------------------

    \37\ ATC at 18; Dominion Resources at 14; EEI at 54; Puget Sound 
at 7-8; INGAA; Nisource; Southern Co. Services at 24-25.
    \38\ Southern Co. Services at 25.
    \39\ Puget Sound at 8.
    \40\ MidAmerican at 11-12.
---------------------------------------------------------------------------

    43. To mirror the language in the preamble of the NOPR, Bonneville 
suggests that a transmission or marketing function employee be one who 
actively and personally engages in ``more than a de minimis amount of'' 
transmission or marketing functions.\41\ In addition, E.ON seeks more 
clarity on the scope of the de minimis exception proposed in the 
preamble, so as to avoid contrasting interpretations by transmission 
providers.\42\
---------------------------------------------------------------------------

    \41\ Bonneville at 4-5. See also AGA at 18.
    \42\ E.ON at 12-13.
---------------------------------------------------------------------------

    44. Wisconsin Electric is unclear as to whether the standards 
applicable to transmission function employees also apply to employees 
engaged in certain reliability functions. More specifically, Wisconsin 
Electric requests clarification that balancing authority employees are 
not transmission function employees or agents under the proposed 
rules.\43\
---------------------------------------------------------------------------

    \43\ Wisconsin Electric at 6.
---------------------------------------------------------------------------

    45. Commenters also raised concerns regarding the use of the phrase 
``actively and personally engages.'' EEI requests that the Commission 
clarify that an employee is not ``actively and personally engaged'' in 
transmission or marketing functions so long as the employee is not 
engaged in such activities on a day-to-day basis. Furthermore, EEI 
believes that precedent under Order No. 889 regarding the ``day to day 
activities'' standard should continue to apply, except for certain 
precedent that undermined the ``day-to-day'' standard as it applied to 
officers.\44\ Idaho Power requests that the Commission explain any 
difference between the term ``actively and personally engages in'' and 
the ``directing, organizing, or executing'' classification standard of 
Order No. 889.\45\
---------------------------------------------------------------------------

    \44\ EEI at 5-6, 11-12; Entergy at 2-3.
    \45\ Idaho Power at 6-7.
---------------------------------------------------------------------------

c. Commission Determination
    46. The Commission agrees that field, maintenance and construction 
workers, as well as engineers and clerical workers, are not normally 
involved in the day-to-day operations of the transmission system. 
Therefore, they would not fall within the scope of the definition of 
transmission function employee, unless in addition to functioning in 
their stated capacity they also engaged in the day-to-day operation of 
the transmission system.
    47. The Commission declines to add a further exclusion in the 
regulatory text for de minimis involvement. As discussed in the section 
on officers, directors and supervisors, the Commission has determined 
to add the phrase ``day-to-day'' to further clarify the scope of 
activity covered by the definition. This addition should capture the 
concerns of the commenters who requested inclusion of the phrase de 
minimis. However, as noted in the preamble of the NOPR, if a non-
transmission function employee were pressed into service on an isolated 
occasion to perform a transmission function, perhaps under emergency 
conditions, such de minimis involvement would not convert him into a 
transmission function employee. The remote possibility that such a 
scenario would occur does not warrant adding exclusion language to the 
text, which would unduly elevate the exclusion and raise more questions 
than it answers.
    48. Similarly, the question of whether balancing authority 
personnel are included in the definition of transmission function 
employees depends on the circumstances. If the transmission provider 
also serves as a balancing authority, and an employee's duties 
encompass both transmission provider and balancing authority 
activities, such an employee would be a transmission function employee 
(provided his or her duties are encompassed by the definition of 
transmission function employee). If, however, the two functions are 
separate, and the employee performs no duties outside of those specific 
to a balancing authority employee, he or she would not be considered a 
transmission function employee.
    49. The phrase ``actively and personally'' applies to marketing 
function employees as well as transmission function employees, and its 
application arises most notably with respect to supervisory personnel. 
The comments relating to that phrase, and the Commission's 
determination with respect to it, are set forth below in the section 
entitled Supervisors, Managers and Corporate Executives.

3. Marketing Functions

a. Commission Proposal
    50. The NOPR proposed defining marketing functions as ``the sale 
for resale in interstate commerce, or the submission of offers or bids 
to buy or sell natural gas or electric energy or capacity, demand 
response, virtual electric or gas supply or demand, or financial 
transmission rights in interstate commerce,'' subject to the following 
``exemptions'':
    (1) Bundled retail sales, including sales of electric energy made 
by providers of last resort (POLRs),
    (2) Incidental purchases or sales of natural gas to operate 
interstate natural gas pipeline transmission facilities,
    (3) Sales of natural gas solely from the transmission provider's 
own production,
    (4) Sales of natural gas solely from the transmission provider's 
own gathering or processing facilities, and
    (5) Sales by an intrastate natural gas pipeline or local 
distribution company making an on-system sale.
b. Comments
    51. Several commenters recommend that the Commission consider the 
differences between the electric and gas industries and adopt separate 
definitions of the term marketing functions for each of the 
industries.\46\
---------------------------------------------------------------------------

    \46\ INGAA at 14; NGSA at 10-11; Nisource at 10; AGA at 11-13; 
Williston at 3.
---------------------------------------------------------------------------

i. Electric Industry
    52. Commenters from the electric industry raised concerns about the 
inclusion of ``bids to buy'' in the definition of marketing functions, 
and the effects of such inclusion on planning activities. Commenters 
also sought clarification and modification as to various individual 
components of the definition, and identified a number of issues 
regarding the bundled retail sales exemption and the inclusion of POLRs 
in that exemption.
(a) Bids to Buy and Other Terms Listed in the Definition
    53. Dominion Resources believes that the definition, as it applies 
to the electric industry, should be limited to sales for resale or 
purchases for resale of electricity in interstate commerce,\47\ while 
NiSource proposes limiting the definition to wholesale sales of 
electricity.\48\ On the other hand, TAPS believes that the definition 
of marketing functions is too narrow, in that it only covers purchases 
that involve the ``submission of offers or bids to buy or sell.'' It 
argues that the definition of marketing functions should include 
purchases, as well as sales, for resale of energy, in order to ensure 
that all transmission provider activities in wholesale markets, 
including the purchase of electric energy, capacity,

[[Page 63803]]

and physical and financial transmission rights and other energy related 
products for bundled retail load, are covered by the Standards. TAPS 
requests that the proposed definition be modified to include purchases, 
regardless of whether they are accomplished through the submission of a 
bid or offer.\49\
---------------------------------------------------------------------------

    \47\ Dominion Resources at 11-13.
    \48\ NiSource at 10.
    \49\ TAPS at 11-14.
---------------------------------------------------------------------------

    54. Some commenters requested clarification of various terms used 
in the definition of marketing functions. First, commenters ask the 
Commission to clarify that the scope of the term ``demand response'' is 
limited to the bidding or supply of demand response in a FERC 
jurisdictional context, and does not cover the development of a retail 
customer demand response program or a balancing authority's dispatch of 
demand response for reliability.\50\ Dominion Resources requests that 
the definition exclude regulated utilities demand/load response 
programs in their regulated service territories, as being part of their 
integrated resource planning.\51\
---------------------------------------------------------------------------

    \50\ Arizona PSC at 6; EEI at 48; SCE at 8-9; Western Utilities 
at 10.
    \51\ Dominion Resources at 12-13.
---------------------------------------------------------------------------

    55. Second, commenters request clarification of the term 
``capacity'' as used in the marketing functions definition. Dominion 
Resources and EEI request that the term refer to generation and not 
transmission capacity.\52\ Some commenters seek further clarifications 
on other terms used in the definition of marketing functions. Dominion 
Resources and MidAmerican request that the Commission confirm that 
certain terms carry the same meaning in the Standards as they do in 
Commission-administered organized markets, or, alternatively, that the 
terms should be interpreted in a manner that limits the definition to 
activities that occur in interstate commerce. These terms include: (i) 
``Virtual electric or gas supply or demand;'' (ii) ``financial 
transmission rights;'' (iii) ``offer'' or ``bid;'' (iv) ``demand 
response;'' and (v) ``bundled retail sales.'' \53\ Similarly, NiSource 
requests that the definition of marketing functions, as it applies to 
the natural gas industry, should exclude the terms demand response, 
virtual bids, and allocations of financial transmission rights.\54\
---------------------------------------------------------------------------

    \52\ Id. at 12; EEI at 49.
    \53\ Dominion Resources at 12; MidAmerican at 9-10.
    \54\ NiSource at 10-11.
---------------------------------------------------------------------------

    56. APPA and TAPS are concerned that the definition of marketing 
functions, although it includes financial transmission rights, excludes 
resale of a public utility transmission provider's physical electric 
system transmission rights. These commenters believe that the omission 
allows transmission provider employees engaging in such transmission 
activities to communicate with other personnel on a preferential basis 
regarding the availability of new firm transmission rights.\55\ TAPS 
further asserts that the definition should include transmission 
reservations and scheduling of transmission.\56\
---------------------------------------------------------------------------

    \55\ APPA at 6-9; TAPS at 28-31.
    \56\ TAPS at 30.
---------------------------------------------------------------------------

(b) Exclusions
    57. Commenters express varying opinions on the proposed exclusion 
in section 358.3(c)(1) for ``bundled retail sales, including sales of 
electric energy made by providers of last resort (POLRs).'' National 
Grid and EEI generally supported the exemption.\57\ National Grid 
recommends, however, that the proposed exemption be revised to read 
``bundled retail sales or retail sales of electric energy made by 
providers of last resort,'' rather than treating POLR sales as a subset 
of bundled retail sales.\58\ Ameren believes that the POLR exclusion 
should apply to all procurement or sale of energy by a POLR in support 
of its POLR function, and urges the Commission to clarify that 
incidental sales or purchases of energy by a POLR that benefit POLR 
customers who are required to meet reliability or RTO requirements are 
not activities within the scope of marketing functions, even if made on 
an unbundled basis.\59\
---------------------------------------------------------------------------

    \57\ National Grid at 12-13; EEI at 34.
    \58\ National Grid at 12-13.
    \59\ Ameren at 22-24.
---------------------------------------------------------------------------

    58. On the other hand, EPSA and TAPS both oppose a blanket 
exemption for POLRs.\60\ TAPS asserts that the Commission has denied 
waivers to some affiliated POLRs in the past, and the waivers it has 
granted have been fact-specific.\61\ TAPS likewise opposes a blanket 
exclusion for all bundled retail sales,\62\ suggesting it be limited to 
cases in which the retail marketing function has been separated from 
the wholesale marketing function,\63\ and EPSA would eliminate an 
exclusion both for POLRs and for all bundled retail sales insofar as 
the exclusion would apply to utilities engaged in both bundled retail 
sales and wholesale sales.\64\ TAPS requests that the Commission 
clarify that the bundled retail sales exemption does not extend to 
activities of the transmission provider's merchant function.\65\
---------------------------------------------------------------------------

    \60\ EPSA at 6-8; TAPS at 26-28.
    \61\ TAPS at 26-27.
    \62\ Id. at 15-25.
    \63\ Id.
    \64\ EPSA at 7-8.
    \65\ TAPS at 25-26.
---------------------------------------------------------------------------

    59. Many commenters request clarifications on the scope of the 
bundled retail sales exclusion. EEI requests that the Commission 
confirm that the exclusion covers purchases in support of retail sales 
only as long as the resale of excess purchased power is made by 
separate employees.\66\ WA UTC urges the Commission to include in the 
exclusion the incidental wholesale power purchases and sales a utility 
serving bundled retail load must make to balance its variable output 
resources with variations in its actual bundled retail loads.\67\
---------------------------------------------------------------------------

    \66\ EEI at 34.
    \67\ WA UTC at 8-10.
---------------------------------------------------------------------------

    60. Several commenters sought additional exclusions from the 
marketing functions definition as it applies to the electric industry. 
California PUC recommends that the Commission exclude from the 
marketing functions definition utility employees engaged in state-
regulated activities, such as engaging in purchases necessary to serve 
bundled retail load or to meet the requirements of state-mandated 
programs, because these activities are overseen by state 
regulators.\68\ MidAmerican asks the Commission to clarify that all 
planning personnel, whether or not engaged in state-mandated integrated 
resource planning, be excluded from the definition of marketing 
functions.\69\
---------------------------------------------------------------------------

    \68\ California PUC at 10. California PUC also asks the 
Commission not to exempt any interactions between a utility's 
transmission function employees and the employees of a utility's 
unregulated affiliates, on the grounds that state regulators do not 
oversee the activities of a utility's unregulated affiliates. Id.
    \69\ MidAmerican at 8-9.
---------------------------------------------------------------------------

    61. LPPC requests that the definition of marketing functions 
expressly exclude electricity exchanges, arguing they are often 
necessary to accomplish a transmission transaction, such as when access 
to renewable sources of power requires crossing multiple systems.\70\
---------------------------------------------------------------------------

    \70\ LPPC at 15-16.
---------------------------------------------------------------------------

ii. Natural Gas Industry
    62. Commenters from the natural gas industry raised concerns about 
the inclusion of ``bids to buy'' in the definition of marketing 
functions, as had commenters from the electric industry. They also seek 
modifications of existing exclusions and the addition of new 
exclusions, and request clarification as to whether various activities 
that arise in the gas industry are encompassed by the definition.

[[Page 63804]]

(a) Bids To Buy and Other Terms Listed in the Definition
    63. Many commenters believe that purchases should be excluded from 
the definition of marketing functions as it applies to the natural gas 
industry, arguing that their inclusion would extend the Standards 
beyond the limits set by National Fuel.\71\ Southwest Gas requests that 
the Commission clarify that the definition of marketing functions 
covers only the sale of gas in interstate commerce,\72\ and AGA and 
Dominion Resources request that marketing functions be defined in terms 
of natural gas sales for resale in interstate commerce.\73\ AGA and 
Southwest Gas believe this approach appropriately excludes natural gas 
hedging activities.\74\ NGSA, rather than deleting purchases from the 
definition itself, requests that purchase be included in the exclusions 
to the definition in proposed sections 358.3(c)(3-5).\75\
---------------------------------------------------------------------------

    \71\ Salt River at 7-9; INGAA at 14; Nisource at 10.
    \72\ Southwest Gas at 5-9.
    \73\ AGA at 12-13; Dominion Resources at 7-8.
    \74\ AGA at 12-13; Southwest Gas at 14-15. Southwest Gas further 
requests confirmation that the proposed definition reflect its view 
that financial transactions designed to hedge price risk associated 
with on-system retail sales are an important tool for an LDC's 
provision of economical retail sales service, citing to Order No. 
2004-C. Id.
    \75\ NGSA at 13.
---------------------------------