Energy Legal Blog

FERC Issues Interim Rule for Standards of Conduct for Natural Gas

FERC has adopted in Order No. 690 an interim rule on the applicability of standards of conduct to interstate natural gas pipelines; the placeholder rule responds to a US Appeals Court decision in National Fuel Gas Supply Corp. v. FERC, 468 F.3d 831 (D.C. Cir. 2006) that FERC’s earlier Order No. 2004 unlawfully expanded the standards of conduct governing affiliate favoritism to apply beyond the marketing affiliates of a natural gas pipeline ─ that is, the court struck down application of the standards to non-marketing affiliates.  The placeholder defines "marketing" (including brokering) to mean a sale of natural gas to any person or entity by a seller that is not an interstate pipeline, except when (1) the seller is selling gas solely from its own production, (2) the seller is selling gas solely from its own gathering or processing facilities, or (3) the seller is an intrastate natural gas pipeline or a local distribution company making an on-system sale.  Although the case involved only the affiliate conduct standards as applied to a natural gas pipeline, the ruling cast in doubt the application of identical standards of conduct to the non-marketing affiliates of electric transmission providers.  In addition: 

• The interim rule allows sharing risk management employees between natural gas pipelines and their energy and marketing affiliates when the employees are engaged in transmission functions or sales or commodity functions.   
• The interim rule requires a natural gas pipeline to maintain a log of the tariff provisions that it waives, but only with respect to tariff provisions that provide for such discretionary waivers, and to provide the log to any person requesting it within 24 hours of the request. 
• Order No. 690 clarifies that FERC will treat natural gas pipeline lawyers as permissibly shared employees.  FERC's orders on Order No. 2004 had provided that while lawyers could provide legal or regulatory advice in their traditional roles without becoming transmission function employees ─ subject to the standards of conduct ─ to the extent that a lawyer engaged in transmission functions or in planning, directing, or organizing transmission functions, the lawyer was not exempt from also being a transmission function employee (and thus not permissibly shared between a natural gas transmission provider and its affiliates).   
• Order No. 690 clarifies that FERC will not require newly certificated natural gas pipelines to observe the standards of conduct until they commence transmission transactions with their marketing affiliates.  FERC's orders on Order No. 2004 had provided that newly formed transmission providers would become subject to the standards of conduct as soon as they began soliciting business or negotiating contracts. 

The interim rule retains provisions of Order No. 2004 not challenged on appeal.  Those provisions will continue to apply to natural gas transmission providers and their marketing affiliates.