December 2008 Vol. 63 No. 12
Washington Watch
Standards Of Conduct Go INGAA’s Way
You know a federal rulemaking was complicated when the chairman of the agency in charge admits: “It has been difficult to get this rule right.” That may be an understatement with regard to the final rules on standard of conduct for pipelines which FERC announced on Oct. 16.
The third time was the charm, although “charm” may not be the right word given FERC Chairman Joe Kelliher’s admission of the difficulties. Those standards dictate what pipeline transmission employees can say to employees of its marketing affiliate without running afoul of anti preferential treatment laws.
Joan Dreskin, the INGAA general counsel, says, “The rule provides a lot of clarity. The commission tried very hard to make it workable.” However, INGAA is going to file a request for a rehearing on one narrow issue: whether marketing employees of affiliates which do not transport gas are covered.
FERC established its first standards of conduct, Order 497, in 1988. The Commission revised them in 2004, issuing Order 2004, which extended the standards to non marketing affiliates of natural gas pipelines and also established a “corporate” separation definition (focusing on the primary business function of an entire division or corporation) to distinguish between transmission and marketing employees. That was a reversal of the “functional” separation test since Order 497.
The extension of the standards to non marketing affiliates led to a legal challenge from National Fuel, with the United States Court of Appeals for the District of Columbia upholding the challenge and forcing FERC to go back to the drawing board. When it issued a proposed rule in 2007, it stayed with the “corporate function” test, a move that drew new, harsh criticism, forcing FERC to abandon that proposed rule. A second proposed rule came out in March 2008 with the “functional test” re established. Dreskin lauds FERC’s return to a functional test.
In announcing these final standards, Kelliher noted that they are focused on areas where there is the greatest potential for affiliate abuse. With that in mind, INGAA had pressed the commission to concede that the standards apply only to pipelines with marketing affiliates that “hold or control capacity on the affiliated pipeline.” The Natural Gas Supply Association (NGSA) had contested that, to some extent. In the final rule, FERC acknowledged that it was siding with INGAA because “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.”
INGAA also won on a second issue, FERC’s reference in the proposed rule to a “per se” approach – as opposed to a “rule of reason” approach – toward determining violations. INGAA objected to the use of the term “per se,” feeling it would allow the commission too wide a berth on enforcement actions. In the final rule, FERC soothed INGAA’s concerns saying it did not mean to establish a new standard of review or impose different evidentiary burdens specific to these rules.
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