FERC Bars Information Sharing with Affiliates
By Adam Wenner
The Federal Energy Regulatory Commission issued final rules in late November that bar electricity and gas transmission companies from sharing inside information with affiliates.
Electric utilities and gas pipeline companies that are affected by the rules must put compliance programs in place by June 1, 2004.
The new “standards of conduct” were designed to close a perceived loophole in long-standing regulations governing the relationship between transmission providers and their wholesale electric or gas marketing affiliates. Two general principles underlie the rules. First, the employees of a transmission provider who are engaged in transmission system operations must function independently from employees of the transmission provider who are engaged in sales, marketing and other energy-related activities. Second, a transmission provider must treat all transmission customers in a nondiscriminatory manner and may not operate its transmission system to benefit its affiliates.
The final rules bar information sharing with “energy affiliates.” These are companies that control — or are controlled by — transmission providers and that engage in certain types of activities. The types of activities include buying, selling or trading natural gas or electricity in the US and engaging in financial transactions relating to gas and electricity markets. Also included on the list are marketing affiliates that purchase and sell natural gas or electricity for resale to customers. The rules do not apply to ISOs (independent system operators), RTOs (regional transmission organizations), or to holding or service companies that do not engage in energy transactions in the US. Companies that purchase gas or electricity solely for their own consumption are also exempted.
The final rules retain an existing exemption that permits an electric utility that provides transmission to use the same employees for its interstate transmission business and its bundled retail sales business. However, if the retail sales unit engages in any wholesale sales, then the bar of information sharing applies.
FERC said when it issued the final rules that transmission providers continue to have economic incentives to grant undue preference to their affiliates. Its earlier regulations on this subject did not cover affiliates of transmission providers that are not marketers or merchant affiliates. FERC said its office of market oversight and investigations has uncovered several violations of the earlier regulations and “affiliate abuse activity.” Consequently, the new rules provide that a transmission provider cannot permit the employees of an energy affiliate to conduct transmission system operations or reliability functions or allow them access to the system control center or similar facilities used for transmission operations (except to the extent that unaffiliated companies have the same access). The rules require transmission providers to train all of their support employees, including accountants and attorneys, in the standards of conduct and prohibit them from acting as conduits for sharing information with energy affiliates.
Certain exceptions apply to the employee sharing rules, including one for senior officers and directors and another for field employees who do operation and maintenance. In response to concerns that risk management employees must understand the exposure of the entire corporation, including the activities of the transmission provider and any energy affiliates, the final rules also permit risk management employees to be shared. However, such shared employees are prohibited from being “operating employees”— that is, hands-on decision-makers — of either the transmission provider or the energy affiliates or from being conduits for improperly sharing information.
The new rules require that transmission providers post the names and addresses of their energy affiliates (including any sales and marketing units) on the Internet and on the company’s “open access same-time information system”— known as “OASIS”— website. In addition, a company must post organizational charges showing the business units, job titles and descriptions and chain of command for all positions, including whether each employee is involved in transmission or sales. If an employee is transferred from the transmission provider to an energy affiliate, or vice-versa, notice of the transfer must be posted on the Internet website and on the company’s OASIS website.
The final rules requires that a company ensure that its employees who are engaged in marketing or sales, as well as employees of any energy affiliates, only have access to information that is also available to non-affiliated transmission customers. The employees cannot have access to any information about the transmission system (such as information about available transmission capability, price, curtailments, storage, ancillary services, balancing, maintenance activity, capacity expansion plans) that is not publicly available on the Internet.
Electric utilities and gas pipeline companies must comply with the new standards by June 1, 2004 and must post on the Internet current written procedures implementing the standards of conduct. The procedures must be described in sufficient detail to enable customers and FERC to determine that the transmission provider is complying with the new rules. Transmission providers are required to have employees attend training sessions and sign affidavits certifying that they have been trained in this area. Also, each transmission provider must designate a chief compliance officer.
FERC’s new standards of conduct reflect that agency’s continued efforts to maintain the separation of corporate functions that it believes is necessary for competitive markets to function, as well as its recognition that some companies have been less than strict in their compliance with FERC’s restrictions on conduct.