FERC has failed to justify an extension of its Standards of Conduct to the non-marketing affiliates of interstate natural gas pipelines. The facts found by the Commission – the convergence of gas and electric markets, and the existence of trading affiliates and asset managers – do not support the Cornmission’s "choice maden– imposing a costly and disproportionate burden on natural gas affiliates such as producers, processors, gatherers and intrastate pipelines, and sacrificing lost economies of scale in the natural gas industry.
Moreover, the changes in the industry identified by FERC have no bearing on the extension of the Standards to these previously-exempt affiliates. The cases on which FERC relies are inapt and do not relax the requirement that FERC provide a reasoned explanation for its actions. Nor do the Commission’s theoretical justifications for the challenged rule withstand scrutiny. The agency’s theoretical concerns about financial market transactions are unsupported by record evidence or reasoned analysis. Likewise, the Commission’s theory that pipelines have an opportunity and incentive to misuse their affiliated relationship is belied by the Commission’s failure to cite any examples of actual abuse by pipelines of their relationships with non-marketing affiliates. This rationale also is undercut by the fact that law and regulation already prohibit such abuse and provide appropriate remedies.
The Commission also has failed to justify its disparate treatment of local distribution companies that have been partially exempted from the rule ("Exempt LDCs") and other previously-exempt affiliates that are now subject to the Standards of Conduct. While the Commission in its orders based this disparate treatment on the fact that Exempt LDCs were regulated by the states, the Commission has now abandoned this rationale. Its new rationale that LDCs are exempted only when they do not compete with other wholesale sellers does not withstand scrutiny.
Finally, the Commission has failed to respond adequately to the shortcomings of its treatment of risk management employees, lawyers and discretionary acts. These shortcomings not only warrant a remand to address these specific issues, but demonstrate the unjustifiable breadth of the challenged orders.
Consequently, Pipeline Petitioners respectfully request the Court to reverse or remand the rule, consistent with the dissent of two FERC commissioners. See Order 2004, at 30,859-60 (Commissioner Brownell dissenting in part); Order 2004-A, at 3 1,225-26 (Commissioners Brownell and Kelliher, dissenting in part).
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