

[Federal Register: February 27, 2006 (Volume 71, Number 38)]
[Rules and Regulations]               
[Page 9695-9698]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27fe06-5]                         

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM06-13-000; Order No. 674]

 
Conditions for Public Utility Market-Based Rate Authorization 
Holders

Issued February 16, 2006.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Final rule.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
amending its regulations to include certain rules governing the conduct 
of entities authorized to make sales of electricity and related 
products under market-based rate authorizations. This amendment is a 
codification of certain rules that were formerly incorporated in 
market-based rate sellers' tariffs.

EFFECTIVE DATE: The rule will become effective March 29, 2006.

FOR FURTHER INFORMATION CONTACT:

Mark D. Higgins, Office of the Market Oversight and Investigations, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-8273, Mark.Higgins@ferc.gov.
Frank Karabetsos, Office of General Counsel, Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426, (202) 502-
8133, Frank.Karabetsos@ferc.gov.

SUPPLEMENTARY INFORMATION: Before Commissioners: Joseph T. Kelliher, 
Chairman; Nora Mead Brownell, and Suedeen G. Kelly.

I. Introduction

    1. The Federal Energy Regulatory Commission (Commission) is 
amending 18 CFR part 35 to codify Market Behavior Rules 1, 3, 4, and 5, 
rules that previously have been incorporated in market-based rate 
sellers' tariffs. By this order, the Commission is not substantively 
changing Market Behavior Rules 1, 3, 4, and 5, but merely relocating 
them to the Code of Federal Regulations.
    2. The Commission is issuing this order as a Final Rule without a 
period for further public comment or a delay in the effective date. 
Under 5 U.S.C. 553(b), notice and comment procedures are unnecessary 
when the agency for good cause finds that notice and public procedure 
thereon is unnecessary.
    3. This Final Rule makes no substantive changes in existing 
regulatory requirements, and, as such, it will not change the effect 
these regulatory provisions have on regulated entities or the general 
public. Moreover, the Market Behavior Rules were subject to notice and 
comment in June 2003 \1\ and again in November 2005.\2\ Additional 
notice and comment is unnecessary because this Final Rule is 
procedural, that is, it merely transplants Market Behavior Rules 1, 3, 
4, and 5 from sellers' market-based rate tariffs to the Commission's 
regulations. This Final Rule does not make any substantive change in 
scope or application of the Market Behavior Rules 1, 3, 4 or 5, and it 
does not impose any new burden or regulatory requirement on market-
based rate sellers. Based on the foregoing, the Commission has good 
cause to find that notice and comment procedures are unnecessary in 
this rulemaking.
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    \1\ Investigation of Terms and Conditions of Public Utility 
Market-Based Rate Authorizations, ``Order Seeking Comments on 
Proposed Revisions to Market-Based Rate Tariffs and 
Authorizations,'' 103 FERC ] 61,349 (2003).
    \2\ Investigation of Terms and Conditions of Public Utility 
Market-Based Rate Authorizations, ``Order Proposing Revisions to 
Market-Based Rate Tariffs and Authorizations,'' 113 FERC ] 61,190 
(2005).
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II. Background

    4. On November 17, 2003, acting pursuant to section 206 of the FPA, 
the Commission amended all market-based rate tariffs and authorizations 
to include the Market Behavior Rules.\3\ The Commission determined that 
sellers' market-based rate tariffs and authorizations to make sales at 
market rates would be unjust and unreasonable unless they included 
clearly-delineated rules governing market participant conduct, and that 
the Market Behavior Rules fairly apprised market participants of their 
obligations in competitive power markets and were just and 
reasonable.\4\
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    \3\ Investigation of Terms and Conditions of Public Utility 
Market-Based Rate Authorizations, 105 FERC ] 61,218 (2003), reh'g 
denied, 107 FERC ] 61,175 (2004) (Market Behavior Rules Order). The 
Market Behavior Rules are currently on appeal. See Cinergy Marketing 
& Trading, L.P. v. FERC, Nos. 04-1168 et al. (D.C. Cir., filed April 
28, 2004).
    \4\ Market Behavior Rules Order, 105 FERC ] 61,218 at P 3 and 
158-74.
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    5. Market Behavior Rule 1 requires sellers to follow Commission-
approved rules and regulations in organized power markets. These rules 
and regulations are part of the ISO or RTO tariffs, and sellers' 
agreements to operate within ISOs and RTOs bind them to follow the 
applicable rules and regulations of the organized market.
    6. Market Behavior Rule 2 prohibits ``actions or transactions that 
are without a legitimate business purpose and that are intended to or 
foreseeably could

[[Page 9696]]

manipulate market prices, market conditions, or market rules for 
electric energy or electricity products.'' Actions or transactions 
explicitly contemplated in Commission-approved rules and regulations of 
an organized market, or undertaken by a market-based rate seller at the 
direction of an ISO or RTO, however, are not violations of Market 
Behavior Rule 2. In addition, Market Behavior Rule 2 prohibits certain 
specific behavior: Rule 2(a) prohibits wash trades; Rule 2(b) prohibits 
transactions predicated on submitting false information; Rule 2(c) 
prohibits the creation and relief of artificial congestion; and Rule 
2(d) prohibits collusion for the purpose of market manipulation.
    7. Market Behavior Rule 3 requires sellers to provide accurate and 
factual information, and not to submit false or misleading information 
or to omit material information, in any communication with the 
Commission, market monitors, ISOs, RTOs, or jurisdictional transmission 
providers.
    8. Market Behavior Rule 4 deals with reporting of transaction 
information to price index publishers. It requires that if a seller 
reports transaction data, the data be accurate and factual, and not 
knowingly false or misleading, and be reported in accordance with the 
Commission's Price Index Policy Statement.\5\ Rule 4 also requires that 
sellers notify the Commission of whether they report transaction data 
to price index publishers in accordance with the Price Index Policy 
Statement, and to update any changes in their reporting status.
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    \5\ Price Index Policy Statement, 104 FERC ] 61,121 (2003).
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    9. Market Behavior Rule 5 requires that sellers retain for a 
minimum three-year period all data and information upon which they 
billed the prices charged for electricity and related products in sales 
made under their market-based rate tariffs and authorizations or in 
transactions the prices of which were reported to price index 
publishers.
    10. Finally, Market Behavior Rule 6 directs sellers not to violate, 
or to collude with others in actions that violate, sellers' market-
based rate codes of conduct or the Standards of Conduct under part 358 
of our regulations.\6\
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    \6\ 18 CFR part 358 (2005).
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    11. On November 21, 2005, the Commission proposed to rescind the 
Market Behavior Rules in light of the proposed rule to implement the 
anti-manipulation provisions of the Energy Policy Act of 2005 (EPAct 
2005).\7\ We noted that the central purpose of the Market Behavior 
Rules, as reflected in Market Behavior Rule 2, was to prohibit market 
manipulation and that, with the enactment of statutory authority to bar 
such manipulation, the Market Behavior Rules could be rescinded upon 
the effectiveness of the new anti-manipulation rules.\8\ This would 
simplify the Commission's rules and provide greater clarity to the 
industry by avoiding duplicative or overlapping requirements, yet 
retain important rules governing market behavior. We noted, however, 
that certain provisions of the other Market Behavior Rules should be 
incorporated into rules of general applicability.\9\ On January 19, 
2006, we issued a Final Rule adopting, with minor revisions, the 
proposed anti-manipulation rule.\10\ The new anti-manipulation rules 
became effective January 26, 2006.
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    \7\ Investigation of Terms and Conditions of Public Utility 
Market-Based Rate Authorizations, 113 FERC ] 61,190 (2005); EPAct 
2005 sections 261 et seq., Pub. L. No. 109-58, 199 Stat. 594 (2005).
    \8\ Investigation of Terms and Conditions of Public Utility 
Market-Based Rate Authorizations, 113 FERC ] 61,190 at P 1 and 14.
    \9\ Id. at P 20-22.
    \10\ Prohibition of Energy Market Manipulation, Order No. 670, 
71 FR 4244 (Jan. 26, 2006), FERC Stats. & Regs. ] 31,202, 114 FERC ] 
61,047 (Jan. 19, 2006) (Order No. 670).
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III. Discussion

    12. Concurrently with the issuance of this Final Rule, the 
Commission is issuing an order in Docket No. EL06-16-000 which rescinds 
Market Behavior Rules 2 and 6 from sellers' market-based rate 
tariffs.\11\ As explained in the Market Behavior Rules Rescission 
Order, the anti-manipulation rule adopted in Order No. 670 makes it 
unnecessary to retain Market Behavior Rules 2 or 6. Also, as noted in 
the Market Behavior Rules Rescission Order, there is benefit to 
incorporating the substance of the other Market Behavior Rules into the 
Commission's regulations, and that codification is made herein.
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    \11\ Investigation of Terms and Conditions of Public Utility 
Market-Based Rate Authorizations, ``Order Revising Market-Based Rate 
Tariffs and Authorizations,'' Docket No. EL06-16-000, issued 
February 16, 2006 (Market Behavior Rules Rescission Order).
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    13. Market Behavior Rule 1 is applicable in organized RTO or ISO 
markets. While it is essentially a restatement of existing obligations 
that are in the tariffs of the RTOs and ISOs, applicable to market 
participants through their participant agreements, there is value to 
reinforcing the obligation to operate in accordance with Commission-
approved rules and regulations by placing this expectation in the 
Commission's regulations.
    14. Market Behavior Rule 3 requires accurate and factual 
communications with the Commission, Commission-approved market 
monitors, Commission-approved RTOs and ISOs, or jurisdictional 
transmission providers. As commenters in Docket No. EL06-16-000 point 
out, this rule is somewhat different from the new anti-manipulation 
rule, as it applies to all communications, not just those that are 
material in furtherance of a fraudulent or deceptive scheme. 
Accordingly, the substance of Market Behavior Rule 3 can be 
incorporated into the Commission regulations without duplicating or 
causing undue confusion with respect to the new anti-manipulation rule.
    15. Market Behavior Rule 4 requires sellers to provide accurate 
data to price index publishers, if the seller is reporting transactions 
to such publishers, and includes a requirement that sellers notify the 
Commission of their price reporting status and of any changes in that 
status. While a deliberate false report would be a violation of the new 
anti-manipulation rule, there is no confusion in stating this as part 
of the Commission's regulations and in reinforcing the importance of 
the Price Index Policy Statement. The second aspect of Market Behavior 
Rule 4, notification to the Commission of the market participant's 
price reporting status and of any changes in that status, is not 
otherwise provided for; thus, we incorporate it here in new part 35 of 
our regulations. This is a simple and non-burdensome way for the 
Commission to be informed of the prevalence of price reporting to price 
index developers. Codification of Market Behavior Rule 4 does not 
increase the burden of, or requirements for, notification in any way, 
because any market-based rate seller that provided a notification upon 
promulgation of the Market Behavior Rules in November 2003 (or 
thereafter) need not notify the Commission again upon the effective 
date of this Final Rule. Only sellers who have not previously provided 
a notification of their price reporting status, and sellers who have a 
change in their reporting status, are required to notify the 
Commission.
    16. Market Behavior Rule 5 requires sellers to maintain certain 
records for a period of three years to reconstruct prices charged for 
electricity and related products. This is different from the record 
retention requirements in part 125 of our regulations, which largely 
are related to cost-of-service rate requirements.\12\ In order to avoid 
potential confusion over the extent of this retention requirement, we 
are incorporating the record retention

[[Page 9697]]

requirement in part 35 of our regulations. Market Behavior Rule 5's 
record retention requirement was adopted alongside Market Behavior Rule 
2 to permit the Commission and interested entities to better monitor 
market-based rate sales and to allow the Commission sufficient time for 
the investigations into possible violations of the Market Behavior 
Rules. For the same reasons, we think the record retention requirement 
of Market Behavior Rule 5 is a necessary companion to the new anti-
manipulation regulations, which supplanted Market Behavior Rule 2 as 
the Commission's prohibition of market manipulation.\13\
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    \12\ 18 CFR part 125 (2005).
    \13\ When the Commission seeks to impose civil penalties for a 
violation of the new anti-manipulation rule, a five-year statute of 
limitations applies. Order No. 670, 114 FERC ] 61,047 at P 62-3. 
This underscores the importance of the record retention requirement. 
Moreover, in the Market Behavior Rules Rescission Order issued 
contemporaneously herewith, we propose to extend the record 
retention period to five years to match this statute of limitations.
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IV. Regulatory Flexibility Act Certification

    17. The Regulatory Flexibility Act of 1980\14\ generally requires a 
description and analysis of final rules that will have significant 
economic impact on a substantial number of small entities.\15\ The 
Commission is not required to make such analyses if a rule would not 
have such an effect. The Commission concludes that this Final Rule 
would not have such an impact on small entities because this Final Rule 
is merely a procedural codification of rules presently in market-rate 
based sellers' tariffs. The Final Rule continues to apply only to 
market-based rate sellers; the content and scope of application of the 
rules remains unchanged. Therefore, no regulatory flexibility analysis 
is required. As such, the Commission certifies that this Final Rule 
will not have a significant economic impact on a substantial number of 
small entities.
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    \14\ 5 U.S.C. 601-612 (2000).
    \15\ The RFA definition of ``small entity'' refers to the 
definition provided in the Small Business Act, which defines a 
``small business concern'' as a business which is independently 
owned and operated and which is not dominant in its field of 
operation. 15 U.S.C. 632 (2000). The Small Business Size Standards 
component of the North American Industry Classification System 
defines a small electric utility as one that, including its 
affiliates, is primarily engaged in the generation, transmission, 
and/or distribution of electric energy for sale and whose total 
electric output for the preceding fiscal years did not exceed 4 
million MWh. 13 CFR 121.201 (Section 22, Utilities, North American 
Industry Classification System, NAICS) (2004).
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V. Information Collection Statement

    18. Office of Management and Budget (OMB) regulations require OMB 
to approve certain information collection requirements imposed by 
agency rule.\16\ This Final Rule contains no new or modified 
information collections, and OMB reviewed the information collections 
when the Market Behavior Rules were promulgated in November 2003.\17\ 
Therefore, OMB review of this Final Rule is not required.
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    \16\ 5 CFR 1320.12.
    \17\ Investigation of Terms and Conditions of Public Utility 
Market-Based Rate Authorizations, 105 FERC ] 61,218 (2003) at P 187-
92.
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VI. Environmental Analysis

    19. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment.\18\ The 
Commission has categorically excluded certain actions from this 
requirement as not having a significant effect on the human 
environment. Included in the exclusion are rules that are clarifying, 
corrective, or procedural or that do not substantially change the 
effect of the regulations being amended.\19\ This rule is procedural in 
nature and therefore falls under this exception; consequently, no 
environmental consideration is necessary.
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    \18\ Regulations Implementing the National Environmental Policy 
Act, Order No. 486, 52 FR 47897 (1987), FERC Stats. & Regs. ] 30,783 
(1987).
    \19\ 18 CFR 380.4(a)(2)(ii) (2005).
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VII. Document Availability

    20. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through the Commission's Home Page (http://www.ferc.gov) and 

in the Commission's Public Reference Room during normal business hours 
(8:30 a.m. to 5 p.m. eastern time) at 888 First Street, NE., Room 2A, 
Washington, DC 20426.
    21. From the Commission's Home Page on the Internet, this 
information is available in the eLibrary. The full text of this 
document is available on eLibrary both in PDF and Microsoft Word format 
for viewing, printing,
and/or downloading. To access this document in eLibrary, type the 
docket number excluding the last three digits of this document in the 
docket number field.
    22. User assistance is available for eLibrary and the Commission's 
Web site during normal business hours. For assistance, please contact 
Online Support at 1-866-208-3676 (toll free) or 202-502-6652 (e-mail at 
FERCOnlineSupport@FERC.gov), or the Public Reference Room at 202-502-

8371, TTY 202-502-8659 (e-mail at public.referenceroom@ferc.gov).

VIII. Effective Date and Congressional Notification

    23. These regulations are effective February 27, 2006. The 
Commission has determined, pursuant to 5 U.S.C. 553(d), that a delayed 
effective date for this Final Rule is unnecessary. The Commission finds 
that notice and public procedure are unnecessary for the following 
three reasons. First, the regulations at issue have already been 
noticed and commented upon extensively. When the Market Behavior Rules 
were first proposed in June 2003, 69 parties filed comments, and when 
the Commission issued a Notice of Proposed Rulemaking in November 2005 
seeking comment on whether the Market Behavior Rules should be 
rescinded, 21 comments and 4 reply comments were filed with the 
Commission.\20\ Second, codification of Market Behavior Rules 1, 3, 4 
and 5 presents no substantive change in regulation. The Market Behavior 
Rules are simply being moved from sellers' tariffs to Commission 
regulations. The scope and application of the rules, particularly the 
universe of entities to which the rules apply, remain unchanged 
rendering their transfer to the Commission's regulations merely 
procedural. Third, no new burden or regulatory requirement is imposed 
upon regulated entities or the general public by codification of Market 
Behavior Rules 1, 3, 4, and 5. For instance, entities that previously 
filed notifications with the Commission pursuant to Market Behavior 
Rule 4 (new section 35.37(c)) need not notify the Commission again 
under this Final Rule. Therefore, based on the foregoing reasons and 
because there is no change in the rights and obligations of the parties 
impacted, the Commission finds good cause for waiving the customary 30-
day notice period before the effective date of this Final Rule.
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    \20\ See Investigation of Terms and Conditions of Public Utility 
Market-Based Rate Authorizations, 103 FERC ] 61,349 (2003); 
Investigation of Terms and Conditions of Public Utility Market-Based 
Rate Authorizations, 113 FERC ] 61,190 (2005).
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List of Subjects in 18 CFR Part 35

    Electric power rates, Electric utilities, Reporting and 
recordkeeping requirements and Uniform System of Accounts.


[[Page 9698]]


    By the Commission.
Magalie R. Salas,
Secretary.


0
In consideration of the foregoing, the Commission amends part 35, 
Chapter I, Title 18, Code of Federal Regulations, as follows.

PART 35--FILING OF RATE SCHEDULES AND TARIFFS

0
1. The authority citation for part 35 continues to read as follows:

    Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42 
U.S.C. 7101-7352.


0
2. Subpart H is added to read as follows:

Subpart H--Wholesale Sales of Electric Energy at Market-Based Rates

Sec.
35.36 Generally.
35.37 Market behavior rules.


Sec.  35.36  Generally.

    (a) For purposes of this subpart, seller means any person that has 
authorization to engage in sales for resale of electric energy at 
market-based rates under section 205 of the Federal Power Act.
    (b) The provisions of this subpart apply to all sellers authorized 
to make sales for resale of electric energy at market-based rates, 
unless otherwise ordered by the Commission.


Sec.  35.37  Market behavior rules.

    (a) Unit operation. Where a seller participates in a Commission-
approved organized market, seller will operate and schedule generating 
facilities, undertake maintenance, declare outages, and commit or 
otherwise bid supply in a manner that complies with the Commission-
approved rules and regulations of the applicable power market. Seller 
is not required to bid or supply electric energy or other electricity 
products unless such requirement is a part of a separate Commission-
approved tariff or is a requirement applicable to seller through 
seller's participation in a Commission-approved organized market.
    (b) Communications. Seller will provide accurate and factual 
information and not submit false or misleading information, or omit 
material information, in any communication with the Commission, 
Commission-approved market monitors, Commission-approved regional 
transmission organizations, Commission-approved independent system 
operators, or jurisdictional transmission providers, unless seller 
exercises due diligence to prevent such occurrences.
    (c) Price reporting. To the extent seller engages in reporting of 
transactions to publishers of electricity or natural gas price indices, 
seller shall provide accurate and factual information, and not 
knowingly submit false or misleading information or omit material 
information to any such publisher, by reporting its transactions in a 
manner consistent with the procedures set forth in the Policy Statement 
issued by the Commission in Docket No. PL03-3-000 and any 
clarifications thereto. Unless seller has previously provided the 
Commission with a notification of its price reporting status, seller 
shall notify the Commission within 15 days of the effective date of 
this regulation whether it engages in such reporting of its 
transactions. Seller must update the notification within 15 days of any 
subsequent change in its transaction reporting status. In addition, 
Seller must adhere to such other standards and requirements for price 
reporting as the Commission may order.
    (d) Record retention. Seller must retain, for a period of three 
years, all data and information upon which it billed the prices it 
charged for the electric energy or electric energy products it sold 
pursuant to seller's market-based rate tariff, and the prices it 
reported for use in price indices.

[FR Doc. 06-1719 Filed 2-24-06; 8:45 am]

BILLING CODE 6717-01-P
