
[Federal Register Volume 76, Number 6 (Monday, January 10, 2011)]
[Rules and Regulations]
[Pages 1335-1337]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-267]



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 Rules and Regulations
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  Federal Register / Vol. 76, No. 6 / Monday, January 10, 2011 / Rules 
and Regulations  

[[Page 1335]]



DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

5 CFR Part 3401

[Docket No. RM11-3-000; Order No. 744]


Supplemental Standards of Ethical Conduct for Employees of the 
Federal Energy Regulatory Commission

January 4, 2011.
AGENCY: Federal Energy Regulatory Commission, Energy.

ACTION: Final rule.

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SUMMARY: The Federal Energy Regulatory Commission (FERC or Commission), 
with the concurrence of the Office of Government Ethics (OGE), is 
amending the Supplemental Standards of Ethical Conduct for Employees of 
the Federal Energy Regulatory Commission (FERC Supplemental Standards). 
The final rule expands existing FERC Supplemental Standards involving 
prohibited financial interests and clarifies an exception to the 
general prohibition. The rule codifies existing reporting, divestiture, 
and disqualification requirements related to prohibited financial 
interests and clarifies that an employee may be eligible to defer the 
tax consequences of divestiture under subpart J of 5 CFR part 2634. The 
amendments codify the current agency practice regarding 
disqualification and waivers. See 5 CFR 2635.403(a). Additionally, the 
amendment makes minor revisions to the definitions.

DATES: Effective January 10, 2011.

FOR FURTHER INFORMATION CONTACT: Jeffrey Kaplan, Office of the General 
Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-8788, Jeffrey.kaplan@ferc.gov.

SUPPLEMENTARY INFORMATION:

Before Commissioners: Jon Wellinghoff, Chairman; Marc Spitzer, 
Philip D. Moeller, John R. Norris, and Cheryl A. LaFleur.

I. Background

    1. The Office of Government Ethics (OGE) has issued rules setting 
out the Standards of Ethical Conduct for Employees of the Executive 
Branch at 5 CFR part 2635 (Standards). The FERC Supplemental Standards 
at 5 CFR part 3401 were issued to provide an additional degree of 
assurance that agency decisions are not influenced by non-merit 
considerations and to protect the integrity of the Commission's 
programs and processes. These rules were designed to prevent Commission 
employees from taking actions that violate, or may appear to violate, 
conflict of interest laws or certain criminal statutes, or may create 
an appearance of a loss of impartiality.
    2. The Commission has reexamined its prohibition on ownership of 
securities and is making several revisions to the FERC Supplemental 
Standards pursuant to its rulemaking authority under 5 CFR Part 2635. 
The Commission has determined, with OGE's concurrence, that certain 
amendments to its existing regulations are needed.

II. Analysis of the Rule Changes

Section 3401.102--Prohibited financial interests

Section 3401.102(a)--Prohibited Financial Interests; General 
Prohibition
    3. The FERC Supplemental Standards generally prohibit employees 
from acquiring or holding securities of entities regulated by the 
Commission. 5 CFR 3401.102(a). The Commission has determined that the 
general prohibition does not cover all entities that may be affected by 
Commission regulation. The Energy Policy Act of 2005 (EPAct 2005), 
Public Law 109-58, 119 Stat. 594 (2005), which amended section 3 of the 
Natural Gas Act (NGA),\1\ gives the Commission exclusive authority to 
approve an application for siting, construction, expansion, or 
operation of a liquefied natural gas (LNG) terminal under section 3 of 
the NGA. EPAct 2005 defines an LNG terminal as including ``all natural 
gas facilities located onshore or in State waters that are used to 
receive, unload, store, transport, gasify, liquefy, or process natural 
gas that is imported to the United States from a foreign country, 
exported to a foreign country from the United States, or transported in 
interstate commerce by waterborne vessel.'' 15 U.S.C. 717a(11). The 
acquisition or ownership of securities in an LNG terminal is not 
prohibited, however, by existing FERC Supplemental Standards.
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    \1\ 15 U.S.C. 717b.
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    4. Also, the Commission's Supplemental Standards currently prohibit 
only the acquisition or holding of any securities of ``any electric 
utility engaged in the wholesale sale or transmission of electricity or 
having obtained an interconnection or wheeling order under Part II of 
the Federal Power Act.'' However, the Supplemental Standards do not 
expressly apply to ownership of securities of a ``transmitting 
utility,'' an entity redefined in EPAct to mean ``an entity (including 
an entity described in section 201 (f)) that owns, operates, or 
controls facilities used for the transmission of electric energy--(A) 
in interstate commerce; (B) for the sale of electric energy at 
wholesale.'' 16 U.S.C. 796(23).
    5. The Commission recognizes that the existing general prohibition 
is not broad enough to expressly give the Commission the flexibility to 
prohibit the acquisition or holding of securities in all FERC regulated 
entities. To close the gap and to protect the integrity of the 
Commission's programs and processes, the Commission amends the general 
prohibition by prohibiting an employee, and the spouse or minor 
children of an employee, from owning securities of a ``transmitting 
utility'' and a liquefied natural gas terminal as defined by section 3 
of the Natural Gas Act.
    6. The amendment also provides flexibility to the Designated Agency 
Ethics Official (DAEO) to amend the list of entities whose securities 
an employee, or spouse or minor child of an employee, may not acquire 
or hold due to changes in legislation or regulation. The regulation 
codifies the Office of General Counsel's practice of maintaining a 
prohibited securities list that bars Commission employees from 
acquiring or holding securities of a company found on the list.

[[Page 1336]]

Section 3401.102(b)--Prohibited Financial Interests; Prohibited 
Securities List
    7. The Final Rule codifies current practice that a prohibited 
securities list shall be maintained by the Office of General Counsel's 
General and Administrative Law section, updated annually or on a more 
frequent basis, and published and distributed on the Commission's 
Intranet Web site. The regulation also gives the DAEO discretion to 
determine whether the securities of an entity otherwise prohibited by 
paragraph (a) may be omitted from the prohibited securities list 
because the entity does not present concerns of impartiality and 
further allows the DAEO to determine whether the securities of an 
entity not included in paragraph (a) should, nevertheless, be deemed 
prohibited because the acquisition or holding of securities of such a 
particular entity presents concerns of impartiality. The discretion is 
appropriate because the types of entities currently prohibited may 
change over time due to corporate restructuring, mergers, legislation 
and regulation.
Section 3401.102(c)--Prohibited Financial Interests; Exception
    8. The amendment clarifies the Commission's longstanding exception 
to the general prohibition of paragraph 3401.102(a) for interests in 
mutual funds that do not have a stated objective of concentrating their 
investments in prohibited securities. The exception was previously 
included in the definition of the term ``securities,'' but caused 
confusion. The rule continues to prohibit holdings in a mutual fund if 
the stated objective is to concentrate the fund's investments in 
securities prohibited by paragraph 3401.102(a).
Section 3401.102(d)--Prohibited Financial Interests; Reporting and 
Divestiture
    9. The amendment codifies the current reporting and 
disqualification requirements for interests in prohibited securities.
    10. Paragraph 3401.102(d)(1), Reporting of prohibited securities, 
requires written notification to the DAEO of any interest prohibited 
under paragraph 3401.102(a). A new employee must report a prohibited 
financial interest within 30 days of the commencement of employment. If 
a prohibited security is acquired without specific intent after 
employment begins, such as through gift, inheritance, or marriage, the 
acquisition must be reported within 30 days of the acquisition of such 
interest.
    11. Paragraph 3401.102(d)(2), Divestiture of prohibited securities, 
requires that, except in the case where a waiver has been granted 
pursuant to paragraph 3401.102(e), prohibited financial interests must 
be divested within 90 days from the date divestiture is directed by the 
DAEO. This provision is consistent with 5 CFR 2635.403(d).
    12. Paragraph 3401.102(d)(3), Disqualification pending divestiture, 
codifies the current agency practice of requiring that an employee 
disqualify himself or herself pending the divestiture discussed above 
from participating in particular matters which, as a result of 
continued ownership of prohibited securities, would affect the 
financial interests of the employee, or those of the spouse or minor 
child of the employee. The amendment continues to allow waiver from the 
disqualification rule where 5 CFR 2635.402(d) (pertaining to waiver of 
or exemptions from disqualification under 18 U.S.C. 208) applies.
    13. Finally, paragraph 3401.102(d)(4), Special tax treatment of 
gain on divested securities, clarifies that an employee may be eligible 
to defer paying capital gains tax on investments sold to comply with 
the conflict of interest requirements under 26 U.S.C. 1043 and subpart 
J of 5 CFR part 2634.
Section 3401.102(e)--Prohibited Financial Interests; Waiver
    14. The waiver section is substantially the same as the existing 
waiver provision. The rule adds a minor revision by explicitly 
requiring that waivers granted by the DAEO be in writing. The writing 
requirement is consistent with 5 CFR 2635.402(d)(2)(ii).
Section 3401.102(f)--Prohibited Financial Interests; Definitions
    15. The term securities is revised to eliminate the portion of the 
definition related to mutual funds.

III. Regulatory Findings

A. Administrative Procedure Act

    16. Pursuant to 5 U.S.C. 553(a)(2), notice of proposed rulemaking, 
opportunity for public comment, and a 30-day delayed effective date are 
not applicable to this final rule because this rule is limited to 
agency organization, management, or personnel matters and is exempt 
from the provisions of Executive Order Nos. 12866 and 12988.

B. Regulatory Flexibility Act Analysis

    17. Because no notice of proposed rulemaking is required, the 
provisions of the Regulatory Flexibility Act (5 U.S.C. chapter 6) do 
not apply.

C. Paperwork Reduction Act

    18. The Paperwork Reduction Act, 44 U.S.C. chapter 35, does not 
apply because this rulemaking does not contain information collection 
requirements subject to the approval of the Office of Management and 
Budget.
Effective Date
    This regulation includes rules relating to agency management or 
personnel; it also includes rules of agency organization, procedure or 
practice that do not substantially affect the rights or obligations of 
nonagency parties. As such, pursuant to 5 U.S.C. 804, this regulation 
is effective January 10, 2011.

List of Subjects in 5 CFR Part 3401

    Conflicts of interest, Government employees.

    Submitted: October 18, 2010.

    By the Commission.
Kimberly Bose,
Secretary, Federal Energy Regulatory Commission.
    Approved: October 21, 2010.
Robert I. Cusick,
Director, Office of Government Ethics.
    For the reasons set forth in the preamble, the Commission, with the 
concurrence of OGE, amends Part 3401 of Title 5, Code of Federal 
Regulations, as follows:

PART 3401--SUPPLEMENTAL STANDARDS OF ETHICAL CONDUCT FOR EMPLOYEES 
OF THE FEDERAL ENERGY REGULATORY COMMISSION

0
1. The authority citation for part 3401 continues to read as follows:

    Authority:  5 U.S.C. 7301; 5 U.S.C. App. (Ethics in Government 
Act of 1978); 42 U.S.C. 7171, 7172; E.O. 12674, 54 FR 15159, 3 CFR, 
1989 Comp., p. 215, as modified by E.O. 12731, 55 FR 42547, 3 CFR, 
1990 Comp., p. 306; 5 CFR 2635.105, 2635.402(c), 2635.403, 
2635.502(e), 2635.604, 2635.803.


0
2. Section 3401.102 is revised to read as follows:


Sec.  3401.102  Prohibited financial interests.

    (a) General prohibition. No employee, and no spouse or minor child 
of an employee, shall acquire or hold any securities issued by an 
entity on the prohibited securities list described in paragraph (b) of 
this section. The list shall include, but not be limited to the 
following:
    (1) Natural gas companies;
    (2) Interstate oil pipelines;
    (3) Hydroelectric licensees or exemptees;

[[Page 1337]]

    (4) Public utilities;
    (5) Transmitting utilities or electric utilities engaged in the 
wholesale sale or transmission of electricity or having obtained an 
interconnection or wheeling order under part II of the Federal Power 
Act;
    (6) Liquefied natural gas terminals as defined by section 3 of the 
Natural Gas Act; or
    (7) Parent companies of an entity identified in paragraphs (a)(1) 
through (a)(6) of this section.
    (b) Prohibited securities list. A prohibited securities list shall 
be maintained, published, and distributed by the Office of the General 
Counsel's General and Administrative Law section, updated annually or 
on a more frequent basis to include entities that meet the criteria in 
paragraph (a) or are otherwise subject to the Commission's jurisdiction 
and to remove entities that do not raise impartiality concerns after 
considering the above criteria.
    (c) Exception. Nothing in this section prohibits an employee, or 
the spouse or minor child of an employee, from acquiring or holding an 
interest in a publicly traded or publicly available mutual fund or 
other collective investment fund, or in a widely held pension or mutual 
fund, provided: (1) That the employee neither exercises control nor has 
the ability to exercise control over the financial interests held in 
the fund; or (2) that the fund's prospectus or practice does not 
indicate the stated objective of concentrating its investments in 
entities identified in paragraphs (a)(1) through (a)(7) of this 
section.
    (d) Reporting and divestiture-- (1) Reporting of prohibited 
securities. An employee must promptly report in writing to the DAEO any 
acquired interest prohibited under paragraphs (a) and (b) of this 
section. New employees must report in writing to the DAEO prohibited 
financial interests within 30 days of commencement of employment. 
Prohibited financial interests acquired after employment commences and 
without specific intent, such as through gift, inheritance, or 
marriage, must be reported in writing to the DAEO within 30 days of 
acquisition of such interest.
    (2) Divestiture of prohibited securities. A prohibited financial 
interest must be divested within 90 days from the date divestiture is 
ordered by the DAEO unless the employee obtains a written waiver from 
the DAEO in accordance with this section.
    (3) Disqualification pending divestiture. Pending divestiture of 
prohibited securities, an employee must disqualify himself or herself, 
in accordance with 5 CFR 2635.402 and 3401.103, from participating in 
particular matters which, as a result of continued ownership of 
prohibited securities, could affect the financial interests of the 
employee or those of the spouse or minor child of the employee. 
Disqualification is not required where a waiver described in Sec.  
2635.402(d) applies.
    (4) Tax treatment of gain on divested securities. Where divestiture 
is required by this section, the employee or the spouse or minor child 
of an employee may be eligible to defer the tax consequences of 
divestiture by obtaining a Certificate of Divestiture from the Director 
of the Office of Government Ethics before selling the securities in 
accordance with subpart J of 5 CFR part 2634.
    (e) Waiver. The DAEO may grant a written waiver from this section 
based on a determination that the waiver is not inconsistent with 5 CFR 
part 2635 of this title or otherwise prohibited by law and that, under 
the particular circumstances, application of the prohibition is not 
necessary to avoid the appearance of an employee's misuse of position 
or loss of impartiality, or to otherwise ensure confidence in the 
impartiality and objectivity with which the Commission's programs are 
administered, or in the case of a special Government employee, 
divestiture would result in substantial financial hardship. A waiver 
under this paragraph must be in writing and may impose appropriate 
conditions, such as requiring execution of a written disqualification.
    (f) Definitions. For the purposes of this section:
    (1) The term securities includes an interest in debt or equity 
instruments. The term includes, without limitation, secured and 
unsecured bonds, debentures, notes, securitized assets, and commercial 
paper, as well as all types of preferred and common stock. The term 
encompasses both current and contingent ownership interests, including 
any beneficial or legal interest derived from a trust. It extends to 
any right to acquire or dispose of any long or short position in such 
securities and includes, without limitation, interests convertible into 
such securities, as well as options, rights, warrants, puts, calls, and 
straddles with respect thereto.
    (2) The term parent means a company that possesses, directly or 
indirectly, the power to direct or cause the direction of the 
management and policies of an entity identified in paragraphs (a)(1) 
through (a)(6) of this section.

[FR Doc. 2011-267 Filed 1-7-11; 8:45 am]
BILLING CODE 6717-01-P


