Compliance Under Order No. 787: Communications Between RTOs, Pipelines and LDCs

1. Compliance Under Order No. 787:Communications Between RTOs, Pipelines and LDCs Seventh Annual Market Regulation Conference October 9, 2014 Christopher Barr Post & Schell, P.C.

2. Summary and overview • Development of Order No. 787 • Implementation and LDC Compliance Issues

3. Summary and Overview • Order No. 787 is part of a broad effort to improve coordination between the gas and electric industries, driven by the need for better reliability. • The Final Rule permits pipelines and RTOs/ISOs to share sensitive operational data, subject to protections, chiefly the “No Conduit Rule.” • The rule does not directly impose regulations on LDCs, but does create potential burdens, sometimes necessitating a waiver, for LDCs affiliated with pipelines. • Further, the non-disclosure agreements that RTOs/ISOs have filed to implement the rule impose compliance obligations and unresolved uncertainties on LDCs.

4. Development of Order No. 787

5. Development of Order No. 787 Part of broader gas-electric coordination efforts. • Grew out of the Docket No. AD12-2 hearings regarding gas and electric coordination • One of a number of initiatives, including: • Docket No. RM14-2 (Gas day and related changes) • Docket No. EL14-22 et al. (requiring public utilities to conform scheduling practices with those adopted in Docket No. RM14-2)

6. Development of Order No. 787 Part of a broader range of gas/electric initiatives (cont.) • Docket No. RP14-442 (show cause regarding the need for pipelines to post offers to buy capacity). • Public meeting to discuss development of an electronic trading platform for natural gas, September 18, 2014. • Docket No. ER14-2407 et al., New England ISO Winter Reliability Plan order, issued Sept. 9, 2014.

7. Development of Order No. 787 • Notice of Proposed Rulemaking (“NOPR”) • NOPR issued July 18, 2013. Goal: “In an effort to provide certainty to the industry and remove barriers–real or perceived—to the sharing of non-public, operational information, the Commission proposes to revise its regulations to authorize expressly the exchange of non-public, operational information between electric transmission operators and interstate natural gas pipelines. The Commission intends to remove any barriers to the sharing of non-public, operational information, not just during emergencies, but also for day-to-day operations, planned outages, and scheduled maintenance.”

8. Development of Order No. 787 • NOPR (cont.) • Proposed limits and safeguards against undue discrimination and data misuse. • “No Conduit Rule” “[I]n consideration of the concerns regarding the exchange of non-public operational information, the Commission also proposes to adopt a No-Conduit Rule which prohibits recipients of the non-public, operational information from subsequently disclosing or being a conduit for subsequently disclosing that information to any other entity.”

9. Development of Order No. 787 • NOPR (cont.) • Further oversight for any tariff changes to implement the rule, changes would be subject to review when filed.

10. Development of Order No. 787 • Relevant text of Proposed Regulations • §38.2 Each jurisdictional RTO/ISO/utility: “is authorized to share non-public, operational information with a pipeline, as defined in §284.12(b)(4) of this chapter, or another public utility covered by this section for the purpose of promoting reliable service or operational planning.”

11. Development of Order No. 787 • Relevant text of regulations. • (b) Except as permitted in paragraph (a) of this section, a public utility, as defined in this section, and its employees, contractors, consultants, and agents are prohibited from disclosing, or using anyone as a conduit for the disclosure of, non-public, operational information received from a pipeline pursuant to §284.12(b)(4) of this chapter to a third party or to its marketing function employees as that term is defined in §358.3(d) of this chapter.

12. Development of Order No. 787 • Text of regulations (cont.) • §284.12(b)(4). for pipelines: “a pipeline is authorized to share non-public, operational information with a public utility, as defined in §38.2(a) of this chapter or another pipeline covered by this section, for the purpose of promoting reliable service or operational planning. (ii) Except as permitted in paragraph (b)(4)(i) of this section, a pipeline and its employees, contractors, consultants, and agents are prohibited from disclosing, or using anyone as a conduit for the disclosure of, non-public, operational information received from a public utility pursuant to §38.2 of this chapter to a third party or to its marketing function employees as that term is defined in §358.3(d) of this chapter.”

13. Development of Order No. 787 • Criticisms in the comments to the NOPR • The proposed rules were broadly supported, but critics focused on potential problems. • Supporters (esp. RTOs/ISOs and pipelines) noted that without the rule, significant communications might not occur because of limitations in the existing regulations. • Opponents, and some conditional supporters, feared that pipelines might use data to gain advantages in transportation marketing, among other preferential benefits.

14. Development of Order No. 787 • Final Rule • Order No. 787 issued on November 15, 2013. • Adopted NOPR regulations without modification. • Found that the proposed communications were not “unduly” discriminatory, despite involving preferential access to information because the entities involved were not similarly situated to other market participants and were more like pipeline-to-pipeline and utility-to-utility communications allowed under existing regulations.

15. Development of Order No. 787 • Final Rule • Relied on the No Conduit Rule to prevent information from flowing out from pipelines and utilities to third parties and market participants. • Stated that the rule did not apply to non-pipeline entities, such as communications with LDCs. (More on this later.)

16. Development of Order No. 787 • What type of information is covered? • FERC declined to limit the identity of data that could be exchanged subject to the rule (P 123)

17. Development of Order No. 787 • What information is covered? “that information which they find relevant to promote reliable service or operational planning on their systems. As explained in the NOPR, and reaffirmed here, the Commission is providing flexibility to transmission operators—who have the most insight and knowledge of their systems—to determine what non-public, operational information, if any, they deem valuable to maintain the reliability and integrity of their systems.”

18. Development of Order No. 787 • The Commission reaffirmed the examples provided in its NOPR (PP 118, 123): • real-time and anticipated system conditions that have or are anticipated to impact natural gas transportation by changing near term gas flows; • actual and anticipated electric service interruptions to gas compressor locations; • verification that there is sufficient pipeline operational capability available at a specific delivery point to change the quantity of natural gas delivered to the generator as identified by the electric transmission operator;

19. Development of Order No. 787 • Examples of data subject to the Final Rule (cont.) • actual and projected gas transportation restrictions to electric generators; • real-time actual flow and operational capacity data at all receipt and delivery points; real-time pipeline pressure at all receipt and delivery points; • nominated and scheduled quantities of shippers who are or who supply gas-fired generators; and • scheduled dates and duration of generator, pipeline, and transmission maintenance and planned outages.

20. Development of Order No. 787 • Safeguards against misuse or dissemination of sensitive operational data. P 15 • All “Transmission Operators” must abide by their tariffs and not deviate or engage in undue discrimination. • Standards of Conduct still limit data within Transmission Operators to exclude marketing function employees. • No Conduit Rule, which, “prohibits recipients of non-public, operational information pursuant to the Final Rule from subsequently disclosing that information to a third party or a marketing function employee, as that term is defined in section 358.3(d) of the Commission’s regulations.”

21. Development of Order No. 787 • No Conduit Rule (cont.) • The Commission declined to narrow or expand the No Conduit Rule, or to create exceptions. • The Commission dismissed concerns over electric utilities providing access to the operational data from gas pipelines to their gas purchasing personnel, and to gas pipelines providing electric generator data to their transportation marketing personnel. • Pipelines with affiliated LDCs were encouraged to file waiver requests if their affiliation with LDCs or other affiliates makes compliance difficult. (P 99)

22. Development of Order No. 787 • Implementation required by the Final Rule (P 16): “to the extent that an electric transmission operator or interstate natural gas pipeline has a tariff provision which precludes a communication that would otherwise be authorized under the Final Rule, it will have to make a filing under section 205 of the FPA or section 4 of the NGA to revise that tariff provision to allow the exchanges of information permitted by this Final Rule.”

23. Development of Order No. 787 • Impact on LDCs and other intrastate pipelines. • AGA and others urged that the Commission clarify that LDCs would not be considered “pipelines” for purposes of the Final Rule, and that they needed access to operational data to ensure • The New York Transmission Operators also stated that they should be able to share data with LDCs due to LDCs’ role in managing gas access to generators, inter alia.

24. Development of Order No. 787 • The Commission addressed these issued in Order No. 787: • LDCs and intrastate pipelines would not be subject to the Final Rule, which directly governed only jurisdictional pipelines. (P 56, P 59)

25. Development of Order No. 787 • The No Conduit Rule would not directly apply to LDCs and intrastate pipelines: “[T]he No-Conduit Rule adopted in this Final Rule does not otherwise affect the ability of interstate natural gas pipelines to exchange operational information among themselves or with LDCs regarding actual or potential pipeline or distribution system operational conditions affecting the gas flow between these physically interconnected parties.

26. Development of Order No. 787 • The Commission went on to further clarify the application of the rule does not: “affect the ability of an electric transmission operator to share its own information with an LDC, if otherwise permitted under its tariff.”

27. Development of Order No. 787 • “otherwise affect the ability of interstate natural gas pipelines and intrastate natural gas pipelines and gatherers to exchange operational information regarding operational conditions affecting the gas flows between these physically interconnected parties.” • “prohibit electric transmission operators from sharing non-public, operational information received from a pipeline pursuant to this Final Rule with LDCs, if the information sharing and appropriate safeguards to prevent inappropriate use or disclosure of shared information is separately authorized by the Commission, for example pursuant to a FPA section 205 tariff filing by an ISO or RTO. See P 56, also fn. 27.

28. Development of Order No. 787 • No “blanket authority” for pipelines and utilities to provide operational data to LDCs. • Instead, case-by-case implementation of terms for such communications according to tariffs filed by RTOs/ISOs: “Electric transmission operators that see the need for such communication given the circumstances on their systems may develop tariff provisions that establish acceptable procedures for the handling and protection from inappropriate disclosure or use of such information.”

29. Development of Order No. 787 • What does that type of tariff involve? • the tariff might require the LDC to enter into a non-disclosure agreement (NDA). (Fn. 83) • The Commission provided an example, the California Independent System Operator (CAISO), which amended its tariff in 2011 to provided that:

30. Development of Order No. 787 • CAISO recommended model tariff permitted: • sharing of “outage information with natural gas transmission and distribution utilities serving gas-fired generators “with or without notice to the affected market participant. • information could include without limitation the identity of individual generators needed to support CAISO reliability, if there are gas supply shortages, capacity reductions or other curtailments.

31. Development of Order No. 787 • Order No. 787-A and Waiver Orders. • The Commission issued Order No. 787-A on June 19, 2014. • Denied all rehearing requests. • Declined to revise the No Conduit Rule to exempt shared employees of LDCs affiliated with pipelines, with respect to data provided under this rule.

32. Development of Order No. 787 • Order No. 787-A (cont.) • Found that the scope of protections under the Standards of Conduct would not provide sufficient protection, that posting of inadvertently released data would not prevent market harm, and that LDCs were also not subject to its jurisdiction. • Emphasized the availability of waivers for pipelines and LDC affiliates to address shared employees and related problems. • Declined to establish a technical conference or other formal monitoring steps to assess the effect of the rule, as sought by NGSA, electing to monitor by other means.

33. Development of Order No. 787 • Waiver Orders – for affiliated pipelines and LDCs/intrastates, when their relationship “makes compliance difficult.” • National Fuel Gas Supply Corporation, Docket No. RP14-380, June 19, 2014 Granted two of four requested waivers, permitting shared LDC employees in the gas control center to receive and share non-public operational data from electric utilities via the pipeline, subject to conditions.

34. Development of Order No. 787 • Waivers (cont.) • Shared employees could not be marketing employees, and would need to ensure no role as a conduit to (1) a third party, (2) marketing function employees of the pipeline, or (3) any other affiliate employee not authorized to receive the data under the waiver. Denied the other two waiver requests, including a request for authority to share notice of impending power outages, concerned that access to confidential, customer-specific data could result in preferential access by marketing personnel in the affiliates.

35. Development of Order No. 787 • Waivers (cont.) • Enable Gas Transmission LLC, Docket No. RP14-453, June 19, 2014 Granted a protested waiver request as to shared employees of intrastate pipelines operationally involved in providing services to the interstate pipeline, subject to the same conditions as were imposed in National Fuel. • Transcontinental Gas Pipe Line Company, LLC, Docket No. RP14-623, August 18, 2014. Granted a waiver request as to employees shared between Transco and its intrastate pipeline affiliate Cardinal, because of their joint work on gas control, customer service and operations, subject to similar conditions as in National Fuel and Enable.

36. Implementation and LDC Compliance Issues

37. Implementation and LDC Compliance Issues • Implementation. • Gas pipelines have typically filed tariff revisions providing that they can share operational data with electric utilities subject to certain protocols, with no reference to other parties. Here is a sample filed by Gulfstream, Docket No. 14-465:

38. Implementation and LDC Compliance Issues “38. PERMITTED SHARING OF NON-PUBLIC INFORMATION Pursuant to FERC Order No. 787 and subject to the requirements of FERC Order No. 787, Transporter shall have the right to share, from time to time on a voluntary basis, non-public operational information with an independent System Operator, Regional Transmission Organization or public utility that owns, operates, or controls facilities used for transmission of electric energy in interstate commerce (collectively “Electric Transmission Operator”) for the purpose of promoting reliable service or operational planning on either the Transporter’s or Electric Transmission Operator’s system. Transporter’s primary point of contact and the protocols for the sharing of such nonpublic information will be provided to each Electric Transmission Operator in Transporter’s service territory. All such sharing of non-public operational or planning information will be in accordance with those protocols. A list of the Electric Transmission Operators who have agreed to the protocols will be maintained on Transporter’s Informational Postings website.”

39. Implementation and LDC Compliance Issue • Implementation (cont.) • RTOs and ISOs have responded to the order by filing changes to their tariffs governing disclosure of information. Not all have filed yet. • The New England ISO responded by revising its tariff to permit communications with pipelines in accordance with Order No. 787, and eliminating the pipeline-specific non-disclosure agreement attached to the tariff.

40. Implementation and LDC Compliance Issues • PJM revised the Confidentiality, “Party Access” section of its tariff to add the underlined language below: “Further, the Office of the Interconnection shall be permitted to share non-public, operational information with natural gas local distribution companies and/or intrastate natural gas pipeline operators, as appropriate, for the purpose of promoting reliable service or operational planning, provided that such party has acknowledged, in writing, that it shall not disclose, or use anyone as a conduit for disclosure of, non-public, operational information received from the Office of Interconnection to a third party or in an unduly discriminatory or preferential manner or to the detriment of any natural gas and/or electric market. Such non-public, operational information received from natural gas local distribution companies and/or intrastate natural gas pipeline operators pursuant to this section will be subject to the confidentiality provisions set forth in this Section 18.17 of the Operating Agreement.”

41. Implementation and LDC Compliance Issues • Actually PJM initially filed to include only a prohibition against the LDC disclosing the data to a third party. • In a May 7 letter order, the Commission issued an order noting that it was concerned about “marketing function” employees of the LDC, and requiring PJM to submit a compliance filing to prevent undue discrimination/preference and “detriment of any natural gas and/or electric market.” • An LDC (National Fuel Gas Distribution Corporation) has filed for rehearing/clarification of the letter order accepting the revised language, as well as a related clarification request in Docket No. RM13-17.

42. Implementation and LDC Compliance Issues • The New York Independent Operator, Inc. (“NYISO”) filed on September 17, 2014 in Docket No. ER14-2895 required an NDA for LDCs as to third party communications: “communication of non-public, operational information concerning natural gas-fueled generation from resources located within the New York Control Area between the ISO and the operating personnel of natural gas local distribution companies and/or intrastate natural gas pipeline operators for the purpose of promoting reliable service or operational planning, provided that such party has acknowledged, in writing, that it is prohibited from disclosing, or using anyone as a conduit for disclosure of, non-public, operational information received from the ISO to an affiliate or third party.” • It seems likely that other ISO/RTO utilities will file compliance tariffs on this issue as well.

43. Implementation and LDC Compliance Issues • Outstanding Compliance Issues for LDCs. • Waiver issues related to affiliated pipelines with shared operational employees. • The Commission has granted partial waivers – if an LDC has an interstate affiliate that will be receiving RTO/ISO data under Order No. 787, is a waiver needed? • Each waiver has conditions, which include broader categories of excluded affiliated personnel than the Standards of Conduct. • Which employees are excluded from access to the RTO/ISO data under the terms of the waiver?

44. Implementation and LDC Compliance Issues • LDC waiver issues. • What additional protocols are needed? • How is training affected?

45. Implementation and LDC Compliance Issues • Outstanding Compliance Issues for LDCs. • RTO/ISO non-disclosure certificates, revised to comply with Order No. 787. • What are the restrictions of the NDA? • FERC Enforcement Staff may likely view violation of an NDA provided in a Commission-filed tariff as being a subject within its reach.

46. Implementation and LDC Compliance Issues • Outstanding Compliance Issues for LDCs. • RTO/ISO NDAs (cont.) • Who is a “third party?” The pipeline, affiliated or not, affected by the operational constraint? • What constitutes an unduly preferential or discriminatory action in this context?

47. Implementation and LDC Compliance Issues • Outstanding Compliance Issues for LDCs. • RTO/ISO NDAs (cont.) • What is a “detriment” to “any” “gas” or “electric” market. • Even if it is not in the NDA, the Commission may regard allegations of “detriment” to interstate markets as falling within its enforcement authority, regardless of • When an LDC takes steps to re-direct gas flows or to encourage cutbacks by particular customers, when does a market impact, on some player, become a “detriment” to “any market”?

48. Implementation and LDC Compliance Issues • Outstanding Compliance Issues for LDCs. • RTO/ISO NDAs (cont.) • LDCs do not simply receive RTO/ISO data and redirect gas flows. They transport large volumes, particularly to large users such as generators, and affecting flows requires communication, which raises more questions. • If based on RTO/ISO information, an LDC provides notice to its third-party shippers and large end user transportation customers (including interruptible customers) on its web site that an disruption or interruption may occur, does it run the risk of having violated an NDA by disclosing information derived from the RTO/ISO to a third party?

49. Implementation and LDC Compliance Issues • Outstanding Compliance Issues for LDCs. • RTO/ISO NDAs (cont.) • An LDC’s marketing affiliate may be a shipper on the system which like other third-party shippers serves retail choice customers and large end user transportation customers. Does the LDC violate an RTO/ISO’s tariff/NDA by communicating with an affiliate even though the affiliate learns of the LDC’s system alert at the same time as other third-party shippers? • In advance of issuing its own system alert, an LDC may need to contact the pipelines to which it is requesting shippers source their receipts. Because it is affiliated with one or more of these pipelines, is this communication prohibited by the RTO/ISO’s tariff/NDA? If the pipelines are unaffiliated, but are still third-parties; is this communication prohibited by the RTO/ISO tariff/NDA?

50. Implementation and LDC Compliance Issues • Outstanding Compliance Issues for LDCs. • RTO/ISO NDAs (cont.) • An LDC’s marketing affiliate may be a shipper on the system which like other third-party shippers serves retail choice customers and large end user transportation customers. Does the LDC violate an RTO/ISO’s tariff/NDA by communicating with an affiliate even though the affiliate learns of the LDC’s system alert at the same time as other third-party shippers?