Regulation

Order Nos. 2004 and 497 (Pipeline/Affiliates “Standards of Conduct”)

The Federal Energy Regulatory Commission (FERC) first adopted “standards of conduct” to regulate natural gas pipelines’ interactions with their marketing affiliates in 1988 in Order 497.  Affiliates are those customers that purchase gas at the wellhead, and then transport and distribute it to buyers.

The standards imposed extensive reporting requirements as well as certain “Chinese Wall” restrictions, which required pipelines and those affiliates to function independently, and restricted the sharing of information between pipelines and their marketing affiliates. 

Those Order 497 regulations were based on the theoretical threat that pipelines would impede competition by favoring their own marketing affiliates and complaints by other sellers who were competing with such affiliates. 

In its Orders 2004 series, FERC extended those standards to govern pipeline relationships with other affiliated entities such as producers, gatherers, processors, and to some extent affiliated local distribution companies that were previously exempt from the affiliate rules.  That Order 2004 extension of the standards of conduct was recently vacated by a court of appeals, and the precise extent of FERC’s present regulation of the affiliate relationship is not settled.