(1) The commission subjects transactions between a DSU and any of its corporate affiliates to close scrutiny. A DSU should not acquire resources involving affiliate transactions except through competitive solicitations that are consistent with these guidelines. DSUs should sufficiently demonstrate through transparent, documented modeling, analysis and judgment that any resource acquired from an affiliate corresponds to a predetermined portfolio need.

(2) To the extent a DSU procures resources involving affiliate transactions it should respond to the following primary regulatory concerns:

(a) A DSU should demonstrate that it has not subordinated its default supply obligations in favor of an affiliate corporate entity;

(b) The burden of proof is on a DSU to demonstrate that costs it incurs through any affiliate transactions are just and reasonable and in the public interest and, as such, are recoverable through regulated rates. Since, by definition, such transactions cannot be presumed to be conducted on a truly arm's-length basis, inevitably leaving room for gaming, self dealing and certain subsidies, the commission will subject these transactions to greater scrutiny to reasonably protect ratepayers served under regulated rates from harm. This higher level of protection is referred to as the "no harm to ratepayer" standard. This standard has evolved over time from long standing regulatory practices and policies that require affiliated transactions to be fair, reasonable and in the public interest before the associated costs are recoverable through rates. In keeping with the "no harm to ratepayer" standard, the commission will judge the reasonableness of affiliate transactions-related costs in relation to the lower of cost or market at the time of contract execution. For purposes of this rule, cost, by definition, is the applicable regulated cost of service structure, including a return on the capital invested, to provide the relevant affiliated services;

(c) A DSU must reasonably assure that costs and revenues are accurately and properly segregated between regulated and nonregulated affiliated entities in order to protect captive customers served under regulated rates, and avoid subsidies to, and excess charges by, nonregulated affiliates;

(d) The "no harm to ratepayer" standard requires that the books of account and related records of any affiliate transacting business with the DSU must be available for audit and review purposes. A DSU should impute the estimated costs of necessary audit activity into affiliate resource costs when evaluating resource alternatives according to these guidelines. As reasonable and necessary and when lawful, the commission will protect affiliate information through confidentiality agreements;

(e) In order to provide for ongoing regulatory review, a DSU should separately report on its on-going affiliated transactions and relationships in the context of the issues identified in this rule. Such reporting should be sufficient to allow the commission to adequately monitor whether on-going affiliate transactions-related costs are prudent and, therefore, recoverable through regulated rates; and

(f) A DSU must implement a code of conduct to guide management and other employees regarding standards for day-to-day business activities with affiliates and to guard against self-dealing, gaming and resulting subsidies.