Academic journal article Energy Law Journal

Ngpa Definition of "First Sales" Renewed Significance in View of Ferc's Expanded Enforcement Powers

Academic journal article Energy Law Journal

Ngpa Definition of "First Sales" Renewed Significance in View of Ferc's Expanded Enforcement Powers

Article excerpt

I.Introduction

Wellhead natural gas deregulation under the Natural Gas Policy Act of 1978 ("NGPA")1, as amended by the Natural Gas Wellhead Decontrol Act of 1989 ("Decontrol Act")2, combined with restructuring of the interstate natural gas pipeline industry by the Federal Energy Regulatory Commission ("Commission" or "FÉRC") under FÉRC Order No. 636,3 fundamentally changed the manner in which natural gas is marketed and sold. Following the deregulatory lead of Congress in the NGPA, FÉRC adopted regulatory initiatives under the Natural Gas Act ("NGA")4 that all but eliminated regulatory distinctions between statutorily deregulated NGPA "first sales" and "jurisdictional" sales subject to continued regulation under the NGA.5

The producing sector responded, delivering increasingly abundant supplies of domestically produced natural gas to expanding markets.6 Marketers flourished in the unregulated resale market that developed following deregulation and industry restructuring.7 Consumers also benefitted from the increased availability of competitively priced supplies of natural gas and the competition that followed the growth of an independent gas marketer segment.8

Two subsequent legislative developments affect the laissez-faire environment in which producer sales and gas marketers have flourished, creating substantial new regulatory risks for producers, independent gas marketers and other sellers of natural gas. One such development was the enactment of section 315 of the Energy Policy Act of 2005 ("ÉPAct 2005")9 amending the NGA by adding a new section 4A authorizing FÉRC to prohibit "market manipulation."10 The other was the contemporaneous enactment of section 314 of ÉPAct 200511 amending the NGA to authorize civil penalties of up to $1 million dollars per violation per day.12 Those substantial civil penalties may be assessed by FÉRC for violation of its market-manipulation rules promulgated under NGA section 4A.13

In an Article published in the Energy Law Journal in December 2010, the author argued that the jurisdictional limits set forth in section 1(b) of the NGA constrain the exercise by FÉRC of the power to prohibit "market manipulation" under NGA section 4A.14 Thus, NGA Jurisdictional Limits argued that despite section 4A's purported authorization of FÉRC to prohibit market manipulation by "any entity," FERC's regulatory prohibition against market manipulation is limited to persons engaged in NGA-jurisdictional activities, i.e., "natural-gas companies."15 In an analogous context, the decision of the United States Court of Appeals for the Fifth Circuit in Texas Pipeline Ass 'n v. FERC16 provided strong support for that jurisdictional analysis.

Whether sales of natural gas are "jurisdictional" under the NGA, or are NGPA-deregulated "first sales," has taken on critical significance to producers, marketers, and other sellers of natural gas in light of the potential civil penalties for violating FERC's regulations prohibiting "market manipulation."17 For the reasons set forth in NGA Jurisdictional Limits, FERC's authority to prohibit market manipulation may be limited to persons engaged in making NGAjurisdictional sales, and may very well not reach those persons engaged exclusively in so-called "non-jurisdictional" sales, i.e., federally unregulated "intrastate" sales, direct sales to end users, and deregulated NGPA "first sales."18 If that analysis is correct, only sales of natural gas in interstate commerce for resale ("interstate sales-for-resale") that are not NGPA first sales, and, therefore, are made under NGA sales certificate authority, i.e., "NGA-jurisdictional sales," remain subject to the Commission's market-manipulation rules. By contrast, interstate sales-for-resale that are also NGPA first sales would be exempt from the Commission's NGA authority, including FERC's market-manipulation rules promulgated under the authority of NGA section 4A.

Regrettably, as a consequence of FÉRC Order No. …

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