[Federal Register Volume 60, Number 4 (Friday, January 6, 1995)]
[Rules and Regulations]
[Pages 2011-2014]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-321]



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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 154, 157, 270, 271, 272, 273, 274 and 275

[Docket No. RM94-18-002; Order No. 567-B]


Removal of Outdated Regulations Pertaining to the Sales of 
Natural Gas Production

    Issued December 15, 1994.

AGENCY: Federal Energy Regulatory Commission; DOE.

ACTION: Final rule; order on rehearing.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
issuing an order on rehearing concerning the deletion of a section of 
the Commission's regulations implementing the Natural Gas Policy Act 
(NGPA). That section provided that any sale by an affiliate of an 
interstate pipeline, intrastate pipeline, or local distribution company 
(LDC) is a first sale under the NGPA unless the Commission determines 
not to treat it as such. The Commission finds that Congress eliminated 
the only statutory basis for defining pipeline and LDC affiliate 
marketers as first sellers and reaffirms the Commission's finding that, 
with the decontrol of wellhead pricing, no purpose is any longer served 
by the anti-circumvention rule deleted by the Commission's previous 
order.

EFFECTIVE DATE: December 15, 1994.

FOR FURTHER INFORMATION CONTACT: Sandra Elliott, Office of the General 
Counsel, Federal Energy Regulatory Commission, 825 North Capitol 
Street, NE, Washington, DC 20426, (202) 208-0694.

SUPPLEMENTARY INFORMATION: In addition to publishing the full text of 
this document in the Federal Register, the Commission also provides all 
interested persons an opportunity to inspect or copy the contents of 
this document during normal business hours in Room 3308, 941 North 
Capitol Street, N.E., Washington, D.C. 20426.
    The Commission Issuance Posting System (CIPS), an electronic 
bulletin board service, provides access to the texts of formal 
documents issued by the Commission. CIPS is available at no charge to 
the user and may be accessed using a personal computer with a modem by 
dialing (202) 208-1397. To access CIPS, set your communications 
software to 19200, 14400, 12000, 9600, 7200, 4800, 2400, 1200 or 
300bps, full duplex, no parity, 8 data bits, and 1 stop bit. The full 
text of this document will be available on CIPS for 60 days from the 
date of issuance in ASCII and WordPerfect 5.1 format. After 60 days the 
document will be archived, but still accessible. The complete text on 
diskette in WordPerfect format may also be purchased from the 
Commission's copy contractor, La Dorn Systems Corporation, also located 
in Room 3308, 941 North Capitol Street, N.E., Washington, D.C. 20426.

    Before Commissioners: Elizabeth Anne Moler, Chair; Vicky A. 
Bailey, James J. Hoecker, William L. Massey, and Donald F. Santa, 
Jr.

Order on Rehearing

I. Introduction

    This order addresses requests for rehearing or reconsideration of 
the Commission's October 17, 1994 order\1\ on rehearing issued in the 
above referenced proceeding. The October 17, 1994 order denied 
rehearing of the Commission's July 28, 1994 final rule (Order No. 
567),\2\ which, in pertinent part, deleted section 270.203(c) of the 
Commission's regulations implementing the NGPA. That section provided 
that any sale by an affiliate of an interstate pipeline, intrastate 
pipeline, or local distribution company (LDC) is a first sale under the 
NGPA unless the Commission determines not to treat it as such. Enron 
Capital & Trade Resources Corporation (Enron), Coastal Gas Marketing 
Company (Coastal), and Designated Parties request rehearing.\3\ The 
petitioners argue that the Commission erred and should reinstate 
section 270.203(c). For the reasons discussed below and in the October 
17, 1994 order, the Commission denies rehearing and reconsideration.

    \1\69 FERC 61,055 (1994).
    \2\Removal of Outdated Regulations Pertaining to the Sales of 
Natural Gas Production, 59 FR 40,240 (August 8, 1994), III FERC 
Stats. & Regs. Preambles 30,999 (July 28, 1994).
    \3\The Designated Parties consist of Amoco Energy & Trading 
Corp.; Aquila Energy Marketing Corp.; Chevron U.S.A., Inc.; Hadson 
Gas Systems, Inc.; Heartland Energy Services, Inc.; Natural Gas 
Clearinghouse; O&R Energy, Inc.; and Texaco, Inc.
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II. Background

    The Natural Gas Wellhead Decontrol Act of 1989 (Decontrol Act) 
eliminated [[Page 2012]] as of January 1, 1993, all maximum lawful 
prices for first sales of natural gas. Order No. 567 removed from the 
Commission's regulations various regulations that the Commission 
considered obsolete or nonessential in light of the decontrol of first 
sale prices. These included the Sec. 270.203(c) definition of a first 
sale. On October 17, 1994, the Commission issued the subject order 
which denied rehearing of Order No. 567.
    In the October 17, 1994 order, on rehearing of Order No. 567, in 
response to objections directed at the removal of Sec. 270.203(c), the 
Commission upheld its action, finding that, in light of wellhead 
decontrol, no purpose would be served by Sec. 270.203(c). That section 
was originally adopted pursuant to the Commission's authority under 
NGPA section 2(21)(A)(v) to define, as a first sale, any sale that does 
not otherwise qualify under NGPA section 2(21) as a first sale ``in 
order to prevent circumvention of any maximum lawful price established 
under this Act.'' The Commission held that circumvention of maximum 
lawful prices cannot be a concern when there are no maximum lawful 
prices to circumvent. The Commission also found that the removal of 
that section had no substantive impact on the rights of the parties 
since, at present, there is no practical difference between operating 
under the blanket marketer sales certificate (to which affiliated 
marketers may became subject as a result of the removal of that 
section\4\) and treatment as a nonjurisdictional first seller. Finally, 
the Commission rejected arguments that the Commission violated the 
Administrative Procedures Act's (APA) notice and comment requirements.

    \4\Pipeline and LDC marketing affiliates only become subject to 
the blanket certificate to the extent they sell natural gas for 
resale in interstate commerce. Thus, a direct sale or a sale in 
intrastate commerce would not be covered by the blanket certificate 
since the Natural Gas Act does not otherwise apply to such sales.
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III. Arguments on Rehearing

    On rehearing, Enron first asserts that, by retaining NGA 
jurisdiction over affiliate sales, the Commission is acting in 
contravention of its own pro-marketing policies as well as those of 
Congress stated in the Wellhead Decontrol Act. Enron asserts that the 
Commission appears to acknowledge only that its action will affect 
interstate pipeline affiliates, whereas it also affects marketing 
affiliates of intrastate pipelines and LDCs. Further, it argues that 
this returns to the bifurcated system of jurisdiction of sales for 
resale, but not of direct sales, that led to gas shortages in the 
1970's. Further, it asserts that the legislative history of the 
Wellhead Decontrol Act is rife with statements that indicate Congress' 
intent to remove all vestiges of natural gas price control. It asserts 
that Congress only intended to continue NGA jurisdiction of interstate 
pipelines and, in response to the reasoning of the October 17, 1994 
order, queries of what purpose will be served by continuing the 
appearance of regulation, rather than meaningful regulation. Second, 
Enron asserts that nonjurisdictional marketers have a competitive 
advantage over marketing affiliates who make sales for resale in 
interstate commerce, because marketing affiliates are subject to 
regulatory uncertainty. It submits that this uncertainty increases 
market risks and impedes the ability of marketing affiliates to obtain 
financing and plan transactions. Finally, Enron argues that the 
substantive impact of the removal of Sec. 270.203(c) required the 
Commission to give parties advance notice and the opportunity to 
comment under the APA. It maintains that the Commission has broad 
rulemaking authority under section 501 of the NGPA to reinstate section 
270.203(c).
    In their request for rehearing, in addition to a number of 
arguments similar to those made by Enron, Designated Parties contest 
the Commission's position that the change to light-handed regulation 
has no substantive impact on the rights of the parties. They assert 
that regulation diminishes the attractiveness of natural gas as a fuel 
for power generation projects because regulation may adversely affect 
the availability or cost of financing such projects. They assert that 
regulation tends to adversely affect the ability of parties ``to 
monetize the asset represented by accounts receivable under long-term 
supply agreements'' due to the risk of changes in contract pricing or 
other terms pursuant to the Commission's NGA section 5 authority. They 
assert, like Enron, that regulation resurrects the bifurcated 
regulation/non-regulation system and allegedly gives nonjurisdictional 
marketers an advantage. Finally, they assert that, in certain cases,\5\ 
some intrastate pipelines may lose their non-jurisdictional status 
under Title IV of the NGPA as a result of the Commission's action which 
may have a ``ripple'' effect as intrastate entities take contractual 
action to protect themselves from regulation. Finally, they argue that 
the Commission has failed to recognize that Title VI of the NGPA 
coordinates the NGA and NGPA and defines the boundaries of the 
Commission's jurisdiction, contrary to the Commission's ruling.

    \5\Citing Westar Transmission Co., 43 FERC 61,050 (1988) and 
Texas Utilities Fuel Co., 44 FERC 61,171 (1988).
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    Designated Parties also allege that the Commission violated APA and 
NGPA notice and comment requirements by leaving the parties to seek 
rehearing. They argue that Order No. 567 gave no notice of the 
reasoning behind the elimination of the regulation and, hence, this 
rehearing is the first real opportunity the parties have had to respond 
to the Commission's order. They argue that the Commission failed to 
adequately justify its finding of ``good cause'' to dispense with the 
APA procedures for the reason that the instant situation does not fall 
into the kind of situations where action is required immediately. 
Further, they assert that the Commission's finding that the APA 
procedures were unnecessary was in error for the same reason, as 
asserted above, that the Commission's action did have a substantive 
effect on the parties. They also observe that section 502(b) of the 
NGPA provides that an opportunity for oral presentations is to be made 
available ``to the maximum extent practicable.'' Accordingly, they ask 
that the Commission stay the effect of its order and institute new 
rulemaking procedures on this issue.
    Coastal contends that the Commission erred in finding no 
substantive effect of its decision and in failing to provide notice and 
comment. It asserts that the number of comments might have been greater 
than those received on rehearing had the Commission not issued a final 
rule at the outset.

IV. Discussion

    For the reasons discussed below and in the October 17, 1994 order, 
the Commission finds that the petitioners have raised no new arguments 
that warrant any change in the Commission's action on this issue. 
Accordingly, the Commission denies the requests for rehearing or 
reconsideration.

A. The Authority of the Commission To Define First Sales

    The Commission continues to believe that the deletion of 
Sec. 270.203(c) was appropriate for the reasons stated in the October 
17, 1994 order. The Decontrol Act has eliminated all maximum lawful 
prices applicable to first sales. As we observed in our October 17, 
1994 order, no purpose is served any longer by our exercising our 
authority under NGPA section 2(21)(A)(v) to define additional 
categories of sales as first sales ``in order to prevent circumvention 
of any maximum lawful price established [[Page 2013]] under this Act.'' 
The rehearing petitioners have not disputed our finding that 
circumvention of maximum lawful prices cannot be a concern when there 
are no maximum lawful prices to circumvent. The Commission would exceed 
its authority under the NGPA if it defined categories of first sales 
for reasons other than to prevent circumvention of maximum lawful 
prices.
    Accordingly, for the same reason, petitioners' arguments regarding 
Congressional intent in passing the Decontrol Act are unpersuasive. It 
is not the Commission's action which causes the pipeline and LDC 
affiliates' sales for resale to be subject to our NGA jurisdiction. It 
was passage of the Decontrol Act which changed the first sale status of 
affiliate sales for resale. The Decontrol Act repealed the maximum 
lawful price provisions of Title I of the NGPA but did not revise the 
definition of first sales in section 2(21) of the NGPA. The legislative 
history cited by Enron indicates the intent of Congress that the 
definition of first sale in section 2(21) still be given full effect. 
However, that definition includes the delineation of the Commission's 
authority under section 2(21)(A)(v) to add categories of sales to the 
first sale definition.\6\ That part of section 2(21) grants 
discretionary authority to the Commission to add categories of sales to 
the first sale definition in only one narrow circumstance: to prevent 
circumvention of NGPA maximum lawful prices, which no longer exist as a 
result of the Wellhead Decontrol Act.

    \6\Enron's rehearing request at page 5.
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    Enron tries to bolster its argument on Congressional intent by 
claiming that the use of the term ``wellhead'' in the NGPA and 
Decontrol Act is a misnomer and that the scope of both acts is much 
broader than the production area market. Thus, it argues, when the 
Congress explained that Commission jurisdiction over interstate 
pipeline sales for resale was to be unaffected by the Wellhead 
Decontrol Act,\7\ it can be inferred that Congress thereby meant to 
indicate that all other sales for resale were to remain first sales. We 
do not interpret the cited reaffirmation of the Commission's NGA 
jurisdiction over pipeline sales for resale, on which Enron relies, to 
create an exclusion from NGA jurisdiction relative to all other sales 
not therein mentioned. The effect of the Decontrol Act on the NGPA is 
more properly based on the plain terms of the relevant sections of the 
statutes as enacted and express statements of intent in the 
Congressional reports, and we find nothing there to support Enron's 
proposed inference.

    \7\Request for Rehearing or Reconsideration of Enron at p. 5 
(citing NGPA Conference Report at pp. 8-9).
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    Designated Parties maintain that, in finding no substantive effect 
of its rule, the Commission failed to recognize the role of Title VI of 
the NGPA providing for the coordination of the NGPA with the NGA. 
However, all that Title VI and, in particular, section 601(a) of the 
NGPA provides is that the Commission's jurisdiction under the NGA does 
not apply to first sales. Accordingly, that section says nothing of 
relevance to the issue addressed here regarding what sales are first 
sales.
    The petitioners also assert that the Commission has broad 
rulemaking authority under section 501 of the NGPA to reinstate 
Sec. 270.203(c).\8\ We do not agree. The Commission's authority to 
define terms used in the NGPA, including first sales, is limited. 
Section 501(b) of the NGPA states, ``Any such definition shall be 
consistent with the definitions set forth in this Act.'' For the 
Commission to define first sales for purposes other than circumvention 
would be inconsistent with the definition of first sales established by 
Congress in section 2(21) of the NGPA. The Commission cannot exceed the 
authority granted to it by the statute in performance of its duties.

    \8\NGPA Section 501(a) provides that the Commission may issue 
``rules and orders as it may find necessary or appropriate to carry 
out its functions under this Act.''
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    We also reject the suggestion that the October 17, 1994 order erred 
in finding that no competitive disadvantage for marketing affiliates 
would arise from no longer treating marketing affiliate sales for 
resale in interstate commerce as first sales. As the October 17 order 
stated, Order No. 547 issued blanket certificates under NGA section 7 
to all persons making sales of gas for resale in interstate commerce 
who are not interstate pipelines. Thus, the blanket certificates apply 
to all affiliated marketers who make sales for resale in interstate 
commerce, whether affiliated with an interstate pipeline or with an 
intrastate pipeline or LDC. Those certificates allow the affiliated 
marketers to operate exactly as if they were nonjurisdictional first 
sellers. Marketers making sales under the blanket certificate may make 
sales to whomever they choose at any price they can negotiate; no 
Commission authorization of any kind is required beyond the blanket 
marketer certificate itself. In short, the blanket marketer 
certificates place all marketers on an equal competitive footing by 
effectively eliminating the distinctions in treatment that formerly 
existed between jurisdictional and nonjurisdictional marketers.
    Petitioners have not provided any evidence to support their 
contention of an adverse effect from the removal of the Sec. 270.203(c) 
first sale definition. Moreover, any change in the blanket marketer 
certificate would entail a new rulemaking proceeding in which parties 
would have a full opportunity for notice and comment. Any supportable 
economic harm could be raised at that time.
    In any event, Petitioners' contentions concerning the negative 
effect on marketing affiliates of subjecting their sales for resale to 
the Commission's NGA jurisdiction are essentially policy arguments that 
should have been directed to Congress. The Commission does not have the 
ability to expand the authority granted it by Congress, even if 
arguably there are valid policy reasons for reinstating 
Sec. 270.203(c).

B. Procedure

    Rehearing applicants contend that the Commission failed to satisfy 
the requirements of the APA and section 502 of the NGPA by removing 
Sec. 270.203(c) without notice and comment. The notice and comment 
issue was fully addressed in the October 17, 1994 order and we will not 
repeat that discussion here. With one exception, the petitioners 
essentially make the same arguments which were rejected in the October 
17, 1994 order.
    The one new contention is that section 502 of the NGPA requires the 
Commission to give an opportunity for oral argument. Section 502(b) 
provides that, ``to the maximum extent practicable,'' an opportunity 
for oral presentation shall be provided with respect to any proposed 
rule. Section 502(b) does not provide for an absolute right to make an 
oral presentation, and the Commission has the discretion to rely on 
written comments if its appears that no purpose would be served by 
establishing oral argument. In particular, we believe the Commission is 
not required to provide an opportunity for oral presentations in the 
instant case where the Commission is acting on a statutory mandate for 
which there is no other course of action authorized and there currently 
is no practical difference in treatment of the affected companies 
after, as opposed to before, elimination of the subject regulation. In 
any event, petitioners' central claim is for the Commission to start 
the rulemaking process principally in order to make written comments. 
We [[Page 2014]] believe the petitioners have exhausted their lines of 
argument in their rehearing requests and nothing would be gained by 
delaying the effect of our action in order to proceed with a different 
administrative vehicle to arrive at the same result.

The Commission Orders

    The requests for rehearing and reconsideration are denied as 
discussed in the body of this order.

    By the Commission.
Lois D. Cashell,
Secretary.
[FR Doc. 95-321 Filed 1-5-95; 8:45 am]
BILLING CODE 6717-01-P