Louisiana Law Blog

by Lawrence J. Hand, Jr.

The Federal Energy Regulatory Commission has recently issued a notice of proposed rulemaking which seeks to increase the Commission’s oversight over intrastate natural gas pipelines and other non-jurisdictional sellers of natural gas. FERC Docket Nos. RM07-10-000 and AD06-11-000. Specifically, the proposed regulations would require that intrastate natural gas pipelines post, on a daily basis, the capacities of and volumes flowing through major receipt and delivery points and mainline segments. Additionally, the new regulations would require annual filings by buyers and sellers of natural gas in the United States wholesale markets. Traditionally, intrastate natural gas pipelines were not subject to oversight by the Federal Energy Regulatory Commission, unless and to the extent that such intrastate pipeline elected to transport gas in interstate commerce pursuant to the provisions of Section 311(a)(2) of the Natural Gas Policy Act of 1978. The proposed rulemaking marks a significant advancement of FERC’s jurisdiction over non-jurisdictional intrastate pipelines as the proposed rule applies to all intrastate pipelines, not merely those that perform service pursuant to Section 311(a)(2) of the Natural Gas Policy Act of 1978.

In passing the Energy Policy Act of 2005, Congress amended the Natural Gas Act to provide that the Commission may, but is not obligated to, prescribe rules for the collection and dissemination of information regarding the wholesale, interstate markets for natural gas and to adopt rules to assure the timely dissemination of information about the availability and prices of natural gas and natural gas transportation in such markets. Energy Policy Act of 2005, Pub.L. No. 109-58, 119 Stat. 594 (2005), Section 316.  The Commission was charged with the task of the assuring the integrity of wholesale natural gas markets and assuring fair competition by facilitating price transparency in the wholesale natural gas market.[1] The amendments to the Natural Gas Act also authorizes the Commission to enact rules that provide for the dissemination of information about the availability and prices of natural gas sold at wholesale and in interstate commerce. NGA, § 23(a)(2). To enable the Commission to effectively acquire and disseminate this information, the amendment to the Natural Gas Act authorize the Commission to obtain information pertaining to the availability and price of natural gas from “any market participant.” NGA, § 23(a)(3).  The Commission infers that Congress intended for the Commission to collect information from all market participants, including those engaged in transactions exempt from the Commission’s jurisdiction under the Natural Gas Act. The Commission also reasoned that intrastate and interstate pipelines all draw from the same sources of supply and that a complete picture of the supply and demand for natural gas as well as pipeline capacity cannot be obtained without collecting relevant information from intrastate pipelines. The Commission concluded that transportation and sales of natural gas in interstate commerce would nonetheless affect the availability and prices of natural gas at wholesale and in interstate commerce. 

To facilitate the transparency and competition mandated by the Energy Policy Act of 2005, the Commission proposed two new reporting requirements. First, intrastate pipelines would be required to post daily to the internet the capacities of, and volume flowing through, their major receipt and delivery points and mainline segments. These postings would be required within 24-hours from the close of the gas day in which the gas flowed. The Commission does not address whether the reporting required of “intrastate pipelines” would be required of pipelines that are considered to be performing the primary function of natural gas gathering, as opposed to transmission. It would seem that natural gas gathering pipelines would not be required to report such information since those pipelines, for the most part, deliver gas into either intrastate or interstate transmission lines, in which case the capacities and flowing volumes would be reported by the receiving intrastate or interstate pipeline. The Commission also did not address what constitutes a major receipt point or delivery point and solicited comment on same.[2] Interestingly, the Commission proposes to require that the intrastate pipelines report daily capacity and volumes that actually flow. Interstate pipelines are currently required to publish daily capacities and scheduled (as opposed to actual) volumes. The Commission reasoned that intrastate pipeline operations may not be scheduled as formerly as interstate pipelines and may have more wellhead supply attached to them, which does not lend itself to standard scheduling.

The second reporting requirement imposed on non-jurisdictional companies is an annual report by persons who purchase or sell more than de minimis amounts of natural gas in wholesale markets. The manner in which the Commission proposes to amend this regulation would require the annual report to be filed only by an entity that possesses a blanket marketing certificate issued pursuant to 18 CFR Part 284, Subpart L, which on its terms applies to the purchase and sale of natural gas in interstate commerce by a person that is not an interstate pipeline. Thus, the annual report does not appear to be required by an entity that purchases and sells gas strictly on an intrastate basis. However, if a person or entity buys or sells any gas in interstate commerce, that person is deemed to have a blanket marketing certificate and would have to report both its interstate and intrastate volumes on the annual report. A suggested sample of the report is attached to the NOPR and would require, on an aggregated basis, reporting of:

1.   the number of transactions and associated volumes transacted in the prior year;

2.   the number and volume of transactions transacted for next-day delivery;

3.   the number and volume of the next day transactions priced at a fixed price;

4.   the number and volume of the next day transactions priced at an index price;

5.   the number and volume of transactions for delivery in the next month;

6.   the number of transactions and volumes transacted for delivery in the next month that were at a fixed price;

7.   the number of transactions and volumes transacted for delivery in the next month that were priced at an index; and

8.   the number and volume of transactions for delivery beyond next day or next month that use next day or next month index prices.

The proposed rule does provide for an exception from the annual reporting requirement for those purchasers or sellers who make de minimis transactions over the course of the year. The rule proposes an annual threshold of 2.2 million MMBtus per year of purchase or sale transactions. The Commission determined that this threshold represented 1/10,000^th of what the Commission believed was of a 22 trillion cubic foot gas market. While the Commission recognized that the annual purchase or sale of 2.2 million MMBtus is insignificant in the overall market, that level of purchases could have a significant impact on prices if all purchases or sales were made at a particular point in a concentrated period of time.

While the scope of the proposed rule is subject to change during the rulemaking process, it is clear that the Commission intends to expand its reach into the affairs of non-jurisdictional companies. The proposed information reporting requirements may not be of much concern to many intrastate pipelines, but it may signal a continued blurring of the line between interstate and interstate gas pipelines.