Fifth Circuit Vacates FERC Order Requiring Information Posting by Intrastate Pipelines

October 25, 2011

By Paul Korman, John Burnes, Greg Junge, Kaitlin Gregg, and Harold Bulger

On October 24, 2011, the United States Court of Appeals for the Fifth Circuit in Texas Pipeline Association v. Federal Energy Regulatory Commission vacated Federal Energy Regulatory Commission (“FERC” or “Commission”) Order Nos. 720 and 720-A that required major intrastate natural gas pipelines (designated by the Commission as major “non-interstate pipelines” in the Orders) to post certain operational information (“the Posting Rule”). The court found that the challenged orders “unambiguously exceed the Commission’s authority” under the Natural Gas Act (“NGA”), 15 U.S.C. § 717, et seq. The case was argued by Van Ness Feldman attorney Paul Korman on behalf of petitioner, Texas Pipeline Association.

BACKGROUND

When congress passed the Energy Policy Act of 2005, it added § 23 NGA which directed the Commission to “facilitate price transparency in markets for the sale or transportation of physical natural gas in interstate commerce,” 15 U.S.C.§ 717t-2(a)(1). To this end, Section 23 authorized FERC to collect and distribute information about “the availability and prices of natural gas sold at wholesale and in interstate commerce” from “any market participant.” To implement this authority, FERC issued Order No. 720 which required intrastate pipelines “to post scheduled flow information and to post information for each receipt and delivery point with a design capacity greater than 15,000 MMBtu per day,” even if the reported volume information did not involve gas that was transported in interstate commerce.

Texas Pipeline Association and the Railroad Commission of Texas (collectively “Petitioners”) requested rehearing on Order No. 720, arguing that the Posting Rule exceeded the scope of FERC’s authority under the NGA. Petitioners argued that Section 1(b) of the NGA limits the Commission’s jurisdiction to the transportation or sale of natural gas in interstate commerce and to entities that are engaged in those interstate activities. Nothing in the language or legislative history of Section 23 enabled the Commission to ignore this jurisdictional limitation that had existed since the NGA was enacted in 1938. The Commission denied rehearing, determining that Section 23 had given it a broad “transparency” jurisdiction that was not bound by the jurisdictional limits in Section 1(b).

FIFTH CIRCUIT DECISION

The court rejected FERC’s interpretation of its authority under Section 23. The court reviewed FERC’s statutory construction of the NGA and found that the congressional intent of the NGA “unambiguously precludes FERC from issuing the Posting Rule so as to require intrastate pipelines to disclose and disseminate capacity and scheduling information” concerning the transportation of gas not in interstate commerce. Because congressional intent was clear, it was unnecessary for the court to consider whether the agency’s interpretation was a permissible one. The court held that FERC had no statutory authority to issue Order No. 720 or Order No. 720-A.

IMPLICATIONS FOR THE NATURAL GAS INDUSTRY

The Fifth Circuit’s decision resolves a significant question concerning the scope of the Commission’s jurisdiction under the NGA. The court reaffirms that the basic jurisdictional limitations established in the NGA in 1938 that provide the Commission authority to regulate the transportation or sale of natural gas in interstate commerce and entities engaged in those activities remain in place, and that these limitations can only be changed through clear and unambiguous language from Congress.

In laying down a firm line that reaffirms the basic distinctions regarding what the Commission can and cannot regulate, the Court offers a marker to guide future Commission rulemakings, including a reaffirmation of the boundaries between the allowed regulation of interstate pipelines and the disallowed regulation of intrastate pipelines.

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Van Ness Feldman regularly represents clients before FERC on the regulation of intrastate and interstate natural gas pipelines. If you are interested in additional information regarding this matter, or any other energy-related federal activity, please contact Paul Korman at (202) 298-1830, John Burnes, or any member of the firm’s Natural Gas or Oil and Products Pipelines practice groups.