[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Removal of Outdated Regulations Pertaining to the Sales of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
