[Federal Register Volume 59, Number 208 (Friday, October 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-26745]
[Federal Register: October 28, 1994]
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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. RM94-18-001; Order No. 567-A]
Removal of Outdated Regulations Pertaining to the Sales of
Natural Gas Production
October 17, 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 of its order which removed from the
Commission's regulations certain natural gas regulations related to
natural gas producer regulations that were either obsolete or
nonessential in light of the decontrol of wellhead prices. The order on
rehearing denies the requests for rehearing concerning the deletion of
the anti-circumvention rule in Sec. 270.203(c) of the Commission's
regulations. The Commission finds that, with the decontrol of wellhead
pricing, no purpose is any longer served by this rule.
EFFECTIVE DATE: October 17, 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 NE., Washington, DC 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 personal computer with a modem by
dialing (202) 208-1397. To access CIPS, set your communications
software to use 300, 1200 or 2400 baud, full duplex, no parity, 8 data
bits, and 1 stop bit. The full text of this notice will be available on
CIPS for 30 days from the date of issuance. 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 NE., Washington, DC 20426.
I. Introduction
Before Commissioners: Elizabeth Anne Moler, Chair; Vicky A.
Bailey, James J. Hoecker, William L. Massey, and Donald F. Santa,
Jr.
On July 28, 1994, the Commission issued a final rule1 in the
above referenced proceeding (Order No. 567) which removed from the
Commission's regulations certain natural gas regulations related to
natural gas producer regulation that were either obsolete or
nonessential in light of the decontrol of wellhead prices. Among
others, part 270 was removed. This order addresses eight requests for
rehearing of the July 28, 1994 final rule.2
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\1\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).
\2\The parties seeking rehearing are: Amoco Energy Trading
Corporation; Coastal Gas Marketing Company; Conoco Inc.; Enron Gas
Services Group; Mobil Natural Gas Inc.; 1 Source Energy Services
Company and Centana Energy Marketing Company (jointly); Texaco Gas
Marketing Inc.; and Transco Energy Marketing Company.
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The issue raised on rehearing is whether the Commission should have
eliminated Sec. 270.203(c) of the Commission's regulations. That
section included in the definition of first sale all sales by an
affiliate of an interstate pipeline, intrastate pipeline, or local
distribution company. Rehearing applicants contend that, as a result,
the Commission has improperly deprived affiliated marketer sales of
their status as deregulated first sales under the Wellhead Decontrol
Act.
II. Background
Section 2(21) of the NGPA defines a first sale. Sections 2(21) (A)
(i)-(iv) and (B) set forth a general definition of a first sale that
excludes sales of affiliates of inter- and intrastate pipelines and
local distribution companies (LDCs) from the first sale definition
unless the affiliate is selling gas it produced. However, section
2(21)(A)(v) grants the Commission authority to define, as a first sale,
any sale that does not qualify under sections 2(21)(A) (i)-(iv) ``in
order to prevent circumvention of any maximum lawful price established
under this Act.''
In 1979, in Order No. 58 implementing the NGPA, the Commission
exercised its NGPA section 2(21)(A)(v) authority to define all sales by
pipeline affiliates as first sales. That definition was set forth in 18
CFR 270.203(c). Specifically, Sec. 270.203(c) provides that any sale by
an affiliate of an interstate pipeline, intrastate pipeline, or LDC is
a first sale under the NGPA unless the Commission determines not to
treat it as such. The Commission explained that the reason for such
treatment of affiliate sales was to prevent circumvention of the NGPA
maximum lawful prices because otherwise an entity could avoid first
sale treatment by becoming an affiliate of a pipeline.3 Thus,
although sales by interstate pipeline marketing affiliates generally
would not qualify as first sales under NGPA sections (21) (A) (i)-(iv)
and (B), they came to be defined as first sales by reason of
Sec. 270.203(c).
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\3\Final Rule Governing the Maximum Lawful Price for Pipeline
Distributor or Affiliate Production, FERC Stats. & Regs.,
Regulations Preambles 1977-1981 30,101 at 30,722 (1979). Although
Order No. 58 was overturned in Public Service Commission v. Mid-
Louisiana Gas Co., 463 U.S. 319 (1983), the Commission continued the
first sale status for affiliate sales in Order No. 391, FERC Stats.
& Regs., Regulations Preambles 1982-1985 30,588 (1984).
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The Natural Gas Wellhead Decontrol Act of 1989 repealed as of
January 1, 1993, the entire Title I of the NGPA which contains the
ceiling prices. However, the Decontrol Act did not remove nor modify
NGPA section 2(21), including the authorization for the Commission to
define as first sales those sales that would not otherwise qualify for
such status.
Order No. 567 removed from the Commission's regulations certain
natural gas regulations related to natural gas producer regulation that
the Commission considered obsolete or nonessential in light of the
decontrol of wellhead prices. These included the Sec. 270.203(c)
definition of a first sale.
On rehearing of Order No. 567, the petitioners urge the Commission
to retroactively reinstate Sec. 270.203(c). They argue that the removal
of Sec. 270.203(c) adversely affects marketing affiliates of interstate
pipelines by placing them at a competitive disadvantage in relation to
non-regulated non-affiliated marketers. They assert that the removal of
the regulation means that affiliated marketer sales will no longer
qualify as deregulated first sales under the Wellhead Decontrol Act and
that they will become subject to Natural Gas Act (NGA) price and non-
price regulation. They contend that the blanket marketer certificates
that would apply under the NGA are not equivalent to deregulation and
are always subject to change or termination by the Commission. They
assert that treatment as non-regulated first sales is essential to
continue fair competition among affiliated and non-affiliated
marketers.
Finally, the parties contend that the Commission has failed to
satisfy the requirements of the Administrative Procedure Act (APA) by
removing Sec. 270.203(c) without public notice or opportunity to
comment.
III. Discussion
For the reasons discussed below, the Commission denies rehearing.
A. First Sale Status
Order No. 567 deleted Sec. 270.203(c) from the Commission's
regulations as part of the removal of a number of regulations that were
rendered obsolete or nonessential by the Wellhead Decontrol Act. The
Commission continues to believe that the deletion of Sec. 270.203(c)
was appropriate.
The Wellhead Decontrol Act has eliminated all maximum lawful prices
applicable to first sales. As a result, no purpose is any longer served
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 under
this Act.'' Circumvention cannot be a concern when there are no maximum
lawful prices to circumvent.
The Commission recognizes that, as a result of the Wellhead
Decontrol Act and our subsequent deletion of Sec. 270.203(c),
interstate pipeline marketing affiliates' sales are no longer first
sales. However, this fact does not create a competitive disadvantage
for marketing affiliates as alleged. In Order No. 547, the Commission
issued blanket certificates under section 7 of the NGA to all persons
making sales of gas for resale in interstate commerce who are not
interstate pipelines. Certain additional conditions were attached to
the blanket certificates issued to interstate pipeline marketing
affiliates to preclude potential discriminatory practices. Those
blanket certificates place all marketers on an equal competitive
footing by effectively eliminating the distinctions in treatment that
formerly existed between regulated and non-regulated marketers. An
interstate pipeline affiliated marketer may make sales under its
blanket certificate at negotiated rates with pregranted abandonment to
compete with unregulated marketers.
Thus, at this time, there is no practical difference between
treatment as marketing affiliates under the blanket marketer sales
certificates issued in Order No. 547 and treatment as first sales.
Petitioners' concern appears to be more that regulation under the
blanket certificates might change in the future, rather than any
concern with how this system of light-handed regulation operates at the
present time. For example, Texaco Gas Marketing Inc. states in its
request for rehearing, ``The blanket sales certificate regulations
prevent the removal of Section 2[70].203(c) from having any present
effect, but if the blanket certificate is modified or repealed, non-
affiliated marketers and affiliated marketers may not be competing on a
level playing field.''4 But, our July 28, 1994 order did nothing
to affect the terms of the blanket marketer certificates issued by
Order No. 547 and, therefore, the rights of the parties have not been
affected, and thus no party has been aggrieved by our order.5
Moreover, the Commission continues to believe that the existing blanket
marketer certificates are appropriate, considering the competitive
wellhead market and the changes in the industry due to restructuring
under Order No. 636 and decontrol under the Wellhead Decontrol Act.
Thus, no changes to those certificates are contemplated.
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\4\See Texaco Gas Marketing Inc. request for rehearing at p. 4.
\5\See Williams Gas Processing Co. v. FERC, 17 F.3d 1320, 1322
(10th Cir. 1994), citing NARUC, 823 F.2d 1377, 1381 (10th Cir. 1987)
and Office of the Consumers' Counsel v. FERC, 808 F.2d 125, 128-29
(D.C. Cir. 1987). (The Court held that to be considered aggrieved a
party must demonstrate a ``present and immediate'' injury in fact,
or ``at least * * * a looming unavoidable threat'' of injury. The
alleged injury must be ``concrete, perceptible harm of a real, non-
speculative nature.'') If the Commission were to alter the blanket
certificates in the future, the Commission would reexamine the
treatment of affiliate sales at that time.
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The parties requesting rehearing rely on a statement in the March
12, 1993 order6 on rehearing of Order No. 547, which was issued
after wellhead decontrol took effect, as supporting their position that
affiliated marketer sales should continue to be treated as first sales
even after wellhead decontrol. In that order, the Commission
interpreted section 201 of the Energy Policy Act of 1992 as providing
that all importations of natural gas and LNG, that are subject to a
free trade agreement, are beyond the Commission's jurisdiction, since
they are deregulated first sales under the Wellhead Decontrol Act. In
clarifying that inter-affiliate importations are first sales eligible
for the exemption from Commission jurisdiction granted by section 201
of the Energy Policy Act, the Commission relied in part on
Sec. 270.203(c). The Commission stated that, while its interpretation
in Sec. 270.203(c) ``stemmed, in part, from a concern about affiliates'
ability to circumvent the then existing maximum lawful prices under
Title I of the NGPA * * * the Commission has continued to adhere to its
interpretation of the statute even as the categories of maximum lawful
prices waned pursuant to the NGPA.'' 7 However, the Commission
finding in that order was for the narrow purpose of interpreting
section 201 of the Energy Policy Act regarding the importation of
natural gas and LNG that is subject to a free trade agreement.
Moreover, Congress itself, in that section, intended to define all such
importations as NGPA first sales. Thus it appears the Commission's
reliance on the Sec. 270.203(c) definition was unnecessary to the
results reached in that order.
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\6\Regulations Governing Blanket Marketer Sales Certificates, 62
FERC 61,239 (1993).
\7\Id. at 62,586.
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The Commission concludes that Order No. 567 properly removed
Sec. 270.203(c) from the Commission's regulations.
B. APA
Rehearing applicants contend that the Commission failed to satisfy
the requirements of the APA by removing Sec. 270.203(c) without notice
and comment. Under section 553(b)(B) of the APA, an agency is not
required to issue a notice of proposed rulemaking and provide for
comments if it has good cause to find that the public notice is
impracticable, unnecessary, or contrary to the public interest.8
In particular, a rule falls within the ``unnecessary'' category if it
can be classified as either minor or emergency in character.9
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\8\5 U.S.C. 553(b)(B).
\9\Texaco Inc. v. FPC 412 F.2d 740 (3d Cir. 1969).
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In the July 28, 1994 final rule, the Commission merely updated its
regulations to remove regulations rendered obsolete by the Wellhead
Decontrol Act. Ordinarily the Commission may update its regulations in
that manner without notice and comment, and it has done so in the
past.\10\ And in this case, the appropriateness of the removal of the
regulations other than Sec. 270.203(c) without notice is undisputed.
However, in retrospect, the Commission recognizes that it might have
been better to provide public notice and an opportunity to comment
before the removal of Sec. 270.203(c). However, in the particular
circumstances of this case, the Commission does not believe that any
party has been significantly harmed.
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\1\0See Deletion of Certain Outdated or Nonessential Regulations
Pertaining to the Commission's Jurisdiction over Natural Gas, 57 FR
21891 (May 26, 1992), III FERC Stats. & Regs. Preambles 30,945 (May
1, 1992).
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First, the issue here is a relatively narrow one of whether the
anti-circumvention rule adopted in Sec. 270.203(c) should be
eliminated, in light of the fact that the Wellhead Decontrol Act has
removed the maximum lawful prices whose circumvention Sec. 270.203(c)
was designed to prevent. While the parties had no opportunity to
comment on that issue before Order No. 567 was issued, the parties have
now had such an opportunity in their requests for rehearing. Eight
parties have taken advantage of the opportunity to comment on
rehearing, and discussed the issue in detail.\11\ Of course an
opportunity to comment on rehearing does not cure the lack of prior
notice in all cases. Here, however, given the relatively narrow issue
involved, it does not appear that providing any further opportunity to
comment, at this stage, would serve any useful purpose.
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\1\1See Union Pacific Resources Co. v. FERC, 936 F.2d 1310 (D.C.
Cir. 1991).
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This is particularly so, since, at present, there is no practical
difference in treatment between operating under the blanket marketer
sales certificates and treatment as a non-regulated first seller.
Therefore, the rulemaking has had no substantive impact on the rights
of the parties. Moreover, the blanket certificate having been issued by
rule, any change in that certificate would entail a new rulemaking
proceeding in which parties would have a full opportunity for notice
and comment.
The cases relied on in the requests for rehearing do not compel a
different determination in this case. In Mobil Oil Corp. v. DOE,\12\
the Federal Energy Administration found that an emergency existed and
the court found that the threat to the public would be sufficiently
dire for good cause to be found to not provide notice and comment. But
the APA does not require an emergency, and provides an exception where
there is no substantive effect, as in National Helium, supra. In two of
the cases, there was no question that notice was required.13 The
only issue was whether the notice and opportunity to comment that was
provided was sufficient to give the public fair notice of the final
form of the rule. Here, in the particular circumstances of this case,
the rehearing requests have provided a sufficient opportunity. In
Texaco Inc. v. FPC,\14\ the Federal Power Commission (FPC) found that
the effect of the rule was not minor, since the industry wide cost
would be many millions of dollars. Again, there is no substantive
effect to the elimination of Sec. 270.203(c). In Bushman v.
Schweiker,\15\ unlike this case, the agency never made a statement as
to why notice was unnecessary. Therefore, this case can also be
distinguished from the case before us.
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\1\2728 F.2d 1477 (Emerg. Ct. App. 1983), cert. denied, 467 U.S.
1255.
\1\3American Standards Inc. v. U.S., 602 F.2d 256 (Ct. Cl. 1979)
and Consumer Energy Council v. FERC, 673 F.2d 425 (D.C. Cir. 1982),
aff'd, 463 U.S. 1216 (1983).
\1\4412 F.2d 740 (3d Cir. 1969).
\1\5676 F.2d 352 (9th Cir. 1982).
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The Commission orders:
The requests for rehearing are denied as discussed in the body of
this order.
By the Commission.
Lois D. Cashell,
Secretary.
[FR Doc. 94-26745 Filed 10-27-94; 8:45 am]
BILLING CODE 6717-01-P
