Sep 282022

U.S. FERC Issues Two Orders Clarifying the Scope of its Natural Gas Act Jurisdiction

Grace Dickson Gerbas and Emily P. Mallen
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On September 22, 2022, the U.S. Federal Energy Regulatory Commission’s (FERC) denied two separate complaints against natural gas pipelines located entirely within one state that turned on whether FERC had jurisdiction over the facilities under the Natural Gas Act (NGA). In the first, Owen Stanley Parker v. Permian Highway Pipeline LLC, et al. (Permian Highway), FERC confirmed that NGA jurisdiction does not attach to a natural gas pipeline constructed to provide intrastate service if it later transports interstate gas under Natural Gas Policy Act (NGPA) Section 311. In other words, the complainant asked FERC to assert jurisdiction. In the second order, Hummel Generation, LLC v. UGI Sunbury, LLC (Hummel Generation), FERC affirmed its NGA jurisdiction over a pipeline that the complainant had asserted should be deemed subject to the “Hinshaw” pipeline exemption under NGA Section 1(c). Hence, the complaint sought the opposite outcome from Permian Highway, a disclaimer of jurisdiction already found.

Permian Highway considered whether a 430-mile-long natural gas pipeline located entirely within Texas and permitted by the Texas Railroad Commission was constructed without prior authorization from FERC in violation of NGA Section 7. The premise of the complaint was that the pipeline was supplied by other interstate natural gas pipelines, causing a commingling of interstate and intrastate gas, thereby transforming the pipeline’s jurisdiction from an intrastate to an interstate facility. FERC explained that the NGPA shielded the pipeline from interstate jurisdiction because it neither received nor transported interstate gas when it began operations, removing it from the purview of NGA Section 7. FERC stated that commingling and interstate connections, therefore, do not factor into its analysis.

In Hummel Generation, FERC considered whether it erred in authorizing a 34.4-mile-long natural gas pipeline in Pennsylvania under NGA Section 7 because the pipeline met the NGA’s Hinshaw exemption. Specifically, the NGA exempts from jurisdiction a pipeline whose facilities are located entirely within one state, that receives all of its gas at or within the boundaries of that state, with all of its gas supplies consumed therein, and is regulated by the relevant state commission. The complainant argued that it was unnecessary for the state commission to actively regulate the pipeline for the Hinshaw exemption to apply. However, there was no proclamation by the Pennsylvania Public Utility Commission as to its jurisdiction over the pipeline, and FERC declined to interpret Pennsylvania law to determine whether the pipeline is “subject to” state regulation.

Neither order addressed the damages sought by the complainants had they prevailed before FERC. In Permian Highway, the complainant asked FERC for $1 billion and an injunction to prevent the pipeline from continuing with any condemnation actions or proceedings. In Hummel Generation, the pipeline had suggested to FERC that the complaint was motivated by the complainant’s interest in renegotiating its transportation service agreements. Regardless of whether FERC had authority to grant the relief requested, these proceedings illustrate the importance of jurisdiction to underlying business transactions and whether a disclaimer or assertion of FERC jurisdiction can support or frustrate a business purpose.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.

Grace Dickson Gerbas

Dallas

gdicksongerbas@sidley.com

Emily P. Mallen

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