[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Removal of Outdated Regulations Pertaining to the Sales of 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