On February 17, Texas Governor Greg Abbott took the extraordinary measure of directing the Railroad Commission of Texas (RRC) to restrict out-of-state exports of natural gas produced in Texas through February 21. Noting the unprecedented extreme weather events facing the state, Governor Abbott’s directive seeks to “ensure that any natural gas currently in Texas is not sent outside of Texas,” unless it is first offered for sale to in-state power generators. Governor Abbott “mandate[d] that all sourced natural gas be made available for sale to local power generation opportunities before leaving the state of Texas.”
In response to the governor’s mandate, the RRC took two actions. First, the RRC amended its standing emergency order concerning gas transport curtailment priorities by gas utilities in Texas in order to ensure that deliveries of gas to electric generation facilities in Texas receive priority. Second, the RRC issued a notice to operators reiterating Governor Abbott’s mandate.
Governor Abbott’s mandate is unprecedented and comes at a time when all geographic regions in the United States are reliant on secure and reliable natural gas supplies for heating purposes during tough winter conditions. As a result, we expect that the governor’s edict will raise myriad legal and practical questions, including the following:
- Whether the governor possesses the legal authority to issue a mandate as far reaching as the one issued on February 17
- Whether the governor’s mandate is in violation of the US Constitution’s commerce clause by burdening or otherwise discriminating against the sale or transport of natural gas in interstate commerce—an authority reserved to the regulatory authority of the federal government under the Federal Energy Regulatory Commission
- How long an operator or producer must “offer” gas for sale to in-state power generators before out-of-state sales are permitted
- Whether operator and producer in-state power generator offers are subject to any price caps or limitations or, instead, whether producers and operators can offer natural gas at prevailing market prices
- Whether or how the governor’s mandate will impact the integrity of wholesale natural gas physical and futures commodity markets
- Whether or how effective natural gas price discovery will be affected or impeded as a result of Governor Abbott’s mandate that natural gas supply be withheld from interstate markets
- Whether the governor has the legal authority to interfere with or otherwise supersede existing contractual obligations between operators and producers and natural gas purchasers located out of state that have secured rights to natural gas under long-term agreements (i.e., natural gas–fired power generation owners and operators)
We expect that those questions and others will be the subject of litigation in the coming days, as all sectors of the energy industry may be impacted by the scope of the governor’s mandate and the uncertainty that it introduces into American energy markets. We will continue to monitor these issues as the state’s emergency response develops, and provide additional information as developments occur.