FERC, CFTC, and State Energy Law Developments

On October 18, the Commodity Futures Trading Commission (CFTC) issued a Final Rule codifying regulations that establish limits on speculative positions in 28 physical commodity futures contracts traded pursuant to the rules of a Designated Contract Market (DCM) and economically equivalent swaps. The CFTC's Final Rule implements Section 737 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), which directed the CFTC to issue a rule limiting the amount of positions, other than bona fide hedging positions, that may be held By any person in connection with commodity futures and option contracts traded pursuant to the rules of a DCM.

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On September 15, 2011, FERC issued a Notice of Proposed Rulemaking (NOPR) proposing to eliminate the semiannual storage reporting requirements for interstate and intrastate natural gas companies. These requirements are set forth in 18 C.F.R. § 284.13(e) for interstate natural gas companies and in 18 C.F.R. § 284.126(c) for section 311 and Hinshaw pipelines providing interstate storage service. FERC found that these reports are largely duplicative of other reporting requirements.

On August 16, FERC and NERC issued a joint report on the outages and curtailments that occurred in the southwest during the extraordinary cold snap in early February 2011.

The report summarizes the events that occurred in early February, describing the scope of the generator outages that occurred and the natural gas production that declined due to the extreme cold weather. As noted in the report, the cold weather led to the unavailability of approximately one-third of Electric Reliability Council of Texas (ERCOT) generation at one point during the event, and spot prices in the ERCOT market hit $3,000 per MWh. In addition, the loss of natural gas production resulted in the curtailment of 50,000 customers in the southwest.

On April 21, 2011, the Federal Energy Regulatory Commission (FERC) issued an Order Affirming Initial Decision and Ordering Payment of Civil Penalty in connection with an Administrative Law Judge’s (ALJ) Initial Decision that a natural gas trader for Amaranth, Brian Hunter, engaged in market manipulation, in violation of Section 4A of the Natural Gas Act (NGA) and Part 1c.1 of FERC’s regulations. The case focused on Hunter’s trading activities in natural gas futures contracts (NG Futures Contracts) on the New York Mercantile Exchange (NYMEX). FERC’s Order affirmed the Initial Decision of the ALJ and assessed a civil penalty against Mr. Hunter in the amount of $30 million. FERC’s Order represents the first fully litigated proceeding involving FERC’s enhanced authority to investigate allegations of and penalize instances of market manipulation, which FERC received following the enactment of the Energy Policy Act of 2005. Further, FERC’s Order likely sets the stage for subsequent legal challenges to FERC’s claimed jurisdiction.

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Describing what it considers "a significant number of outages of generating facilities" along with disruptions in natural gas deliveries during the recent extreme cold weather across Texas and the Southwest, on February 14, the Federal Energy Regulatory Commission (FERC or Commission) directed the creation of a staff task force to conduct a broad inquiry into those events. Unlike the FERC-led investigation following the 2008 Florida Blackout, this investigation is not, at this time, intended to discover whether any regulations, requirements, or standards were violated. Instead, the investigation is intended to identify (1) the causes of the outages and disruptions and (2) the actions FERC might undertake to prevent a recurrence of these issues.

On January 20, 2011, the Federal Energy Regulatory Commission (FERC) issued Order No. 710-B, revising the financial forms, statements, and reports for natural gas companies contained in FERC Form Nos. 2, 2-A, and 3-Q to include functionalized fuel data (on pages 521a through 521c of those forms) and the amount of fuel waived, discounted, or reduced as part of a negotiated rate agreement.

On January 7, 2011, the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) in Murray Energy Corp. v. FERC, No. 09-1207 (D.C. Cir. Jan. 7, 2011), denied a petition for review By Murray Energy Corporation (Murray) of Federal Energy Regulatory Commission (FERC) orders authorizing construction of Rockies Express Pipeline LLC’s (REX’s) REX-East pipeline. The court rejected arguments concerning agency delegation of authority, fulfillment of certificate conditions, and consideration of safety issues.

On October 21, the Federal Energy Regulatory Commission (FERC or Commission) denied rehearing of its ruling in Arizona Public Service Co. (APS), 132 FERC ¶ 61,064 (2010), where it announced that the prohibition against buy/sell transactions applies equally to intrastate pipelines engaged in NGPA Section 311 transactions and to Hinshaw pipelines. At the same time, the Commission issued a Notice of Inquiry (NOI) in Docket No. RM11-1 seeking comments on whether and how holders of firm interstate capacity on intrastate pipelines and Hinshaw pipelines can allow others to use their capacity, including whether buy/sell transactions should be permitted.  Read more…

Ten years ago, “transparency” within the natural gas markets was largely an ignored concept. The general public gave little thought to whether natural gas markets were transparent and federal regulators assumed that there was no issue to address.

In the wake of Enron’s demise, however, questions surrounding the transparency of natural gas markets were thrust into the headlines of major media outlets and to the forefront of the Federal Energy Regulatory Commission’s attention.

Consequently, since the turn of the century, a paradigm shift has evolved as FERC has undertaken a conscious effort to mandate additional transparency in the natural gas markets.
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