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FERC Proposes Rule for Resolving Gas, Power Contract Disputes

December 19, 2005
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FERC last Thursday issued a proposed rule aimed at reducing the time and expense involved in settling disputes that arise when parties move to change the terms of their jurisdictional wholesale natural gas and power sales contracts.

The notice of proposed rulemaking (NOPR) seeks to clarify the standard of review governing proposed changes to jurisdictional contracts in the event the parties have not expressly reserved in their contracts the right to make changes [RP05-35]. The courts have asked the Federal Energy Regulatory Commission to eliminate the confusion and regulatory uncertainty surrounding these issues by clarifying the default standard of review that will apply when parties fail to adopt a standard in their contracts.

After reviewing case law, FERC said it concluded that weight of precedent supports using the much-stricter "public interest standard" in cases where there is silence on the issue contract changes. The standard is consistent with the Supreme Court decision in Mobile and Sierra, FERC said. However, it noted that parties remain free to adopt the less-strict "just and reasonable standard" for review of changes to their jurisdictional agreements.

The NOPR specifies "boilerplate language" that parties must include in their jurisdictional agreements, if they want subsequent modifications to be reviewed under the just and reasonable standards. Absent the boilerplate language, FERC proposes to review changes to wholesale gas and electric contracts under the stricter public interest standard.

The proposed rule would not apply to service agreements entered into pursuant to a form of service agreement included in the tariff of an interstate natural gas pipeline or electric transmission provider, the agency said.

The NOPR would be applied prospectively, and would take effect for all jurisdictional contracts under the Natural Gas Act and Federal Power Act that are executed 30 days or more after the final rule is published in the Federal Register. Comments are due at FERC within 30 days of the NOPR being published in the Federal Register.

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