A federal court has vacated an order in which FERC asserted that it had jurisdiction over municipalities transporting or selling natural gas for resale and consumption in other states, siding instead with the City of Clarksville, TN.

The decision centered on the U.S. Court of Appeals for the District of Columbia Circuit’s reading of Federal Energy Regulatory Commission jurisdiction over interstate gas transportation and resale as defined by the Natural Gas Act (NGA). Under Section 7(c) of the Act, companies must obtain certificates of public convenience and necessity from FERC before “undertak[ing] the construction or extension” of facilities to transport natural gas in interstate commerce.

Significantly, the Act defines natural gas companies as a “person engaged in the transportation of natural gas in interstate commerce, or the sale in interstate commerce of such gas for resale.” A “person,” as defined by the Act, “includes an individual or corporation.” And, the court said, “the Act specifies that a corporation ‘shall not include municipalities,’ which are defined as ‘cit[ies], count[ies], or other political subdivision[s] or agenc[ies] of a state.’” The case is City of Clarksville v. FERC, No.16-1244.

Clarksville had argued that “the Commission’s exercise of jurisdiction is contrary to the plain language of the Natural Gas Act and contrary to longstanding FERC precedent.”

The city owns and operates a natural gas distribution system that serves customers in Montgomery, Cheatham and Robertson counties, the U.S. Army base at Fort Campbell, which straddles the Tennessee-Kentucky border, and, through the Kentucky Service Line pipeline, 16 commercial customers in Christian County, KY.

In June 2013, Clarksville filed an application at FERC requesting a Section 7(c) service area determination covering its services to Fort Campbell and the Kentucky Service Line, and asked for a waiver of reporting, accounting and other regulatory requirements primarily applicable to FERC-jurisdictional gas companies [CP13-508].

FERC granted those requests in February 2014. However, based on a service agreement Clarksville had with the City of Guthrie, KY, FERC told Clarksville it would be required to obtain a different certificate if it meant to transport gas in interstate commerce in the same manner as an interstate pipeline would under section 311 of the Natural Gas Policy Act.

Clarksville subsequently sought a rehearing of FERC’s determinations regarding its agreement with Guthrie, basing its argument on prior FERC orders.

The Commission denied the request, noting that its prior interpretation of the municipal exemption was “overly expansive, at least to the extent it would allow municipal gas utilities to avoid NGA jurisdiction over the transportation and sale of gas for consumption in other states, because such an interpretation would create a regulatory gap.”

In a 16-page opinion handed down Tuesday, the court vacated FERC’s order granting service area determinations and the order denying rehearing.

“We see no reason to deviate from the clear and unambiguous language of the statute…,” the court concluded.