With some key terms in the Energy Policy Act of 2005 (EPAct) ill-defined or not defined at all, FERC and the natural gas industry are more than likely to wind up in court in the months and years ahead squaring off over what Congress intended in the provisions that seemingly give the agency greater jurisdictional and anti-manipulation authority, said a top FERC attorney.

Two items are on the “front burner” at the Federal Energy Regulatory Commission (FERC), including the scope of FERC’s jurisdiction under the new EPAct provisions and the scope of the agency’s anti-manipulation authority, issues that have been raised in the enforcement action against failed hedge fund Amaranth Advisors LLC and in other cases, said FERC General Counsel Cynthia A. Marlette during the Natural Gas Roundtable last Tuesday in Washington, DC.

Natural gas companies are questioning whether FERC can, as reflected in its proposed post-EPAct gas market transparency rule, require traditionally nonjurisdictional intrastate pipelines to post daily capacity and volumes flowing through major receipt and delivery points (see NGI, April 23). The proposed rule also would require buyers and sellers of more than de minimus amounts of natural gas to report the numbers and volumes of relevant transactions for the previous calendar year. Key questions are “What is a ‘market participant,’ and how far does that information-collection authority go?” she said.

“Most of the legal argument turns on the definition of ‘market participant.’ Congress did not limit the Commission’s ability to obtain information from a natural gas company. It used a different term. It didn’t define the term in the act…The Commission’s [argument] is that it can obtain information from a market participant if it’s information about the availability or price of natural gas [ultimately] sold in interstate commerce,” Marlette noted.

Critics, however, contend that if Congress had intended to give FERC authority over intrastate pipeline volumes and capacity it would have said so explicitly in EPAct, she said.

FERC’s anti-manipulation authority extends to energy entities that are not traditionally jurisdictional to the agency, such as government-owned utilities and other market participants. To trigger FERC’s authority, however, the manipulation must be in connection with a transaction subject to the jurisdiction of the Commission. Absent that nexus to a jurisdictional transaction, the Commission has no authority (see NGI, Jan. 23, 2006).

With respect to the scope of the Commission’s anti-manipulation authority under EPAct, the central questions are “What is an ‘entity’ under that provision? What does ‘in-connection-with’ mean, [and] how far does that go? …We’re going to be focusing on [that] quite hard,” Marlette told regulators and energy executives. She said she believes the dispute over the meaning of “in-connection-with” will ultimately be played out in court.

When asked if FERC and the Commodity Futures Trading Commission (CFTC) have mended fences after butting jurisdictional heads over Amaranth, Marlette said “the Commission has a very productive relationship with the CFTC…There is very extensive coordination as we move forward, aside from that jurisdictional issue” involving Amaranth.

She declined to comment on the status of the nomination of Chairman Joseph Kelliher for a second term as commissioner and chairman at the agency. The nomination has been caught up in all the squabbling in the Senate. Kelliher’s term officially ended in July, but he has been allowed to continue to serve until Congress adjourns for the year.

If the Senate should gavel to a close in the next two to three weeks without approving Kelliher’s nomination, Kelliher’s term would then come to an end, said Bill Wicker, a spokesman with the Senate Energy and Natural Resources Committee, which has jurisdiction over FERC nominations. However, if the Senate should stay in semi-session or pro forma session during its Christmas recess to prevent President Bush from making recess appointments, Kelliher would be allowed to continue to serve indefinitely, he noted (see related story).

Marlette said six key natural gas issues are pending at FERC, including four notices of proposed rulemaking (NOPR) involving capacity-release transactions of less than one year, standards of conduct for transmission providers and marketing affiliates, the posting of capacity and volumes by intrastate gas pipelines, and revisions to financial forms, statements and reports filed by gas companies. Also before FERC is a proposed policy statement to include master limited partnerships in proxy groups and a notice of inquiry dealing with the recovery of fuel retention costs.

Marlette declined to say which initiative would be acted on first by the Commission, but she said “I hope that we will be able to finalize the rule [on standards of conduct] soon and hopefully come out with a clear set of regulations.”

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