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Journal of Energy & Natural Resources Law Volume 8, 1990 - Issue 1-4
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Original Articles

The United States Natural Gas Industry: Evolving Regulatory Structure and Opportunities for International Trade

Carmen D. Legato Mr Legato is a partner in the firm of Swidler & Berlin, Chartered, Washington, DC. This is an expanded and annotated version of a paper presented at the meeting of the Association of Soviet Lawyers and the International Bar Association Section on Energy & Natural Resources Law, Committee on Gas, at Leningrad, USSR, on June 5, 1989.
Pages 163-182 | Published online: 08 Jun 2015

  • Energy Information Administration (EIA), US Department of Energy, Monthly Energy Review, May 1989, at p.9 (hereinafter, MER, May 1989).
  • Id.
  • Id., at p. 18.
  • Id:
  • See e.g. Gas Research Institute (GRI), GRI Baseline Projection of US Energy Supply and Demand, (Chicago, 1988), at p. 29.
  • MER, May 1989, at p. 18.
  • MER, May 1989, at p. 13.
  • EIA, Annual Energy Outlook 1989, (Washington, January 1989), at p. 46.
  • Id.
  • In 1988, for example, total gas consumption varied from 2,168 bcf in January to 1,464 bcf in April to 1,169 bcf in July to 1,448 bcf in November. MER, May 1989, at p. 64.
  • Sawhill, “The Outlook for Domestic Supply and Demand,” in Kalt and Schuler, eds., Drawing the Line on Natural Gas Regulation, (Quorum Books, New York, 1987), at p. 23, fig. 2.1.
  • EIA, Electricity Generation from Natural Gas: Prospects and Implications for the United States, (EIA Service Report SR/EPD/89-01, January 1989), at p. 49.
  • MER, May 1989, at p. 63.
  • American Gas Association (AGA), Gas Facts, (Arlington, VA, 1987), at pp. 59 and 158.
  • AGA, “Preliminary Findings Concerning 1988 Natural Gas Reserves,” (AGA Planning & Analysis Group, Energy Analysis, EA 1989–3), April 28, 1989.
  • EIA, Electricity Generation from Natural Gas, supra, at p. 33.
  • MER, May 1989, at p. 63.
  • EIA, Natural Gas Monthly, May 1985, at p. LVIII; EIA, Natural Gas Monthly, May 1989, at p. 5.
  • National Energy Board, 1987 Annual Report, (Ottawa, Canada, 1988), at p. 11.
  • Id. at p. 11, 16.
  • Foster Natural Gas Report, January 19, 1989, at p. 14.
  • EIA, Natural Gas Monthly, May 1989, at p. 6.
  • Each of these items has a distinctly different connotation within the natural gas industry. All, however, refer to gas interchange arrangements among two or more parties each of whom controls gas supplies more conveniently accessible to one of the other parties.
  • Inside F.E.R.C., September 11, 1989, at p. 1 reported total pipeline throughput for the first half of 1989 to be 8.3 tcf. In the same period, total US consumption was 10.57 tcf. MER, May 1989, at p. 63.
  • EIA, Natural Gas Monthly, December 1988, at p. 32. The full capacity of the pools is actually over 8.1 tcf. The 4.6 tcf subject to withdrawal is referred to as the “working” gas. The balance is “base” gas required to maintain adequate pressure within the field.
  • AGA, Gas Facts, supra, at p. 61.
  • In 1988, for example, the United States exported 74 bcf compared with imports of 1,283 bcf. MER, May 1989, at p. 63.
  • Inside F.E.R.C., May 15, 1989, at p. 3.
  • Foster Natural Gas Report, August 18, 1988, at p. 34.
  • Article I, Sec. 8, cl. 3.
  • See Minnesota Rate Cases, 230 U.S. 352, 396.
  • Congressional intention to preempt state regulation may be stated expressly, or it may be implicit in the comprehensiveness of the federal regulatory scheme, leaving no room for supplementary state action. See Hillsborough County v. Automated Medical Laboratories, Inc., 471 US 707.
  • West v. Kansas Natural Gas Ca, 221 US 229, 31 S.Ct. 564 55 L.Ed. 716 (1911) (State may not prohibit interstate shipment of gas produced within its borders); Public Utilities Commission v. London, 249 US 236; Missouri v. Kansas Natural Gas Ca, 265 US 298.
  • Public Utilities Commission v. London, supra, (Sales by interstate pipeline to local distributors are in interstate commerce); Missouri v. Kansas Natural Gas Co, supra, (Sales by local distributors have only incidental effect on interstate commerce and are subject to state regulation).
  • See FPC v. Hope Natural Gas Co., 320 US 591, 606 (1944).
  • 15 U.S.C. §§717 et seq.
  • Department of Energy Act of 1978, §402; 42 U.S.C. §7172.
  • 15 U.S.C. §717(b).
  • 15 U.S.C. §717f(c). These requirements apply equally to storage facilities and services which are considered to be an integral part of the interstate gas transportation system. See e.g. El Paso Natural Gas Co., 47 FPC 1527 (1972).
  • 15 U.S.C. §717f(e).
  • 15 U.S.C. §717f(b). See also United Gas Pipe Line Ca v. FPC, 385 US 83.
  • 15 U.S.C. §717c—717d.
  • 15 U.S.C. §717c.
  • 15 U.S.C. §717g. FERC has promulgated a Uniform System of Accounts for natural gas companies at 18 C.F.R., Part 201.
  • See Office of Consumers’ Counsel v. FERC, 783 F.2d 206, 212–14 (D.C.Cir. 1986); Pacific Indonesia LNG Co., 55 FPC 1601, 1604 (1976).
  • See e.g. City of Detroit v. Panhandle Eastern Pipe Line Ca, 3 FPC 273 (1942).
  • See Public Service Ca of New Mexico v. FERC, 653 F.2d 681 (D.C.Cir. 1981).
  • See Public Systems v. FERC, 709 F.2d 73 (D.C.Cir. 1983).
  • See FPC v. Hope Natural Gas Ca, supra, at pp. 603–606.
  • See e.g. Williston Basin Interstate Pipeline Ca, 48 F.E.R.C. ¶ 61,034 (1989).
  • 15 U.S.C. §717f(h).
  • Phillips Petroleum Co. v. Wisconsin, 347 US 672.
  • In FPC Statement of General Policy 61–1, 24 FPC 818, as amended, 24 FPC 1107 (1960), as amended, 25 FPC 595 (1961), the Commission delineated 23 producing areas for which it intended to initiate rate proceedings.
  • The first area rate case, involving the Permian Basin of west Texas and New Mexico, lasted six years at the Commission, and another two years in the courts.
  • The details of these orders are described in the court decisions that upheld them: Shell Oil Co. v. FPC, 520 F.2d. 1061 (5th Cir. 1975), cert, denied, 426 US 941; American Public Gas Ass'n v. FPC, 567 F.2d 1016 (D.C. Cir. 1977), cert, denied, 435 US 907; Tenneco Oil Co. v. FPC, 571 F.2d 834 (5th Cir. 1978), cert, dismissed, 439 US 801.
  • See e.g. FPC v. Louisiana Power & Light Co., 406 US 621 upholding the Commission's curtailment plan for United Gas Pipe Line Company.
  • Pub. Law 95–621, November 9, 1978; 92 Stat. 3350; 15 U.S.C. §§3.301 et seq.
  • Pub. Law 95–620, November 9, 1978; 92 Stat. 3289.
  • Pub. Law 100–42, May 21, 1987; 101 Stat. 310.
  • The policy was defined in Regulation of Natural Gas Pipe Lines After Partial Wellhead Decontrol, Order No. 436, 33 F.E.R.C. ¶ 61,007 (1985).
  • 18 CFR §284.21.
  • 18 CFR, Part 284, Subpart A.
  • Inside F.E.R.C., September 11, 1989, at p. 1.
  • See e.g. Panhandle Eastern Pipe Line Ca, Opinion No. 275A, 40 F.E.R.C. ¶ 161,220 (1987) (“We see no reason to deviate from our opinion that competition best serves the public interest”).
  • See e.g. Michigan Consolidated Gas Co. v. FERC, 883 F.2d 117 (D.C.Cir. 1989).
  • Silver v. New York Stock Exchange, 373 US 341.
  • Arkansas Louisiana Gas Co. v. Hall, 453 US 571.
  • See MCI Communications Corp v. AT&T, 708 F.2d 1081, 1132 (7th Cir. 1983), cert, denied, 464 US 891.
  • See e.g. Illinois v Panhandle Eastern Pipe Line Company, 852 F.2d 891 (7th Cir. 1988), cert, denied, 109 S. Ct. 543.
  • 15 U.S.C. §717b.
  • Department of Energy Delegation Order 0202–127, 54 Fed. Reg. 11436 (Mar. 20, 1989).
  • New Policy Guidelines and Delegation Orders From Secretary of Energy to Economic Regulatory Administration and Federal Energy Regulatory Commission Relating to the Regulation of Imported Natural Gas, 49 Fed. Reg. 6684 (February 22, 1984).
  • This import-favouring policy has been upheld by the courts. Panhandle Producer & Royalty Owners Ass'n v. Economic Regulatory Administration, 847 F.2d 1168 (5th Cir. 1988).
  • 42 U.S.C. §6212.
  • 15 U.S.C. §719j.
  • Presidential Finding Concerning Alaska Natural Gas, 53 Fed. Reg. 999 (January 15, 1989).
  • The Strategic Petroleum Reserve created pursuant to Title I of the Energy Policy and Conservation Act of 1975 (42 U.S.C. §§6231 et seq.) is an example of this preparedness.
  • Many of the pipelines’ long-term contracts with producers included provisions requiring them to pay for a minimum quantity of gas annually whether taken or not. As gas sales declined in the 1980s due to economic recession and above-market prices, these “take-or-pay” penalties started to accumulate. When LDCs and others began to avail themselves of the opportunity to convert to transportation service and to seek out lower cost supplies, the take-or-pay problem became acute. The debate continues over the relative responsibilities of producers, pipelines, distributors and consumers for the billions of dollars involved.
  • MER, May 1989, at p. 64.
  • EIA, Annual Energy Outlook 1989, supra, at p. 52, Table A9; GRI, 1988 GRI Baseline Projection, supra, p. 13, Table 4; AGA, Planning & Analysis Group, A.G.A. TERA-Analysis 89–2, “The 1989 A.G.A. TERA Base Case,” April 7, 1989, at p. ii, Table 1.
  • GRI, 1988 GRI Baseline Projection, supra, at p. 22, Table 7.
  • EIA, Electricity Generation from Natural Gas, supra, at p. 32, Table 12.
  • Inside F.E.R.C., March 20, 1989, at p. 12.
  • The Washington Post, September 16, 1989, at p. Al.
  • The Washington Post, May 13, 1989, at p. Al.
  • New York Times, July 22, 1989, at p. 9.
  • Inside F.E.R.C., March 20, 1989, at p. 12.
  • 42 U.S.C. §7401 et seq.
  • Center for Strategic and International Studies Energy and Strategic Resources Program, Natural Gas Vehicles, a National Security Perspective, (Washington, 1984).
  • EIA, Electricity Generation from Natural Gas, supra, at p. 32.
  • Id. at p. 33.
  • Foster Natural Gas Report, December 10, 1987, at p. 9.
  • ANGTS is to be expedited and given preference by all federal agencies over any similar applications to construct Alaskan natural gas transportation facilities. 15 U.S.C. §719g(b).

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