The United States Court of Appeals for the D.C. Circuit issued a significant opinion recently in which it vacated and remanded the Federal Energy Regulatory Commission’s ("Commission" or "FERC") decision in Order 2004, which expanded the reach of the Standards of Conduct for Transmission Providers ("Standards") to encompass relationships between natural gas companies and their non-marketing affiliates. While the Standards are generally applicable to interstate natural gas pipelines and electric transmission utilities, the Court’s opinion expressly vacates Order 2004 as applied to interstate pipelines only, and not electric transmission utilities.
Order 2004, among other things, extended existing rules governing interstate pipelines’ relationships with their marketing affiliates to also govern pipelines’ relationships with non-marketing affiliate companies, such as producers, gatherers and traders. The purpose of extending the rules to non-marketing affiliates was to prevent pipelines from providing information to their energy affiliates that could improperly favor the energy affiliates in various types of transactions in the gas market. The rules require independent functioning of pipeline employees, nondiscriminatory access to information, and informational postings to facilitate public access to information. In support of the rules, FERC cited theoretical threats of discriminatory behavior and record evidence that abuse between pipelines and non-marketing affiliates is a real problem in the industry. Then-Commissioners Kelliher and Brownell dissented in Order 2004, finding that the record provided no evidence of an existing problem.
On appeal brought by several pipelines, the Court found that the evidence relied on by FERC in promulgating Order 2004 was insufficient to support the decision because it contained no complaints and not even a single example of abuse between a pipeline and a non-marketing affiliate. FERC’s record evidence consisted of examples of abuse by pipelines and affiliated marketers, which were covered by the existing rules, and a theoretical potential for abuse. Because FERC relied on both theoretical threats as well as alleged record evidence as the basis for Order 2004, and no record evidence was found by the Court, the Court vacated Order 2004 with respect to interstate pipelines and remanded the issue to FERC.
The Court reserved judgment as to whether FERC could have defended Order 2004 on the basis of theoretical abuse alone, but provided specific guidance to FERC regarding what will
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This article is for informational purposes and is not intended to constitute legal advice.
