United States: FERC Issues Interpretation Narrowing The Scope Of The "Municipality" Exemption In The NGA, And Asserts Limited Jurisdiction Over Municipalities

In an order denying rehearing, issued to the City of Clarksville, Tennessee on May 19, 2016, FERC issued an interpretation narrowing the scope of the exemption for "municipalities" found in Natural Gas Act ("NGA") section 2(2). In several prior orders, FERC had held that a municipality is not a "person" under the NGA and would not be required to obtain the authorization provided by a section 284.224 blanket certificate to local distribution companies ("LDCs") and Hinshaw pipeline companies engaging in the interstate transportation of natural gas. In its May 19 order to the City of Clarksville, FERC held that while a municipality is not a "corporation" under the NGA, it is a person subject to FERC's jurisdiction when it "transports or sells gas for resale and consumption in another state, since the state cannot assert jurisdiction over such transportation or sales by the municipality."

Clarksville, a Tennessee municipality located in Montgomery County, Tennessee, owns and operates a natural gas distribution system that serves a significant geographical area within Tennessee. Clarksville also operates the gas distribution facilities that provide service to the U.S. Army base at Fort Campbell, which occupies 105,000 acres of land in two Tennessee and two Kentucky counties. Clarksville also provides gas service to 16 commercial customers in Kentucky, through a pipeline, known as the Kentucky Service Line, which extends from the Clarksville municipal system in Montgomery County, TN, 2,400 feet into Christian County, KY.

In a February 7, 2016 order, FERC granted Clarksville's request for NGA section 7(f) service area determinations covering the portion of the Fort Campbell Army base in Kentucky and the Kentucky Service Line that extends into Christian County, KY. Within a 7(f) service area, a natural gas company "may enlarge or extend its facilities for the purpose of supplying increased market demands in such service area without further authorization." In addition, "transportation to ultimate consumers in such service area by the holder of such service area determination, even if across State lines, shall be subject to the exclusive jurisdiction of the State commission in the State where the gas is consumed." NGA § 7(f), 15 U.S.C. §717f(f) (2012).

FERC's grant of the service area determinations was made over the objection of Todd County, KY, an intervenor, which argued that, because Clarksville also sells gas to the City of Guthrie, KY, for resale by the City of Guthrie to its residents, Clarksville failed to qualify for such a section 7(f) determination under Commission criteria that evaluates the extent to which an applicant makes sales of natural gas for resale in addition to delivering gas directly to end users in the proposed section 7(f) service area. Clarksville had countered that it only sold a small quantity of gas (10,675 Mcf in the prior year) to the City of Guthrie, that Clarksville delivered the gas to the City of Guthrie in Clarksville's home state of Tennessee, at a meter 20 feet below Tennessee's border with Kentucky, and that the City of Guthrie received the gas into a pipeline facility that Clarksville assumed was owned by the City of Guthrie.

The Commission concluded in its February 7 order that Clarksville's sales of gas for resale by the City of Guthrie did not alter the "primarily distribution nature" of Clarksville's operation, and thus did not preclude issuance to Clarksville of its requested service area determinations. The Commission further found that Clarksville's sales of gas for resale in interstate commerce were covered by the blanket marketing certificate the Commission had issued to "[a]ny person who is not an interstate pipeline" in 18 C.F.R. § 284.402. However, as to Clarksville's transportation in interstate commerce of gas for the City of Guthrie for consumption outside of the approved section 7(f) service areas, the Commission ruled that Clarksville must get a section 284.224 blanket certificate authorizing such transportation.

Clarksville sought rehearing of the Commission's determination that it must obtain a section 284.224 blanket certificate authorizing it to transport gas in interstate commerce in the same manner as an intrastate pipeline under section 311 of the NGPA of 1978. Clarksville argued in its rehearing request that it does not need authorization under section 7 of the NGA to transport and sell gas to Guthrie for resale and consumption in Kentucky because Clarksville is a "municipality" as defined in the NGA, and the Commission had held that "the plain language of the [Natural Gas] Act, found in Section 2, subsections (1), (2), (3), and (6) expressly excludes municipalities from the ambit of Commission jurisdiction." Panhandle Eastern Pipe Line Co. v. City of Rolla, Kansas, 26 FPC 736, 737 (1961) ("City of Rolla").

In its May 19, 2016 order, the Commission reviewed the NGA's text, prior Commission orders, and two U.S. Supreme Court opinions and one Fifth Circuit opinion. The Commission noted that under NGA § 1(b), FERC regulates the "transportation of natural gas in interstate commerce," the "sale in interstate commerce of natural gas for resale for ultimate public consumption" and the "natural gas companies engaged in such transportation or sale." "Natural gas company" is defined in NGA § 2(6) as a "person engaged in the transportation of natural gas in interstate commerce, or the sale in interstate commerce of such gas for resale." NGA § 2(1) defines "person" to include "an individual or a corporation." NGA § 2(2) states that "Corporation . . . shall not include municipalities as hereafter defined." NGA § 2(3) defines "municipality" as a "city, county or other political subdivision or agency of a State."

Further, in City of Rolla, the Federal Power Commission ("FPC") had disclaimed jurisdiction over that municipality's sales for resale of gas that would be transported by an interstate pipeline to other states. The FPC had reasoned that a municipality was not a "person" for purposes of the NGA because "person" is defined to include an individual or a "corporation," and "corporation" is defined to exclude a municipality and other political subdivisions of a state. Further, FERC noted that in two subsequent orders the Commission had relied on City of Rolla's reasoning to conclude that it lacked jurisdiction over municipalities, citing Somerset Gas Service, 59 FERC ¶ 61,012 (1992), and Northwest Alabama Gas District, 42 FERC ¶ 61,371 (1988). Similarly, FERC had relied on City of Rolla in its Order No. 319 to conclude that municipalities did not need the authorization provided by a section 284.224 blanket certificate to LDCs and Hinshaw pipeline companies because the NGA's municipal exemption allowed municipal gas utilities to engage in the same types of transactions without certificate authority.

Nonetheless, in the May 19 order FERC noted that the U.S. Supreme Court, in construing similar provisions of the Federal Power Act ("FPA"), had found a municipality to be a "person" under the FPA, referencing United States v. Public Utilities Commission of California, 345 U.S. 295, 316 (1953). There, the Supreme Court found sufficient ambiguity for it to hold that a Nevada county was a "person" for certain purposes under the FPA. FERC further relied on a Fifth Circuit opinion holding, regarding circumstances in which Texas owned gas flowing in interstate commerce, "the fact that Texas can never become a 'natural gas company' is irrelevant once Texas has allowed its gas to be dedicated to interstate service." Similarly, the Supreme Court concluded in California v. Southland Royalty Co., 436 U.S. 519, 529 (1978) that "whether or not the owners were 'natural gas companies' was 'somewhat beside the point'" when gas has already been dedicated to the interstate market.

Finally, FERC held that its interpretation is reasonable, because otherwise there would be a regulatory gap created by the fact that "a state cannot authorize or regulate a municipal gas utility's sales for resale and deliveries of gas that will be transported to another state for consumption. Further, a state does not have jurisdiction to regulate a pipeline that crosses its state border or to authorize the transportation of gas by a pipeline located entirely within that state if the gas will leave that state." FERC held that "[i]t is not reasonable to infer that Congress intended that a municipality's status as a political subdivision of its state make it exempt from NGA section 7 jurisdiction if the municipality transports or sells gas for resale and consumption in another state, since the state cannot assert jurisdiction over such transportation or sales by the municipality."

The May 19 order overrules the Commission's prior holdings in City of Rolla, Somerset, and Northwest Alabama, observing: "we believe ...[they] relied on an interpretation and application of the NGA's exemption for municipalities that was too expensive to the extent they would support Clarksville's position that its status as a municipality in Tennessee allows it to set its own rates for service for customers in another state."

FERC's May 19 order therefore (1) denied Clarksville's rehearing request; (2) granted Clarksville a certificate of limited jurisdiction under Part 157, subpart A, to continue natural gas deliveries for the City of Guthrie, KY; (3) held that the limited certificate of jurisdiction would be void unless Clarksville accepted it per section 157.20(a); (4) directed Clarksville to comply with NGA § 4 by filing, within 60 days, a mutually agreed-upon rate for the transportation component of Clarksville's service for the City of Guthrie; and (5) directed the Commission's Office of Energy Projects—Pipeline Certificates to contact the City of Guthrie within seven days of issuance of the May 19 order to offer guidance to the City of Guthrie regarding its submission of an application for approval of a section 7(f) service area including the portion of Guthrie's supply pipeline that lies between Clarksville's meter in Tennessee and the Tennessee-Kentucky state border.

A copy of the Commission's order is available here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions