FERC Order 490

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FERC Order 490 was a final rule by the Federal Energy Regulatory Commission to amend its regulations concerning the abandonment of certain sales and purchases of natural gas under Section 7(b) the Natural Gas Act (NGA) where the underlying contract has expired. It was enacted on April 12, 1988. [1] The following year, an environment of more deregulation took place with the enactment of Natural Gas Wellhead Decontrol Act of 1989. [2]

Contents

Rationale for the rule

The goal of the order was to allow more affordable natural gas for the consumer. Gas from a producer going to a national pipeline would have the ability to switch to a regional pipeline. Contracts with high prices could be abandoned, which would lower prices for the consumer as a result.

Prior to the rule, gas that was dedicated to an interstate pipeline or similar customer could not sell the gas to anyone else until FERC found that "abandonment is required by the public convenience and necessity" under Section 7(b) of the NGA. [3] The logic was the right to abandon contracts on interstate pipelines could allow gas to regional pipelines, if needed. [1]

Criticism

In Corinne B. Grace v. El Paso Natural Gas Company, FERC made the following statement: [4]

Order No. 490 was never intended to be an unconstrained grant of regulatory authority to interstate pipelines to terminate and abandon small producer contracts, subject only to later judicial review of the contract expiration dispute.  At a minimum, the Commission should investigate the types of serious allegations presented here by the complainant and render a decision based on the substantive merits.  As a practical matter, in the absence of such investigation, many small producers effectively will have no remedy of any kind in the event of such alleged pipeline conduct, because a contract lawsuit will be financially burdensome, if not impossible. Consequently, I urge the Commission to reconsider this policy.

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Corinne B. Grace v. El Paso Natural Gas Company was the hearing for the legal proceedings before the Federal Energy Regulatory Commission (FERC) which consisted of a hearing and a later rehearing, between 1989 and 1990. The issue was based on FERC Order 490, which the commission had created for the issue of abandonment of certain natural gas sales and purchases under the authority of Natural Gas Act of 1938 (NGA). El Paso Natural Gas had cancelled the contract for natural gas producer Grace, which was contested by Grace as not authorized by FERC regulations. The result from the hearings was that FERC decided to consider the effects of the order in terms of the effect on natural gas producers. Around this same time, Corinne B. Grace was also in the 1990 FERC hearing for Transwestern Pipeline Company v. Corinne Grace.

Transwestern Pipeline Company v. Corinne Grace was a hearing before the Federal Energy Regulatory Commission (FERC) on May 25, 1990. Transwestern Pipeline claimed that Grace, an independent oil and gas operator, had a well that was misclassified by the New Mexico Oil Conservation Division as what is called a stripper well under §108 of the Natural Gas Policy Act of 1978 (NGPA). A stripper well is a well that is marginally productive. The underlying issue was the geology of the Morrow Formation in New Mexico and the reliability of the information the oil and gas commission of one state had based its decision on based on this type of geological formation and its characteristics. Around this same time, Corinne Grace was also in the 1990 FERC hearing for Corinne B. Grace v. El Paso Natural Gas Company.

Corinne B. Grace was an American actress and oil and gas producer based out of New Mexico. She had been instrumental in the Federal Energy Regulatory Commission (FERC) reassessing the new federal regulations allowing pipelines to cancel oil and gas producer contracts as was seen in Corinne B. Grace v. El Paso Natural Gas Company. She was also instrumental in protecting stripper wells as well as being supportive of state interpretations of FERC regulations as was seen in Transwestern Pipeline Company v. Corinne Grace. She also was part of the tax law theory of equitable recoupment being applied to city revenue from leased property with the court case of Grace v. City of Carlsbad.

References

  1. 1 2 FERC Order 490 Docket No. RM87-16-0000
  2. H.R.1722 - 101st Congress (1989-1990): Natural Gas Wellhead Decontrol Act of 1989 | Congress.gov | Library of Congress
  3. natural_gas_act.pdf (ferc.gov)
  4. Corinne B. Grace v. El Paso Natural Gas Company, Docket No. GP89-38-001