This regular publication by DLA Piper lawyers focuses on helping clients navigate the ever-changing business, legal and regulatory landscape.
- Transportation Department acts on safety issues regarding crude and ethanol shipped by rail. The US Department of Transportation on April 17 issued regulatory changes it believes will address “some of the issues identified in recent train accidents involving crude oil and ethanol shipped by rail”. The department’s action release includes an emergency order, two safety advisories and notices to industry. Among the actions announced: the Federal Railroad Administration is recommending that only the most skilled inspectors conduct brake and mechanical inspections of trains transporting large quantities of flammable liquids and that the industry lower the threshold for wayside detectors that measure wheel impacts. In addition, trains transporting large amounts of certain flammable liquids must limit their speed to 40 mph or lower in certain “high threat urban areas.”
- Texas House of Representatives approves ban on local efforts to regulate fracking and similar oil and gas activities. The Texas House of Representatives on April 17 overwhelmingly approved legislation that would preempt local efforts to regulate a wide variety of oil and gas activities. The legislation is among many introduced in response to a ban passed by the City of Denton, Texas, to ban fracking within city limits. House Bill 40, widely known as the “Denton fracking bill,” enjoys support from numerous oil and gas industry associations. The Texas Oil and Gas Association, for example, has called the proposal “balanced, fair and essential to ensure that the state’s biggest job creator can continue to operate responsibly under robust and predictable regulation.”
- FERC issues order to coordinate scheduling between electric and natural gas systems.On April 16, the Federal Energy Regulatory Commission issued Order 809, aiming to further its goal of improving the coordination of scheduling between the wholesale natural gas and electricity markets. FERC explained that since the nation increasingly relies on natural gas for electric generation, the operating days of the two markets should be better coordinated to ensure efficiency. Order No. 809T would correct a misalignment between the operating days, providing additional scheduling flexibility to all shippers on interstate natural gas pipelines.
- Supreme Court permits states to regulate energy activities that affect both wholesale and retail transactions. On April 21, the US Supreme Court upheld a Ninth Circuit decision that allowed a greater role for states in regulating the gas industry practices of the energy sector. Natural gas companies should therefore be aware of the possibility of additional state action to come, in addition to FERC regulation. This could be in the form of state regulation and potential state lawsuits, especially where there is no conflict between the state action and federal regulation. In ONEOK, Inc. v. Learjet, Inc., the Court held that the states may regulate conduct that affects both wholesale and retail transactions, as long as that regulation does not conflict with FERC regulations and the state regulation aims at areas traditionally regulated by states, such as state antitrust laws. The Court thus rejected an effort by FERC and natural gas wholesalers to exempt activities that affect both types of sales from all state regulation. Under the Natural Gas Act, FERC has exclusive jurisdiction to regulate interstate transportation of natural gas, wholesale natural gas transactions and practices that directly affect wholesale distribution. Retail transactions are regulated by the states. At issue was whether an activity that affects both wholesale and retail sales is absolutely shielded from all state regulation by the federal Natural Gas Act, even if the activity affects retail transactions and the state regulation does not conflict with FERC regulation. The Court held that state regulation is permissible in this instance.
- Pemex expects to increase oil and gas production. Pemex, the Mexican state-controlled energy group, plans to expand production after nearly a decade of decline, its head of exploration and production told the Financial Times. The increase is a direct result of sweeping, historic reforms that cleared the way for foreign investment in the energy sector. Pemex was Mexico’s only hydrocarbon producer for nearly 80 years but is now entering into private-sector activity as the government has moved to increase competition. “Things are looking good” for increased production, Gustavo Hernandez, the head of exploration and production, told the Financial Times in an April 21 article.
- CFTC commissioner urges user fees for energy and other commodities traders. The Commodity Futures Trading Commission has the task of regulating the entire futures, options and swaps industry, including energy traders, with an annual budget of $250 million. The futures market alone is estimated at about $30 trillion in size. On April 14, Commissioner Sharon Bowen said in Congressional testimony that financial firms should pay new fees to support CFTC regulatory activity. Congress should set these “extremely small” fees on banks and other companies that trade derivatives, Bowen said. The increased funding could lead to increased regulatory scrutiny of the industry, but Bowen also noted that the added funding could help the agency respond more quickly to requests from the industry. Members of the commodity trading industry have said in the past that such fees would simply raise trading costs and encourage businesses to move overseas. The full text of Bowen’s testimony can be found here.