On 24 October 2011, the U.S. Court of Appeals for the Fifth Circuit issued an opinion vacating Order Nos. 720 and 720-A of the Federal Energy Regulatory Commission (FERC or "Commission"), which required certain intrastate natural gas pipelines to post flow information. Texas Pipeline Association v. FERC, 5th Cir. No. 10-60066 (filed 24 Oct. 2011). The decision is a significant set-back for FERC's efforts to bolster transparency in the natural gas market, and may pose a substantial obstacle to the agency's parallel transparency initiatives in the electricity market.

Issued in 2008, Order No. 720 required so-called major non-interstate pipelines to post certain flow data on publicly available internet websites. In particular, Order No. 720 required major non-interstate pipelines, defined as those natural gas pipelines that are not natural gas companies under the Natural Gas Act (NGA) (i.e. intrastate pipelines) and deliver more than 50 million MMBtu/year, to post scheduled flow and other information for each receipt or delivery point with a design capacity greater than 15,000 MMBtu/day. In promulgating this requirement, the Commission purported to act under the authority granted to it by Congress in the Energy Policy Act of 2005, which amended the NGA by adding a new section 23. Known as the transparency provision, section 23 directs FERC to "facilitate price transparency in markets for the sale or transportation of physical natural gas in interstate commerce" and states that the Commission may accomplish this by, inter alia, collecting information "from any market participant" about "the availability and prices of natural gas sold at wholesale and in interstate commerce." Following appeals from industry members who argued that FERC exceeded its authority under the NGA, the Commission issued Order No. 720-A which largely affirmed Order No. 720 with slight modifications, namely, a revised definition of "major non-interstate" pipelines to include new pipelines (i.e. in service for less than three years) with design capacities of more than 50 million MMBtu/year and a requirement that, where design capacity is unknown for a given receipt/delivery point, the pipeline must post scheduling information for that point if volumes equal to or greater than 15,000 Dth/d are scheduled at that point on any day in the last three years.    

Following the rehearing process at FERC, two petitioners, the Texas Pipeline Association (the primary trade association for Texas intrastate pipelines) and the Railroad Commission of Texas (the state regulatory body with authority over intrastate pipelines), filed a petition for review of Order Nos. 720 and 720-A with the Fifth Circuit. The petitioners argued that FERC exceeded its authority under the NGA when it imposed the new posting requirements on the intrastate pipelines subject to Order Nos. 720/720-A. FERC responded that Congress implicitly expanded the Commission's jurisdiction when it enacted section 23, and that the new posting requirements for major non-interstate pipelines were consistent with this limited expansion of FERC's jurisdiction. In support thereof, FERC primarily cited the "from any market participant" phrase in section 23.  

The Fifth Circuit agreed with the petitioners and found that the posting requirement for intrastate pipelines exceeded FERC's jurisdiction over natural gas transportation. In particular, the Fifth Circuit found that the "from any market participant" phrase in section 23–when read within the larger context of the NGA (particularly section 1(b))–did not confer upon FERC the authority to impose posting obligations on intrastate pipelines. According to the court, "the NGA unambiguously precludes FERC from issuing the Posting Rule so as to require wholly intrastate pipelines to disclose and disseminate capacity and scheduling information."

At this time, is unknown whether FERC will seek reconsideration of this decision, or file a petition for writ of certiorari in the U.S. Supreme Court.     

It remains to be seen whether FERC will fashion an alternative transparency proposal for the gas markets. In addition, the opinion raises questions about whether the Commission will succeed in its pending rulemaking proposal to require non-jurisdictional electric power sellers (i.e. public power) to file quarterly transactional reports under section 220 of the Federal Power Act, which is the electric market transparency provision that parallels section 23 of the Natural Gas Act.  For more information, please see Hogan Lovells Energy Alert titled, "FERC proposes rule requiring quarterly reporting for public power" dated 27 April 2011.