Title 15, Commerce and TradeRelease 119-110
§717y Voluntary Conversion of Natural Gas Users to Heavy Fuel Oil
Title 15 › CHAPTER 15B — NATURAL GAS › § 717y
Summary
The Federal Energy Regulatory Commission must make a rule that lets people transfer the right to get natural gas so facilities can switch to using heavy petroleum fuel oil. The rule covers gas under contracts from before September 1, 1977 (with limited renewals), gas used in facilities that existed on that date, and gas subject to a prohibition order. Transfers may go to interstate pipelines, local distribution companies that are served by interstate pipelines, or to a person for a Commission-designated high‑priority use. The Commission will set terms for transfers, require refunds if the money paid for the transfer is more than the extra cost of using heavy fuel oil instead of the gas for the rest of the contract (including an allowance to spread the undepreciated value of gas-only equipment), and must check if a transfer would raise demand for imported refined petroleum. If the gas will be resold, the transfer cannot take effect unless the Commission issues a certificate of public convenience and necessity under the Natural Gas Act. The rule must give guidelines for the maximum “just compensation.” Contract clauses that forbid approved transfers or would cancel the contract for making such transfers cannot be enforced. The buyer of the contractual rights takes on the contract duties, but the seller remains responsible for any duties the buyer does not perform. Key terms: natural gas; just compensation (the allowed payment is the added cost of heavy oil use over the contract gas price, with special rules for pipelines and lost revenue); contractual interests (the right to receive gas under a contract affected by curtailment); interstate and intrastate pipelines; high‑priority use; heavy petroleum fuel oil (domestically refined numbers 4, 5, or 6); facility (powerplant or major fuel-burning installation); curtailment plan (service priority plan during cutbacks). A supplier is never forced to deliver more gas after a transfer than the smallest of the contract’s maximum delivery, the curtailment-plan amount that would have applied, or the volume actually delivered (or paid for) in the prior 12 months.
Full Legal Text
Title 15, §717y
Commerce and Trade, Source: USLM XML via OLRC
(a)Transfer of contractual interests
(1)In order to facilitate voluntary conversion of facilities from the use of natural gas to the use of heavy petroleum fuel oil, the Commission shall, by rule, provide a procedure for the approval by the Commission of any transfer to any person described in paragraph 2(B)(i), (ii), or (iii) of contractual interests involving the receipt of natural gas described in paragraph 2(A).
(2)(A)The rule required under paragraph (1) shall apply to—
(i)natural gas—
(I)received by the user pursuant to a contract entered into before September 1, 1977, not including any renewal or extension thereof entered into on or after such date other than any such extension or renewal pursuant to the exercise by such user of an option to extend or renew such contract;
(II)other than natural gas the sale for resale or the transportation of which was subject to the jurisdiction of the Federal Power Commission under the Natural Gas Act [15 U.S.C. 717 et seq.] as of September 1, 1977;
(III)which was used as a fuel in any facility in existence on September 1, 1977.
(ii)natural gas subject to a prohibition order issued under section 717z of this title.
(B)The rule required under paragraph (1) shall permit the transfer of contractual interests—
(i)to any interstate pipeline;
(ii)to any local distribution company served by an interstate pipeline; and
(iii)to any person served by an interstate pipeline for a high priority use by such person.
(3)The rule required under paragraph (1) shall provide that any transfer of contractual interests pursuant to such rule shall be under such terms and conditions as the Commission may prescribe. Such rule shall include a requirement for refund of any consideration, received by the person transferring contractual interests pursuant to such rule, to the extent such consideration exceeds the amount by which the costs actually incurred, during the remainder of the period of the contract with respect to which such contractual interests are transferred, in direct association with the use of heavy petroleum fuel oil as a fuel in the applicable facility exceeds the price under such contract for natural gas, subject to such contract, delivered during such period.
(4)In prescribing the rule required under paragraph (1), and in determining whether to approve any transfer of contractual interests, the Commission shall consider whether such transfer of contractual interests is likely to increase demand for imported refined petroleum products.
(b)Commission approval
(1)No transfer of contractual interests authorized by the rule required under subsection (a)(1) may take effect unless the Commission issues a certificate of public convenience and necessity for such transfer if such natural gas is to be resold by the person to whom such contractual interests are to be transferred. Such certificate shall be issued by the Commission in accordance with the requirements of this subsection and those of section 7 of the Natural Gas Act [15 U.S.C. 717f], and the provisions of such Act [15 U.S.C. 717 et seq.] applicable to the determination of satisfaction of the public convenience and necessity requirements of such section.
(2)The rule required under subsection (a)(1) shall set forth guidelines for the application on a regional or national basis (as the Commission determines appropriate) of the criteria specified in subsection (e)(2) and (3) to determine the maximum consideration permitted as just compensation under this section.
(c)Restrictions on transfers unenforceable
Any provision of any contract, which provision prohibits any transfer of any contractual interests thereunder, or any commingling or transportation of natural gas subject to such contract with natural gas the sale for resale or transportation of which is subject to the jurisdiction of the Commission under the Natural Gas Act [15 U.S.C. 717 et seq.], or terminates such contract on the basis of any such transfer, commingling, or transportation, shall be unenforceable in any court of the United States and in any court of any State if applied with respect to any transfer approved under the rule required under subsection (a)(1).
(d)Contractual obligations unaffected
The person acquiring contractual interests transferred pursuant to the rule required under subsection (a)(1) shall assume the contractual obligations which the person transferring such contractual interests has under such contract. This section shall not relieve the person transferring such contractual interests from any contractual obligation of such person under such contract if such obligation is not performed by the person acquiring such contractual interests.
(e)Definitions
For purposes of this section
(1)
(2)The term “just compensation”, when used with respect to any contractual interests pursuant to the rule required under subsection (a)(1), means the maximum amount of, or method of determining, consideration which does not exceed the amount by which—
(A)the reasonable costs (not including capital costs) incurred, during the remainder of the period of the contract with respect to which contractual interests are transferred pursuant to the rule required under subsection (a)(1), in direct association with the use of heavy petroleum fuel oil as a fuel in the applicable facility, exceeds
(B)the price under such contract for natural gas, subject to such contract, delivered during such period.
For purposes of subparagraph (A), the reasonable costs directly associated with the use of heavy petroleum fuel oil as a fuel shall include an allowance for the amortization, over the remaining useful life, of the undepreciated value of depreciable assets located on the premises containing such facility, which assets were directly associated with the use of natural gas and are not usable in connection with the use of such heavy petroleum fuel oil.
(3)The term “just compensation”, when used with respect to any intrastate pipeline which would have transported or distributed natural gas with respect to which contractual interests are transferred pursuant to the rule required under subsection (a)(1), means an amount equal to any loss of revenue, during the remaining period of the contract with respect to which contractual interests are transferred pursuant to the rule required under subsection (a)(1), to the extent such loss—
(A)is directly incurred by reason of the discontinuation of the transportation or distribution of natural gas resulting from the transfer of contractual interests pursuant to the rule required under subsection (a)(1); and
(B)is not offset by—
(i)a reduction in expenses associated with such discontinuation; and
(ii)revenues derived from other transportation or distribution which would not have occurred if such contractual interests had not been transferred.
(4)The term “contractual interests” means the right to receive natural gas under contract as affected by an applicable curtailment plan filed with the Commission or the appropriate State regulatory authority.
(5)The term “interstate pipeline” means any person engaged in natural gas transportation subject to the jurisdiction of the Commission under the Natural Gas Act [15 U.S.C. 717 et seq.].
(6)The term “high-priority use” means any use of natural gas (other than its use for the generation of steam for industrial purposes or electricity) identified by the Commission as a high priority use for which the Commission determines a substitute fuel is not reasonably available.
(7)The term “heavy petroleum fuel oil” means number 4, 5, or 6 fuel oil which is domestically refined.
(8)The term “local distribution company” means any person, other than any intrastate pipeline or any interstate pipeline, engaged in the transportation, or local distribution, of natural gas and the sale of natural gas for ultimate consumption.
(9)The term “intrastate pipeline” means any person engaged in natural gas transportation (not including gathering) which is not subject to the jurisdiction of the Commission under the Natural Gas Act.
(10)The term “facility” means any electric powerplant, or major fuel burning installation, as such terms are defined in the Powerplant and Industrial Fuel Use Act of 1978 [42 U.S.C. 8301 et seq.].
(11)The term “curtailment plan” means a plan (including any modification of such plan required by the Natural Gas Policy Act of 1978 [15 U.S.C. 3301 et seq.] ), in effect under the Natural Gas Act or State law, which provides for recognizing and implementing priorities of service during periods of curtailed deliveries by any local distribution company, intrastate pipeline, or interstate pipeline.
(12)The term “interstate commerce” has the same meaning as such term has under the Natural Gas Act.
(f)Coordination with the Natural Gas Act
(2)No person shall be subject to the jurisdiction of the Commission under the Natural Gas Act [15 U.S.C. 717 et seq.] as a natural gas-company (within the meaning of such Act) or to regulation as a common carrier under any provision of Federal or State law solely by reason of making any sale, or engaging in any transportation, of natural gas with respect to which contractual interests are transferred pursuant to the rule required under subsection (a)(1).
(3)Nothing in this section shall exempt from the jurisdiction of the Commission under the Natural Gas Act [15 U.S.C. 717 et seq.] any transportation in interstate commerce of natural gas, any sale in interstate commerce for resale of natural gas, or any person engaged in such transportation or such sale to the extent such transportation, sale, or person is subject to the jurisdiction of the Commission under such Act without regard to the transfer of contractual interests pursuant to the rule required under subsection (a)(1).
(4)Nothing in this section shall exempt any person from any obligation to obtain a certificate of public convenience and necessity for the sale in interstate commerce for resale or the transportation in interstate commerce of natural gas with respect to which contractual interests are transferred pursuant to the rule required under subsection (a)(1).
(g)Volume limitation
No supplier of natural gas under any contract, with respect to which contractual interests have been transferred pursuant to the rule required under subsection (a)(1), shall be required to supply natural gas during any relevant period in volume amounts which exceed the lesser of— (1)
(2)the volume which such supplier would have been required to supply, under the curtailment plan in effect for such supplier, to the person, who transferred contractual interests pursuant to the rule required under subsection (a)(1), if no such transfer had occurred; and
(3)the volume actually delivered or for which payment would have been made pursuant to such contract during the 12-calendar-month period ending immediately before such transfer of contractual interests.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
References in Text
The Natural Gas Act, referred to in subsecs. (a)(2)(A)(i)(II), (b)(1), (c), (e)(5), (9), (11), (12), (f)(2), (3), is act June 21, 1938, ch. 556, 52 Stat. 821, which is classified generally to this chapter (§ 717 et seq.). For complete classification of this Act to the Code, see section 717w of this title and Tables. The Powerplant and Industrial Fuel Use Act of 1978, referred to in subsec. (e)(10), is Pub. L. 95–620, Nov. 9, 1978, 92 Stat. 3291, which is classified principally to chapter 92 (§ 8301 et seq.) of Title 42, The Public Health and Welfare. For complete classification of this Act to the Code, see
Short Title
note set out under section 8301 of Title 42 and Tables. The Natural Gas Policy Act of 1978, referred to in subsec. (e)(11), is Pub. L. 95–621, Nov. 9, 1978, 92 Stat. 3350, which is classified generally to chapter 60 (§ 3301 et seq.) of this title. For complete classification of this Act to the Code, see
Short Title
note set out under section 3301 of this title and Tables. Codification Section was enacted as part of the Public Utility Regulatory Policies Act of 1978, and not as part of the Natural Gas Act which comprises this chapter.
Statutory Notes and Related Subsidiaries
Definitions For definitions of terms used in this section, see section 2602 of Title 16, Conservation.
Reference
Citations & Metadata
Citation
15 U.S.C. § 717y
Title 15, Commerce and Trade
Last Updated
Sep 22, 2026
Release point: 119-110