FERC Approval of Natural Gas Pipeline and Storage M&A Transactions

FERC's Jurisdictional Framework for Pipeline and Storage Transactions

FERC jurisdiction over natural gas transactions derives primarily from the Natural Gas Act, which grants FERC authority over the transportation and sale of natural gas in interstate commerce, including the construction, extension, acquisition, and operation of jurisdictional facilities. The term "natural gas company" under the NGA encompasses entities that transport or sell natural gas in interstate commerce for resale, and the jurisdictional reach extends to the facilities those entities use regardless of where they are physically located.

The threshold question in any pipeline M&A transaction is whether the facilities being transferred constitute jurisdictional facilities under the NGA. Not all natural gas infrastructure is subject to FERC's full regulatory authority. Gathering lines, processing facilities, and purely intrastate pipelines may fall outside FERC's NGA jurisdiction, though they can still be subject to state regulation and, in some cases, to FERC's jurisdiction under other statutes. The line between gathering and transportation has been contested in numerous FERC proceedings and federal court decisions, and the classification of facilities at the fringes of these categories requires careful legal analysis before a transaction closes.

When jurisdictional facilities are involved, FERC's authority is comprehensive. FERC regulates the rates, terms, and conditions of service; the construction and abandonment of facilities; the transfer of operating certificates; and the conduct of affiliates. A change in control of a natural gas company, even one that does not involve a direct transfer of pipeline assets, can trigger FERC approval requirements if the transaction results in a change in the upstream ownership structure of the jurisdictional entity.

Storage facilities present a distinct jurisdictional question. Underground natural gas storage fields used to provide interstate service are jurisdictional facilities, and their acquisition, transfer, or abandonment requires FERC approval under the same NGA framework that governs pipeline assets. Buyers acquiring storage facilities as part of an integrated midstream transaction must analyze the FERC certificate status of each storage facility and determine what approvals the transfer requires, separate from any approvals related to associated pipeline infrastructure.

NGA Section 7(b): Abandonment Authority and Its Role in Pipeline Transfers

Section 7(b) of the Natural Gas Act prohibits a natural gas company from abandoning any facilities used in the transportation or sale of natural gas or any service rendered by such facilities without first obtaining FERC authorization. The statute requires FERC to grant abandonment authorization when the natural gas company shows that continued service is no longer required by the present or future public convenience and necessity. This provision exists to protect shippers and downstream customers who depend on continued access to pipeline capacity or storage service.

In the M&A context, Section 7(b) is most directly relevant when a seller plans to transfer or retire facilities that carry existing service obligations. If a pipeline sells a segment of its system to a buyer who will continue providing the same transportation service, the transaction typically does not trigger Section 7(b) because the service itself is not being abandoned. However, if the seller intends to terminate certificated service on those facilities following the transfer, a Section 7(b) application may be required even if the physical assets continue to be operated by the buyer for other purposes.

The interplay between Section 7(b) and Section 7(c) in a single transaction requires careful structuring. Where a seller is abandoning one type of certificated service and the buyer is seeking a new certificate to provide a different or expanded service on the same facilities, both provisions may apply simultaneously. FERC has accepted combined applications that address both the abandonment of existing service and the certification of new service, but the procedural record must support both analyses independently.

Buyers should also consider whether the target's existing certificate contains conditions that restrict transfer or require continued service to specified customers. Some certificates issued under the NGA carry service obligations that run with the certificate, not just with the current holder. Acquiring a pipeline without recognizing and planning for those obligations can expose the buyer to enforcement action and shipper claims after closing.

NGA Section 7(c): Certificate of Public Convenience and Necessity in Acquisitions

Section 7(c) of the Natural Gas Act requires a natural gas company to obtain a certificate of public convenience and necessity from FERC before constructing, extending, acquiring, or operating any facilities for the transportation or sale of natural gas in interstate commerce. In an acquisition context, this provision requires the buyer to obtain FERC authorization to operate the facilities it is acquiring, typically through an application to transfer the seller's existing certificate or to issue a new certificate in the buyer's name.

The certificate transfer process requires the buyer to demonstrate that the transaction is consistent with the public convenience and necessity. FERC evaluates this through a multi-factor analysis that examines the buyer's financial fitness to own and operate jurisdictional facilities, the absence of adverse competitive effects from the ownership change, the preservation of existing shipper rights and service obligations, and compliance with applicable environmental and safety requirements. The buyer must show that it has the technical capability, organizational structure, and financial resources to maintain the level of service that existing shippers have contracted for.

FERC's certificate application process for pipeline acquisitions is governed by Part 157 of FERC's regulations, which specify the content requirements for applications, the notice and intervention procedures, and the criteria for conditioning or denying authorization. A complete Part 157 application for a major pipeline acquisition will include a detailed description of the transaction, an exhibit analyzing the competitive effects, financial statements of the buyer, a description of the proposed rate treatment, and information about existing shipper contracts and how they will be honored post-close.

One structural question that arises frequently in holding company acquisitions is whether the transaction requires an affirmative Section 7(c) certificate or whether it can be processed under a different mechanism, such as a blanket certificate or a notice filing. FERC has authorized certain categories of transactions to proceed under existing blanket certificate authority without a full certificate application, but this treatment is limited and requires careful analysis of whether the specific transaction fits within the applicable blanket certificate conditions. Buyers and sellers who assume blanket certificate treatment applies without verifying that assumption expose themselves to the risk of proceeding without required authorization.

18 CFR Part 157: Disposition of Jurisdictional Facilities

Title 18, Part 157 of the Code of Federal Regulations implements Section 7 of the NGA and prescribes the procedures and requirements for obtaining FERC authorization to construct, acquire, or abandon jurisdictional natural gas facilities. Subparts A through F address different categories of transactions, including applications for certificates, blanket certificates, emergency certificates, and authorizations for abandonment. Part 157 is the primary procedural framework within which most pipeline acquisition applications are filed and processed.

For acquisitions, the most relevant provisions of Part 157 are those governing the content requirements for certificate applications and the standards for evaluating whether a proposed acquisition serves the public convenience and necessity. An application under Part 157 for the acquisition of existing pipeline facilities must include exhibits covering the corporate structure of both buyer and seller, a description of the facilities being transferred, an analysis of the proposed rate treatment, information about existing service agreements and how they will be honored, and a competitive analysis addressing potential adverse market effects.

Blanket certificate authority under Part 157, Subpart F allows natural gas companies to engage in certain routine construction and operational activities without filing individual certificate applications for each activity. Some categories of asset dispositions fall within blanket certificate authority, permitting a streamlined process. However, the blanket certificate provisions for dispositions are narrowly drawn, and a transaction involving the transfer of a significant segment of an interstate pipeline system or a major storage facility will typically not qualify for blanket certificate treatment. Counsel must review the specific blanket certificate held by the seller and the provisions of Part 157 to determine whether the proposed disposition can proceed under blanket authority or requires a formal certificate application.

Part 157 also governs the environmental review requirements for pipeline acquisitions. While acquisitions of existing facilities typically do not require the same level of environmental review as new construction projects, FERC may conduct a review under the National Environmental Policy Act if the acquisition is associated with changes in operation, expansion of service, or other activities that could have significant environmental effects. Buyers should assess whether any planned post-close operational changes could trigger NEPA review as part of the acquisition approval process.

Affiliate Transactions and Order 717 Standards of Conduct

FERC Order 717, promulgated in 2008 and its subsequent amendments, establishes the standards of conduct that govern the relationship between interstate natural gas pipelines and their marketing and production affiliates. The core principle of Order 717 is functional separation: transportation personnel of a FERC-regulated pipeline may not share information about the pipeline's operations, capacities, or customers with marketing affiliates, and they must treat all shippers, including affiliates, on a non-discriminatory basis. The standards are designed to prevent a pipeline from using its control over transportation capacity to advantage affiliated gas sellers at the expense of non-affiliated shippers.

In a merger or acquisition, the compliance obligations under Order 717 can change substantially. A buyer that acquires an interstate pipeline and already owns gas marketing or production operations creates an affiliate relationship that may not have existed before the transaction. The combined entity must assess which of its post-close affiliates are "marketing affiliates" within the meaning of Order 717, update its tariff sheets to reflect those relationships, and implement the required information barriers and employee conduct protocols.

Order 717 requires pipelines to post certain information on their FERC-regulated websites, including a list of their affiliates, a description of the functional separation measures in place, and disclosures about any waivers or deviations that have been approved by FERC. Following a merger, the pipeline must update these disclosures promptly to reflect the new affiliate structure. Delay in updating the required postings can be viewed by FERC staff as evidence of inadequate compliance programs, which can lead to compliance audits and potential enforcement referrals.

FERC has conducted targeted audits of pipeline compliance with Order 717 standards in the period following mergers and acquisitions. These audits examine whether the pipeline's information sharing practices, employee conduct, and capacity allocation decisions reflect genuine functional separation from marketing affiliates. Buyers who acquire pipelines with existing affiliate relationships should conduct a thorough compliance review of Order 717 programs as part of pre-close due diligence and should build a compliance program remediation plan into their post-close integration work stream.

Federal Power Act Section 203 and Transactions Involving Electric Affiliates

While the Natural Gas Act governs the jurisdictional analysis for pipeline and storage assets, transactions involving energy companies with integrated electric operations require parallel analysis under Section 203 of the Federal Power Act. Section 203 requires FERC authorization for any disposition, consolidation, purchase, or acquisition of a public utility's jurisdictional facilities, or any transaction that results in a public utility being subject to the control of a person that was not in control of it previously.

Many natural gas pipeline and storage companies operate within larger energy holding companies that also own electric generation, transmission, or distribution assets. When a transaction changes the ownership or control structure of such a holding company, both NGA and FPA Section 203 approval may be required. The FPA Section 203 application process requires the applicant to demonstrate that the transaction is consistent with the public interest under FERC's Merger Policy Statement, which incorporates the same competitive effects and market power analysis that applies to natural gas transactions.

The interaction between NGA and FPA Section 203 requirements in a single transaction creates coordination challenges. The two approval processes involve similar but not identical evidentiary requirements, and FERC typically processes them together when both are triggered by the same transaction. However, applicants must ensure that the NGA filing and the FPA Section 203 filing each contain the specific information required under their respective regulatory frameworks, even when substantial portions of the analysis overlap.

For buyers acquiring natural gas pipeline companies that have electric affiliates, the FPA Section 203 analysis requires a horizontal market power screen using the delivered price test or a competitive analysis tool approved by FERC for the relevant electric markets. If the combined entity would have significant market power in wholesale electric markets, FERC may require market power mitigation commitments as a condition of approval, in addition to any conditions imposed under the NGA. Sellers and buyers should identify all FPA-jurisdictional assets within the target's corporate family early in the deal process and build FPA Section 203 review into the transaction timeline.

FERC's Merger Policy Statement and the Public Interest Test

FERC's Policy Statement on Mergers, issued in 1996 and updated through subsequent orders and case decisions, establishes the framework for evaluating whether a proposed energy industry merger or acquisition is in the public interest. The policy statement identifies four core factors: the effect on competition, the effect on rates, the effect on regulation, and the effect on interstate commerce. FERC applies this framework to NGA Section 7 applications and FPA Section 203 applications for major transactions, and it informs the standards FERC staff uses when reviewing even smaller transactions.

The competitive effects prong of the public interest test examines whether the proposed transaction would harm competition in any relevant market. For natural gas pipeline transactions, the competitive analysis focuses on whether the combined entity would have market power in transportation markets, whether the transaction would foreclose access to pipeline capacity for competing shippers, and whether vertical integration between transportation and supply creates incentives for discriminatory behavior. FERC has accepted a range of analytical approaches for this assessment, from simple geographic market analysis to more sophisticated economic modeling of pipeline capacity utilization and supply competition.

The rate effects prong asks whether the transaction will result in rate increases for captive customers or shippers with limited alternatives. For cost-of-service regulated pipelines, this analysis examines whether the transaction will change the cost base used to set tariff rates, whether acquisition premiums will be reflected in rates, and whether any post-close integration costs will be allocated to ratepayers. For pipelines operating under negotiated rates or market-based rates, the analysis focuses on whether the transaction preserves competitive discipline on pricing.

The regulatory effects prong considers whether the transaction will impede FERC's ability to regulate the combined entity, whether the corporate structure will obscure the flow of costs and revenues between jurisdictional and non-jurisdictional activities, and whether affiliate relationships will create opportunities for cross-subsidization that harm ratepayers. FERC has conditioned approval of transactions on the adoption of ringfencing structures, accounting separations, and affiliated transaction protocols designed to preserve regulatory transparency. Applicants who anticipate regulatory effects concerns should address them proactively in the application rather than waiting for staff data requests or intervenor protests to raise them.

Competitive Effects Analysis and Horizontal Market Power Assessment

Horizontal market power concerns arise in pipeline M&A when the buyer and seller own facilities that compete for the same transportation volumes or serve the same shipper base. If a buyer that already owns pipeline capacity in a region acquires additional pipeline capacity in the same corridor, FERC will analyze whether the combined entity can exercise market power by withholding capacity, raising rates, or degrading service quality for shippers who have no practical alternative. The relevant market for this analysis is defined by the geographic scope of the pipeline systems involved and the availability of alternative transportation options.

FERC's market power analysis for natural gas pipeline transactions does not follow the same HHI-based framework used by the Department of Justice for general merger review. Instead, FERC examines whether the combined entity will control a sufficient share of the transportation capacity between relevant supply basins and market areas to give it the ability to foreclose competing shippers or extract supracompetitive rates. The analysis requires detailed mapping of the pipeline systems involved, capacity utilization data, and information about available alternatives including other pipelines, LNG facilities, and storage resources that could constrain the exercise of market power.

Vertical market power concerns arise when a buyer who owns gas production or marketing operations acquires a pipeline that serves competing producers. The concern is that the vertically integrated entity could use its control over pipeline access to disadvantage competing suppliers by denying or degrading transportation service, manipulating operational decisions to favor affiliated supply, or leveraging access to commercially sensitive shipper information to benefit affiliated marketing operations. FERC's Order 717 standards of conduct are one tool for addressing these concerns, but FERC may also impose structural or behavioral conditions as a condition of approving the acquisition.

Mitigation commitments are a standard feature of contested pipeline transactions with competitive effects concerns. Common mitigation measures include capacity release commitments that require the combined entity to make available to non-affiliated shippers any capacity that the buyer would otherwise absorb from the seller's existing contracts, behavioral commitments restricting the buyer's ability to modify tariff terms or service conditions for a defined period, and divestiture of specific pipeline segments or storage facilities that create the most significant market power concerns. Buyers who identify likely competitive concerns early should develop mitigation proposals before filing and present them as part of the initial application rather than waiting for FERC to condition approval on mitigation that the buyer has not analyzed.

Open Access Transportation Compliance Following an Acquisition

FERC's open access transportation requirements for natural gas pipelines, established through a series of orders beginning with Order 436 and refined through Order 636 and subsequent rulemakings, require interstate pipelines to offer transportation service to all shippers on a non-discriminatory basis under tariff terms filed with and approved by FERC. These requirements apply to the pipeline as an operational entity, and a change in ownership does not suspend or reset those obligations. A buyer acquiring an interstate pipeline takes on the full open access compliance posture of the seller from the date of closing.

Capacity release is a central element of open access compliance. The FERC capacity release program allows firm shippers on interstate pipelines to release their contracted capacity to other shippers when they do not need it, providing a secondary market for pipeline capacity. A pipeline acquisition that changes the composition of the shipper base, alters the terms of existing contracts, or modifies the operational parameters of the system can affect how the capacity release program functions. Buyers must ensure that the acquired pipeline's capacity release mechanisms continue to operate in compliance with FERC regulations and the pipeline's FERC-approved tariff.

Segmentation rights allow shippers to take partial segments of their contracted capacity rather than the full path specified in their transportation contracts, adding flexibility to how they use pipeline infrastructure. Following an acquisition that combines previously independent pipeline systems, questions can arise about whether existing segmentation rights extend across the combined system and whether new segmentation opportunities are available. These questions should be analyzed before closing and addressed through tariff filings if needed to preserve shipper rights and avoid post-close disputes.

NAESB (North American Energy Standards Board) standards govern many of the operational and communication protocols that pipelines use to manage nominations, scheduling, and capacity release. These standards are incorporated by reference into FERC's regulations and must be maintained by the pipeline following an acquisition. When two pipeline systems are combined under common ownership, ensuring that the operational systems of both pipelines comply with current NAESB standards and that the combined system's communications infrastructure is consistent is a pre-close integration planning requirement, not a post-close afterthought.

Rate Base Treatment and Acquisition Premium Recovery

The rate treatment of a pipeline acquisition determines how the costs of acquiring the pipeline flow through to shippers over time. For cost-of-service regulated pipelines, the rate base is the foundation for setting tariff rates: it represents the net book value of the pipeline's jurisdictional assets on which the pipeline is permitted to earn a regulated return. When a buyer pays more for a pipeline than the net book value of its jurisdictional assets, the excess is an acquisition premium, and the regulatory treatment of that premium is one of the most consequential financial questions in pipeline M&A.

FERC's established policy is that the acquisition premium itself should not be included in the rate base that generates regulated returns for shippers to pay. The rationale is that the premium represents the buyer's valuation judgment about future business prospects, and ratepayers should not be required to fund that speculative premium. Under this policy, a pipeline acquired at a premium will typically be required to carry the excess of the purchase price over net book value in a separate account, amortized against earnings but excluded from the cost-of-service calculation. The practical consequence is that the buyer must absorb the acquisition premium from non-regulated revenue streams or from equity returns if the pipeline generates sufficient revenues to support the premium without burdening ratepayers.

A rate step-up occurs when the buyer revalues the acquired pipeline's assets to fair market value on its books following the acquisition. For regulated pipelines, a rate step-up that increases the depreciation base of the assets could result in higher depreciation charges flowing into cost-of-service rates, effectively requiring shippers to fund a portion of the acquisition through higher transportation charges. FERC scrutinizes rate step-ups in pipeline acquisitions and has required buyers to demonstrate that any step-up in asset values reflects genuine economic value rather than an attempt to recover acquisition costs through regulated rates.

Buyers who seek some degree of acquisition premium recovery bear the burden of demonstrating that the transaction produces quantifiable customer benefits that offset the premium. This requires detailed analysis of what the transaction delivers for shippers: improved service reliability, expanded capacity, enhanced competitive access to supply basins, or reduced operating costs from operational integration. The customer benefit case must be supported by evidence, not assertions, and it typically requires engagement with shippers and, in some cases, negotiated rate settlements that provide shippers with a share of the transaction benefits in exchange for supporting premium recovery.

State Public Utility Commission Jurisdiction Over Intrastate Pipeline Assets

The Natural Gas Act's grant of federal jurisdiction over interstate transportation and sales is not a complete preemption of state authority over natural gas infrastructure. States retain regulatory authority over intrastate natural gas pipelines, local distribution companies (LDCs), and certain gathering and processing facilities. When an acquisition involves a mix of interstate and intrastate pipeline assets, the transaction requires regulatory approval from both FERC and the relevant state utility commissions, and the two processes must be coordinated carefully.

The demarcation between FERC jurisdiction and state jurisdiction over pipeline assets is not always clear at the asset level. Pipelines that originate in one state and terminate in another are clearly interstate and subject to FERC jurisdiction. Pipelines that operate entirely within a single state may be intrastate and subject to state authority, but there are numerous intermediate cases involving pipelines that move gas within a state as part of an interstate flow, or that serve both intrastate and interstate markets. The classification of borderline facilities requires analysis of the Supreme Court's holdings on the scope of the NGA's grant of jurisdiction and FERC's own facility classification determinations.

State utility commissions in major natural gas producing and consuming states often have substantial oversight authority over pipeline transactions. States such as California, Colorado, Michigan, Pennsylvania, and Texas have varying approval requirements and standards for pipeline acquisitions. Some states require affirmative approval by the state commission before the transaction can close; others require notice and impose conditions but do not require prior approval. Buyers must survey the regulatory requirements in each state where target assets are located and build state approval timelines into the overall transaction schedule.

LDC acquisitions present the sharpest form of the federal-state coordination challenge. Local distribution companies are regulated primarily by state commissions, but they often contract for service under FERC-jurisdictional tariffs and may own or operate facilities that have been classified as jurisdictional under the NGA. An acquisition of an LDC that includes upstream pipeline or storage assets can require both state commission and FERC approval, with each regulator applying its own public interest standard and potentially imposing different or conflicting conditions. Managing the regulatory interface in these transactions requires a coordinated strategy that accounts for the priorities and procedural requirements of all relevant regulators.

Post-Close Reporting Obligations: FERC Form 2 and Form 2-A

Following the close of a pipeline or storage acquisition, the new owner assumes the acquired entity's ongoing FERC reporting obligations. The primary annual reporting vehicle for major interstate natural gas pipelines is FERC Form 2, the Annual Report for Major Natural Gas Companies. Form 2 is a comprehensive financial and operational report that covers the pipeline's income statement, balance sheet, statement of retained earnings, cash flow statement, operating statistics, rate schedule information, and extensive supplemental data on capacity, throughput, and affiliate transactions. A "major" pipeline company is defined by FERC as one with combined revenues or expenses exceeding a specified threshold, which is updated periodically.

Smaller interstate natural gas pipelines that do not meet the threshold for Form 2 filing are required to file FERC Form 2-A, the Annual Report for Nonmajor Natural Gas Companies. Form 2-A is a condensed version of Form 2 that covers the same general categories of financial and operational data but with less granularity. When an acquisition changes the size of a pipeline company, the buyer must assess whether the combined entity now exceeds the threshold for Form 2 filing or whether a previously major pipeline has become nonmajor as a result of a partial disposition.

Both Form 2 and Form 2-A require detailed reporting on transactions between the pipeline and its affiliates, including revenues derived from affiliate transportation contracts, costs allocated from parent companies or affiliated service companies, and shared assets or facilities. Following a merger, the affiliate transaction disclosures in these forms become substantially more complex, as the expanded corporate family creates new categories of reportable transactions. FERC staff reviews affiliate transaction disclosures as part of its ongoing rate and compliance oversight, and errors or omissions in this section of the annual reports can trigger staff inquiries and, in some cases, formal investigations.

Beyond the annual forms, pipeline acquisitions can trigger other FERC reporting obligations, including notifications of changes in ownership structure required under FERC's regulations, updates to market-based rate filings if the pipeline has affiliated electric sellers, and amendments to tariff sheets reflecting new affiliate relationships or rate changes resulting from the acquisition. Buyers should develop a comprehensive regulatory calendar for the post-close period that identifies all filings due to FERC, all state commissions, and other agencies within the first year following closing, with assigned responsibility and drafting timelines for each.

Frequently Asked Questions

Working Through a FERC Pipeline Transaction

Natural gas pipeline and storage transactions require regulatory counsel who understands how FERC's procedural requirements, substantive standards, and post-close compliance obligations interact with the commercial objectives of the deal. The regulatory timeline is not a formality that runs parallel to the deal: it is a critical path item that affects when the transaction can close, what conditions the buyer will be operating under for years after closing, and what the transaction is actually worth once regulatory costs and constraints are accounted for.

The work begins before a letter of intent is signed, with a jurisdictional assessment of the target assets and a preliminary analysis of what regulatory approvals the transaction will require. It continues through due diligence, where the regulatory posture of the target, including its tariff compliance history, pending FERC proceedings, open rate cases, and affiliate compliance programs, informs the buyer's risk assessment. It extends through the application drafting and filing process, where the quality of the competitive analysis, rate modeling, and affiliate structure disclosure will determine how efficiently FERC processes the application. And it does not end at closing: the post-close compliance calendar and the ongoing reporting obligations represent a sustained commitment that new pipeline owners must be organized to manage from day one.

This is the level of preparation and coordination that FERC-regulated pipeline transactions require. Buyers who approach the process with that discipline are better positioned to close on schedule, avoid unexpected conditions, and operate the acquired assets in a stable regulatory environment.