The FERC-out clause, also known as a regulatory-out clause, is a provision in a natural gas sales contract that allows for changes or cancellation of the contract if a government agency restricts the buyer from charging customers enough to cover the gas cost.
A FERC-out clause, also known as a regulatory-out clause, is a provision in a natural gas sales contract that allows for termination or price reduction if a regulatory agency prohibits the passing on of the price paid to the producer to consumers. For instance, if a natural gas producer sells their gas to a utility company under a contract with a FERC-out clause, and the Federal Energy Regulatory Commission (FERC) disallows the utility company from passing on the price to their customers, the contract will be terminated or the price will be adjusted accordingly. This clause is crucial for natural gas producers as it safeguards them against potential losses in case regulatory agencies prevent the passing on of natural gas prices to consumers. Additionally, it provides a sense of certainty for both parties involved in the contract.
A Ferc-Out Clause is a provision in a contract that allows either party to terminate the agreement if there is a change in law or regulation by the Federal Energy Regulatory Commission (FERC) that significantly impacts the parties’ obligations or the economics of the contract.
A Ferc-Out Clause can be invoked when there is a change in law or regulation by FERC that has a material adverse effect on the parties’ obligations or the financial viability of the contract. It provides an exit option for either party in such circumstances.
The determination of what constitutes a material adverse effect is typically subjective and may vary depending on the specific language used in the contract. It is advisable to consult with legal counsel to assess whether the change in law or regulation meets the threshold for invoking the Ferc-Out Clause.
Yes, a Ferc-Out Clause is a negotiable provision in contracts, particularly in energy-related agreements. Parties can include specific language to define the scope and conditions under which the clause can be invoked.
The notice requirements for invoking a Ferc-Out Clause are typically outlined in the contract itself. It is important to carefully review the contract to understand the specific notice provisions and timelines that must be followed.
Yes, parties can agree to waive or modify the Ferc-Out Clause through mutual consent. However, any modifications or waivers should be documented in writing to ensure clarity and avoid potential disputes.
While Ferc-Out Clauses provide flexibility to terminate a contract, they may be subject to certain limitations. For example, the clause may require the party invoking it to demonstrate that they have made reasonable efforts to mitigate the impact of the change in law or regulation before terminating the contract.
If a Ferc-Out Clause is invoked, it typically triggers the termination of the contract. The parties may need to negotiate the terms of termination, including any financial obligations or compensation that may be owed as a result.
The enforceability of a Ferc-Out Clause will depend on various factors, including the specific language used in the contract and the applicable laws in the jurisdiction. If there is a dispute regarding the validity or interpretation of the clause, it may be subject to resolution through litigation or alternative dispute resolution methods.
Parties may consider including other provisions in the contract, such as force majeure clauses or price adjustment mechanisms, to address potential changes in law or regulation. These alternatives can provide additional flexibility and protection in case of unforeseen circumstances.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 16th April 2024.
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