Legal Definitions - FERC-out clause

A FERC-out clause is a provision in a contract to sellnatural gas that allows for the contract to be terminated or the price to be reduced if a regulatory agency does not allow the price paid to the producer to be passed on to consumers. This clause is also known as a regulatory-out clause.

Imagine a natural gas producer enters into a contract to sell their gas to a utility company. The contract includes a FERC-out clause. If the Federal Energy Regulatory Commission (FERC) does not allow the utility company to pass on the price paid to the producer to their customers, the contract will either be terminated or the price will be reduced accordingly.

This clause is important for natural gas producers because it protects them from potential losses if regulatory agencies do not allow for the price of natural gas to be passed on to consumers. It also provides a level of certainty for both parties involved in the contract.