Legal Definitions - regulatory-out clause

A regulatory-out clause, also known as a FERC-out clause in the oil and gas industry, is a provision in a contract 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.

For example, if a natural gas producer enters into a contract to sell their gas at a certain price, but a regulatory agency determines that the price cannot be passed on to consumers, the regulatory-out clause would allow for the contract to be terminated or the price to be reduced accordingly.

This clause is important for both the producer and the buyer, as it provides a safeguard against unforeseen regulatory changes that could impact the profitability of the contract.