845 F.2d 529 (5th Cir. 1988), 87-4791, Perlman v. F.E.R.C.

Docket Nº:87-4791.
Citation:845 F.2d 529
Party Name:William PERLMAN, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.
Case Date:May 19, 1988
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

Page 529

845 F.2d 529 (5th Cir. 1988)

William PERLMAN, Petitioner,



No. 87-4791.

United States Court of Appeals, Fifth Circuit

May 19, 1988

Rehearing Denied June 17, 1988.

Page 530

John, Hengerer & Esposito, Douglas F. John, Washington, D.C., Julie Simon, for petitioner.

Joanne Leveque, Jerome M. Feit, Sol., F.E.R.C., Washington, D.C., Frank R. Lindh, for respondent.

Petition for Review of an Order of the Federal Energy Regulatory Commission.

Before GARZA, JOHNSON, and HIGGINBOTHAM, Circuit Judges.

JOHNSON, Circuit Judge:

Petitioner William Perlman appeals an order by the Federal Energy Regulatory Commission (FERC) denying him adjustment relief under Sec. 502(c), 15 U.S.C. Sec. 3412(c), of the Natural Gas Policy Act of 1978 (NGPA). Because we do not believe the FERC abused its discretion in denying Perlman relief, we affirm.


Section 107(b), 15 U.S.C. Sec. 3317(b) of the Natural Gas Policy Act (NGPA) authorizes the FERC to prescribe incentive prices for "high-cost natural gas." One of the goals of the NGPA and the incentive pricing scheme was to encourage the development of sources considered unprofitable at the existing price ceiling. Williston Basin Interstate Pipeline Co. v. FERC, 816 F.2d 777, 779 (D.C.Cir.1987), cert. denied, --- U.S. ----, 108 S.Ct. 748, 98 L.Ed.2d 761 (1988). Consistent with this goal, President Carter, on July 16, 1979, delivered a "national energy speech," wherein the President referred generally to the need for incentives to develop natural gas. In 1980, the FERC, pursuant to its authority under the NGPA, adopted regulations establishing an incentive price program for the development of new tight formation gas and recompletion tight formation gas. 1

Of particular importance to the instant case is the definition established by the FERC for "recompletion tight formation gas" qualifying for incentive price. "Recompletion tight formation gas" is gas produced from a designated tight formation, if the surface drilling of the well was begun before July 16, 1979, but the well was not completed for production in the tight formation prior to July 16, 1979. Order No. 99, 45 Fed.Reg. 56,034 (1980), 18 C.F.R. 271.703(b)(3) (1981). In 1983, the FERC expanded the definition of "recompletion tight formation gas" qualifying for incentive gas pricing to include recompletions completed on or after July 16, 1979 in wells

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drilled in qualified tight formations prior to July 16, 1979, provided that the gas is produced from a new completion location completed after December 23, 1983. Order No. 345, 48 Fed.Reg. 49,505 (1983), 18 C.F.R. 271.703(b)(3)(ii) (1984).

In the instant case, William Perlman drilled a well, the Ada Cauthorn well, in the "Lower Canyon" of the Canyon Sandstone Formation located in Sutton County, Texas. Perlman commenced the drilling of the Cauthorn well in December 1972 and completed the well in 1973. Thereafter, in May and June of 1975, approximately 542 Mcf of gas was produced from the Cauthorn well. Subsequent to the 1975 production, the Cauthorn well was deemed uneconomic by Perlman and shut in. In April 1979, Perlman began workover operations to determine if the Cauthorn well could be brought back into profitable production, but on May 13, 1979, those efforts were abandoned.

In September 1979, following President Carter's "national energy speech," Perlman reentered the Cauthorn well, this time in the "Upper Canyon" of the Canyon Sandstone Formation. After filing an application with the Texas Railroad Commission in which Perlman requested confirmation from the Commission that the Cauthorn well qualified as a recompletion tight formation well, Perlman began selling production from the Cauthorn well to El Paso Natural Gas Company (El Paso) at the NGPA Sec. 107 tight sands incentive price; however, the Canyon Sandstone Formation was not designated as a "tight formation" qualifying for incentive pricing until the FERC issued Order No. 117 which became effective on December 22, 1980. Order No. 117, 45 Fed.Reg. 84,036 (1980), 18 C.F.R. Sec. 271.703(d)(10) (1981). Perlman continued to sell tight formation gas from the Cauthorn well to El Paso at the incentive price from October 1979 until July 1983. In the interim, on June 7, 1982, the Texas Railroad Commission issued a final determination that the production for the Cauthorn well qualified as "recompletion tight formation gas" for purposes of the NGPA's incentive pricing scheme. The Railroad Commission's determination became final on August 15, 1982.

Prompted by concern that the Cauthorn well might not qualify for incentive pricing due to the prior 1975 production, Perlman petitioned the FERC to reopen and vacate its final well category determination in August 1983. Specifically, Perlman requested that the FERC withdraw his application for a NGPA Sec. 107 determination because production from the Cauthorn well prior to July 16, 1979 prevented gas from any other completion in the designated tight formation, the Canyon Sandstone Formation, from qualifying under 18 C.F.R. Sec. 271.703(b)(3) for the NGPA incentive price. On June 20, 1985, the well determination was reopened and vacated by the FERC. William Perlman, 31 FERC...

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