Mustang Energy Corp. v. F.E.R.C., 86-2259

• Citation: 859 F.2d 1447
• Decision Date: 17 October 1988
• Docket Number: No. 86-2259,86-2259
• Parties: MUSTANG ENERGY CORP., formerly known as Mustang Fuel, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. El Paso Natural Gas Company, Intervenor.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

Page 1447

859 F.2d 1447

57 USLW 2274

MUSTANG ENERGY CORP., formerly known as Mustang Fuel, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent El Paso Natural Gas Company, Intervenor.

No. 86-2259.

United States Court of Appeals Tenth Circuit.

Oct. 17, 1988.

David O. Cordell, Mustang Energy Corp., Oklahoma City, Okl., and Carroll L. Gilliam, Grove, Jaskiewicz, Gilliam & Cobert, Washington, D.C. (Craig W. Hulvey and George C. Garikes, Grove, Jaskiewicz, Gilliam & Cobert, Washington, D.C., with them on the briefs), for petitioner.

Joanne Leveque (Jerome M. Feit, Sol., and Catherine C. Cook, Gen. Counsel, with her on the brief), F.E.R.C., Washington, D.C., for respondent.

Before ANDERSON and BALDOCK, Circuit Judges, and PARKER, ^* District Judge.

STEPHEN H. ANDERSON, Circuit Judge.

Mustang Energy Corporation ("Mustang") petitions for review under 15 U.S.C. Sec. 3416(a)(4) of orders of the Federal Energy Regulatory Commission ("FERC") establishing "fair and equitable" rates for the transportation of natural gas by Mustang and ordering refunds. We affirm the FERC orders in most respects but modify the orders in part.

I.

Mustang is an intrastate pipeline transporting natural gas in the state of Oklahoma. Prior to 1981, Mustang transported gas from gas producing areas to electrical generating plants for Oklahoma Gas and Electric Company ("OG & E"). In 1981, Mustang entered into a Transportation Agreement with El Paso Natural Gas Company ("El Paso"). The Transportation Agreement primarily relied on excess capacity in Mustang's existing facilities, but also required Mustang to construct a new segment of pipeline, an additional compressor station and certain gathering lines. On September 30, 1981, Mustang began transporting gas on behalf of El Paso pursuant to section 311(a)(2) of the Natural Gas Policy Act of 1978 ("NGPA"). 15 U.S.C. Sec. 3371(a)(2). At issue here is FERC's determination of "fair and equitable" rates for transportation service under the NGPA.

Section 311(a)(2) allows the Commission to authorize an intrastate pipeline to transport natural gas on behalf of an interstate pipeline or local distribution company without triggering general FERC jurisdiction under the Natural Gas Act. Section 311(a)(2) provides as follows:

"Sec. 3371(a)(2)(A) In general. The Commission may, by rule or order, authorize any intrastate pipeline to transport natural gas on behalf of

(i) any interstate pipeline; and

(ii) any local distribution company served by any interstate pipeline.

(B) Rates and charges.

(i) Maximum fair and equitable price. The rates and charges of any intrastate pipeline with respect to any transportation authorized under subparagraph (A), including any amount computed in accordance with the rule prescribed under clause (ii), shall be fair and equitable and may not exceed an amount which is reasonably comparable to the rates and charges which interstate pipelines would be permitted to charge for providing similar transportation service.

(ii) Commission Rule. The Commission shall, by rule, establish the method for calculating an amount necessary to

(I) reasonably compensate any intrastate pipeline for expenses incurred by the pipeline and associated with the providing of any gathering, treatment, processing, transportation, delivery, or similar service provided by such pipeline in connection with any transportation of natural gas authorized under subparagraph (A); and

(II) provide an opportunity for such pipeline to earn a reasonable profit on such services."

15 U.S.C. Sec. 3371. ¹ See also 15 U.S.C. Sec. 3431(a)(2)(A)(ii) (transportation authorized under Sec. 3371(a) is not subject to Natural Gas Act jurisdiction); Lear Petroleum Corp., 42 FERC p 61,015, at 61,043 (1988) (purpose of Section 311(a)).

According to the legislative history of the NGPA, this provision

"facilitates development of a national natural gas transportation network without subjecting intrastate pipelines, already regulated by State agencies, to [FERC] regulation over the entirety of their operations. Instead, the intrastate pipelines are immunized from State or Federal regulation as common carriers and from [FERC] regulation under the Natural Gas Act. The intrastate pipelines are only subjected to [FERC] regulation under this legislation to the extent the intrastate pipeline is involved in an authorized sale of natural gas to interstate pipelines or an authorized transportation of natural gas on behalf of interstate pipelines."

H.Rep. No. 95-543, 95th Cong. 1st Sess. 45 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 7659, 7712. ² This provision was adopted by the Conference Committee, but the conference report provides little additional guidance regarding the "fair and equitable" standard to be applied to transportation charges. ³

Pursuant to FERC regulations, Mustang filed for approval of a proposed transportation rate of 22.29 cents per Mcf for the first two years of the Transportation Agreement. On May 20, 1982, FERC issued an order authorizing the transportation and approving the proposed rate for a one-year period, and directing Mustang to file an application each year to justify the existing rate or any change in the transportation rate. Mustang Fuel Corp., 19 FERC p 61,168, clarified on rehearing, Mustang Fuel Corp., 20 FERC p 61,057 (1982). The Transportation Agreement approved by FERC also included a "minimum bill" provision, whereby El Paso was charged each month for transportation of a "minimum daily quantity" ⁴ whether or not that volume was actually transported and delivered to El Paso.

On September 30, 1982, Mustang filed a petition for rate approval seeking to increase the transportation rate to 32.21 cents per Mcf, effective October 1, 1982. Upon filing, the increased rate became effective and Mustang collected that rate from El Paso, subject to refund. On May 23, 1983, Mustang once again filed for a rate increase, seeking approval of a rate of 34.30 cents per Mcf. Again, this increase became effective upon filing, subject to refund. On May 1, 1984, Mustang filed for another change in the transportation rate. The May, 1984 filing, and any subsequent filings by Mustang, are not the subject of this petition. Thus, this court is concerned only with the proper transportation rates for two "locked-in" periods, October 1, 1982 through May 22, 1983, and May 23, 1983 through April 30, 1984. Rates subsequent to April 30, 1984 are not considered here.

Pursuant to its regulations, FERC instituted rate proceedings and convened staff panels to review the Mustang filings. See, e.g., Mustang Fuel Corp., 22 FERC p 61,231 (1983) (order instituting rate proceeding on September 30, 1982 filing). The two proceedings were ultimately consolidated and heard by a FERC staff panel on May 30, 1984. Mustang and the Commission staff were given the "opportunity for oral presentations of data, views, and arguments concerning both proposed rate increases." Mustang Fuel Corp., 31 FERC p 61,265 at 61,527 (1985). FERC ultimately issued an order setting fair and equitable rates on June 4, 1985. That order established a fair and equitable rate for the first period--October 1, 1982 through May 22, 1983--of 28.93 cents per Mcf, and for the second period--May 23, 1983 through April 30, 1984--of 33.75 cents per Mcf, and ordered Mustang to pay refunds for excess collections. FERC also invalidated the minimum bill provision and ordered Mustang to refund any charges collected for natural gas not actually transported for El Paso. ⁵ Finally, FERC ordered Mustang to pay interest on the refunded amounts. Id. at 61,535. According to Mustang, the refund obligation totals more than $8 million, plus accumulated interest. Brief of Petitioner at 18 n. 26.

Mustang urges us to reverse the FERC orders reducing the transportation rate and eliminating the minimum bill provision. Mustang argues (1) that the rates approved by FERC violate the substantive standard of section 311(a)(2), that is, that they are not "fair and equitable"; (2) that elimination of the minimum bill provision also violates the same substantive standard; (3) that the Commission applied an improper methodology to determine the fair and equitable transportation rate, or, in the alternative, improperly applied its own methodology; (4) that the Commission improperly ordered refunds and assessed interest; and (5) that the Commission's procedures denied Mustang due process of law.

Apparently, we are the first court to consider the "fair and equitable" rate standard of section 311(a)(2). ⁶ Thus our review focuses on two questions: first, has FERC properly interpreted the statutory language; and second, has FERC properly applied the statutory standard in this case?

II.

Our standard of review is necessarily deferential to FERC's interpretation of the statutory language.

"Our first inquiry is whether 'Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.' Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43 [104 S.Ct. 2778, 2781, 81 L.Ed.2d 694] (1984) (footnote omitted). We will defer when an agency has chosen between alternative possible constructions of an ambiguous statute:

'If ... the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute.'

Chevron, U.S.A., 467 U.S. at 843 (footnotes omitted). Where the plain words of the statute do not answer a particular question, the agency interpretation...