Air Products & Chemicals, Inc. v. Federal Energy Regulatory Commission
| Decision Date | 16 July 1981 |
| Docket Number | No. 78-2011,78-2011 |
| Citation | 650 F.2d 687 |
| Parties | AIR PRODUCTS & CHEMICALS, INC., et al., Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Frederick Moring, Dana Contratto, Roscoe C. Howard, Jr., Crowell & Moring, Jones, Day, Reavis & Pogue, Washington, D.C., for Associated Gas Distributors.
Peter H. Schiff, Gen. Counsel, Public Service Commission of N.Y., Albany, N.Y., Dennis Lane, Richard A. Solomon, Barry A. Friedman, Wilner & Scheiner, Washington, D.C., for Public Service Commission for the State of New York.
Robert R. Nordhaus, Gen. Counsel, Jerome M. Feit, Deputy Sol., George H. Williams, Jr., Barry J. Sheingold, Attys., Washington, D.C., for respondent Federal Energy Regulatory Commission.
James R. Patton, Jr., David B. Robinson, Duane A. Siler, Linda Elizabeth Buck, Patton, Boggs & Blow, Washington, D.C., Harry E. Barsh, Jr., Camp, Carmouche, Palmer, Barsh & Hunter, Washington, D.C., for the State of Louisiana.
Irving Jacob Golub, Stephen M. Hackerman, Nancy Rice, Houston, Tex., Walter W. Kurczewski, Chicago, Ill., for Estech General Chemicals Corp.; Baker & Botts, Houston, Tex., of counsel.
Vernon M. Turner, Michael B. Silva, Tenneco Oil Co., Houston, Tex., Gordon Gooch, Bruce F. Kiely, Kirk K. Van Tine, Baker & Botts, Washington, D.C., for Tenneco Oil Co.
Edward H. Gerstenfield, Jones & Gerstenfield, P.A., Bethesda, Md., for First Mississippi Corp.; Alfred L. Price, Jackson, Miss., of counsel.
Justin R. Wolf, Charles H. Shoneman, George H. Rothchild, Jr., Washington, D.C., for Placid Oil Co. and Hunt Petroleum Corporation, Hunt Oil Company, Hunt Industries; Paul W. Hicks, Dallas, Tex., Robert W. Henderson, Dallas, Tex., of counsel.
Eric A. Eisen, Jerome Ackerman, Nicholas W. Fels, Covington & Burling, Washington, D.C., for Air Products & Chemicals, Inc.
Joseph C. Johnson, Thomas H. Burton, Carolyn S. Hazel, Houston Tex., for Continental Oil Co.
Platt W. Davis, III, Vinson & Elkins, Washington, D.C., J. Evans Attwell, Vinson & Elkins, Houston, Tex., for TransOcean Oil Co.
Harold L. Talisman, Peter L. Hatton, Littman, Richter, Wright & Talisman, Washington, D.C., for Tennessee Gas Pipeline Co., a Division of Tenneco, Inc.
Thomas G. Johnson, Houston, Tex., for Shell Oil Co.
William T. Miller, Miller, Balis & O'Neil, P.C., Charles F. Wheatley, Jr., Washington, D.C., for Municipal Distributors Groups.
Irving Jacob Golub, Stephen M. Hackerman, Baker & Botts, Houston, Tex. for Swift Agricultural Chemicals Corp.
Richard F. Generelly, Shannon & Morley, Washington, D.C., W. O. Strong, III, Houston, Tex., for Ashland Oil, Inc.
Joseph H. Moss, Jr., Birmingham, Ala., for Southern Natural Gas Co.
Lauren Eaton, Houston, Tex., for Gulf Oil Corp.
Petitions for Review of an Order of the Federal Energy Regulatory Commission.
Before HENDERSON, ANDERSON and SAM D. JOHNSON, Circuit Judges.
Producers of offshore federal domain natural gas, customers of these producers, pipeline companies serving the offshore federal domain, 1 and the State of Louisiana ("producer petitioners" or "producers") join in petitioning this court to review orders of the Federal Energy Regulatory Commission ("FERC") denying certificates of public convenience and necessity for the transportation of natural gas in the offshore federal domain reserved by producers for their own use, for use by affiliated companies, or for direct sale to specified customers. These producer petitioners raise a wide variety of attacks against the FERC's orders. Because we conclude that a procedural error by the FERC vitiates the major finding underlying its decision, we vacate the decision and remand for further consideration.
The Public Service Commission of the State of New York and the Associated Gas Distributors ("consumer petitioners") 2 also petition this court, claiming that the FERC failed to consider their request that the producer petitioners be ordered to make gas paybacks or monetary reimbursements to interstate pipelines for offshore federal domain gas transported before the orders on review for the producers' own use or direct sale to specified customers. We agree that the FERC failed to adequately address this request. On remand, the FERC shall either address this request in the orders now on review or make provision to address this question in another proceeding.
In 1974 and 1975, several producers and interstate pipeline companies filed separate applications with the Federal Power Commission ("FPC") for certificates of public convenience and necessity to authorize transportation of natural gas produced in the offshore federal domain. While each application involved its own unique factual situation, the basic pattern of each transaction was an agreement by the producers to sell a portion of the offshore federal domain gas to the pipelines and an agreement by the pipelines to transport the remaining portion of the gas reserved for the producer's own use, for use by a company affiliated with the producer, or for direct sale to a specified industrial user. The bulk of the prodcuer-reserved gas was to be used in the manufacture of anhydrous ammonia, an essential ingredient in nitrogen fertilizer. The remaining portion of the producer-reserved gas was earmarked for a synthetic rubber plant, two refineries, and a liquid hydrogen plant supplying the National Aeronautics and Space Administration. 3 The FPC ordered consolidated proceedings for these applications in light of the common request for producer reservation of a portion of offshore federal domain gas.
A hearing in the consolidated proceedings was convened before an Administrative Law Judge ("ALJ"). Following development of a record containing extensive testimonial and documentary evidence, the ALJ issued a Decision and Order, dated December 2, 1975 ("Initial Decision"). The ALJ, relying largely upon three grounds, granted the certificates substantially as requested. First, the ALJ found that the certificates should be granted pursuant to the incentive policy established in In re Chandeleur Pipe Line Co. 4 The Chandeleur incentive was a policy of allowing producers to reserve portions of offshore federal domain gas even for relatively low priority uses such as boiler fuel in refineries in an attempt to encourage development of the offshore federal domain. Second, the ALJ found that the end use of natural gas in the production of anhydrous ammonia and liquid hydrogen constituted a high priority use. Third, with respect to the use of gas in Tenneco's Chalmette Refinery, the ALJ acknowledged that such use was low priority, but found nevertheless that a specified and limited use was justified as the most efficient means of production.
On March 7, 1977, the FPC issued Opinion No. 789 affirming the ALJ's orders, but on modified reasoning. The FPC noted that the Chandeleur incentive had been established, and had been applied, in cases requesting the reserve of offshore federal domain gas for use in refineries. Although refineries typically do not make a high priority use of natural gas, the need for an incentive to spur development in the offshore federal domain had been perceived in Chandeleur and its progeny as sufficient reason to grant producer reservation. In the instant case, the FPC held that the Chandeleur incentive was no longer necessary to encourage the further development of offshore federal domain natural gas reserves. Accordingly, the FPC expressly terminated the Chandeleur incentive policy, holding that the policy of encouraging development in the offshore federal domain would no longer provide grounds for producer-reservation. Having eliminated the Chandeleur incentive for justifying producer reservation, the FPC relied upon what the producer petitioners describe as an "end product" rationale with respect to the applications proposing to utilize the gas in the production of of anhydrous ammonia. The FPC found from a review of the record that long-term projections predicted a shortage of nitrogen fertilizer. Because the FPC found that the use of nitrogen fertilizers was essential to this country's food and plant-based fiber production, it found that use of the offshore federal domain gas for the manufacture of anhydrous ammonia was in the public interest. The FPC also relied upon what may be called an "end use" rationale to justify granting certificates to transport producer-reserved gas. The FPC noted that in the production of anhydrous ammonia and liquid hydrogen, natural gas is used for feedstock and process heat purposes. 5 These uses are high priority uses, and the FPC concluded it was in the public interest to allow producer-reservations for these uses. The FPC acknowledged that curtailments on the interstate pipe line system were increasing, but noted that some of the gas in the interstate system was utilized for inferior uses. It also noted the interstate system was adding new customers daily. The FPC concluded that the curtailment levels in the interstate market were not sufficient at that time to require the denial of producer reservation Several parties applied for rehearing of Opinion No. 789, and the FPC granted these petitions. Shortly after the petitions for rehearing had been granted, the FPC ceased to exist and its functions and regulatory responsibilities were transferred to the Secretary of Energy and the FERC, effective October 1, 1977. 6
of natural gas for utilization as feedstock and for process heat.
On March 20, 1978, the FERC issued Opinion No. 10, reconsidering the FPC's Opinion No. 789. The FERC reversed the bulk of Opinion No. 789, denying the producer petitioners certificates to transport producer-reserved offshore federal domain gas. The FERC made this reversal without further hearing or the introduction of new evidence. In Opinion No. 10, the FERC devoted substantial effort to an extensive review...
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