CSG Exploration Co. v. F.E.R.C., s. 88-2548
| Decision Date | 18 April 1991 |
| Docket Number | Nos. 88-2548,88-3015 and 89-9520,s. 88-2548 |
| Citation | 930 F.2d 1477 |
| Parties | CSG EXPLORATION COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Williams Natural Gas Company; Midwest Gas Users Association; Amoco Production Company; The Kansas Power & Light Company; Affiliated Gas Producers; Union Gas System, Inc.; Intervenors. AMOCO PRODUCTION COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Midwest Gas Users Association; Affiliated Gas Producers; Williams Natural Gas Company; CSG Exploration Company; Intervenors. ARKLA EXPLORATION COMPANY; ANR Production Company; CIG Exploration, Inc.; Coastal Oil & Gas Corp.; Columbia Gas Development Corp.; Enron Oil & Gas Company; Meridian Oil, Inc.; Sonat Exploration Company; Transco Exploration Company; Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Amoco Production Company; Williams Natural Gas Company; Midwest Gas Users Association; CSG Exploration Company; The Kansas Power & Light Company; Intervenors. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Douglas E. Nordlinger (Douglas G. Robinson, Skadden, Arps, Slate, Meagher & Flom, Washington, D.C., and Darrel A. Kelsey, Ronald A. Skoller, and Robert N. Price, CSG Exploration Co., with him on the briefs), Skadden, Arps, Slate, Meagher & Flom, Washington, D.C., for petitioner CSG Exploration Co.
James D. Senger (Thomas A. Gottschalk and Stephen A. Herman, Kirkland & Ellis, Washington, D.C., and M.J. Keating and Michael E. Rigney, Chicago, Ill., with him on the briefs), Kirkland & Ellis, Washington, D.C., for petitioner-intervenor Amoco Production Co.
Charles M. Darling, IV (Drew J. Fossum, Baker & Botts, Washington, D.C., Kirk W. Weinert, Coastal Oil & Gas Corp., ANR Production Co., CIG Exploration, Inc., Dennis M. Ulak, Enron Oil & Gas Co., Philip C. Wrangle, Sonat Exploration Co., Houston, Tex., Gregory W. Jones, Arkla Exploration Co., Shreveport, La., Lowell Williams and Camille N. Tarics, Columbia Gas Development Corp., Gavin H. Smith and John R. Riherd, Meridian Oil, Inc., and Robert L. McIntyre, Transco Exploration Co., Houston, Tex., with him on the briefs), Baker & Botts, Washington, D.C., for petitioners-intervenors Affiliated Gas Producers.
Michael E. Small, Wright & Talisman, Washington, D.C., on the briefs, for intervenor Williams Natural Gas Co.
Joel M. Cockrell (William S. Scherman, Gen. Counsel, Jerome M. Feit, Sol., Joseph S. Davies, Deputy Sol., on the brief), for respondent F.E.R.C.
Before MOORE, SETH, and TACHA, Circuit Judges.
Petitioner CSG Exploration Company (CSG) seeks review of the orders of the Federal Energy Regulatory Commission (FERC) in Northwest Cent. Pipeline Corp., 44 FERC p 61,200 (1988) () and Northwest Cent. Pipeline Corp., 44 FERC p 61,434 (1988) (). 1 Intervenor Affiliated Gas Producers (AGP) 2 also seeks review of FERC's order denying its motion for clarification and reconsideration. Northwest Cent. Pipeline Corp., 45 FERC p 61,305 (1988). In these orders, FERC articulated tests for determining: (1) whether there is arm's length bargaining between parties in the formation of a contract for the sale of gas, thereby satisfying one of the prerequisites for incentive pricing under section 107(b) of the Natural Gas Policy Act (NGPA), 15 U.S.C. Sec. 3317(b); and (2) the proper price for such gas if there is no arm's length bargaining. Because we conclude the issues presented are moot, we dismiss for lack of jurisdiction.
In enacting the NGPA in 1978, Congress created a new framework for the regulation of natural gas that "comprehensively and dramatically changed the method of pricing natural gas produced in the United States." Public Serv. Comm'n v. Mid-Louisiana Gas Co., 463 U.S. 319, 322, 103 S.Ct. 3024, 3027, 77 L.Ed.2d 668 (1983). Congress identified four categories of gas as high-cost gas: (1) deep gas (below 15,000 feet), (2) gas from geopressured brine, (3) occluded natural gas produced from coral seams, and (4) gas produced from Devonian shale. See Secs. 107(c)(1)-(4), 15 U.S.C. Secs. 3317(c)(1)-(4). In section 107 (c)(5), 15 U.S.C. Sec. 3317(c)(5), Congress delegated authority to FERC to expand the definition of "high-cost natural gas" to include any gas that is "produced under such other conditions as the Commission determines to present extraordinary risks or costs." In addition, Congress gave FERC the authority to determine a maximum lawful price for high-cost gas "to provide reasonable incentives" for production. See Sec. 107(b), 15 U.S.C. Sec. 3317(b).
In Order No. 99, FERC promulgated regulations, effective July 16, 1979, that create an incentive price under section 107(c)(5) for gas produced from tight formations. A producer can collect this incentive price only if the contract for the sale of the gas contains a "negotiated contract price," which FERC defines as
any price established by a contract provision that specifically references the incentive pricing authority of the Commission under section 107 of the NGPA, by a contract provision that prescribes a specific fixed rate, or by the operation of a fixed escalator clause.
18 C.F.R. Sec. 271.702(a)(1) (1990). Such a provision operates only if it is the result of arm's length bargaining between the parties to the contract. See Pennzoil Co. v. FERC, 671 F.2d 119, 124-25 (5th Cir.1982).
In 1975 and 1976 the Wamsutter and Moxa partnerships were formed between Amoco Production Company and CSG, a natural gas producer then affiliated with Williams Natural Gas Company. After the NGPA was enacted, all contracts for the sale of gas to Williams by Amoco provided the price of the gas would be the maximum lawful rate then authorized by the NGPA. These contracts also provided that if FERC thereafter were to prescribe a higher rate, then that rate could be collected.
On March 17, 1981, Williams agreed to amend fifty-one contracts it previously had executed with Amoco as general partner in the Wamsutter and Moxa partnerships. Language satisfying the negotiated contract price requirement in Order No. 99 was added to each of these contracts. The 1981 contract amendments specifically referred to section 107(c)(5) and provided for payment of the tight formation incentive price retroactive to July 16, 1979.
In 1983 the Midwest Gas Users Association (Midwest) filed a complaint with FERC, arguing in part that the 1981 contract amendments did not meet the negotiated contract price requirement of Order No. 99. Midwest asserted these amendments were not the result of arm's length bargaining because the Wamsutter and Moxa partnerships were affiliated with Williams through a corporate relationship between CGS and Williams at the time these amendments were made. The gas therefore did not qualify for the section 107(c)(5) incentive price. Several of Williams' customers joined in challenging the rights of the partnerships to collect the incentive price and Williams' right to pass that price through to its customers. FERC determined the higher prices established in the contract amendments were true negotiated contract prices. Northwest Cent. Pipeline Corp., 32 FERC p 61,471 (1985); Northwest Cent. Pipeline Corp., 34 FERC p 61,301 (1986).
Various parties petitioned for review of this decision to the United States Court of Appeals for the District of Columbia Circuit. That court found FERC had erred in relying exclusively on the statutory test of affiliation in determining whether the parties engaged in arm's length bargaining. Midwest Gas Users Ass'n v. FERC, 833 F.2d 341, 353-55 (D.C.Cir.1987). It remanded the case, directing FERC to formulate a test for arm's length bargaining that considered all relevant facts, including whether the parties had diverse economic interests relating to the payment of tight formation incentive prices. Id. at 355.
On remand, FERC concluded the proper test for determining whether the parties had engaged in arm's length bargaining and could have thus agreed to a negotiated contract price was "whether the purchaser and seller have sufficiently distinct economic interests that the buyer's interest in the negotiations are aligned with those to whom it resells the gas, and not with the interests of the seller." Northwest Cent. Pipeline Corp., 44 FERC p 61,200, at 61,719 (1988). FERC held it would treat parties meeting the definition of "affiliates" under section 2(27) as incapable of arm's length bargaining without further inquiry into the degree to which their economic interests coincide. Id. Additionally, FERC stated that
[i]f the purchaser has an economic incentive to pay a higher price or agree to other terms more favorable than necessary to provide a reasonable incentive to the seller for the production of the gas, there can be no arm's length bargaining.
....
... [E]ven if parties are not affiliated, as the Commission found in this case, the Commission will carefully scrutinize the relationship of the purchaser and seller where there are reasonable grounds to believe that their economic interests overlap to the extent that the price and terms agreed to do not reflect competitive market forces.
Id. FERC then applied this common economic interest test to the relationship between Williams and the partnerships, concluding they were affiliates "because the economic interests of the purchaser and the sellers coincided to such an extent that they did not and could not have engaged in arm's length bargaining." Id.
FERC went on to note that even if it found there was no arm's length bargaining, Williams still would not be required to refund any portion of the incentive price to its customers if the requirements of the affiliated...
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