McCombs v. FEDERAL ENERGY REGULATORY
| Decision Date | 07 November 1980 |
| Docket Number | No. 75-1829.,75-1829. |
| Citation | 705 F.2d 1177 |
| Court | U.S. Court of Appeals — Tenth Circuit |
| Parties | Billy J. McCOMBS, R. James Stillings, d/b/a Gastill Company, David A. Onsgard, Basin Petroleum Corp., E. I. du Pont de Nemours & Company, and Bill Forney, Petitioners, v. FEDERAL ENERGY REGULATORY COMMISSION, formerly known as Federal Power Commission, Respondent, United Gas Pipe Line Company, Intervenor. |
Stanley L. Cunningham, Oklahoma City, Okl. (Philip D. Hart, Terry R. Barrett, McAfee, Taft, Mark, Bond, Rucks & Woodruff, and McAfee & Taft, Oklahoma City, Okl., on briefs), for petitioners, McCombs Group.
Nicholas W. Fels, Washington, D. C. (Jerome Ackerman, Eric A. Eisen, and Covington & Burling, Washington, D. C., on briefs), for petitioner, du Pont.
John J. Lahey, Washington, D. C. (Drexel D. Journey, Robert W. Perdue, Allan Abbot Tuttle, Thomas M. Walsh, Robert R. Nordhaus, Jerome M. Feit and Joshua J. Rokach, Washington, D. C., on briefs), for respondent.
Knox Bemis, Washington, D. C. (Platt W. Davis III, Barbara S. Blaine, Washington, D. C., J. Evans Atwell, Houston, Tex., Vinson, Elkins, Searls, Connally & Smith, Washington, D. C. and Houston, Tex., William B. Cassin, Larry J. Gunn, Houston, Tex., and W. DeVier Pierson, James M. Costan, Washington, D. C., on briefs), for intervenor.
Before SETH, Chief Judge, and HOLLOWAY and BARRETT, Circuit Judges.
The McCombs Group and E. I. du Pont de Nemours & Company petitioned for review of orders of the Federal Power Commission, now known as the Federal Energy Regulatory Commission. The Commission ordered the McCombs Group to deliver to the intervenor United Gas Pipe Line Company in interstate commerce natural gas produced from certain leases in Texas. In response to du Pont's motion to dismiss for lack of Commission jurisdiction over du Pont, the Commission ruled it would not address the issue of its jurisdiction. This ruling, as a practical matter, kept du Pont before the Commission.
This Court's first opinion, McCombs v. Federal Power Commission, 542 F.2d 1144 (10th Cir. 1976) was vacated. Following rehearing, we again set aside the Commission's orders. McCombs v. Federal Energy Regulatory Commission, 570 F.2d 1376 (10th Cir. 1978) (Circuit Judge William J. Holloway, dissenting). The majority there held that the McCombs Group had abandoned de facto its interstate service and therefore could not be ordered to resume deliveries to the Pipe Line Company in interstate commerce. We did not reach the other issues raised by the petitioners. The United States Supreme Court unanimously reversed. In United Gas Pipe Line Co. v. McCombs, 442 U.S. 529, 99 S.Ct. 2461, 61 L.Ed.2d 54 (1979) the Supreme Court held that the McCombs Group could not, without express prior approval from the Commission, abandon the interstate service rendered under the certificate of public convenience and necessity issued by the Commission to the McCombs Group's predecessors in interest.
The case is before us now on remand from the Supreme Court for consideration of the remaining issues. The material facts relating to those issues are as follows:
In 1953, Bee Quin, as Seller, and the Pipe Line Company, as Buyer, executed a gas purchase contract whereunder the Buyer had rights to purchase the gas produced from wells on the "Butler B" tract, and a portion of the gas produced from any "unitized" lands which included part or all of the Butler B tract.1 Since such gas was to be resold in interstate commerce, Quin applied to the Commission for certificates of public convenience and necessity authorizing her to provide interstate service. The Commission issued certificates to Quin in 1954, and Quin sold gas for resale in interstate commerce under those certificates. In 1963 the Commission terminated the 1954 certificates and issued a new certificate authorizing Quin's successors in interest to continue the interstate service which Quin had begun.
In 1966 production from the Butler B tract ceased, as, of course, did the deliveries to the Pipe Line Company. However, the 1953 gas purchase contract remained in effect; it would not expire until 1981. The McCombs Group succeeded to the working interest in Butler B. It pooled or unitized Butler B with the neighboring "Butler A" tract, drilled deep, producing wells on both tracts, and contracted to sell the gas to du Pont in intrastate commerce. du Pont purchased the gas for use in its Texas factories. du Pont did not transport or sell the gas in interstate commerce.
The Pipe Line Company discovered that the gas being sold to du Pont was the same as that committed under the 1953 gas purchase contract. In 1973 the Pipe Line Company filed a complaint with the Commission alleging a violation of the Natural Gas Act. Respondents named in the complaint included the McCombs Group and du Pont. Proceedings before an administrative law judge and the Commission led to Commission Opinions No. 740 (54 F.P.C. 755 (1975)), No. 740-A (54 F.P.C. 2034 (1975)), and No. 740-B (55 F.P.C. 202 (1976)). The Commission ruled, inter alia, that the McCombs Group violated the Natural Gas Act and must deliver to the Pipe Line Company a portion of the gas produced from wells on Butler A. The Commission reasoned that because the McCombs Group operated Butler A and Butler B as a unit, a portion of the gas produced on Butler A was attributable to fields underlying Butler B and was dedicated to interstate commerce under the 1963 certificate of public convenience and necessity. The Commission ordered the McCombs Group to deliver or "pay back" to the Pipe Line Company volumes of gas equal to those previously delivered to du Pont.
The McCombs Group objected to these rulings in an application for rehearing. It claimed to have dissolved its unitized operation of Butler A and Butler B into the former, separate tracts, and that the dissolution was retroactive in effect. It argued that, because of the retroactive dissolution of the unit, gas produced from Butler A was not and never had been attributable to Butler B nor dedicated to interstate commerce under the 1963 certificate, and that the Pipe Line Company had no right to such gas. The McCombs Group also challenged the Commission's authority to order any "paybacks" of gas to the Pipe Line Company. In addition, the McCombs Group made a specific proposal as to how the dispute should be resolved (which it termed a "settlement" even though the Pipe Line Company withdrew support from the proposal). The McCombs Group demanded that the Commission give prompt consideration to the proposal as an alternative to the Commission's orders.
The Commission ruled that the record was not developed sufficiently to decide whether the McCombs Group's proposal was a reasonable alternative disposition on the merits. The Commission did not respond to the argument that it lacked authority to order paybacks of gas.
The Commission on its own initiative further ruled that, while the Pipe Line Company made no claim that Butler A was dedicated to interstate commerce, nevertheless it was in the public interest to determine whether this might be so. Therefore the Commission divided the proceedings into Phase I for consideration of the possible dedication of Butler A to interstate commerce, and Phase II, for consideration of all other issues including the effect of the McCombs Group's purported dissolution of the Butler A-Butler B unit. The Commission directed the administrative law judge to schedule and decide Phase I on an expedited basis. Common sense dictated that Phase I be decided before Phase II, because, as recognized by the Commission, if both Butler A and Butler B were dedicated to the Pipe Line Company in interstate commerce, the difficult issues raised by the McCombs Group's purported dissolution of the Butler A-Butler B unit were academic.
Even so, the Commission did address the dissolution issues at length without awaiting the decision on Phase I. It ruled it would not recognize the dissolution of the Butler A-Butler B unit for purposes of the Natural Gas Act. Therefore, in the Commission's view, the Pipe Line Company was entitled to all gas attributable to Butler B, whether such gas was produced from wells located on Butler B or wells on Butler A.
Meanwhile du Pont made motions, first before the administrative law judge and then before the Commission, to be dismissed from the proceedings on the ground that it was not subject to Commission jurisdiction. The Commission ruled that it would not decide whether it had jurisdiction over du Pont. The Commission believed that if events took their expected course, the jurisdictional issue could likely be avoided. du Pont again raised the jurisdictional issue in its application for rehearing. The Commission, however, declined to address it. In effect, the Commission kept du Pont in the proceedings without deciding whether it was proper to do so.
The issues on review are (1) whether the Commission has authority to order deliveries of gas produced from wells on Butler A in view of the McCombs Group's purported dissolution of the Butler A-Butler B unit; (2) whether the Commission has authority to order the McCombs Group to pay back to the Pipe Line Company volumes of gas equivalent to what it delivered to du Pont; (3) whether the Commission was obligated under law to consider the McCombs Group's proposal for resolution of the dispute on the merits when it was first presented to the Commission; and (4) whether du Pont must be dismissed from the proceedings on the ground that it is not subject to Commission jurisdiction.
All parties except the Commission assumed that before Butler B and Butler A were combined in unitized operation, Butler B was dedicated to the Pipe Line Company in interstate commerce, whereas Butler A was not. During the period of unitized operation, a portion of the gas produced from wells on Butler A...
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