Mid Louisiana Gas Co. v. F.E.R.C.

• Decision Date: 21 January 1986
• Docket Number: Nos. 82-4470,83-4413,s. 82-4470
• Citation: 780 F.2d 1238
• Parties: MID LOUISIANA GAS COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1238

780 F.2d 1238

MID LOUISIANA GAS COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent.

Nos. 82-4470, 83-4413.

United States Court of Appeals, Fifth Circuit.

Jan. 21, 1986.

Jerome M. Feit, Sol., F.E.R.C., Norma J. Rosner, Leslie J. Lawner, argued, Washington, D.C., for F.E.R.C.

Marvin T. Griff, Alan C. Wolf, New Orleans, La., and George W. McHenry, Jr., argued, McHenry & Staffier, Washington, D.C., for Mid Louisiana Gas Co.

Wm. Warfield Ross, George A. Avery and Vaughan Finn, Washington, D.C., for Gulf States Utilities Co.

J. Michel Marcoux, Washington, D.C., for Mississippi Valley Gas Co. Petition for Review of Orders of The Federal Energy Regulatory commission.

Before GARZA, HIGGINBOTHAM and DAVIS, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Mid Louisiana Gas Company petitions for review of several orders issued by the Federal Energy Regulatory Commission (FERC) prohibiting it from pricing part of its company-owned production in accordance with the rate structure set forth in the Natural Gas Policy Act of 1978 (NGPA), 15 U.S.C. Secs. 3301-3432. Persuaded that Mid Louisiana is not barred from recovering NGPA prices, we reverse.

I

A

Mid Louisiana Gas Company is an interstate natural gas pipeline. Approximately forty percent of the natural gas it sells to its customers is produced by Mid Louisiana from its own properties. Prior to the enactment of the NGPA in 1978, FERC was charged, under the Natural Gas Act (NGA), 15 U.S.C. Secs. 717-717w, with ensuring that producers set "just and reasonable" rates for interstate sales of natural gas. Id. Sec. 717c(a). See Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed. 1035 (1954).

Pursuant to this authority, FERC established a two-tiered system of pricing a pipeline's own production. "Old" pipeline production, i.e., most gas produced from wells drilled on or before January 1, 1973 or from leases acquired on or before October 7, 1969, was priced on a cost-of-service basis. See Order No. 98, Pricing of Pipeline Production Under the Natural Gas Act, 45 Fed.Reg. 53,901 (1980). A pipeline's cost-of-service, which incorporated its exploration and production costs, was determined in general rate cases under section 4 of the NGA, 15 U.S.C. Sec. 717c, and if deemed "just and reasonable" by the Commission, was included in the pipeline's rate base. This rate base, multiplied by an appropriate rate of return, defined the rates a pipeline could charge its jurisdictional customers. Once established, these rates could ordinarily be increased only by filing for another general rate change under section 4 of the NGA.

In contrast, "new" pipeline production, i.e., gas produced from post-January 1, 1973 wells or post-October 7, 1969 leases, was "parity" priced at the same area or nationwide rates applicable to non-pipeline (independent) interstate producers. Unlike cost-of-service rates, these area rates could be changed semi-annually to reflect fluctuations in the cost of production; the mechanism for these adjustments was the purchased gas adjustment clause (PGA) of the tariff. ¹

The NGPA, enacted in 1978, dramatically altered FERC's regulatory authority over sales of gas by producers. While leaving intact the Commission's jurisdiction to police the prices a pipeline could charge its customers, the NGPA defrocked the Commission of its authority to set most of the prices paid for the production of natural gas. The NGPA defines several categories of natural gas production, establishes maximum prices that can be charged for "first sales" ² in some categories, schedules increases in future first sales price limits, and removes some ceiling prices altogether.

Section 601 of the NGPA, 15 U.S.C. Sec. 3431, coordinates that Act with the NGA. Section 601(b)(1)(A), 15 U.S.C. Sec. 3431(b)(1)(A), deems any amount paid in any "first sale" "just and reasonable" for purposes of sections 4 and 5 of the NGA, 15 U.S.C. Secs. 717c, 717d, if that amount does not exceed the applicable statutory ceiling price or the gas is deregulated. An interstate pipeline is guaranteed a passthrough of these purchased gas costs in NGA section 4 rate proceedings, unless the "amount paid was excessive due to fraud, abuse, or similar grounds." 15 U.S.C. Sec. 3431(c).

With the NGPA in place, a question soon arose over whether NGPA prices applied to pipeline as well as to independent production. Beginning with Order No. 58 in November 1979, FERC issued a series of orders and interim regulations that effectively prohibited a pipeline from pricing its company-owned production at NGPA rates. FERC held that the intracorporate transfer of company-owned gas from a production to a distribution facility did not qualify as a "first sale" eligible for NGPA pricing; instead, such production remained subject to NGA jurisdiction, which continued cost-of-service pricing for the pipeline's "old" gas. ³

A number of pipeline producers, Mid Louisiana at the forefront, then sought review of these Commission orders. This court, in Mid-Louisiana Gas Co. v. F.E.R.C., 664 F.2d 530 (5th Cir.1981) ("Mid-La. I "), vacated the Commission orders, holding that any production attributable to an interstate pipeline's own properties was entitled to "first sale" pricing treatment under the NGPA. Id. at 538. On certiorari, the Supreme Court agreed with us, stating: "The Commission's position is contrary to the history, structure, and basic philosophy of the NGPA. Like the Court of Appeals, we conclude that [FERC's] exclusion of pipeline production is 'inconsistent with the statutory mandate [and would] frustrate the policy that Congress sought to implement.' " Public Serv. Comm'n of New York v. Mid-Louisiana Gas Co., 463 U.S. 319, 103 S.Ct. 3024, 3037, 77 L.Ed.2d 668 (1983) ("Mid-La. II ") (citations omitted.) ⁴

B

While these issues oozed through administrative and judicial channels, many pipelines entered into Commission-approved settlements of their general section 4 rate proceedings. The interpretation of one such settlement is at issue here.

On June 13, 1980, while Mid Louisiana's application for rehearing of Order No. 58 was pending before the Commission, the company filed revised tariff sheets in Docket No. RP80-113 to implement a general increase in its jurisdictional rates of $124,075 per year. These tariff sheets priced Mid Louisiana's "old" gas on a cost-of-service basis. On July 9, 1980, FERC accepted the proposed tariffs for filing, suspended their effectiveness for five months, and set the matter for hearing. ⁵ Before the hearing date, however, Mid Louisiana, FERC, and Gulf States Utilities Company a major customer of Mid Louisiana and an intervenor here, negotiated a settlement of this rate proceeding. As in Mid Louisiana's proposed tariff sheets, this Stipulation and Agreement, approved by the Commission on April 3, 1981, priced Mid Louisiana's "old" pipeline production on a cost-of-service basis.

On December 22, 1981, Mid Louisiana requested that the Commission reopen the proceedings in Docket No. RP80-113 for the limited purpose of revising an inaccurate sales volume figure used in calculating the settlement rates. After an informal settlement conference, Mid Louisiana, the Commission, and intervenors Gulf States Utilities Company and Mississippi Valley Utilities Company, all agreed on Mid Louisiana's proposed amendment. Pursuant to this agreement, Mid Louisiana filed a motion with the Commission seeking revision of the original settlement's sales volume provisions. In its transmittal letter accompanying the motion, Mid Louisiana expressed its intent not to seek certain rate changes prior to January 1, 1983. In that same letter, however, the company stated that it intended "to file and make effective prior to January 1, 1983: rate changes pursuant to the PGA provisions of its FERC Gas Tariff ... and rate changes exclusively to recover NGPA prices for company owned production." On April 29, 1982, FERC granted Mid Louisiana's unopposed motion to amend the settlement.

This court issued its mandate in Mid-La. I on March 2, 1982. One week later, Mid Louisiana filed revised tariff sheets with FERC, Docket No. RP82-51-000, seeking to amend its tariff PGA clause to permit the pipeline to recover NGPA rates for all its production ⁶ and to reduce its base tariff rates to reflect the costs of service attributable to pipeline production. In its transmittal letter, Mid Louisiana requested that FERC waive its thirty day notice requirement, in order to make the proposed tariff sheets effective as of the Mid-La. I mandate. Gulf States and Mississippi Valley intervened, opposing the proposed waiver. On April 8, 1982, FERC issued an order suspending the effective date of Mid Louisiana's proposed tariff sheets in Docket No. RP82-51-000 for five months and setting the matter for hearing. FERC explained that the revised tariffs "may be unjust, unreasonable, unduly discriminatory or otherwise unlawful" and that the Commission needed "additional time to assess the impact of Mid-La [I ] on Mid La's rates." On May 10, 1982, Mid Louisiana applied for rehearing of the Commission's suspension order, arguing that suspension was incompatible with this court's mandate in Mid-La. I.

While this application for rehearing was still pending, Mid Louisiana, on July 1, 1982, made two additional rate filings with the Commission. In Docket No. RP82-118-000, it filed new tariff sheets requesting an increase in its jurisdictional rates, to become effective August 1, 1982. At the same time, the company filed its semi-annual PGA adjustment, Docket No. TA82-2-15-000, submitting two alternative tariff sheets. One of the tariffs, with a proposed effective date of August 1, 1982, continued cost-of-service treatment for Mid Louisiana's company-owned production. The other alternative, with a proposed effective date of August 2, 1982, reflected NGPA pricing for this production in accordance with Mid-La....