Midwest Gas Users Ass'n v. F.E.R.C., s. 86-1140
| Decision Date | 16 February 1988 |
| Docket Number | 86-1200,86-1147,Nos. 86-1140,86-1241 and 86-1269,86-1148,s. 86-1140 |
| Citation | 833 F.2d 341 |
| Parties | MIDWEST GAS USERS ASSOCIATION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Kansas Power and Light Co., Williams Natural Gas Co., Amoco Production Company, CSG Exploration Co., Union Gas System, Inc., Mike Hayden, Governor of Kansas, et al., Intervenors. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Joseph E. Stubbs, with whom John E. Holtzinger, Jr., Ted P. Gerarden, Joseph O. Fryxell, Washington, D.C., Brian J. Moline and Dana L. Gorman, Topeka, Kan., were on brief for petitioners/intervenors Midwest Gas Users Ass'n, et al., in Nos. 86-1140, 86-1147, 86-1148, 86-1200, 86-1241 and 86-1269.
Douglas G. Robinson, with whom Douglas E. Nordlinger, Kenneth A. Gross, Washington, D.C., Kirk C. Jenkins and Robert R. Price were on brief for petitioner/intervenor CSG Exploration Co., in Nos. 86-1140, 86-1147, 86-1148, 86-1200, 86-1241 and 86-1269.
Dale A. Wright, with whom James T. McManus and Michael E. Small, Washington, D.C., were on brief for Williams Natural Gas Co., petitioner in No. 86-1241 and intervenor in Nos. 86-1140, 86-1147, 86-1148, 86-1200 and 86-1269. John H. Cary, Knoxville, Tenn., also entered an appearance for Williams Natural Gas Co.
Joel M. Cockrell, Atty., F.E.R.C., with whom Catherine M. Cook, Gen. Counsel and Jerome M. Feit, Sol., F.E.R.C., Washington, D.C., were on brief for respondent in Nos. 86-1140, 86-1147, 86-1148, 86-1200, 86-1241 and 86-1269. Joseph S. Davies, Atty., F.E.R.C., Washington, D.C., also entered an appearance for respondent.
William I. Harkaway, Harvey L. Reiter, Washington, D.C., John K. Rosenberg and Martin J. Bregman, Topeka, Kan., for Kansas Power and Light Co., and Morton L. Simons, Washington, D.C., for Union Gas System, Inc. were on joint brief for intervenors, Kansas Power and Light Co., et al., in Nos. 86-1140, 86-1147 and 86-1148.
David M. Stryker, William H. Emerson, Tulsa, Okl., Kevin M. Sweeney and Jon L. Brunenkant, Washington, D.C., were on brief for Amoco Production Co., intervenor in Nos. 86-1140, 86-1147, 86-1148, 86-1200, 86-1241 and 86-1269.
Before WALD, Chief Judge, MIKVA and EDWARDS, Circuit Judges.
Opinion for the Court filed by Chief Judge WALD.
Midwest Gas Users Association, Governor Mike Hayden of Kansas, and The Kansas Corporation Commission (collectively Midwest) petition for review of two orders of the Federal Energy Regulatory Commission (FERC or the Commission). In those orders, the Commission determined that the higher prices established in amendments of a gas purchase contract between the purchaser Northwest Central Pipeline Corporation (Pipeline) and certain limited partnership producers were the product of arm's-length bargaining and satisfied the "negotiated contract price" requirement established in FERC Order No. 99. Therefore, the Commission concluded, the producers' tight formation gas qualified for special incentive pricing under Sec. 107(c)(5) of the Natural Gas Policy Act (NGPA). As a result of FERC's determination that the producers' gas qualified for higher incentive pricing, gas costs to Pipeline's customers have increased dramatically; between March 1981 and November 1983, costs to consumers rose by an estimated $100 million. At issue here is FERC's interpretation of the negotiated contract price requirement--in particular its test for arm's-length bargaining--and FERC's decision to defer resolution of certain fraud and self-dealing issues until after the completion of related district court proceedings.
In November 1983, Midwest filed an amended complaint with FERC seeking to prevent the producers from collecting the NGPA Sec. 107(c)(5) incentive price. Midwest alleged that under Title I of the NGPA the higher prices established in the 1981 amendments did not satisfy the negotiated contract price requirement, because (1) when the amendments were executed, the best part of the producers' drilling was already completed, indicating that the higher prices were not "necessary" to elicit The Commission in the proceedings below rejected Midwest's contentions. With respect to the Title I claims, FERC first ruled that any gas designated as tight formation gas qualifies automatically for incentive pricing, as long as the negotiated contract price requirement is met, regardless of whether drilling is substantially completed. The Commission then concluded that the higher prices established in the contract amendments were true negotiated contract prices that reflected arm's-length bargaining, because Pipeline and the partnerships were not "affiliated entities" within the meaning of NGPA Sec. 2(27), 15 U.S.C. Sec. 3301(27). As to the Title VI claims, the Commission deferred final resolution of the issues of improper affiliation and fraud/abuse, until after the conclusion of related antitrust proceedings in the District Court for the Western District of Missouri.
high-cost gas production, as required by NGPA Sec. 107; and (2) Pipeline and the partnerships had overlapping economic interests and therefore could not have bargained at arm's-length. Midwest also alleged that Pipeline and the producers had engaged in fraud and self-dealing in violation of Title VI of the NGPA.
The producers in this case contend that this court has no jurisdiction to review FERC's determination that the partnerships' natural gas qualified for incentive pricing, because under NGPA Sec. 503, 15 U.S.C. Sec. 3413, judicial review is not available if FERC upholds--as it did in this case--rather than reverses a jurisdictional agency determination that certain gas is of the kind that qualifies for incentive pricing. We reject this contention. Under Order No. 99, the negotiated contract price requirement is separate and distinct from the requirement that gas be properly designated tight formation gas by a jurisdictional agency. Indeed, the ascertainment of compliance with the negotiated contract price requirement was not delegated to local jurisdictional agencies. See Pennzoil Co. v. FERC, 671 F.2d 119, 125 n. 15 (5th Cir.1982). Accordingly, Sec. 503, which governs administrative and judicial review of jurisdictional agency determinations, does not apply here, and there is no reason for this court to refrain from exercising jurisdiction over the present case.
On the merits, we conclude that the Commission's determination that negotiated contract prices do not require case-by-case justification is a reasonable statutory interpretation. However, given the particular economic relationships and incentives in this case, we find that the Commission's arm's-length bargaining test was plainly inadequate to ensure that the prices "negotiated" by Pipeline and the partnerships would reflect only market forces. We therefore reverse and remand to the Commission for reformulation of the arm's-length bargaining requirement. A reasonable test for arm's-length bargaining must be broad enough to exclude transactions which, although they involve technically "nonaffiliated" parties, nonetheless have the potential to distort market forces in contravention of the declared purposes of the NGPA. In addition, we remand to the Commission the issue of whether the higher prices established in the 1981 amendments could have applied retroactively. Finally, we remand for the Commission to reconsider, in light of the broader arm's-length bargaining test we are requiring it to formulate, its decision to defer consideration of the Title VI issues until after the completion of related district court proceedings.
The NGPA, enacted in 1978, created a new legislative framework for the regulation of natural gas. The NGPA "comprehensively and dramatically changed the method of pricing natural gas produced in the United States." Public Service Comm'n v. Mid-Louisiana Gas Co., 463 U.S. 319, 322, 103 S.Ct. 3024, 3027, 77 L.Ed.2d 668 (1983). The aim of the NGPA, however, "remains to assure adequate supplies of natural gas at fair prices." Transcontinental Gas Pipe Line Corp. v. State Oil & Gas Bd., 474 U.S. 409, 106 S.Ct. 709 In Title I of the NGPA, which is entitled "Wellhead Pricing," Congress defined numerous categories of natural gas production and set ceiling prices for "first sales" in each category. See 15 U.S.C. Secs. 3311-3333. Title V gave the Commission authority to enforce the maximum lawful prices established under Title I. See 15 U.S.C. Secs. 3411-3418. In addition, Congress provided the Commission with limited authority to establish special, higher maximum lawful prices for gas supplies recoverable only at particularly high cost:
716, 88 L.Ed.2d 732 (1986) (citing S.Rep. No. 436, 95th Cong., 1st Sess. 10 (1977)).
The Commission may, by rule or order, prescribe a maximum lawful price, applicable to any first sale of any high-cost natural gas, which exceeds the otherwise applicable maximum lawful price to the extent that such special price is necessary to provide reasonable incentives for the production of such high-cost natural gas.
NGPA Sec. 107(b), 15 U.S.C. Sec. 3317(b). In NGPA Secs. 107(c)(1)-(4), Congress specifically identified four sources from which gas produced would be deemed "high-cost natural gas." In NGPA Sec. 107(c)(5) Congress delegated to the Commission the further authority to include within the term "high-cost natural gas" any gas that is "produced under such other conditions as the Commission determines to present extraordinary risks or costs." 15 U.S.C. Sec. 3317(c)(5).
On July 16, 1979, President Carter recommended to Congress that incentives be established for the development of high-cost natural gas from "tight formations." 1 Thereafter, the Commission instituted rulemaking proceedings to identify tight formation gas for which a special price would be necessary...
To continue reading
Request your trial
-
The Fund for Animals v. Norton, CIV.A. 02-2367(EGS).
...an agency decision could encompass `months, occasionally a year or two, but not several years or a decade.'" Midwest Gas Users Ass'n v. F.E.R.C., 833 F.2d 341, 359 (D.C.Cir.1987) (quoting MCI Telecommunications Corp. v. F.C.C., 627 F.2d 322, 340 (D.C.Cir.1980)). Defendants counter that the ......
-
St. Lawrence Seaway Pilots' Ass'n v. Collins
...American Rivers and Idaho Rivers United, 372 F.3d 413, 419 (D.C.Cir.2004) (internal citation omitted) (citing Midwest Gas Users Ass'n v. FERC, 833 F.2d 341, 359 (D.C.Cir.1987) ("[T]his court has stated generally that a reasonable time for an agency decision could encompass `months, occasion......
-
Williams Natural Gas Co. v. F.E.R.C.
...reasoned application of its considerable experience and accrued expertise. Pennzoil, 671 F.2d at 126; see Midwest Gas Users Ass'n v. FERC, 833 F.2d 341, 352-53 (D.C.Cir.1987). As for that "remainder," we note that the Congress did not in any way restrict the criteria for deciding when a hig......
-
CSG Exploration Co. v. F.E.R.C., s. 88-2548
...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......
-
CHAPTER 11 ANTITRUST PITFALLS IN THE NATURAL GAS INDUSTRY
...Wyoming Tight Sands Antitrust Cases, 866 F.2d 1286 (10th Cir. 1989). [97] Midwest Gas Users Association v. Federal Energy Regulatory Com., 833 F.2d 341 (D.C. Cir. 1987). [98] 873 F.2d 1357 (10th Cir. 1989). [99] Id. at 1360. [100] The court noted: Here, Cayman has failed to allege any facts......
-
CHAPTER 10 MAKING THE CLEAN AIR ACT WORK: THE PATH TO CONTROLLING CLIMATE POLLUTION
...307(d)((7)(B), 42 U.S.C. § 7607(d)(7)(B). [29] Id. [30] CAA § 304(a), 42 U.S.C. § 7604(a). [31] Id.; see Midwest Gas Users Ass'n v. FERC, 833 F.2d 341, 359 (D.C. Cir. 1987) (holding that "a reasonable time for an agency decision could encompass 'months, occasionally a year or two, but not s......