National Fuel Gas Supply Corp. v. F.E.R.C., s. 84-1246

• Decision Date: 20 February 1987
• Docket Number: Nos. 84-1246,84-1285,s. 84-1246
• Citation: 811 F.2d 1563,258 U.S.App.D.C. 374
• Parties: NATIONAL FUEL GAS SUPPLY CORPORATION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Public Service Commission of the State of New York, Pennsylvania Public Utility Commission, Intervenors. NATIONAL FUEL GAS SUPPLY CORPORATION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Pennsylvania Public Utility Commission, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1563

811 F.2d 1563

258 U.S.App.D.C. 374

NATIONAL FUEL GAS SUPPLY CORPORATION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent,

Public Service Commission of the State of New York,

Pennsylvania Public Utility Commission, Intervenors.

NATIONAL FUEL GAS SUPPLY CORPORATION, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Pennsylvania Public Utility Commission, Intervenor.

Nos. 84-1246, 84-1285.

United States Court of Appeals District of Columbia Circuit.

Argued March 26, 1986.

Decided Feb. 20, 1987.

Petitions for Review of Orders of the Federal Energy Regulatory commission.

George L. Weber, with whom John T. Ketcham and Joseph O. Fryxell, Washington, D.C., were on brief, for petitioner.

John N. Estes, III, Atty., Federal Energy Regulatory Commission, Washington, D.C., for respondent. William H. Satterfield, Gen. Counsel, Jerome M. Feit, Sol., and Thomas E. Hirsch, III, Atty., Federal Energy Regulatory Commission, Washington, D.C., were on brief for respondent. Barbara J. Weller and Leslie J. Lawner, Attys., Federal Energy Regulatory Commission, Washington, D.C., also entered appearances, for respondent.

David D'Alessandro, Washington, D.C., with whom David E. Blabey, Albany, N.Y., and Richard A. Solomon, Washington, D.C., were on brief, for intervenor Public Service Commission of the State of New York.

James P. Melin, John F. Povilaitis and Charles F. Hoffman, Harrisburg, Pa., were on brief, for intervenor Pennsylvania Public Utility Commission.

Before EDWARDS, BORK and SILBERMAN, Circuit Judges.

Opinion for the Court filed by Circuit Judge BORK.

BORK, Circuit Judge:

The National Fuel Gas Supply Corporation ("NFGS") appeals from three orders of the Federal Energy Regulatory Commission that denied its request for a retroactive rate increase. NFGS seeks an increase in the rates it charged for selling certain natural gas in interstate commerce between December 1, 1978, and May 31, 1982. We affirm the decision of the Commission.

I.

The natural gas NFGS sells in interstate commerce comes from two sources. Most of it is purchased by NFGS from independent or affiliated producers; a relatively small amount is produced by the company itself. Under the current regulatory scheme, the price that NFGS can charge for its gas is largely dependent on the costs it incurs to obtain the gas.

NFGS bases its request for a retroactive rate increase on a decision of the Fifth Circuit Court of Appeals, subsequently affirmed by the Supreme Court, which construed some of the pricing provisions in the Natural Gas Policy Act of 1978. See Mid-Louisiana Gas Co. v. FERC, 664 F.2d 530 (5th Cir.1981) ("Mid-Louisiana Gas I "), aff'd in part and vacated in part sub nom. Public Serv. Comm'n v. Mid-Louisiana Gas Co., 463 U.S. 319, 103 S.Ct. 3024, 77 L.Ed.2d 668 (1983) ("Mid-Louisiana Gas II "). The Act established a new pricing schedule that allowed companies to recover higher costs for "first sale" gas than for other categories of gas. See 15 U.S.C. Secs. 3301-3332 (1982). Immediately after the Act was passed, the Commission issued implementing regulations that prohibited most gas produced and sold by a single company from being priced at the higher levels that the Act established for "first sale" gas, which comprises most gas that is purchased from independent or affiliated producers and then resold in interstate commerce. See Proposed Regulations, 43 Fed.Reg. 53,270, 53,280, 53,332-33 (Nov. 15, 1978); Interim Regulations, 43 Fed.Reg. 56,448, 56,461-63, 56,549-50 (Dec. 1, 1978); Final Rule Governing the Maximum Lawful Prices for Pipeline, Distributor, or Affiliate Production, 44 Fed.Reg. 66,577 (Nov. 20, 1979), reh'g denied, 45 Fed.Reg. 67,083 (Oct. 9, 1980) (codified as amended at 18 C.F.R. Sec. 270.203 (1983)). The two court decisions, however, rejected the Commission's definition of "first sale" gas. The Supreme Court held that the Act's higher ceiling prices applied to gas produced and sold by a single company. ¹

NFGS seeks an increase in rates it had charged in compliance with the Commission's now-invalidated interpretation of the statute. After the Fifth Circuit had reversed the Commission, NFGS filed for a purchased gas adjustment with the Commission. NFGS sought prospective recovery of the Act's higher "first sale" prices on all gas that the company itself produced and sold after June 1, 1982. The company also claimed the right, which it subsequently tried to exercise, to collect through a retrospective surcharge the same higher prices on all gas that the company itself had produced and sold between December 1, 1978, and June 1, 1982.

In considering NFGS's request for a retroactive rate adjustment, the Commission divided the pertinent span of time into two parts. For the period from December 1 1978, to October 31, 1980 ("Period I"), NFGS's rates had been set in a final order entered by the Commission. National Fuel Gas Supply Corp., 8 F.E.R.C. (CCH) p 61,135 (Aug. 6, 1979). The Commission denied any retroactive adjustment of these rates because they were fixed in a final adjudication in which the Commission heard and decided all of the issues raised by NFGS. In particular, NFGS did not raise or reserve the issue of how "first sale" gas should be priced under the Act during any of the proceedings that led up to this final order. See National Fuel Gas Supply Corp., 27 F.E.R.C. (CCH) p 61,111, at 61,210 (Apr. 20, 1984), modifying 26 F.E.R.C. (CCH) p 61,105 (Jan. 31, 1984), reh'g denied, 28 F.E.R.C. (CCH) p 61,012 (July 5, 1984). For the period from November 1, 1980, to June 1, 1982 ("Period II"), NFGS's rates had been established in a settlement reached with its customers and approved in an order entered by the Commission. National Fuel Gas Supply Corp., 15 F.E.R.C. (CCH) p 61,058 (Apr. 21, 1981). The Commission denied any retroactive adjustments in these rates because it read the settlement order as failing to preserve any right for NFGS to object to these rates later on the grounds that "first sale" gas had been priced improperly under the Act. See National Fuel, 27 F.E.R.C. (CCH) at 61,210-12. We consider the two periods in turn.

II.

We think the Commission was correct in denying retroactive adjustment for Period I. Those rates were set by an order of the Commission after a proceeding in which all controverted matters were briefed and argued. When NFGS did not file for rehearing of this decision, it became a final order. See 15 U.S.C. Sec. 717r(a) (1982). If NFGS wished to contest the Commission's position on what constituted "first sale" gas under the Act, it could have done so before the Commission and, if it did not get satisfaction there, could have brought its contentions before the courts, as did the Mid-Louisiana Gas Company that ultimately prevailed on this issue before the Supreme Court. But NFGS did nothing either to raise this issue itself or to reserve the issue in light of the pending challenges that other parties had brought in other proceedings. The challenge to the Commission's order several years after it became final and effective comes too late. Cf. City of Tacoma v. Taxpayers of Tacoma, 357 U.S. 320, 335-37, 78 S.Ct. 1209, 1218-19, 2 L.Ed.2d 1345 (1958) (Congress may prescribe the procedures and conditions under which review of administrative orders may be had, and Congress has stated that all objections to a final Commission order must be made on direct review in the appellate court or not at all).

NFGS offers three objections to this conclusion. First, it argues that it could not raise the "first sale" issue in the Period I ratemaking because the law was not changed in its favor until after that ratemaking had concluded. On this point, NFGS notes that the hearing record in the rate case for Period I closed on April 27, 1978, several months before the Act was passed on December 1, 1978. This argument ignores the fact that the Commission's order setting the rates for Period I was not entered until nine months later, on August 6, 1979. NFGS could have tried to raise this new point during those nine months, or it could have sought rehearing of the Commission's decision after the order was entered. These avenues afforded ample opportunity to raise the "first sale" issue, but NFGS failed to pursue them and by that failure became subject to the jurisdictional bar. See Midwestern Gas Transmission Co. v. FERC, 734 F.2d 828, 832 (D.C.Cir.1984).

Second, NFGS argues that it must be permitted to recover retroactively the higher ceiling prices that the Act allows for "first sale" gas, if the Supreme Court's decision in Mid-Louisiana Gas II is to be given its proper effect and if the Commission is to be held to its statutory duty to "carry out" the terms of the Act. 15 U.S.C. Sec. 3411(a) (1982). But this is not so. To begin with, the Supreme Court did not require the Commission to apply the Mid-Louisiana Gas II decision retroactively to modify all of the final rate orders that have been entered over the years since the Act was enacted. Without any such explicit command, the usual presumption is that a judicial decision should be given prospective effect except in the particular case in which the ruling is made. There is no imputation that the Commission has embarked on a deliberate program to sabotage the Act's provisions or to refuse to carry out its mandates; the Commission simply committed an error of interpretation. In addition, the usual presumption is even more to the point here because nothing in the Act or the Supreme Court's decision requires that all "first sale" gas be priced at the ceiling prices set out in the Act. Those are "ceiling" prices only, and for any number of reasons, including representations of customers, a company or the Commission may decide that some "first sale" gas should be priced at lower rates than the Act permits. In particular, in this case NFGS's filing for Period I valued its own production merely at cost-of-service rates, and not...