Shell Oil Co. v. Federal Power Commission
| Decision Date | 14 October 1975 |
| Docket Number | 75-1396,75-1614,Nos. 74-3330,75-1268,75-,74-4036,75-1123,74-4233,74-4040,74-4044,75-1164,74-4038,75-1270,75-1246,74-4147,75-1266,74-4042,s. 74-3330 |
| Citation | 520 F.2d 1061 |
| Parties | SHELL OIL COMPANY et al., Petitioners, v. FEDERAL POWER COMMISSION, Respondent, and consolidated cases. * In re NATIONAL RATE CASES FOR NEW GAS. 1620, 75-1615, 75-1617, 75-1616, 75-1618, 75-1619, 75-1621 to 75-1623, 75-1499, 75-1500, 75-1590, 75-1756. |
| Court | U.S. Court of Appeals — Fifth Circuit |
David G. Stevenson, Tulsa, Okl., for Amerada Hess Corp.
Edward J. Kremer, Jr., Dallas, Tex., for Atlantic Richfield Co.
David M. Whitney, Houston, Tex., for Burmah Oil & Gas Co.
William C. Charlton, Pampa, Tex., for Cabot Corp.
Samuel H. Riggs, Jr., Tulsa, Okl., for Cities Service Oil Co.
Giles D. H. Snyder, Charleston, W. Va., for Columbia Gas Transmission Corp.
Tom Burton, Houston, Tex., for Continental Oil Co. Paul W. Wright, Houston, Tex., for Exxon Co.
Richard F. Generelly, Washington, D. C., for General American Oil Co. of Texas.
Edward J. Grenier, Jr., Washington, D. C., for General Motors Corp.
B. James McGraw, Tulsa, Okl., for Gulf Oil Corp.
L. Dan Jones, Washington, D. C., for Independent Petroleum Association of America.
Jerome J. McGrath, Washington, D. C., for The Interstate Natural Gas Association of America.
William A. Sackmann, Findlay, Ohio, for Marathon Oil Co.
Paul W. Mallory, Chicago, Ill., for Natural Gas Pipeline Co. of America.
Patrick J. McCarthy, Omaha, Neb., for Northern Natural Gas Co.
Malcolm H. Furbush, San Francisco, Cal., for Pacific Gas & Electric Co.
Gordon Gooch, Washington, D. C., for Pennzoil Co., Tenneco Oil Co., Texasgulf, Inc., and Rodman Corp.
John L. Williford, Bartlesville, Okl., for Phillips Petroleum Co.
Richard A. Solomon, Washington, D. C., for The Public Service Commission of the State of New York.
Donald J. Richardson, Jr., San Francisco, Cal., for San Diego Gas & Electric Co.
David C. Henri, Tulsa, Okl., for Skelly Oil Co.
Thomas D. Clarke, Los Angeles, Cal., for Southern California Gas Co.
Lilyan G. Sibert, Houston, Tex., for Tennessee Gas Pipeline Co.
Roger L. Brandt, Houston, Tex., for Texaco, Inc.
Kenneth L. Riedman, Jr., Los Angeles, Cal., for Union Oil Co. of California.
Tilford A. Jones, Bethesda, Md., for United Distribution Companies.
Thomas G. Johnson, Houston, Tex., for Shell Oil Co.
Pat F. Timmons, Houston, Tex., for Superior Oil Co.
Thomas W. Derryberry, Sp. Asst. Atty. Gen., Santa Fe, N. M., for State of New Mexico.
Richard F. Remmers, Oklahoma City, Okl., for Sohio Petroleum Co.
William H. Emerson, Chicago, Ill., for Amoco Production Co.
Robert F. Starzel, Denver, Colo., for Kerr-McGee Corp.
Arthur S. Berner, Houston, Tex., for Inexco Oil Co.
Neal Powers, Jr., Houston, Tex., for Texas Production Co. and Freeport Minerals Co.
Charles F. Wheatley, Jr., Washington, D. C., for American Public Gas Assn.
James W. McCartney, Houston, Tex., for Texas Eastern Transmission Corp. and Transwestern Pipeline Co.
Paul W. Hicks, Dallas, Tex., for Placid Oil Co. and Hunt Oil Co.
George W. McHenry, Sol., Robert Perdue, Deputy General Counsel, Washington, D. C., for respondent Federal Power Commission.
Petitions for Review of Orders of the Federal Power Commission.
Before BELL, CLARK and RONEY, Circuit Judges.
On this review of consolidated cases entitled National Rate Cases For New Gas, we sustain the Federal Power Commission's establishment of a national rate for jurisdictional wellhead sales of natural gas. 1 In so doing, for the first time in this Circuit, we give judicial imprimatur to the promulgation of a rate order through rulemaking procedures in contrast to formal adjudicatory procedures; we sustain a national rate for wellhead sales of natural gas in contrast to the individual producer rates and the area rates that have heretofore been approved; and we hold that the rate structure prescribed withstands various attacks of the producer, purchaser and consumer petitioners against diverse findings and conclusions of the Commission. In sum we hold the petitioners have failed to show either that the rate structure is unjust and unreasonable, under the limited judicial review permitted this Court, or that the Commission proceeded in disharmony with statutory and judicial requirements.
The history of producer regulation under the Natural Gas Act has often been recounted in judicial opinions, necessitating here only a brief statement of the historical background of this national rate proceeding. 2 From 1938 when Congress passed the Natural Gas Act, 15 U.S.C.A. § 717 et seq., until 1954, the Federal Power Commission eschewed regulation of the price paid to the producer at the wellhead for natural gas. The Commission viewed its jurisdiction as limited to regulation of the pipelines which transported and sold natural gas in interstate commerce. The number of companies which the Commission regulated was fairly small. The regulation of the pipelines lent itself to the traditional cost-of-service mode of utility regulation on an individual producer basis.
In 1954 the Supreme Court ruled that the FPC was required to regulate wellhead sales of natural gas by independent producers, defining such producers as "natural gas compan(ies)" within the meaning of § 2(6) of the Act, 15 U.S.C.A. § 717a(6). Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed. 1035 (1954). Independent producers are those producers which do "not engage in the interstate transmission of gas from the producing fields to consumer markets and (are) not affiliated with any interstate natural-gas pipeline company." Phillips at 675, 74 S.Ct. at 795. The jurisdiction recognized by Phillips increased the number of Commission-regulated entities by over thirty-three hundred. 3 This increase in regulatees made the burden of individual regulation unfeasible and forced the Commission to seek an alternative method. Area rate regulation resulted.
The Commission instituted proceedings to regulate the wellhead prices charged by independent producers for certain geographical areas throughout the United States. The Supreme Court held this to be permissible under the Natural Gas Act in its landmark area rate regulation decision, Permian Basin Area Rate Cases, 390 U.S. 747, 88 S.Ct. 1344, 20 L.Ed.2d 312 (1968). The guidelines set forth in that case have since been used by all Courts of Appeals called upon to review Commission area rate orders. See, e. g., Southern Louisiana Area Rate Cases, 428 F.2d 407 (5th Cir.), on reh., 444 F.2d 125 (5th Cir.), cert. denied, 400 U.S. 950, 91 S.Ct. 243, 27 L.Ed.2d 257 (1970) (So.La. I).
The Commission eventually delineated seven geographical areas and established ceiling prices for natural gas sold from those areas by independent producers. 4 Pipeline producers and pipeline affiliated producers were subject to different rate regulation. The Commission has now decided that what it once hoped would be the mainstay of producer rate regulation, the area rate structure, is not the panacea it had sought. Consequently, in this case we are asked to review the next experimental phase in producer regulation, a national rate for new natural gas.
Despite protestations from many producers and pipelines, the Commission adhered to cost as the basis for the new national rate. The FPC utilized the methodology developed by it in Area Rate Proceeding (Permian Basin), 34 FPC 159 (1965), aff'd, Permian Basin Area Rate Cases, 390 U.S. 747, 88 S.Ct. 1344, 20 L.Ed.2d 312 (1968), as modified in the second Southern Louisiana proceeding, Area Rate Proceeding (Southern Louisiana), 46 FPC 86 (1971), aff'd, Placid Oil Co. v. FPC, 483 F.2d 880 (5th Cir. 1973), aff'd sub nom., Mobil Oil Corp. v. FPC, 417 U.S. 283, 94 S.Ct. 2328, 41 L.Ed.2d 72 (1974) (So.La. II). Basically the rate was determined by projecting the average cost of finding and producing "new gas," i. e., gas discovered after January 1, 1973, over the estimated life of the producing wells and adding a 15 percent annual rate of return. Historical items of cost were predicted for the future to attempt to insure that the producer would recover its actual expenses at the time work is done. Relating these estimated costs to the commonly accepted unit of gas sold to the consumer results in a maximum allowable rate for natural gas in cents per Mcf, i. e., thousand cubic feet.
Although the rate determined in this proceeding was based on the cost of finding nonassociated natural gas, i. e., gas occurring independently from other extractable forms of petroleum, casinghead gas is also eligible for the new rate, even though it might cost less to produce. The Commission has long refused to compute separately the cost of casinghead gas because of the difficulty in allocating the production costs between such gas and the oil produced from the same well. See, e. g., Permian, 390 U.S. at 761, 88 S.Ct. 1344. Likewise, this national rate will, under certain conditions, apply to substantially increase the price of "old" gas as well, even though the cost of such pre-January 1973 gas did not figure in the computation of the national rate.
While sales of pipeline producers previously had been vintaged by the date when the natural gas lease was acquired by the pipeline, the Commission decided in Opinion No. 699-H to allow pipeline producers to be eligible for the new rate on the same basis as independent producers. The Commission saw no reason to treat wells commenced by a pipeline any differently...
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