UPG, INC. v. Edwards
| Decision Date | 08 April 1981 |
| Docket Number | No. 10-27.,10-27. |
| Citation | 647 F.2d 147 |
| Parties | UPG, INC., Plaintiff-Appellant, v. James EDWARDS, Secretary of the Department of Energy, and Lynn R. Coleman, General Counsel of the Department of Energy, Defendants-Appellees, Rodgers Hydrocarbon Corporation, Amicus Curiae. |
| Court | U.S. Temporary Emergency Court of Appeals Court of Appeals |
Richard G. Morgan, O'Connor & Hannan, Washington, D. C., with whom Terence P. Boyle and Martha Priddy Patterson, Washington, D. C., (Dean Wallace, Frank J. Duffy and Michael P. Moran, Omaha, Neb., of counsel), were on brief, for plaintiff-appellant.
Don W. Crockett, Dept. of Energy, Washington, D. C., with whom Courtney M. Price, and Alice Daniel, Asst. Atty. Gen., Civ. Div., Dept. of Justice, Washington, D. C., were on brief, for defendants-appellees.
Before CHRISTENSEN, INGRAHAM and BECKER, Judges.
Presented to us on this appeal is the question of whether certain hydrocarbons occurring in natural gas pipelines, which the parties refer to respectively as "pipeline residue" and "condensate," should be treated for pricing purposes1 as "crude oil" defined by 10 C.F.R. § 212.31.2 In the context of facts submitted to the Federal Energy Administration (predecessor of the Department of Energy)3 by plaintiff-appellant UPG, Inc., with a request for an interpretation pursuant to 10 C.F.R. Part 205,4 the Office of General Counsel of the agency determined that they should be so treated.5 The district court sustained that interpretation by summary judgment on the basis of an unpublished memorandum decision. UPG challenges the agency's interpretation on this appeal.6
The district court considered the facts reflected in UPG's request with supplementing submissions, pertinent regulations, the bases of the Interpretation, the contentions of the parties and the applicable standard of review. It concluded that the agency had demonstrated "a thorough consideration of the issues, consistent with other interpretations and other relevant factors." Addressing UPG's assertion that controlling effect should have been given to the phrase "production by mechanical separators," the court expressed the view that irrespective of the standard applied the interpretation would not be invalid when considered in light of the intent reflected in the preamble:
This preamble demonstrates that the crude oil definition reflects a historical and functional basis between condensate and natural gas liquids and was not based upon a narrow, technical meaning known only to those in the natural gas business. The Interpretations are not clearly erroneous and should be deferred to by this court in light of the Department of Energy's greater expertise in this area.
Since the interpretation was "based solely on the facts UPG presented to DOE," it was further concluded that there was "no material fact question" and that summary judgment was an appropriate means of disposing of the case.
On this appeal UPG makes three principal contentions:
I. That DOE's interpretation is inconsistent with the plain language of the regulation;
II. That the interpretation constitutes an unwarranted expansion of its "crude oil" definition; and III. That the district court erred by reviewing the interpretation on the basis of a standard that applies peculiarly to the construction of statutory language.
DOE describes our problem as "the simple issue of whether the DOE ... has properly construed the meaning of the term `crude oil' to include all `condensate' recovered from the natural gas pipelines between the wellhead and the inlet meter of the gas plant."7
Significant facts included in UPG's submission to the Office of General Counsel are these:
In its submission UPG argued that condensate as the definition of crude oil indicates, is typically recovered from a natural gas stream by the use of conventional mechanical separators (a surface separator located at the wellhead, a field separator located centrally for two or more wells, or an inlet separator or scrubber located at the inlet side of a gas processing plant).
It was contended that the process where-by condensate is recovered from a natural gas stream is markedly different from the occurrence of residue in a natural gas pipeline.
Condensate is removed from the natural gas stream prior to the sale thereof, and, for all practical purposes, the natural gas stream which passes the metering facility is in a gaseous state and does not contain free liquids.... Furthermore, the residue product was incapable of being recovered from the natural gas stream by the exclusive use of a mechanical separation device.
Following the submission of UPG's inquiry, the agency requested and was furnished copies of the contracts the company had entered into with pipeline operators for acquisition of the hydrocarbon residue. These contracts as more particularly hereinafter noted treated what UPG now terms "pipeline residue" as condensate. The agency also sought comments from various pipeline operators concerning their views on the problem of classification.8
None of the agency's regulations contains a definition of the terms "residue," "mechanical separator" or "condensate," nor does the Emergency Petroleum Allocation Act, 15 U.S.C. §§ 751 et seq. (1973) ("EPAA").
On September 27, 1979, DOE issued a Notice of Probable Violation to Northern Natural Gas Company, of which UPG is a wholly-owned subsidiary, claiming overcharges of more than $3,000,000 based upon the interpretation in question.9
It is conceded by both parties that a substantial overlap exists in the chemical compositions of condensate, natural gas liquids and natural gasoline.10 These are among the considerations that are important as we proceed more particularly to examine in the pipeline context the agency's definition of crude oil which is based not on chemical composition but upon method of production.
UPG's first major contention on appeal is that "DOE's interpretations that pipeline residue is `crude oil' are inconsistent with the plain language of the regulations." It could have been more consistently and meaningfully phrased if the appellant had substituted the word "condensate" for the term "pipeline residue." The term "pipeline residue" apparently was coined by UPG after its submission of the request for the interpretation to put distance between its developing contention and the word "condensate." However, at the time of its request UPG equated in the context of its inquiry "condensate" with "crude oil" for pricing purposes, and sought to learn whether its "residue product" could be classified as something other than condensate and, if so, what.11
Be this as it may, even the face of the regulation when considered with its preamble raises substantial questions concerning UPG's present position. DOE makes no contention that the so-called residue meets the criteria of the first sentence of the definition of crude oil. Nor does UPG deny that the second sentence expands the reach of the definition to "condensate" in natural gas pipelines if the "mechanical separator" criterion of the second sentence is met. UPG's entire case depends upon a narrow construction of the latter term. It cites in its brief what it calls industry definitions to buttress its position.12
Even such definitions could be deemed to broadly accommodate DOE's concept that the pipeline, with its effect upon pressures and temperatures, together with the associated devices specially planned for recovery and removal of the condensate, comprise a machine for separating with the aid of water or air, materials of different specific gravity, or an apparatus for separating the oil mechanically carried...
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