Williams Natural Gas Co. v. F.E.R.C.
| Citation | 943 F.2d 1320 |
| Decision Date | 06 September 1991 |
| Docket Number | Nos. 90-1193,90-1255,s. 90-1193 |
| Parties | WILLIAMS NATURAL GAS COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Texas Gas Transmission Corporation, Amoco Production Company, Southern California Gas Company, Panhandle Eastern Pipe Line Company and Texas Eastern Transmission Corporation, Independent Oil and Gas Association of Pennsylvania, Union Pacific Resources Company, ARCO Oil and Gas Company, Division of Atlantic Richfield Company, Texaco, Inc., Pennzoil Exploration and Production Company and Pennzoil Gas Marketing Company, Enserch Exploration, Inc., National Association of Gas Consumers, Intervenors. ARCO OIL AND GAS COMPANY, DIVISION OF ATLANTIC RICHFIELD COMPANY, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Williams Natural Gas Company, Independent Oil and Gas Association of West Virginia and Pennsylvania Natural Gas Association, Panhandle Eastern Pipe Line Company and Texas Eastern Transmission Corporation, Intervenors. |
| Court | United States Courts of Appeals. United States Court of Appeals (District of Columbia) |
Petitions for Review of Orders of the Federal Energy Regulatory Commission.
Michael E. Small, with whom Robert G. Kern, Washington, D.C., and John H. Cary, Tulsa, Okl., were on the brief, for petitioner Williams Natural Gas Co. in 90-1193, and intervenor in 90-1255.
Kevin M. Sweeney, with whom Craig W. Hulvey, Frank H. Markle, Washington, D.C., and Charles F. Hosmer, Dallas, Tex., were on the brief, for petitioner ARCO Oil and Gas Co. in 90-1255, and intervenor in 90-1193.
Samuel Soopper, Atty., F.E.R.C., with whom William S. Scherman, Gen. Counsel, FERC, and Jerome M. Feit, Solicitor, FERC, Washington, D.C., were on the brief, for respondent in 90-1193 and 90-1255. Dwight C. Alperin, Atty., FERC Washington, D.C., also entered an appearance for respondent.
Robert W. Perdue, Washington, D.C., for Texas Gas Transmission Corp., Charles F. Wheatley, Jr. and Philip B. Malter, Annapolis, Md., for The Nat. Ass'n of Gas Consumers, were on the joint brief, for intervenor in 90-1255.
James D. Senger, Katherine C. Zeitlin, and Jon L. Brunenkant, Washington, D.C., for Amoco Oil Co., David B. Robinson, Washington, D.C., and Kerry R. Brittain, Fort Worth, Tex., for Union Pacific Resources Co., John P. Beall, Houston, Tex., for Texaco, Inc., Richard E. Powers, Washington, D.C., and John B. Chapman, Houston, Tex., for Pennzoil Exploration and Production Co. and Pennzoil Gas Marketing Co., and Charles H. Shoneman and Randall S. Rich, Washington, D.C., for Independent Oil & Gas Ass'n of W. Va. and Independent Oil & Gas Ass'n of Pa., were on the joint brief, for intervenor in support of the respondent in 90-1193. Stephen A. Ellis, Chicago, Ill., and William H. Emerson, Tulsa, Okl., for Amoco Production Co. also entered appearances, for intervenors.
David L. Huard, Los Angeles, Cal., entered an appearance for intervenor Southern California Gas Co. in 90-1193.
Frank R. Lindh, Bruce W. Neely, Raymond N. Shibley, Washington, D.C., John S. Grube, and John C. Tweed, Houston, Tex., entered appearances for intervenors Panhandle Eastern Pipe Line Co. and Texas Eastern Transmission Corp. in 90-1193 and 90-1255.
Craig W. Hulvey, Kevin M. Sweeney, and Frank H. Markle, Washington, D.C., entered appearances for intervenor Enserch Exploration, Inc. in 90-1193.
Randall S. Rich and Charles H. Shoneman, Washington, D.C., entered appearances, for intervenor Independent Oil & Gas Ass'n of West Va. in 90-1255.
Before EDWARDS, D.H. GINSBURG and SENTELLE, Circuit Judges.
Opinion for the Court filed by Circuit Judge D.H. GINSBURG.
Under section 107 of the Natural Gas Policy Act, 15 U.S.C. § 3317, the Federal Energy Regulatory Commission may establish an especially high ceiling price for natural gas recovered from high-cost sources, in order to provide an incentive for the development of those sources. In 1980, the FERC exercised this power and set an incentive ceiling price for gas produced from tight formations of sedimentary rock. See Order No. 99, Regulations Covering High-Cost Natural Gas Produced From Tight Formations, 45 Fed.Reg. 56,034, 1977-1981 F.E.R.C. Stat. & Regs. [Regs. Preambles] p 30,183, clarified and reh'g denied, Order No. 99-A, 45 Fed.Reg. 71,563, 1977-1981 F.E.R.C. Stat. & Regs. [Regs. Preambles] p 30,198 (1980), aff'd sub nom. Pennzoil Co. v. FERC, 671 F.2d 119 (5th Cir.1982).
Although the FERC considered changing the ceiling in a 1983 Notice of Proposed Rulemaking, Limitation on Incentive Prices for High-Cost Gas to Commodity Values, 48 Fed.Reg. 7469, 1982-1987 F.E.R.C. Stat. & Regs. [Proposed Regs.] p 32,294 (Notice ), the Commission abandoned that rulemaking docket in 1986, giving only a few short paragraphs of purported explanation. Order No. 459, Basket Termination Order, 51 Fed.Reg. 44,634, 1982-1987 F.E.R.C. Stat. & Regs. [Regs. Preambles] p 32,432 (1986), reh'g denied, Order No. 459-A, 42 F.E.R.C. p 61,146 (1988). We found the FERC's explanation inadequate and remanded. Williams Natural Gas Co. v. FERC, 872 F.2d 438 (D.C.Cir.1989) (Williams I ). On remand the Commission decided that the higher ceiling for gas from tight formation wells would not apply to wells going into production after May 12, 1990. See Order No. 519, Limitation on Incentive Prices for High-Cost Gas to Commodity Values, 55 Fed.Reg. 6367, 1986-1990 F.E.R.C. Stat. & Regs. [Regs. Preambles] p 30,879, reh'g denied, Order No. 519-A, 55 Fed.Reg. 18 100, 1986-1990 F.E.R.C. Stat. & Regs. [Regs. Preambles] p 30,888 (1990).
Petitioners ARCO Oil and Gas Company and Williams Natural Gas Company respectively claim that the FERC is obliged by statute to leave the higher ceiling in place until a later date and to remove it as of an earlier date. We find that the Commission's choice of timing for the removal of the incentive ceiling price was within its discretion, and deny both petitions.
The NGPA sets a variety of price ceilings for wellhead sales of natural gas, according to the age, type, and contract status of the producing well. The wellhead pricing scheme was designed to provide producers with an incentive to develop gas from "sources that otherwise would not be produced." ANR Pipeline Co. v. FERC, 870 F.2d 717, 721 (D.C.Cir.1989). In order to encourage the exploration and development of new sources, gas produced from a well drilled after enactment of the NGPA can command a much higher price than gas from an old well. Compare §§ 102-103, 15 U.S.C. §§ 3312-3313 (new gas) with §§ 104, 106, 15 U.S.C. §§ 3314, 3316 (old gas); 18 C.F.R. § 271.101. (Statutory citations refer to the NGPA unless otherwise specified.) An even higher price is authorized for gas from small volume, so-called "stripper" wells, in order to keep them in production. See § 108, 15 U.S.C. § 3318.
The Congress itself defined the basic categories and set most of the original price ceilings in the text of the statute. In order to "establish[ ] a statutory price path[, and] ... thereby assur[e] producers of certainty regarding the level of future prices," H.R. REP. NO. 496, pt. 4, 95th Cong., 1st Sess. 96 (1977), the Congress also indexed the ceiling prices to inflation. § 101(a), 15 U.S.C. § 3311(a); see H.R.CONF.REP. NO. 1752, 95th Cong., 2d Sess. 72 (1978), U.S.Code Cong. & Admin.News 1978, 8800 ().
In addition to setting out a detailed system of classifications and price ceilings in the NGPA, the Congress authorized the FERC to set a higher price ceiling for any gas that is particularly expensive to produce. Section 107(b) provides:
The Commission may, by rule or order, prescribe a maximum lawful price ... [for] 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.
18 U.S.C. § 3317(b). Although § 107 enumerates four types of "high-cost gas" to be deregulated in October 1979, §§ 107(c)(1)-(4), 121(b), 15 U.S.C. §§ 3317(c)(1)-(4), 3331(b), it also delegates further authority to the FERC, without any timing limitation, to prescribe an incentive ceiling price for any other natural gas "produced under such other conditions as the Commission determines to present extraordinary risks or costs." § 107(c)(5), 15 U.S.C. § 3317(c)(5); see H.R.CONF.REP. NO. 1752, 95th Cong., 2d Sess. 88 (1978), U.S.Code Cong. & Admin.News 1978, 8800, 8983, 9004. Unlike the four varieties of high-cost gas specified in the statute, gas within a discretionary, FERC-created category could remain indefinitely subject to regulation, but at the higher price.
In 1980, the FERC (in Order No. 99 ) identified gas produced from tight formations as high-cost gas under § 107(c)(5). "A 'tight formation' is a sedimentary layer of rock cemented together in a manner that greatly hinders the flow of any gas through the rock." Order No. 99, 45 Fed.Reg. at 56,034, 1977-1981 F.E.R.C. Stat. & Regs. [Regs. Preambles] at 31,260. Gas from tight formations is very expensive to produce, and the pay-off from its production is longer in coming. See id., 45 Fed.Reg. at 56,035, 56,039, 1977-1981 F.E.R.C. Stat. & Regs. [Regs. Preambles] at 31,260, 31,268. Whereas a conventional well produces a high yield for five to seven years, id., 45 Fed.Reg. at 56,039, 1977-1981 F.E.R.C. Stat. & Regs. [Regs. Preambles] at 31,268, a tight formation well produces at a high rate for a year or two and at a low rate for 15 to 20 years thereafter; as a result, a tight formation well may take three times as long to produce the same amount of gas as a conventional well. See id.
The Commission set the incentive...
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