CSG Exploration Co. v. Federal Energy Regulatory Commission

930 F.2d 1477
CourtCourt of Appeals for the Tenth Circuit
DecidedApril 18, 1991
DocketNos. 88-2548, 88-3015 and 89-9520
StatusPublished
Cited by1 cases

This text of 930 F.2d 1477 (CSG Exploration Co. v. Federal Energy Regulatory Commission) is published on Counsel Stack Legal Research, covering Court of Appeals for the Tenth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

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CSG Exploration Co. v. Federal Energy Regulatory Commission, 930 F.2d 1477 (10th Cir. 1991).

Opinion

TACHA, Circuit Judge.

Petitioner CSG Exploration Company (CSG) seeks review of the orders of the Federal Energy Regulatory Commission (FERC) in Northwest Cent. Pipeline Corp., 44 FERC ¶1 61,200 (1988) (order on remand vacating prior orders and setting complaint for hearing) and Northwest Cent. Pipeline Corp., 44 FERC ¶ 61,434 (1988) (order granting in part and denying in part rehearing and denying motion for [1479]*1479late intervention).1 Intervenor Affiliated Gas Producers (AGP)2 also seeks review of FERC’s order denying its motion for clarification and reconsideration. Northwest Cent. Pipeline Corp., 45 FERC ¶ 61,305 (1988). In these orders, FERC articulated tests for determining: (1) whether there is arm’s length bargaining between parties in the formation of a contract for the sale of gas, thereby satisfying one of the prerequisites for incentive pricing under section 107(b) of the Natural Gas Policy Act (NGPA), 15 U.S.C. § 3317(b); and (2) the proper price for such gas if there is no arm’s length bargaining. Because we conclude the issues presented are moot, we dismiss for lack of jurisdiction.

I. FACTS

A. Statutory Background

In enacting the NGPA in 1978, Congress created a new framework for the regulation of natural gas that “comprehensively and dramatically changed the method of pricing natural gas produced in the United States.” Public Serv. Comm’n v. Mid-Louisiana Gas Co., 463 U.S. 319, 322, 103 S.Ct. 3024, 3027, 77 L.Ed.2d 668 (1983). Congress identified four categories of gas as high-cost gas: (1) deep gas (below 15,-000 feet), (2) gas from geopressured brine, (3) occluded natural gas produced from coral seams, and (4) gas produced from Devonian shale. See §§ 107(c)(l)-(4), 15 U.S.C. §§ 3317(c)(l)-(4). In section 107 (c)(5), 15 U.S.C. § 3317(c)(5), Congress delegated authority to FERC to expand the definition of “high-cost natural gas” to include any gas that is “produced under such other conditions as the Commission determines to present extraordinary risks or costs.” In addition, Congress gave FERC the authority to determine a maximum lawful price for high-cost gas “to provide reasonable incentives” for production. See § 107(b), 15 U.S.C. § 3317(b).

In Order No. 99, FERC promulgated regulations, effective July 16, 1979, that create an incentive price under section 107(c)(5) for gas produced from tight formations. A producer can collect this incentive price only if the contract for the sale of the gas contains a “negotiated contract price,” which FERC defines as

any price established by a contract provision that specifically references the incentive pricing authority of the Commission under section 107 of the NGPA, by a contract provision that prescribes a specific fixed rate, or by the operation of a fixed escalator clause.

18 C.F.R. § 271.702(a)(1) (1990). Such a provision operates only if it is the result of arm’s length bargaining between the parties to the contract. See Pennzoil Co. v. FERC, 671 F.2d 119, 124-25 (5th Cir.1982).

B. The Wyoming Exploration and Development Program

In 1975 and 1976 the Wamsutter and Moxa partnerships were formed between Amoco Production Company and CSG, a natural gas producer then affiliated with Williams Natural Gas Company. After the NGPA was enacted, all contracts for the sale of gas to Williams by Amoco provided the price of the gas would be the maximum lawful rate then authorized by the NGPA. These contracts also provided that if FERC thereafter were to prescribe a higher rate, then that rate could be collected.

On March 17, 1981, Williams agreed to amend fifty-one contracts it previously had executed with Amoco as general partner in the Wamsutter and Moxa partnerships. Language satisfying the negotiated contract price requirement in Order No. 99 was added to each of these contracts. The [1480]*14801981 contract amendments specifically referred to section 107(c)(5) and provided for payment of the tight formation incentive price retroactive to July 16, 1979.

C. Proceedings Below

In 1983 the Midwest Gas Users Association (Midwest) filed a complaint with FERC, arguing in part that the 1981 contract amendments did not meet the negotiated contract price requirement of Order No. 99. Midwest asserted these amendments were not the result of arm’s length bargaining because the Wamsutter and Moxa partnerships were affiliated with Williams through a corporate relationship between CGS and Williams at the time these amendments were made. The gas therefore did not qualify for the section 107(c)(5) incentive price. Several of Williams’ customers joined in challenging the rights of the partnerships to collect the incentive price and Williams’ right to pass that price through to its customers. FERC determined the higher prices established in the contract amendments were true negotiated contract prices. Northwest Cent. Pipeline Corp., 32 FERC U 61,471 (1985); Northwest Cent. Pipeline Corp., 34 FERC 1161,301 (1986).

Various parties petitioned for review of this decision to the United States Court of Appeals for the District of Columbia Circuit. That court found FERC had erred in relying exclusively 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 facts, including whether the parties had diverse economic interests relating to the payment of tight formation incentive prices. Id. at 355.

On remand, FERC concluded the proper test for determining whether the parties had engaged in arm's length bargaining and could have thus agreed to a negotiated contract price was “whether the purchaser and seller have sufficiently distinct economic interests that the buyer’s interest in the negotiations are aligned with those to whom it resells the gas, and not with the interests of the seller.” Northwest Cent. Pipeline Corp., 44 FERC ¶ 61,200, at 61,-719 (1988). FERC held it would treat parties meeting the definition of “affiliates” under section 2(27) as incapable of arm’s length bargaining without further inquiry into the degree to which their economic interests coincide. Id. Additionally, FERC stated that

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