East Tennessee Natural Gas Co. v. Federal Energy Regulatory Commission

677 F.2d 531, 1982 U.S. App. LEXIS 19397

• Court: Court of Appeals for the Sixth Circuit
• Decided: May 10, 1982
• Docket: Nos. 80-3461, 80-3624
• Status: Published

Opinions

PER CURIAM.

Petitioners and Intervenors seek review of two unreported orders of the Federal Energy Regulatory Commission¹ in which the Commission adopted rules governing the exemption of “small existing industrial boiler fuel users” from incremental pricing pursuant to section 206 of the Natural Gas Policy Act of 1978 (“NGPA”), 15 U.S.C. § 3846. Two of the resulting rules are the subject of this appeal and are codified at 18 C.F.R. § 282.202(f) (defining “[i]n existence on November 9, 1978”) and 18 C.F.R. § 282.202(g) (defining “average per day use” during the peak month of 1977). Also challenged is the sufficiency of the Commission’s compliance with the notice and comment requirements of section 4(a) of the Administrative Procedure Act, 5 U.S.C. § 553(b), in promulgating the rules.

Because of shortages of natural gas supplies, Congress in Title I of the NGPA allowed the wellhead price of natural gas to rise. As an integral part of the statutory scheme, Title II of the NGPA provides that interstate pipeline companies pass these increases in wellhead prices on to the ultimate users of natural gas by means of a surcharge. 15 U.S.C. §§ 3341-48. This pass-through of cost increases is termed “incremental pricing” and continues until the cost of gas to the user equals the cost of substitute fuels. To reduce the immediate impact of deregulation on high priority users of natural gas, exemptions from incremental pricing are provided for residential, commercial and agricultural users.

As part of its effort to have large industrial users bear the initial brunt of the price increases, Congress established an interim exemption for “small industrial boiler fuel users” in section 206(a)(1) of the NGPA, and in section 206(a)(2) provided that the Commission shall promulgate rules for permanent exemption:

(2) Permanent exemption.—

(A) General rule. — Not later than 18 months after November 9,1978, the Commission shall prescribe and make effective a rule providing for the exemption of any small industrial boiler fuel facility from the rule required under section 3341 of this title (including any amendment under section 3342 of this title to such rule).

(B) Definition. — For purposes of this paragraph, the term “small industrial boiler fuel facility” means any industrial boiler fuel facility in existence on November 9, 1978, that had an average per day use of natural gas as a boiler fuel during the month of peak use during calendar year 1977 which did not exceed the lesser of—

(i) 300 Mcf; or

(ii) such average daily rate of use during a month of peak use as the Commission determines in such rule is necessary to assure that the volume of natural gas estimated by the Commission to have been used for boiler fuel during calendar year 1977 by facilities which are exempted under this paragraph does not exceed 5 percent of the total volume of natural gas estimated by the Commission to have been used for boiler fuel transported by interstate pipelines and used during calendar year 1977 as a boiler fuel.

15 U.S.C. § 3346(a)(2).

Pursuant to this authority, the Commission issued a notice of proposed rulemaking,² received comments, and in Order No. 85 set out rules for the permanent exemption. As an initial matter, the Commission opted to define the term “small industrial boiler fuel facility” as follows:

(a) Statutory exemptions. In accordance with the provisions of sections 206(a), (b), and (c) of the NGPA, natural gas used for the following purposes shall be exempt from incremental pricing under this part:

(1) All gas used for boiler fuel by an industrial boiler fuel facility:

(i) Which was in existence on November 9, 1978; and

(ii) Whose average per day use of natural gas as a boiler fuel during the month of peak use during calendar year 1977 did not exceed 300 Mcf ....

18 C.F.R. § 282.203(a). Petitioners do not dispute the foregoing rule; rather, they object to two further definitional regulations which were promulgated in Order No. 85.

First, 18 C.F.R. § 282.202(g) defines “average per day use” during 1977 in a manner which the Commission, at least, conceived would alleviate the unusual problem which existed in 1977 when serious shortages of natural gas required the curtailment of normal supply:

“Average per day use of natural gas as a boiler fuel during the month of peak use during calendar year 1977” means the average daily use of natural gas as a boiler fuel, calculated by dividing the total boiler fuel use of natural gas in the month of peak use during calendar year 1977 by the total of: (1) The number of days in that month on which service was available at 100 percent of normal delivery level; and (2) the sum of the number of days in that month on which service was available at less than 100 percent of normal delivery level (which sum is computed by multiplying the number of days at each delivery level less than 100 percent of normal times the percentage of normal delivery level experienced on those days, and adding the products).

Second, 18 C.F.R. § 282.202(f) governs the application of the small boiler exemption to facilities that, although exempt because of their 1977 use, were later modified:

(f) “In existence on November 9, 1978,” means that an industrial boiler fuel facility: (1) Possessed the installed lines, piping, regulators, meters and any other similar components necessary for that facility to have received and used natural gas on November 9,1978; (2) was using, or had the installed capability to use, natural gas as a boiler fuel on November 9,1978; and (3) is essentially the same facility as to burner input or boiler capacity when it is being reviewed under this paragraph as it was on November 9, 1978.

In Order No. 85B, the Commission granted a rehearing of Order No. 85 but denied the exceptions raised by the parties. This appeal followed.

Both East Tennessee and United Distribution urge that the Commission exceeded its authority in promulgating a definition of “average per day use” in 18 C.F.R. § 282.-202(g). They claim that the phrase “average per day use” is clear and unambiguous and, thus, does not call for any interpretation by the Commission whatever. Those petitioners also assert that the meaning of the term “use” in 18 C.F.R. § 282.202(g) is different from, and hence inconsistent with, the Commission’s application of “use” elsewhere in the statute. Rather than making the exceptions more equitable, the rule imposes upon petitioner and others similarly situated an administrative burden of complying with a rule which is vague; this burden, they argue, would be excessively expensive for small industrial users. In essence, they assert that the definition represents an unjustified effort on the Commission’s part to legislate a reduction in the breadth of the small boiler exemption of section 206(a)(2) in a manner neither intended nor authorized by the Congress.

Examining the language of the statute, we do not agree that the words “average per day use” are so definite and explicit as to preclude further fine-tuning by the Commission’s rules.³ While under one plausible interpretation the Commission should divide the amount of natural gas used by the number of days in the month, Congress did not indicate that all days of the month should be counted in making the calculation. Under the Commission’s rule, “average per day use” is calculated by dividing actual use⁴ by the number of days of the month when the boiler’s fuel supply was not curtailed. When there was partial curtailment, only a fraction of that day is counted.⁵ This calculation may not be as simple or straightforward as a pure arithmetic average, which would include each day of the month regardless of supply curtailment; but the incremental pricing system set up by Congress under the NGPA is inherently complex. It certainly should not be surprising that some portions of the incremental pricing program would entail the use of formulae that at first glance appear difficult to apply. The complex nature of the provisions suggests that words such as “average” may be subject to further definition and refinement.⁶ From the face of the statutory language, we cannot conclude that the definition of “average per day use” in 18 C.F.R. § 282.020(g) is inconsistent with section 206(a)(2) or other sections of the NGPA.

Because the Supreme Court “has firmly rejected the suggestion that a regulation is to be sustained simply because it is not ‘technically inconsistent’ with the statutory language,” United States v. Vogel Fertilizer Co., - U.S. -, -, 102 S.Ct. 821, 828, 70 L.Ed.2d 792 (1982), we must also look to the statutory scheme and legislative history to determine whether the regulation is consistent with the statute’s purpose. By permanent exemption of small industrial boilers, Congress intended to shield small boilers from some of the impact of the increase of wellhead prices created by Title I of the NGPA. Under section 206(a)(2) Congress instructed the Commission to create a permanent exemption based upon the levels of usage.during 1977, a year of high curtailment. Through its rule, the Commission attempts to eliminate the effect of 1977 curtailment in making the exemption determination. Keeping in mind that Congress enacted the NGPA for the purpose of eliminating curtailment, we believe that the Commission’s approach is not inconsistent with a fair and even-handed application of the NGPA. Congress was concerned that small users might not be able to withstand the price increases from incremental pricing. We find no similar concern for larger users whose boilers temporarily had small usage during 1977 due to supply curtailments that were later eliminated as a result of the NGPA.⁷

Further, the legislative history to the NGPA shows that Congress intended to give the Commission wide latitude in prescribing rules:

The conferees recognize that implementation of this [incremental pricing] program will be complex. The conference agreement provides for implementation of incremental pricing by rule, which is intended to give the Commission the requisite discretion to deal with difficulties that may arise.

Conference Report to accompany H.R. 5289, H.R.Rep.No. 95-1752, 95th Cong., 2d Sess. 95 (1978), reprinted in [1978] U.S.Code Cong. & Ad.News, Vol. 7, p. 9012 (emphasis added).⁸ In light of this strong Congressional policy to defer to the Commission, the court is of the opinion that the Commission’s rule codified at 18 C.F.R. § 282.202(g) is within the Commission’s authority granted under the NGPA.

United Distribution, in challenging the definition of “in existence on November 9, 1978” in 18 C.F.R. § 282.202(f), asserts that by that regulation the Commission encourages users of natural gas to build new boilers at different sites rather than to choose the more economical means of enlarging already existing sites. In other words, the petitioner argues basically that once a small boiler facility, in existence on November 9, 1978, has been shown to be exempt because of 1977 use of fuel it remains exempt from any incremental pricing, regardless of additional boiler capacity later added at the same site.

For reasons similar to those presented in the discussion of the “average per day use” rule, we conclude that the Commission’s definition of “in existence” is a valid exercise of its authority. There is sufficient ambiguity in the phrase “in existence on November 9, 1978” to permit clarification regarding the effect of changes made at a given site. The Commission’s rule treats an entire site as one facility. By doing so, it is not inconsistent with Congress’ purpose of exempting truly small boilers and is within the broad scope of rule-making authority evidenced in the legislative history. Although petitioners argue that the Commission’s rule will cause unfavorable economic results, our task is not to determine whether the Commission chose the best possible rule, but instead whether the Commission’s choice is within the authority granted under the NGPA. We conclude that it is.

Finally, we believe that the Notice of Proposed Rulemaking sent out by the Commission satisfied the requirements of the Administrative Procedure Act and fully informed the parties of the nature of the rules being considered by the Commission. While parts of the final rules may have come from comments submitted to the Commission, new notice was not thereby required.⁹

Accordingly, the respective petitions are denied.

1 . Order No. 85 (issued May 8, 1980) and Order No. 85-B (issued July 3, 1980) in FERC Docket No. RM80-24, Permanent Rule Defining Small Existing Industrial Boiler Fuel Users Exempt From Incremental Pricing Under The Natural Gas Policy Act of 1978.

2 . Notice of Proposed Rulemaking (March 6, 1980) in FERC Docket No. RM80-24.

3 . Section 501(b) of the Act provides in part, “the Commission is authorized to define, by rule, accounting, technical, and trade terms used in this chapter.” 15 U.S.C. § 3411(b). Although the dissent questions this, we have little doubt that the phrase “average per day use” is an “accounting” term under section 501(b). The calculation of “average per day use” involves an analysis and summary of the business operations of regulated users. Such a determination falls squarely within the meaning of “accounting” and does not stretch section 501(b) to allow the definition of any word in the NGPA, as feared by the dissent.

4 . By employing “actual use” the Commission is consistent with its treatment of “use” throughout section 206 of the NGPA.

5 . The following figures show how curtailed days are treated under the rule:

Assume that a Facility used 6000 Mcf during its peak month of 1977 and experienced 100 percent delivery level for 10 days and 50 percent of its normal level during 20 days. Under § 282.202(g), the average per day use for this Facility would be calculated as follows:

6 . The dissent contends that the definition of “average per day use” set forth by the Commission is not the same as the phrase’s ordinary meaning and, hence, is inconsistent with the statute. It should be noted, however, that “the plain meaning rule is ‘rather an axiom of experience than a rule of law ....’” Watt v. Alaska, 451 U.S. 259, 101 S.Ct. 1673, 1677, 68 L.Ed.2d 80 (1981). To determine Congress’ intent, we believe that the meaning of “average per day use” must be determined with an eye to the problems of practical application. The question that arises in application of the statute is whether curtailed days should be counted the same as days without curtailment. Because the resulting exemption applies to years after 1977, years without curtailment, the Commission’s rule resolves this question in a rational way and is not so curious or hidden as to be deemed inconsistent with the NGPA. We are also mindful that “regulations promulgated by the government body responsible for interpreting or administering a statute are entitled to great respect .... ” Ford Motor Credit Co. v. Cenance, 452 U.S. 155, 101 S.Ct. 2239, 2241 n.3, 68 L.Ed.2d 744 (1981).

7 . We have neither found nor been cited to any portion of the legislative history that indicates Congress intended an arithmetic average without regard for temporary curtailment of supply.

8 . See also Petrolite Corp. v. FERC, 667 F.2d 664, at 668 (8th Cir. 1981); Ohio Ass’n of Community Action Agencies v. FERC, 654 F.2d 811, 822-23 (D.C.Cir.1981).

9 . See International Harvester Co. v. Ruckelshaus, 155 U.S.App.D.C. 411, 478 F.2d 615, 632 n. 51 (D.C.Cir.1973).