Texas Eastern Transmission Corp. v. Federal Energy Regulatory Commission

769 F.2d 1053
CourtCourt of Appeals for the Fifth Circuit
DecidedAugust 19, 1985
DocketNos. 83-4390, 83-4162 and 85-4182
StatusPublished
Cited by4 cases

This text of 769 F.2d 1053 (Texas Eastern Transmission Corp. v. Federal Energy Regulatory Commission) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fifth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Texas Eastern Transmission Corp. v. Federal Energy Regulatory Commission, 769 F.2d 1053 (5th Cir. 1985).

Opinion

GARZA, Circuit Judge:

I.

These consolidated appeals1 involve the Federal Energy Regulatory Commission’s (“Commission”) handling of three rather distinct issues under the Natural Gas Policy Act of 1978, 15 U.S.C. Section 3301 et seq. (“NGPA”). First, the Commission issued a number of regulations outlining when a first seller of natural gas can recover certain production-related costs under Section 110(a)(2) over and above the Congressionally established maximum lawful price. The Commission’s regulations on this subject are challenged for varying reasons by several groups of parties. The Indicated Producers2 (“Producers”) gener[1059]*1059ally support the Commission’s approach to the Section 110 issues, but they disagree with regard to a few specifics. The Pipeline Petitioners and Intervenors3 (“Pipelines”), the Associated Gas Distributors4 and the. Public Service Commission of New York5 take broader exception to the Commission’s approach. With only minor modifications, we affirm the Commission’s disposition of this question as a reasonable accommodation of the varying policies at issue.

The second major issue presented involves the Commission’s Title I Declaratory Order. In that order, the Commission approved a contracting practice whereby a seller-producer receives from a pipeline-purchaser the free or below-cost transpor[1060]*1060tation of the seller-producer’s own hydrocarbons (liquids and liquefiables) in addition to the maximum lawful price. The Producers generally support the Commission on this issue. The Pipelines, as well as the Associated Gas Producers, challenge the order as an unacceptable loophole in the price structure Congress created in Title I of the NGPA. As explained below, we affirm the Commission on this issue.

The third issue raised involves a number of conditions which the Commission placed on various pipelines’ certificates of public convenience and necessity pursuant to its jurisdiction under the Natural Gas Act (“Gas Act”), 15 U.S.C. § 717 et seq. These conditions generally prohibit a pipeline-purchaser from recovering in its rate proceedings those costs that it incurs in transporting producer-owned liquids and liquefiables. Certain Pipeline Petitioners6 challenge these conditions. The Commission and two pipelines7 note that the case has been settled for a period of years and is therefore not ripe. We agree and decline to review that decision.

Each of these issues is developed more fully below.

II.

The first set of issues presented in this case arises under Section 110(a)(2) of the Natural Gas Policy Act of 1978, 15 U.S.C. § 3320(a)(2) (1982). Section 110(a)(2) allows a first seller of natural gas to charge an amount exceeding the applicable maximum lawful price “to the extent necessary to recover ... any costs of compressing, gathering, processing, treating, liquefying, or transporting such natural gas, or other similar costs, borne by the seller and allowed for, by rule or order, by the Commission.” In an attempt to carry out the requirements of Section 110(a)(2), the Commission issued a series of orders.8

In essence, these orders created a scheme of generic allowances that permit sellers of gas (other than Section 105 and 106(b) gas)9 to recover much of these production-related costs at a predetermined level10 and, in most cases, without the Commission’s involvement. The different parties (other than the Commission) take issue with these orders in varying degrees. The Associated Gas Distributors and the Pipelines fundamentally disagree with the notion of an across-the-board generic allow[1061]*1061anee for these production-related costs. Moreover, even assuming the viability of the generic approach, the Pipelines point to a number of specific effects and requirements of the generic allowances promulgated as being especially arbitrary. The Producers on the other hand, strongly concur in the generic approach generally, but point to a few areas where the proposed allowances are inadequate, either because of time frame or subject matter. Finally, the Commission maintains that the orders are rational in all respects.

A.

We find no merit in the Associated Gas Distributors and the Pipelines’ contention in their briefs that a generic approach to allowances is not contemplated under Section 110(a)(2).11 This argument against generic allowances necessarily depends on their assertion that allowances of whatever type under Section 110 were intended to be rather exceptional. This is so, because a case-by-case assessment of the propriety of Section 110 allowances in the many contracts for Section 104 and 106(a) gas would be plainly infeasible as an administrative matter.12

By its terms, Section 110 authorized allowances “to the extent necessary” to enable the seller to recover production-related costs; whether the allowances were intended to be widely applicable turns largely on the appropriate reading of “necessary.” The Associated Gas Distributors and the Pipelines maintain that “necessary” means something more than “incurred;” for if Congress meant to authorize reimbursement to a seller of all production-related costs, they argue, it would have chosen far simpler language. The Congress therefore, according to the Pipelines and the Associated Gas Distributors, must have intended an elaborate regulatory scheme to enable the Commission to distinguish the usual case, where the maximum lawful price adequately compensates a first seller, from the extraordinary case, where an additional allowance is required to defray the seller’s production-related costs. The Commission responds that its order gives “necessary” a more reasonable reading. The Commission notes that it based the allowances on industry cost averages, thereby assuring that they would accurately reflect the costs “necessarily” associated with these production-related activities. As an added assurance that only necessary costs would be recovered, the Commission notes that its order limited the amount recoverable to the amount provided by the generic allowance or the amount provided by contract, whichever is less. Thus, according to the Commission, the course of bargaining between a producer and a pipeline will assure that unnecessary costs will not be recovered in any given case.

We find the Commission’s position on this issue the more persuasive. The Pipelines and the Associated Gas Distributors have failed to demonstrate that the Commission’s approach is unfaithful to the purpose of Section 110. Significantly, the very language of the statute provides for reimbursement of these production-related costs by “rule or order.” The drafters’ choice of the words “rule or order” in this context clearly contemplates the establishment of an industry-wide scheme of reimbursement. The generic scheme which was developed is further consistent with Section 110’s requirement of necessity.

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769 F.2d 1053, Counsel Stack Legal Research, https://law.counselstack.com/opinion/texas-eastern-transmission-corp-v-federal-energy-regulatory-commission-ca5-1985.