Petition — Federal Energy Regulatory Commission v. McCombs

‘ AUG 14 I9TEé

“0.9 8-249) *

MICHAEL ROBAK, JR_CLERK |

In the Supreme Court of the United States

OCTOBER TERM, 1978

FEDERAL ENERGY REGULATORY COMMISSION,

PETITIONER

v.

BILLY J. MCCOMBS, ET AL.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

WADE H. MCCRER, JR.,

Solicitor General,

Department of Justice,

Washington, D.C. 20530.

ROBERT R. NORDHAUS,

General Counsel,

HOWARD E. SHAPIRO,

Solicitor,

Federal Energy Regulatory Commission,

Washington, D.C. 20426.

Page

Opinions below EE CO CEC 1

TE aT EEE is A 2

Question presented 2

Statute involved EE ener 3

A 3

Reasons for granting the writ 9

IE RS Se 19

CITATIONS

Cases:

Atlantic Refining Co. v. Public Service

Commission of New York, 360 U.S.

378 - m 11

California v. Southland Royalty Co., No.

76-1114, decided May 31, 1978 - _.. 10,12

Federal Communications Commission v.

National Citizens for Broadcasting, No.

76-1471, decided June 12,1978 —s—- 18

Federal Power Commission v. Idaho Power

Co., 344 U.S. 17 - a ae _ 12,18

Federal Power Commission Vv. _ Transcon-

tinental Gas Pipe Line Corp., 423 U.S.

326 . 12,18

Minneapolis & St. Louis R. Co. v. Peoria

& Pekin Union Ry. Co., 270 U.S. 580 14

Phillips Petroleum Co. v. Wisconsin, 347

U.S. 672 _ alc 4

Securities & Exchange: “Commission — v.

Chenery Corp., 332 U.S. 194 12

ll

Cases—Continued Page

Sunray Mid-Continent Oil Co. v. Federal

Power Commission, 364 U.S. 137 - 11

Texaco, Inc., et al., FERC Docket Nos. ¢

8820, et al., Order Granting Petition for

Reconsideration and Modifying Prior

Order issued November 1, 1977 __.... 15

Thompson v. Texas Mexican Railway Co.,

a sie linineitasseoneeh—aneioeniote 14,17

Union Oil Co. of California v. Federal

Power Commission, 542 F. 2d 1036... 17-18

United Gas Pipe Line Co. v. Federal

Power Commission, 385 U.S. 83 11

United States v. Radio Corporation Wd

America, 358 U.S. 334 _....----- 17

Vermont Yankee Nuclear Power Corp. v.

Natural Resources Defense Council,

Inc., No. 76-419, decided April 3, 1978 - 18

Statute:

Natural Gas ‘Act, 52 Stat. 821, as amend-

Re Boe ee gs oo 3-4

Section 7, 15 U.S.C. 717f -..............-. 11

Section 7(b), 15 U.S.C. 717f£(b)--passim

Miscellaneous:

6 Williams and Meyers, Oil and Gas Law

(1977 I aie santas 3 ae 6

aiid

Iu the Supreme Court of the United States

OCTOBER TERM, 1978

No.

FEDERAL ENERGY REGULATORY COMMISSION,

PETITIONER

Vv.

BILLY J. MCCOMBS, ET AL.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

ee

a

The Solicitor General, on behalf of the Federal

Energy Regulatory Commission, petitions for a writ

of certiorari to review the judgment of the United

States Court of Appeals for the Tenth Circuit in this

case.

OPINIONS BELOW

The opinion of the court of appeals (App., infra)’

is reported at 570 F.2d 1376. The orders of the

‘“A” refers to the separately bound appendix to the peti-

tion filed in United Gas Pipe Line Company v. McCombs, et

al., No. 78-17, seeking review of the same judgment. To

(1)

2

Federal Power Commission (Opinion Nos. 740 (A-1

to A-45) and 740-A (A-46 to A-69)) are reported at

54 FPC 755 and 2034. Opinion No. 740-B (A-70 to

A-80) is not yet reported.

JURISDICTION

The judgment of the court of appeals was entered

on February 9, 1978 (A-94), and an order denying

timely petitions for rehearing and suggestions for

rehearing en banc was reissued as of April 4, 1978,

for the purpose of correcting a clerical error, on

April 6, 1978 (A-95 to A-96). By order of July 25,

1978, Mr. Justice White extended the time for filing

a petition for a writ of certiorari to August 14, 1978.

The jurisdiction of this Court is invoked under 28

U.S.C. 1254(1) and Section 19(b) of the Natural

Gas Act, 52 Stat. 831, as amended, 15 U.S.C. 717r

(b).

QUESTION PRESENTED

Whether a court of appeals, reviewing a Commis-

sion determination that gas currently flowing from

a tract is dedicated to interstate commerce, may in-

dependently determine that the certificated gas serv-

relieve the Court of unnecessary additional documents, we

have agreed with petitioner in that case, with the consent of

the Clerk of this Court, to use jointly and share the expenses

of only one separately bound appendix. We have, however,

included the opinion of the court of appeals as an appendix

to this petition, infra.

* An earlier opinion of the court of appeals (A-81 to A-91),

subsequently vacated and withdrawn (A-93), is reported at

542 F.2d 1144.

3

ice was abandoned under Section 7(b) of the Natural

Gas Act because production from the tract had ceased

between 1966 and 1971, even though the permission

of the Commission for abandonment was never sought

or obtained as required by Section 7(b).

STATUTE INVOLVED

Section 7(b) of the Natural Gas Act, 52 Stat.

824, 15 U.S.C. 717f(b), provides:

No natural-gas company shall abandon all or

any portion of its facilities subject to the juris-

diction of the Commission, or any service ren-

dered by means of such facilities, without the

permission and approval of the Commission first

had and obtained, after due hearing, and a find-

ing by the Commission that the available supply

of natural gas is depleted to the extent that the

continuance of service is unwarranted, or that

the present or future public convenience or ne-

cessity permit such abandonment.

STATEMENT

This case results from proceedings before the

Federal Power Commission on a complaint by United

Gas Pipe Line Company (“United”) alleging that

respondents * were violating the Natural Gas Act,

* Respondents are “the McCombs Group’ Billy J. McCombs,

R. James Stillings d/b/a Gastill Company, David A. Onsgard,

Basin Petroleum Corporation, Louis H. Haring, Jr., and Na-

tional Exploration Company) and “the du Pont Company”

(E.I. du Pont de Nemours & Company).

4

52 Stat. 821, as amended, 15 U.S.C. 717 et seq., by

failing to deliver gas that had been dedicated to

interstate commerce and to United’s pipeline under

the terms of a certificate of public convenience and

necessity. The gas is being produced from a 163-

acre tract known as the Butler B tract in Karnes

County, Texas (App., infra, pp. 2a-5a).

In 1948, B. C. Butler, Sr., as lessor, executed an

oil and gas lease covering the Butler B tract (A-3).

In 1953, the leaseholders-producers entered into a gas

purchase contract with United whereby they agreed

to sell to United all the natural gas produced then

or thereafter from the tract (App., infra, p. 2a). Fol-

lowing this Court’s decision in Phillips Petrolewm

Co. v. Wisconsin, 347 U.S. 672, the leaseholders ap-

plied to the Commission for certificates of public con-

venience and necessity authorizing the sale to United

of the natural gas covered by the 1953 contract. In

December 1954, the Commission granted the cer-

tificates (App., infra, pp. 2a-3a). There was no pro-

vision in the lease, the contract, or the certificates

limiting the depth of origin or the amount of gas

from the Butler B tract that was committed.

One well, the Butler No. 7 gas well, was completed

on the Butler B tract to a depth of 2,960 feet, and

gas from this well was delivered to United (A-6).

Meanwhile, the Butler B lease was assigned several

times, and in March 1966 it came into the ownership

of a group headed by Louis H. Haring, Jr. (A-6;

App., infra, p. 3a). On May 28, 1966, the Butler

No. 7 well, which was the only well producing gas on

5

the lease at that time, ceased production (A-6; App.,

infra, p. 3a).

The property was then being operated for the Har-

ing group (“Haring”) by Bay Rock Corporation.

On December 5, 1966, Bay Rock notified United that

the wells on the lease were depleted “and there will

be no other gas available at this time” (A-7; App.,

infra, p. 3a). In response, United advised Bay Rock

that it would remove its metering equipment but

that it would reinstall the equipment whenever Bay

Rock might have further gas to deliver under the

contract (7bid.). Neither Haring nor Bay Rock

sought or obtained the Commission’s authorization

under Section 7(b) of the Natural Gas Act to

abandon the sale to United (ibid.).

In August 1968 and January 1971, the Secretary

of the Commission wrote to Haring’s predecessor and

to Bay Rock, respectively, advising them that if no

further sales of gas were contemplated, it would be

necessary for them to file applications to abandon

service (A-97 to A-98, A-100 to A-101; App., infra,

p. 8a). No such abandonment applications were filed.

In 1971 to 1972, Haring divided the Butler B

leasehold horizontally and vertically. Haring as-

signed the western 50 acres of Butler B, from the

depth of 4,115 feet to the depth of 8,700 feet, to

National Exploration Company (“National”) (A-7 to

A-8; App., infra, p. 4a). Haring assigned the eastern

113 acres of Butler B, from 6,500 feet to 8,653 feet,

to the McCombs Group, who unitized that interest

with their interest at the same depths of the adjoin-

6

ing “Butler A” tract (A-8 to A-9; App., infra,

p. 4a).*

Drilling to these deeper horizons, the new working-

interest owners discovered gas. In 1971 and 1972,

the McCombs Group drilled four productive wells on

their unitized acreage, one of which was on Butler B.

On June 1, 1972, the McCombs Group contracted to

* The Butler B lease authorized the unitization of the lease-

hold, or of any part of it (A-3 to A-4). “Unitization” means

the combining of tracts for “the joint operation of all or some

part of a producing [oil and/or gas] reservoir. * * * The

puxpose of unitization is to permit the entire field (or a very

substantial portion of it) to be operated as a single entity,

without regard to surface boundary lines.” 6 Williams and

Meyers, Oil and Gas Law 2-3 (1977 ed.).

For example, lessees of tracts A and B may agree to unitize

their tracts into a single field and share the total production

on some agreed formula—in this case, the ratio of each

tract’s surface area to the total surface area unitized. If gas

from tract A is certificated for sale in interstate commerce

and tract A is later unitized with tract B, the lessee of A is

obligated to deliver to interstate commerce his share of the

gas produced from the unitized acreage. See A-36 to A-37,

A-54 to A-55, A-75 to A-78. The various unitization dis-

putes in this case are not relevant to the issue presented by

the court of appeals’ opinion. While the parties before the

Commission disagreed with respect to whether certain other

acreage was in fact unitized with Butler B (and thus whether

gas from the additional acreage was dedicated to interstate

commerce (see A-54, A-56; A-70 to A-80)), the court of ap-

peals held that gas from neither Butler B nor any additional

acreage was dedicated to interstate commerce because the

certificated service had been lawfully abandoned. The only

issue presented by the court’s opinion is whether the service

was lawfully abandoned. See also p. 8, note 5, infra.

7

sell to the du Pont Company, for industrial uses in

intrastate commerce, all the gas from its interests

in both the Butler B and the Butler A leases (A-9 to

A-10; App., infra, pp. 5a-6a).

National successfully produced gas in 1972 from

two wells drilled to its allotted depths on the west

50 acres of the Butler B tract (A-10; App., infra,

p. 4a). National was in the process of arranging to

sell this gas to United, when United, on making a

title search, learned of its interest in the Butler B

tract under the 1953 contract (A-10 to A-11; App.,

mfra, p. 4a). On June 6, 1973, United notified the

McCombs Group that it claimed all the gas being

produced from the Butler B tract (subject to its

unitization with the Butler A tract) by virtue of the

1953 gas purchase contract (A-11; App., infra, pp.

5a-6a).

Acting on the ensuing complaint by United, the

Commission, after hearing and initial decision by an

administrative law judge (A-13 to A-16), held in

Opinion No. 740, issued August 20, 1975 (A-1 to A-

45), that gas produced from the unitized Butler B

acreage was dedicated to interstate commerce and to

United. The Commission found that service from

the Butler B lease had been commenced as authorized

in the certificate, so that the Butler B gas was dedi-

cated to interstate commerce (A-29 to A-36). Al-

though service from the original well on Butler B

had ceased by the end of 1966, there had been no

abandonment pursuant to Section 7(b), the Com-

mission found. Hence the gas currently flowing from

the acreage was required to be delivered to United,

8

and the sales in intrastate commerce by the present

leaseholders were in violation of Section 7(b) (A-29,

A-42 to A-43).°

On petition for review, a divided court of appeals,

acting after rehearing (A-92), set aside the Com-

mission’s order (App., infra). The court concluded

that as a physical fact, abandonment had occurred

in 1966 when the production of gas from the origi-

nal well on the Butler B leasehold ceased (App.,

infra, pp. 1la-15a). The court also relied on the two

letters that the Commission’s Secretary had written to

the leaseholders in 1968 971 (A-97 to A-98, A-100

to A-101; see p. 5, supra). The court quoted excerpts

from the opinion it had previously withdrawn (A-

93) which stated, for example, that the two letters

“must be acknowledged as a recognition by the Com-

mission that there was in fact an abandonment, but

*In Opinion No. 740 and in subsequent opinions on rehear-

ing (Opinion No. 740-A (A-46 to A-69) and Opinion No.

740-B (A-70 to A-80)), the Commission dealt with other is-

sues. These included an alleged settlement between the par-

ties and the question whether the Butler A - Butler B unit

had been dissolved by the parties and, if so, whether the

Commission would have to approve, under Section 7(b), the

attempted dissolution of the unit. The Commission in those

opinions also remanded the case for further evidentiary hear-

ings on some of those issues. The court of appeals did not

consider any of those issues, since it concluded that the inter-

state service from both Butler B and Butler A had been law-

fully abandoned. The court set aside the Commission’s orders

and directed that the other pending proceedings based on

those orders be dismissed (App., infra, p. 15a). In view of

the court’s opinion, those other issues are not now presented.

9

there was something needed for the record” (App.,

infra, p. 8a).

The court concluded: “We hold that, as a matter

of law, based upon the facts and circumstances of

the instant case, there was an abandonment under

Section 7(b) of the Natural Gas Act which does not

render the issue within the expertise of the Com-

mission. * * * [T]he only known reserves of natural

gas for which applications for certification had been

made and authorized had been depleted. With its

depletion and subsequent five year period of non-

Service, there was no need for the formality of a

Section 7(b) hearing” (App., infra, pp. 1la-12a).

Judge Holloway dissented ( App., infra, pp. 16a-

20a).

REASONS FOR GRANTING THE WRIT

The court of appeals, by holding that it may deter-

mine in the first instance to permit an abandonment

of certificated natural gas service, where the Com-

mission neither made nor was asked to make the find-

ing required by Section 7(b) of the Natural Gas Act,

has disregarded the terms of the Act and intruded

on the exclusive responsibility that Congress has given

the Commission. The court is wrong in suggesting

that the Commission “acknowledged” the fact of

abandonment, and wrong in assuming that the Com-

mission would have granted abandonment if an appli-

cation had been filed. Most important, the decision

below should not be allowed to stand because it will

undermine the administrative procedure established

10

by Section 7(b) and the important regulatory pur-

poses that that procedure serves.

1. The holding of the court of appeals is contrary

to the terms of the statute. Section 7(b) states

that “[n]Jo natural-gas company shall abandon” a

service of supplying natural gas for resale in inter-

state commerce “without the permission and approval

of the Commission first had and obtained, after due

hearing, and a finding by the Commission that the

available supply of natural gas is depleted to the ex-

tent that the continuance of service is unwarranted,

or that the present or future public convenience or

necessity permit such abandonment” (see p. 3, supra).

In this case the permission and approval of the

Commission for abandonment of the certificated serv-

ice from the Butler B tract were not sought, much

less “first had and obtained.” Nor was there any

“finding by the Commission that the available supply

of natural gas is depleted * * *.” The Commission

plainly could not make such a finding, since it is un-

disputed that, at the time of the proceeding under

review, the available supply of Butler B gas was not

depleted but was being delivered in intrastate com-

merce to du Pont (A-10).°

* As the Commission found, since the 1953 gas purchase con-

tract covered “merchantable natural gas * * * produced from

all wells now or hereafter drilled” on the Butler B leasehold,

the original and amended certificates embraced “the merchant-

able gas produced from any depth * * * drilled through Febru-

ary 7, 1981,” and in particular “all of the gas which has been

produced from or attributable to the Butler B lease since gas

was rediscovered at deeper depths late in 1971” (A-32 to A-

11

This Court has often recognized that Section 7 (b),

as it plainly says, requires the approval of the Com-

mission before a certificated service in natural gas

may be abandoned. As the Court stated in Sunray

Mid-Continent Oil Co. v. Federal Power Commission,

364 U.S. 137, 158 n. 25 (emphasis added) :

It might be observed that in these cases the

Commission issued certificates without time limi-

tations. Thus if the companies, failing to find

new sources of gas supply, desired to abandon

service because of a depletion of supply, they

would have to make proof thereof before the

Commission, under § 7(b). The Commission thus,

even though there may be physical problems be-

yond its control, kept legal control over the con-

tinuation of service by the applicants.

See also, e.g., United Gas Pipe Line Co. v. Federal

Power Commission, 385 U.S. 83, 89; Atlantic Refin-

ing Co. v. Public Service Commission of New York,

360 U.S. 378, 389. Most recently, in California v.

Southland Royalty Co., No. 76-1114, decided May 31,

1978, the Court held (slip op. 7):

Once the gas commenced to flow into interstate

commerce from the facilities used by the lessees,

$ 7(b) required that the Commission’s permis-

sion be obtained prior to the discontinuance of

“any service rendered by means of such facili-

ties.”

33). Thus, “[t]he initiation of interstate service pursuant to

the certificate dedicated all fields subject to that certificate.”

California v. Southland Royalty Co., No. 76-1114, decided

May 31, 1978, slip op. 5.

12

This Court has thus made it clear that under Sec-

tion 7 the Commission may “control both the terms on

which a service is provided to the interstate market

and the conditions on which it will cease.” California

v. Southland Royalty Co., supra, slip op. 4. This

authority is essential if the Commission is to dis-

charge its responsibility of assuring, in accordance

with the “fundamental purpose” of the Natural Gas

Act, “an adequate and reliable supply of gas at rea-

sonable prices” (id. at 3). The court below, in

holding that certificated service may be lawfully

abandoned without the Cormmission’s approval or even

a request for such approval, has disregarded what the

Act says.

In addition to the language of Section 7(b), basic

principles of administrative law preclude review-

ing courts from engaging in fact-finding or other

functions that are within “the domain which Congress

has set aside exclusively for the administrative

agency.” Securities & Exchange Commission v.

Chenery Corp., 332 U.S. 194, 196. Indeed, even after

reviewing an agency’s decision and determining that

additional consideration or evidence is necessary, the

court may not itself undertake the fact-finding func-

tion that Congress has assigned to the agency, or

prescribe the details of how the agency should under-

take that function. E.g., Federal Power Commission

v. Transcontinental Gas Pipe Line Corp., 423 U.S.

326, 333; Federal Power Commission v. Idaho Power

Co., 344 U.S. 17, 21. See Judge Holloway’s dissent,

App., infra, p. 17a.

13

2. The court of appeals’ conclusion that abandon-

ment had occurred “as a matter of law” rested on its

view that between 1966 and 1971 all parties, “includ-

ing the Commission,” had “acknowledged” that the

known reserves on the Butler B tract were depleted

(App., infra, p. 12a). The conclusion apparently

rested also on the court’s view that, on the basis of the

facts known at the time, the Commission would have

granted an abandonment application had one been

filed, so that “there was no need for the formality of

a Section 7(b) hearing” (ibid.). These conclusions

are incorrect. Moreover, they reflect a basic miscon-

ception of the administrative procedure established

by the Act and the regulatory purposes embodied in

that procedure.

First, the Commission never “acknowledged” that

the available reserves were depleted. The letters from

the Commission’s Secretary on which the court relied

—though they were not in the record—stated that if

further sales were not contemplated, “it will be neces-

sary for you to file an abandonment application * * *”

(A-97, A-100). This was an insistence that the

statutory procedure be complied with—so that the

Commission could determine whether the supply of

gas had been depleted or whether abandonment was

otherwise warranted. It was in no way a waiver of

that procedure, or a dismissal of the procedure as a

needless “formality.” *

*Even if the Commission’s Secretary had opined on the

depletion of reserves or the merits of abandonment, which he

14

Second, there is no warrant for the court’s apparent

assumption that the Commission would have granted

an abandonment application if one had been filed be-

tween 1966 and 1971. Subsequent drilling has dem-

onstrated that there was in fact an abundant reserve

of gas underlying the leasehold. To be sure, the one

relatively shallow well then producing on the lease-

hold ceased production in 1966. But this fact does not

establish that the Commission, after a Section 7(b)

hearing at which all interested parties would have

had an opportunity to explore the facts,* would have

concluded that the reserves under the leasehold were

sufficiently depleted to warrant abandonment.’ It is,

indeed, strange for the court to conclude with such

certainty that the Commission, if it had been asked

clearly did not, his opinion would not be binding on the Com-

mission. Under Section 7(b) only the decisions of the Com-

mission itself have legal effect. Thus, it has been held that

an interpretation by the Secretary of the Interstate Com-

merce Commission of the abandonment provisions of the In-

terstate Commerce Act could not bind that agency (Thompson

v. Texas Mexican Railway Co., 328 U.S. 134, 146); nor can

the views of a single commissioner do so (Minneapolis & St.

Louis R. Co. v. Peoria & Pekin Union Ry. Co., 270 U.S. 580,

585).

*It is noteworthy that the letters from the Commission’s

Secretary to the lessee-producers, stating that it would be

necessary for them to file an application for abandonment if

further sales were not contemplated, both required, as part of

the filing, “three copies of a statement from the buyer [i.e., the

pipeline] indicating its position with respect to the proposed

abandonment” (A-97, A-101).

* The court noted that at oral argument the Commission’s

counsel had acknowledged that circumstances such as those

15

to make the finding that the statute requires, would

have found as a fact what is now known to have

been false.”

3. Even if there were ground for assuming that

the Commission would have granted an abandon-

ment application if one had been filed between 1966

and 1971, that assumption would be legally irrelevant

under the regulatory scheme of the Act. This is so

because Section 7(b) mandates an administrative

procedure, and that procedure serves important regu-

latory interests.

By requiring that abandonment applications ac-

tually be filed with the Commission before abandon-

ment may be granted, Section 7(b) assures, first,

attending the 1966 termination of service to United “have

been acceptable evidence of depletion of gas for purposes of

abandonment orders under Section 7(b)” ( App., infra, p. 13a).

But since no application for abandonment was filed in 1966,

it is idle to speculate about what the factual evidence would

actually have been, about whether that evidence would have

been rebutted, or otherwise about what the Commission might

have done if an application had been filed. The controlling facts

are that the original certificated obligation was still in force

at the time it became clear that the gas supply underlying But-

ler B was not depleted.

*° The Commission has, in fact, recently refused to grant

abandonment authority to a producer who failed to show that

his leasehold had been explored to an extent sufficient to estab-

lish that no additional gas reserves could be expected to be

discovered through further exploratory efforts. Texaco, Inc., et

al., FERC Docket Nos. G-8820, et al., Order Granting Petition

for Reconsideration and Modifying Prior Order issued No-

vember 1, 1977, mimeo at 3.

16

that the Commission and all other interested parties

will have an opportunity, in a “due hearing” and in

the light of the statutory standard, to examine the

facts bearing on the alleged depletion of reserves.

Moreover, it assures that they will have that oppor-

tunity at the relevant time, not years after the fact.

The decision of the court of appeals, on the other

hand, to a large extent vests the determination of

whether dedicated service has been abandoned in the

certificate holders themselves, and empowers the

courts retroactively to convert de facto termination

of service into de jure abandonment.”

Moreover, the requirement of filing with the Com-

mission promotes certainty and regularity in the reg-

ulatory scheme. It makes it possible for producers,

pipelines, customers, and prospective assignees of

once-dedicated acreage to know whether or not a

given tract (and future production from it) remains

dedicated to interstate service. Under the court’s

ruling, in contrast, abandonment may be established

not only by an order of the Commission but by “the

™ The impact of the court’s holding would not be limited to

cases where the court would be as confident as it was here

that the Commission would have granted abandonment if

asked to. Indeed, to the extent that a producer seeking to

terminate interstate sales fears that the Commission would

not grant his abandonment application, to that extent he has

an incentive, under the court’s decision, to simply terminate

service, avoid facing the Commission, and trust that his fait

accompli will look inevitable to a court after some years have

' passed. Under the court’s decision producers have more to

gain than to lose by failing to comply with the statutory re-

quirement.

17

fact” of actual or assumed depletion of the dedicated

reserves, as that fact may be certified—or not certi-

fied—by a court years later. It would often be un-

clear whether particular facts met the test for the

doctrine of “de facto abandonment” that the court

has here created, and undesirable uncertainty would

result.

Finally, Section 7(b) ensures that abandonment

questions will be determined in the first instance by a

single tribunal applying uniform standards and its

own expertise. The court of appeals’ ruling—that

abandonment can be determined in the first instance

by any reviewing court on the basis of its own view

of the facts—invites inconsistent decisions and stand-

ards by a multiplicity of tribunals, contrary to the

basic purpose of the statute. Cf. United States v.

Radio Corporation of America, 358 U.S. 334, 346;

Thompson v. Texas Mexican Railway Co., 328 U.S.

134,

In short, Section 7(b) gives the Commission pri-

mary jurisdiction over the abandonment of certifi-

cated service, and that primary jurisdiction is es-

sential to the effective performance of its regulatory

responsibility. Thus it is irrelevant whether a court

believes that the Commission would or should have

exercised its authority in a certain way if it had

been given the opportunity to do so. The statute

requires that the Commission have the opportunity.”

2 Although the court of appeals (App., infra, p. 14a) relied

on language from Union Oil Co. of California v. Federal Power

18

4. Because the court of appeals’ decision is incon-

sistent with the plain language of Section 7(b), with

this Court’s decisions and with well-established prin-

ciples governing the proper relationship between re-

viewing courts and regulatory commissions (cf. Ver-

mont Yankee Nuclear Power Corp. v. Natural Re-

sources Defense Council, Inc., No. 76-419, decided

April 3, 1978, slip op. 22), we suggest that it would

be appropriate in this case for the Court summarily

to reverse the decision of the court of appeals. Fed-

eral Power Commission v. Transcontinental Gas Pipe

Line Corp., supra; Federal Power Commission v.

Idaho Power Co., supra.

Commission, 542 F.2d 1036 (C.A. 9), we are unable to see how

that case has any bearing here. That case involved review

of Commission rulemaking, and the court set aside a Com-

mission rule requiring producers to file reports of their gas

reserves on the ground that the rule was not supported by

substantial evidence. Although the court erroneously applied

the substantial evidence test to the review of notice and com-

ment rulemaking (see Federal Communications Commission

v. National Citizens Committee for Broadcasting, No. 76-1471,

decided June 12, 1978, slip op. 26), it did not hold or suggest

that a court could find abandonment in the first instance or

otherwise supplant the Commission’s fact-finding responsi-

bilities under the Act.

19

CONCLUSION

For the reasons stated, the petition for a writ of

certiorari should be granted and the judgment of the

court of appeals should be summarily reversed.

Respectfully submitted.

WADE H. MCCREE, Jr.,

Solicitor General.

ROBERT R. NORDHAUS,

General Counsel,

HOWARD E. SHAPIRO,

Solicitor,

Federal Energy Regulatory Commission.

AUGUST 1978.

la

APPENDIX

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

No. 75-1829

[Filed Feb. 9, 1978]

BILLY J. McComss, R. JAMES STILLINGS, d/b/a Gas-

TILL COMPANY, DAVID A. ONSGARD, BASIN PETRO-

LEUM CorpP., E.I. DUPONT DENEMOURS & COMPANY,

and BILL FORNEY, PETITIONERS

v8.

FEDERAL ENERGY REGULATORY COMMISSION,

formerly known as FEDERAL POWER COMMISSION,

RESPONDENT

UNITED GAS PIPE LINE COMPANY, INTERVENOR

OPINION ON REHEARING

ON PETITION FOR REVIEW OF ORDERS

OF THE FEDERAL POWER COMMISSION

Submitted: November 14, 1977

Before SETH, HOLLOWAY and BARRETT, Cir-

cuit Judges.

BARRETT, Circuit Judge.

2a

These proceedings come before us for rehearing

involving a review cf opinions rendered by the Fed-

eral Power Commission (FPC) finding that the pe-

titioners (McCombs Group) had violated two sec-

tions of the Natural Gas Act, 15 U.S.C. $§ 717f£(b)

and 717f(f) by failing to deliver natural gas to

United Gas Pipe Line Company (United) under a

producer’s certificate authorizing the sale and con-

tinued sale of gas in interstate commerce. The pivo-

tal dispute is whether the certificate was in force

and effect or whether it had been abandoned prior

to these proceedings. The FPC found that there had

been no abandonment. In McCombs v. Federal Power

Commission, 542 F.2d 1144 (10th Cir. 1976), au-

thored by Judge Seth, the orders of the Commission

involved here were set aside. However, this court

granted the Commission’s petition for rehearing.

Thereafter, on October 18, 1977, this court directed

and ordered that the opinion and judgment of Oc-

tober 18, 1976, supra, be withdrawn and vacated.

We will refer to and quote from the prior opinion

which has been vacated and withdrawn, however,

inasmuch as it is reported in 542 F.2d 1144, supra.

In 1953, the leaseholders-producers of the Butler

B Lease covering a 163 acre tract situate in Karnes

County, Texas, entered into a Gas Purchase Contract

with United whereby the producers agreed to sell

to United all natural gas produced then or thereafter

from the tract. The producers applied to the FPC

for producer certificates which were granted on De-

3a

cember 8, 1954, authorizing the sale of the natural

gas in interstate commerce.

The Butler B lease was assigned on various oc-

casions prior to June 19, 1963, when the FPC termi-

nated the 1954 certificates and issued a new cer-

tificate authorizing one H.A. Pagenkopf, then the

Butler B lease assignee, to continue the service. This

operator assigned the Butler B lease to one Louis

H. Haring (Haring), et al., effective March 1, 1966.

Haring appointed Bay Rock Corporation (Bay Rock)

to operate the properties. At that time one well only

had been completed on Butler B at a depth of 2,900

feet. It was not then producing. Haring-Bay Rock

attempted to re-establish production from this well

but those efforts failed for the most part and all

production from the well and the lease terminated on

May 28, 1966. —

On December 5, 1966, Haring and Bay Rock in-

formed United that production had ceased, that the

gas reserve was depleted from the well and that there

was no gas available for sale at that time. No de-

liveries of gas had been made to United since Sep-

tember 16, 1966. Following the notification that gas

from the well was depleted, United wrote Bay Rock

that it planned to remove its measuring station which

had been used to measure gas delivered to it from

the well on the Butler B lease but that if, at some

future date, further gas should become available from

the properties subject to the 1953 contract, United

should be informed so that it could arrange to re-

install the measuring equipment. United then re-

4a

moved the measuring equipment. Haring testified

that he then considered the 1953 contract terminated.

Haring thereafter assigned his working interest

rights, as successor lessee, to certain sands or reser-

voirs between depths of 8,700 feet to 9,700 feet. By

means of unitization, the McCombs Group (Group)

acquired the right to drill into these deeper depths

involving the Butler B lease and an adjoining

tract known as the Butler A lease, consisting of some

150 acres. Thereafter, the Group drilled and com-

pleted four producing gas wells from the deeper

depths. One other company, National Exploration

Company (National) which had previously acquired

the Haring working interests in the west 50 acres

of the Butler B lease covering depths of 4,115 feet

to 8,700 feet had completed two producing gas wells.

United contacted National in April of 1972 relative

to purchasing the gas from these two wells. National

then first became aware, in examining title documents

in anticipation of sale of the gas, of United’s 1953

purchase contract. National informed United that

the gas from its two wells may be subject to United’s

1953 Gas Purchase Contract. It was then that United

undertook a title search concerning the Butler B tract.

In May, 1973, United learned of its interest under

the 1953 contract.

Haring did not at any time inform the Group of

United’s 1953 Gas Purchase Contract. He considered

that contract terminated when production ceased

from the single producing well on May 26, 1966.

5a

When he transferred his working interest rights to

the deeper horizons in the Butler B lease to the Group,

Haring did not believe that United had any further

right or claim to gas which may be thereafter pro-

duced from the lease. The Group, before drilling,

relied upon a 1967 title opinion which did not reflect

any interest which United might have in the Butler

B tract. After the Group realized production from

its first well drilled on the Butler A tract in 1971,

it contacted United, together with other prospective

gas purchasers, relative to negotiations for sale of

the gas. United wrote the Group on November 19,

1971, inquiring with regard to how the Group had

acquired its interests in the leases. There is nothing

in the record which casts any light on the negotia-

tions. However, the Group did obtain a new title

opinion on December 7, 1971, which for the first time

disclosed to the Group United’s 1953 Purchase Con-

tract relating to the Butler B lease. Thereafter, in

February, 1972, the Group discovered commercial

gas from another well drilled on the Butler A tract.

A title opinion of May 31, 1972, did not disclose any

interest of United therein. In June of 1972, the

Group concluded successful negotiations whereby it

agreed to sell all of the gas it purchased from the

Butler A and B leases to E.I. duPont deNemours &

Company for industrial uses in intrastate commerce.

The Group successfully completed two more gas

wells on the unitized tracts. Thereafter, on June 6,

1973, United notified the Group that it claimed all

6a

of the gas being produced from these tracts under

and by virtue of its 1953 Gas Purchase Contract.

The Group thereupon initiated a declaratory judg-

ment action in the district court of Karnes County,

Texas, against United. The action was removed to

federal district court. On October 9, 1973, United

filed a complaint with the FPC. Our reported opinion

in McCombs v. Federal Power Commission, supra,

detailed those proceedings leading to the Commis-

sion’s adoption of the administrative law judge’s

conclusion that “the service authorized and the gas

supply dedicated [under the original certificate in-

volved here] include any and all gas produced from

the Butler B acreage “and that, consequently, the

intrastate sale to duPont was violative of the Natural

Gas Act. The administrative law judge further found

that however negligent United may have been in

asserting its rights under the 1953 Gas Purchase

Contract and however innocent the Group may have

been, that, notwithstanding, the Group should be

ordered to cease and desist from continuing sales to

duPont.

The basic matter for our determination on this

rehearing relates to the issue of abandonment. The

Commission held that there can be no abandonment

of a certificate authorizing interstate service absent

strict compliance with the requirements of petition,

notice, hearing and establishment of cause for aban-

donment as required under 15 U.S.C.A. § 717(b) and

§ 717f(b).

7a

Additional facts relating to the matter of abandon-

ment set forth in our reported opinion in McCombs

v. Federal Power Commission, supra, are appropriate

here:

To consider again some of the facts outlined

above as they relate to this issue, the one produc-

ing gas well on the Butler B lease ceased produc-

ing early in 1966. The lease was assigned by

Pagenkopf effective in March 1966, and the as-

signee, Haring, attempted to work over the well.

During this work, about 3,000 Mcf was produced,

but all production again ended in May 1966.

The operator for Haring advised the gas pur-

chaser, United, in December 1966 that the well

was depleted. United thereafter in 1966 re-

moved the equipment it had connected to the

well. Thus, the only producing gas well was

abandoned in the fall of 1966. The operator and

the purchaser recognized that there could be no

more gas delivered from the well. This was a

physical fact beyond the control of either of

them, and they recognized the realities of the

situation. The operator or owner had tried to

restore production but was unable to do so. The

sellers and buyers wished to continue the sale

and purchase of gas but could not do so. The

record does not show that any gas was ever

produced thereafter from this original well. The

witness Haring who was the owner who at-

tempted the workover, and who was a petroleum

geologist, testified:

“Certainly I was not aware of the gas

reserves at deeper levels when the gas pro-

8a

duction ceased in 1966, and, as far as I

know, neither United nor anyone else was

aware of its existence.”

In August 1968, the FPC wrote a letter to

Pagenkopf suggesting that he file an applica-

tion for abandonment. By an undated letter

the Commission made a similar suggestion to

the operator for Pagenkopf’s successor, Haring.

The FPC thus twice recognized that there had

been no production for an extended time, and

recognized that the abandonment should be for-

malized for its records. This must be acknowl-

edged as a recognition by the Commission that

there was in fact an abandonment, but there

was something needed for the record. The rec-

ords of the FPC as to this matter have ap-

parently been destroyed under its procedures;

consequently, it is not known what they may

have indicated as to abandonment. The Com-

mission in Opinion No. 740 in footnote 2 states

as to the original proceedings for certification:

“Our records indicate that Docket Nos. G-2997

and G-2998 were destroyed in 1964.” It is ap-

parent however from the testimony that no op-

erator or owner filed a formal application to

abandon.

542 F.2d, at p. 1148. |

In that same opinion we further observed and held:

Thus we have a situation where there was

an abandonment as a recognition of the indis-

putable physical facts beyond anyone’s control.

The Commission participated in this recognition

as there were at least two suggestions by the

9a

Commission that someone file something tu“tidy

up the records. These letters from the Commis-

sion must be taken, in view of the destruction

of the supporting records, to be an acknowledg-

ment that there was an abandonment. It is

difficult to see how a formal application, and a

decision by the Commission could have added

anything to these letters. In these circumstances,

we must hold that there was an abandonment

which was recognized by the Commission, and its

jurisdiction ended.

Thus we must hold as a matter of law that

there was an abandonment sufficient under Sec-

tion 7(b) of the Natural Gas Act. This being a

matter of law, we do not consider it within the

expertise of the Commission.

The “abandonment” we refer to is that con-

templated under Section 7(b) of the Act, as

above indicated. This is the only “abandonment”’

which is applicable to these circumstances. Sec-

tion 7(b) refers to “service rendered,” and the

ordering of further “service” would have been a

futile gesture. The seeking of an application by

the Commission was a recognition of the fact

that no more gas could be delivered from the

only gas well, and that the “service rendered”

had long since ceased contrary to everyone’s

wishes. This action by the Commission thus

could only have reference to Section 7(b).

542 F.2d, at pp. 1148, 1149.

We know of no opinion dealing with a factual situa-

tion similar to that presented here. In light of the

facts and circumstances contained and reflected in

10a

this record, we hold that the Commission erred in

concluding that the cessation of gas production from

the Butler B leasehold on May 28, 1966, did not con-

stitute an abandonment under Section 7(b) of the

Natural Gas Act.

I,

FPC contends that § 7(b) of the Natural Gas Act

[15 U.S.C.A. § 717f(b)] is explicit in requiring that

prior Commission approval must be obtained by any

natural gas company before it can abandon any “fa-

cilities,” or “service” involving the transportation

and resale of gas dedicated by certificate to sale in

interstate commerce. The full text of §7(b) is as

follows:

No natural-gas company shall abandon all or

any portion of its facilities subject to the juris-

diction of the Commission, or any service ren-

dered by means of such facilities, without the

permission and approval of the Commission first

had and obtained, after due hearing, and a find-

ing by the Commission that the available supply

of natural gas is depleted to the extent that the

continuance of service is unwarranted, or that

present or future public convenience or necessity

permit such abandonment.

To be sure, just as we previously recognized in

McCombs v. Federal Power Commission, supra, the

decisions are abundant and clear on the point that in

those cases where the supply of natural gas is not

depleted, the service must be continued via the fa-

cilities authorized. Obviously, there could be no find-

lla

ing by the Commission that the available supply of

natural gas has been depleted under such circum-

stances. United Gas Pipe Line v. Federal Power

Commission, 385 U.S. 83 (1966); Sunray Mid-Con-

tinent Oil Co. v. Federal Power Commission, 364

U.S. 137 (1960); Sun Oil Co. v. Federal Power

Commission, 364 U.S. 170 (1960); Atlantic Re

fining Co. v. Public Service Commission of New

York, 360 U.S. 378 (1959); Phillips Petroleum Co.

v. Federal Power Commission, 556 F.2d 466 (10th

Cir. 1977); Farmland Industries, Inc. v. Kansas-

Nebraska Natural Gas Co., 486 F.2d 315 (8th Cir.

1973) ; Valley Gas Co. v. Federal Power Commission,

487 F.2d 1182 (D.C, Cir. 1973); J. M. Huber Corp.

v. Federal Power Commission, 236 F.2d 550 (3rd

Cir. 1956); Panhandle Eastern Pipe Line Co. v.

Michigan Consolidated Oil Co., 177 F.2d 942 (6th

Cir. 1949). These decisions support the proposition

advanced by this court in Harper Oil Co. v. Federal

Power Commission, 284 F.2d 137 (10th Cir. 1960):

It would thus seem clear that once an inde-

pendent producer of gas has dedicated his pro-

duction to interstate commerce and thereby has

come under the jurisdiction of the Commission,

he remains thereunder so long as production con-

tinues. [Citing to Sun Oil Co. v. F.P.C., 364

U.S. 170.]

284 F.2d, at p. 139.

We hold that, as a matter of law, based upon the

facts and circumstances of the instant case, there was

an abandonment under Section 7(b) of the Natural

12a

Gas Act which does not render the issue within the

expertise of the Commission. Abandonment in the

context of the facts and circumstances of this case

cannot be equated with a voluntary “giving up” of

valuable rights and/or property in the usual sense of

relinquishment or surrender. Rather, the abandon-

ment here presents the very practical recognition that

there was no service to be rendered following the

depletion of gas on December 5, 1966, from the Butler

B leasehold. All parties recognized that for a period

of five years thereafter no service could be rendered

because the known gas reserves were depleted. These

facts were acknowledged by all of the parties, includ-

ing the Commission. Thus, the only known reserves

of natural gas for which applications for certification

had been made and authorized had been depleted.

With its depletion and the subsequent five year period

of non-service, there was no need for the formality

of a Section 7(b) hearing. This is so because, in our

view, all parties, including the Commission, con-

sidered that there were no gas reserves available

following cessation of production and the subsequent

efforts to restore production by workover methods in

order to service the public consumer, and, of course,

to profit from the discovery and sale.

At oral argument, the FPC contended that the

certificate originally granted authorized and dedi-

cated all gas without regard to depth or sand/reser-

voir limitations, to sale in interstate commerce and

that there cannot be an “abandonment in fact.” The

FPC further argued that its expertise is required as

13a

a prerequisite to any abandonment in that a formal

hearing may or might see the presentation of expert

evidence by the Commission that further reserves

of natural gas are likely to exist at other depths,

zones, reservoirs, etc., underlying the subject lease-

hold. Nevertheless, counsel for the Commission did

acknowledge that in factual instances such as those

presented here, proof of depletion and efforts to

resurrect production by workover attempts have been

acceptable evidence of depletion of gas for purposes

of abandonment orders under Section 7(b).

The Commission urges that Mitchell Energy Corp.

v. Federal Power Commission, 533 F.2d 258 (5th

Cir. 1976) controls. That opinion held that although

the 1949 contract between the gas producer and gas

purchaser which dedicated all gas from the seller’s

interest in leaseholds and units in a particular field

had expired in 1973, that nevertheless the successor

in interest to the original producer was bound to

dedicate the gas to interstate commerce because the

successor assumed, as a matter of law, the original

producer’s obligations. That simply is not the case

before us here. There had been no cessation of pro-

duction in Mitchell and certainly no depletion of

known reserves. Mitchell is not at variance with

those decisions we have heretofore cited for the

proposition that once natural gas is dedicated to

interstate commerce it cannot be withdrawn from

service in interstate movement without prior Section

7(b) FPC approval.

l4a

Our holding that strict compliance with the non-

abandonment language of 15 U.S.C.A. §717f(b),

supra, does not control under the facts and circum-

stances here is, we believe, buttressed by certain lan-

guage contained in Union Oil Co. of California v.

Federal Power Commission, 542 F.2d 1036 (9th

Cir. 1976). At issue there was the FPC require-

ment that all producers of natural gas dedicated to

interstate commerce annually submit a Form 40 con-

taining detailed information about their natural gas

reserves. The Court rejected the FPC contention that

the reporting burden on the producers was out-

weighed by the Commission’s need to have the reser-

voir data. The Court stated, in pertinent part:

There is no evidence from which the FPC

could conclude that the data required on Form

40 on a by reservoir basis were or could easily

become available. The only evidence is to the

contrary . . . Although there was no evidence

before the Commission to contradict the unani-

mous statements of the producers that natural

gas reserve data are not kept by them on a ‘by

reservoir’ basis and that such data would be

extraordinarily expensive to obtain, the Commis-

sion majority found that ‘[T]here is little doubt

that the information required . . . is possessed

by the respondents.’ . . . This assertion is simply

wrong . . . The Commission’s factual determina-

tion that the data required are available is not

supported by any evidence, much less by substan-

tial evidence.

542 F.2d, at p. 1042.

ld5a

We conclude that the abandonment of the service

in the instant case was accomplished, as a matter of

law, when all of the parties recognized that the then

known natural gas reserves were depleted in 1966

followed by failure to provide any service under the

certificates for a period of five years during which

time there was no evidence of other estimated gas

reserves recoverable from the subject leaseholds.

We direct that all orders included in the Commis-

sion’s Opinions Nos. 740, 740-A, and 740-B be set

aside. We remand with directions that other pend-

ing proceedings in the Commission’s Docket No.

CP74-94 based on such orders be terminated and that

the proceedings be dismissed.

IT IS SO ORDERED.

16a

HOLLOWAY, Circuit Judge, dissenting:

I respectfully dissent. While the equities favor the

McCombs Group, du Pont and National, usual con-

tract rules and equitable considerations do not con-

trol in this proceeding under the Natural Gas Act,

in my opinion. Instead, there are mandatory statu-

tory requirements on abandonment of service which

were imposed to protect the public interests recog-

nized by the Act, Sunray Oil Co. v. FPC, 364 U.S.

137, 143, and these provisions convince me that we

should affirm the basic holding of the Commission in

this case.’

The majority opinion reasons (p. 8) that: there

was an abandonment in fact after all production

ceased in 1966 on the Butler B lease from then

known productive formations, as recognized by the

Commission and the parties; that with this recog-

nized abandonment the Commission’s jurisdiction

ended; and that this abandonment was sufficient, as

a matter of law, under § 7(b) of the Natural Gas

Act, 15 U.S.C. § 717f(b), and this being a matter

of law, it was not within the expertise of the Com-

mission.

1The majority opinion does not reach t.... raised

such as the propriety of the ruling on dissolution of the units,

of the order requiring repayment to United of quantities of

gas sold to du Pont in the intrastate transaction, and the fail-

ure to sustain the motion challenging jurisdiction as to du

Pont. Thus it is unnecessary for me to address these issues.

I will consider only the holding of the majority on the central

abandonment issue.

17a

To me these conclusions are directly contrary to

the plain terms of §7(b). The statute could hardly

be clearer in saying that:

No natural-gas company shall abandon all or

any portion of its facilities subject to the juris-

diction of the Commission, or any service ren-

dered by means of such facilities, without the

permission and approval of the Commission first

had and obtained, after due hearing, and a find-

ing by the Commission that the available supply

of natural gas is depleted to the extent that the

continuance of service is unwarranted, or that

the present or future public convenience or neces-

sity permit such abandonment. (Emphasis add-

ed).

It is the Commission that must make the required

findings and give approval before abandonment is

legally effected, and not private parties by their

agreement on the facts as to depletion and their

consent to discontinuation of service. Nor does a de-

termination by another tribunal that abandonment

has occurred, as a matter of law, satisfy §7(b). As

the Supreme Court pointed out in Sunray, supra, 364

U.S. at 158 n. 25: 3

“It might be observed that in these cases the

Commission issued certificates without time limi-

tations. Thus if the companies, failing to find

new sources of gas supply, desired to abandon

service because of a depletion of supply, they

would have to make proof thereof before the

Commission, under §7(b). The Commission

thus, even though there may be physical prob-

18a

lems beyond its control, kept legal control over

the continuation of service by the applicants.

(Emphasis added).

See also Atlantic Refining Co. v. Public Service Com-

mission, 360 U.S. 378, 389; Phillips Petroleum Co. v.

FPC, 556 F.2d 466, 469 (10th Cir.) ; Mitchell Energy

Corp. v. FPC, 533 F.2d 258, 261 (5th Cir.).

The majority lays stress on the fact that produc-

tion from the known reserves underlying the Butler

B lease was depleted in 1966, that there was testi-

mony that neither United, the producer, nor anyone.

else was then aware of deeper reserves, and that as

a practical matter there was no service that could

be rendered thereafter from that lease. And, as the

majority says, counsel for the Commission conceded

that proof of such depletion and of failure of efforts

to re-establish production has been accepted by the

Commission in §7(b) proceedings as a basis for

permission for abandonment. Further the Commis-

sion did twice write suggesting that an application

for abandonment be filed, which action the majority

interprets as Commission recognition that there was

in fact an abandonment.

However, there were other reserves as is now

known, and United did state that while it would re-

move its metering equipment in 1966, it would rein-

stall such equipment whenever further gas might be

delivered under the contract. (J.A. 137). In view of

these circumstances it may not be quite certain what

would have happened if application for a complete

abandonment had been made, notice thereof had been

OS

198 ©

given by publication,’ and a final abandonment ap-

proval had been considered by the Commission. But,

in any event, permission for abandonment of all

service was for the Commission and we cannot make

the findings and give the approval which Congress

deemed it necessary for the Commission to make.

Sunray, supra, 364 U.S. at 142.

The Commission noted in its Opinion 740 that the

original 1953 contract covered merchantable natural

gas produced from all wells now or hereafter drilled

during the 10-year term of that contract (later ex-

tended to 1981) on specified leaseholds including the

Butler B tract, and further noted that there was no

mention of any particular depths in that contract.

(J.A. 160-61). Further, the McCombs Group now

does not contest the fact of delivery of gas from the

Butler B lease to United.* Such delivery constituted

* The Commission’s regulations required notice by publica-

tion and mailing to States affected by the application, see 18

CFR § 157.9 (January 1, 1969), and permitted petitions for

interventions by persons desiring to participate. See 18 CFR

§ 157.10 (January 1, 1969). Pipeline purchasers have been

permitted to intervene in such proceedings. See, e.g., Trans-

continental Gas Pipe Line Corp. v. FPC, 488 F.2d 1325, 1326-

27 (D.C. Cir.), cert. denied sub nom. Natural Gas Pipeline

Co. v. Transcontinental Pipe Line Corp., 417 U.S. 921.

*The McCombs Group says that the statement by United

indicating that the record shows that gas was received by

United from the Butler B lease should be read with some

caution. The McCombs Group points to the absence of evidence

in the original record that gas was actually delivered from the

Butler B lease to United, but recognizes that United later

presented some evidence on the point in subsequent proceed-

ings before the Commission. The McCombs Group states that

20a

both a sale under the contract and commencement of

a “service” obligation in interstate commerce under

the Act. Phillips Petroleum Co. v. FPC, supra, 556

F.2d at 469. As this delivery was made under a

contractural dedication without limits as to depths,

there was a dedication to interstate commerce of the

underlying reserves in question, and the effort to re-

sell the same gas amounted to an attempted abandon-

ment, which could not be done without first obtaining

approval of the Commission under § 7(b). Ibid.

For these reasons I would sustain the Commission’s

conclusion that the commencement of service com-

pleted dedication to United in interstate commerce

and thereby invoked the protection of §7(b). (J.A.

163). And concluding that procedures made manda-

tory by the Act have not been complied with, I must

dissent.

since it is not seeking merely a remand, it has not raised the

delivery of Butler B gas to United as an issue in this review

proceeding, except as evidence of the Commission’s partiality

toward United. (Reply Brief of McCombs Group, 2).

wv U. S. GOVERNMENT PRINTING OFFICE; 1978 271102 92