Appendix — Exxon Corp. v. Interstate Natural Gas Ass'n of America
Supreme Court brief1984
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83-117] JAN 17 198:
No. ALEXANDER tL. ST
a <> a epee etanT aa
IN THE
Supreme Court of the United States
OCTOBER TERM, 1983
EXXON CORPORATION, et al.,
Petitioneis,
Vv.
INTERSTATE NATURAL GAS ASSOCIATION OF AMERICA, et al,
APPENDICES TO
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
AND LIST OF PARENT COMPANIES, SUBSIDIARIES,
AND AFFILIATES REQUIRED BY RULE 28.1
EDMUNDs TRAVIS, JR.
DOUGLAS W. RASCH *
EXXON CORPORATION
P.O. Box 2180
Houston, Texas 77001
(718) 656-5243
* Counsel of Record
(Counsel for Additiona! Petitioners Listed Inside}
WILSON - Epes PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001
AMINOIL INC., et al.
DAVID M. WHITNEY
2800 North Loop, West
Houston, TX 77092
AMO0CO PRODUCTION COMPANY
WILLIAM T. BENHAM
P.O. Box 5910-A
Chicago, IL 60680
CARROLL L. GILLIAM
J. PAUL DOUGLAS
JON L. BRUNENKANT
GROVE, JASKIEWICZ, GILLIAM
AND COBERT
Suite 501
1730 M Street, N.W.
Washington, DC 20036
ARCO OIL AND GAS COMPANY,
DIVISION OF ATLANTIC
RICHFIELD COMPANY
ARTHUR J. WRIGHT
P.O. Box 2819
Dallas, TX 75221
CARROLL L. GILLIAM
J. PAUL DOUGLAS
JON L. BRUNENKANT
GROVE, JASKIEWICZ, GILLIAM
AND COBERT
Suite 501
1730 M Street, N.W.
Washington, DC 20036
CHEVRON U.S.A. INC.
JUSTIN R. WOLF
1625 K Street, N.W.
Washington, DC 20006
Conoco INC.
CAROLYN S. HAZEL
WILLIAM G. ROBB
P.O. Box 2197
Houston, TX 77001
GETTY OIL COMPANY
CLoYy D. MONZINGO
MICHAEL P. KovICH
P.O. Box 1404
Houston, TX 77251
GULF OIL CORPORATION
WALTER L. BRIGNON
ANTHONY V. SORRENTINO
P.O. Box 3725
Houston, TX 77253
MostL OIL CORPORATION, et al.
ROBERT D. HAWORTH
EDGAR K. PARKS
9 Greenway Plaza
Suite 2700
Houston, TX 77046
CARROLL L. GILLIAM
J. PAUL DOUGLAS
JON L. BRUNENKANT
GROVE, JASKIEWICZ, GILLIAM
AND COBERT
Suite 501
1730 M Street, N.W.
Washington, DC 200386
PENNZOIL COMPANY
PATRICIA A. CURRAN
JOHN B. CHAPMAN
P.O. Box 2967
Houston, TX 77001
R. GORDON GoocH
CHARLES M. DARLING
THOMAS J. EASTMENT
BAKER & BoTTs
1701 Pennsylvania Ave., N.W.
Washington, DC 20006
PHILLIPS PETROLEUM COMPANY
PHILLIPS OIL COMPANY
C. J. ROBERTS
LARRY PAIN
JENNIFER A. CATES
1258 Adams Bldg.
Bartlesville, OK 74004
PLACID OIL COMPANY
RONALD D. HURST
PAUL HICKS
3900 Thanksgiving Tower
1601 Elm
Dallas, TX 75202
SHELL OrL COMPANY
THOMAS G. JOHNSON
ROBERT A. HASTY, JR.
One Shell Plaza
P.O. Box 2463
Houston, TX 77001
SUN EXPLORATION AND
PRODUCTION Co.
ROBERT B. PERRY
P.O. Box 2880
Dallas, TX 75221
TENNECO OIL COMPANY
JAMES R. SCHMITT
PHYLLIS RAINEY
RICHARD G. HARRIS
P.O. Box 2511
Houston, TX 77001
R. GORDON GOOCH
CHARLES M. DARLING
THOMAS J. EASTMENT
BAKER & BOTTS
1701 Pennsylvania Ave., N.W.
Washington, DC 20006
TEXACO INC.
KAREN A. BERNDT
P.O. Box 52332
Houston, TX 77052
THE SUPERIOR OIL COMPANY
JAY G. MARTIN
THERESA F. PAULISSEN-STEER
P.O. Box 1521
Houston, TX 77001
UNION OIL COMPANY OF
CALIFORNIA
LoIs ELLEN GOLD
P.O. Box 7600
Los Angeles, CA 90051
CARROLL L. GILLIAM
J. PAUL DOUGLAS
Jon L. BRUNENKANT
GROVE, JASKIEWICZ, GILLIAM
AND COBERT
Suite 501
1730 M Street, N.W.
Washington, DC 20036
TABLE OF CONTENTS
DESCRIPTION
APPENDIX A—Opinion of the United States Court of
Appeals for the District of Columbia
Circuit in Jnterstate Natural Gas Vv.
Federal Energy Regulatory Commis-
sion, Nos. 81-1690 et al., 716 F.2d 1
Ee Os UI iiicciescidcsnaiescccacsaacaccntnes
APPENDIX B—Orders of the Federal Energy Regula-
tory Commission issued in Final Rules
For Part 270, Subpart B, Sections
270.201, 270.202, and 270.204, Docket
Be IEEE cca locoucceniedsctunnisesstsineeraicans
Order No. 93, “Final Rule” (July 6
1980) (45 Fed. Reg. 49077 (July 23.
I en aah aks ce tecaincasceenuneeaian
Order No. 93-A, “Order Denying Re-
hearing and Clarifying Order No. 93,”
15 F.E.R.C. 61169 (April 24, 1981)
(" 61075) [46 Fed. Reg. 24537 (May
| met aR ar SPC nick eee oe
“Order Denying Applications For Re-
hearing Of Order No. 93-A and Lim-
ited Stay Of Order Nos. 93 And 93-A,”
16 F.E.R.C. 61144 (July 30, 1981)
Ly | RR ice er Rae ea
“Order Vacating Order Denying Re-
hearing Of Order No. 93-A And Lim-
ited Stay of Order Nos. 93 And 93-A,”
16 F.E.R.C. 61324 (August 20, 1981)
Cy Ganes) ........... cotissibias eat oni iledasdienstacs
Page
la
35a
35a
42a
78a
* Petitioners have printed only those portions of Order No. 93
which are relevant to the Btu question; the other portions of Order
No. 93 were not challenged before the court of appeals and are not
relevant to the issues before this Court.
ii
TABLE OF CONTENTS—Continued
DESCRIPTION Page
“Order Granting Partial Stay Of Or-
der No. 93 And 93-A Pending Further
Order,” 16 F.E.R.C. 61325 (August
BO, TRE) Cy GID mired 85a
“Order Vacating Partial Stay And
Amending Regulations,” (December
24, 1981), 47 Fed. Reg. 614 (January
eee a ee _ 87a
APPENDIX C—Orders and Notice of Rulemaking
issued by the Federal Energy Regula-
tory Commission issued in Interim
Regulations Implementing the Natural
Gas Policu Act of 1978, Docket No.
jp) | men core Ay res Kcnunse | Oe
“Interim Regulations” (November 29,
1978) 43 Fed. Reg. 56448 (December
| FE | afl met or ae 93a
“Order Granting In Part And Denying
In Part Applications For Rehearing
Of The Interim Regulations,” 7
F.E.R.C. 61102 (April 19, 1979)
4 l,j EE rs ote es .... 119a
“Notice of Proposed Rulemaking”
(November 14, 1978), 43 Fed. Reg.
53270 (November 15, 1978)7 .............. 124a
* Petitioners have printed only those portions of the “Interim
Regulations” which are relevant to the Btu question; the other
portions of the “Interim Regulations” are not relevant to the issues
before the court of appeals or before this Court.
+ Petitioners have printed only those portions of the “Notice Of
Proposed Rulemaking” which are relevant to the Btu question; the
other portions of the “Notice Of Proposed Rulemaking” are not rele-
vant to the issues before the court of appeals or before this Court.
iii
TABLE OF CONTENTS—Continued
DESCRIPTION Page
APPENDIX D—Judgment and Orders on Rehearing of
the United States Court of Appeals
for the District of Columbia Circuit in
Interstate Natural Gas Association Of
America, et al. Vv. Federal Energy Reg-
ulatory Commission, Nos. 81-1690, et
OL Sl i Ae 147a
Judgment (August 9, 1983) ............... 147a
Order Denying Rehearing (October
a nestensnusnnnons 153a
Order Denying Suggestions For Re-
hearing En Banc (October 19, 1983).. 154a
Order Denying Motions to Dismiss
Petitions For Review and to Vacate
the Opinion and Judgment in Nos. 81-
1802 and 82-1177, and to Vacate Opin-
ion and Judgment in Part (October
Neen ss smteemnemnse 156a
Order Revising Opinion (November 4,
EE 157a
APPENDIX E—Statutory Provisions
Natural Gas Policy Act of 1978, 15
U.S.C. §§ 3301-3482 (Supp. V
ENG Os eR 159a
§ 2(29), 15 U.S.C. § 3301(29)... 159a
§ 2(30), 15 U.S.C. § 3301(30).... 159a
§ 102, 15 U.S.C. § 3312................. 159a
§ 108, 15 U.S.C. § 3313................. 166a
§ 104, 15 U.S.C. § 3314................. 168a
§ 105, 15 U.S.C. § 3315 02... 169a
§ 106, 15 U.S.C. § 3316 0... 172a
§ 107, 15 U.S.C. § 3317 ................ 175a
§ 108, 15 U.S.C. § 3318 0... 177a
§ 109, 16 U.S.C. § 3319 0... 179a
iv
TABLE OF CONTENTS—Continued
DESCRIPTION
§ 501(a), 15 U.S.C. § 3411 (a)....
§ 501(b), 15 U.S.C. § 3411(b)....
§ 506(a), 15 U.S.C. § 3416(a)....
Natural Gas Act, 15 U.S.C. § 717, et
seq. (1976 & Supp. V 1981) .............
$16, 16 U.S.C. § TiTe ..................
§§ 19(a), (b), 15 U.S.C. §§ 7i7r
AF GIF ccencceneceniecenetnninennininats
Federal Power Act, 16 U.S.C. § 791a,
et seq. (1976 & Supp. V 1981)........
§ 309, 16 U.S.C. § 825h ................
APPENDIX F—Regulations
18 C.F.R. 270.204 (1988) ...................
APPENDIX G—American Gas Association, Gas Meas-
urement Committee Report No. 4A,
Natural Gas Contract Measurement
and Quality Clauses (lst ed. Aug.
BED seoccccecccisicichecanicnenciencibe boprticantbiidccaa tetebiatansce
APPENDIX H—Standards of Calorimetry for Gaseous
Fuels, Case No. 4720, General Order
No. 58-B (Cal. PUC Dec. 28, 1955;
effective Jan. 17, 1956) ........................
APPENDIX I—List of Parent Companies, Subsidi-
aries, and Affiliates Required by Rule
Eiil ... accusiannihcinunaesbishhagecacuauacaucaimeiiahds
Page
180a
180a
18la
184a
184a
1844
187a
187a
188a
189a
216a
la
APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 81-1690
INTERSTATE NATURAL GAS ASSOCIATION OF AMERICA,
Petitioner
We
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent
MOBIL OIL CORPORATION, ET AL.,
GENERAL AMERICAN OIL COMPANY OF TEXAS,
PHILLIPS PETROLEUM COMPANY,
PENNZOIL COMPANY,
MISSISSIPPI RIVER TRANSMISSION CORP.,
SHELL OIL COMPANY,
EXXON CORPORATION,
LACLEDE GAS COMPANY,
GETTY OIL COMPANY,
LOUISIANA LAND & EXPLORATION COMPANY,
ASSOCIATED GAS DISTRIBUTORS,
NORTHERN NATURAL GAS COMPANY,
TEXAS GAS TRANSMISSION CORPORATION,
TEXxACco, INC.,
TENNECO OIL COMPANY,
HOUSTON OIL AND MINERALS CORPORATION,
GULF OIL CORPORATION,
PLACID OIL COMPANY,
AMINOIL, USA, INC., ET AL.,
Intervenors
2a
No. 81-1680
MICHIGAN WISCONSIN PIPELINE COMPANY,
. Petitioner
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent
MoBIL OIL CORPORATION, ET AL.,
AMOCO PRODUCTION COMPANY,
GENERAL AMERICAN OIL COMPANY OF TEXAS,
PHILLIPS PETROLEUM COMPANY,
PENNZOIL COMPANY,
EXXON CORPORATION,
SHELL OIL COMPANY,
TENNECO OIL COMPANY,
UNION OIL COMPANY OF CALIFORNIA,
LOUISIANA LAND & EXPLORATION COMPANY,
GETTY OIL COMPANY,
ASSOCIATED GAS DISTRIBUTORS,
LACLEDE GAS COMPANY,
SUN OIL COMPANY,
Arco OIL & GAS COMPANY,
PLACID OIL COMPANY,
TEXACO, INC.,
GULF OIL CORPORATION,
Intervenors
No. 81-1691
TRANSCONTINENTAL GAS PIPE LINE CORPORATION,
‘ Petitioner
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent
MOBIL OIL CORPORATION,
GENERAL AMERICAN OIL COMPANY OF TEXAS,
PHILLIPS PETROLEUM COMPANY,
ia
oa
PENNZOIL COMPANY,
SHELL OIL COMPANY,
ASSOCIATED GAS DISTRIBUTORS,
GETTY OIL COMPANY,
LOUISIANA LAND & EXPLORATION COMPANY,
TEXACO, INC.,
EXXON CORPORATION,
SUN OIL COMPANY,
TENNECO OIL COMPANY,
HOUSTON OIL AND MINERALS CORPORATION,
GULF OIL CORPORATION,
PLACID OIL COMPANY,
Intervenors
No. 81-1692
NATURAL GAS PIPELINE COMPANY OF AMERICA,
Petitioner
V.
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent
MOBIL OIL CORPORATION, ET AL.,
GENERAL AMERICAN OIL COMPANY OF TEXAS,
PHILLIPS PETROLEUM COMPANY,
PENNZOIL COMPANY,
SHELL OIL COMPANY,
LACLEDE GAS COMPANY,
ASSOCIATED GAS DISTRIBUTORS,
GETTY OIL COMPANY,
LOUISIANA LAND & EXPLORATION COMPANY,
TEXACO, INC.,
SUN OIL COMPANY,
CHEVRON, USA,
EXXON CORPORATION,
TENNECO OIL COMPANY,
HOUSTON OIL AND MINERALS CORPORATION,
GULF OIL CORPORATION,
PLACID OIL COMPANY,
Intervenors
4a
No. 81-1696
LONE STAR GAS COMPANY,
Petitioner
Vv.
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent
GENERAL AMERICAN OIL COMPANY OF TEXAS,
PHILLIPS PETROLEUM COMPANY,
PENNZOIL COMPANY,
SHELL OIL COMPANY,
LACLEDE GAS COMPANY,
LOUISIANA LAND & EXPLORATION COMPANY,
GETTY OIL COMPANY,
ASSOCIATED GAS DISTRIBUTORS,
VALERO TRANSMISSION COMPANY,
TEXACO, INC.,
EXXON CORPORATION,
SUN OIL COMPANY,
TENNECO OIL COMPANY,
HOUSTON OIL AND MINERALS CORPORATION,
GULF OIL CORPORATION,
PLACID OIL COMPANY,
PANHANDLE EASTERN PIPE LINE CoO., ET AL..,
Intervenors
No. 81-1802
LACLEDE GAS COMPANY,
Petitioner
Vv.
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent
va
No. 82-1004
LONE STAR GAS COMPANY,
Petitioner
We
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent
EXXON CORPORATION,
Conoco INC.,
GENERAL AMERICAN OIL COMPANY OF TEXAS
PENNZOIL COMPANY,
TENNECO OIL COMPANY,
UNION OIL Co. OF CALIFORNIA,
GETTY OIL COMPANY,
AMINOIL USA, INC.,
GULF OIL CORPORATION,
TEXACO, INC.,
MOBIL OIL CORPORATION, ET AL.,
HOUSTON OIL AND MINERALS CORPORATION,
SHELL OIL COMPANY,
ATLANTIC RICHFIELD COMPANY,
SUN EXPLORATION AND PRODUCTION Co.,
Intervenors
No. 82-1177
ASSOCIATED GAS DISTRIBUTORS,
Petitioner
Vv.
FEDERAL ENERGY REGULATORY COMMISSION,
Respondent
6a
Petition for Review of Orders of the
Federal Energy Regulatory Commission
Argued November 2, 1982
Decided August 9, 1983
John H. Cheatham, III, with whom Judith M. Johnson
was on the brief for petitioner, Interstate Natural Gas
Association of America.
Douglas G. Robinson, with whom Erica A. Ward, Enid
L. Veron and Michael K. Chapman, were on the brief for
petitioner, Lone Star Gas Company. Rodney O. Thorson,
also entered an appearance for petitioner.
William W. Brackett, with whom Daniel F. Collins and
Terry O. Vogel, Michigan Wisconsin Pipe Line Company,
Thomas F. Ryan, Jr., and Richard T. Boone, Transconti-
nental Gas Pipe Line Company, Paul E. Goldstein, Harry
L. Albrecht and Robert D. Rosenberg, Natura] Gas Pipe-
line Company of America, Cleon L. Burt and John B.
Rudolph, Mississippi River Transmission Corporation,
Dean. W. Wallace, and John B. Will, Northern Natural
Gas Company, were on the brief for petitioners, Michigan
Wisconsin Pipe Line Company, et al.
Frederick Moring, was on the brief for petitioner, As-
sociated Gas Distributors.
J. David Mann, Jr., was on the brief for petitioner,
Laclede Gas Company.
Joel M. Cockrell, Attorney, Federal Energy Regulatory
Commission, with whom Charles A. Moore, General Coun-
sel, Jerome M. Feit, Solicitor, Federal Energy Regulatory
Commission, and George H. Williams, Jr., Attorney, Fed-
eral Energy Regulatory Commission, were on the brief,
for respondent.
Ta
Douglas W. Rasch, with whom Edmunds Travis, Jr.,
Exxon Corporation, David M. Whitney, Aminoil USA,
Inc., et al., Arthur Wright, Atlantic Richfield Company,
Justin R. Wolf and George Rothschild, Chevron USA,
Inc., Tom Burton and Ernest T. Altgelt, Conoco, Inc.,
Charles M. Darling, IV., and Thomas J. Eastment, Gen-
eral American Oi] Company of Texas, Cloy D. Monzingo
and Roger L. Brandt, Getty Oil Company, Lawrence E.
Glenn and Thomas A. Loftus, III, Gulf Oil Corporation,
Edwin S. Nail, Houston Oil and Mineral Corporation,
Robert D. Haworth and Edgar K. Parks, Mobil Oil Cor-
poration, et al., Patricia A. Curran, Pennzoil Company,
C.J. Roberts, Charles L. Pain and Jennifer A. Cates,
Phillips Petroleum Company, Ronald D. Hurst, Placid Oil
Company, Thomas G. Johnson and Robert A. Hasty, Jr.,
Shell Oil Company, Harry W. Sullivan, Jr., and Becky
McGee, Sun Exploration and Production Company, Pat
Timmons, The Superior Oil Company, Phyllis Rainey and
Richard G. Harris, Tenneco Oil Company, Karen A.
Berndt, Texaco, Inc., and Lois E. Gold, Union Oil Com-
pany of California, were on the brief for producer inter-
venors. Edward J. Kremer, Atlantic Richfield Company,
Carolyn S. Hazel, Conoco, Inc., Martin N. Erck and Jo-
seph G. Stiles, Exxon Corporation, Bernard A. Foster, III,
Getty Oil Company, Cnarles J. McClees, Jr., Mobil Oil
Corporation and Gordon Gooch, Tenneco Oil Company,
also entered appearances, for producer intervenors.
William T. Benham, entered an appearance for inter-
venor, Amoco Production Company.
Albert D. Hoppe, entered an appearance for intervenor,
Arco Oil and Gas Company.
Karol Lyn Newman, entered an appearance for inter-
venor, Laclede Gas Company.
Bernard A. Foster, III, entered an appearance for in-
tervenor, Louisiana Land and Exploration Company.
-
8a
George J. Meiburger, Frank X. Kelly and John B. Will,
entered appearances for intervenor, Northern Natural
Gas Company.
Raymond N. Shibley, Brian D. O'Neill and L. Charles
Landgraf, entered appearances for intervenors, Pan-
handle Eastern Pipe Line Co., et al.
Christopher T. Boland and J. Derrill Cody, entered ap-
pearances for intervenor, Texas Gas Transmission Cor-
poration.
William J. Grove, Jr., entered an appearance for inter-
venor, Valero Transmission Company.
Philip J. Mause, Norman A. Pedersen, Peggy Kobacker
Shiffrin and Steven M. Schur, were on the brief for
amicus curiae; The Public Service Commission of Wis-
consin supporting reversal.
Before: ROBINSON, Chief Judge, MIKVA and SCALIA,
Circuit Judges.
Opinion for the Court filed by Circuit Judge MIKVA.
MIKVA, Circuit Judge: The petitioners in this action,
numerous natural gas transmission and distribution com-
panies and their respective trade associations, seek review
of a final rule of the Federal] Energy Regulatory Com-
mission (FERC or Commission). That rule establishes
a new approach to measuring the energy content of nat-
ural gas for the wellhead pricing purposes of the Nat-
ural Gas Policy Act of 1978 (NGPA), 15 U.S.C. §§ 3311-
3333 (Supp. V 1981). Specifically, the new rule requires
that the energy content of natural gas be measured under
the varying, relatively “dry” conditions at which gas is
delivered for sale instead of the uniform, water-vapor
saturated, “wet” condition under which the Commission
had previously determined the energy content of gas. The
petitioners argue that the new rule, by defining energy
content in a way unforeseen by Congress, effectively
9a
raises the wellhead prices of natural gas above the maxi-
mum ceiling prices established by Congress in the NGPA.
Alternatively, the petitioners argue that the rule was
adopted without adequate notice and comment under the
Administrative Procedure Act; was impermissibly given
retroactive effect; and failed to guarantee wholesale gas
purchasers automatic pass through of any retroactive
payments they may be forced to make. We agree that the
rule violates the NGPA’s statutory pricing scheme and
accordingly vacate the Commission’s rule.
I. BACKGROUND
A. Technical and Historical Background of the “Wet”
Rule
The energy content of natural gas is measured in terms
of British thermal units (Btu’s), each Btu representing
the amount of energy needed to raise the temperature of
one pound of water one degree Fahrenheit, see Texaco,
Inc., 33 F.P.C. 1228, 1240 n.56 (1965). The Btu con-
tent of any given stream of natural gas will vary, how-
ever, depending on the gas’ particular mix of combustible
and noncombustible constituents. Natural gas is pri-
marily composed of combustible hydrocarbons such as
methane, propane, butane, ethane, and natural gasoline.
Yet, natural gas contains small amounts of noncombusti-
ble substances as well. Of particular importance to the
present case is the fact that natural gas often contains
relatively small amounts of water vapor. See FERC Or-
der 93-A, Technical Appendix, reprinted in Joint Appen-
dix (JA) 59, 68, 738. Because water vapor contains no
available heat energy, its presence in any given volume
of natural gas will reduce the Btu content of the gas by
displacing energy-producing hydrocarbons. Jd. at 61.
Prior to the passage of the NGPA, the Commission
(and its predecessor, the Federal Power Commission)
measured the Btu content of natural gas for the purpose
10a
of making “quality adjustments” to the gas rates set by
the Commission under the Natural Gas Act of 1938
(NGA), 15 U.S.C. $§ 717a-717w (1976 & Supp. V 1981).
Although the varying amounts of water vapor in natural
gas streams could affect the gas streams’ relative Btu
values, the Commission sought to factor out this rela-
tively small variable—to ensure ease of measurement and
consistency among samples—by determining Btu content
under laboratory conditions that standardized the amount
of water vapor at a convenient, albeit arbitrary, level.
See Government Brief at 5 n.9 & 8 n.12. Specifically, the
Commission promulgated a rule requiring the Btu content
of a gas stream to be determined on the basis of a test
volume of gas (1.0 cubic foot), saturated with water
vapor at a specified, conveniently obtained temperature
and pressure (60° F. and 30 inches of mercury). See 18
C.F.R. §§ 2.56a/c) (1), 2.56b(d) (1) (1982) (post- and
pre-1973 gas, respectively). This rule was known as the
“wet” rule because it required the gas sample to be satu-
rated with water vapor at a temperature and pressure
combination where the capacity of natural gas to absorb
water vapor is markedly higher than that existing at the
temperature and pressure conditions under which most
natural gas is sold. In practical effect, therefore, the wet
rule tended to overstate water vapor content for gas
which, when actually delivered, was neither saturated
with water vapor nor delivered at the “standard” temper-
ature or pressure. See FERC Order 93-A, Technical Ap-
pendix, reprinted in JA 63. This overstated water vapor
content, in turn, caused an understatement in the number
of Btu’s assumed to be in the test sample of natural gas.
Despite its relative inaccuracy, however, the Commis-
sion’s “wet” Btu determination enjoyed the advantages
of widespread industry acceptance and consistent agency
implementation. Originally proposed in a policy statement
during the Commission’s administration of gas rates un-
der the Natural Gas Act, see Fed. Reg. 4,614 (1961),
lla
the wet rule was expressly sanctioned by the Commission
in Texaco, Inc., 33 F.P.C. 1228 (1965), in which the
Commission noted that the rule was accepted by the
American Society for Testing Materials and the natural
gas industry as a whole, id. at 1236-37. See also Sunray
DX Oil Co., 29 F.P.C. 1079 (1963). The wet rule was
carried forward into the Commission’s area rate proceed-
ings under the NGA, see Area Rate Proceeding (South-
ern Louisiana Area), 46 F.P.C. 86, 143-44 (1973); Area
Rate Proceeding, Docket No. AR61-1, 34 F.P.C. 159, 223-
24 (1965), and into its national rate proceedings under
the NGA as well, see National Rates for Jurisdictional
Sales of Natural Gas, 56 F.P.C. 2698 (1976); Just and
Reasonable National Rates for Sales of Natural Gas, 54
F.P.C. 3090 (1975) ; Just and Reasonable National Rates
for Sales of Natural Gas, 52 F.P.C. 1604, 1630, 1651-52
(1974). Indeed, in its first national rate proceeding, the
Commission specifically rejected an argument by natural
gas producers that, because gas generally is sold to pipe-
lines and distribution companies in a much “drier” condi-
tion than that defined in the wet rule, the Commission
should adopt a more accurate “as delivered” or “dry”
definition of Btu content:
The Producers argue that the heating content (Btu)
‘of the gas should be adjusted for the water vapor
content in the gas as it is delivered.’ In Texaco, Inc.,
the Commission determined that Btu adjustments
should be made on the saturated basis. This is the
basis which was utilized in the area rate proceedings,
and is the basis that will be adopted in this proceed-
ing.
52 F.P.C. at 1630.
Thus, at the time Congress passed the NGPA in 1978,
the Btu content of natural gas had been defined by the
Commission in terms of a standardized, saturated condi-
tion for over fifteen years. As codified in the Commis-
sion’s rules of practice, the wet rule provided:
12a
The Btu content of the natural gas used in comput-
ing this rate adjustment [under the NGA] shall be
the number of British thermal] units (Btu) produced
by the combustion, at constant pressure, of the
amount of the gas which would occupy a volume of
1.0 cubic foot at a temperature of 60° F. saturated
with water vapor and under a pressure equivalent
to that of 30.00 inches of mercury at 32° F. and
under standard gravitational force (980.665 centi-
meters per second squared) with air of the same tem-
perature of the gas and air and when the water
formed by combustion is condensed to the liquid
state.
18 C.F.R. §§ 2.56a(c) (1), 2.56b(d) (1! (1982) (empha-
sis added). The precise language of the wet rule becomes
an important reference point for the petitioners’ proce-
dural objections to the Commission’s post-NGPA change
of course.
B. The Procedural History of the “Dry” Rule
Title I of the NGPA establishes a detailed scheme of
maximum ceiling prices for various categories of natural
gas sold to pipelines and local distribution companies.
‘Although these maximum “wellhead,” or “first sale,”
prices vary among different categories, the NGPA ex-
presses the price of each category on a “per million Btu”
(per MMBtu) basis. Thus, for example, section 108 of
the Act sets a maximum lawful price for “stripper well”
gas at $2.09 per MMBtu as of May 1978 (subject to
small, monthly adjustments thereafter for inflation and
real growth) and section 109 of the Act sets a maximum
price for certain gas produced from Prudhoe Bay, Alaska
at $1.45 per MMBtu as of April 1977 (as adjusted
monthly, thereafter, for inflation). See 15 U.S.C. §§ 3318,
3319 (Supp. V 1981). Because the prices for all of the
13a
NGPA’s categories of gas are expressed per MMBtu, the
Commission felt it necessary to specify, in its regula-
tions, how Btu content was to be determined. In doing so,
the Commission abandoned the “wet” measurement of
Btu’s that it had used under the NGA (and indeed still
uses for NGA purposes not displaced by the NGPA). In
its place, the Commission adopted an “as delivered’ rule
that measured the Btu content of gas at the conditions
under which natural gas is actually delivered for first
sales. Because natural gas generally contains far less
water vapor under actual delivery conditions than under
the saturated, laboratory conditions specified in the wet
rule, we refer to the Commission’s new rule as the “dry”
rule.
The Commission’s transition from the wet to the dry
rule was heralded by considerable confusion. The NGPA’s
pricing scheme became law on November 9, 1978, with
an effective date of December 1, 1978. Because of the
shortness of time in which to devise implementing regu-
lations, FERC decided to promulgate interim regulations
on an expedited basis and to revise them, if needed, at a
later date. Accordingly, the Commission issued a notice
of proposed rulemaking on November 14, 1978; considered
all comments received by November 20; and issued its
interim regulations on November 29. See Notice of Pro-
posed Rulemaking in Docket No. RM79-3, 43 Fed. Reg.
53,270 (1978). The notice also provided for a subsequent,
sixty-day comment period on the interim regulations, to
form the basis for any appropriate revisions. /d.
Among the proposed regulations considered during this
expedited interim rulemaking was the Commission’s dry
rule, designated as section 270.204 of the proposed in-
terim regulations. As originally proposed, however, the
Commission’s dry rule appeared virtually identical to its
long-established wet rule. Proposed section 270.204 pro-
vided :
l4a
Btu content per unit volume of natural gas
For purposes of determining the number of Btu’s
per unit volume of natural gas, the Btu content of
one cubic foot of natural gas is the number of Btu’s
produced by the combustion, at constant pressure, of
the amount of gas which would occupy a volume of
1.0 cubic foot at a temperature of 60 degrees Fahren-
heit, saturated with water vapor, and under a pres-
sure equivalent to that of 30.00 inches of mercury at
32 degrees Fahrenheit, and under standard gravita-
tional force (980.665 centimeters per second squared)
with air of the same temperature and pressure as
the gas, when the products of combustion are cooled
to the initial temperature of the gas and air and
when the water formed by combustion is condensed
to the liquid state.
43 Fed. Reg. at 53,333 (1978) (emphasis added) ; com-
pare 18 C.F.R. § 2.56a(e)(1) (quoted supra page 11).
Nothing in the prefatory statement accompanying the
Commission’s proposed regulation gave any indication
that section 270.204 constituted a change from the vir-
tually identical text of the Commission’s wet rule. The
Commission’s only explanation of section 270.204 was that
it “presents the technical information necessary to deter-
mine the number of British thermal units (Btu’s) per
unit volume of natural gas. This is necessary because
maximum lawful prices for first sales of natural gas are
stated in terms of dollars per million Btu’s.” 43 Fed.
Reg. at 53,280. No comments were received on the pro-
posed rule during the one-week comment period and, on
November 29, 1978, the identical text of the proposed
rule was issued as interim regulation 270.204. See 43
Fed. Reg. at 56,448.
The subsequent sixty-day comment period on the in-
terim regulation was more lively. During this period,
the gas-producing companies which are intervenors in the
present case filed written comments objecting to what
l5a
they perceived to be the water-vapor saturation require-
ments of interim regulation 270.204:
Section 270.204—According to this section, the Btu
content of natural gas is to be determined “saturated
with water vapor.” The result of this “special rule”
may be to unlawfully deny producers the right to
collect the full statutory rates under the NGPA. By
fixing the price on an MMBtu basis, Congress in-
tended that the maximum lawful price should be
paid for the gas as delivered by the producer, not as
adjusted by regulation.
Joint Supplemental Comments of Indicated Producers,
filed Jan. 31, 1978, at 6-7, reprinted in Brief of Producer
Intervenors, Appendix A at A-1 to A-2. On the basis of
comments such as these, the producers filed a petition
for rehearing concerning the interim regulations with the
Commission in February 1979. See Application of Indi-
cated Producers for Rehearing, FERC Docket No. RM79-
3, filed Feb. 2, 1979. On April 19, 1979, however, the
Commission denied this application without comment.
See Order Granting in Part and Denying in Part Appli-
cations for Rehearing of the Interim Regulations, re-
printed in Brief of Producer Intervenors, Appendix A at
A-5 to A-9. Thereafter, the producers filed for judicial
review of interim regulation 270.204 in the United States
Court of Appeals for the Fifth Circuit. See Ecee, Inc. v.
FERC, 645 F.2d 339 (5th Cir. 1981).
On July 16, 1980, almost eighteen months after promul-
gating interim section 270.204, FERC issued Order 93,
adopting the interim regulation as a final regulation,
albeit parsing the final text of the regulation into a
slightly different format:
Interim regulation § 270.204 is adopted as a final
rule
§ 270.204 Btu content per cubic foot of natural gas
(a) Measurement. The Btu content of one cubic
foot of natural gas under the standard conditions
l6a
specified in paragraph (b) of this section is the
number of Btu’s produced by the complete combus-
tion of such cubic foot of gas, at constant pressure
with air of the same temperature and pressure as
the gas, when the products of combustion are cooled
to the initial temperature of the gas and air and
when the water formed by such combustion is con-
densed to a liquid state.
(b) Standard conditions. The standard conditions
for purposes of paragraph (a) of this section are as
follows: The gas is saturated with water vapor at
60 degrees Fahrenheit under a pressure equivalent
to that of 30.00 inches of mercury at 32 degrees
Fahrenheit, under standard gravitational force
(980.665 centimeters per second squared).
FERC Order No. 93, Final Rule, July 16, 1980, reprinted
in JA 24 (emphasis added). Although the terms of the
final rule tracked, almost verbatim, the terms of the in-
terim rule, the Commission surprised all of the parties in
this case by announcing in the “Summary” section of
Order 93 that the Btu values obtained under section
270.204 were to be “converted” to figures that reflected
the actual water vapor condition of natural gas on de-
livery:
Several comments noted that § 270.204 provides that
Btu content must be measured on a “saturated with
water vapor” basis rather than on the basis of the
actual water vapor content of the gas as delivered.
The comments asserted that under this rule the seller
would be paid for less Btu’s than would actually be
delivered if the gas were sold on a dry (unsaturated)
basis.
This assertion is erroneous. Section 270.204 merely
describes the test standard for expressing the num-
ber of Btu’s contained in a cubic foot under certain
conditions. Under this standard, the heat value is
17a
expressed as the number of Btu’s per cubic foot of
gas “saturated with water vapor.” The Commission
is aware that the water vapor content or pressure of
the gas when tested may be different than described
in this standard, and may also be different than the
conditions that obtain when the gas is delivered.
Therefore, the results obtained under test conditions,
be they those in the rule or otherwise, must be con-
verted to figures that reflect the actual condition of
the gas on delivery in order to properly price the gas.
FERC Order 93, supra, at JA 15-16 (emphasis added).
Although Order 93 rendered moot the “wet rule” issue
in the producers’ petition for review in the Fifth Cir-
cuit’s Ecee case, it set off a flurry of applications for re-
hearing by most of the pipeline and gas distribution com-
panies which are presently petitioners in this case. The
Commission denied all of these applications for rehearing
in Order 93-A, April 24, 1981, reprinted in JA 30. In
Order 93-A, the Commission for the first time articulated
the rationale behind Order 93’s controversial explanation
of section 270.204. Essentially, the Commission’s position
was that the NGPA’s Btu-based pricing scheme required
(1) a more accurate method of measuring Btu’s than was
required under the old NGA scheme, and (2) a method
of measuring Btu’s in a volume of gas at “delivery con-
ditions” instead of at “standard conditions.” See Order
93-A, supra, at JA 42-49. To explain why the language
of section 270.204 specified these “‘standard conditions” in
the first place, the Commission cryptically stated:
[Section 270.204] merely describes the standard con-
ditions under which the number of MMBtu’s in a
volume of natural gas is measured. However, recog-
nizing that actual delivery conditions vary widely
and are most often different from the defined stand-
ard conditions . . . the results of Btu measurements
at the defined standard conditions must be adjusted
to account for actual delivery conditions.
1Sa
Order No. 93-A, supra, at JA 32-33. The Commission
further stated that its newly explained “as delivered”
method of determining Btu content could be made by any
reasonable method. JA 55. Moreover, the Commission
concluded, because Order 93 had merely “clarified” in-
terim section 270.204, and had not substantively changed
it, the effective date of the final dry rule was December 1,
1978 (the effective date of the interim rule) and not Sep-
tember 22, 1980 (the effective date of Order 93). See
JA 57. Because the December 1, 1978 effective date could
result in retroactive payments in the millions of dollars
from pipeline and gas distribution companies to gas pro-
ducers, the Commission specifically provided that pipeline
and distribution companies could demonstrate that pass
through charges to their customers (rate treatment)
would be “appropriate” for any claimed retroactive pay-
ments. See JA 58.
In response, some pipeline and distribution companies
petitioned the Commission for rehearing of Order 93-A
and requested a stay of its retroactive application. These
petitions were denied on July 30, 1981. See Order Deny-
ing Applications for Rehearing of Order 93-A and Lim-
ited Stay of Order Nos. 93 and 93-A, reprinted in JA 89.
In June and July 1981, the petitioners filed their peti-
tions for judicial review in this court and, on August 6,
1981, one of the petitioners (Lone Star Gas Company)
moved this court for a stay of the dry rule’s retroactive
application pending a judicial determination on the
merits. Before this court could rule on the motion, the
Commission sua sponte asked for a remand of the record
to reconsider the issue of the dry rule’s effective date and
temporarily stayed the rule’s retroactive application pend-
ing the Commission’s reconsideration. This court allowed
remand of the record to the Commission in September
1981, but in December of that same year, the Commission
issued an Order reaffirming the dry rule’s December 1,
1978 effective date. See Order Vacating Partial Stay
19a
and Amending Regulations, JA 126. In this Order, how-
ever, the Commission amended the language of section
270.204 by adding a new subsection (c) :
(ce) Application of the maximum lawful price. The
maximum lawful price prescribed by the NGPA and
this part for any first sale of natural gas applies to
the Btu’s actually delivered in that first sale.
JA 133. Because the Commission considered this amend-
ment to be merely another “clarification” of the regula-
tion, it concluded that public notice and comment were
unnecessary. JA 131.
C. The Parties’ Arguments
The primary arguments in this case address two broad
questions: (1) whether the NGPA’s pricing scheme al-
lows or requires the Commission to promulgate a dry
definition of Btu content; and (2) if so, whether the
Commission’s promulgation of section 270.204 ‘afforded
the petitioners adequate notice and opportunity to com-
ment. The petitioners maintain that'the NGPA does not
allow the Commission to adopt a dry definition of Btu
content. They support this position with excerpts from
the Act’s legislative history suggesting indirect congres-
sional endorsement of the wet rule; supplementally, they
point to the absence of congressional criticism of the wet
rule as indicating congressional intent to leave the defini-
tion of Btu content as it was. In the alternative, the
petitioners argue that they were deprived of a meaningful
opportunity to comment on the dry rule because the Com-
mission’s notice of proposed rulemaking and the “wet”
text of interim section 270.204 failed to indicate to the
public that a dry rule was even under consideration.
Finally, the petitioners complain that the Commission vio-
lated their constitutional right to due process by giving
retroactive effect to the dry rule—which was announced,
at the earliest, in Order 93 on July 16, 1980—as of the
NGPA’s effective date, December 1, 1978. This retroac-
20a
tive application is compounded, the petitioners add, by
FERC’s refusal to guarantee pipelines and distribution
companies automatic pass through to their customers,
under section 601 of the NGPA, 15 U.S.C. § 3431 (Supp.
V 1981), of any retroactive “dry Btu” payments that the
companies may now be forced to make to natural gas
producers.
In response, the Commission posits that its dry defini-
tion of Btu content is consistent with the NGPA’s pricing
scheme and deserves judicial deference. Specifically, the
Commission argues that Congress impliedly displaced the
inaccurate wet rule by choosing a Btu-based pricing
scheme; such a scheme, the Commission concludes, evi-
dences congressional intent to measure Btu’s on a more
accurate “dry” or “as delivered’ basis. Moreover, be-
cause its dry rule merely articulates this implicit legisla-
tive intent, the Commission maintains that the rule is an
“interpretative” rule, outside of the notice and comment
requirements of the Administrative Procedure Act
(APA), 5 U.S.C. § 553(b) (c) (1976). Concomitantly, the
Commission maintains that its interpretative rule should
be given the same December 1, 1978 effective date as the
statute that it interprets. In the alternative, the Com-
mission suggests that its notice of proposed rulemaking
and the text of its interim rule sufficed to notify peti-
tioners adequately that the subject of Btu measurement
was under agency review. Assuming that its dry rule
was a properly promulgated but non-interpretative rule,
the Commission would still justify the rule’s application
as of December 1, 1978 because the harm of depriving
natural gas producers of their congressionally-allowable
prices is claimed to be greater than the harm to pipeline
and distribution companies, which assertedly can pass
through any legitimate, retroactive payments to their cus-
tomers. The Commission insists that its refusal to “guar-
antee” pass through is not meant to deprive the pipelines
and distribution companies of pass through under section
601. Rather, the Commission’s refusal is said merely to
2la
allow pass through on a case-by-case basis, to ensure that
all passed through charges are not “excessive due to
fraud, abuse or similar grounds,” as provided in section
601(c) (2), 15 U.S.C. § 3431(c) (2) (Supp. V 1981).
The intervenors in this case are twenty-three energy-
producing companies. The intervenors take the position
that the Commission’s dry rule is required by the NGPA;
that it is an interpretative rule outside of the APA’s
notice and comment provisions; and, alternatively, that
it is a reasonable legislative rule, promulgated with ade-
quate notice and comment. In addition, the intervenors
have moved to dismiss one of the petitioners, Lone Star
Gas Company (Lone Star), for lack of jurisdiction. Spe-
cifically, the intervenors claim that Lone Star’s failure to
petition the Commission for rehearing of the final day
rule within 30 days of the rule’s promulgation in Order
93 precludes it from seeking judicial review of that Order
given the jurisdictional prerequisite established in sec-
tion 506 of the NGPA, 15 U.S.C. § 3416(a)(2) (Supp.
V 1981) (denying standing to seek judicial review to any
person aggrieved by an order of the Commission who
failed to petition for agency rehearing within 30 days
after issuance).
II. DISCUSSION
As a threshold matter, we consider the petitioners’
contention that the language and legislative history of the
NGPA do not allow the Commission to adopt a “dry”
definition of Btu content. Should the petitioners prevail
in this contention, it would not be necessary to reach the
notice and comment, retroactivity, or pass through issues.
In evaluating the petitioners’ position, and concomitantly
the Commission’s (and producer-intervenors’) contrary
view of the statute, it is our responsibility to measure
the parties’ arguments in light of the language, legisla-
tive history, purpose, and structure of the NGPA, ac-
cording the Commission the traditional respect due an
agency’s interpretation of the statute it is called upon
to enforce.
22a
We begin our analysis by considering the statute’s lan-
guage; “(t]he starting point in every case involving con-
struction of a statute is the language itself.” Interna-
tional Brotherhood of Teamsters v. Daniel, 489 U.S. 551,
558 (1979). In the present case, however, the dearth of
statutory references to water vapor/Btu content calls
forth Justice Frankfurter’s guidance: “One more cau-
tion is relevant when one is admonished to listen atten-
tively to what a statute says. One must also listen at-
tentively to what it does not say.” Frankfurter, Some
Reflections on the Reading Statutes, 47 CoLuM. L. REV.
527, 536 (1947). The NGPA does not expressly provide
for either a wet or a dry determination of Btu content.
Although ceiling prices for virtually every category of
natural gas are set on a “per MMBtu” basis, see 15
U.S.C. §§ 3312-3319 (Supp. V 1981), the statute merely
defines the term “Btu” to mean “British thermal units,”
15 U.S.C. § 3301 (30).
Undaunted by the lack of statutory text, some of the
parties seek to quarry congressiona] intent from Con-
gress’ silence. The petitioners, for example, argue that
Congress, having not spoken to the Btu measurement is-
sue, “cannot be held to have required a change in the
long-standing practice of measuring Btu content on a
saturated basis.” See, e.g., Brief of Petitioners Michigan
Wisconsin Pipe Line Company, et al (Michigan Wiscon-
sin Brief) at 24. In response, the producer-intervenors
insist, “(h]ad Congress intended to preserve the impre-
cise water saturation assumption . . . it could easily have
done so in [the definitional section] of the NGPA.” Brief
of Producer Intervenors at 14. These thrusts and par-
ries, however, reflect a duel of wooden maxims that has
little discernible relationship to the meaning of the
NGPA. However, revealing congressional acquiescence in
administrative action may be in more pointed, focused
contexts, see, ¢.g., Bob Jones University v. United States,
51 U.S.L.W. 4593 (U.S. May 24, 1983), there are no
23a
indications in the NGPA’s legislative history to suggest
that Congress’ failure to define expressly Btu content
indicates, by itself, a conscious policy preference for ei-
ther the wet or the dry rule. The wisdom of Justice
Frankfurter’s admonition to consider what a statute fails
to say should not be taken as a cue for sloganeering;
generally, the use of canons of construction are appro-
priate when they aid, rather than displace, the search
for statutory meaning. Cf. Note, Intent, Clear State-
ments, and the Common Law: Statutory Interpretation
in the Supreme Court, 95 Harv. L. REv. 892, 903 (1982)
(rules of construction should not blindly substitute for
appropriate inquiry into statutory purpose).
Both the Commission and intervenors suggest that the
“as delivered” rule is required by the NGPA’s repeated
reference to “natural gas delivered during any month.”
See 15 U.S.C. §§ 3812(a), 3813(a), 3314(a), 3315(a),
3316(a), 3317(a), 33818(a), 33819(a) (Supp. V 1981)
(emphasis added). We find this reading to be without
foundation. Nothing in the NGPA’s language or legis-
lative history links the phrase, “delivered during any
month,” to a particular type of Btu measurement.
Rather, the statute focuses on the month of “delivery,”
as opposed to the date of the sale or the date of the nat-
ural gas contract, to determine the proper month for
applying the appropriate ceiling price and accompanying
monthly inflation and growth adjustments. See 15 U.S.C.
§ 3311(b) (4) (Supp. V 1981) (“The maximum lawful
ceiling prices under this subchapter . . . (B) shall apply
to the month of delivery without regard to the date of the
sale or the date of the contract under which the sale
curs... .”). Thus, for example, section 3312 provides
that the maximum lawful price of new gas “delivered
during any month” shall be:
(1) $1.75 per million Btu’s, in the case of April
1977; and
24a
(2) in the case of any month thereafter, the maxi-
mum lawful price, per million Btu’s, prescribed
under this subsection for the preceding month
multiplied by the monthly equivalent of a factor
equal to the sum of—
(A) the annual inflation adjustment factor applica-
ble for such month; plus
(B) (i) .085, in the case of any month beginning
before April 20, 1981; or
(ii) .04, in the case of any month beginning
after April 20, 1981.
15 U.S.C. § 8312(a)(b) (Supp. V 1981) (emphasis
added). The very particularity with which Congress iden-
tifies the price adjustments attending the month of de-
livery (to the thousandth’s place, in some instances)
makes it extremely unlikely that Congress would use the
phrase, “delivered during any month,” without further
specification, to denote obliquely a change from the wet
to the dry method of measuring Btu’s—a change which,
we are told, may affect the overall amounts paid for nat-
ural gas by the hundreds of millions of dollars. In short, .
the Commission fails to convince us of any necessary con-
nection between the delivery point at which the price of
gas is fixed and a “dry” determination of Btu content.
Indeed, the Commission itself has established that a
“wet” measurement of Btu content was properly used
during rate determinations under the NGA, despite the
fact that the underlying NGA commodity unit was also
measured on an “as delivered” basis. See Order 93-A
at 13, reprinted in JA 42. (“Although the commodity
priced was volume rather than heating value, the NGA,
too, priced the commodity on an as-delivered basis.’’).
The Commission’s argument thus boils down to the
shift from the commodity unit under NGA ratemaking
25a
where gas was priced by volume, per thousand cubic feet
(Mcf), to the new energy-content basis under the NGPA,
per MMBtu. In the Commission’s view, the NGPA’s use
of a Btu-based pricing scheme puts a premium on ac-
curate Btu measurement that cannot be squared with the
water-vapor assumptions of the Commission’s longstand-
ing wet rule. This is alleged to be so for two reasons.
First, the Commission suggests, “Title I of the NGPA
meticulously establishes a detailed pricing scheme for
enumerated categories of natural gas,” under which Con-
gress could not have intended “to adopt a method of price
calculation that leads to inaccurate results.” Brief for
Respondent FERC at 19, 20. Second, FERC adds, inac-
curate measurement of the Btu content of natural gas
would distort the intent of the NGPA to set ceiling prices
for natura! gas in reference to the Btu content of other
fuels. See id. at 21.22. Neither of these two arguments
withstands scrutiny.
There is no question but that the pricing scheme of the
NGPA reflects the meticulous detail to which the Com-
mission refers. But it is precisely the detail of this
scheme that undermines the Commission’s position.
Originally introduced as the keystone of President Car-
ter’s National Energy Act, the NGPA emerged as a com-
plex compromise between two radically different House-
and Senate-passed bills. Compare H.R. 6831, 95th Cong.,
ist Sess., 123 Cong. Rec. 13,184 (1977) (original bil] in
House) and S. 1469, 95th Cong., 1st Sess., 12 Cong.
Rec. 13,730 (1977) (original bill in Senate) with H.R.
8444, 95th Cong., Ist Sess. (1977) (House-passed bill
mandating permanent price controls on intra- and inter-
state sales) and §. 2104, 95th Cong., 1st Sess. (1977)
(Senate-passed bill exempting intrastate sales from regu-
lation and deregulating new onshore and offshore gas
within two and five years, respectively). See generally
Note, Legislative History of the Natural Gas Policy Act:
Title I, 59 Tex. L. Rev. 101, 106-16 (1980). The com-
26a
promise bill combines price control and deregulation in a
statutory scheme that creates nationwide incentive-based
price ceilings for categories of gas at the margin of sup-
ply (such as “new,” “high-cost,” and “stripper well”
gas); that retains various “just and reasonable” rates as
the basis for price ceilings on “old” gas; and that im-
poses interim price controls on iutrastate gas. Although
the NGPA provides for phased deregulation of many of
these categories of gas, Congress established the Act’s
interim, as well as permanent, price ceilings to the
penny. The maximum lawful prices of various categories
of gas are congressionally fixed in either specified dollar
amounts or else in terms of their “just and reasonable”
rates as of a date certain under the NGA. Compare 15
U.S.C. §§ 3312, 3313, 3317, 3318 (Supp. V 1981) (set-
ting specific dollar amounts) with id. §§ 3314, 3316(a)
(incorporating NGA “just and reasonable” rates). See
Public Service Commission of New York v. Mid-Loui-
siana Gas Company (Mid-Louisiana Gas), 51 U.S.L.W.
5030, 5034 (U.S. June 28, 1983) (“Title I... estab
lishes an exhaustive categorization of natural gas pro-
duction and sets forth a methodology for calculating an
appropriate ceiling price within each category”). Given
that both the Commission and the producer-intervenors
agree that the Btu content of natural gas is an integral
part of each of the prices established in the NGPA, see
Brief for Respondent FERC at 22 (“It cannot be denied
. . . that the new statute expressly provides that heat
content of natural gas determines its price”); Brief of
Producer Intervenors at 16 (acknowledging that differ-
ent methods of measuring Btu’s can effectively raise or
lower the NGPA’s ceiling prices), it is most logical, for
several reasons, to assume that Congress fixed these
prices based on the “wet” method of measuring Btu’s.
First, the wet rule establishes the only method of
measuring Btu’s with which Congress was likely to have
been familiar. At the time Congress passed the NGPA,
27a
the Btu content of natural gas had been defined by the
Commission in terms of a standardized, saturated condi-
tion for over fifteen years. See discussion supra pp. 10-
11. Moreover, the wet rule was the only method of
measuring Btu’s that was even tangentially acknowledged
in the NGPA’s legislative history. In the House commit-
tee report accompanying H.R. 8444, one of the NGPA’s
forerunner bills, the House Committee on Interstate and
Foreign Commerce explained the bill’s incorporation of
“the just and reasonable price established by the Com-
mission” by stating that “[t]he reference to... just
and reasonable prices and contract prices for purposes of
determining maximum lawful prices under section 405
incorporates Btu adjustments and other quality adjust-
ments provided for in FPC rate determinations or in the
applicable contract.” H.R. Rep. No. 496, Part 4, 95th
Cong., 1st Sess. 103 (1977) (emphasis added). Although
the final version of the NGPA differed in many respects
from H.R. 8444, the concept of incorporating the Com-
mission’s “just and reasonable” rates for certain cate
gories of gas was carried over into the final version of
the Act, see, e.g., 15 U.S.C. §§ 3314, 8816(a) (Supp. V
1981). In explaining this incorporation, the House con-
ference report referred to “the just and reasonable rates
that were in effect on April 20, 1977 as converted, if
necessary, to a million Btu basis. ...” H.R. Rep. No.
1752, 95th Cong., 2d Sess. 82 (1978), reprinted in 1978
U.S. Cope Conc. & Ap. NEws 8988, 8998 (emphasis
added). We read the qualifier, “as converted, if nezes-
sary, to a million Btu basis,” to assume that it would
not be necessary to convert those contract prices estab-
lished under the NGA that may already have been ex-
pressed on a “per million Btu” basis. See, e.g., id. at 85,
reprinted in 1978 U.S. CopE Conc. & Ap. NEws at 9001
(referring to the NGA as setting the “just and rea-
sonable” price of gas under interstate rollover contracts
at 55¢/MMBtu’s for the second half of 1978.”) (em-
phasis added). Given that such prices would have had to
28a
comport with the NGA’s longstanding wet rule, the re-
port of the conference committee, like that of the com-
mittee report accompanying H.R. 8444, indicates at least
indirect congressional incorporation of the wet rule into
the NGPA’s price structure. In contrast to this evidence
of congressional familiarity with the pre NGPA method
of measuring Btu's, there is absolutely no evidence of
congressional awareness of any alternative “dry” or “as
delivered” methods. Under a statutory scheme in which
Congress establishes definite prices for various categories
of gas, and in which price adjustments for inflation and
real growth are often expressed to the thousandth’s place
(see supra p. 23), the Commission’s attribution to Con-
gress of a price component with which it was wholly
unfamiliar is unreasonable.
We reject the Commission’s dry rule for a second rea-
son: it severely overstates the significance of Congress’
shift to the MMBtu basis of pricing natural gas and
accordingly distorts the ceiling prices that Congress in-
tended to establish. Throughout its Order explaining the
statutory rationale for the dry rule, the Commission re-
peatedly emphasizes that, by choosing the “MMBtu” com-
modity unit in the NGPA, Congress necessarily rejected
the NGA’s use of the “Mcf” commodity unit and all that
went with it—including the “wet method” of measuring
Btu’s for the purpose of making Btu quality adjustments
in the price. See, e.g., Order No. 98-A, supra, 32-33,
45-48. Such a sweeping conclusion is belied, however, by
the NGPA’s legislative history. Specifically, there is con-
siderable evidence that Congress may have assumed the
“Mcf” and “MMBtu” commodity units to be, in many
respects, equivalent. We note, for example, that the ceil-
ing price for “new” gas established in section 102 of the
NGPA, $1.75 per MMBtu, tracks President Carter’s
originally submitted bill, which proposed that the price
for “new” gas be set at $1.75 per Mcf. Compare 15
U.S.C. $3312 (Supp. V 1981) with White House Fact
29a
Sheet 16 (April 20, 1977), reprinted in I LEGISLATIVE
HISTORY OF THE NATIONAL ENERGY ACTS OF 1978, Item
1 at 16 (1979). Similarly, the $0.54 per MMBtu price of
interstate rollover gas established in 15 U.S.C. § 3316(a)
{2)(A) (Supp. V 1981) appears to track exactly the
$0.54 per Mcf price, for the same type and age of gas,
derived from Just and Reasonable National Rates for
Sales of Natural Gas, 52 F.P.C. 1604 (1974). And two
of the NGPA’s floor managers, Senator Jackson and Rep-
resentative Dingell, both indicated their belief that the
$1.45 per MMBtu price of section 109(b) derived directly
from the $1.45 per Mef price of identical gas established
under the Commission’s Opinion 770-A, National Rates
for Jurisdictional Sales of Natural Gas, 56 F.P.C. 2698
(1976). See 124 Cong. Rec. H13,117 ‘daily ed. Oct. 14,
1978) (statement of Representative Dingell) ; 124 Cong.
Rec. $15,020-21 (daily ed. Sept. 18, 1978) (statement of
Senator Jackson). From this legislative history, we ab-
stract only the likelihood that Congress may well have as-
sumed that the “Mcf” and “MMBtu” bases of natural gas
pricing were far more interchangeable than the Commis-
sion realized in its abandonment of the wet rule. Ac-
cordingly, we cannot accept the Commission’s position
that the NGPA’s use of an “MMBtu” price represents so
drastic a shift that all aspects of “Mcf” prices—such as
the wet rule—were necessarily rejected. Such a position
derives from assumptions at odds with those used by
Congress in establishing the precise ceiling prices at is-
sue in the case. Cf. Mid-Louisiana Gas, 51 U.S.L.W. at
5034 n.12 (although NGPA generally meant to displace
Commission’s regulatory authority under NGA, “[flor
some (but not all) old gas, the NGA price is preserved
as an initial ceiling price”). Moreover, the Commission’s
position is difficult to reconcile with those sections of the
NGPA authorizing the Commission to prescribe higher
ceiling prices, in limited circumstances, provided that
the new prices are “just and reasonable within the mean-
ing of the Natural Gas Act.” See, e.g., 15 U.S.C. §§ 3314
80a
(2), 3316(c), 3319(b) (Supp. V 1981). Given that the
wet rule continues to govern the Commission’s practice
under the NGA, it would appear that only a “wet”
method of measuring Btu’s would satisfy both the
NGPA’s authorization to set higher just and reasonable
rates “within the meaning of the NGA” and its require-
ment that all gas be priced on an MMBtu basis.
Our concern with the assumptions underlying the
NGPA’s pricing scheme provides the basis for a third
criticism of the Commission's “dry” interpretation of the
Act. Specifically, the Commission argues that Congress
chose MMBtu’s as its commodity unit in order to refer-
ence the price of natural gas to the “Btu equivalency” of
other fuels. A “wet” method of measuring Btu’s would
unjustifiably skew this inter-fuel comparison, the Com-
mission concludes, by distorting the Btu measurement of
natural gas with artificial assumptions about water vapor
content that do not, in fact, exist. See Order No. 93-A,
supra, JA 45-46. The Commission’s conclusion suffers
from two major weaknesses. First, the final version
of the NGPA failed to carry over the provisions of the
House- and Senate-passed predecessor bills which ad-
justed the wellhead price for natural gas in light of the
“current Btu-related price” of domestic crude oil. Com-
pare 15 U.S.C. $$ 3311-3333 (Supp. V 1981) (final ver-
sion of Title I) with H.R. 8444, 95th Cong., Ist Sess.
$403 (1977) and S. 2104, 95th Cong., Ist Sess.. § 303
(1977) (“current Btu-related price’ sections of NGPA’s
unenacted, predecessor bills). Given that the direct com-
parison between gas and oi] Btu’s was dropped from the
final version of the statute, the Commission’s emphasis
on accurate inter-fuel comparisons loses much of its force.
Second, moreover, the Commission’s emphasis on hyper-
accurate measurements finds little support from those
inter-fuel Btu comparisons made in other statutory pro-
visions enacted contemporaneously with Title I of the
NGPA. Thus, for example, the committee report accom-
8la
panying the Energy Tax Act of 1978, Pub. L. No. 95-618,
92 Stat. 3174-3205 (1978), refers to several “standard”
assumptions made in determining the Btu equivalency of
oi! and gas for tax purposes: “To arrive at a Btu equiv-
alency price for each million BTU’s of natural gas, the
price per barre! is divided by 5.8 million. (A thousand
cubic feet of natural gas equals about 1 million BTUs).”
H.R. REP. No. 496, Part ITI, 95th Cong., 1st Sess. 97
(1977). The apparent Willingness of Congress to use a
standard conversion factor of 5.8 million Btu’s per bar-
rel, as well as its generalization that one thousand cubic
feet of gas (1 Mcf) contains approximately one million
Btu’s (1 MMBtu). Suggests that Congress was not neces-
arily adverse to the use of “standard” assumptions un-
derlying the wet rule. Indeed, the Commission itself has
endorsed the use of standard assumptions in its imple
mentation of section 204(e) of Title II of the NGPA. 15
U.S.C. § 3344(e) (Supp. V 1981). Section 204(e) re
quires that the Commission determine the cost of alter-
native fuel (specifically, of Number 2 fuel] oil) on an
MMBtu basis. Yet, in its implementing regulations, the
Commission adopted a standard conversion factor of 5.8
million Btu’s per barrel of Number 2 fuel oil, and spe-
cifically rejected the Suggestions of various commenters
that the Commission adopt a specific adjustment factor
to accommodate variations in the Bty content among dif-
ferent barrels of oil. See 44 Fed. Reg. 57,754, 57.770
(1979). To the extent that Congress’ use of Btu’s may
be given effect by the use of various “standard” meas-
urements in Title II of the NGPA and in the Energy
Tax Act of 1978, there does not seem to be any nedeésary
incompatibility between Congress’ shift to MMBtu’s in
Title I of the NGPA and its use of the “standard” as-
sumptions underlying the wet rule.
In sum, we find the Commission’s dry rule to be in-
consistent with the NGPA’s language, structure. and leg-
islative history. Although one of the Purposes of the Act
82a
was to increase the financial incentives for producing
various types of new gas, see Note, Legislative History
of the Natural Gas Policy Act, supra, p. 25, at 116, Con-
gress did not intend for the Commission to raise the effec-
tive wellhead price of gas as much as possible. Rather,
Congress itself specified the maximum lawful prices of
most categories of gas and authorized the Commission to
raise those prices only in certain, very limited, circum-
stances. Cf. Pennzoil Co.w. FERC, 645 F.2d 360, 379
(5th Cir. 1981), cert. denied, 454 U.S. 1142 (1982)
(“The balance Congress struck already took into account
the conflicting interests of producers and consumers’).
Given that the definition of Btu content is an integral
part of the price structure chosen by Congress, see supra
p. 26, the critical focus in this case involves the likely
assumptions made by Congress in pricing natural gas on
a “per MMBtu” basis. Thus, however more appealing the
dry rule may be to the Commission’s sense of scientific
aesthetics and accuracy, it is not for the Commission to
“improve” the statutory design chosen by Congress. The
Commission’s technical experience with measuring Btu’s
is of limited usefulness in determining what Congress
meant in setting ceiling prices for natural gas on a Btu
basis. Unlike those situations in which Congress dele-
gates to an agency the choice of methodologies or defini-
tions, see, e.g., 29 U.S.C. §880(b) (Supp. V 1981)
(directing the Secretary of Labor “to develop reliable
methods . . . to produce more statistically accurate data
on unemployment”), the Commission itself concedes that
it was given “no independent authority under the NGPA
to define ‘Btu,’” Brief for Respondent FERC at 28 n.28.
Even according the Commission’s rationale for the dry
rule the respect traditionally due an agency's statutory
interpretation, see, e.g.. FEC v. Democratic Senatorial
Campaign Comm., 454 U.S. 27, 39 (1981); Batterton v.
Francis, 432 U.S. 416, 425 n.9 (1977), we find the Com-
mission’s dry rule—whether characterized as legislative
83a
or interpretative—to be fundamentally at odds with the
Btu measurement technique implicit in the NGPA.
Because we find the dry rule “not in accordance with
law,”’ we need not reach the issues of whether the rule
had been promulgated with sufficient notice and oppor-
tunity to comment; whether the rule had been improperly
given retroactive effect; or whether the Commission failed
to guarantee pipelines and distribution companies auto-
matic pass through of any retroactive payments. The
only issue remaining for disposition is the motion of the
intervenors to dismiss one of the petitioners, Lone Star
Gas Company, for failing to meet the jurisdictional pre-
requisites of section 506 of the NGPA, 15 U.S.C.
§ 3416(a)(2) (Supp. V 1981). Section 506 requires any
person seeking judicial review of a Commission order to
have petitioned the Commission for rehearing within
thirty days of the issuance of the order. See Ecee, Inc.
v. FERC, 611 F.2d 554, 559-66 (5th Cir. 1980) (apply-
ing this requirement to persons seeking judicial review
of agency rulemaking). It is undisputed that Lone Star
did not file for rehearing of the Commission’s Order 93,
in which the Commission’s dry rule was first announced,
but did file within thirty days of the Commission’s ex-
planatory order, Order 93-A. Although we do not re
quire persons to read vague agency rules with the clair-
voyance of “the most tireless of advocates," Sam Rayburn
Dam Electric Co. v. FPC, 515 F.2d 998, 1117 n.35 (D.C.
Cir. 1975), the fact that all of the other petitioners in
this action found Order 93 sufficiently clear to trigger
petitions for agency reconsideration convinces us that the
Order was not so ambiguous as to excuse Lone Star from
the NGPA’s filing provision. Accordingly, we dismiss
Lone Star for failing to meet the jurisdictional require-
ments of the Act. Because all of the arguments advanced
by Lone Star before this court are also advanced by sev-
eral of the other petitioners, however, our dismissal of
Sita
Lone Star does not affect the issues presented in this
case.
For the reasons discussed above, the Commission’s
measurement of Btu content established in section 270.204
of its rules of practice must be vacated.
It is so ordered.
85a
APPENDIX B
DC-C-37
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: Charles B. Curtis, Chairman;
Georgiana Sheldon, Matthew
Holden, Jr., and George R. Hall.
Docket No. RM80-33
FINAL RULES FOR
PART 270, SUBPART B, )
SECTIONS 270.201, )
270.202 AND 270.204 )
ORDER NO. 93
FINAL RULE
(Issued July 16, 1980)
On December 1, 1978, the Federal Energy Regulatory
Commission (Commission) issued interim regulations (43
Fed. Reg. 56448, December 1, 1978) implementing cer-
tain sections of the Natural Gas Policy Act of 1978
(NGPA), 15 U.S.C. 3301-3432, including Subpart B of
Part 270 which prescribes special rules relating to first
sales of natural gas. On January 18, 1980, the Commis-
sion amended the interim rules in Subpart B to include
provisions for percentage-of-proceeds sales. (Order No.
68, issued in Docket No. RM80-14, 45 Fed. Reg. 5678,
January 24, 1980.)
This final rule addresses the following sections of Sub-
part B of Part 270: § 270.201, which deals with first
sales of commingled gas; § 270.202, which prescribes rules
for resellers of natural gas; and § 270.204, which de-
scribes a standard method of determining the Btu con-
86a
tent per unit volume of gas sold under the NGPA. The
rule addresses comments concerning the December 1 in-
terim rules as well as requests for clarification of Order
No. 68 as it relates to percentage-of-proceeds sales. The
remaining portions of Subpart B (§§ 270.203, 270.205,
and 270.206) have been addressed in separate rulemak-
ings and will not be considered here.
D. Section 270.204.
Section 270.204 describes a standard method for deter-
mining Btu content per unit volume of natural gas. Btu
content must be measured for much of the gas sold under
the NGPA because the Act requires that first sales not
exceed certain maximum lawful prices, which are stated
in terms of MMBtu’s.’*® Furthermore, any seller whose
gas is subject to section 105 may need to know the Btu
content of the gas in order to determine whether he is
subject to the maximum lawful price in section 105(b)
(1) or that in section 105(b) (2).™
10 Maximum lawful prices for “minimum rate gas,” see § 271.101
(a), and maximum lawful prices for certain sales under sections
105 and 106(b) are expressed on an Mcf, and not an MMBtvu, basis.
See note 6 infra.
11 For example, where gas is subject to section 105 (existing
intrastate contracts), it will be necessary to know the Btu content
in some but not all cases. Initially, a Btu content test may be
necessary in order to determine whether the sale is subject to
section 105(b) (1) or section 105(b)(2). If the price under the
terms of the existing contract is calculated on a volumetric basis
(per Mcf) and is clearly lower than the maximum lawful price per
MMBtu under section 102 on November 9, 1978, the price per Mcf
under the terms of the existing contract is the maximum lawful
price. There is no need to measure the heat (Btu) content of the
gas. However, if the price under the existing contract appears to
be close to the section 102 maximum lawful price, it becomes neces-
sary to ascertain the Btu content of the gas in order to determine
whether or not the contract price exceeds the new gas cr \ing price
determined as of the date of enactment. For similar reasons, a
Btu content test may be necessary for sales subject to section
$ia
One comment on this section asked at what site Btu
content should be measured for purposes of billing. If a
well produces from several completion locations and the
various streams are subject to different maximum law-
ful prices, Btu content should be determined for each
stream subject to a different maximum lawful price. The
Commission will accept any method for Btu measurement
that is reasonably designed to determine the Btu content
of each such stream.
One comment asked whether Btu content tests are re
quired when gas is sold pursuant to “casinghead gas con-
tracts which are of the percentage type.”” The comment
argued that the exigencies of such arrangements make it
impractical to perform Btu content tests on a well-by-
well basis, i.e., prior to commingling in a central separa-
tor serving a number of wells. As noted above, the Com-
mission will accept any measurement method reasonably
designed to ascertain Btu content. In this case, the re-
seller may use any estimation method reasonably designed
to measure Btu content if it is impractical to measure
Btu content prior to commingling.
Several comments noted that § 270.204 provides that
Btu content must be measured on a “saturated with
water vapor” basis rather than on the basis of the actual
water vapor content of the gas as delivered. The com-
ments asserted that under this rule the seller would be
paid for less Btu’s than would actually be delivered if the
gas were sold on a dry (unsaturated) basis.
This assertion is erroneous. Section 270.204 merely
describes the test standard for expressing the number of
Btu’s contained in a cubic foot of gas under certain con-
ditions. Under this standard, the heat value is expressed
105(b) (1) if and when the contract price escalates under the con-
tract terms to an amount close to the section 102 maximum lawful
price. (Of course, the heat content of the gas must be measured
if the sale is subject to section 105(b) (2) ). See section 105(b).
88a
as the number of Btu’s per cubic foot of gas “saturated
with water vapor.” The Commission is aware that the
water vapor content or pressure of the gas when tested
may be different than described in this standard, and
may also be different than the conditions that obtain
when the gas is delivered. Therefore, the results obtained
under test conditions, be they those in the rule or others,
must be converted to figures that reflect the actual con-
dition of the gas on delivery in order to properly price
the gas.
A few commenters asked what is the correct pressure
base for measuring Btu content per unit volume of natu-
ral gas.
Section 270.204 uses a standard pressure base of 30
inches of mercury at 32 degrees Fahrenheit to determine
what constitutes a cubic foot of gas and to determine how
many Btu’s are in that cubic foot of gas. These com-
ments noted correctly that the pressure base of 30 inches
of mercury at 32 degrees Fahrenheit for expressing Btu
content per unit volume of natural gas does not convert
precisely to 14.73 pounds per square inch (p.s.i.), the
pressure base used in section 2(29) of the NGPA to de-
fine a standard Mcf (1,000 cubic feet) of natural gas.
We note that measurement of the Btu content of natural
gas can be made at any desired pressure base, provided
that the measurement is accurate and provided that the
measurements for Btu content and for volume are con-
verted to a common pressure base."*
Another comment asked that the Commission provide
a list of the acceptable methods of measuring Btu con-
tent, e.g., chromatograph, calorimeter, etc. The Commis-
sion believes at this time that the method of measure-
12 The comments stated that traditionally intrastate pipelines
use a pressure base of 14.735 p.s.i., while interstate pipelines use a
pressure base of 14.73 p.s.i. As stated above, either pressure base
may be used as long as the correct number of Btu's sold is known.
39a
ment may best be determined by the parties to the sales
contract. We will accept any reasonable method for de-
termining Btu content upon which the parties agree. We
note, however, that contractual obligations should be ob-
served and that appropriate conversion factors should be
applied in order to modify test results to actual delivery
conditions of the gas.
III. PUBLIC PROCEDURES AND EFFECTIVE DATE
The regulations in Subpart B of Part 270 (except for
those interim rules promulgated in Order No. 68) were
originally proposed for comment in November of 1978 in
Docket No. RM79-3 and issued as interim regulations on
December 1, 1978 (43 Fed. Reg. 56448, December 1,
1978). For 60 days thereafter comments were received,
and during that period hearings were held on these regu-
lations. By this process the Commission complied with 5
U.S.C. § 553 and with section 502(b) of the NGPA, which
requires that, “[t]o the maximum extent practicable,” an
opportunity for the oral presentation of data, views and
arguments be afforded for certain regulations under the
NGPA. The amendments contained in this order rest
upon consideration given to the information received dur-
ing the above-described notice, comment, and hearing
process. The Commission finds that further notice and
public procedure with respect to $$ 270.201, 270.202 and
270.204 is unnecessary.
Paragraphs (e) (3) and (h) of the interim rules were
originally issued in Docket No. RM80-14 (Order No. 68)
as amendments to the interim rules in Part 270. The
clarifications to those paragraphs, which are being is-
sued here as final rules, respond to petitions for clarifi-
cation of those paragraphs filed in Docket No. RM80-14.
Sections §§ 270.202 and 270.204 are being issued as
final regulations, effective (30 days from date of issu-
ance). Section 270.201 is revoked retroactive to Decem-
ber 1, 1978. However, no first seller will be subject to a
oe
40a
refund obligation, or enforcement action, for having
charged and collected any rate in reliance on that section
for deliveries which occurred before September 1, 1980.
(Natural Gas Policy Act of 1978, 15 U.S.C. $§ 3301-3432;
Natural Gas Act, as amended, 15 U.S.C. 717, et seg.; De-
partment of Energy Organization Act, 42 U.S.C. §§ 7107-
7352; E. O. 12009, 42 Fed. Reg. 46267.)
In consideration of the foregoing, $$ 270.201, 270.202,
and 270.204 of Part 270, Subchapter H, Chapter I, Title
18, Code of Federal Regulations, issued as interim regu-
lations (43 Fed. Reg. 56448, December 1, 1978 and 45
Fed. Reg. 5678, January 24, 1980) are promulgated as
final regulations and are amended as set forth below, ef-
fective as set forth above.
By the Commission.
[SEAL]
‘s/ Kenneth F. Plumb
KENNETH F. PLUMB,
Secretary.
* > a2 .
4la
3. Interim regulation § 270.204 is adopted as a final
regulation.
§ 270.204 Btu content per cubic foot of natural gas.
(a) Measurement. The Btu content of one cubic foot
of natural gas under the standard conditions specified in
paragraph (b) of this section is the number of Btu's pro-
duced by the complete combustion of such cubic foot of
gas, at constant pressure with air of the same tempera-
ture and pressure as the gas, when the products of com-
bustion are cooled to the initial temperature of the gas
and air and when the water formed by such combustion
is condensed to a liquid state.
(b) Standard conditions. The standard conditions for
purposes of paragraph (a) of this section are as follows:
The gas is saturated with water vapor at 60 degrees
Fahrenheit un . pressure equivalent to that of 30.00
inches of mercury at 32 degrees Fahrenheit, under stand-
ard gravitational force (980.665 centimeters per second
squared).
4. The table of contents of Subpart B of Part 270 is
amended by deleting “First sale of natural gas subject to
differing maximum lawful prices” and by inserting in
lieu thereof “[ Reserved].”
424
DC-C-1
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: Georgiana Sheldon, Acting
Chairman; Matthew Holden, Jr.,
George R. Hall and J. David
Hughes.
Docket No. RM80-33
FINAL RULES FOR )
PART 270, SUBPART B, )
SECTIONS 270.201, )
270.202 AND 270.204 )
ORDER NO. 93-A
ORDER DENYING REHEARING AND
CLARIFYING ORDER NO. 93
(Issued April 24, 1981)
On July 16, 1980, the Commission issued final regula-
tions in Order No. 93 (45 Fed. Reg. 49077, July 23, 1980)
which amended the Commission’s interim rules relating
to first sales of natural gas that are resales and the
standard for determining the Btu content of natural gas.
Eight timely applications for rehearing were filed. Two
petitioners also requested a partial stay of the order.
1 Michigan Wisconsin Pipe Line Company (also requested clari-
fication) ; El Paso Natural Gas Company (also requested a partial
postponement); Transcontinental Gas Pipe Line Corporation
(Transco) (also requested clarification); United Gas Pipe Line
Company; Texas Gas Transmission Corporation; Interstate Natural
Gas Association of America (INGAA) (also requested clarifica-
tion) ; Natural Gas Pipeline Company of America (Natural) (also
requested reconsideration and a partial stay); and Consolidated
Gas Supply Corporation.
43a
Subsequently, two requests for clarification? and two ap-
plications for stay * were filed.
On September 15, 1980, the Commission granted re-
hearing of Order No. 93 solely for purposes of further
consideration but denied the two petitions for partial stay
of Order No. 93. On October 15, 1980, Natural filed an
application for rehearing of the Commission’s denial of
its petition for a partial stay. On November 14, 1980.
the Commission granted rehearing on that application
solely for purposes of further consideration.
None of the filings contested or raised issues concern-
ing the regulations regarding resales; all addressed the
final rule in § 270.204 which clarified the interim rule
describing a standard for determining the Btu content of
natural gas. This order on rehearing denies all applica-
tions for rehearing or reconsideration of Order No. 93 as
well as the two additional petitions for stay; however, it
grants requests for clarification of Order No. 93 and the
final rule in § 270.204.
This order, like Order No. 93, authorizes natural gas
subject to a first sale to be priced based on the number
of MMBtu’s actually delivered, to the extent such pricing
is contractually permissible. ~The order also makes clear
that the Commission will not require continuous moni-
toring and recording of heating value (MMBtu’s) but
will accept any reasonable, unbiased method acceptable to
the industry and the contracting parties for periodically
measuring gas composition, gas heating value or other
variables in order to determine the number of MMBtu’s
actually delivered in a first sale. Pipelines subject to the
jurisdiction of the Commission will be permitted the op-
portunity to demonstrate in their next PGA filing the
? Tennessee Gas Pipeline Company and Valero Transmission
Company. (Valero also requested reconsideration. )
* Arkansas Louisiana Gas Company (Arkla) and Transco.
44a
appropriateness of rate treatment for any claimed retro-
active payments occasioned as a result of the Btu Rule
controversy.
I. Background
In Title I of the NGPA, Congress prescribed “ceiling
prices” for first sales of natural gas. It did so by estab-
lishing maximum lawful prices “per MMBtu” (i.e. Mil-
lion British Therma] Units) for various categories of nat-
ural gas. The “ceiling price’ chargeable for a first sale
was to be determined by multiplying the applicable maxi-
mum lawful price per MMBtu by the number of MMBtu’s
subject to the first sale.
In Order No. 93 the Commission promulgated § 270.204
as a final rule. The rule itself merely describes the
standard conditions under which the number of MMBtu’s
in a volume of natural gas is measured.* However, rec-
ognizing that actual delivery conditions vary widely and
are most often different from the defined standard condi-
tions, the Commission noted in the preamble to Order No.
93 that the results of Btu measurements at the defined
standard conditions must be adjusted to account for ac-
tual delivery conditions before determining the “ceiling
price” that can be charged for the sale under the NGPA
(i.e., the maximum lawful price per MMBtu multiplied
by the number of MMBtu’s actually delivered).® This
4 The essential parameters of the “standard conditions” are that
the gas is at a temperature of 60°F, under a pressure of 30 inches
of mercury (approximately 14.73 pounds per square inch), and, at
these defined temperature and pressure conditions, the gas is satu-
rated with water vapor. (See note 21, infra, for full definition.) At
these defined temperature and pressure conditions, natural gas will
contain approximately 820 pounds of water vapor per million cubic
feet of total gas. (See Appendix I, “Variance in Water Vapor
Content and Heating Value.”)
5 As a practical matter, the determination would most often be
made by measuring the gas on a volumetric basis at delivery
45a
statement was predicated on the Commission’s belief that,
for purposes of determining the NGPA “ceiling price,”
the number of MMBtu’s subject to a first sale is the
number of MMBtu’s actually delivered to the purchaser.
The petitions for rehearing raised several arguments
concerning the Commission’s statement in the preamble to
Order No. 93 that “the results obtained under test condi-
tions, be they those in the rule or others, must be con-
verted to figures that reflect the actual condition of the
gas on delivery in order to properly price the gas.” *
Three petitioners alleged that under Order No. 93 the
maximum lawful prices for sections 104, 106(a) and 109
would exceed those prescribed under Title I of the NGPA
because, under the Natural Gas Act (NGA), the Btu ad-
justment to the volumetric base price was based on the
prevailing industry practice of determining Btu content
at standard conditions and permitted no conversion to
reflect the number of MMBtu’s actually delivered. A
fourth petitioner argued that Congress had adopted this
prevailing industry practice for all Title I categories of
natural gas and that Order No. 93 this violated all of
the NGPA “ceiling prices.”
Several petitioners, conceding for purposes of discussion
that Order No. 93 did not violate Title I “ceiling prices,”
questioned the effect of the Commission’s statement on
specific contractual provisions under which the number of
MMBtu’s to be attributed to an Mcf of natural gas for
pricing purposes is to be based on the results of Btu
measurement at the standard conditions. They indicated
that the language in Order No. 93 was ambiguous but
that an interpretation that nullified such contractual pro-
visions would violate section 101(b)(9) of the NGPA
conditions, multiplying the number of Mcf'’s so measured times the
number of MMBtu’s in an Mef of the gas at delivery conditions, and
multiplying the results by the applicable maximum lawful price.
*45 Fed. Reg. 49077, 49080.
46a
which states that the Title I maximum lawful prices do
not nullify or supersede the contract price. Should the
contract price depend on the number of MMBtu’s actu-
ally delivered, they asked what monitoring procedures
would be required by the Commission in order to deter-
mine the Btu content of the natural gas at delivery con-
ditions.
Two petitioners alleged that the clarifications in the
final rule and the explanatory language in the preamb!
of Order No. 93 sufficiently altered the interim rule in
$ 270.204 so as to violate the notice and comment provi-
sions of the Administrative Procedure Act (APA) and
argued that the final rule shouid have prospective effect
only.” In the alternative, these and other petitioners
sought a one-time PGA filing to pass through the in-
crease in prices that they alleged would result were the
Commission to retain its position on the Btu issue on
see
Ve have addressed each of these issues in this order.
II. Lawfulness of “Ceiling Prices” Under Order No. 93
A. Petitioners’ Argument
The maximum lawful prices published for sections 104
and 106/a) are referenced to the just and reasonable
rates that applied to various categories of natural gas
under the NGA on April 20, 1977. These rates consisted
of a base price per Mcf which was to be adjusted to the
extent the gas did or did not contain heating value equal
to one MMBtu per Mcf. Although the dollar amount
chargeable for a sale of natural gas under the NGA de-
pended on the number of Mcf’s actually delivered, the
7 The Commission stated in Order No. 98 that the amendments to
the interim rule were of a clarifying nature. Therefore. contrary
to one petitioner’s allegation, their effective date is not Septem-
ber 22, 1980, (the effective date of Order No. 93) but December
1, 1978, the effective date of the interim rule. /d. at 49078.
47a
heating value adjustment was based on Btu measurements
made at standard conditions and permitted no conversion
to actual delivery conditions. Measurement at standard
conditions usually understates the number of MMBtu’s
actually delivered to the purchaser. See Appendix I for
more detailed discussion. )
Although sections 104 and 106(a) reference the NGA
just and reasonable rates, which were stated on a per
Mcf basis, the maximum lawful prices for those sections
are stated on a per MMBtu basis. The Commission’s
adoption of the per-Mcf base price as the maximum law-
ful price, when coupled with the requirement under the
Btu rule that the maximum lawful price be applied to
every MMBtu actually delivered, for purposes of deter-
mining the NGPA “ceiling price,” has resulted in “ceil-
ing prices” that are higher than some purchasers claim
would have been applicable under the NGA (ignoring
the differences in inflation adjustments between the NGA
and NGPA pricing schemes).
The petitioners argued that, except for the variation
in inflation adjustments under the NGA and the NGPA,
Congress intended to maintain producer revenue levels
extant under the NGA. Noting that the Commission’s
current regulations confound this alleged purpose, they
contended that the Commission must either rescind its
statements in Order No. 93, regarding conversion of heat
content findings at standard conditions to findings that
would obtain at actual delivery conditions, or lower its
published maximum lawful prices for sections 104 and
106(a) to counteract the inflationary effect of the lan-
guage in Order No. 93."
*One petitioner limited this argument to sections 104 and
106(a). Two others extended it to section 109 based on statements
in the legislative history that the section 109 price is intended
to be the same as the section 104 price. The fourth petitioner
alleged, based on the statements concerning sections 104 and 109
and the need to interpret the phrase “per MMBtu” consistently, that
the argument pertains to all Title I pricing categories.
48a
The petitioners argued, in effect, that the phrase “per
MMBtu” in the NGPA merely establishes the commodity
unit to be measured, not “how” or “when” such measure-
ment is to be made. They argued that the prior practice
of pricing based on the results of Btu measurements at
standard conditions survives and is incorporated into the
NGPA because the statute contains no clear intent to
abrogate that practice. Several petitioners supported their
argument by referring to section by section analyses by
Representative Dingell and Senator Jackson in the legis-
lative history * and alleging that these statements indi-
® Statement by Senator Jackson:
The maximum lawful price computed in accoriance with
subsection 104(b) is the same as the maximum lawful price
computed in accordance with subsection 109(b). The base
rate used in both computations is subject to an inflation ad-
justment. In other words, the just and reasonable rates set by
the Federal Power Commission and in effect, as of April, 1977
are frozen as of that date and the inflation adjustment pro-
vided under this Act is to be added from that date forward.
For example, the new gas rate set in FPC Opinion No. 770-A,
applicable to certain eligible producers was $1.45 in April, 1977.
Thus, $1.45 would be the base rate applicable to certain
eligible producers subject to section 104 and for all gas sub-
ject to section 109. The conferees do not intend to allow both
the escalators of 1 cent each calendar quarter provided by
Opinion No. 770-A, and the inflation adjustment provided by
this Act to operate. Only the inflation adjustment provided by
this Act will be allowed to operate after April, 1977. 124 Cong.
Rec. S 15020-21 (Sept. 13, 1978).
Statement by Congresseman Dingell:
Section 104 establishes the ceiling price mechanism ap-
plicable to natural gas dedicated to interstate commerce prior
to enactment of the bill and for which a just and reasonable
rate had been established under the Natural Gas Act. The
applicable just and reasonable rate in effect in April, 1977 is
referenced as the base price to which the inflation adjustment
factor is applied to yield the maximum lawful price in any
future month.
The just and reasonable rate under FPC Opinion 770-A
applicable to wells spudded on or after January 1, 1975, in-
49a
cate Congressional intent to maintain producer revenues
for NGA gas at pre-NGPA levels.
cludes a $.01 escalator each calendar quarter. Moreover, tech-
nically speaking, Opinion 770-A establishes a just and reason-
able rate of $1.62 per Mcf for this vintage. The $1.42 per Mcf
price most commonly referred to is merely the base rate allowed
under the decision discounted to its then present value. The
$.01 per quarter escalator is designed to yield an average
$1.62 per Mcf rate over the projected life of the average
reservoir.
Accordingly, a question has arisen whether the just and
reasonable rate referenced in section 104(b)(1)(A)(i) is to
include the $.01 quarterly adjustment in the inflation adjust-
ment under section 104(b)(1)(A)(ii). The answer is an
emphatic NO. The conferees did not intend a double dip. The
“just and reasonable rate * * * applicable * * * on April 20,
1977” is intended to incorporate by reference the $1.45 per
Mcf price permitted in April 1977. This price is to be adjusted
thereafter only pursuant to the inflation adjustment provided
in section 104(b)(1)(A) (ii). (Moreover, lest there be any
doubt, the conferees did not intend the reference to be to the
$1.62 price either.) That the conferees intended to reference the
$1.45 per Mcf price is supported by the construction of section
109, wherein the $1.45 price is set forth. Section 104 deals with
area rates, national rates of several vintages, and speciai relief
pricing. Therefore it was not possible or practical to specify
each rate. Incorporation by reference was required. In the
case of section 109, a specific rate was possible and the rate
selected was the just and reasonable rate under Opinion 770-A
applicable on April 20, 1977, i.e., $1.45 per Mcf. This assured
that these sections would be consistent with one another. A ques-
tion has arisen respecting the pricing of interstate gas, pres-
ently subject to contract, including a warranty contract, at a
price lower than the just and reasonable rate presently appli-
cable to the gas, following expiration of that contract. As the
preceding paragraphs indicate, sections 104 and 106 would be
applicable. Under section 101(b) (5), the section yielding the
higher price would establish the maximum lawful price. If a
contract is being satisfied with gas produced from wells of a
vintage for which a higher just and reasonable rate has been
established by the Commission that just and reasonable rate
is referenced as the basis for the maximum lawful! price under
section 104. Moreover, once the existing contract no longer
limits the price (see section 101(b)(9)), the producer could
50a’
4h
B. Summary of Commission Decision
In developing a comprehensive wellhead pricing system
for interstate and intrastate sales of natural gas, Con-
gress had to coordinate the previous NGA pricing sys-
tem with the system of incentive prices it had established
under the NGPA for the purpose of encouraging produc-
tion of domestic supplies of natural gas. It decided that
coordination of these two pricing systems required uni-
formity with respect to the commodity priced (volumes
versus heating value) as well as the methodology for ad-
justing the maximum lawful prices based on inflation.
The latter objective required that Congress abolish the
quarterly escalator that had applied under the NGA pric-
ing scheme and replace it with the monthly inflation ad-
justment applicable to the incentive pricing categories.
This is the issue addressed by both Congressman Dingell
and Senator Jackson in those portions of the legislative
history cited by the petitioners.
Congress also elected to impose uniformity with re-
spect to the commodity to be priced and chose to estab-
lish energy-referenced prices (dollars per MMBtu) as
opposed to volume-referenced prices (dollars per Mcf).
This choice was inherent in the Congressional intent to
establish incentive prices based on the commodity value
of alternative energy sources. Thus the maximum lawful
prices for those sections of Title I that reference the NGA
just and reasonable per-Mcf rates (as well as section
109) were also stated on a “per MMBtu” basis.
However, Congress left implementation of energy-
referenced pricing for these sections to the Commission.
Recognizing that a problem might exist in converting
charge and the purchaser could pay any amount up to the
maximum lawful price which, under both sections 104 and
106, would be based upon the just and reasonable rate which
but for enactment of this legislation, would have been appli-
cable. 124 Cong. Rec. H 13117 (Oct. 14, 1978).
Bla
NGA just and reasonable rates to NGPA maximum law-
ful prices, the Statement of Managers adverted to that
problem without resolving it by merely referencing the
“just and reasonable rates that were in effect on April
20, 1977, as converted, if necessary to a million Btu
basis. .. .” (Emphasis added). Thus, it was left to the
Commission to resolve the conversion issue.
That Congress imposed this responsibility upon the
Commision was entirely predictable because coordination
of the NGA and the NGPA required the expertise of that
agency familiar with the structure and intricacies of the
prior NGA pricing scheme." In discharging this respon-
sibility, the Commission had to examine that NGA pric-
ing scheme and establish a rational way to coordinate
it with the NGPA. Had there been a direct correlation
between the NGA’s just and reasonable rates per Mcf
and the NGPA’s system of maximum lawful prices, which
are stated on a “per MMBtu” basis, the Commission’s
task would have been a simple one. However, no such
direct correlation exists. Thus the Commission was left
with two inquiries. How should the number of MMBtu’s
upon which the NGPA “ceiling price” is based be deter-
mined: at standard conditions, i.e. in the same manner
as Btu content had been determined under the NGA for
purposes of quality control, or at actual delivery condi-
tions? And, what should the maximum lawful price per
MMBtu be for such gas?
10 Joint Statement of Managers, H. Rep. No. 95-1752, 95 Cong.,
2d Sess. 82 (1978).
1! The Congressmen’s references in the legislative history to the
specific Opinion 770-A rate for post-1974 wells (Opinion 770-A
rate), upon which the maximum lawful prices for section 109 and
one subcategory of section 104 are based, are inconsistent and
confusing and suggest that neither Congressman was familiar with
such intracacies of the regulatory scheme as the interface between
volume-referenced pricing and the Btu adjustment procedure.
52a
With respect to the Btu measurement issue, the Com-
mission determined that the number of MMBtu’s ac-
counted for in establishing the “ceiling price” for a first
sale of section 104, 106(a) and 109 gas should be the
number of MMBtu’s actually delivered. We made this
decision based on examination of the commodity pricing
concepts embodied in the NGPA and the NGA. In the
NGPA’s incentive pricing categories, heating value is
priced on an as-delivered basis.’* Although the commodity
priced was volume rather than heating value, the NGA,
too, priced the commodity on an as-delivered basis. There-
fore, the Commission decided that consistency within the
NGPA and continuity with the NGA required that con-
version be accomplished so as to preserve the as-delivered
pricing concept for sections whose maximum lawful prices
are referenced to the NGA just and reasonable rates.
(See Section II C for more detailed analysis. )
With respect to the maximum lawful prices for these
sections, we did not think it clear from examination of
the NGPA and its legislative history that Congress’ pur-
pose was to maintain producer revenue levels for NGA
gas at pre-NGPA levels.” Certainly the language of the
statute itself manifests no such intent. Indeed, Congress
had implicitly abandoned any goal of maintaining pre-
NGPA revenue levels in favor of uniformity when it im-
posed the same inflation adjustment for NGA-referenced
and incentive pricing categories. Had Congress preserved
the escalation provisions in Opinion 770-A, the maximum
lawful price for April, 1981, for that subcategory of sec-
tion 104 gas referenced to the rate for post-1974 wells in
Opinion 770-A (Opinion 770-A rate) would have been
12 See discussion infra.
18 Examination of the cited portions of the legislative history
suggests that neither Congressman was aware of the Btu conversion
issue and that both were addressing themselves to the “double dip”
issue relating to escalations of the Opinion 770-A rate. See note
1l, supra.
63a
$1.61 per MMBtu instead of the $2.011 per MMBtu price
that results from substitution of the NGPA monthly in-
flation adjustment methodology. Comparison of these two
prices undermines the petitioners’ theory that Congress
intended that the NGPA maintain NGA producer reve-
nue levels."*
Based on the absence of a direct correlation between
the NGPA and NGA pricing schemes, the major altera-
tion in producer revenue levels that Congress itself ac-
complished by changing the escalation factors for NGA-
referenced gas, and the lack of any clear evidence in ei-
ther the NGPA or its legislative history as to what re-
sult Congress would have reached had it resolved the Btu
conversion issue itself, we decided to adopt a per-MMBtu
maximum lawful price of $1.45 for Opinion 770-A rate
gas subject to section 104. By adopting what were essen-
tially the base prices as of April 20, 1977, for section 104
(and section 106(a)), we adapted the NGA’s cost-revenue
balancing scheme to prices stated on a “per MMBtu de-
livered” basis in order to promote maximum continuity
between the NGA and the NGPA and maintain internal
consistency within the Title I pricing scheme. With re-
spect to the latter objective, we note that adoption of the
$1.45 base price effects the Congress’ intent that the,max-
imum lawful price for the Opinion 770-A subcategory
of section 104 be the same as that imposed by Congress
for section 109. (See discussion in Section II D and Ap-
pendix I, “Compatibility of NGA and NGPA Prices.’’)
14 Although the petitioners acknowledged that a change in revenue
levels resulted from Congress’ replacing the NGA escalation meth-
ology, they argued that Congress intended that no additional in-
creases be effected by the Commission. However, the logic and
persuasiveness of their argument are seriously impaired when the
purported 2% increase in producer revenue levels effected by Order
No. 93 is compared to the substantial 39% increase in the maximum
lawful price implemented by Congress itself. (Had Congress not
changed the NGA quarterly escalator, the increase in the maxi-
mum lawful price would have been 11 percent, rather than 39
percent.)
54a
C. The Measurement Issue
Like the NGA, the NGPA establishes pricing guidelines
for sales of natural gas. The commodity priced under
NGA regulations was volume units (Mcf’s) of natural
gas delivered. However, one of the purposes for enacting
the NGPA was encouragement of domestic production of
natural gas. Congress viewed energy sources as fungible
and attempted to encourage domestic production of nat-
ural gas by pricing it based on its comparable energy
value with respect to alternative fuel sources. In order
to encourage certain new production it set a maximum
lawful price for section 102 equivalent to the average”
commodity value of the refiner acquisition cost of
domestically produced oil.*
Because of a very clear physical difference between
natural gas and other fuels, true comparison can only be
achieved by applying the prescribed maximum lawful
price to the number of MMBtu’s in a volume of gas at
delivery conditions rather than to some theoretical quan-
tity such as the number of MMBtu’s at standard condi-
tions. This is true because, unlike other fuels, which are
either liquid or solid as opposed to gaseous, water vapor
in natural gas displaces hydrocarbon compounds, resulting
in a diminution of the heating value of the natural gas.
Measurement at standard conditions understates the heat-
ing value of the gas at delivery conditions.* Therefore,
it is essential that the “ceiling price” be based on the
actual heating value of the gas, ie. the number of
MMBtu’s actually delivered, in order to achieve the Con-
gressional purpose of pricing natural gas by comparison
to the heating value of the selected alternative fuel.
18 H. Rep. No. 95-1752 at 67 and 68.
16 The amount of water vapor contained in natural gas at the
standard temperature and pressure conditions greatly exceeds the
amount of water vapor that can be contained in natural gas at most
pressure and temperature delivery conditions. (See note 4, supra,
and graph in Appendix I.)
55a
Like incentive pricing categories such as section 102,
the maximum lawful prices for sections 104, 106(a) and
109 are stated on a “per MMBtu” basis. Although the
difference in pricing mechanisms between section 102 and
sections 104 and 106(a) make their direct comparison
more difficult for purposes of interpreting the phrase
“per MMBtu,” (sections 104 and 106(a) reference prices
extrinsic to the statute itself, while section 102 states
a specific monetary amount), direct comparison of the
pricing mechanisms in sections 102 and 109 is fairly
straightforward because the structure of section 109 is
identical to that of section 102, save for the differences
in the stated monetary amount. This identity suggests
that the “ceiling price” for.section 109 should also be
based on the number of MMBtu’s actually delivered.
Although it is not essential that identical provisions in
a statute be interpreted consistently, there must be some
compelling reason to do otherwise. None exists here.
The legislative history indicates clearly that the maxi-
mum lawful price for section 109 is the same as the maxi-
mum lawful price for the subcategory of section 104 gas
that is referenced to the Opinion 770-A rate. However,
contrary to the petitioners’ arguments, the legislative his-
tory provides no conclusive evidence as to what that sec-
tion 104 rate should be when converted to a “per MMBtu”
basis. Thus it fails to provide a compelling basis for
disparate interpretations of the phrase “per MMBtu” in
sections 102 and 109 such that the number of MMBtu’s
subject to a first sale of section 102 gas would be ac-
counted for differently from the number of MMBtu’s sub-
ject to a first sale of section 109 gas.
What the legislative history does provide, given iden-
tical interpretations of the phrase “per MMBtu” for sec-
tions 102 and 109 and the Congressmen’s comments in the
legislative history concerning the identity of the maxi-
mum lawful prices in section 109 and the Opinion 770-A
subcategory of section 104, is a basis for interpreting the
56a
phrase “per MMBtu” in section 104 consistently with its
interpretation in sections 102 and 109, i.e., as a require-
ment that the “ceiling prices” for section 104 (and, by
implication, section 106(a)) be based on the heating
value of the gas at actual delivery conditions.
Requiring that the “ceiling price” for first sales of sec-
tion 104, 106(a) and 109 gas be based on the number of
MMBtu’s actually delivered also promotes continuity with
the NGA by preserving the per-unit-delivered commodity
pricing concept employed with respect to volume units
under the NGA.
For these reasons, the Commission has decided to retain
its original position that the NGPA “ceiling price” is
dependent upon the number of MMBtu’s actually deliv-
ered rather than the number of MMBtu’s measured at
standard conditions.
D. The Maximum Lawful Price Issue
Convinced that the commodity unit priced under the
NGPA is an MMBtu and that the NGPA “ceiling prices”
are to be determined on an as-delivered basis, the Com-
mission was next required to explore the suggestion made
by some petitioners that the NGA’s $1.45 per Mcf base
price on April 20, 1977 be reduced to $1.42 in order to
maintain pre-NGPA producer revenue levels for that
subcategory of section 104 gas that was previously priced
at the Opinion 770-A rate and the further suggestion
that all other NGA-referenced rates be similarly reduced.
There is no technical theory that compels adoption of
lower maximum lawful prices such as $1.42 because there
is no direct correlation between the NGA and NGPA
pricing schemes. Furthermore, as we have already indi-
cated, neither the statutory language nor the legislative
history provides any clear indication of what result Con-
gress would have reached had it resolved the conversion
problem itself. Faced with the responsibility of coordi-
57a
nating the disparite pricing schemes imposed under the
NGA and the NGPA, the Commission decided to resolve
the conversion issue by pursuing a policy of preserving
internal consistency within the Title I pricing scheme and
ensuring maximum conceptual continuity between the
NGPA’s per-MMBtu-delivered pricing scheme and the
cost-revenue balancing methodology under which the
NGA’s per-Mcf base prices were originally established.
For the reasons stated below, that policy is best promoted
by adopting the base prices for the various categories of
NGA gas as the maximum lawful prices for sections 104
and 106(a). We find support for this result by noting
that Congress intended identity of pricing for section 109
and the Opinion 7 )-A subcategory of section 104 and
that adoption of the $1.45 base price will impose the same
maximum lawful price for that subcategory of section 104
as the maximum lawful price Congress stated in section
109.
As has been previously noted, the just and reasonable
producer rates to which the maximum lawful price in
sectons 104 and 106(a) are referenced were not estab-
lished on a “per MMBtu delivered” basis. Instead, they
were based on the number of Mcf’s delivered and included
a Btu quality adjustment determined by the number of
MMBtu’s measured at standard conditions. Because the
NGA pricing scheme was inconsistent with respect to the
methodologies for establishing volume as opposed to Btu
content, no direct correlation exists between the NGA
just and reasonable rates, in which heating value was an
arbitrarily-derived numerical factor used to make a qual-
ity adjustment to the volume-referenced price, and the
NGPA energy-referenced “ceiling prices” in which heat-
ing value is the price determinant.
Although it is mathematically possible to convert the
Opinion 770-A rate of $1.45 per Mcf to a rate of $1.42
per MMBtu, in an attempt to maintain NGA producer
revenue levels, it cannot be shown that such a procedure
58a
would be applicable to all (or any) sales of that sub-
category of section 104 gas. This is true because, as ex-
plained earlier, the number of MMBtu’s per Mcf varies
with delivery conditions, and delivery conditions vary
widely.** Furthermore, adoption of the $1.42 price ele-
vates an arbitrarily-derived Btu adjustment factor above
the cost-referenced base price as the conceptual vehicle
for converting NGA rates to NGPA maximum lawful
prices, based on mere semantic happenstance. Although
both the maximum lawful prices and this arbitrary ad-
justment factor are expressed in terms of Btu’s, their
conceptual underpinnings are entirely different and can-
not be reconciled.
Absent a direct correlation between the NGA and
NGPA prices, the Commission feels justified in adopting
$1.45 (the base price) as the maximum lawful price for
the Opinion 770-A subcategory of section 104 gas. Under
the NGA pricing scheme, $1.45 was essentially the
quotient obtained by dividing projected finding and pro-
duction costs by the reported number of Mcf’s that would
ultimately be produced from discovered reserves. The
production data were based on the number of Mcf’s avail-
able at actual delivery conditions. The touchstone for this
computation was the concept of an “average Mcf.” Such
an average Mcf would typically contain approximately
seven to seventy pounds of water vapor per MMcf.* The
adjustment for Btu content, based on standard condi-
tions, was simply superimposed on this per-unit-delivered,
cost-referenced rate. It assumed a water vapor content
17 Although many interstate contracts limit the water vapor con-
tent of natural gas at delivery to seven pounds per MMcf, not all
contracts contain such provisions, and not all gas is so composed
at delivery.
18 This assumes a delivery temperature in the range of 50°F to
70°F and delivery pressures in the range of 100 to 1000 pounds per
square inch. These ranges of temperature and pressure would likely
cover most delivery conditions.
59a
of 820 pounds per MMcef. As a technical matter, its ap-
lication to the production data would underestimate the
average MMBtu content of the reported volumes by about
1.74%.”
This inconsistency in measurement methodologies could
have been eliminated either by adjusting the production
data prior to rate derivation or by keying the Btu ad-
justment to actual delivery conditions. Had the produc-
tion data been converted to standard conditions to rate
derivation, the number of Mcf’s would have been reduced
commensurate with the reduced heating value of an Mcf
at standard conditions. Reduction of the denominator in
the cost equation (i.e. the number of Mcf’s) would have
produced a base price greater than $1.45 per Mcf. Sub-
sequent adjustments to the per-Mcf base price to reflect
the Btu content of the gas at standard conditions (which
represents a decrease in the number of MMBtu’s at
actual delivery conditions) would have resulted in a just
and reasonable rate of essentially $1.45 per MMBtu ac-
tually delivered. (See “Sample Computation” in Appen-
dix I.) The Commission has achieved essentially the same
result for purposes of establishing the NGPA “ceiling
price” for Opinion 770-A rate gas subject to section 104
by adopting $1.45 as the maximum lawful price and re-
quiring that it be applied to the number of MMBtu’s
actually delivered.
The Commission believes that our conversion policy is
reasonable and justified. We note that it effects the Con-
gress’ intention that the maximum lawful price stated in
section 109 be identical to the maximum lawful price for
gas previously subject to the Opinion 770-A rate. We are
1 This was no obstacle to its use for quality control purposes,
however, and it had the added advantage of conforming to industry
quality control practices. However, its acceptance for quality control
purposes does not support, and is in fact unrelated to, its adoption
as the determining factor in changing from a volume-referenced to
an energy-referenced pricing scheme.
60a
unpersuaded that we should engender the confusion and
uncertainty that would result were we now to alter our
decision with respect to this policy and amend the maxi-
mum lawful prices.
III. Contractual Provisions and Monitoring
A. Petitioners’ Arguments
Every petitioner that filed an application for rehearing,
reconsideration, or clarification of Order No. 93 inter-
preted Order No. 93 as possibly requiring that a pur-
chaser pay the applicable maximum lawful price for each
MMBtu actually delivered. Several petitioners noted that
the majority of sales contracts price natural gas on an
Mcf rather than on an MMBtu basis and provide for ad-
justment of the volumetric price to reflect the Btu con-
tent of the gas. They explained, with regard to this Btu
adjustment, that a large number of such contracts re-
quire that the Btu content of gas be determined based on
measurement at the standard conditions, despite the fact
that the actual delivery conditions with respect to tem-
perature and pressure may be different from the standard
temperature and pressure conditions and the contract
may require delivery of relatively dry gas (eg. seven
pounds of water vapor per MMcf). The petitioners com-
plained that setting a “ceiling price” based on the num-
ber of MMBtu’s actually delivered might nullify such
contractual provisions.
Further, petitioners argued that if “ceiling prices”
were based on the number of MMBtu’s actually delivered,
the cost of continuously monitoring actual delivery condi-
tions would be prohibitively high. Assuming that imple-
mentation of Order No. 93 requires measurement of the
Btu’s actually delivered, petitioners were concerned that
specific guidance had not been given as to whether and
how to estimate the actual Btu content of gas at delivery
conditions, other than the petitioners’ inference that con-
6la
tinuous monitoring would be required. Petitioners re-
quested specific guidance as to what measurement proce-
dures might be employed.
B. Commission Decision
Given that the NGPA pricing scheme is a significant
departure from past Commission and industry practice,
it is not surprising that its implementation has created
confusion both for sellers and purchasers. Under the
NGPA pricing scheme the “ceiling price” permitted un-
der Title I for the sale of natural gas is based on the
number of MMBtu’s actually delivered. In adopting heat-
ing value as a pricing mechanism rather than a quality
control index, Congress did not intend to override the
terms of any contract unless the contract establishes a
price in excess of the Title I “ceiling price.” Thus, un-
der the terms of a contract, natural gas may be priced by
volume, by heat content, or by any other reasonable
means agreed to by the parties so long as the price paid
does not exceed the “ceiling price” permitted under
Title I.
The Btu rule and explanatory text affect the deter-
mination of the “ceiling prices” that can be charged for
natural gas under the NGPA. However, they do not re-
quire that the industry change its measurement or pricing
practices. Temperature and pressure are routinely meas-
ured at the orifice meter of a natural gas sales point, and
determination of Btu content for pricing purposes (based
on chemical analyses or direct measurement with a calori-
meter) has been required for years under the NGA pric-
ing scheme. The Commission is aware of no significant
problems with obtaining these measurements. As the
Commission stated in Order No. 93,” we will accept any
method accepted in the natural gas industry for deter-
mining the Btu content of the gas sold, including meas-
urement procedures and measurement frequency. The
2 45 Fed. Reg. 49077, 49080.
62a
Commission will also permit industry-acceptéd meth-
odologies for converting Btu measurements at standard
conditions to Btu content at actual delivery conditions.
No further guidance needs be given except to say that the
method cannot be biased so as to result in prices that
exceed the permissible “ceiling prices.”
IV. Effective Date and PGA Trackers
A. Petitioners’ Arguments
Several petitioners, assuming that Order No. 93 re-
quires a continuous determination of the number of
MMBtu’s actually delivered, requested that Order No. 93
not apply to sales that occurred prior to the effective date
of the order. Two petitioners argued that making Order
No. 93 effective retroactive to December 1, 1978, would
violate the APA because the language of the interim rule
in § 270.204 suggested that the prior Commission practice
of adjusting the base price based on the number of
MMBtu’s measured at standard conditions, rather than
the number of MMBtu’s actually delivered, was to be
continued under the NGPA.
Other petitioners expressed concern that they may owe
money to producers for deliveries that have occurred
since December 1, 1978, and requested, as an alternative
to modifying the effective date of Order No. 93, that the
Commission permit a one-time PGA filing to authorize
passthrough of any payments required as a result of the
Btu rule.
B. Commission Decision
Although the interim Btu rule was vague, contrary to
the petitioners’ allegations it was not identical to the
Btu adjustment provisions contained in §§ 2.56a(c) (1)
and 2.56b(d) (1) of the Commission’s NGA regulations.”
21 The text of the interim rule in § 270.204 reads as follows:
For purposes of determining the number of Btu’s per unit
volume of natural gas, the Btu content of one cubic foot of
The Commission’s intent in issuing the interim Btu rule
was merely to describe the standard conditions for meas-
uring the Btu content of natural gas. Unlike the Com-
mission’s previous policy, this measurement was not to be
“used in computing [a] rate adjustment.” That phrase,
which appeared in the NGA regulations, was specifically
and intentionally deleted from the interim rule in
§ 270.204.
Nevertheless, some confusion developed because the in-
terim rule language that replaced that phrase was itself
ambiguous. Therefore, the Commission modified the word-
ing of § 270.204 in Order No. 93 and supplied accom-
panying text explaining the Commission’s position with
respect to the issue of Btu measurement. Because Order
No. 93 is but a clarification of the interim rule, it is ef-
natural gas is the number of Btu’s produced by the combustion,
at constant pressure, of the amount of gas which would occupy
a volume of 1.0 cubic foot at a temperature of 60 degree Fahren-
heit, saturated with water vapor and under a pressure equiva-
lent to that of 30.00 inches of mercury at 32 degrees Fahren-
heit, and under standard gravitational force (980.665 centi-
meters per second squared) with air of the same temperature
and pressure as the gas, when the products of combustion are
cooled to the initial temperature of the gas and air and when
the water formed by combustion is condensed to the liquid
state.
The text of §§ 2.56a(c) (1) and 2.56b(d) (1) reads as follows:
The Btu content of the natural gas used in computing this
rate adjustment shall be the number of British thermal! units
(Btu) produced by the combustion, at constant pressure, of the
amount of the gas which would occupy a volume of 1.0 cubic
foot at a temperature of 60°F. saturated with water vapor and
under a pressure equivalent to that of 30.00 inches of mercury
at 32°F. and under standard gravitational force (980.665
centimeters per second squared) with air of the same tempera-
ture and pressure as the gas, when the products of combustion
are cooled to the initial temperature of the gas and air and
when the water formed by combustion is condensed to the liquid
state.
64a
fective for all first sales of natural gas made on or after
December 1, 1978, the effective date of the interim rule.
With respect to the PGA issue, natural gas pipelines
under the Commission’s jurisdiction will be permitted to
record any necessary retroactive payments in Account
191 (“Unrecovered purchase gas costs”). Such payments
should be recorded as a subaccount of Account 191 or
should be otherwise separately identified. The pipeline
will be afforded the opportunity to demonstrate in its
next PGA filing that the claimed amounts are correct and
that rate treatment is appropriate for any claimed retro-
active payments.
The Commission Orders:
The applications for rehearing of Order No. 93 and
Natural’s petition for rehearing of the Commission’s or-
der denying its petition for partial stay of Order No. 93
are denied. The applications for stay filed by Arkla and
Transco are also denied. Order No. 98 is clarified as set
forth above.
By the Commission.
[SEAL]
/s/ Kenneth F. Plumb
KENNETH F. PLUMB,
Secretary.
65a
APPENDIX I
TECHNICAL CONSIDERATIONS
The Commission has examined, among the other mat-
ters discussed in this order, certain fundamental techni-
cal considerations pertaining to the Btu Rule. Of particu-
lar interest are:
@ features related to the occurrence of water in nat-
ural gas;
®@ factors which cause variances in the water content
of natural gas and attendant changes in the heat-
ing value of natural gas; and
® considerations related to the development of pro-
ducer just and reasonable rates under the NGA
and the degree of compatibility between those rates
and the maximum lawful prices established under
the NGPA.
The following discussion addresses some of the concerns
expressed by the petitioners and helps explain the Com-
mission’s rationale in reaching its decision in Order No.
93 with respect to the Btu pricing issue.
Occurrence of Water in Natural Gas
It is important at the outset to recognize that the rea-
sons for the occurrence of water in natural gas relate to
expected and natural phenomena. Most geologic forma-
tions from which natural gas is produced are the results
of fragmented materials or precipitates deposited in
ageous environments (e.g., shallow seas, lakes, deltas,
streams, etc.). Additionally, the organic material (plant
and/or sea life) from which natural gas originated was
also deposited and decomposed in ageous environments.
Therefore, natural gas that has accumulated in or mi-
grated to the reservoirs from which it is now produced
has been, and in most instances still is, in contact with
water (i.e. the chemica! compound H,0).
66a
Because of the physical contact of natural gas with
water, water is produced along with gas. Water may be
present in produced natural gas as a free liquid (i.e., in
a liquid phase) or as a vapor (i.e., in a gaseous phase).
Most often it is present in produced gas as both a liquid
and a vapor. Free liquid water interferes with produc-
tion and transportation operations and is removed from
the natural gas stream. Water vapor reduces the heat-
ing value of natural gas, and it is that feature which is
central to the considerations in this order and in Order
No. 93.
Variance in Water Vapor Content and Heating Value
The extent to which water in any given natural gas
sample or natural gas stream exists or remains in a
gaseous phase, as opposed to a liquid phase, depends upon
the water vapor capacity of the gas. Water vapor ca-
pacity of gas is a function of the pressure and tempera-
ture to which the gas is subjected. Changes in the pres-
sure and temperature of gas, and resulting changes in its
water vapor capacity, can occur within the reservoir;
during production, separation, and treating or condition-
ing operations; and during pipeline entry and transpor-
tation.
The relationships between water vapor capacity and
temperature and pressure are clearly shown in the graph
at the end of this appendix. It is important to under-
stand that at any set of pressure and temperature con-
ditions, gas has a specific water vapor capacity. Once
that capacity is obtained, the gas is completely saturated
with water vapor. If either pressure or temperature is
changed, the water vapor capacity of the gas (i.e., its
saturation limit) will change. The gas would then be
capable of containing either more water vapor or less
water vapor, depending upon the direction of change in
pressure or temperature. (See graph.)
67a
Water has no available heat energy. Unlike the hydro-
carbon compounds in natural gas, it will not combine with
oxygen and generate heat through combustion. The pres-
ence of water vapor molecules in natural gas displaces
energy-producing hydrocarbon molecules and, therefore,
reduces the effective heating value of the gas.
Order No. 93 addressed the water vapor/heating value
relationship and, among other things, articulated the
standard method for measuring the heating value of nat-
ural gas. Specifically, Order No. 93 established the
“standard conditions” for measuring the number of Brit-
ish Thermal Units (Btu’s) in one cubic foot of gas:
“.,. the gas is saturated with water vapor at 60 de-
grees fahrenheit under a pressure equivalent to that
of 30.00 inches of mercury at 32 degrees fahrenheit,
under standard gravitational force (980.665 centi-
meters per second squared).”
In recognition of the fact that the conditions under which
gas is actually delivered would vary widely and would
likely be different from the standard conditions, Order
No. 93 also stated that the heating value of gas deter-
mined at standard conditions (or other measurement con-
ditions) must be converted to reflect the heating value at
actual delivery conditions in order to properly price the
gas.
The standard conditions established in Order No. 93
are based on long-standing, widely-used standards for
natural gas measurement. Standards are necessary in
natural gas measurement because of the chemical nature
and physical behavior of natural gas. In any given nat-
ural gas system (i.e., sample, stream, etc.) the following
essential relationships exist:
® Gas volume expands with increased temperatures;
® Gas volume shrinks with increased pressure;
68a
® Gas capacity to absorb water vapor increases with
higher temperature;
© Gas capacity to absorb water vapor decreases with
higher pressure; and
®@ Gas heating value (i.e, MMBtu’s per Mcf) de-
creases with higher water vapor content, and vice
versa.
The standard measurement conditions cited in Order
No. 93 recognize the above relationships and their inter-
dependence. The standards, in effect, define both volume
and water vapor content. Volume is defined by the pre-
scribed temperature and pressure conditions. Water va-
por content is defined as being that quantity of water
vapor that would be present in the gas if the gas were
fully saturated with water vapor at the defined standard
temperature and pressure.
At the defined standard conditions, water-saturated gas
will contain approximately 820 pounds of water vapor
per million cubic feet of total gas. However, the stand-
ard conditions would actually exist in only a very lim-
ited number of gas sale-purchase transactions, i.e., only
where pressure and temperature conditions at delivery
are identical to the standard conditions (30 inches of
mercury and 60° F) and where the gas at delivery is
saturated with water vapor.’ Because of contractual pro-
visions, gas delivered to a pipeline will, by comparison,
often contain only about seven pounds of water per mil-
1Jn this regard, it should be noted that the standard pressure,
30 inches of mercury, is aproximately the same as atmospheric
pressure. Local and regional variances from the 30-inch standard
are caused by weather patterns and differences in elevation. Oper-
ating pressures near atmospheric pressure may occur on portions
of some gas distribution systems, but the pressures encountered in
most production and transportation operations greatly exceed at-
mospheric pressure.
69a
lion cubic feet of total gas.* Water vapor in gas fully
saturated with water, at the defined standard pressure
and temperature, will occupy about 1.74 percent of the
total gas volume, whereas, water vapor in gas containing
seven pounds of water vapor per million cubic feet of gas
will occupy only about 0.015 percent of the total gas
volume. These relationships show that there is little com-
parability between the amount of water vapor contained
in gas at most delivery conditions vis-a-vis the amount
contained at the prescribed standard conditions.
Because water vapor displaces energy-producing hy-
drocarbon molecules, heating value (MMBtu’s per Mcf)
of natural gas varies inversely with water vapor content.
The effect of reducing the water vapor content of natural
gas from 820 pounds per MMef to seven pounds per
MMcef is an obvious increase in the heating value (i.e.,
MMBtu’s per Mcf) of the gas stream.
Thus a significant disparity clearly exists between the
heating value of gas at the standard conditions and its
heating value at actual delivery conditions. The degree
of disparity is dependent upon the actual delivery condi-
tions (pressure and temperature). Given the collage of
pressure and temperature conditions at which gas sale-
purchase transactions occur, there is no known, uncon-
troverted correction factor that would have universal ap-
plication for adjusting heating value determinations at
the defined standard conditions to the heating value at
actual delivery conditions.
Based on this analysis the Commission has stated that
the heating value of gas determined at the prescribed
standard conditions (or any other test conditions) must
2It should be made clear that it is physically impossible under
most delivery conditions for natural gas to contain the 820 pounds
of water vapor per million cubic feet of total gas that is obtained
at “standard conditions.” Under most delivery conditions, the maxi-
mum amount of water vapor in gas will range from about 7 to 70
pounds per million cubic feet of total gas. (See graph.)
70a
be adjusted to reflect the heating value of gas at actual
delivery conditions, whatever those conditions are for a
particular first sale.
Compatibility of NGA and NGPA Prices
There are several considerations that should be ad-
dressed relative to, the correlation between the NGA
volume-referenced prices and the NGPA energy-referenced
prices. Direct correlation is frustrated by an inconsist-
ency between the concept and methodology used to derive
the NGA base prices and the concept and methodology
underlying Btu adjustments applied to those base prices.
The basis for this inconsistency is largely historic. Spe-
cific recognition of the inconsistency itself is necessary in
order to obtain compatability between the NGA and
NGPA pricing schemes.
The Btu adjustment procedure was originally adopted
under the Federal Power Commission’s (FPC’s) in-line
pricing system which was based on contract provisions
predominant in the producing area. It was designed to
encourage producers in certain areas to deliver high Btu
gas for mixing with low Btu gas that could not otherwise
be brought into the interstate market.* In deciding that
Btu content should be reported at standard conditions, the
FPC noted that this requirement conformed to the re-
quirements of Form 2 and that it was accepted by the
scientific community and the natural gas industry. The
FPC also noted that the Btu adjustment procedures were
actually part of the in-line, contract-pricing concept be-
cause they were routinely used in contracts upon which
the in-line prices were based.
Later, the FPC established area rates which initially
included a rate for “flowing gas” and a rate for “new
gas.” That pricing approach was later amended to de-
velop a nationwide base price for “new gas;” stil] later
* Tezaco, Inc., Opinion 464, 38 F.P.C. 1228, 1285 (1965).
Tla
amendments were made to recognize the “vintage” of the
gas. These producer base prices were established for nat-
ural gas volumes (Mcf at 14.73 psia an 60° F) delivered
to a pipeline. Adjustments to the NGA volume-referenced
base prices were permitted in order to recognize variance
in the heating value (MMBtu’s per Mcf) of gas and were
based on the results of Btu measurements at standard
conditions.* However, as with the in-line pricing meth-
odology, no conversion was permitted to account for the
heating value at actual delivery conditions."
Throughout the area and nationwide rate proceedings
establishing NGA producer prices, the FPC was dealing
with costs and natural gas volumes reported by the in-
dustry. The reported costs were in dollars, and the re-
ported volumes were either the quantities of natural gas
(Mcf’s) actually produced on oil and gas leases, in the
ease of “flowing gas,” or'the quantities of natural gas
that would ultimately be produced from discovered re-
serves, in the case of “‘new gas.”
In an overly simplified explanation, the base prices
were the quotient obtained by dividing these costs by
these volumes. The prices, in effect, represented the aver-
age revenue requirement (within the NGA’s just and rea-
sonable standard) for producing an “average Mcf” of gas
and making it available for delivery to a pipeline. A
* The first attempts by the FPC at providing for Btu adjustments
to volume-referenced area rates had a so-called “Btu Gap.” The base
price prescribed was applicable to natural gas containing 1000 to
1050 Btu’s per Mcf. Adjustments to the base price were made for
gas below 1000 Btu’s per Mcf and for gas above 1050 Btu’s per
Mcf. (Permian Basin Area Rate Proceedings Opinion 468 (34 FPC
159 at 223).) No adjustment was applicable for gas in the 1000 to
1050 Btu range. Later FPC action eliminated the Btu-Gap to pro-
vide for price adjustments to the NGA base prices for gas above
and below 1000 Btu’s per Mcf.
5 The standard conditions used for determining Btu content dur-
ing the NGA pricing era are essentially the same as those prescribed
in Order No. 98.
72a
cost-revenue balance was implicit in these rates. It
should be emphasized, however, that the reported volumes
were not adjusted for quality (Btu’s or otherwise) prior
to rate derivation. The reported volumes were at various
pressure and temperature delivery conditions, which var-
ied substantially from the 30 inches of mercury and 60°
F standard pressure and temperature conditions. As
such, the reported volumes would not contain the 820
pounds of water vapor per MMcf of total gas that exist
at standard conditions. Rather, the reported volumes
would typically contain approximately seven to seventy
pounds of water vapor per MMcf. Therefore, the heat-
ing value per Mcf at delivery conditions would be sig-
nificantly greater than the heating value per Mcf of the
same gas if referenced to standard conditions.
In essence, then, imposition of the Btu adjustment pro-
cedure on the cost-revenue balancing scheme introduced
a foreign element into the pricing methodology employed
by the FPC in setting the base prices. That foreign ele-
ment is the source of the present pricing controversy un-
der the NGPA.
In order to have resolved this inconsistency for pur-
poses of establishing a base price comparable on an en-
ergy-equivalent basis to volumes at standard conditions,
the delivered volumes would have had to be decreased.
The resulting base price would have been correspondingly
increased. Subsequent Btu adjustments to the base price
(i.e, the price per Mcf of 1 MMBtu per Mcf gas at
standard conditions) would have resulted in pricing the
gas essentially on an as-delivered-MMBtu basis.*
The effect of the failure to resolve this,inconsistency is
an understatement of the actual number of MMBtu’s
*In the alternative, the Btu adjustment could have been based on
actual delivery conditions. See “Sample Computation Showing Lack
of Direct Correlation Between Previously Established NGA Volume-
Referenced Prices and NGPA Energy-Referenced Prices.”
73a
contained in each Mcf delivered to the buyer. With the
relatively low gas prices of the past, the inconsistency ap-
parently was acceptable for quality control and for pric-
ing purposes to both the seller and the buyer.’ However,
the change under the NGPA to reliance on heat content
(MMBtu’s) of gas as a price determinant rather than a
quality control adjustment to a volume-referenced base
price, has created a controversy which can be traced to
this inconsistency. Under the NGPA, prices are estab-
lished for the quantity of heat energy (MMBtu’s) in-
volved in a first sale. The NGPA pricing structure makes
no specific reference to volumes or volume measurement.
(In actual practice, however, most gas involved in pro-
ducer-pipeline transactions is still measured on a vol-
umetric basis although it is now priced on an energy
basis.) If gas is now to be priced on the basis of the
heating energy actually delivered to a buyer, the former
NGA adjustment procedures with respect to heating value
are not technically correct for use in the energy-referenced
pricing scheme. Those procedures evolved from the in-
line pricing era, during which natural gas prices were
based on contract provisions predominant in the produc-
ing area. They made sense for quality control purposes
and for encouraging the delivery of high Btu gas. When
carried forward to the area and national ratemaking
methodologies, which abandoned the in-line, contract-
referenced pricing concept, they created a basic technical
inconsistency between the base prices and the Btu adjust-
ments made to those base prices. Whatever previous use-
fulness may have derived for producer ratemaking pur-
poses from the Btu adjustment procedures no longer ex-
ists. The procedures have now become a “vestigial organ”
and are not an integral component of the NGPA pricing
anatomy.
™ What support exists for the prescribed NGA Btu adjustment
producer derives from its identity with provisions in most
producer-pipeline contracts.
T4a
Conclusion
In addition to being technically (and legally) correct,
the Btu measurement and pricing procedures should also
be administratively efficient. The procedures described
in Order No. 93 satisfy those tests. Therefore, to the ex-
tent that it is contractually permissible, the actual de-
livery conditions, whatever they are, should be recognized
in determining the quantity of heat energy involved in a
gas sales’ purchase transaction. Any other approach, as
well as a downward adjustment of the maximum lawful
prices, would not be technically correct and would likely
result in administrative “nightmares” for regulatory
agencies and for all segments of the natural gas industry.
Sample Computation Showing Lack of Direct Correlation
Between Previously Established NGA Volume-Referenced
Prices and NGPA Energy-Referenced Prices
@ Assume cash flow of $1 million.
@ Assume reported volumes are 1 million Mef.
© Assume gas is “dry” (i.e., contains no water va-
por) and has a heating value of 1 MMBtu per
Mef.
®@ The correct price under the NGPA pricing proce-
dures should be $1.00 per MMBtu of gas actually
delivered. ;
However, application of the NGA base-price Btu adjust-
ment procedure would produce the following results:
The heating value of the gas would be converted from
actual delivery conditions to “standard conditions”
and would, therefore, contain:
1 MMBtu/Mcefx (100.00% Total Gas—1.74% water
vapor) = 0.9826 MMBtu/Mef
The revenues generated as a result of this Btu ad-
justment would be determined as follows:
Tba
0.9826 MMBtu,/ Mcf x1 million Mcf
<x $1.00/MMBtu=
982,600 MMBtu x$1.00/MMBtu= $982,600
In order to use the NGA base-price Btu adjustment pro-
cedure and generate a cash flow equivalent to $1,000,000,
the reported volumes would have to be adjusted down-
ward so as to produce a higher “base rate.” The ad-
justed base rate (“B’) needed to maintain revenues
would be computed as follows:
$1,000,000 =0.9826 MMBtu/Mcfx1 million McfxB
B= $1,000,000
0.9826 MMBtu/Mcf 1 million Mcf
B= $1,000,000.
982,600 MMBtu
B=$1.017/MMBtu
The downward adjusted volumes needed to derive the
$1.0177 per MMBtu rate would be computed as follows:
1 Mef of gas at actua! delivery conditions contains
1 MMBtu. If the gas were converted to standard
conditions the same Mcf would contain 0.9826
MMBtu’s because water vapor would occupy 1.74%
of the total gas volume. The “energy equivalent” vol-
umes at actual delivery conditions would, therefore,
have to be reduced by 1.74%:
1 million Mef x (100.00 % — 1.74% ) = 982,600 Mef
The adjusted base rate (““B”) would result from the fol-
lowing:
B= $1,000,000
982,600 Mcf x (1 MMBtu/Mef)
B--$1.0177/MMBtu
76a
The revenues generated under this procedure would be as
follows:
0.9826 MMBtu/Mcef x1 million Mecf
x $1.0177/MMBtu=
982,600 MMBtu x $1.0177 /MMBtu = $1,000,000
This example demonstrates that in order to obtain correct
pricing for MMBtu’s actually delivered, using the NGA
base-price Btu adjustment procedures, volumes reported
at actual delivery conditions (here assumed to contain no
water vapor) would have to be reduced prior to deriving
a “base rate” per Mcf. If this is not done, revenues
would be less than the requisite cash flow. Note, however,
that this is only an explanatory computation. The same
correct result is obtained under the NGPA pricing proce-
dures if the NGA per Mcef base price is retained and ex-
pressed on a per-MMBtu basis and the heating value of
the gas is determined based on actual delivery conditions.
In this example:
1 MMBtu/Mcef 1 million Mcf
x $1.00 /MMBtu = $1,000,000
77a
j . : sa See ae
| , | ae 100% wi erage eaten te > 2 + - & gs Fs =
om <= Ste ater eM) to i — —— eet jan om or aa
30,000; =
2.000 =
1Q, 000»
eoce
gone
4000}
40cc
r
sooo —_—_—-
=
v. 4 a waeod
2000) TANDARD OR : ~LTe ma YO OLE ESO
= STAD - pol oo cae aw SA a 7 rw V7 4s
F>__ TEST CONDITIONS We hth gp Ape
' A : -
Woter contest, & 4,0 per mittlon cu {1 totel gos
_— i bitiiiti
en a iL
a aw mer ae :
or
on —- ——-
_ y ~ « y (on roma rte:
LL. ro ys va rae 'e maeara
, y - =—= « eee aa
ah y sm | , ome i tk, rm [am ee
wv A Oe aw ee ee 08
0 , at " Tri ; u
: a
— -< des we — ome:
doe ye (amu | oa i
a 4 ~ 4 ome emt ata —=s me
re rt 7 A , 9 ma - via Z ba pms reat
mw uy a bv 4 i | Sa pi iii i :
i 7) A 7 @ i tTrlit
com Tay a RM fim PLititititil | i
” va / ess ri [_ re as
7 T : 7 a) ry A. Hb. ry
oe Aare bab RANGE OF TYPICAL PRODUCTIO —
| — x TATI ONDITIONS
per MMcf =——3, — = —AND TRANSPORTATION ONWsea
¢ ; Mme BS Om
Xu
——
°° 7. re =m Jute =
> mame ra va 4. >. re
a ay a ATs 0 8 a A oe 1 | weeseeeees Z
oye a si oe ; T rCitititit titi itt tt mans
VAVMwW Aw sw i // i io Pa j ii
27 VV ILAATA RSRSMMRARAE TEA ee Hime ii
ee en ae a — oe
“70 -€0 -30 40-30-2040 0 HOMME oo ota 2x 1% BO MO “or xo oO Om
{ Weter content of neturol gas @ equillbrive with Devid worer,
Ref: Adapted from Katz, Cornell, Kobayashi, Poettmann, Vary,
Slenbaas and Wefnaug, Hancbook of Natural Gas Engineer'7g
(McGraweH111 Book Company, inc., New York, soronto, Lorcon, oc
1959). Reprinted with permission © 1959 McGraw-Hill Book
Company, Inc. ero ore ase
78a
DC-C-52
16 FERC § 61,077
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: C. M. Butler III, Chairman;
Matthew Holden, Jr., and
J. David Hughes.
Docket No. RM80-33
FINAL RULES FOR PART 270,
SUBPART B, SECTIONS 270.201,
270.202, and 270.204
ORDER DENYING APPLICATIONS
FOR REHEARING OF ORDER NO. 93-A
AND LIMITED STAY OF ORDER NOS. 93 AND 93-A
(Issued July 30, 1981)
On April 24, 1981, the Commission issued Order No.
93-A (Docket No. RM80-33; 46 Fed. Reg. 24537; May 1,
1981) denying rehearing and clarifying Order No. 93
(45 Fed. Reg. 49077; July 23, 1980). On May 26, 1981,
Associated Gas Distributors (AGD) and Lone Star Gas
Company (Lone Star) filed, separately, applications for
rehearing of Order No. 93-A. Further, on June 23, 1981,
Lone Star filed an application for a limited stay of Order
Nos. 93 and 93-A. By this order those applications are
denied.
I. BACKGROUND
Order No. 93 amended and issued as final rules the
interim regulations ' relating to first sales of natural gas
1 The interim rule read as follows:
§ 270.204 Btu content per unit volume of natural gas.
For purposes of determining the number of Btu’s per unit
volume of natural gas, the Btu content of one cubic foot of
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that are resales and the standard for determining the
Btu content of natural gas. Several applications con-
tested that part of the rule (contained in § 270.204) es-
tablishing the standard for determining the Btu content
of gas (Btu rule).
With regard to the Btu rule, in Order No. 93 the Com-
mission responded to the comments on the interim rule,
interpreted the interim rule, and modified the language
of the final rule to more clearly reflect that interpreta-
tion. Specifically, it stated that measurement of the Btu
content of gas must reflect the actual condition of the
gas, and, therefore, the actual Btu content of the gas on
delivery. This rule differs from the regulations which
implemented the Natural Gas Act (15 U.S.C. $$ 717-717
(w)) in that the just and reasonable rates prescribed
under the Natural Gas Act were based on the number of
Mcf’s delivered and included a quality adjustment deter-
mined by the number of MMBtu’s measured at standard
(saturated) conditions. Measurement at the prescribed
standard conditions consistently under-stated the Btu con-
tent of the gas on delivery.
The Commission’s position under the Natural Gas Pol-
icy Act of 1978 (NGPA), 15 U.S.C. §§ 3301-3342, ex-
plained in both Order No. 93 and Order No. 93-A, ap-
plies the maximum lawful prices prescribed by the NGPA
to the number of MMBtu’s, rather than Mcf’s, delivered
natural gas is the number of Btu’s produced by the combustion,
at constant pressure, of the amount of gas which would occupy
a volume of 1.0 cubic foot at a temperature of 60 degrees
Fahrenheit, saturated with water vapor and under a pressure
equivalent to that of 30.00 inches of mercury at 32 degrees
Fahrenheit, and under standard gravitational force (980.665
centimeters per second squared) with air of the same tempera-
ture and pressure as the gas, when the water formed by com-
bustion is condensed to the liquid state. (43 Fed. Reg. 56448;
December 1, 1978)
80a
in a first sale. The Btu rule, as amended by Order No.
93, became effective as a final rule August 18, 1980.*
In addition to denying rehearing of Order No. 93, Or-
der No. 93-A clarified the Btu rule by presenting a full
explanation of its rationale for adopting a Btu rule that
reflects the actual condition of the gas on delivery. The
Commission again stated that the interim rule, as well
as the final rule, permitted the maximum lawful price
for first sales of natural gas to be determined on the
basis of the number of Btu’s actually delivered. The
clarification, therefore, made the interpretation effective
for a! first sales of natural gas made on or after Decem-
ber 1, 1978 (the effective date of the interim rule).
II. APPLICATIONS FOR REHEARING
Both AGD and Lone Star challenged the retroactive ef-
fective date of the clarification expressed in Order No.
93-A. In Order No. 93 the Commission clearly expressed
its interpretation of the interim Btu rule:
Several comments noted that § 270.204 provides
that Btu content must be measured on a “saturated
2 The final rule reads as follows:
§ 270.204 Btu content per cubic foot of natural gas.
(a) Measurement. The Btu content of one cubic foot of
natural gas under the standard conditions specified in para-
graph (b) of this section is the number of Btu's produced by
the complete combustion of such cubic foot of gas, at constant
pressure with air of the same temperature and pressure as the
gas, when the products of combustion are cooled to the initial
temperature of the gas and air and when the water formed by
such combustion is condensed to a liquid state.
(b) Standard conditions. The standard conditions for pur-
poses of paragraph (a) of this section are as follows: The gas
is saturated with water vapor at 60 degrees Fahrenheit under
a pressure equivalent to that of 30.00 inches of mercury at
82 degrees Fahrenheit, under standard gravitational force
(980.665 centimeters per second squared).
8la
with water vapor’ basis rather than on the basis of
the actual water vapor content of the gas delivered.
The comments asserted that under this rule the seller
would be paid for less Btu’s than would actually be
delivered if the gas were sold on a dry (unsaturated)
basis.
This assertion is erroneous. Section 270.204 merely
describes the test standard for expressing the num-
ber of Btu’s contained in a cubic foot of gas under
certain conditions. Under this standard, the heat
value is expressed as the number of Btu’s per cubic
foot of gas “saturated with water vapor.” The Com-
mission is aware that the water vapor content or
pressure of the gas when tested may be different
than described in this standard, and may also be
different than the conditions that obtain when the
gas is delivered.
Therefore, the results obtained under test condi-
tions, be they those in the rule or others, must be
converted to figures that reflect the actual condition
of the gas on delivery in order to properly price the
gas. (45 Fed. Reg. at 49080.)
That interpretation is clearly consistent with the clarifi-
cation expressed in Order No. 93-A. Accordingly, Order
No. 93-A was made effective as of December 1, 1978, the
effective date of the interim rule. Lone Star’s and AGD’s
assertion that Order No. 93-A effected a rule retroac-
tively is without merit.
Lone Star challenged the merits of the Commission’s
decision, asserting that the Btu rule contradicts past
Commission and industry practice and the intent of Con-
. These issues were raised in the application to re-
hear Order No. 93. In Order No. 93-A the Commission
fully discussed these issues and denied the applications
for rehearing. For the reasons discussed in Order No.
93-A, Lone Star’s application is denied.
82a
III. APPLICATION FOR LIMITED STAY
On June 23, 1981, Lone Star also filed an application
seeking a stay of the retroactive application of § 270.204
as interpreted by Order Nos. 93 and 93-A. Specifically
Lone Star seeks stay of the orders to the extent they re-
quire Lone Star to make retroactive adjustment of the
prices it paid producers for gas purchases prior to April
24, 1981, the date Order No. 93-A was issued.
The application for a limited stay of Order Nos. 93
and 93-A, pending judicial review, is denied.
THE COMMISSION ORDERS:
(1) The applications for rehearing of Order No. 93-A
filed by Associated Gas Distributors and Lone Star Gas
Company are denied.
(2) The application of Lone Star Gas Company for a
limited stay of Order Nos. 93 and 93-A, pending judicial
review, is denied.
By the Commission.
[SEAL]
/s/ Kenneth F. Plumb
KENNETH F. PLUMB,
Secretary.
83a
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: C. M. Butler, III, Chairman;
Georgiana Sheldon,
Matthew Holden, Jr., and
J. David Hughes.
Docket No. RM80-33
FINAL RULES FOR PART 270,
SUBPART B, SECTIONS 270.201,
270.202, AND 270.204
ORDER VACATING ORDER DENYING REHEARING
OF ORDER NO. 93-A AND LIMITED STAY OF
ORDER NOS. 93 AND 93-A
(Issued August 20, 1981)
For the reasons set forth in “Order Granting Partial
Stay of Order Nos. 93 and 93-A Pending Further Order”
issued today, we hereby vacate the following aspects of
our order of July 30, 1981 entered in this docket:
1) The denial of rehearing as to the effective date
of the standard prescribed for measuring the Btu
content of natural gas in calculating the maximum
lawful prices under the Natural Gas Policy Act of
1978 (15 U.S.C. §§ 3301-3432) ; and
2) The denial of the application of Lone Star Gas
Company for a partial stay.
The Commission Orders:
Subject to the approval of the United States Court
of Appea!s of the District of Columbia Circuit, the
8ta
order of July 30, 1981, entered in the above docket
is vacated in the respects described above.
By the Commission.
[SEAL]
/s/ Kenneth F. Plumb
KENNETH F. PLUMB,
Secretary.
85a
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: C. M. Butler, III, Chairman;
Georgiana Sheldon,
Matthew Holden, Jr., and
J. David Hughes.
Docket No. RM80-33
FINAL RULES FOR PART 270,
SUBPART B, SECTIONS 270.201,
270.202, AND 270.204
ORDER GRANTING PARTIAL STAY OF
ORDER NOS. 93 AND 93-A PENDING FURTHER
ORDER
(Issued August 20, 1981)
On July 16, 1980, the Commission issued Order No. 93
(Docket No. RM80-33; 45 Fed. Reg. 49077; July 23,
1980) amending and issuing as final rules the regulation
in 18 C.F.R. § 270.204 relating to the standard for deter-
mining the Btu content of natural gas. On April 24, 1981,
the Commission issued Order No. 93-A, entitled “Order
Denying Rehearing and Clarifying Order No. 93” (46
Fed. Reg. 24537; May 1, 1981). On July 22, 1981, El
Paso Natural Gas Company filed a petition requesting
full or partial stay of Order Nos. 93 and 93-A.
Order No. 93-A stated that the measuring standard
prescribed in Order No. 93 took effect on December 1,
1978. We wish to reconsider that conclusion. Many pipe-
lines have not yet paid al] sums which would be due on
the basis of that effective date. To that extent, we wish
86a
to preserve the status quo pending reconsideration of the
question of the effective date.’
The Commission Orders:
Order Nos. 93 and 93-A are stayed, pending further
order, insofar as they concluded that the standard they
prescribed for determining Btu content of natural gas
was in effect from December 1, 1978, to April 24, 1981
(the date Order No. 93-A was issued). This order is sub-
ject to the approval of the United States Court of Ap-
peals for the District of Columbia Circuit.
By the Commission.
[SEAL]
‘s/ Kenneth F. Plumb
KENNETH F. PLuMB,
Secretary.
1 Should this reconsideration produce a different conclusion as to
the effective date, we will make appropriate adjustments to relieve
those who already paid in whole or in part.
87a
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: C. M. Butler, III, Chairman;
J. David Hughes and
A. G. Sousa.
Docket No. RM80-33
FINAL RULES FOR PART 270,
SUBPART B, SECTIONS 270.201,
270.202, AND 270.204
ORDER VACATING PARTIAL STAY
AND AMENDING REGULATIONS
(Issued December 24, 1981)
On August 20, 1981, the Federal Energy Regulatory
Commission (Commission) granted a partial stay of the
Necember 1, 1978, effective date of the Btu rule (18
C.F.R. § 270.204), pending further order, for the period
December 1, 1978, to April 24, 1981. The Btu rule pre
scribes the standard for determining the Btu content of
natural gas in calculating maximum lawful prices under
the Natural Gas Policy Act of 1978 (15 U.S.C. §§ 3301-
84382) (NGPA).
The Commission has reconsidered the effective date of
the Btu rule. For the reasons discussed herein and pre-
viously stated in Order Nos. 93 and 93-A, the Commis-
sion reaffirms the December 1, 1978, effective date. Ac-
cordingly, the partial stay of the effective date is vacated,
and, effective December 1, 1978, maximum lawful prices
for first sales of natural gas are to be determined by the
actual Btu’s celivered. In addition, § 270.204 of the Com-
mission’s regulations is clarified by adding a new para-
88a
graph stating that the maximum lawful price for any
first sale is applied to the Btu’s actually delivered.’
I. BACKGROUND
The NGPA was signed into law on November 9, 1978.
On November 28, 1978, the Commission issued interim
regulations, effective December 1, 1978, to implement the
NGPA. One of the interim regulations was § 270.204.
That section described the standard test conditions for
determining the Btu content of a unit volume of natural
gas.
On July 16, 1980, the Commission issued Order No. 93
(45 Fed. Reg. 49077, July 28, 1980) in the instant docket
which, inter alia, amended and issued in final form the
interim regulation in § 270.204. In response to comments
questioning the relationship of the interim regulation to
determination of maximum
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