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

79a

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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Appendix — Exxon Corp. v. Interstate Natural Gas Ass'n of America · 465 U.S. 1108 | Frix