# Appendix — Exxon Corp. v. Interstate Natural Gas Ass'n of America > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385011_1108%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1984 - **Citation:** 465 U.S. 1108 ## Text ee tite D 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) [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385011_1108%3A2. Public record. Not legal advice.