Opposition — Exxon Corp. v. Interstate Natural Gas Ass'n of America

Office - Supreme Court, US

FILED

Nos. 83-1171 and 83-1173 RB 16 1964

Ee a

STEVAS

IN THE — CLERK

Supreme Court of the United States

OCTOBER TERM, 1983

FEDERAL ENERGY REGULATORY COMMISSION,

EXXON CORPORATION, et al.,

Petitioners,

Vv.

INTERSTATE NATURAL GAS ASSOCIATION OF AMERICA, et al.,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals for the

District of Columbia Circuit

BRIEF IN OPPOSITION FOR RESPONDENT

ASSOCIATED GAS DISTRIBUTORS

JOSEPH M. OLIVER, JR.*

JENNIFER N. WATERS

PETER K. LEVINE

CROWELL & MORING

1100 Connecticut Ave., N.W.

Washington, D.C. 20036

(202) 452-5960

Attorneys for Respondent

Associated Gas Distributors

* Counsel of Record

February 16, 1984

WILSON - EPES PRINTING Co.. INC. - 789-0096 - WASHINGTON. D.C. 20001

QUESTION PRESENTED

The Natural Gas Policy Act of 1978 (NGPA), 15

U.S.C. $§ 3301 et seg., establishes maximum lawful prices,

based upon energy content, for natural gas sales. The

Federal Energy Regulatory Commission was authorized

to raise these prices only in certain, very limited, circum-

stances. Commission Order Nos. 93 and 93-A changed a

widely accepted and consistently implemented methodology

for determining the energy content of natural gas for

ceiling price purposes. The effect of this change was to

raise congressionally mandated ceiling prices by approxi-

mately 1.74 percent. The question presented for review is

whether the court of appeals was correct in finding this

price increase to be fundamentally at odds with the

NGPA and its legislative history.

(i)

TABLE OF CONTENTS

Page

ti yy RB | 5p y | | SERENE RR enue i

Me TEI oat cncaetiscisssascd nscmsRataicmendapineaas iii

ye Fe ga ty y |: 5 x: RRM SURE T Berns iv

STATEMENT OF THE CASE ....................................... 2

SUMMARY OF REASONS FOR DENYING THE

ICN la AE re em AO. 5 2 Re AE BONA 5

REASONS FOR DENYING THE PETITION ............ 5

A. Judicial Deference To The Commission’s Errone-

ous Statutory Interpretation Is Not Appropriate.. 5

B. The Commission’s Rule Was Inconsistent With

The NGPA And Its Legislative History .............. 9

6 Rak ene II RETO COME APES wy hs 17

(iii)

iv

TABLE OF AUTHORITIES

Cases Page

Adamo Wrecking Co. v. United States, 434 U.S.

I a a aaae 6, 7

Adickes v. S.H. Kress & Co., 398 U.S. 144 (1970).. 7

Batterton Vv. Francis, 4382 U.S. 416 (1977) ............... 9

Bureau of Alcohol, Tobacco and Firearms Vv. FLRA,

52 U.S.L.W. 4018 (U.S. Nov. 29, 19838) .............. 6

Columbia Gas Development Corp. v. FERC, 651

F.2d 1146 (5th Cir. 1981) ....... Pl Oh hae Sa Mad Sie ASR TOO 14

Consumer Product Safety Comm’n v. GTE Syl-

ee O_o 6

Edmonds v. Compagnie Generale Transatlantique,

463 US. 366 (197®) ............:............ 14

General Electric Co. v. Gilbert, 429 ‘Uv. Ss. “125

i RREERN ES Cea | CAPO Bape PRA RO chee

Morton V. Ruiz, 415 U.S. 199 (1974) .....000......ee..

NLRB Vv. Brown, 380 U.S. 278 (1965) ........00000022000....

Piper Vv. Chris-Craft Industries, 430 U.S. 1 (1977)..

Public Service Comm’n v. Mid-Louisiana Gas Co.,

51 U.S.L.W. 5030 (U.S. June 28, 1983) 0.0.0.0... 14

SEC v. Chenery Corp., 318 U.S. 80 (1948) ............. 7,15

SEC v. Sloan, 486 U.S. 108 (1978) ........................... 5

Skidmore Vv. Swift & Co., 323 U.S. 184 (1944) ........ 6

United States v. Lovasco, 431 U.S. 783 (1977)........ 7

Volkswagenwerk v. FMC, 390 U.S. 261 (1968)...... 5

Administrative Decisions

FPC Opinion No. 464, 33 F.P.C. 1228 (1965)........ 13

FPC Opinion No. 468, 34 F.P.C. 159 (1965), aff’d

sub nom. Permian Basin Area Rate Cases, 390

Re We” I es ce oe 2, 10-11, 13

FPC Opinion No. 662, 50 F.P.C. 390 (1973) ........... 11

FPC Opinion No. 699-H, 52 F.P.C. 1604 (1974).... 3,13

FPC Opinion No. 770, 56 F.P.C. 509 (1976), aff’d

sub nom. American Public Gas Ass’n V. FPC,

567 F.2d 1016 (D.C. Cir. 1977), cert. denied,

Ae as IT UI hh ca he cece hat 3,11, 12

Statutes

Administrative Procedure Act, 5 U.S.C. §§ 551 et

a II occa penne h Aainhssantiichaicaecgs te hicensdakidanidlacoomaccctaiioks 8

Section 706, & USC. § 706 ................... 9

v

TABLE OF AUTHORITIES—Continued

Page

Natural Gas Act, 15 U.S.C. §§ 717 et seq. (1982) ....passim

Section 4, 16 U.S.C. § 71Fe .....-....-..ec.-ccsoee.esss:. 2

Natural Gas Policy Act of 1978, 15 U.S.C. $§ 3301

et seq. (1982) ...... saclasssegcinalncibanhvignani ddenadednnhntosnstios passim

Section 104, 15 U.S.C. § $814........................ 3, 12, 13

Section 105(b), 15 U.S.C. § 83815(b) ............. 15

Section 106(a), 15 U.S.C. §3316(a) ......... 3, 12, 18

Section 109(b), 15 U.S.C. § 3319(b) ............. 3,12

Section 204(e), 15 U.S.C. §3844(e) 16

Section 501(b), 15 U.S.C. §3411(b) ............ 7,8

Miscellaneous

H.R. Rep. No. 496, Part 4, 95th Cong., Ist Sess.

(1977), 1978 U.S. Code Cong. & Ad. News 8454. 14

S. 1469, 95th Cong., 1st Sess. § 406(b) (1977) ........ 16

18 C.F.R. § 270.206 (1968) nnn... 3,4

43 Fed. Reg. 53,333, 58,280 (1978) 2.000. 3

Court of Appeals Brief for Respondent FERC....... 6,8

IN THE

Supreme Court of the United States

OCTOBER TERM, 1983

Nos. 83-1171 and 83-1173

FEDERAL ENERGY REGULATORY COMMISSION,

EXXON CORPOR..TION, et al.,

. Petitioners,

INTERSTATE NATURAL GAS ASSOCIATION OF AMERICA, et al.,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals for the

District of Columbia Circuit

BRIEF IN OPPOSITION FOR RESPONDENT

ASSOCIATED GAS DISTRIBUTORS

Associated Gas Distributors (AGD)' hereby responds

in opposition to the petition of Exxon Corporation, et al.

(Producers) and the Federal Energy Regulatory Commis-

sion (Commission or FERC) for a writ of certiorari to

the United States Court of Appeals for the District of

Columbia Circuit.

1 AGD was a petitioner and intervenor in the proceedings below.

It is an informal association of some forty local gas distribution

utilities that sell and distribute approximately 25 percent of the

natural gas sold in the interstate market. Its members purchase

most of their supplies of natural gas from interstate pipeline com-

panies which, in turn, purchase most of their supplies from pro-

ducers. The prices paid by interstate pipelines for gas supplies are

flowed through to the pipelines’ distributor-customers under FERC-

approved purchased gas adjustment (PGA) procedures. Pursuant

to Sup. Ct. R. 28.1, a list of AGD member companies and their

affiliates is attached as an Appendix hereto.

2

STATEMENT OF THE CASE

1. Prior to the passage of the Natural Gas Policy Act

of 1978 (NGPA), the Federal Power Commission (FPC)

and later FERC established maximum wellhead prices for

natural gas sales pursuant to the “just and reasonable”

standard of section 4 of the Natural Gas Act (NGA), 15

U.S.C. § 717¢ (1982). Because gas is sold on a volumetric

basis, ceiling prices were expressed in terms of cents per

thousand cubic feet (Mcf’s). Prices per Mcf were then

adjusted to “refiect the energy content of the gas, which

in reality is what the consumer is purchasing.” FPC

Opinion No. 468, 34 F.P.C. 159, 223 (1965).

2. The energy content of natural gas is measured in

terms of British thermal units (Btu’s). The presence or

absence of combustible substances (such as propane, bu-

tane and ethane) and non-combustible substances (such

as carbon dioxide, helium and nitrogen) can affect the

Btu content of a given volume of natural gas by 50 per-

cent or more. The presence or absence of water vapor

will also slightly affect the energy content of the gas.”

Under the NGA, Btu content was measured for pricing

purposes under specified, standard conditions of tempera-

ture, pressure, and water vapor content. Although vary-

ing amounts of water vapor can affect the energy value of

a gas sample, “the Commission sought to factor out this

relatively small variable—to ensure ease of measurement

and consistency among samples.” 716 F.2d at 4.3 This

standard Btu measurement practice became known as the

“wet” method.

2 Under typical delivery conditions, fluctuations in water vapor

content will affect Btu value by no more than 0.15 percent. Order

No. 93-A, reproduced in Appendix B to the FERC Petition, at App.

78a and n.2. Hereafter, all Appendix citations will be to the Com-

mission’s Appendices.

3 The court of appeals’ decision is reported in /nterstate Natural

Gas Ass'n V. FERC, 716 F.2d 1 (D.C. Cir. 1983).

3

The wet rule enjoyed widespread industry acceptance

and consistent FPC implementation for over fifteen

years. Originally proposed in 1961, the rule was ex-

pressly sanctioned by the Commission in 1965, and was

adopted in both area and national rate proceedings un-

der the NGA. 716 F.2d at 5. Indeed, in its first na-

tional rate proceeding, the Commission specifically re-

jected an argument by natural gas producers that Btu

content should be redefined in terms of “dry” or “as de-

livered” conditions. FPC Opinion No. 699-H, 52 F.P.C.

1604, 1630 (1974).

3. In November of 1978, Congress enacted the NGPA,

which substituted congressionally mandated ceiling prices

for the maximum rates established by the Commission.

The NGPA’s ceiling prices were stated in terms of Btu’s,

rather than in terms of Btu-adjusted Mcf’s as had been

the practice under the NGA. In a number of cases, how-

ever, Congress carried over NGA rates directly into the

NGPA. NGPA §§104, 106(a), 109(b), 15 U.S.C.

§§ 3314, 3316(a), 3319(b) (1982). This was possible be-

cause unadjusted base rates under the NGA were estab-

lished for natural gas with an energy value of one million

Btu’s, or one MMBtu, per Mcf (wet measure). See, e.g.,

FPC Opinion No. 770, 56 F.P.C. 509, 602 (1976).

4. On November 15, 1978, the Commission proposed,

and on December 1, 1978 the Commission adopted, an

interim Btu measurement rule for the NGPA. The new

rule was virtually identical to its NGA predecessor, and

nothing in the preamble to the rule indicated that the

Commission intended to depart from its well-established

practice. 43 Fed. Reg. at 53,333 and 53,280 (1978),

quoted in 716 F.2d at 6.

Eighteen months later, on July 16, 1980, the Commis-

sion issued Order No. 93, which “adopted” the interim

rule as the final rule, changing only its format. 18 C.F.R.

§ 270.204, reproduced at App. 50a. The preamble to Order

4

No. 93, however, stated that measurements obtained un-

der standard conditions would have to be ‘“‘converted’’ to

reflect “dry” or “as delivered” energy content. Order No.

93 at App. 48a. Only a single sentence of explanation

was offered for this dramatic reversal. /d.

In Order No. 93-A, issued on April 24, 1981, the Com-

mission reaffirmed both section 270.204 and the new dry

measurement policy. Dry measurement, the Commission

asserted, was necessary to establish precise Btu correla-

tions between natural gas and other fuels. Order No.

93-A at App. 63a. Finally, on December 24, 1981, the

Commission changed the text of section 270.204, incorpo-

rating the new “dry” or “as delivered” policy into the

regulation itself. Order Vacating Partial Stay and

Amending Regulations at App. 90a-92a. Because the Com-

mission considered each of its orders to be a “clarifica-

tion” of the interim rule, the Order No. 93 rule was made

retroactive to December 1, 1978. App. 73a and 91a.*

5. The court of appeals reached a unanimous decision

that the Commission’s Btu measurement rule must be va-

cated. The court held that not only did the NGPA not

require a change to the dry measurement rule from long

industry and Commission practice, the NGPA did not

even permit such a departure. Upon consideration of four

petitions for rehearing, the panel, again unanimously, de-

nied them. Finally, upon consideration of four sugges-

tions for rehearing en banc, the full court sitting en banc

denied the suggestions because no member of the court

requested the taking of a vote thereon.

* AGD and other parties below challenged the Commission's lack

of effective notice and its retroactive application of the mile to

more than three years of natural gas sales. The court of appeals

found it unnecessary to reach these issues because it vacated

the rule in its entirety on the ground that it was inconsistent with

the NGPA. 716 F.2d at 4, 9, 10, 15. Of course, if that decision were

veversed, the procedural issues would remain to be adjudicated.

5

SUMMARY OF REASONS

FOR DENYING THE PETITION

The petitions for a writ of certiorari should be denied

because the decision below was correct. The court of ap-

peals accorded the dry measurement rule the deference

properly due an agency’s non-contemporaneous statu-

tory interpretation. The court found the rule unrea-

sonable because it displaced the only measurement tech-

nique of which Congress could have been aware and

contradicted Congress’s intent to carry over NGA price

ceilings for certain categories of natural gas. Under

such circumstances, the court of appeals had no choice

but to vacate the rule.

REASONS FOR DENYING THE PETITION

A. Judicial Deference To The Commission’s Erroneous

Statutory Interpretation Is Not Appropriate.

Despite overwhelming evidence that Congress intended

to carry over wet measurement techniques to the NGPA,

Petitioners maintain that the court of appeals should

have deferred to the contrary judgment of the Commis-

sion. FERC Petition at 12-13; Producers Petition at

19-20. As this Court has repeatedly recognized, however,

the courts are the final authorities on issues of statutory

construction and “are not obliged to stand aside and

rubberstamp their affirmance of administrative decisions

that they deem inconsistent with a statutory mandate or

that frustrate the congressional policy underlying a stat-

ute.” SEC v. Sloan, 436 U.S. 103, 118 (1978) (quoting

NLRB vy. Brown, 380 U.S. 278, 291 (1965) and Volks-

wagenwerk v. FMC, 390 U.S. 261, 272 (1968)). This

is precisely the outcome that the court of appeals sought

to avoid in this case:

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.

716 F.2d at 15.

6

1. The Commission conceded below that the dry rule

was a mere interpretation of congressional intent, and

was not intended to be “legislative” in effect. Court of

Appeals Brief for Respondent FERC at 24-25, 28 n.28;

716 F.2d at 9, 15. An interpretive rule may be upheld

only if it is a “reasonable and defensible” interpretation

of the statute at issue. Bureau of Alcohol, Tobacco and

Firearms v. FLRA, 52 U.S.L.W. 4013, 4015 (U.S. Nov.

29, 1983). Among the factors to be considered in deter-

mining whether an interpretive rule is reasonable are:

. the thoroughness evident in its consideration,

the validity of its reasoning, its consistency with

earlier and later pronouncements, and all those fac-

tors which give it power to persuade, if lacking

power to control.

Adamo Wrecking Co. v. United States, 434 U.S. 275, 287

n.5 (1978) ‘quoting Skidmore v. Swift & Co., 323 U.S.

134, 140 (1944)). Deference to such rules is appropriate

only where ‘‘an agency has rendered binding, consistent,

official interpretations of its statute over a long period

of time.” Piper v. Chris-Craft Industries, 430 U.S. 1, 41

n.27 (1977). A non-contemporaneous interpretation that

contradicts an agency’s earlier position “does not fare

well under these standards.” General Electric Co. v. Gil-

bert, 429 U.S. 125, 141-42 (1976); see also Consumer

Product Safety Comm’n v. GTE Sylvania, 447 U.S. 102,

120 & n.17 (1980).

2. Order Nos. 93 and 93-A did not reflect a long-

standing and consistent interpretation of the NGPA.

Nor did they represent a contemporaneous interpretation

of that statute. Rather, they represented a dramatic

change from fifteen years of consistent Commission prac-

tice that was first announced two years after the NGPA

was enacted. The Commission’s initial Btu measurement

rule, issued contemporaneously with the statute, was vir-

tually identical to the established wet rule.® 716 F.2d

5 Indeed, a number of producers interpreted the interim rule as a

wet rule, and challenged it on that basis. 716 F.2d at 7-8. The

7

at 6. Order No. 93, issued a year and a half later, stated

for the first time that Btu values obtained under the

Commission’s wet rule would have to be “converted” to

dry values. Only a single sentence of support was of-

fered for this dramatic reversal. Order No. 93 at App.

43a. Thus, the Commission’s new dry rule was adopted

in a hesitating, inconclusive manner, and was first ex-

plained to the public in Order No. 93-A, issued on April

24, 1981, two and a half years after the NGPA was en-

acted. As the dry rule was promulgated “by implica-

tion” (at best) in 1978, it may not be construed as “con-

temporaneous construction” of the NGPA, and is not

entitled to great judicial deference. Adamo Wrecking

Co., 434 U.S. at 287 n.5.

3. Petitioners assert that the dry rule was promul-

gated pursuant to the Commission’s authority under

NGPA section 501(b), 15 U.S.C. §3411/(b) (1982), to

define technical and accounting terms. FERC Petition at

18-19; Producers Petition at 22-25. Thus, they argue

that the rule was left to “the ultimate discretion of the

Commission” (FERC Petition at 18) and the court of

appeals “usurped an administrative function” when it

found the Commission’s rule to be in conflict with the

statute. Producers Petition at 25.

This is a distortion of the applicable standard of re-

view. First, section 501(b) was not invoked in Order

Nos. 93 or 93-A, or in any of the briefs in the court

of appeals.° To the contrary, the Commission asserted

below only that the NGPA required dry measurement,

not that the NGPA left the question to FERC’s dis-

cretion. Indeed, the Commission argued that it “was

given no independent authority under the NGPA to de-

Commission itself has gone as far as to admit that this rule was

“vague” and “ambiguous”. Order No. 93-A at App. 72a, 73a.

* The Commission may not now raise an argument that did not

form part of the articulated basis of its rule, SEC v. Chenery Corp.,

318 U.S. 80, 87 (1943), and that was not even raised before the

court of appeals. United States v. Lovasco, 431 U.S. 783, 788 n.7

(1977) ; Adickes Vv. S.H. Kress & Co., 398 U.S. 144, 147 n.2 (1970).

8

fine ‘Btu’.” Brief for Respondent FERC at 28 n.28,

quoted in 716 F.2d at 15.7 The dry rule was a mere in-

terpretation of congressional intent, the Commission

argued, and could therefore be applied retroactively and

without notice and an opportunity for comment. FERC

Brief at 24-25, 28-29. If it were now determined that

the dry rule was a definition committed to the FERC’s

discretion under section 501(b), the rule would have to

be vacated for failure to comply with the requirements

of the Administrative Procedure Act, 5 U.S.C. §§ 551

et seq. (1982).

Second, the Petitioners’ new contention that the NGPA

vested in FERC the discretion to impose a dry measure-

ment rule or not is utterly inconsistent with the legisla-

tive history, which demonstrates that Congress prescribed

exact ceiling prices (in dollars), and the unit to which

they should be applied (Btu’s), based on careful con-

sideration of their relationship to oil prices and their

impact on producers and consumers. It is simply not

plausible that Congress left to FERC the discretion to

alter that price impact by a factor of 1.74 percent if it

wished.*

Finally, even if the Commission were allowed to re-

verse ground and base its decision on section 501, that

section would not support the orders at issue here. Sec-

tion 501 specifically states that the Commission may de-

fine technical and accounting terms in a manner con-

7 Producers thus err when they assert that it was the court of

appeals’ “conclusion” that FERC lacked independent authority to

define “Btu” (Producers Petition at 22) and that the court of ap-

peals “provides no basis for its decision to interfere in the Com-

mission’s exercise of its [section 501] authority.” 7d. at 24.

*If FERC had discretion at all, it would have been to (1) con-

vert to dry measurement and (2) make a compensating 1.74 percent

reduction in the NGPA ceiling prices, so as not to tamper with the

actual price impact established by Congress. The Commission ex-

pressly rejected that approach. Order No. 93-A at App. 65a-69a.

9

sistent with the Act itself. Indeed, it is a general rule

of administrative law that “[i]n order for an agency

interpretation to be granted deference, it must be con-

sistent with the congressional purpose.”’ Morton v. Ruiz,

415 U.S. 199, 237 (1974). Yet, as the court of appeals

found, the Commission’s dry rule was “inconsistent with

the NGPA’s language, structure, and legislative history,”

and ‘fundamentally at odds with the Btu measurement

technique” implicit in the Act. 716 F.2d at 14, 15.°

B. The Commission’s Rule Was Inconsistent With The

NGPA And Its Legislative History.

The court of appeals correctly found that, in enacting

the NGPA, Congress intended to set ceiling prices on the

basis of the well-established “wet” method of measuring

Btu’s. The court gave three reasons for this conclusion.

First, when Congress enacted the NGPA, it directly in-

corporated NGA ceiling prices for certain categories of

natural gas. This interchangeability of NGA ceiling

prices and NGPA ceiling prices is only possible if the

same Btu measurement technique is used in both cases.

Second, the wet method was the only method of Btu

measurement with which Congress was, or could have

been, familiar. Finally, Congress specifically rejected

* The Commission contends that:

Absent a finding that the Commission’s action in issuing the

Btu Rule was arbitrary, capricious, or an abuse of discretion—

a finding that the court of appeals did not even attempt to

make—the court was without authority to overturn the Com-

mission’s rule.

FERC Petition at 19. Section 706 of the APA, to which the Com-

mission apparently alludes, provides that the reviewing court shall

set aside agency conclusions that are “arbitrary, capricious, an

abuse of discretion, or otherwise not in accordance with law.” 5

U.S.C. § 706(2) (A) (1982) (emphasis added). Although interpre-

tive rules are ordinarily accorded a less deferential standard of

review, Batterton Vv. Francis, 432 U.S. 416, 425 n.9 (1977), the court

of appeals did find that the Commission's position was “not in

accordance with law.” 716 F.2d at 15.

10

the “hyper-accurate” inter-fuel comparisons propounded

by FERC and the Producers as a basis for natural gas

pricing. In all three respects, the court was correct.

1. When Congress enacted the NGPA, it directly in-

corporated NGA maximum price levels for certain cate-

gories of gas. This carryover of NGA pricing, the court

of appeals found, indicated a congressional intent to

carry over the established wet measurement techniques

underlying NGA pricing. 716 F.2d at 13.

Petitioners object to this finding. NGA ceiling prices

were set in terms of cents per Mcf, they assert, while

NGPA ceilings are set in terms of cents per MMBtu."”

FERC Petition at 16-17; Producers Petition at 21. No

direct correlation exists between the two pricing sys-

tems, they contend. Order No. 93-A at App. 60a.

The Commission’s position on this issue is demon-

strably incorrect. First, NGA price ceilings were ad-

justed to reflect directly the Btu content of natural gas.

Second, unadjusted NGA price ceilings are directly con-

vertible from Mcf’s to MMBtu’s only if the same Btu

measurement technique is used in both cases. Thus, there

is a direct correlation between the Mef pricing of the

NGA and the Btu pricing of the NGPA, and this cor-

relation requires the carryover of wet Btu measurement

into the NGPA pricing scheme.

First, adjusted NGA price ceilings directly reflect the

Btu content of natural gas sold. Although NGA ceiling

prices were set on an Mef basis, these prices were ad-

justed to reflect Btu content. The purpose of these Btu

adjustments was to allow gas prices to “reflect the energy

content of the gas, which in reality is what the con-

sumer is purchasing.” FPC Opinion No. 468, 34 F.P.C.

1° The Commission implies that NGA ceiling rates were set only

“within broad ranges’. FERC Petition at 11. That is not correct.

Like NGPA maximum prices, NGA just and reasonable rates were

prescribed in the form of exact ceilings. See, e.g., 716 F.2d at 13.

11

159, 223 (1965); FPC Opinion No. 662, 50 F.P.C. 390,

399 n.18 (1973). This was also their effect: a higher

Btu content meant a higher price for a given volume of

natural gas. Furthermore, Btu adjustments were al-

ways made “on a proportional basis.” See, e.g., FPC

Opinion No. 770, 56 F.P.C. at 602. Thus, a ten percent

increase in Btu content meant a ten percent increase in

the price per Mcf, while a five percent reduction in Btu

content meant a five percent reduction in the Mecf price.

FPC Opinion No. 468, 34 F.P.C. at 223 n.46.%2 The

result was that the price for a given number of Btu’s

was constant regardless of the volume of gas in which

those Btu’s were actually delivered.

Second, unadjusted NGA price ceilings are directly

convertible from Mcf’s to MMBtu’s as long as the same

Btu measurement technique is used in both cases. Un-

adjusted NGA price ceilings were established for natural

gas with an energy value of one million Btu’s, or one

MMBtu, per Mcf. See, e.g., FPC Opinion No. 770, 56

F.P.C. at 602. Thus, Congress was able to carry over

price ceilings from the NGA to the NGPA simply by

substituting “MMBtu” for “Mcf” and eliminating the

! The Commission asserts that these Btu adjustments were in-

tended only for “quality control,” and not as part of a pricing

mechanism. FERC Petition at 17. Yet, as FERC admits, their

purpose was to provide “some incentive to maximize the Btu con-

tent of interstate gas.” Jd. In short, the Btu adjustments operated

to reward higher Btu's with a proportionately higher price. That is

exactly the same as the operation of MMBtu pricing under the

NGPA.

‘2 Petitioners note that many early area rates provided no Btu

adjustment for gas with a Btu content of between 1000 and 1050

Btu’s per Mcf. FERC Petition at 4 n.4; Producers Petition at 4

n.6. In the early 1970's, various natural gas producers attacked this

“Btu gap” as “illogical and not based on evidentiary support.” The

Commission agreed, and eliminated the gap. FPC Opinion No. 662,

50 F.P.C. at 399.

12

Btu adjustment.'* This intended correlation is possible,

however, only if the same Btu measurement technique is

used under the NGPA as under the NGA."*

The one MMBtu per Mcf equivalency of unadjusted

NGA price ceilings is based on wet measurement tech-

niques. See, e.g., FPC Opinion No. 770, 56 F.P.C. at

602. When FERC substituted dry measurement tech-

niques under the NGPA, it destroyed the direct equiva-

lency intended by Congress, raising prices by 1.74 per-

cent. As the court of appeals noted,

Congress did not intend for the Commission to raise

the effective wellhead price of gas as much as pos-

sible. Rather, Congress itself specified the maximum

lawful prices of most categories of gas and author-

8 For two pricing categories, Congress adopted the maximum

price levels set by the FPC under the NGA, changed the denomina-

tor from Mcf’s to MMBtu’s, and .,, ‘ed an inflation adjustment.

NGPA §§ 106(a), 109(b), 15 U.S.C. §§ 3316(a), 3319(b) (1982).

See 716 F.2d at 13. For a third category, Congress mandated that

the NGPA price ceiling for section 104 gas would be the “just and

reasonable” NGA rate for such gas as of April 20, 1977. 15 U.S.C.

§ 3314 (1982). The specified NGA rate was $1.45 per Mcf, and the

Commission imposed an NGPA price of $1.45 per MMBtu. Order

No. 93-A at App. 65a-69a. Congress intended to achieve the same

effect in incorporating NGA prices by reference as it had achieved

by carrying over specific dollar values. Order No. 93-A at App. 57a

n.9, 66a.

The Commission’s Order No. 93-A calculation, which purports

to show the contrary, is demonstrably incorrect. Order No. 93-A at

App. 84a-85a. The Commission assumes (1) a cash flow of $1 mil-

lion; (2) an energy value of one MMBtu per Mcf (dry measure) ;

and (3) delivered volume of one million Mcf of natural gas. The

Commission then proceeds to argue that dry measurement tech-

niques would be required to produce an NGPA price of $1.00/

MMBtu. The NGA price would be $1.00/Mcf, however, only if dry

measurement were used under that statute. As NGA pricing was

premised upon wet measurement, assumption (2) above yields an

NGA energy value of less than one MMBtu per Mcf, requiring a

downward price adjustment under that statute, and rendering the

Commission's price and cash flow assumptions inconsistent.

13

ized the Commission to raise those prices only in cer-

tain, very limited, circumstances.

716 F.2d at 15. Thus, the congressional intent to carry

over NGA just and reasonable rates for certain cate

gories of natural gas requires the carryover of wet meas-

urement techniques applied under the NGA."

2. Moreover, the wet method was the only Btu meas-

urement technique of which Congress was aware at the

time the NGPA was enacted. At that time, the Btu

content of natural gas had been defined by the Com-

mission in terms of a standardized, saturated condition

for over fifteen years."* 716 F.2d at 12. The wet rule,

the court found, was the only method of measuring

Btu’s that was even tangentially acknowledged in the

NGPA’s history. /d. Thus, both the NGPA and its legis-

lative history are replete with references to the “just

and reasonable” rates established under the NGA. See,

e.g., NGPA §§ 104, 106(a), 15 U.S.C. §§ 8314, 3316(a)

'S The Commission asserts that the court of appeals failed to

explain how this implicit codification of the wet method can apply

to those pricing provisions that make no reference to NGA just and

reasonable rates. FERC Petition at 15. As the Commission itself

explained in Order No. 93-A, however, “identical provisions in a

statute” should be interpreted consistently where there is no “com-

pelling reason to do otherwise.” Order No. 93-A at App. 64a.

1® Wet measurement of Btu content had been used to apply Btu

adjustments in every area rate and national rate proceeding under

the Natural Gas Act beginning in 1965. See, e.g., FPC Opinion

No. 468, 34 F.P.C. 159, 224 (1965) (first area rate case) (incor-

porating wet measurement standard of Opinion No. 464, 33 F.P.C.

1228, 1238 (1965)); FPC Opinion No. 699-H, 52 F.P.C. 1604, 1630

(1974) (first national rate case). Indeed, in 1974 the Commission

specifically considered and rejected the producers’ arguments that

the Btu content of gas should be “adjusted for the water vapor

content in the gas as it is delivered.” FPC Opinion No. 699-H, 52

F.P.C. at 1630.

14

(1982). These NGA rates included Btu adjustments

based on standard wet measurement techniques."*

Furthermore, there is no evidence of any contrary leg-

islative intent. As a general rule, “an important and

controversial change in existing law” should not be in-

ferred from congressional silence. Edmonds v. Com-

pagnie Generale Transatlantique, 443 U.S. 256. 266-67

(1979). Cf. Columbia Gas Development Corp. v. FERC,

651 F.2d 1146, 1158 (5th Cir. 1981) (in replacing NGA

price ceilings, Congress did not intend to replace other

price-related procedural provisions of that Act). Thus,

the court of appeals concluded, “the Commission’s at-

tribution to Congress of a price component with which

it was wholly unfamiliar is unreasonable.” 716 F.2d at

13."*

In the face of more than fifteen years of consistent

practice by FERC and the Federal Power Commission,

Petitioners claim that certain unregulated, pre-NGPA

As the House committee report accompanying one of the

NGPA's forerunner bills acknowledged,

The reference to FPC-determined just and reasonable prices

and contract prices for purposes of determining maximum law-

ful prices under section 405 incorporates Btu adjustments and

other quality adjustments provided for in FPC rate determina-

tions or in the applicable contract.

H.R. Rep. No. 496, Part 4, 95th Cong., Ist Sess. 103 (1977), 1978

U.S. Code Cong. & Ad. News 8454, 8547. Although the final

version of the NGPA differed in many respects from this bill, the

concept of carrying over just and reasonable rates remained. 716

F.2d at 12.

18 Petitioners cite this Court’s opinion in Public Service Comm'n

Vv. Mid-Louisiana Gas Co., 51 U.S.L.W. 5030 (U.S. June 28, 1983),

for the novel proposition that in the absence of express direction of

Congress, all pre-NGPA practices should be deemed repealed. Pro-

ducers Petition at 14-16. Mid-Louisiana in fact holds that, given

the comprehensive nature of the NGPA, no source of production

should be excluded from its coverage unless clearly identified in

either the statute or its legislative history. 51 U.S.L.W. at 5035.

15

contracts for intrastate sales of natural gas included

“dry” Btu measurement provisions. These provisions,

Petitioners suggest, “might” have been what Congress

had in mind when it enacted the NGPA. FERC Petition

at 14-15, 17-18; Producers Petition at 20-21.* This is

sheer speculation. Petitioners cite absolutely no support

for either (a) the assertion that intrastate contracts

traditionally employed dry measurement or (b) the as-

sertion that Congress was familiar with such contracts.

The Commission did not rely upon, or even mention,

“dry measurement” provisions of intrastate contracts in

Order Nos. 93 or 93-A, and neither FERC nor the Pro-

ducers raised this issue before the court of appeals.

Thus, even if these hypothetical contractual provisions

existed, they were not a part of the articulated basis of

Order Nos. 93 and 93-A, and could not be used to bolster

those orders on review. As this Court stated in SEC v.

Chenery Corp., 318 U.S. 80, 87 (1943), “[t]he grounds

upon which an administrative order must be judged are

those upon which the record discloses that its action was

based.”

3. Finally, the hyper-accurate inter-fuel comparisons

underlying the Commission’s dry rule were rejected by

Congress. In Order No. 93-A, the Commission articu-

lated only one reason for abandoning the wet measure-

ment rule. Congress had established natural gas prices

19 Petitioners further argue that conversion of these intrastate

contracts to wet measurement will somehow force intrastate sellers

to receive less than the maximum prices prescribed by their con-

tracts, a result that “Congress clearly did not contemplate.” FERC

Petition at 18. On the contrary, in section 105(b) (2) of the NGPA,

15 U.S.C. § 3315(b) (2) (1982), Congress specifically addressed the

problem of existing intrastate contract prices exceeding the ceiling

prices imposed by the Act. If, in fact, there were intrastate con-

tracts that applied dry measurement techniques in such a manner

as to exceed NGPA ceiling prices—a speculation for which there is

no evidence in the record—the rates prescribed in these contracts

should have been set in accordance with this section.

16

by reference to the prices of alternative fuels, the Com-

mission argued, and “true comparison” of fuel energy

values “can only be achieved” with dry measurement

techniques. Order No. 93-A at App. 63a. Producers re-

peat this argument at length, citing provisions from

early House and Senate versions of the NGPA, as well

as Dr. Schlesinger’s testimony on the original adminis-

tration proposal.*® Producers Petition at 17-18.

As the court of appeals observed, however, Congress

abandoned inter-fuel price-indexing in the final version

of the NGPA. 716 F.2d at 14. Neither the “current Btu

equivalent price” provisions cited by the Producers, nor

the parallel provisions in the proposal to which Dr.

Schlesinger referred, ever became law. Moreover, Con-

gress demonstrated its acceptance of commonly accepted

“standard assumptions” about the energy content of

various fuels in other statutory provisions enacted con-

temporaneously with the NGPA. 716 F.2d at 14.” Thus,

although Congress considered the value of alternative

energy sources in establishing NGPA ceilings, it specifi-

cally rejected the hyper-accurate inter-fuel comparisons

that Petitioners now propound.

Finally, the Petitioners’ emphasis on the need for “ac-

curate” and “precise” Btu measurement is extremely

misleading. See, e.g., FERC Petition at 10; Producers

Petition at 10. Under the dry rule, as under the wet

20 This proposal included Mcf pricing for natural gas. See S. 1469,

95th Cong. Ist Sess. § 406(b) (1977).

21 Indeed, the Commission itself has endorsed the use of standard

assumptions about inter-fuel Btu comparisons in its implementation

of the one NGPA provision that does retain such comparisons.

NGPA section 204(e), 15 U.S.C. § 83844(e) (1982), requires that the

Commission determine the cost of alternative fuels on an MMBtu

basis. Yet, in its implementing regulations, the Commission adopted

a standard conversion factor, specifically rejecting suggestions that

costs be adjusted to accommodate variations in Btu content among

differing qualities of oil. 716 F.2d at 14.

17

rule, only the Btu content of a tiny sample of gas is

actually measured. Since passage of the NGPA, natural

gas continues to be sold on a volumetric basis. Order

No. 93-A at App. 82a. The total number of Btu’s sold is

computed by multiplying the Btu content of the sample

by the volume of gas delivered. Producers’ Petition at

9; Order No. 93-A at App. 53a n.5. Similarly, the “con-

version” process required by the dry rule was simply

that of a mathematical computation. Order No. 93 at

App. 43a; Order No. 93-A at App’ 71a.

Moreover, contrary to its purported preoccupation with

the need for “precise” Btu measurement, the Commission

has been extremely relaxed about the measurement tech-

niques actually applied. The Commission has stated that

it will accept “any estimation method reasonably designed

to measure Btu content” (Order No. 93 at App. 43a), any

measurement instrument agreed upon by the parties

‘App. 44a), and any measurement procedure and meas-

urement frequency accepted in the industry. Order No.

93-A at App. 52a, 7la. In reality, then, the dry rule

would yield no additional accuracy, only a 1.74 percent

increase in the price ceilings mandated by Congress.

CONCLUSION

For the foregoing reasons, the petitions for a writ of

certiorari should be denied.

Respectfully submitted,

JOSEPH M. OLIVER, JR.*

JENNIFER N. WATERS

PETER K. LEVINE

CROWELL & MORING

1100 Connecticut Ave., N.W.

Washington, D.C. 20036

(202) 452-5960

Attorneys for Respondent

Associated Gas Distributors

* Counsel of Record

February 16, 1984

APPENDIX

la

APPENDIX

ASSOCIATED GAS DISTRIBUTORS

Baltimore Gas & Electric Company

Affiliate:

Safe Harbor Water Power Corporation

Bay State Gas Company

Subsidiaries:

Bay State Exploration, Inc.

Northern Utilities

Subsidiary: Granite State Gas Transmission Co.

The Berkshire Gas Co.

Boston Gas Co.

Parent:

Eastern Gas and Fuel Associates

The Brooklyn Union Gas Co.

Subsidiaries:

Fuel Resources, Inc.

Gas Energy, Inc.

Affiliate:

Honeoye Storage Corp.

Central Hudson Gas & Electric Corp.

Subsidiaries:

Cruger Development Corp.

Greene Point Development Corp.

Phoenix Development Co., Inc.

Chesapeake Utilities Corp.

Subsidiaries :

Eastern Shore Natural Gas Co.

Dover Exploration Company

Skipjack, Inc.

2a

City of Holyoke, Mass., Gas & Electric Dept.

City of Westfield Gas & Electric Light Dept.

Colonial Gas Co.

Subsidiary:

Trans Gas, Inc.

Commonwealth Gas Co.

Parent:

Commonwealth Energy System

Concord Natural Gas Corp.

Subsidiary :

Concord Gas Service Corp.

Consolidated Edison Company of New York, Inc.

Delmarva Power & Light Co.

Subsidiary:

Delmarva Energy Co.

Elizabethtown Gas Co.

Parent:

National Utilities & Industries Corporation

EnergyNorth, Inc.

Subsidiaries :

Manchester Gas Co.

Gas Service, Inc.

Essex County Gas Co.

Fitchburg Gas & Electric Light Co.

Subsidiary :

Fitchburg Energy Devel. Co.

Long Island Lighting Co.

3a

Lynchburg Gas Co.

Subsidiary:

Lynco Development Co.

New Jersey Natural Gas Co.

Subsidiaries:

Gas Associated Services, Inc.

New Jersey Natural Gas Resources Co.

New York State Electric & Gas Corp.

Northeast Georgia Municipal Gas Utilities

City of Bowman, Ga.

City of Buford, Ga.

City of Commerce, Ga.

City of Covington, Ga.

City of Elberton, Gas.

City of Hartwell, Ga.

City of Lawrenceville, Ga.

City of Madison, Ga.

City of Monroe, Ga.

City of Royston, Ga.

City of Social Circle, Ga.

City of Sugar Hill, Ga.

City of Taccoa, Ga.

City of Union Point, Ga.

City of Winder, Ga.

Northeast Uitlities, Inc.

Companies Controlled:

The Connecticut Light & Power Co.

Western Massachusetts Electric Co.

Holyoke Water Power Co.

Northeast Nuclear Energy Co.

Northeast Utilities Service Co.

4a

Northern Utilities, Inc.

See: Bay State Gas Co.

Pennsylvania Gas & Water Company

Parent:

Pennsylvania Enterprises, Inc.

Pennsylvania & Southern Gas Co.

Pequot Gas Co.

Philadelphia Electric Co.

Subsidiaries:

Conowingo Power Co.

Eastern Pennsylvania Development Co.

Subsidiaries:

Adwin Equipment Co.

Adwin Realty Co.

Eastern Pennsylvania Exploration Co.

Philadelphia Electric Power Co.

Subsidiary:

The Susquehanna Power Co.

The Susquehanna Electric Co.

Philadelphia Gas Works

Providence Gas Co.

Parent:

Providence Energy Corporation

Public Service Company of North Carolina, Inc.

Subsidiary :

Tar Heel Energy Corp.

5a

Public Service Electric & Gas Co.

Subsidiaries:

Energy Development Corp.

Energy Pipeline Corp.

Energy Terminal Services Corp.

PSESG Research Corp.

€

South County Gas Co.

South Jersey Gas Co.

Parent:

South Jersey Industries, Inc.

The Southern Connecticut Gas Co.

Parent:

Connecticut Energy Corp.

Subsidiaries:

Gas Storage, Inc.

Onset Marketing Corp.

UGI Corporation

Subsidiaries:

AmeriGas, Inc.

UGI Development Co.

Valley Gas Co.

Parent:

Valley Resources, Inc.

Washington Gas Light Co.

Subsidiaries:

Brandywood Estates, Inc.

Crab Run Gas Co.

Davenport Insulation, Inc.

Frederick Gas Co., Inc.

Hampshire Gas Co.

Shenandoah Gas Co.

Washington Gas Approved Services, Inc.