Amicus Curiae Brief — FERC v. Martin Exploration Management Co.

No. 87-363

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1987

FEDERAL ENERGY REGULATORY COMMISSION,

Petitioner.

Vv.

MARTIN EXPLORATION MANAGEMENT COMPANY, ef al.,

Respondents

On Petition for Writ of Certiorari

to the United States Court of Appeals

for the Tenth Circuit

MOTION OF INTERSTATE NATURAL GAS

ASSOCIATION OF AMERICA FOR LEAVE TO FILE

A BRIEF AMICUS CURIAE AND

BRIEF AMICUS CURIAE IN SUPPORT OF PETITION

FOR WRIT OF CERTIORARI

JOHN H. CHEATHAM, II!

Counsel of Record

EDWARD B. MYERS

1660 L Street, N.W.

Washington, D.C. 20036

(202) 293-5770

Attorneys for Interstate

Natural Gas Associatio:

of America

September 21, 1987

PRESS OF BYRON S. ADAMS, WASHINGTON, D.C. (202) 347-8203

INTERSTATE NATURAL GAS ASSOCIATION

OF AMERICA

1987 ACTIVE MEMBERSHIP

AlaTenn Resources, Inc.

Arkla, Inc.

The Coastal Corporation

Columbia Gas Transmission Corp.

Consolidated Natural Gas Company

E] Paso Natural Gas Company

Enron Corp.

Granite State Gas Transmission, Inc.

Great Lakes Gas Transmission Company

Kentucky West Virginia Gas

KN Energy, Inc.

Michigan Gas Storage Company

MidCon Corp.

Mountain Fuel Resources, Inc.

Pacific Gas Transmission Company

Pacific Interstate Company

Panhandle Eastern Corporation

SONAT, inc.

Tenneco Gas Pipeline Group

Texas Eastern Corporation

Texas Gas Transmission Corporation

Texas Oil & Gas Corporation

Transco Gas Company

United Gas Pipe Line Company

Valero Interstate Transmission Co.

Valley Gas Transmission, Inc.

The Williams Companies

INTERSTATE NATURAL GAS ASSOCIATION

OF AMERICA

1987 ASSOCIATE MEMBERS

Amoco Production Company

ARCO Oil and Gas Company

Atlanta Gas Light Company

The Brooklyn Union Gas Company

Chevron USA

Cities Service Oil and Gas Corporation

Conoco Ine.

Entex, Incorporated

Exxon Company, U.S.A.

John H. Hill

HNG Oil Company

Kerr-McGee Corporation

Kinsey Interests, Inc.

Laclede Gas Company

Lear Petroleum Exploration Company

Marathon Oil Company

Mewbourne Oil Company

National Fuel Gas Company

NUI Corporation

Oklahoma Natural Gas Company,

a Division of ONEOK Inc.

Phillips Petroleum Company

Shell Oil Company

Southern California Gas Company

Sun Exploration & Production Company

Texaco U.S.A.

Union Pacific Resources Company

Unocal Corporation

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1987

No. 87-363

FEDERAL ENERGY REGULATORY COMMISSION,

Petitioner,

V.

MARTIN EXPLORATION MANAGEMENT COMPANY, et al.,

Respondents.

On Petition for Writ of Certiorari

to the United States Court of Appeals

for the Tenth Circuit

MOTION OF INTERSTATE NATURAL

GAS ASSOCIATION OF AMERICA

FOR LEAVE TO FILE BRIEF AS

AMICUS CURIAE IN SUPPORT OF

PETITION FOR CERTIORARI

The Interstate Natural Gas Association of America (‘‘IN-

GAA”’)' hereby moves for leave to file the accompanying

brief amicus curiae in the captioned matter. This motion

is being filed in compliance with the Court’s Rule 36. As

of the date this motion is being sent to be printed, counsel

for six parties out of the 38 party-respondents listed in

the petition for certiorari herein have declined to consent

‘ INGAA’S member companies are listed, supra.

to INGAA’s filing of a brief amicus curiae. All of the

objecting parties are gas producers. No other objections

have been received although all respondents were con-

tacted in writing.

INTEREST OF THE AMICUS CURIAE

_INGAA is a nonprofit national association representing

virtually all of the major interstate natural gas transmis-

sion companies operating in the United States. INGAA’s

members account for over 90% of all natural gas trans-

ported and sold for resale in interstate commerce, and

they are subject to the jurisdiction of the Commission un-

der various provisions of the Natural Gas Act (““NGA”’),

15 U.S.C. §§717, et seg.; the Department of Energy Or-

ganization Act, 42 U.S.C. §§7101, et seg.; and the Natural

Gas Policy Act of 1978 (“NGPA”), 15 U.S.C. §§3301, et

seq.

INGAA is filing this brief in support of the request of

the Petitioner, the Federal Energy Regulatory Commission

(““Commission’”’), for a writ of certiorari to review the

judgment of the United States Court of Appeals for the

Tenth Circuit (‘Tenth Circuit’) in Martin Exploration

Management Company, et al. v. Federal Energy Regulatory

Commission, 813 F.2d 1059 (Nos. 84-2756, et al., 10th Cir.,

— March 9, 1987, as modified on May 1, 1987). App.

a.°

This case involves Commission rules relating to gas

which is qualified in both a regulated and a price-dere-

gulated category under the NGPA.‘ The Commission held

that the express deregulation provisions in NGPA Section

: Copies of such responses as have been received have been lodged

with the Clerk of this Court.

* App. refers to the Appendices to the Commission's Petition for a

Writ of Certiorari filed herein on August 31, 1987.

‘15 U.S.C. §§3301, et seq.

121 require that such dual-category gas be treated as de-

regulated.

On review, the Tenth Circuit conceded the reasonable-

ness of the Commission’s interpretation of Section 121 as

such, but it held that NGPA Section 101(bX5) requires a

result contrary to that adopted by the Commission. Ac-

cording to the Tenth Circuit, Section 101(b\5) mandates

that dually-qualified (regulated/deregulated) gas shall for-

ever be in a state of price instability, with the price al-

ternately flip-flopping between a regulated and a

deregulated status, depending on which category will, un-

der the applicable contract provisions and market condi-

tions prevailing at any given moment, produce the highest

actual price.

The decision of the Tenth Circuit results in substantial

prejudice to interstate pipelines. An INGAA survey, based

on responses by 20 pipelines representing 78 percent of

the interstate market, shows that the application of the

Tenth Circuit’s decision during the period 1985-87 could

have increased tota! gas costs by $300 million (roughly

$100 million during each of the three years) and would

have increased the pipelines’ aggregate take-or-pay expo-

sure by $187 million. The $100 million in higher annual

gas costs will in future periods be passed on to ultimate

consumers by virtue of NGPA Section 601(c\2), providing

for guaranteed passthrough of NGPA determined prices.

Unless reversed by this Court, the decision of the Tenth

Circuit will deprive pipelines of substantial revenues that,

ultimately, gas consumers will be required to pay to in-

dependent producers of gas. The Commission’s interest in

this matter, while substantial, is nevertheless statutory,

and its interest in the outcome is that of a regulator which

is not subject to competitive impacts flowing from the

Tenth Circuit’s decision. On the other hand, INGAA’s pipe-

line members have a direct economic interest. The Tenth

Circuit’s decision adversely affects the ability of INGAA’S

pipeline members to compete, and it exacerbates the very

serious and well-known marketing problems which IN-

GAA’s pipeline members are confronting. The participation

of INGAA as amicus curiae will thus provide this Court

with the views of the gas industry’s pipeline segment.

Accordingly, INGAA’s participation will broaden the

Court’s perspective as to the importance of this case to

the national interest.

The parties opposing INGAA’s request for consent to

file its brief amicus curiae are independent producers of

natural gas. Naturally, those producers desire to preserve

their “‘victory”’ and cut off the opportunity for adverse

parties to present opposing insights. However, this is not

a private lawsuit nor an occasion for spoils to be preserved

for a victor. The Court’s rule requiring consent of other

parties should not be available for the objecting producers’

parochial interests in cases of great public significance

such as the case at bar.

Furthermore, prior decisions of this Court, such as the

Mid-Louisiana®’ and Transco® cases, amply attest to the

complexity of the NGPA and the difficulties in determining

the intent of Congress in enacting it. For this reason as

well, this Court should not foreclose participation by the

major industry segment of interstate pipelines represented

by INGAA.

Finally, no party can reasonably claim prejudice as a

result of INGAA’s participation here. The Commission’s

orders, which were reversed by the Tenth Circuit, were

generic rulemaking orders issued in the light of comments

filed by representatives of the entire gas industry—pro-

ducers, pipelines, and distributors. Thus, there is no op-

* Public Service Commission of the State of New York vy. Mid-Loui-

siana Gas Co., 463 U.S. 319 (1983).

* Transcontinental Gas Pipe Line Corp. v. State Oil and Gas Board

of Mississippi, __. U.S. —-_, 106 S. Ct. 709 (1986).

portunity for INGAA’s arguments to- nrejudice those

private interests who would cut off public debate.

WHEREFORE, for the reasons stated above, INGAA

respectfully prays that this motion be granted and that

this Court receive the attached brief amicus curiae for

filing.

Respectfully submitted,

Joun H. CHEATHAM, III

Counsel of Record

EDWARD B. MYERS

Attorneys for

Interstate Natural

Gas Association of

America

September 21, 1987

TABLE OF CONTENTS

Page

INTEREST OF THE Amicus CUride .......cccccccecseceeceess 2

ARGUMENTS IN SUPPORT OF PETITION ..........0c.0000008 3

I. The Tenth Circuit’s Decision Is Inconsistent

with the Piain Meaning of the Statute ...... 4

II. The Tenth Circuit’s Interpretation Is Incon-

sistent with the Purpose and History of the

SITE “Gicestindbasiiisaiemndbtedesntpliidiinebetiiamianmenbenre x

a 15

TABLE OF AUTHORITIES

CASES: Page

Atlantic Refining Co. v. Public Service Commissic”

of New York, 360 U.S. 378, 391-93 (1959). 8

Chevron U.S.A. Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837, 482 (1984) _....... 7

Martin Exploration Management Company, et al.

v. Federal Energy Regulatory Commission,

813 F.2d 1059 (Nos. 84-2756, et al., 10th

Cir., decided March 9, 1987, as modified on

de Ee ssaisiitesindibtiiostnien . Passim

Ofishore Logistics, Inc. v. Tellentire, 477 US. abi

—, 91 L.Ed.2d 174, 189 (1986) ................. 8

Perrin v. Unitea States, 444 U.S. 37, 42 (1979). 6

Public Service Commission of the State of New

York v. Mid-Louisiana Gas Co., 463 U.S.

eR SD silbiblidabnsinihitbtdiibtlinscdiiceesectss Lenn. 5,9,11

Transcontinental Gas Pipe Line Corp. v. State Oil

and Gas Board of Mississippi, __ U.S. mans

, 106 S. Ct. 709, 716 (1986) ............... 12

United States v. Southwestery Cable Co., 392 U.S.

157, 177-78 (1968) ........ Saseanteitiaiiiciatiiitity Ra Fa 7

STATUTES:

Department of Energy Organization Act, 42 U.S.C.

UU aa 2

Natural Gas Act (“NGA”), 15 U.S.C. §§717, et

UP: sdnteniusinedebadieitoatiascateies nianeebeenieideetitine wniaieas Passim

Natural Gas Policy Act of 1978 (“NGPA”), 15

U.S.C. §§3301, et SPER RECN en ae Passim

— Section 1OM(DNYS) .........ccccccccccccsssseseseseoseses..... Passim

> TID DED oecccncnecsisosecsnvcsctcsveniasaneeseeesece.. 5

SEE Aiiniisdenintdsiteieinceenies 5

= Section LOTCNS) ....cec.ccccsccecocecececcoreceeeeseeesss... 4

Oe PICT sittaiscnceucssthacersesencumiceecnc. Passim

OPED HET “sdccivsidineeenaaieles Satis 5

iil

Table of Authorities Continued

sp MN IIE niin a nseciesunseimciaeaisitideiaelananiedées

MISCELLANEOUS:

as Policy Act Information Service,

ae (le islative histo _of the NGPA—

remarks of Congressman Dingell) _................

2A Sutherland Statutory Construction, §46.07 (4th

SEE, | SERIE |. © cdgdiaaienstagnibicibianiesinticeniitdaninpsansinbinuninnes

Webster’s Third New International "ictionary, un-

TE TE eistencetanicssncnsscisesieimeniinanneii

IN THE

Supreme Court of the Anited States

OCTOBER TERM, 1987

No. 87-363

FEDERAL ENERGY REGULATOR’, COMMISSION,

Petitioner,

. -

MARTIN EXPLORATION MANAGEMENT COMPANY, et al.,

Respondents.

On Petition for Writ of Certiorari

to the United States Court of Appeals

for the Tenth Circuit

BRIEF OF INTERSTATE NATURAL

GAS ASSOCIATION OF AMERICA

AS AMICUS CURIAE IN SUPPORT OF

PETITION FOR WRIT OF CERTIORARI

The Interstate Natural Gas Association of America

(“INGAA’’), in accordance with this Court’s Rule 36,

has received the written consent of several of the

parties to file this brief as amicus curiae, and copies

have been filed with the Clerk.'

‘ The industry-wide importance of this case is indicated by the

fact that, as shown by petition for certiorari filed herein by the

Federal Energy Regulatory Commission, there are some 38

nN

INGAA is filing this brief in su

Petitioner, the Federal Energy peg seats

sion (‘Commission’). For reasons appearing below

INGAA prays that a writ of certiorari issue to review

the judgment of the United States Court of Appeals

for the Tenth Circuit (‘Tenth Circuit’) in Martin Ex-

ploration Management Company, et al. v. Federal En-

ergy Regulatory Commission, 813 F.2d 1059 (Nos. 84-

2756, et al., i0th Cir., decided March 9 1987 as

modified on May 1, 1987). App. 1a.? ) |

INTEREST OF THE AMICUS CURIAE

INGAA is a nonprofit national association whose

members represent virtually all of the major inter-

state natural gas transmission companies operating in

the United States. INGAA’s members account for over

90% of all natural gas transported and sold for resale

in interstate commerce, and they are subject to the

jurisdiction of the Commission under various provi-

sions of the Natural Gas Act (“NGA”), 15 U.S.C

poy et seq.; the Department of Energy Organization

ct, 42 U.S.C. §§7101, .° seqg.; and the Natural Gas

Policy Act of 1978 (“NGPA”), 15 U.S.C. §§3301, et

seq. The decision of the Tenth Circuit results in sub-

stantial prejudice to interstate pipeli .

ipelines an

consumers of natural gas.* P d ultimate

party-respondents, one of which is INGAA ( ny

dent represent

interstate pipelines). Certain gas poner who > a

ere yrsiony y ba gms INGAA’s request to file this

see 's moti

sins, Cai cae ion for leave to file this brief

* App. refers to the Appendices to th issi

Ip pene e Commission's Petiti

for a Writ of Certiorari filed herein on August 31 eer. wes

'An INGAA survey, based on responses by 20 pipelines rep-

ARGUMENTS IN SUPPORT OF PETITION

This case involves Commission rules relating to gas

which is qualified in more than one NGPA category,

where one of those categories is deregulated under

NGPA Section 121. The Commission, applying Section

121 of the NGPA, held that the deregulation provi-

sions in that section mandate that such dual-category

gas must be treated as deregulated under the statute.*

The Commission’s orders thus implement NGPA Sec-

tion 121 which states that “the provisions of subtitle

A respecting the maximum lawful price for the first

sale of each of the following categories of natural gas

shall . . . cease to apply effective January 1, 1985.”’

On review, the Tenth Circuit conceded the reason-

ableness of the Commission’s interpretation of Section

121 as such, but it held that Section 101(bK5) requires

a result contrary to that adopted by the Commission.

Specifically, the Tenth Circuit held:

We conclude that §121 is ambiguous.

Therefore, in the absence of another provi-

sion in the statute, FERC’s determination

that dual category gas is to be considered

resenting 78 percent of the interstate market, shows that the

application of the Tenth Circuit’s de,cision during the period

1985-87 could have increased total gas costs by $300 million

(roughly $100 million during each of the three years) and would

have increased the pipelines’ aggregate take-or-pay exposure by

$187 million. The $100 million in higher annual gas costs will

be passed on to ultimate consumers by virtue of NGPA Section

601(cX2), providing for guaranteed pass through of NGPA de-

termined prices.

‘Deregulation appears to be mandatory. Producers cannot

opt out of the statutory scheme on January 1, 1985, merely

because market cohditions are unfavorable.”” App. 76a.

deregulated would be a reasonable i

: s e interpre-

tation of the ambiguous language of 6121.

But Congress has anticipated precisely this

question in §101(bX5). [813 F.2d 1066.]

The Tenth Circuit thus substituted it

pretation of the statute for that of the pase ond

According to the Tenth Circuit, Section 101(bx5) man-

dates that dually qualified (regulated/deregulated) gas

shall forever be in a state of price instability, with

the price alternately flip-flopping between a regulated

and a deregulated status, depending on which cate-

gory will, under the applicable contract provisions and

market conditions prevailing at any given moment

produce the highest actual price. )

Oddly, the Tenth Circuit imposed it

even though it twice conceded that its eaneeeiinin

produces anomalous results which were unanticipated

and unintended by Congress. 813 F.2d at 1068 n. 11

and 1071. The interpretation of the Tenth Circuit is

particularly Suspect not only because it rests on a

tenaciously-held interpretation of a single word in Sec-

tion 101(bX5), 7.e., the word “‘could’’, but also because

it perverts a statutory scheme for deregulation into

a closely regulated price support program.®

I. The Tenth Circuit’s Decision Is I i i

Plain Meaning of the Statute. ne

The Commission reasonabl

y and correctly refused

to read Section 101(b),(5) in a manner which would

extend regulation of producer prices when those prices

*In addition, the Tenth Circuit di i

fi n, sagreed with th is-

sion’s conclusion that gas which is determined to fae Resin

tight formation gas (Section 107(c\5)) is also implicitly deemed

to qualify as either Section 102(c) or 103 gas.

would otherwise be deregulated consistent with Con-

ess’ overall deregulation objective reflected in

NGPA Section 121.° It concluded that the statutory

language in Section 101(b\5)—stating that the NGPA

category which “could” result in the highest price

shall be applicable—is a reference to the deregulated

price where dually-qualified (regulated/deregulated)

gas is in question.’ It did so in light of the mandate

of Section 121 of the NGPA to move toward dere-

gulation and because there always exists at least the

potential for the parties to negotiate a (deregulated)

contract price above the old regulated ceiling price.

App. 79a.°

Contrary to the claim of the Tenth Circuit, Section

101(bX5) does not reflect an unambiguous congres-

sional intent which requires the rejection of the inter-

6 As this Court explained previously in its Mid-La II opinion:

For some categories of gas, the NGPA ceiling prices are

an intermediate step on the path from a fully regulated

industry to a deregulated industry. Sections 121 and 122 of

the NGPA provide a mechanism for the ultimate decontrol

of a number of categories of natural gas.

Public Service Commission of the State of New York v. Mid-

Louisiana Gas Co., 463 U.S. 319, 336 n. 14 (1983).

* The Commission had explained, preliminarily, that a producer

would have to qualify its gas—even if it were deregulated—

before it could engage in a “‘first-sale” of that gas. App. 65a-

66x.

’ Thus, the Commission’s action is consistent with established

rules of statutory interpretation holding that the ‘‘intention pre-

vails over the letter, and the letter must if possible be read so

as to conform to the spirit of the Act.’’ 2A Sutherland Statutory

Construction, §46.07, at 65 (4th ed. 1973).

issi hich is not lim-

he Commission concluded that gas w

sad by a price ceiling always has the potential to be

higher than a regulated price.

Clearly, the Commission’s reading of the —

“could” is not meaningless and does not render co

tion 101(bX5) meaningless. It is an re “m

which is consistent with the statutory intent. It is the

very sort of interpretation to which the courts we

bound to give deference.” Indeed, the deference

be accorded to an agency’s interpretation Is an

where the agency is carrying out its congressionally-

imposed mandate:

pretation adopted by the Commission.? The crux of

the Tenth Circuit’s error lies in its declaration, which

is unsupported and patently not supportable, that the

Commission’s interpretation of the word “* * *

‘could’—one that considers only the theoretical pos-

sibilities—renders §101(b\5) meaningless.’’ 813 F.2d

at 1068. The Tenth Circuit’s error was its failure to

follow well-established principles of statutory con-

struction in its analysis of the provision at issue here.

Unless otherwise indicated, words should be given

“their ordinary, contemporary, and common mean-

ing.” Perrin v. United States, 444 U.S. 37, 42

(1979)citations omitted). The ordinary meaning of the

word ‘‘could” connotes a level of uncertainty or pos-

sibility."° The Commission, consistent with that con-

notation, held that, as a matter of simple logic,

deregulated gas, which is subject to no price ceiling, .

could always be priced higher than gas which remains achievement of an agency's ultimate

subject to a price cap, regardless of how high a level poses.’ Permian Basin Area Rate Cases,

to which that cap may rise under the provisions of U.S. 747, 780."

the NGPA." That is, the Commission read the term

“could” as referring, not to actual prices, as the Tenth

* * * We have elsewhere held that we may

not, ‘in the absence of compelling evidence

that such was Congress’ intent .. . prohibit

administrative action imperative for the

2 For example, in Chevron U.S.A. Inc. Vv. Natural Resources

Circuit held, but only to the legally permissible prices.

sus" * We reverse and remand because FERC’s interpre-

tation is contrary to the clear intent of Congress as expressed

in the unambiguous language of the NGPA.” 813 F.2d at 1065.

'° For example, Webster’s Third New Internationai Dictiona ry,

unabridged version, defines the word as “used in auxiliary func-

tion in the past tense . . . , in the past conditional... . and

as an alternative to can suggesting less force or certainty ...

'' Quoted supra. Indeed, as noted earlier, that was a general

pattern in the pre-NGPA era when price escalation provisions

in producer contracts would have permitted wellhead prices ex-

ceeding NGA just and reasonable levels.

Defense Council, Inc., 467 U.S. 837, 483 page Deprargincts Ton

ined i free to adopt its own -

Court explained that a court is not

sensi 1 place of the one chosen by the agency. Rather, if

the agency’s |

‘* * * choice represents a reasonable accommodation of

conflicting policies that were committed to the agency's care

by the statute, [a court] should not disturb it unless it a

pears from the statute or its legislative history that t ,

accommodation is not one that Congress would ‘+. %

tioned.’ United States v. Shimmer, 367 U.S. 374,

* (1961).

13 United States v. Southwestern Cable Co., 392 U.S. 157, 177-

78 (1968) (additional citations omitted).

The Commission’s action here is in furtherance of its

duty to carry out Congress’ statutory scheme of der-

egulation and there is no “compelling evidence’’ that

Congress intended Section 101(bX5) to be read in a

manner that would thwart that goal.

In contrast to the Commission’s rational and rea-

soned interpretation, the Tenth Circuit’s artificial

interpretation, which requires an actual price com-

parison at a particular moment in time, does violence

to the language of the statute. The Tenth Circuit’s

© view requires reading Section 101(b\5) as if the word

“could” were replaced by ‘‘would”’ or ‘“‘will.’”” Such a

reading is plainly unreasonable." Thus, on the basis

of an analysis of the statutory language itself, the

Tenth Circuit’s interpretation must fail.

II. The Tenth Circuit’s Interpretation Is Inconsistent

with the Purpose and History of the NGPA.

The reasonableness of the Commission’s interpre-

tation is also clear against the backdrop of the NGPA.

Although pricing provisions in producer contracts

generally provided for escalations in prices, the Com-

mission (Federal Power Commission) had been con-

Strained under the NGA’s “just and reasonable”

standard to limit such prices to cost-based levels, even

though those price levels tended to be below the prices

dictated by the market.'* The Commission’s inability

'*As this Court has said, “{njorma! principles of statutory

construction require that we give effect ww the subtleties of

language that Congress chose to employ... .” Offshore Lo-

gistics, Inc. v. Tellentire, 477 U.S. ___, ___ , 91 L.Ed.2d 174,

189 (1986).

'° See, Atlantic Refining Co. v. Public Service Commission of

New York, 360 U.S. 378, 391-93 (1959).

9

ide adequate wellhead price incentives above

eae ust and reasonable — < ~

NGA frustrated producer efforts to explore or an '

develop incremental gas supplies for interstate «at

lines. Gas supplies were therefore naturally attracte

to the unregulated intrastate markets and a —

gas shortage in the interstate market ensued —

the 1970’s.* Congress, through the NGPA, rep —

the NGA’s cost-based “‘just and reasonable” stan

for gas producers ‘‘with a precise schedule of [hig ge

price ceilings.’’’” However, pending ex enigge saan

the NGPA’s phased deregulation scheme, pry e

prices were permitted to rise only to the level of those

price ceilings if contracts would permit.

Thus the NGPA price ceilings were not poner ton

to increase the price for ‘‘first-sales above marke

determined levels specified in producer contracts, 1.€.,

the NGPA price ceilings were not intended to be —

floors. Rather, the ceilings were prescribed as upper

limits upon the prices that would result from me al

fettered operation of supply-demand yah ‘

Commission’s reading gives full sway to this acknow

edged congressional intent. Wn. f

In defending its position, the Tenth Circuit insists

that the Commission:

* * * has confused the ultimate purpose of

the statute—’to assure adequate supplies of

16 See Mid-La II, supra, 463 U.S. at 330-31 (‘The ———

rates remained substantially below the unregulated prices av =

able for intrastate sales, and the interstate supply remaine

inadequate.’’).

7 Jd. at 334.

‘8 Jd. at 336, fn. 14, quoted supra.

natural gas at fair prices,’ Transconti

Gas Pipe Line Corp., 106 S.Ct. at cham

one of several means chosen to accomplish

that purpose—phased deregulation. * * * In-

centive prices for difficult to produce gas are

another means by which Congress sought to

increase energy supplies. * * * We will not

ao the plain meaning of §101(b\5) in or-

der to serve a goal of deregulation that is

itself only one of several means adopted to

achieve the purposes of the NGPA. [813 F.2d

at 1070-71 (footnote omitted)]. ‘s

A basic error in the T ircui

enth Circuit’s reasoning j

a soe 5 gemenn the nature of the “incentive”

e ;, ile it is true that thi

s Court

rag cnt a referred to the fact that the NGPA

ned to create incentives for th ducti

natural gas, it is clear th vend agg

; at those incentives do

. . n

en Meaghan of y mye prices imposed on the fang

rary, the incentives were found i ling

t n ceil

dame applicable when contracts permitted she the

se for new gas were significantly higher than

S permissible under the NGA’s cost-based j

and reasonable standard. ay

Phe resp new NGPA ceilings clearly contemplated

ee Fs e ig —- would support such a high

Seller would be allowed to charge

1 oe level if the sales contract permitted,

be me on 2 — es | clear in Section 101(b)9) which

at, regardless of whether gas i

or deregulated, the price char ae ee

ted, ged cannot exc

contract price, even if that price is well wr z

allowable ceiling price. F

alll

11

This Court noted in Mid-La II, 463 U.S. at 339,

that “the Conference Committee admonisies that

‘maximum lawful prices are ceiling prices only. In no

case may a seller receive a higher price than his

contract permits.’ HR Conf. Rep. No. 75-1752, p. 74

(1978). A similar point of view was expressed by

Congressman Dingell who said that:

The rule set forth in section 101(b9) is that

the legislation establishes ceiling prices. Con-

tract prices may be lower than the federal

maximum lawful price. In such cases the con-

tractual arrangement between the parties

continues to govern their relationship and is

not superseded by the federal ceiling price.”

The Tenth Circuit’s interpretation, however, does not

allow the NGPA prices to operate as ceilings.

Furthermore, the Tenth Circuit is wrong when it

implies that incentive prices and deregulation are two

different means used to achieve the goal of the stat-

ute. The two divergent forces to which the Tenth

Circuit makes reference, id. at 1070, citing Mid-La

II, were those favoring a relatively brief transition

to deregulation and those favoring simply an increase

in the allowable, regulated ceiling price.” The com-

1° Natural Gas Policy Act Information Service, q101:230, p. 2

(emphasis in original).

2 “The House bill proposed a ‘single uniform price policy for

natural gas produced in the United States.. HR Rep No. 95

496, pt 4, p 96 (1977). * * * The Senate bill . . . would have

maintained Natural Gas Act regulation for all gas sold or de-

livered in interstate commerce before January 1, 19877, and

steadily cut back on Commission jurisdiction so that all natura:

gas sold after January 1, 1982, would have been complete)s

deregulated.” Mid-La II, 463 U.S. at 331.

12

promise was the NGPA which, pending ev

: : ; g eventual der-

egulation, subjects virtually all new gas to market

force pricing.

it is simply absurd for the Tenth Circuit to suggest

that to achieve its goal of assurin

. g adequate gas sup-

plies at fair prices,*! Congress intended to th the

price of gas above the levels dictated by the market

forces of supply and demand.” Indeed, the Tenth Cir-

cuit candidly admits that its interpretation produces

an

*_ * *

anomalous situation [where] . . . pro-

ducers seek the regulated ceiling price rather

than the deregulated market price. * * *

Therefore, §101(b),(5) can have the unanti-

cipated effect of operating as a price floor

for producers. [813 F.2d at 1071].

It is wholly indefensible for the Tenth Circuit to claim

that its decision is consistent with the goals of the

; As this Court recently noted, the NGPA reflects

Congress’ determination that the supply, the de-

mand, and the price of high-cost gas be determined

by market forces” and that ‘‘[t]o the extent Congress

*! Transcontinental Gas. Pi ;

pee pe Line Corp. v. -

Board of Mississippi, US. | orp or a = i

(1986), cited at 813 F.2d 1070. eee

‘ = Ses NGPA Section 123 which requires the Department of

rare 4 to submit two reports to Congress, each evaluatin

whether equilibrium exists between supply and demand for n: :

ural gas.’’ Equilibrium cannot be achieved unless the matihet

forces are ailowed to o

7 erate unfe «ge P

ports. P ttered by artificial price sup-

13

denied FERC the power to regulate affirmatively par-

ticular aspects of the first sale of gas, it did so be-

cause it wanted to leave determination of supply and

first-sale price to the market.” Thus, this Court con-

cluded that the statute was ‘‘a comprehensive federal

regulatory scheme to give market forces a more sig-

nificant role in determining the supply, the demand,

and the price of natural gas. . . ”’ Transcontinental,

supra, 106 S. Ct. 709, 716-17 (1986).

The Commission has sought to give full reign to

market forces in its interpretation of the statute. In

contrast, the Tenth Circuit would turn the NGPA into

a price support scheme which would protect producers

from downside risks and force gas consumers to pay

above-market prices for their gas. Nothing in the lan-

guage or legislative history of the NGPA supports

such a result.

In addition, the Tenth Circuit's view, when carried

to its logical conclusion, would require the Commis-

sion, as the agency charged with enforcing the pro-

visions of the NGPA, to examine each contract to

determine what price would apply if the gas in ques-

tion is dually-cualified. And, if the contract should

require the parties to renegotiate the contract price,

the Commission, in order to determine which of the

two prices is higher, would have to wait until after

the parties attempt to renegotiate the contract price

before it could determine whether the gas should be

treated as regulated or deregulated. Such an under-

taking would have to be made on a monthly or even

more frequent basis as ceiling prices and market con-

ditions changed.

Congress did not intend to require the Commission

to become bogged down in matters of contract inter-

a

pretation. This is evident in light of the NGPA’s leg-

islative history. As Congressman Dingell stated:

The FERC is intended to play an enforce-

ment role with respect to the ceiling prices,

not with respect to enforcement of private

contracts per se... . [I]t is contemplated that

FERC’s implementation of the bill will be

accomplished with minimal interference with

contractual relationships.”

The Commission’s interpretation of Section 101(b\5)

conforms with this view bevause it would not place

the burden of interpreting contracts on the Commis-

sion. In contrast, the Tenth Circuit would use a sta-

tutory scheme for deregulation to justify an expansion

of the Commission’s regulatory oversight to include

the interpretation and enforcement of private con-

tracts.

** Natural Gas Policy Act Information Service. $101:230, p. 3.

15

CONCLUSION

For the foregoing reasons, INGAA urges this a

to grant certiorari to correct. the serious — N os

mitted by the Tenth Circuit and to eon a -

NGPA is allowed to operate as intended by se "

Unless corrected, such errors will impose subs on

injury upon interstate pipelines and gas consumers.

Respectfully submitted,

Joun H. CHEATHAM, III

Counsel of Record

EDWARD B. MYERS

Attorneys for

Interstate Natural

Gas Association of

America

September 21, 1987