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Parties Involved:
Federal Energy Regulatory Commission
Respondent
Marathon Oil Company
Petitioner

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 6, 1995 Decided October 27, 1995

No. 94-1698

MARATHON OIL COMPANY,

PETITIONER

v.

FEDERAL ENERGY REGULATORY COMMISSION,

RESPONDENT

Consolidated with

94-1708

On Petitions for Review of Orders of the

Federal Energy Regulatory Commission

Gordon Gooch argued the cause for petitioners, with whom Robert C. Murray, Alan W. Tomme,

Katherine B. Edwards, and Jon L. Brunenkant were on the briefs.

Susan J. Court, Attorney, FederalEnergyRegulatoryCommission, argued the cause for respondent,

with whom Jerome M. Feit, Solicitor, was on the brief. Edward S. Geldermann and Jill L. Hall,

Attorneys, entered appearances.

Before: WALD, SILBERMAN and SENTELLE, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

SILBERMAN, Circuit Judge: Marathon and Union Pacific petition for review of FERC's

refusal to accept state agencies' determinations that their wells produce tight formation gas. They

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contend that the Commission's actions have prejudiced their chances of receiving a tax credit for this

gas. Petitioners, however, do not show injury-in-fact and therefore lack Article III standing. The

petitions for review are denied.

I.

The Natural Gas Policy Act of 1978, 15 U.S.C. § 3301 et seq. (1988) (NGPA), established

price ceilingsfor wellhead sales of natural gas. FERC was given authority under the Act to establish

incentive prices (prices higher than the otherwise applicable price ceilings) for natural gas produced

under "conditions astheCommission determinesto present extraordinaryrisks or costs." § 107(c)(5).

Among the types of natural gas that the Commission concluded qualified for incentive pricing was

tight formation gas. Tight formation gas must be removed from a sedimentary layer of rock cemented

together in a manner that typically makes gas difficult and expensive to extract.

Section 503 ofthe NGPAestablishesthe proceduresthat governthe determinationofwhether

a particular type of natural gasistight formation gas. The federal or state agency "having regulatory

jurisdiction with respect to the production of natural gas" makes an initial determination. The

Commission can then either affirm, reverse, remand, make a preliminary finding on, or simply take

no action regarding the agency's determination. If the Commission takes no action within 45 days

after receipt of the agency's determination, that determination is final. Judicial review is available

under section 503 but only in the event that FERC remands or reverses. § 503(b)(4).

Effective January 1, 1993, the Natural Gas Wellhead Decontrol Act of 1989 repealed NGPA

price controls on wellhead sales of natural gas. As a result of the Decontrol Act, the Commission

eliminated incentive pricesfor tight formation gas produced fromwells "spudded" (i.e., where surface

drilling had commenced) or "recompleted" after May 12, 1990. A year later, however, the Omnibus

Budget Revenue Reconciliation Act of 1990 instituted a tax credit for natural gas from newly drilled

wells in tight formations. In order to be eligible for the tax credit, the natural gas must (1) be

produced from a well drilled or a facility placed in service after December 31, 1979 and before

January 1, 1993 and (2) be sold before January 1, 2003. 26 U.S.C. § 29(f). The Budget Act further

provides that "the determination of whether any gas is produced from ... a tight formation shall be

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made in accordance with section 503 of the Natural Gas Policy Act of 1978." § 29(c)(2)(A).

Thereafter, the Commission announced itsintention to continue to processthe initial determinations

of agencies, despite their loss ofregulatory significance, untilJanuary 1, 1993. The Commission later

extended this deadline to April 30, 1994 so long as the application for an initial determination was

filed with the agency by December 31, 1992. See Order Qualifying Certain Tight Formation Gas

for Tax Credits, Order No. 539-C, 58 Fed. Reg. 38,528, 38,529 (1993). However, the Commission

said that it "will not accept determinations where the well wasspudded or recompletion commenced

on or after January 1, 1993." Id. at n.12. Explaining the reason for continuing to review agency

determinations for a transition period, the Commission stated that "while NGPA Section 107 well

category determinations have no price consequence, they are necessary to obtain the Section 29 tax

credit." Id. at 38,528.

In response to requests from state agencies, the Commission defined "recompletion" for

purposes of Order No. 539-C. It stated that

a recompletion occurs when the producer reenters a well to complete (i.e., perforate)

a new formation from that in which a well has previously been completed.... In

summary, the key factor in establishing whether a completion in a tight sand is a

recompletion or an initial completion is whether the well must be entered a second

time to complete in the target tight sand after the well has already been completed in

another formation.

Railroad Comm'n of Texas, 66 F.E.R.C. ¶ 61,130, 61,237 (January 28, 1994) (emphasisin original).

On June 20, 1994, FERC refused to accept two state agencies'section 107(c) tight formation

designations. The Oklahoma Corporation Commission Oil and Gas Conservation Division had

designated gas produced from Marathon's well, including perforations made in the well in 1993, as

tight formation gas. FERC declined to accept this designation for the post-1992 perforations,

explaining that they were recompletions as defined by its January 28, 1994 order. Oklahoma Corp.

Comm'n Oil and Gas Conservation Div., Letter Order, (June 20, 1994), reh'g denied, 68 F.E.R.C.

¶ 61,323 (1994). Similarly, the Wyoming Oil and Gas Conservation Commission designated gas

produced from Union Pacific's well as tight formation gas. FERC, 70 days after it received this

determination, announced it would not accept the section 107(c) designation for gas produced from

the perforationsin the Frontier formation because theywere post-1992 recompletions. Wyoming Oil

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and Gas Conservation Comm'n, Letter Order, (June 20, 1994), reh'g denied, 68 F.E.R.C. ¶ 61,315

(1994). Marathon and Union Pacific's requests for rehearing were denied.

II.

Petitioners presentsubstantialarguments asserting variousFERCerrors. Union Pacific points

out that FERC did not act within 45 days after receipt of the Wyoming Commission's determination,

and therefore under FERC's regulations, it appears that the initial determination became final.

Marathon arguesthat FERC misapplied its own definition ofrecompletion,set forth in itsJanuary 28,

1994 order, to the Oklahoma Commission's determination. The order states that the "key factor" in

determining whether a perforation is a recompletion is whether the well was "entered a second time

... after the well has already been completed in anotherformation." 66 F.E.R.C. at 61,237 (emphasis

added). Yet, all of Marathon's perforations were in the same formation. Whatever the merits of these

and petitioners' other arguments, we do not reach them because we conclude that petitioners do not

have Article III standing.

Petitioners have not shown an injury that has resulted from FERC's action (or inaction), one

of the elements necessary to establish the "irreducible constitutional minimum of standing." Lujan

v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). Petitioners claim that as a result of FERC's

refusal to affirm the state agencies' determinations, they will be unable, or at minimum, it will be

significantlymore difficult, to receive the section 29 tax credit for tight formation gas. But petitioners

are only speculating asto the IRS' position regarding the availability oftax credits. We have not been

shown any indication that FERC's positionobviously influenced by the Commission's desire to

extricate itself from a task that has no more regulatory significancewill be given any weight by the

IRS. It is simply not enough to say, as do petitioners, that there "is no evidence in [the] record that

indicates that the IRS does not rely on the FERC's disposition" (emphasis added).

To be sure, section 29 requires, in order to be eligible for the tax credit, that the tight

formation determination shall be made in "accordance with section 503 ofthe NaturalGas PolicyAct

of 1978." And FERC's stated purpose for continuing to process agency determinations beyond the

date of regulatory relevance wasto aid producersin obtaining tax credits. Still, that FERC arguably

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1Nor is there any serious contention that the Commission remanded the state agencies'

determinations. A remand occurs when FERC returns a matter to the agency for consideration of

information "contained in the public record[ ] ... and which is not part of the record upon which

such determination was made" that the Commission finds inconsistent with the initial

determination. § 3413(b)(2). 

2Revenue Ruling 93-54 states that fuel will qualify for the section 29 credit if it is qualified fuel

under section 29(c) even if the well is recompleted after 1992 so long as the recompletion does

not involve additional drilling to deepen or extend the well. 1993-2 C.B. 3 (1993) 

has proven to be an unreliable friend ("I am from the government and I am here to help you") may

be aggravating, but it does not constitute injury-in-fact. Actually, it does not even appear that

FERC's refusals to process the applications were actions taken pursuant to section 503. Section

503(b) states that the "Commission shall reverse any final State or Federal agency determination

[applying the definition of Section 107(c) tight formation gas] if it makes a finding that such

determination is not supported by substantial evidence in the record upon which such determination

was made." § 503(b)(1)(A). The Commission did not reverse either the Oklahoma or the Wyoming

agency's determination.1 The Commission's refusal to accept the agencies' determinations was based

on its application of the January 28, 1994 order's definition of "recompletion" which depends on

whether the well has been entered a second time after it has been completed in another formation,

an inquiry that obviously has nothing to do with whether the gas is trapped in a tight formation. The

Commission, then, did not take a position on whether the state agencies correctly determined that

petitioners' wells produced tight formation gas.

In any event, whatever word properly characterizes the Commission's treatment of the state

determination, we see no reason why the IRSas did FERCwould necessarily, or even likely,

ignore the state substantive decisions. If it can be said that FERC's actions, although not strictly a

reversal or remand, was pursuant to section 503, it is by no means obvious that the IRS would see

itself bound to take the same position. While the IRS might be required to apply FERC's substantive

definition of tight formation gas, it does not seem to us obliged to employ the same eligibility

limitationsthat the Commission has adopted. Indeed, a revenue ruling seems to indicate that the IRS

will consider recognizing a tax credit for gas from wells that would no longer be eligible to receive

a tight formation gas designation from FERC.2It is patently obvious, after all, that FERC's

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interpretation of "recompletion" is influenced by its desire to extricate itself assoon as possible from

a task that has no regulatory purpose. And, since FERC is going out of the business of making

section 503 determinations long before the tax credits cease to be available in 2003 (at the earliest),

the IRS will inevitably face a period when it will not be able to rely on FERCeven if it wanted to.

(FERCobviouslychanged itsmind asto the "necessity" ofitsrole regarding tax credits.) Under these

circumstances, the IRS may well simply ignore FERC's determinations during its phase-out period.

We conclude, therefore, that FERC's actionsin this case have no necessary legalsignificance

bearing on the IRS' decision whether to grant the tax credit. Petitioners, of course, retain the right

to present their argumentsin the event they are obliged to challenge an IRS determination predicated

on FERC's refusal to accept the Oklahoma and Wyoming Commission determinations.

For the preceding reasons, Marathon and Union Pacific's petitions for review are denied.

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