Source: https://supreme.justia.com/cases/federal/us/463/319/case.html
Timestamp: 2017-09-26 20:08:50
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Matched Legal Cases: ['§ 2', '§ 717', '§ 3301', '§ 4', '§ 717', '§ 103', '§ 104', '§ 105', '§ 106', '§ 107', '§ 108', '§ 109', '§ 3343', '§ 2', '§ 601', '§ 104', '§ 108', '§ 108', '§ 108', '§ 104', '§ 101', '§ 601', '§ 601', '§ 105', '§ 2', '§ 3301', '§ 104', '§ 104', '§ 2', '§ 601', '§ 601', '§ 203', '§ 2', '§ 602', '§ 101', '§ 601', '§ 601']

PSC v. Mid-Louisiana Gas Co. (full text) :: 463 U.S. 319 (1983) :: Justia US Supreme Court Center
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PSC v. Mid-Louisiana Gas Co.
463 U.S. 319 (1983)
PSC v. Mid-Louisiana Gas Co., 463 U.S. 319 (1983)
Decided June 28, 1983*
Held: The FERC's exclusion of pipeline production from the NGPA's pricing scheme is inconsistent with the statutory mandate, and would frustrate the regulatory policy that Congress sought to implement; the FERC, however, has discretion in deciding which transfer -- intracorporate or downstream -- should receive the "first sale" treatment. Pp. 463 U. S. 325-343.
(a) As respondents contend, the FERC has the authority to treat as a first sale either the intracorporate transfer of natural gas from a pipeline-owned production system to the pipeline or the downstream transfer of commingled gas from the pipeline to a customer, in which case respondents would be able to include an NGPA rate for production among their costs of service, just as they do when they acquire natural gas from independent producers. The downstream transfer plainly satisfies § 2(21)'s "general rule" definition, and the legislative history clearly demonstrates that this statute was not intended to prohibit the FERC from deeming the intracorporate transfer a "sale." The statutory exception to the "general rule" definition does not diminish the FERC's authority to treat an intracorporate or downstream transfer as a first sale. Pp. 463 U. S. 325-327.
(b) The purposes of the NGPA to preserve the FERC's authority under the NGA to regulate natural gas sales from pipelines to their customers and to supplant the FERC's authority to establish rates for the wholesale market, the market consisting of so-called "first sales" of natural gas, the legislative history, and the overall structure of the NGPA, all show that Congress intended pipeline production to receive "first sale" pricing, and did not intend the FERC to be able to exclude pipeline production from the NGPA's coverage completely. Pp. 463 U. S. 327-338.
FERC's argument that giving "first sale" treatment to downstream sales would result in the application of "first sale" maximum lawful prices to all mixed volume retail sales by interstate and intrastate pipelines and local distributors, thereby supplanting traditional state regulatory authority over the costs of intrastate pipeline transportation service. Nor is there any merit to the FERC's argument that pipeline producers would enjoy an unintended windfall if they receive "first sale" pricing. Pp. 463 U. S. 339-342.
STEVENS, J., delivered the opinion of the Court, in which BURGER, C.J., and POWELL, REHNQUIST, and O'CONNOR, JJ., joined. WHITE, J., filed a dissenting opinion, in which BRENNAN, MARSHALL, and BLACKMUN, JJ., joined, post, p. 463 U. S. 348.
On November 14, 1979, the Commission [Footnote 1] entered Order No. 58, promulgating final regulations to implement the definition
of "first sale" under the NGPA. [Footnote 2] The first category of producers -- independent producers -- is assigned a "first sale" for all natural gas transferred to interstate pipelines. The second category of producers -- pipeline affiliates that are not themselves pipelines or distributors -- is also assigned a "first sale" for all natural gas transferred to interstate pipelines, unless the Commission specifically rules to the contrary. In contrast, the third category of producers -- pipelines themselves -- is not automatically assigned a "first sale" for its production. A pipeline does enjoy a "first sale" for any gas it sells at the wellhead. Similarly, it enjoys a "first sale" for any gas it sells downstream that consists solely of its own production. It also enjoys a "first sale" for any downstream sales of commingled independent producer and pipeline producer gas, as long as it dedicated an equivalent volume of its own production to that purchaser by contract. Finally, it enjoys a "first sale" for any downstream sales of commingled gas in an otherwise unregulated intrastate market. However, if a pipeline producer sells commingled gas in an interstate market without having dedicated a particular volume of its production to that particular sale, it does not enjoy first sale treatment.
On August 4, 1980, the Commission entered Order No. 98. [Footnote 3] The Commission noted that its construction of the NGPA in Order No. 58 had left most interstate pipeline production outside the Act's coverage, since so much of it is commingled with purchased gas. It announced that such production and its downstream sale remain subject to the Commission's regulatory jurisdiction under the Natural Gas Act (NGA), 52 Stat. 821, 15 U.S.C. § 717 et seq. (1976 ed. and Supp. V). In order to provide pipelines with an incentive to compete with independent producers in acquiring new leases and drilling
new wells, the Commission decided that pipeline production should receive treatment under the NGA that is comparable to the treatment given independent production under the NGPA. It therefore promulgated regulations under the NGA providing that the NGPA's first sale pricing should apply to all pipeline production on leases acquired after October 8, 1969, and to all pipeline production from wells drilled after January 1, 1973, regardless of when the underlying lease had been acquired. All other pipeline production would be priced for ratemaking purposes just as it had been before the NGPA was enacted. [Footnote 4]
"(iv) which precedes any sale described in clauses (i), (ii), or (iii); and"
92 Stat. 3355, 15 U.S.C. § 3301(21)(A) (1976 ed., Supp. V) (emphasis added). Under the terms of the general rule, a transfer that falls within any one of its five clauses is presumptively a first sale. [Footnote 5] This means that there can be many first sales of a single
volume of gas between the well and the pipeline's customers. [Footnote 6] In this case, the downstream transfer plainly satisfies the general rule. The only obstacle to including the intracorporate transfer within the general rule is the question whether it may properly be deemed a "sale." [Footnote 7] That obstacle, however, is insubstantial. The legislative history clearly demonstrates that the statute was not intended to prohibit the Commission from deeming it a sale; the Conference Committee Report provides that the Commission may "establish rules applicable to intracorporate transactions under the first sale definition." H.R.Conf.Rep. No. 95-1752, p. 116 (1978). Thus, if the first sale definition consisted only of the general rule, the Commission would plainly be authorized to treat either transfer as a first sale.
transfer as a first sale depends on the meaning of the words "attributable to." Although the Commission interpreted them as meaning "solely attributable to," it would be at least as consistent with the ordinary understanding of the words to interpret them as meaning "measurably attributable to." [Footnote 8] Furthermore, it would have been fully consistent with the spirit of the exemption if the Commission had adopted the latter interpretation and had given "first sale" treatment to a percentage of the downstream sale -- the percentage that pipeline production forms of all the gas in the pipeline.
Between 1938 and 1978, the Commission regulated sales of natural gas in interstate commerce pursuant to the NGA. The NGA was enacted in response to reports suggesting that the monopoly power of interstate pipelines was harming consumer welfare. [Footnote 9] Initially, the Commission construed the
NGA to require only regulation of gas sales at the downstream end of interstate pipelines. E.g., Natural Gas Pipeline Co., 2 F.P.C. 218 (1940). It authorized rates that were "just and reasonable" within the meaning of § 4(a) of the NGA, 52 Stat. 822, 15 U.S.C. § 717c(a), by examining whatever costs the pipeline had incurred in acquiring and transporting the gas to the consumer. If the pipeline itself or a pipeline affiliate had produced the gas, the actual expenses historically associated with production and gathering were included in the rate base to the extent proper and reasonable. See FPC v. Hope Natural Gas Co., 320 U. S. 591, 320 U. S. 614-615, and n. 25 (1944); Colorado Interstate Gas Co. v. FPC, 324 U. S. 581, 324 U. S. 604-606 (1945). However, if the pipeline had purchased the gas from an independent producer, the Commission did not take jurisdiction over the producer to evaluate the reasonableness of its rates; it only considered the broad issue of whether, from the pipeline's perspective, the purchase price was "collusive or otherwise improperly excessive." Phillips Petroleum Co., 10 F.P.C. 246, 280 (1951).
id. at 347 U. S. 682, and concluded that, for regulatory purposes, there was no essential difference between the gas a pipeline obtains from independent producers and the gas it obtains from its own affiliates, id. at 347 U. S. 685.
by applying the same regulatory technique it had always applied to pipeline-produced natural gas. It calculated just and reasonable rates for each company -- whether pipeline, pipeline affiliate, or independent producer -- by studying the costs of production that had historically been incurred by that particular company. But that so-called "cost of service" approach quickly proved impractical. See Atlantic Refining Co. v. Public Service Comm'n of New York, 360 U. S. 378, 360 U. S. 389 (1959). Whereas there were relatively few interstate pipelines, the vast number of natural gas producers threatened to overwhelm the Commission's administrative capacity. See Permian Basin Area Rate Cases, 390 U. S. 747, 390 U. S. 757, and n. 13 (1968).
Permian Basin Area Rate Cases, supra, at 390 U. S. 797.
In the early 1970's, it became apparent that the regulatory structure was not working. The Commission recognized that the historical-cost-based, two-tiered rate scheme had led to serious production shortages. See Southern Louisiana Area Rate Proceeding, 46 F.P.C. 86, 110-111 (1971). See generally Breyer & MacAvoy, The Natural Gas Shortage and the Regulation of Natural Gas Producers, 86 Harv.L.Rev. 941, 965-979 (1973). Therefore, the Commission modified its practices, shifting from an "area rate" to a "national rate" approach. National Rates for Natural Gas, 51 F.P.C. 2212 (1974) (Opinion No. 699). The national rate became effective for all wells drilled after January 1, 1973, and applied equally to production by independent producers, pipelines, and pipeline affiliates. A few months later, the Commission responded further by shifting from a pure historical-cost-based to an incentive-price-based approach, National Rates for Natural Gas, 52 F.P.C. 1604, 1615-1618 (1974) (Opinion No. 699-H), and by temporarily abandoning the practice of vintaging, id. at 1636. [Footnote 10]
The Conference Committee's compromise has been justly described as "a comprehensive statute to govern future natural gas regulation." Note, Legislative History of the Natural Gas Policy Act, 59 Texas L.Rev. 101, 116 (1980). In Title I, it establishes an exhaustive categorization of natural gas production, and sets forth a methodology for calculating an appropriate ceiling price within each category: Section 102 covers "new natural gas and certain natural gas produced from the Outer Continental Shelf"; § 103 covers "new, onshore production wells"; § 104 covers "natural gas committed or dedicated to interstate commerce on the day before the date of the enactment of [the NGPA]"; § 105 covers "sales under existing intrastate contracts"; § 106 covers "sales under rollover contracts"; § 107 covers "high-cost natural gas"; § 108 covers "stripper well natural gas"; [Footnote 11] and § 109
45 Fed.Reg. 53093 (1980). [Footnote 12]
The statute evinces careful thought about the extent to which producers of "old gas" -- gas already dedicated to interstate commerce before passage of the NGPA -- would be able to enjoy incentive pricing. Section 104 of the statute directly incorporates part of the "vintaging" pattern that previously existed under the NGA. [Footnote 13] Thus, most old gas continues
that the Nation's energy needs justified the higher, statutory rates. [Footnote 14]
other. [Footnote 15] Yet nowhere in the NGPA do we find any expression of a desire to exclude pipeline production.
92 Stat. 3375, 15 U.S.C. § 3343(b)(2) (1976 ed., Supp. V). This provision expressly mentions pipeline production as a matter subject to NGPA jurisdiction. Perhaps even more significantly, it makes clear that Congress intended to continue a policy that had been in effect since 1938: a policy of drawing no distinction between wells owned by a pipeline itself and those owned by an affiliate. That point is equally apparent from the exemption half of the definition of "first sale" in Title I. That provision requires first sale treatment of a sale that is "attributable to volumes of natural gas produced by such interstate pipeline . . . or any affiliate thereof." § 2(21)(B) (emphasis added). See supra at 463 U. S. 326. Given that
pipelines are to be treated in the same manner as pipeline affiliates, and given that pipeline affiliates are explicitly covered under the NGPA, see § 601(b)(1)(E), it follows directly that pipeline production is covered. [Footnote 16]
In sum, the Court of Appeals correctly concluded that Congress intended pipeline production to receive first sale pricing. The Commission had no authority to ignore that intention absent a persuasive justification for doing so. [Footnote 17]
Of course, "the interpretation of an agency charged with the administration of a statute is entitled to substantial deference." Blum v. Bacon, 457 U. S. 132, 457 U. S. 141 (1982). It is therefore incumbent upon us to consider carefully the Commission's arguments that Congress implicitly intended to exempt pipeline production from an otherwise comprehensive regulatory scheme. We think it important to address three of the Commission's arguments explicitly: one is aimed at the propriety of giving first sale treatment to the intracorporate transfer, one at the propriety of giving first sale treatment to the downstream sale, and the third at the propriety of any form of first sale treatment for pipeline production.
The Commission also argues that adoption of the downstream sale theory would result in the application of first sale maximum lawful prices to all mixed volume retail sales by interstate pipelines, intrastate pipelines, and local distribution companies, thereby supplanting traditional state regulatory authority over the costs of intrastate pipeline transportation service. [Footnote 18] We find this argument to be exaggerated. The Commission concedes that a downstream sale of pipeline production in another State is a "first sale" if that production has not been commingled with purchased gas. It allows the pipeline to include an appropriate NGPA rate (reflecting the costs of producing the gas) in the overall downstream price (which also reflects transportation and administrative costs). Applying the same principle to commingled gas [Footnote 19] would in
no way trench upon state regulatory authority. The narrow issue posed -- the proper cost to be assigned a pipeline's production efforts -- is no different from the issue posed when a cost must be assigned to a pipeline's purchase of gas from its producing affiliate. And it effects no special change in the relationship between federal and state regulatory jurisdiction. [Footnote 20]
Finally, the Commission argues that pipeline producers would enjoy an unintended windfall if they received first sale pricing. This windfall argument is obviously limited to only one particular category of gas: gas already dedicated to interstate commerce on the date of enactment of the NGPA, and subject to cost-of-service pricing. For under the Commission's own Order No. 98, all other pipeline production receives the same price it would receive if treated as a first sale under the NGPA. The Commission argues, however, that the residual cost-of-service production should be excluded because the pipelines were guaranteed a risk-free return on their initial investments in those wells. To allow the pipelines to receive NGPA pricing on future production from those wells would allegedly be "an irrational result with . . . unfair consequences for consumers." [Footnote 21]
Under § 104, such gas retains its former NGA price, subject to increases over time for inflation. Section 104 provides absolutely no opportunity for a windfall. To be sure, old gas could receive a rate higher than the inflated NGA rate if it falls within one of the special categories of gas whose production Congress saw a need to stimulate. Seizing on that fact, the Commission suggests in a footnote to its brief that much of the gas at issue here would be "stripper well" production, subject to the incentive prices of § 108. It argues that, at least for that category of gas, a windfall would exist, since the Commission believes that cost-of-service treatment would provide just as strong an incentive as the § 108 price. [Footnote 22]
That belief, however, was plainly not shared by Congress. For the statute explicitly grants the § 108 rate to pipeline affiliates -- entities that were previously subject to the same cost-of-service treatment as the pipelines themselves. Moreover, the Commission does not pursue its windfall argument to its logical conclusion. For it agrees that a pipeline is entitled to the NGPA price for any production it sells at the wellhead. Yet by denying the pipeline NGPA treatment if it transports the gas to another State, the Commission only creates an incentive for wellhead sales, in flat contradiction to one of the NGPA's motivating purposes -- to eliminate the dual market that distinguished between interstate and intrastate sales of natural gas. [Footnote 23]
v. Democratic Senatorial Campaign Committee, 454 U. S. 27, 454 U. S. 32 (1981). Unlike the Court of Appeals, however, we believe Congress intended to give the Commission discretion in deciding whether first sale treatment should be provided at the intracorporate transfer or at the downstream transfer. [Footnote 24] The cases should be remanded to the Commission so that it may may make that choice. The judgment of the Court of Appeals is vacated, and the cases are remanded for further proceedings consistent with this opinion.
The dissent suggests that, because § 104 of the NGPA preserves the old NGA price for certain first sales of "old gas," the NGPA "did not intend to eliminate all vestiges of the Commission's earlier pricing authority." Post at 463 U. S. 348-349; see also post at 463 U. S. 348, n. 6. This suggestion confuses the choice of a benchmark price with the choice of regulatory authority. For some (but not all) old gas, the NGA price is preserved as an initial ceiling price. But over time, that price moves according to a statutory formula, rather than through the exercise of Commission regulatory authority. See §§ 101, 601(b)(1)(A).
In its reply brief, the Commission argues that Congress intended to distinguish between production by pipelines and production by pipeline affiliates, on the theory that affiliate sales "are governed by sales contracts" and are therefore "subject to the realities of the marketplace." Reply Brief for Federal Energy Regulatory Commission 4-6. Yet § 601(b)(1)(E) reveals that Congress expressly refused to rely on affiliate sales contracts as reflecting the realities of the marketplace. See infra at 463 U. S. 340. Congress brought affiliate production within the scope of the NGPA, fully aware that it could not rely on arm's length bargaining between affiliates to keep prices low.
Post at 463 U. S. 347-348; see also post at 463 U. S. 350-351 ("the very fact that NGPA prices are not necessary to spur natural gas production by the pipeline companies -- as they are for independent producers -- is a sufficient basis upon which to uphold the Commission's interpretation"). The expression and suggestion are indeed present in both the statute, § 601(b)(1)(E), and the Conference Report, H.R.Conf.Rep. No. 95-1752, p. 124 (1978) -- if cost-of-service pricing were adequate, Congress simply would not have included pipeline affiliate production within the scope of the NGPA.
46 Fed.Reg. 53093 (1980) (emphasis added). See also supra at 463 U. S. 334.
As we recently noted in Exxon Corp. v. Eagerton, 462 U. S. 176, 462 U. S. 186 (1983), § 105(a) of the NGPA extends federal authority to control producer prices to the intrastate market, but, at the same time, 602(a) allows the States to establish price ceilings for that market that are lower than the federal ceiling.
The dissent appears to misunderstand our holding today, since it suggests that we do not hold unreasonable either of the Commission's actions (with regard to the downstream transfer and with regard to the intracorporate transfer). To summarize, we have reached three conclusion in this litigation. (1) It would be reasonable for the Commission not to give first sale treatment to the intracorporate transfer, as long as such treatment is given to the downstream transfer. (2) Similarly, it would be reasonable for the Commission not to give first sale treatment to the downstream transfer, as long as such treatment is given to the intracorporate transfer. (3) Yet it was an unreasonable construction of this comprehensive and exhaustive new legislation, contrary to its structure, purposes, and history, for the Commission to chop out virtually all pipeline production and to relegate it to discretionary regulation under the NGA. Both the dissent, post at 463 U. S. 350-351, and the Court of Appeals, 664 F.2d 530, 536-538 (CA5 1981), offer reasons for preferring approach (1) to approach (2). Those policy arguments are not totally without merit, but they are not so persuasive that we would reverse the Commission if it adopted approach (2), see supra at 463 U. S. 340-341, and they of course provide no justification for rejecting approach (1).
Our task in these cases is not to interpret the Natural Gas Policy Act (NGPA) as we think best, but rather the narrower inquiry into whether the Commission's construction was sufficiently reasonable to be accepted by a reviewing court. FEC v. Democratic Senatorial Campaign Committee, 454 U. S. 27, 454 U. S. 39 (1981); Train v. Natural Resources Defense
Council, Inc., 421 U. S. 60, 421 U. S. 75 (1975); Zenith Radio Corp. v. United States, 437 U. S. 443, 437 U. S. 450 (1978).
FEC v. Democratic Senatorial Campaign Committee, supra, at 454 U. S. 39; Udall v. Tallman, 380 U. S. 1, 380 U. S. 16 (1965). The Court today rejects the agency's interpretation and substitutes its own reading of this highly complex law. In doing so, the Court imposes a construction not set forth in the statute itself, not addressed in the legislative history, not selected by the agency, and different even from that of the Court of Appeals. Notwithstanding its novelty, perhaps the Court's construction that pipeline production must be given "first sale" treatment either as an intracorporate transfer or at the point of a downstream sale is a reasonable interpretation of the Act. But its reasonability does not establish the unreasonability of the Commission's interpretation, and that, of course, is the question before us.
The relevant statutory provisions of the NGPA clearly will bear the Commission's construction. Order No. 58 of the Commission, the interpretive regulation at issue, delineates the circumstances under which a sale of production by an interstate or intrastate pipeline, local distribution company, or affiliate of one of these entities, will be regulated as a first sale under the NGPA. Section 2(21)(B) of the NGPA provides that a sale of natural gas by a pipeline or affiliate thereof is not a first sale unless the sale is "attributable" to volumes of natural gas produced by such pipeline, distributor, or affiliate thereof. [Footnote 2/1] The Court's interpretation of the provision was considered but rejected by the Commission.
Order No. 58, 44 Fed.Reg. 66578 (1979). Unlike the majority of this Court, the Court of Appeals did not reject this interpretation, which limits the downstream sales of pipeline produced gas eligible for first sale prices, see ante at 463 U. S. 323. Even the Court stops short of suggesting that the Commission's interpretation is not a plausible construction of the statutory language. [Footnote 2/2]
The Court notes only that it would be "at least as consistent with the ordinary understanding of the words to interpret them as meaning measurably attributable to,'" thus including downstream sales of commingled gas. Ante at 463 U. S. 327. I doubt that the Court's meaning is equally plausible, given
other usages of similar language throughout the NGPA, [Footnote 2/3] but, accepting the Court's alternative definition as a reasonable possibility, one still does not reach the conclusion that the Commission's own interpretation is unreasonable.
44 Fed.Reg. 66579 (1979). [Footnote 2/4] The Court of Appeals, and now this Court, reject this interpretation by the Commission, again notwithstanding that it is a perfectly reasonable interpretation of the statutory language. The issue turns on whether intracorporate transfers must be deemed "sales." The NGPA defines a "sale" as a "sale, exchange or other transfer for value." § 2(20), 15 U.S.C. § 3301(2)(20) (1976 ed., Supp. V). The ordinary meaning of the term supports the Commission's view that a
Ante at 463 U. S. 327. Since there is no legislative history which supports its position, the Court turns to the structure and purposes of the NGPA. Concededly, the purpose of the NGPA was to replace traditional historical cost methods with an incentive pricing scheme that would create sufficient financial incentive to spur the exploration and development of natural gas. See H.R.Rep. No. 95-496 (1978); Note, Legislative History of the Natural Gas Policy Act, 59 Texas L.Rev. 101 (1980). If the Commission's interpretation undermined the Act's ability to fulfill that goal, the Court would have a stronger case. But there is nothing in the legislative hearings, Reports, or debates which expresses any congressional dissatisfaction
with the existing pricing of pipeline production or which suggests that the Commission's pricing of the oldest and lowest cost pipeline production on a cost-of-service basis, under which the pipelines recover all of their prudent investments regardless of the success of their efforts, inhibited optimum production efforts by the pipelines. One can easily agree with the Court that "there is no reason to believe that any one group of producers is less likely to respond to incentives than any other," ante at 463 U. S. 336-337, while finding that the cost-of-service basis provides sufficient incentives for pipeline companies to increase production. Thus, Order No. 58 is in no sense inconsistent with the primary purpose of the NGPA. [Footnote 2/5]
Unable to demonstrate that the Commission's interpretation is counter to the primary purpose of the NGPA, [Footnote 2/6] the Court attempts to portray the Commission's regulation as inconsistent with "several features" of the regulatory scheme. The effort is unsuccessful. First, the Act's treatment of old gas in § 104 of the NGPA supports, rather than undermines, the Commission's position. By incorporating part of the vintaging pattern that previously existed under the NGA, § 104 indicates that the NGPA did not intend to eliminate all
Second, the Court makes much of the fact that categories of gas entitled to first sale treatment are defined on the basis of the type of well, and not on who owns the well. This is true of the general "first sale" rule, but not of the exception to that rule provided in § 2(21)(B) which governs these cases and which unmistakably is directed at the treatment to be given pipeline production vis-a-vis natural gas obtained from independent producers. Moreover, since the Act does not direct or contemplate that all natural gas will receive higher prices, the Court's discussion of Title II of the Act, which deals with who is to shoulder the higher prices, hardly bears on what gas is entitled to first sale treatment under Title I. The fact that consumers would shoulder the "bulk of the price increases," ante at 463 U. S. 336, is no argument for enlarging the amount of gas for which price increases would be provided.
Finally, the limitation on affiliate pricing in § 601(b)(1)(E), does not, either singly or in combination with other sections, ante at 463 U. S. 337-338, require that all pipeline production be entitled to "first sale" treatment. [Footnote 2/7] As the Court observes later in its opinion, the purpose of § 601(b)(1)(E) is to insure that, if first sale prices are afforded to pipeline affiliates, such
affiliate pricing would be subject to market control. Ante at 463 U. S. 340. This section, which assures that the lack of arm's length bargaining where first sales are to affiliates does not result in excessive prices, hardly reflects a congressional intent that all pipeline production be entitled to first sale prices. Thus, § 203 of the Act, which defines the acquisition costs subject to passthrough requirements, offers no support for the Court's position. The section defines how first sale costs shall be determined, but does not determine the volumes of gas eligible to receive first sale prices; in addition, the provision, by its terms, covers only wells owned by pipeline affiliates.
Since neither the plain language of the Act nor its legislative history forbids the agency's interpretation, and the purpose of the Act is not undermined by the Commission's approach, considerable deference should be afforded the agency's interpretation. Blum v. Bacon, 457 U. S. 132, 457 U. S. 141-142 (1982). [Footnote 2/8] Indeed, the very fact that NGPA prices are not necessary to spur natural gas production by the pipeline companies -- as they are for independent producers -- is a sufficient basis upon which to uphold the Commission's interpretation.
Order No. 102, 45 Fed.Reg. 67086 (1980). The Court rejects this argument as "exaggerated" because certain downstream pipeline sales, such as those of gas which has not been commingled with purchased gas, receive an NGPA rate. Ante at 463 U. S. 340. But for this type of gas, Congress has made the judgment in § 2(21)(B) that the NGPA rate should govern. Applying the same principle to commingled gas, and most pipeline production falls within this category, would vastly expand the role of federal rates in what hitherto has been a sector regulated by the States. While § 602(a) of the NGPA allows the States to compete with the federal scheme by establishing price ceilings for the intrastate market that are lower than the federal NGPA ceiling, the Commission is fully justified in believing that it should not unnecessarily intrude into this sphere any further than actually required by the Act.
windfall if they received first sale pricing. Since present cost-of-service pricing permits pipelines to recover costs needed to stimulate production, first sale prices are unnecessary to increase natural gas production by pipelines. Supra at 463 U. S. 347-348. Even if the windfall that would have been given for new gas were debatable, there can be no question that, for gas already dedicated to interstate commerce on the date of enactment of the NGPA and subject to cost-of-service pricing, the affording of an NGPA price is nothing more than a gift. Accordingly, a number of state public service commissions, and municipal and other publicly owned energy systems which provide natural gas service to citizens, and would foot the bill for the windfall have filed briefs as amici curiae in support of the Commission's position. In precluding this windfall, the Commission is fulfilling the purpose of the NGA "to protect consumers against exploitation at the hands of natural gas companies," FPC v. Hope Natural Gas Co., 320 U. S. 591, 320 U. S. 610 (1944); FPC v. Transcontinental Gas Pipe Line Corp., 365 U. S. 1, 365 U. S. 19 (1961), and "to afford consumers a complete, permanent and effective bond of protection from excessive rates and charges," Atlantic Refining Co. v. Public Service Comm'n of New York, 360 U. S. 378, 360 U. S. 388 (1959). Nothing in the NGPA suggests an abandonment of the consumer protection rationale -- the basis for regulating the industry in the first place. Thus, the Commission's order does not discourage pipeline production activity, but only wisely minimizes the size of the price increases to that necessary to meet the NGPA's objectives. The Court's rejection of this position is based on the fact that "the Commission does not pursue its windfall argument to its logical conclusion," ante at 463 U. S. 342, by denying NGPA prices to pipeline production sold at the wellhead. But when a pipeline sells gas at the wellhead, it is acting much like an independent producer, and it is reasonable for the Commission to have distinguished such sales from intracorporate transfers and downstream sales of intermingled gas. Similarly,
The Court does suggest that the Commission's view serves to perpetuate the dual system of natural gas regulation. While the House bill had a more ambitious objective of completely replacing the existing regulatory structure, the Senate disagreed, and the compromise enacted into law did not totally supplant the NGA. Section 104 of the Act directly incorporates the NGA "vintaging" pattern. As the Court recognizes, most old gas continues to receive the price it received under the NGA, increased over time in accordance with the inflation formula found in § 101. Ante at 463 U. S. 334-336. The Act provides incentive pricing for new gas to insure adequate supplies in the interstate market, but maintains NGA price controls on old gas to prevent unnecessary price increases.
The Commission plausibly distinguishes affiliate sales, governed by sales contracts, from the purely internal transfers of gas between production and transportation divisions of a single corporation. See Order No. 102, 45 Fed.Reg. 67084 (1980). In a footnote, the Court denigrates the Commission's analysis by observing that § 601(b)(1)(E) "reveals that Congress expressly refused to rely on affiliate sales contracts as reflecting the realities of the marketplace." Ante at 463 U. S. 338, n. 16. But it is precisely because § 601(b)(1)(E) safeguards the consumer from unduly priced sales involving affiliates but not intracorporate transfers that it is reasonable that the former, but not the latter, may receive first sale treatment.
The Court suggests that it is not disregarding the agency's expertise, because the Commission subsequently granted NGPA incentive prices to new pipeline produced gas in Order No. 98. Ante at 463 U. S. 338-339, n. 17. The Commission concluded, however, that the policies of the NGPA would be better served by granting NGPA prices only to pipelines previously subject to area or nationwide rate treatment while retaining NGA pricing for gas produced under cost-of-service pricing.