Source: https://law.justia.com/cases/federal/appellate-courts/F2/815/589/23216/
Timestamp: 2020-08-13 09:44:07
Document Index: 247176141

Matched Legal Cases: ['§ 717', '§ 3316', '§ 717', '§ 3316', '§ 3316', '§ 3301', '§ 3301']

Grace Petroleum Corporation, Petitioner, v. Federal Energy Regulatory Commission, Respondent,plains Resources, Inc. and Arkla Energy Resources, Adivision of Arkla, Inc., Intervenors, 815 F.2d 589 (10th Cir. 1987) :: Justia
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Grace Petroleum Corporation, Petitioner, v. Federal Energy Regulatory Commission, Respondent,plains Resources, Inc. and Arkla Energy Resources, Adivision of Arkla, Inc., Intervenors, 815 F.2d 589 (10th Cir. 1987)
U.S. Court of Appeals for the Tenth Circuit - 815 F.2d 589 (10th Cir. 1987) March 31, 1987
This appeal concerns the price that small producers may receive for natural gas delivered after an existing contract has expired, but before a rollover contract has been executed. In 1973, petitioner Grace Petroleum Corporation (Grace), then a small producer,1 succeeded to another small producer's interest in a 1962 contract to sell natural gas to Arkansas Louisiana Gas Company (Arkla). This 1962 contract expired on December 13, 1982, before a rollover contract2 was executed. Because the gas in question was dedicated to interstate commerce, Grace was obligated, pursuant to 15 U.S.C. § 717f(b), to continue deliveries after the contract expired.3
On May 2, 1984, Grace and Arkla executed a rollover contract. The parties explicitly agreed that " [t]he rollover gas purchase contract will be effective on December 13, 1982," the expiration date of the prior contract. R. I, 35. Under the rollover contract, Grace was to receive a higher price, the maximum allowed under Sec. 106(a) of the Natural Gas Policy Act (NGPA), 15 U.S.C. § 3316(a).
Grace alleges that the Commission acted arbitrarily in failing to follow its own precedent and that the Commission exceeded its authority under the NGPA in denying Grace's petition. Plains Resources, Inc., a small producer negotiating similar retroactive rollover contracts, has intervened on appeal. Plains argues that the Commission's orders are contrary to the regulatory scheme under the National Gas Act (NGA), 15 U.S.C. §§ 717-717w, and fail to recognize the existence of a contract implied in fact during the interim period. Because we hold that the Commission in denying Grace's petition has arbitrarily disregarded its own prior interpretations of Sec. 106(a) of the NGPA, 15 U.S.C. § 3316(a), we do not reach the other arguments.
Section 106(a) (1) (A) of the NGPA allows small producers to charge the higher rollover price beginning with "the month in which the effective date of such rollover contract occurs." 15 U.S.C. § 3316(a) (1) (A) (emphasis added). Two of the Commission's decisions allowed small producers to contract for an effective date before the actual execution of the rollover contract. Spradling Drill Co., 14 Fed. Energy Reg. Comm'n Rep. (CCH) p 61,145, at 61,265 (Feb. 19, 1981) (A small producer is "entitled to collect [the Sec. 106(a) (1) (A) rollover] rate as of the effective date authorized by the contract."); Riddell Petroleum Corp., 16 Fed. Energy Reg. Comm'n Rep. (CCH) p 61,047, at 61,083 (July 24, 1981) ("Riddell, as a small producer, is entitled to collect [the rollover rate] ... as of the date agreed upon by the parties as being the contract's effective date."). Under these decisions, Grace should be allowed to contract for a retroactive "effective" date that would allow it to receive the higher Sec. 106(a) rollover price during this interim period. The Commission does not oppose this reading of Spradling and Riddell, but argues instead that these decisions have been properly overruled.
While an agency has a well-settled right to modify or even overrule established precedent, "it is equally settled that an agency must provide a reasoned explanation for any failure to adhere to its own precedents." Hatch v. FERC, 654 F.2d 825, 834 (D.C. Cir. 1981); accord Squaw Transit Co. v. United States, 574 F.2d 492, 496 (10th Cir. 1978) (" [W]e surely must require the agency to adhere to its own pronouncements, or explain its departure from them."). " [A]n agency changing its course must supply a reasoned analysis indicating that prior policies and standards are being deliberately changed and not casually ignored, and if an agency glosses over or swerves from prior precedent without discussion it may cross the line from the tolerably terse to the intolerably mute." Greater Boston Television Corp. v. FCC, 444 F.2d 841, 852 (D.C. Cir. 1970) (footnotes omitted), cert. denied, 403 U.S. 923, 91 S. Ct. 2229, 29 L. Ed. 2d 701 (1971). See also 4 K. Davis, Administrative Law Treatise Sec. 20:11 (2d ed. 1983).4
To explain its failure to adhere to its own precedent, the Commission first contends that two intervening decisions, Transcontinental Gas Pipe Line Corp., 17 Fed. Energy Reg. Comm'n Rep. (CCH) p 61,232 (Dec. 11, 1981) (Transco), and United Gas Pipe Line Co., 24 Fed. Energy Reg. Comm'n Rep. (CCH) p 61,083 (July 19, 1983), overturned the rule embraced by Spradling and Riddell. In these cases the Commission prohibited retroactive modification of existing contracts. See Transco, supra, at 61,453 (" [C]ontract modifications ... permit collection of NGPA rates only from the date of contract amendment."); United, supra, at 61,221 (" [T]hese contracts can only provide authority for [statutory] prices after the contract modification or amendment was executed."). Neither case involved the present issue, whether a rollover contract could be retroactively applied for the period after the original contract has expired; neither mentioned the Spradling and Riddell decisions.
" ' [A] retroactive effective date ... is not permissible on both NGPA and Natural Gas Act grounds. These grounds are the filed rate doctrine that developed out of Section 4 of the Natural Gas Act; our regulations at 18 C.F.R. Sec. 157.40(c) (1) which bring even small producers within the purview of the filed rate doctrine by making it unlawful for a small producer to charge more than his contract provides, and thus bars him from retroactive as opposed to prospective price changes; and the public interest ground, arising from the Natural Gas Act, that it is against the public interest to apply rates retroactively to recover past losses even if the rate is deemed just and reasonable. This would violate the Natural Gas Act by making lawful what was unlawful at the time the gas was delivered, namely, the collection of the NGPA rate, not then authorized by the contract.' "
"Nor is it significant, as Grace suggests, that NGPA Section 106(a) (1) (A) prescribes the maximum lawful price applicable to sales under an interstate rollover contract 'in the case of the month in which the effective date of such rollover contract occurs, ...' The fact remains that the gas in question is subject to the Natural Gas Act and the Commission's applicable regulations."
"The real question involves the proper interpretation of Section 157.40(c) (1) of the Commission's regulations relating to small producers. That section provides that small producers are authorized to make sales at specified rate levels 'to the extent contractually permitted....' "
Id. at 457 n. 4. We do not consider this footnote to a regulatory explanation to rise to the status of a substantive rule. In context, it is more akin to a "general statement of policy." See Pacific Gas and Electric Co. v. FPC, 506 F.2d 33, 38 (D.C. Cir. 1974) (FPC Order No. 467, 49 F.P.C. 85 (1973), not a rule). See also 2 K. Davis, supra Secs. 7:4, 7:5.
" [T]he Commission departs from its holdings in Riddell and Spradling without attempting to distinguish those cases and without adequate explanation for its change in policy....
Neither the Commission order denying Grace's petition nor the order denying rehearing explain the Commission's sudden shift in policy in respect to small producer rollover contracts. This is especially puzzling since the NGPA and section 157.40(c) (1) of the regulations were in effect in both cases and have not been changed. It is difficult to understand why the Commission has chosen to set aside an agreement of two parties, freely entered into, and what public interest the Commission's order is intended to serve."
A "rollover contract" is "any contract, entered into on or after November 9, 1978, for the first sale of natural gas that was previously subject to an existing contract which expired at the end of a fixed term" after November 9, 1978. 15 U.S.C. § 3301(12). An "existing contract" is "any contract for the first sale of natural gas in effect on November 8, 1978." 15 U.S.C. § 3301(13)
Grace could not discontinue its supply without first obtaining an order from the Commission permitting abandonment. See 18 C.F.R. Sec. 157.40(c) (5)
There are other limitations on an agency's power to overturn precedent. One is that "agencies may not impose undue hardship by suddenly changing direction, to the detriment of those who have relied on past policy." Cities of Anaheim, Riverside, Banning, Colton and Azusa v. FERC, 723 F.2d 656, 659 (9th Cir. 1984)