Opinion ID: 535996
Heading Depth: 1
Heading Rank: 1

Heading: Replacement Contract Rate

Text: 17 The parties agree that the gas is covered by Sec. 104 of the NGPA, 15 U.S.C. Sec. 3314(a) (1988), but disagree as to the proper subcategory within Sec. 104. El Paso seeks to price its gas at the replacement contract rate. Roughly speaking, this applies to gas sold under a contract replacing a previous contract which had expired by its terms. 18 C.F.R. Sec. 271.402(b)(4). 1 California, on the other hand, argues that El Paso is entitled only to the flowing gas rate, a catch-all category within Sec. 104 that applies to any gas (not covered by any other category) which was produced from a well the surface drilling of which commenced prior to January 1, 1973. 18 C.F.R. Sec. 271.402(b)(8). It is the rate that would be applicable to an independent's sales where they were made under a life-of-the-lease contract, i.e., one which could not expire by its own terms until the well ceased production. The replacement contract rate is nearly double the flowing gas rate. 2 18 Of course El Paso never had contracts with itself. As the controlling categories depend on contracts, however, they must be imputed. El Paso argues for using replacement contracts, saying that this is necessary in order to fulfill the Commission's conclusion in Order No. 391-B that there should be parity of pricing between pipeline producers and other producers, both independent and affiliate. 40 FERC at 61,546. More concretely, it argues that since most of its contracts with independents were 20-year contracts, one should treat its transfers to itself as if they had been governed by the same kind of contract. 3 The Commission, as we understand it, bought the substance of that argument. If all El Paso's contracts with independents were 20-year contracts, then El Paso's view would prevail entirely. But the Commission held that the imputation should occur in accordance with [El Paso's] contracting pattern, so that if El Paso bought 80 per cent of its independent-supplied gas under fixed-term contracts, then 80 per cent of its own gas would enjoy replacement-gas rates (at least assuming passage of 20 years). If 20 per cent of its purchases from independents were under life-of-the-lease contracts, then 20 per cent would receive the flowing gas rate. It ordered hearings before an administrative law judge to secure the facts needed to apply this principle of proportionality. Order on Rehearing, 44 FERC at 61,205. 19 El Paso suggests offhandedly in a footnote that this remand makes it premature for the court to review the Commission's decision. See Brief of Intervenor El Paso at 7 n. 6. Although El Paso never makes clear the exact nature of its claim here, we must address it to the extent that it questions the finality of the orders under review, as finality is necessary to our jurisdiction. See, e.g., Bell v. New Jersey, 461 U.S. 773, 777-80, 103 S.Ct. 2187, 2190-92, 76 L.Ed.2d 312 (1983). 4 20 The Natural Gas Act simply provides that a party ... aggrieved by an order of the Commission may seek review, Sec. 19(b), 15 U.S.C. Sec. 717r(b) (1988), 5 but the Supreme Court as early as 1938 found a requirement of finality in the parallel provision of the Federal Power Act, FPC v. Metropolitan Edison Co., 304 U.S. 375, 384, 58 S.Ct. 963, 967, 82 L.Ed. 1408 (1938), and the lower courts extended the requirement to the NGA. See Atlantic Seaboard Corp. v. FPC, 201 F.2d 568, 572 (4th Cir.1953). This court has consistently noted that the finality inquiry is to be a pragmatic one. See, e.g., United Municipal Distributors Group v. FERC, 732 F.2d 202, 206 n. 4 (D.C.Cir.1984); Delmarva Power & Light Co. v. FERC, 671 F.2d 587, 592 (D.C.Cir.1982); Papago Tribal Utility Authority v. FERC, 628 F.2d 235, 239 (D.C.Cir.1980). 21 Here there is little practical concern pointing against review. There is no suggestion that immediate review would interfere with or frustrate the administrative process. Indeed, the ALJ has proceeded with the task and found that 98.5% of El Paso's contracts with independent producers were fixed-term contracts, 89.3% of which were 20-year contracts. Compare Metropolitan Edison, 304 U.S. at 383-84, 58 S.Ct. at 966-67 (expressing concern over constant delays that review of procedural orders would entail). As FERC has already finally decided the substantive issue on appeal to us, review now does not prevent it from bringing its expertise to bear. See, e.g., ASARCO, Inc. v. FERC, 777 F.2d 764, 772 (D.C.Cir.1985) (distinguishing cases where judicial review involve[d] no pre-emption of the agency's primary jurisdiction). Indeed, the Commission itself wants us to review the replacement contract issue now. Cf. NRDC v. EPA, 859 F.2d 156, 167 (D.C.Cir.1988) (giving weight to agency position on ripeness); United Municipal Distributors Group v. FERC, 732 F.2d 202, 207 n. 6 (D.C.Cir.1984) (same). A possible benefit for the agency is that our resolution of the merits may moot the ongoing proceedings before the agency. See Parks v. Pavkovic, 753 F.2d 1397, 1402 (7th Cir.1985) (if this appeal is allowed and the state persuades us that no damages should be awarded, an expensive computation involving thousands of bills will be avoided). 22 There appears little risk that immediate review will increase the burden on the courts. There is no possibility that the remaining proceedings might moot the case by giving victory to the loser on other grounds. See FTC v. Standard Oil Co. of California, 449 U.S. 232, 242, 101 S.Ct. 488, 494, 66 L.Ed.2d 416 (1980); Ciba-Geigy Corp. v. EPA, 801 F.2d 430, 434 (D.C.Cir.1986); Papago, 628 F.2d at 240. The only remaining concern is that immediate review will increase the risk of multiple reviews where one would be more economical. See Standard Oil, 449 U.S. at 242, 101 S.Ct. at 494. Two aspects of the remand to the ALJ suggest the risk is modest. First, the task before the ALJ appears to have been somewhat mechanical and thus unlikely to generate issues for judicial review at all. Second, even in the event of a second appeal, it does not appear that any such issues would be analytically entangled with the present one, which involves solely the basic principle of how best to analogize El Paso's role as a producer for itself to the role of independents selling to interstate pipelines. See Parks, 753 F.2d at 1402 (relying on similar features of residual issues in finding finality under 28 U.S.C. Sec. 1291); see also Boeing Co. v. Van Gemert, 444 U.S. 472, 479 & n. 5, 100 S.Ct. 745, 749-50 n. 5, 62 L.Ed.2d 676 (1980) (reviewing as final a money judgment against the defendant in class action in which the damages against the class as a whole had been determined, but the claims by individual absentee class members remained to be addressed); Love v. Pullman Co., 569 F.2d 1074, 1076 (10th Cir.1978) (reviewing as final a formula for determining back pay in a successful class action Title VII case, even though computation of actual damages was referred to a master); cf. St. Louis Shipbuilding and Steel Co. v. Casteel, 583 F.2d 876, 876 n. 1 (8th Cir.1978) (decision of Benefits Review Board, reversing ALJ and supplying a new formula to be used in determining benefits to be awarded, is final under 33 U.S.C. Sec. 92(d)). Compare Liberty Mutual Ins. Co. v. Wetzel, 424 U.S. 737, 744, 96 S.Ct. 1202, 1206-07, 47 L.Ed.2d 435 (1976) (order deciding liability but leaving damages to be computed at later proceeding not final). We note that Commission rate orders often appear to leave detail issues to compliance filings, without anyone supposing that this deprives them of finality. See Union Electric Co. v. FERC, 890 F.2d 1193, 1197 (D.C.Cir.1989). 23 On the merits, we find no adequate explanation of the Commission view that El Paso's pattern of contracting with independents should govern the classification of the gas it produces. On rehearing, for example, it said, Complete parity requires looking to substance and not form by pricing pipeline production as if the gas had been produced by an independent producer. 44 FERC at 61,204. Neither this nor anything the Commission has said explains why El Paso's conduct as buyer should govern the classification of its gas for purposes of fixing its revenues as seller. 24 More important, FERC's theory does nothing to address California's argument that it should place El Paso's gas into the (imputed) contract category that best corresponds to the economic realities of pipeline-owned gas. That correspondence, it argues, depends on the Commission's purpose in allowing enhanced rates for replacement-contract gas but not for gas sold under an original, unexpired contract (or, indeed, a contract negotiated to replace a life-of-the-lease contract). 25 The Commission's apparent theory in allowing increased prices for replacement contract gas was that expiration of a contract in accordance with its terms gave the pipeline an opportunity to tempt the producer to dedicate additional acreage and commit itself to more exploration and development activities. Evidently the Commission reasoned that only where the pipeline could refuse to renew a contract, leaving the producer's gas dedicated to interstate commerce but unsold, would it be able to extract additional drilling or acreage commitments in exchange for higher prices. See Opinion No. 699-H, Just and Reasonable National Rates For Sales of Natural Gas, 52 FPC 1604, 1632 (1974); Opinion No. 770-A, National Rates for Jurisdictional Sales of Natural Gas, 56 FPC 2698, 2717-20 (1976). Whatever the precise theory, California makes the seemingly persuasive argument that since El Paso necessarily drilled all the wells in question with the expectation of receiving only the historic cost rate for pipeline-produced gas, none of the gas can possibly be a response to the incentive price created for replacement gas. In any event, we think the Commission must try to relate its current imputation process to the theory of its earlier distinction. In particular, it must respond to California's contention that gas should not receive the replacement contract rate in the absence of some reason to associate the gas with the incentives that that rate was intended to afford. 26 While we seriously doubt whether the Commission can justify allowing El Paso replacement contract rates for its company-produced gas under any theory, we remand this aspect of the case to the Commission rather than reverse.