Opinion ID: 411637
Heading Depth: 2
Heading Rank: 1

Heading: Setting Volumetric Requirements for Agricultural and High Priority Users

Text: 111
112 A major issue in this case is whether USDA erred in certifying that agricultural users are to receive 100% of their demand during curtailment periods. Under the statute, the Secretary of Agriculture is required to certify to the Secretary of Energy and the Commission the natural gas requirements for essential agricultural uses in order to sustain full food and fiber production. NGPA Sec. 401(c), 15 U.S.C. Sec. 3391(c). The statute defines essential agricultural use broadly to include both the production and processing of food and natural fibers, including the production of animal feed, fertilizer, and irrigation as well as the more direct uses of natural gas for agricultural uses. NGPA Sec. 401(f)(1)(A), (B), 15 U.S.C. Sec. 3391(f)(1)(A), (B). Resolution of this issue turns on whether USDA correctly interpreted the term full food and fiber production in the NGPA. One alternative which USDA could have elected and which is urged in opposition to its 100%-of-demand certification is to limit agricultural users to the amount they consumed during a designated base period. Another alternative would be to allow agriculture users to receive the entirety of their requirements. USDA chose the latter course. The industrial petitioners object to the failure to use a base period measurement as a ceiling. After a careful review of the statute, its legislative history, and the record we find no abuse of discretion by USDA in selecting the certification option which it did. 113 Because of the high priority status accorded agricultural users by the NGPA, natural gas users with a lower priority argue that failure to use a historical base period permits too high a reliance by agricultural users on natural gas, and would not permit an equitable distribution of limited supplies in times of curtailment. Although the statute and its accompanying legislative history are not crystal clear, we affirm the decision of the USDA to certify 100% of current demand without limitations imposed by use of a historical base period. 114 The starting point in making this determination is the text of the statute itself. NGPA Sec. 401(c) provides that the Secretary of Agriculture 115 shall certify to the Secretary of Energy and the Commission the natural gas requirements (expressed either as volumes or percentages of use) of persons (or classes thereof) for essential agricultural uses in order to meet the requirements of full food and fiber production. [Emphasis added.] 116 The provision's definitional section, 401(f)(1), defines essential agricultural use as one which the Secretary of Agriculture determines is necessary to meet the full food and fiber production level, whether used directly in production, processing, or storage, or as a feedstock for fertilizer, agricultural chemicals, animal feed or food. NGPA Sec. 401(f)(1)(A), (B). That is comprehensive language. 117 In the absence of any more precise indication from Congress we are left with the task of winnowing the Congressional intent from the text of the statute. In so doing, we give appropriate weight to the interpretation of the statute by the agencies charged with its implementation, USDA and ERA (acting under authority delegated by DOE). Udall v. Tallman, 380 U.S. 1, 16, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965); United States v. Rutherford, 442 U.S. 544, 99 S.Ct. 2470, 61 L.Ed.2d 68 (1979); Kyle v. ICC, 609 F.2d 540, 542 (D.C.Cir.1979). The Secretary of Agriculture determined that the statute referred to current demand at the time of the curtailment, thereby rejecting recourse to any historical base periods. The language of the statute and its legislative history are not inconsistent with that interpretation. We therefore affirm that construction. 118 The record is replete with examples of wasted food, and destroyed fiber, which occurred because of the interruption of natural gas supplies. USDA's public notice, instituting its notice-and-comment rulemaking proceeding, addressed in its background section the importance of natural gas to food and fiber production. 30 119 Congress was sufficiently concerned with the possible recurrence of this agricultural waste that it explicitly accorded agricultural users a high priority, and used an expansive definition of agricultural processes. Those policy choices are clear. Equally apparent is the fact that Congress necessarily was aware that expansion of high priority use was at the expense of users further down the priority chain of natural gas consumers, but no less dependent upon gas as an indispensable fuel, or feedstock. But in providing for the allocation of a scarce resource in a time of supply crises, Congress elected to define explicitly certain classes of users, and uses, and define other classes of users or uses with less precision. Congress also established a two tier system to implement this priority system, beginning with the consideration and promulgation of regulations by the agencies, subject to appellate review. This is the stage of the proceeding with which we are here concerned. 120 In evaluating the USDA determination, we return to the basic premise underlying the NGPA. In the most simple terms, it established a method of allocating an important natural resource in a time of supply curtailments. In more detailed and precise terms, it represents a method of allocating an essential natural resource in times of supply crises according to a Congressionally-mandated system of priorities. Implicitly underlying the selection of certain users for high or essential priority status was the realization that other natural gas users would potentially be denied a supply of natural gas which would limit or suspend their operations. The NGPA, in other words, does not represent an ideal allocation of natural gas, nor is it a continuing one, since it operates only in times of curtailments. Rather, it represents an attempt to use a resource during a time of scarcity to further the national well being, as identified and defined by Congress. Given the fact that, including individual households, there are literally millions of natural gas customers, the approach had to be not only as equitable as possible, but also a manageable method of deciding where natural gas should be shuttled in times of shortage. 121 A further observation of this statutory scheme demonstrates that, given the enormous numbers of users, bright line tests were necessary to segregate the various classes of entitlements. Because this system of priorities operates only in periods of shortages, the mechanism is not continuously operative, making compliance difficult for those users who fall into gray areas of priorities. The statute itself addresses the high priority users with sharp definition. And while precise terms are not employed to address the question of what constitutes full food and fiber production, we find no abuse of discretion by the Secretary of Agriculture in electing to define it as current production. 122 This definition has the advantage, operationally, of not requiring a mammoth assessment of historical usage. While this alone is not sufficient to compel the result we reach, it provides a guidepost to the purpose of the operative language chosen. Congress expressed a concern regarding the administrative burden in implementing the NGPA's demands. These demands would be magnified by use of a historically based approach to defining full food and fiber production. Taken alone, the Congressional concern with the simple administrative burden of defining and applying an allocation suggests that a historically based approach was not indicated. Taken collectively with the other factors we identify, it leads to the result expressed in this opinion regarding the definition of full food and fiber production. 123 If USDA had not selected 100% of current requirements as the benchmark for full food and fiber production, any curtailment would have a deleterious impact on food and fiber producers and processors. Indeed, it was Congressional awareness of the effects of gas interruptions on agriculture and food and fiber industries that led to the elevation of those users above all but the highest priority users: residences; small commercial users; educational and health institutions; and users whose curtailment would endanger life, health, or maintenance of physical property. NGPA Sec. 401(f)(2)(D). The selection of these users, and the amplification by the Secretaries, did not signal an insensitivity to the needs, or the importance, of other users. Rather, it was a first attempt to ration an important natural resource in times of supply curtailments. As this is a first effort at legislatively establishing allocation priorities, it may well be legislatively amended if experience with allocations require adjustments. Similar adjustments may be made, within the bounds of their discretion, by the Secretaries. However, we do not find these regulations allowing agricultural users to obtain 100% of current requirements of natural gas to be an abuse of discretion. Consequently, we affirm the certification. 124
125 In implementing the essential agricultural use priority, FERC took the view that section 401 of the NGPA requires the pipelines to serve the volumes certified by USDA, provided that the volumes do not exceed limits imposed by contract or certificate. The Agricultural Petitioners and Supporting Intervenors claim the essential agricultural users should have received more; various consumer, pipeline, and distribution company interests claim they should receive less. 126 The agricultural users' argument is most easily disposed of because logically it falls of its own weight. Because the NGPA operates only in periods of shortages of natural gas which result in curtailment of deliveries to users, the priority scheme established by the NGPA is inoperative in times of normal availability of natural gas. If accepted, the option urged by the agricultural users--that they be entitled to receive 100% of their demand free of certificate or contract limitations--would permit them in the times of shortages to receive more gas than during ordinary periods of operation. Against the backdrop of the NGPA, this would mean that in a supply crises, during which it is imperative that supplies be most wisely conserved and allocated on a priority basis, agricultural users could receive more gas than during normal supply periods. We find nothing in the statute or the legislative history which compels that paradoxical result. The purpose of a certificate or contract limitation is to permit both supplier and purchaser or user to identify the maximum amount of natural gas which will be delivered to the user. Collectively, these limitations establish a ceiling on the gas use by the larger natural gas users of a particular pipeline. This information is essential to the process of estimating the demand for natural gas. 127 If the argument urged by the agricultural users were to prevail, it would undo these reasonable supply-demand expectations at a time when the pipeline is incapable of meeting expected demand. Additionally, by recognizing contract or certificate limitations as a ceiling on demand, no violence is done to the statutory intent to assure full food and fiber production. Contract or certificate terms are objective benchmarks of expected demand for natural gas which may be only one of several fuels available to a particular agricultural user. If an agricultural user, through a certificate or contract provision, has been allocated a specific quantity of natural gas, the agricultural user has tailored its operations using gas to the ceiling expressed by that limitation and must perform its operations with that amount of natural gas during normal supply periods. No reason has been demonstrated why in time of acute shortages, sufficient to require curtailment of deliveries, the ceiling which is adequate during periods of normal supply should become inoperative, and be replaced by a right to make unlimited demands on a sharply reduced supply. 128 Thus, although Congress was clearly concerned in regards to agricultural users that shortages of natural gas would have a devastating effect on the cost and availability of food and fiber, there is nothing in either the NGPA or its legislative history to suggest that where the agricultural user is subject to a ceiling on demand during periods of normal operation, the supply restriction should become inoperative by the existence of a supply curtailment. 129 Accordingly, we affirm the use of a certificate or contract provision as a ceiling on the demand for agricultural users. 130 In contrast to the arguments of the Agricultural Petitioners, who contend they should have received more, the industrial petitioners--the Process Gas Consumers Group (Process Gas), United Gas Pipe Line Company (United), and the United Gas Distribution Companies (UDC)--argue that FERC was too generous in determining allowable volumes for essential agricultural users. While FERC noted that the very nature of a curtailment plan required the recognition of contract limits, and that the independent statutory structure supporting the issuance of certificates of public convenience and necessity required the recognition of certificate limits, FERC took the view that it is required by law to accept the USDA certification to the extent that it is applicable to the curtailment plan of an interstate pipeline. 31 131 The industrial petitioners argue in essence that FERC was empowered to engage in substantive review of USDA's section 401(c) certification. We disagree. Section 401(a) requires issuance of a rule that protects essential agricultural users to the maximum extent practicable, up to and including the use requirement specified in subsection (c), subject only to the needs of high-priority users. That language, we think, fairly implies that it is the Department of Agriculture, and not FERC, that is authorized to ultimately determine the volumetric requirements of essential agricultural users. FERC reasonably concluded that its function was simply to implement the USDA certification to the extent that it applies to a pipeline's curtailment plan. See generally Udall v. Tallman, 380 U.S. 1, 16, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965). To the extent petitioners think the USDA certification is overbroad, they have had the opportunity, which they have exercised, of having the USDA rule reviewed separately. (See Part I.A.1 supra.) The availability of such independent review is yet another indication that Congress did not intend to require or authorize FERC to second-guess the Secretary of Agriculture. 132
133 Petitioners Atlanta Gas Light Company and Consolidated Edison Company of New York challenge FERC's decision to provide for curtailment of essential agricultural use on the basis of 100% of current requirements while retaining a base-year method for calculating curtailment of supply to other uses of natural gas, including high-priority users. Petitioners challenge this action under two theories. First, they argue that the practical effect of the rule is to subvert the statutory priority scheme of section 401 of the Natural Gas Policy Act. Their second argument is that the retention of base-years for high-priority consumers and abolition of base-years for essential agricultural users is undue discrimination under North Carolina v. FERC, supra. 134 Prior to the enactment of the NGPA, the use of base-year periods to calculate curtailment of gas deliveries was the accepted method. 32 Because the Secretary of Agriculture certified 100% of current requirements of certain agricultural users as the essential volume under the Act, FERC was faced with the task of implementing a current requirements quota within a system that normally used a historical figure to set future quotas and curtailments. The Commission chose to abandon the base-year method for calculating curtailment of gas deliveries for essential agricultural uses, determining that abandonment was preferable to some kind of base-year method. 33 The Secretary of Agriculture does not certify the volume of high-priority gas, nor does any other agency. The Commission retained the prior base-year method for implementing curtailment of high-priority gas. 135 Petitioners contend that FERC's action is contrary to the statutory command of section 401 of the NGPA, which provides in relevant part as follows: 136 Not later than 120 days after November 9, 1978, the Secretary of Energy shall prescribe and make effective a rule, which may be amended from time to time, which provides that, notwithstanding any other provision of law (other than subsection (b) of this section) and to the maximum extent practicable, no curtailment plan of an interstate pipeline may provide for curtailment of deliveries of natural gas for any essential agricultural use, unless such curtailment-- 137 (1) does not reduce the quantity of natural gas delivered for such use below the use requirement specified in subsection (e) of this section; or 138 (2) is necessary in order to meet the requirements of high-priority users. 139