Opinion ID: 510053
Heading Depth: 2
Heading Rank: 2

Heading: The United Contracts

Text: 10 The instant case involves the case specific application of the third-party protest procedures adopted by the Commission in the Order 23 series to the interpretation of area rate clauses contained in contracts between United and the producers. This dispute, involving approximately 365 natural gas producers and 775 contracts, originated on August 27, 1979, when United filed an evidentiary submission pursuant to 18 C.F.R. Sec. 154.94(j) representing that the contracting parties mutually intended to authorize the collection of all NGPA rates through the use of area rate clauses in the contracts. 11 Subsequent to United's filing, third-party protests to United's submission of the contracting parties' mutual intent were filed in October 1979 by certain nonparties to the contracts, including the Commission staff, Associated Gas Distributors, and Gulf States Utilities Company. 11 Applying the Order 23 presumption to the contracting parties' assertion of mutual intent, the Chief ALJ summarily dismissed the majority of the protests on the basis that the protestors failed to rebut the presumption; however, as to the contracting parties' authority to collect NGPA prices for stripper well gas, 12 the Chief ALJ concluded that the protestors submitted sufficient extrinsic evidence to rebut the Order 23 presumption and to obtain an evidentiary hearing on the parties' intent regarding the stripper well rates. 13 To rebut the contracting parties' assertion of mutual intent, the protestors relied on a letter from United to its producers, dated April 23, 1979, stating essentially that United believed that its contracts did not require the payment of NGPA stripper well rates. To support its position that the area rate clauses did not authorize the collection of NGPA rates for stripper well gas, United reasoned that the rate of production from a well had never been intended by the parties to be a criterion for determining rates. 14 United subsequently retracted the April letter in August 1979; nevertheless, the Chief ALJ, addressing the April 23 letter in the context of Order 23, remarked: 12 Indeed, more reliable and probative evidence of United's intent not to collect NGPA rates for stripper well gas would be hard to find. Clearly, Protestors' extrinsic evidence squarely meets the burden imposed by the second tier of the Commission's two-tiered test outlined above in Opinion No. 77. Accordingly, the Chief Administrative Law Judge will establish further proceedings to probe the contracting parties' intent with respect to stripper well ceiling prices. 13 12 F.E.R.C. at 65,115 (footnote omitted). Accordingly, the Chief ALJ assigned the case to another ALJ (the presiding ALJ) to conduct an evidentiary hearing on the factual question of the contracting parties' intent to authorize the collection of the NGPA stripper well rates through the use of area rate clauses. 14 Later, at the evidentiary hearing, the presiding ALJ considered live testimony, deposition testimony, and documentary evidence of the contracting parties' intent. 15 After hearing this evidence, the presiding ALJ, at the suggestion of the Commission staff, grouped the area rate clauses at issue into eight distinct types. Construing the language of the clauses with the extrinsic evidence offered at the hearing, the presiding ALJ concluded that the majority of the types of area rate clauses (types II, III, V, VI, VII, and VIII) authorized the collection of the NGPA rate for stripper well gas. As to clauses types I and IV, however, the presiding ALJ determined that such clauses did not authorize the collection of NGPA stripper well rates. 16 15 Thereafter, in Opinion 181 and Opinion 181-A, the Commission reversed the presiding ALJ's decision as to clauses types II, III, V, VI, and VII, concluding that the producers had failed to meet their procedural burden of demonstrating by a preponderance of extrinsic evidence that the contracting parties intended to authorize collection of NGPA rates for stripper well gas. In reversing the presiding ALJ, the Commission stated numerous times that the parties' assertion of mutual intent to collect NGPA prices had been negated by the April 23, 1979, letter of United. 17 Thereafter, the producers appealed the Commission's decision. 16 In Pennzoil II, this Court reversed the Commission's decisions in Opinion 181 and Opinion 181-A, concluding that the Commission erred in its reversal of the presiding ALJ's decision primarily due to a misapprehension of the nature and effect of the Order 23 presumption. Pennzoil II, 789 F.2d at 1136. Specifically, this Court determined that the Commission erred in its application of the Order 23 presumption by (1) failing to give any further evidentiary weight to the parties' assertion of mutual intent after the Order 23 presumption was rebutted; (2) giving undue weight to the rebuttal evidence, the letter of April 23, 1979; and (3) failing to give evidentiary weight to the language of the contracts and thus, erroneously refusing to construe the contracts involved in the proceeding. Id. at 1137. Further, the Pennzoil II Court determined that the Commission erred in refusing to give proper weight to the credibility determinations of the presiding ALJ and in failing to properly apply state law to the language of the contracts. Id. at 1136, 1141-45. 17 On remand from Pennzoil II, the Commission issued an order and an order on rehearing, concluding that clauses types I and IV do not authorize the collection of NGPA rates for stripper well gas. 18 In its orders, the Commission specifically adopted the presiding ALJ's initial decision, including the findings and conclusions of the presiding ALJ contained in that decision. The Commission reasoned that were it not for its previous misapprehension of the Order 23 presumption, the decision in Opinions 181 and 181-A would be error free. In this regard, the Commission stated on remand: 18 Once the operation of the presumption and its rebuttal is so clarified, no impediment remains to the adoption of the presiding ALJ's analysis. The ALJ, as the court indicated, is in the best position to gauge the credibility of the witnesses and the testimony presented at hearing. Moreover, his analysis of the contract language is fully in conformance with the Opinion No. 77 standards, and, as the court described it, is eminently reasonable. Since only the misapprehension of the burden-shifting effected by the rebuttal of the Order No. 23 presumption initially inhibited the Commission from adoption of the [presiding] ALJ's contract analysis, his contract construction and credibility determinations will be utilized on remand. 19 Order on Remand, 37 F.E.R.C. at 61,630. The producers now seek review of the Commission's orders sustaining the third-party protests as to clauses types I and IV. 19 Having concluded that the Commission failed to follow the guidelines set forth by this Court in Pennzoil II, we grant the producers' petitions for review. Accordingly, we will vacate the Commission's orders as to clause type I and remand with directions to enter a final order on type I clauses consistent with this opinion without a third remand to the Commission.