Court Opinion

ID: 9471578
Source: CourtListenerOpinion
Date Created: 2023-08-05 03:36:01.166305+00
Date Added: 2024-06-11T17:42:28.570757
License: Public Domain

SETH, Chief Judge,
dissenting:
I must dissent from the majority opinion because, in my view, it permits the Department of Interior to adopt practices contrary to the Natural Gas Policy Act (15 U.S.C. § 3301). I would affirm the judgment of the trial court.
Classifications and ceiling prices under the NGPA were constructed by Congress to encourage production of natural gas. It adopted the incentive theory of pricing, and abandoned the cost basis typical of utility rate regulation. Dual markets were eliminated as well.
With this incentive pricing express provisions were included to insure that the producer received the ceiling price not reduced by severance taxes. This was fully and carefully considered by Congress. It was a significant element in the legislation.
It was understood that under the Act the severance taxes would be passed on to the consumers. Congress thus balanced the considerations among the lessors, lessees, purchasers and the public. This fixed the public policy considerations beyond changes by administrative agencies. See Kerr-McGee Corp. v. Northern Utilities, Inc., 673 F.2d 323 (10th Cir.1982). Congress also set price ceilings and classifications beyond the authority of administrative agencies. The Act thus made fundamental changes in the theory of pricing, the method of pricing, the handling of severance taxes, and the allocation of authority. The Act thereby impacted Interior’s formula for royalty calculations.
The Act expressly provided for a treatment of severance taxes and tax reimbursement. This had been an element sought to be used by Interior in its “gross proceeds” concept. The Act also provided that the Commission could allow adjustments for certain production-related costs which had previously gone into Interior’s “gross proceeds.” Interior’s use of those elements was thus changed by Congress itself. These substantial changes rendered Interi- or’s reliance on its “gross proceeds” untenable. This seems to be demonstrated by the opinion here on appeal where the shift was made away from “gross proceeds,” a change to an undefined “value” theory which apparently does not appear in any regulations, letters or memoranda of Interior.
Furthermore the sole basis for the Wheless departmental opinion has thus disappeared. A new theory is sought to be substituted. As mentioned, the opinion from which this appeal is taken expresses a departure from Wheless and only lip service is given to it. The author of the Wheless opinion concurred in the opinion appealed from.
Interior is nevertheless trying to hold on to a position which cannot be reconciled with the NGPA. The consequence is that one agency of Government is seeking to bring about a result contrary to that of another. The intention of Congress in the NGPA is perfectly clear on the point and no room is left for agency action seeking a contrary result or seeking to justify its position on its own concept of “public policy.” Congress has resolved the public policy considerations and the issue itself. If Interior prevails in its position, contrary to the NGPA, the producer will have received less *1494than the ceiling price, this by reason of Interior’s treatment of severance taxes, an element specifically considered and provided for by Congress.
Interior seeks to increase its royalty amount over the others unfairly by starting with what it refers to as a “value” figure which is in excess of the ceiling price for gas provided by Congress. There is no basis in the NGPA for a separate category for pricing Government royalty gas at a figure different from other gas in the classification. The Government seeks for royalty computation to add to the ceiling price the amount of the severance tax. This it cannot do. The ceiling price plus the tax have no relation to “value”. The tax is supposed to be paid, and is paid, according to the state tax statute, by the purchaser. There is no added money going to the producer for the severance tax. There is no such “amount received” by the producer. There is, again, no relation to “value”. It is in substance the same as if the Government royalty gas had been sold above the ceiling price contrary to the NGPA.
Again, there is no place in the Congressionally mandated classifications in the NGPA for the separate price category here sought by Interior above the ceiling prices. There is no authority in the administrative agency to create such a classification in an attempt to construct some “value” theory.
Thus it must be concluded that the position of Interior here advanced as to severance taxes is to administratively override the express provisions in the NGPA which do not permit the application of severances taxes to eliminate the right of the producer to the incentive ceiling price. Interior cannot for these or any other purpose create its own price classification.
The arguments advanced by both sides have no impact whatever on the communitization agreement or the unit. We are only concerned with mathematical computations applied to the unit production. There are already distinctions among the tracts because the royalty percentages are different, and by reason of the severance tax exempt status of some production.
The trial court took all these factors into consideration, reached the correct result, and should be affirmed: