Mobil Oil Exploration Producing Southeast Inc. v. United Distribution Companies Federal Energy Regulatory Commission

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United States Supreme Court

498 U.S. 211

Mobil Oil Exploration Producing Southeast Inc.  v.  United Distribution Companies Federal Energy Regulatory Commission

No. Nos 89-1452, 89-1453  Argued: Nov. 5, 1990. --- Decided: Jan 8, 1991


In response to ongoing natural gas shortages, Congress enacted the Natural Gas Policy Act of 1978 (NGPA), which, inter alia, established higher price ceilings for "new" gas in order to encourage production and carried over the pre-existing system of "vintage" price ceilings for "old" gas in order to protect consumers. However, recognizing that some of the vintage ceilings might be too low, Congress, in § 104(b)(2) of the NGPA, authorized the Federal Energy Regulatory Commission to raise them whenever traditional pricing principles under the Natural Gas Act of 1938 (NGA) would dictate a higher price. After the new production incentives resulted in serious market distortions, the Commission issued its Order No. 451, which, among other things, collapsed the existing vintage price categories into a single classification and set forth a single new ceiling that exceeded the then-current market price for old gas; established a "Good Faith Negotiation" (GFN) procedure that producers must follow before they can collect a higher price from current pipeline customers, whereby producers may in certain circumstances abandon their existing obligations if the parties cannot come to terms; and rejected suggestions that the Commission undertake to resolve in the Order No. 451 proceeding the issue of take-or-pay provisions in certain gas contracts. Such provisions obligate a pipeline to purchase a specified volume of gas at a specified price, and, if it is unable to do so, to pay for that volume. They have caused significant hardships for gas purchasers under current market conditions. On review, the Court of Appeals vacated Order No. 451, ruling that the Commission lacked authority to set a single ceiling price for old gas under § 104(b)(2) of the NGPA; that the ceiling price actually set was unreasonable; that the Commission lacked authority to provide for across-the-board, preauthorized abandonment under § 7(b) of the NGA; and that the Commission should have addressed the take-or-pay issue in this proceeding, even though it was considering the matter in a separate proceeding.

Held: Order No. 451 does not exceed the Commission's authority under the NGPA. Pp. 221-231.

(a) Section 104(b)(2) of the NGPA-which authorizes the Commission to prescribe "a . . . ceiling price, applicable to . . . any natural gas (or category thereof, as determined by the Commission ) . . ., if such price" is (1) "higher than" the old vintage ceilings, and (2) "just and reasonable" under the NGA (emphasis added)-clearly and unambiguously gives the Commission authority to set a single ceiling price for old gas. The NGPA's structure-which created detailed incentives for new gas, but carefully preserved the old gas vintaging scheme-does not require a contrary conclusion, since the statute's bifurcated approach implies no more than that Congress found the need to encourage new gas production sufficiently pressing to deal with the matter directly, but was content to leave old gas pricing within the Commission's discretion to alter as conditions warranted. Further, the Commission's decision to set a single ceiling fully accords with the two restrictions § 104(b)(2) does establish, since the "higher than" requirement does nothing to prevent the Commission from consolidating existing categories and setting one price, and since the "just and reasonable" requirement preserves the pricing flexibility that the Commission historically exercised and accords the Commission broad ratemaking authority that its decision to set a single ceiling does not exceed. Respondents' contention that the Commission's institution of the GFN process amounts to an acknowledgment of the unreasonableness of the new ceiling price is rejected, since there is nothing incompatible in the belief that a price is reasonable and the belief that it ought not to be imposed without prior negotiations. An otherwise lawful rate should not be disallowed because additional safeguards accompany it. Respondents' objection that no order "deregulating" the price of old gas can be deemed just and reasonable is also rejected, since Order No. 451 does not deregulate in any legally relevant sense, and it cannot be concluded that deregulation results simply because a given ceiling price may be above the market price. Pp. 221-226.

(b) Order No. 451's abandonment procedures fully comport with the requirements of § 7(b) of the NGA, which, inter alia, prohibits a gas producer from abandoning its contractual service obligations to a purchaser unless the Commission has (1) granted its "permission and approval" of the abandonment; (2) made a "finding" that "present or future public convenience or necessity permit such abandonment"; and (3) held a "hearing" that is "due." First, although Order No. 451's approval of the abandonment at issue is not specific to any single abandonment but is instead general, prospective, and conditional, nothing in § 7(b) prevents the Commission from giving advance approval or mandates individualized proceedings involving interested parties before a specific abandonment can take place. Second, in reviewing "all relevant factors involved in determining the overall public interest," and in finding that preauthorized abandonment under the GFN regime would generally protect purchasers, safeguard producers, and serve the market by releasing previously unused reserves of old gas, the Commission made the necessary "finding" required by § 7(b), which does not compel the agency to make "specific findings" with regard to every abandonment when the issues involved are general. Finally, the Commission discharged its § 7(b) duty to hold a "due hearing," since, before promulgating Order No. 451, it held a notice and comment hearing and an oral hearing. See, e.g., Heckler v. Campbell, 461 U.S. 458, 467, 103 S.Ct. 1952, 1957, 76 L.Ed.2d 66. United Gas Pipe Line Co. v. McCombs, 442 U.S. 529, 99 S.Ct. 2461, 61 L.Ed.2d 54, distinguished. Respondents cannot claim that the Commission made no provision for individual determinations under its abandonment procedures where appropriate, since Order No. 451 authorizes a purchaser objecting to a given abandonment on the grounds that the conditions the agency has set forth have not been met to file a complaint with the Commission. Pp. 226-229.

(c) The Court of Appeals erred in ruling that the Commission had a duty to address the take-or-pay problem more fully in this proceeding. The court clearly overshot its mark if it meant to order the Commission to resolve the problem, since an agency enjoys broad discretion in determining how best to handle related yet discrete issues in terms of procedures, and it is likely that the Commission's separate proceeding addressing the matter will generate relevant data more effectively. The court likewise erred if it meant that the Commission should have addressed the take-or-pay problem insofar as Order No. 451 "exacerbated" it, since an agency need not solve every problem before it in the same proceeding, and the Commission has articulated rational grounds for concluding that the order would do more to ameliorate the problem than worsen it. This Court is neither inclined nor prepared to second-guess the Commission's reasoned determination in this complex area. Pp. 229-231.

885 F.2d 209 (CA 5 1989), reversed.

WHITE, J., delivered the opinion of the Court, in which all other Members joined, except KENNEDY, J., who took no part in the decision of the case.

Edwin S. Kneedler, for federal petitioner.

Rex E. Lee, for private petitioners.

Roberta Lee Halladay, for respondents.

Justice WHITE delivered the opinion of the Court.


This work is in the public domain in the United States because it is a work of the United States federal government (see 17 U.S.C. 105).