ARCO OIL AND GAS COMPANY, PETITIONER V. WILLISTON BASIN INTERSTATE PIPELINE CO., ET AL. No. 87-502 In The Supreme Court Of The United States October Term, 1987 On Petition For A Writ Of Certiorari To The United States Court Of Appeals For The District Of Columbia Circuit Brief For The Federal Energy Regulatory Commission In Opposition TABLE OF CONTENTS Question Presented Opinions below Jurisdiction Statement Argument Conclusion OPINIONS BELOW The opinion of the court of appeals (Pet. App. 1a-13a) is reported at 816 F.2d 777. The opinion of the Federal Energy Regulatory Commission (Pet. App. 14a-19a) is reported at 25 F.E.R.C. Paragraph 61,047 and F.E.R.C. Stats. & Regs. Paragraph 30,505. The Commission's order denying rehearing (Pet. App. 20a-28a) is reported at 33 F.E.R.C. Paragraph 61,175. JURISDICTION The judgment of the court of appeals (Pet. App. 78a-79a) was entered on April 24, 1987. A petition for rehearing with a suggestion of rehearing en banc was denied on June 30, 1987 (Pet. App. 80a, 81a). The petition for a writ of certiorari was filed on September 28, 1987. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). QUESTION PRESENTED Whether Section 503 of the Natural Gas Policy Act of 1978, 15 U.S.C. 3413, bars judicial review of the Federal Energy Regulatory Commission's affirmance of a recommendation, made by the local agency with regulatory jurisdiction over the production of natural gas, that certain geological formations consists of tightly compressed rock, thereby permitting the gas produced from those formations to qualify in certain circumstances for high incentive pricing under the Act. STATEMENT 1. The Natural Gas Policy Act of 1978 (NGPA), 15 U.S.C. 3301 et seq., provides financial incentives for the production of certain categories of natural gas by allowing its sale at higher prices. The eligible categories include "new natural gas," "Outer Continental Shelf gas," "new onshore production well" gas, "stripper well natural gas," and "high-cost natural gas" (see 15 U.S.C. 3312(c) and (d), 3318(b), 3317(c)). Section 503 of NGPA establishes the procedure for determining whether specific gas falls within one of these categories (15 U.S.C. 3413). Under Section 503, a seller of natural gas must first obtain the approval of the "local jurisdictional agency" of a sale at a higher incentive price. The "local jurisdictional agency" is the "Federal or State agency having regulatory jurisdiction with respect to the production of natural gas" (15 U.S.C. 3413(c)(1)). The local jurisdictional agency's determination is reviewed by the Federal Energy Regulatory Commission (Commission), which is ultimately responsible for determining whether a higher price is permissible under the Act. Under Section 503(b)(4), judicial review of the Commission's decision is available only if the Commission reverses or remands the local agency's determination (15 U.S.C. 3413(b)(4)). 2. In 1980, the Commission promulgated a rule allowing for the sale of natural gas produced from tightly compressed rock ("tight formations") at a higher incentive price on the ground that such gas constitutes "high-cost natural gas," within the meaning of Section 107(c) of NGPA, 15 U.S.C. 3317(c). See 45 Fed. Reg. 56034 (1980) (codified at 18 C.F.R. 271.702); Pet. App. 29a-77a. The Commission's rule establishes a tow-stage process for determining whether a certain quantity of gas was produced from a tight formation and is therefore entitled to incentive pricing. Under the rule, the Commission first determines whether a particular geological formation constitutes a "tight formation." The Commission's decision is based on its review of a recommendation submitted by the local jurisdictional agency. If the Commission determines that a particular formation satisfies the relevant criteria, it amends its regulations to include that formation in its register of tight formations. See 18 C.F.R. 271.703; Pet. App. 60a-61a, 73a. The second stage occurs when a producer seeks to certify a particular well as having been-properly drilled into a registered tight formation. Pet. App. 35a-36a. 3. In October 1982, the Bureau of Land Management (BLM) of the Department of the Interior submitted to the Commission its recommendation that certain geological formations from which petitioners ARCO Gas and Oil Company (ARCO) produced gas for sale to respondent Williston Basin Interstate Pipeline Company (Williston) should be registered as tight formations. BLM is the local jurisdictional agency for the gas because the gas underlies federal lands. Respondent Williston opposed BLM's recommendation. In October 1983, the Commission formally adopted BLM's recommendation and amended its regulations to add the formations to its register. Pet. App. 14a-19a. The Commission subsequently denied a petition for rehearing filed by respondent Williston (id. at 20a-28a). Respondent Williston filed a petition for review of the Commission's order with the United States Court of Appeals for the District of Columbia Circuit, which dismissed the petition for lack of jurisdiction (Pet. App. 1a-13a). The court of appeals concluded (id. at 12a-13a) that Section 503(b)(4) of NGPA precluded judicial review because the Commission had affirmed the local jurisdictional agency's (BLM's) recommendation that the geologic formations in question be registered as tight formations. The court rejected the argument, made by all of the parties (including the Commission), that Section 503(b)(4) did not apply because the Commission had made its decision pursuant to its general rulemaking authority under Section 501 of NGPA, 15 U.S.C. 3411. According to the court (Pet. App. 12a (footnote omitted)), "Congress clearly intended that these designations would be made through the procedural scheme it enacted for that specific purpose, and section 503 was that scheme. FERC therefore may not avoid section 503's rules governing judicial review by relying on its section 501 rulemaking authority." The court expressly declined (Pet. App. 12a n.36) "to determine whether the procedure that FERC actually substituted for the statutory procedure is in any way defective except insofar as it purports to culminate in an order reviewable in court." ARGUMENT Although the Commission agrees with petitioner that the decision of the court of appeals is incorrect, /1/ the Commission believes that further review is not warranted because the decision is of little legal or practical moment. The Commission's authority to implement Section 107 of NGPA, 15 U.S.C. 3317, remains virtually intact, the validity of prior Commission decisions is not cast into doubt, and the same jurisdictional issue should not recur in future cases because the Commission has since modified its regulatory procedures prospectively in a manner consistent with the court of appeals' decision. 1. Contrary to petitioner's claim (Pet. 14, 18), the court of appeals' decision does not circumscribe the Commission's statutory authority to implement Section 107 or any other provision of NGPA. The court expressly stated (Pet. App. 12a n.36) that it was not determining "whether the procedure that FERC actually substituted for the statutory procedure is in any way defective except insofar as it purports to culminate in an order reviewable in court." The court of appeals has, moreover, subsequently applied its ruling in this case narrowly. In Midwest Gas Users Ass'n v. FERC, No. 86-1140 (D.C. Cir. Nov. 17, 1987), the court rejected a challenge to its jurisdiction to review a Commission determination that certain gas qualified for incentive pricing under Section 107(c)(5), 15 U.S.C. 3317(c)(5). The court held (slip op. 17) that it had jurisdiction in Midwest Gas because the underlying legal issue in that case, unlike the issue in this case, "d(id) not involve (a Section) 503 judicial review of any determination as to the propriety of a designation of tight formation gas." /2/ The court of appeals did not question the Commission's broad rulemaking authority under Section 107. Indeed, the court commented (Midwest Gas, slip op. 23) on how "(i)n the case of Section 107((c))(5) gas * * * Congress left it entirely to FERC to determine both the qualifications for eligibility and prices that could be charged." For this reason, petitioner's contention (Pet. 19-22) that the decision of the court of appeals in this case conflicts with decision of other courts of appeals that have upheld the Commission's broad rulemaking authority is also without merit. The District of Columbia Circuit has not significantly undercut the Commission's rulemaking authority and, as petitioners acknowledge (Pet. 18, 19 n.29), the jurisdictional question decided in this case was not raised in any of those other cases. /3/ 2. The court of appeal's narrow holding is also of little legal or practical moment because the Commission has since modified its regulations prospectively so as to apply Section 503 procedures to a local jurisdictional agency's recommendation whether a particular geologic formation should be designated a "tight formation" (see 52 Fed. Reg. 29003 (1987)). /4/ As a result of that regulatory change, Section 503 will preclude judicial review of any future Commission decision to affirm a local jurisdictional agency's recommendation (52 Fed. Reg. 29003 (1987)). Hence, the controversy presented in this case -- whether the Commission can avoid that result by relying on its rulemaking authority under Section 501 of NGPA -- will not recur in future cases. /5/ Contrary to petitioner's suggestion (Pet. 24), no serious claim can be maintained that the Commission lacks authority to promulgate these new regulations. But, in any event, the validity of the new regulations is a matter to be litigated, if at all, in a future case and therefore does not provide a reason for further review now. 3. Finally, review is not warranted on the ground that "(t)he holding below also has generated uncertainty, and questions as to retroactive application of the holding and as to the status of tight formation designation orders issued prior to July 29, 1987" (Pet. 25). In the vast majority of those prior cases, the Commission, as in this case, affirmed the local jurisdictional agency determinations. No party sought judicial review in any of those cases and therefore the issue whether a court of appeals would have had jurisdiction over the case had such review been sought is wholly theoretical. In any event, the time for seeking such further review has long since ended (see 15 U.S.C. 3416(a)(4)), and those prior decisions may not now be reopened. CONCLUSION The petition for a writ of certiorari should be denied. Respectfully submitted, CHARLES FRIED Solicitor General CATHERINE C. COOK General Counsel JEROME M. FEIT Solicitor JOHN H. CONWAY Attorney Federal Energy Regulatory Commission DECEMBER 1987 /1/ Because we believe that this Court's review is not warranted regardless of the correctness of the decision below, we do not address the merits of the jurisdictional issue in this submission. Our view of the merits, however, is similiar to that advanced by petitioner (see Pet. 10-17). /2/ As described by the court of appeals in Midwest Gas (slip op. 17), the issue in that case was "whether the parties satisfied the additional and distinct requirement for special incentive prices, imposed by (FERC) Order No. 99, of a negotiated contract price." /3/ Respondent Williston argues (Br. 12-17) that the Court should grant review to consider on the merits its argument that the Commission's decision to affirm BLM's recommendation was arbitrary and capricious. The court of appeals, however, did not address that issue and the petition presents only the threshold jurisdictional issue. Nor does this case present the issue whether the court of appeals' decision mandates the invalidation of the "tight formation" designations made by the Commission in this case. That issue is the subject of subsequently-filed litigation (by Williston) now pending before a federal district court. See Williston Basin Interstate Pipeline Co. & MDU Resources Group, Inc. v. Burford, No. 87-1757 (D.D.C. filed June 29, 1987). /4/ The Commission has also applied Section 503 procedures in cases now pending before it. See Texas Railroad Comm'n, 40 F.E.R.C. Paragraph 61,100, remanded, 41 F.E.R.C. Paragraph 61,213 (1987); Oklahoma Corp. Comm'n, 40 F.E.R.C. Paragraph 61,102, rev'd in part, 41 F.E.R.C. Paragraph 61,214, aff'd in part, 41 F.E.R.C. Paragraph 61,215 (1987); Colorado Oil & Gas Corp., 40 F.E.R.C. Paragraph 61,101 (1987). /5/ In any event, there are likely to be few designations of "tight formation" gas in the future. Because there are only a limited number of tight formations in the United States, the number of requests for designations has steadily decreased over the last several years. The Commission has processed 240 local jurisdictional agency recommendations since it promulgated its "tight formation" rule in 1980, with the vast majority of those recommendations occurring during the first five years. In 1985 and 1986, the Commission received only seven and two recommendations, respectively. The Commission has received only one recommendation so far in 1987.