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U.S. Supreme Court

FERC v. Martin Exploration Mgmt. Co., 486 U.S. 204 (1988)

FERC v. Martin Exploration Management Co.

No. 87-363

Argued March 28, 1988

Decided May 31, 1988

486 U.S. 204


To cover the situation of overlapping provisions of the Natural Gas Policy Act of 1978 fixing price ceilings for sales of various categories of natural gas and providing for phased deregulation, § 101(b)(5) of the Act states that, if any natural gas qualifies under more than one provision providing for any maximum lawful price or for any exemption from such a price with respect to certain sales of gas, "the provision which could result in the highest price shall be applicable." The Federal Energy Regulatory Commission (FERC) promulgated a regulation interpreting § 101(b)(5) (and § 121, which relates to phased deregulation) to mean that any gas that is qualified for both deregulated and regulated treatment would be treated as deregulated. The regulation adversely affected gas producers who had entered into long-term contracts that had one clause setting the price (near the price ceiling) if the gas were regulated and another clause setting the price (on the basis of market price, or calling for renegotiation) if the gas were deregulated. Because the market price of natural gas had plunged below the regulated price ceilings, such producers stood to reap higher contractual prices if their gas was regulated than if it was deregulated. Numerous producers petitioned for review of FERC's regulation. The Court of Appeals rejected FERC's interpretation and adopted the producers' position that § 101(b)(5) unambiguously requires the applicable category to be that which, at any particular moment, garners the producer the highest contract price for its gas. In explaining this holding, the Court of Appeals also rejected FERC's ruling that certain "new tight formation gas" subject to regulation under § 107(c)(5) is automatically qualified for deregulation as new gas under §§ 102(c) or 103.


1. The Court of Appeals erred in rejecting FERC's interpretation of § 101(b)(5). The statute's plain meaning governs. It provides for the applicability of the overlapping provision that "could" result in the highest chanroblesvirtualawlibrary

Page 486 U. S. 205

price, not that provision which "will" (depending on actual contracts and daily market prices) result in the highest price for each producer. Section 101(b)(5)'s words call for a simple comparison between the highest price permitted by one provision and the highest price permitted by another: the higher the price ceiling, the higher the price that "could" result under the provision. When one of the provisions sets no price ceiling at all -- i.e., it deregulates -- that provision governs. The court erred in concluding that reading the word "could" with its ordinary conditional meaning makes so little sense that it must be converted to the word "will." The statute does not mean to refer to particular contracts, but rather to the generic situation of parties in a precontract state: the provision that allows the parties to contract to the highest conceivable price applies. The statute calls for a comparison of statutory provisions, not contractual ones, and nothing in the statute or legislative history suggests that Congress wanted the classification of gas to turn on contractual terms. Moreover, the Court of Appeals' reading is contrary to the whole thrust of the Act, for it has the effect of turning a statutory scheme of price ceilings and deregulation into a system of price supports for producers. It also creates a chaotic scheme wherein the applicable provision for a particular type of gas varies depending on the producer, the contract, and the current market price. Pp. 486 U. S. 209-211.

2. The Court of Appeals also erred in overturning FERC's ruling that certain gas qualified as "new tight formation gas" subject to regulation under § 107(c)(5) of the Act is automatically qualified as deregulated "new" gas under §§ 102(c) or 103. Section 107(c)(5) gives FERC authority to make eligible, for special high-cost gas pricing, natural gas "produced under such . . . conditions as [FERC] determines to present extraordinary risks or costs." There is nothing objectionable about FERC's ruling, which merely recognizes that certain "new tight formation gas" -- which requires the producer to file the same information (in addition to other information) that would be filed to qualify under either § 102(c) or § 103 -- is a subset of deregulated "new" gas under the latter sections. The Court of Appeals' contrary conclusion was based on its reading of § 101(b)(5), rejected above, and its erroneous interpretation of certain portions of the legislative history. Nor does FERC's rule intrude on the jurisdiction of other state and federal agencies to make category determinations under § 503. FERC has made no category determinations, but has merely promulgated, pursuant to its ample authority, a definitional rule applicable in determination proceedings. Pp. 486 U. S. 211-213.

813 F.2d 1059, reversed. chanroblesvirtualawlibrary

Page 486 U. S. 206

BRENNAN, J., delivered the opinion of the Court, in which all other Members joined, except WHITE, J., who took no part in the consideration or decision of the cases.

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