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Gulf Oil Corp. v. Federal Energy Regulatory Commission

decided: April 21, 1983.

GULF OIL CORPORATION, PETITIONER IN NO. 82-3035,
v.
FEDERAL ENERGY REGULATORY COMMISSION, RESPONDENT, PHILADELPHIA GAS WORKS, PUBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK, CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., PUBLIC SERVICE ELECTRIC AND GAS COMPANY, NEW JERSEY NATURAL GAS COMPANY, WASHINGTON URBAN LEAGUE, THE BROOKLYN UNION GAS COMPANY, TEXAS EASTERN TRANSMISSION CORPORATION, INTERVENORS; GULF OIL CORPORATION, PETITIONER IN NO. 82-3132, V. FEDERAL ENERGY REGULATORY COMMISSION, RESPONDENT, PHILADELPHIA GAS WORKS, PUBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK, WASHINGTON URBAN LEAGUE, AND TEXAS EASTERN TRANSMISSION CORPORATION, INTERVENORS; WASHINGTON URBAN LEAGUE, PETITIONER IN NO. 82-3137, V. FEDERAL ENERGY REGULATORY COMMISSION, RESPONDENT, PHILADELPHIA GAS WORKS, PUBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK, PUBLIC SERVICE ELECTRIC AND GAS COMPANY, TEXAS EASTERN TRANSMISSION CORPORATION, AND GULF OIL CORPORATION, INTERVENORS; THE PUBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK, PETITIONER IN NO. 82-3166, V. FEDERAL ENERGY REGULATORY COMMISSION, RESPONDENT, GULF OIL CORPORATION, PUBLIC SERVICE ELECTRIC AND GAS COMPANY, TEXAS EASTERN TRANSMISSION CORPORATION, INTERVENORS, THE BROOKLYN UNION GAS COMPANY, INTERVENOR; PHILADELPHIA GAS WORKS, PETITIONER IN NO. 82-3167, V. FEDERAL ENERGY REGULATORY COMMISSION, RESPONDENT, GULF OIL CORPORATION, TEXAS EASTERN TRANSMISSION CORPORATION, INTERVENORS, THE BROOKLYN UNION GAS COMPANY, INTERVENOR; GULF OIL CORPORATION, PETITIONER IN NO. 82-3242 V. FEDERAL ENERGY REGULATORY COMMISSION, RESPONDENT, PUBLIC SERVICE ELECTRIC AND GAS COMPANY, TEXAS EASTERN TRANSMISSION CORPORATION, INTERVENORS, WASHINGTON URBAN LEAGUE, INTERVENOR



PETITION FOR REVIEW FEDERAL ENERGY REGULATORY COMMISSION.

Aldisert, Gibbons and Higginbotham, Circuit Judges

Author: Higginbotham

Opinion OF THE COURT

A. LEON HIGGINBOTHAM, JR., Circuit Judge.

This appeal challenges six separate orders of the Federal Energy Regulatory Commission ("FERC" or "the Commission").*fn1 The litigation stems from the failure of the Gulf Oil Corporation ("Gulf") to deliver specified daily quantities of gas to Texas Eastern Transmission Corporation ("Texas Eastern") pursuant to the requirement of a 1963 contract and a certificate of convenience and necessity. In Gulf Oil Corp. v. Federal Power Commission, 563 F.2d 588 (3d Cir. 1977), cert. denied, 434 U.S. 1062, 55 L. Ed. 2d 762, 98 S. Ct. 1235 (1978) ("Gulf Oil I"),*fn2 this court affirmed a 1976 Commission order holding that Gulf had not complied with its certificate and contract obligations involving gas delivery as well as establishing daily warranty requirements and imposing refund-recoupment duties. The court left to the Commission's determination the details of the refund-recoupment payment plan. In conducting this subsequent proceeding, the Commission bifurcated the case into (a) those issues relating to the mechanics of the refund-recoupment; and (b) those issues concerning force majeure. There are three issues on appeal here. They are: (1) whether the Commission properly fashioned the refund-recoupment payment plan by ordering Gulf to pay into an escrow fund the amount due with interest for past underdeliveries of gas through December 15, 1976.*fn3 (2) whether the Commission erred as a matter of law in its findings that approved Gulf's claims that certain volumes of gas could be attributed to force majeure and thereby reduce its refund payment;*fn4 and (3) whether the Commission properly granted standing to the Washington Urban League ("WUL"), as an intervenor, to seek rehearing of the Commission's orders on the refund payment plan.*fn5 Gulf urges that the Commission's orders regarding the refund-recoupment payment be set aside. Several intervening parties urge with the FERC that the orders be affirmed. In the force majeure portion of the proceeding, Gulf as an intervenor joins the FERC and urges that the Commission's order be enforced in full. The petitioners, the Public Service Commission of New York ("PSCNY") and the Philadelphia Gas Works ("PGW"), oppose the Commission's order. The final petition for review is brought by Gulf Oil in opposition to FERC order granting standing to the Washington Urban League ("WUL"), an intervenor, to seek rehearing of the Commission's refund payment orders. Finding no merit in petitioner's challenges to the refund-recoupment payment plan and to the WUL's standing,*fn6 we will deny these petitions to set aside the Commission's orders. We will grant the petition to set aside the Commission's order on the force majeure issue, and address that single issue in this opinion.

I.

A. Gulf Oil I.

The present case relates to earlier litigation between the Gulf Oil Company and the FERC. Section 7(c) of the Natural Gas Act of 1938, 15 U.S.C. ยง 717(c)(1970), gives the Commission supervisory power over the sale of natural gas. The Commission executes these duties in part by issuing a certificate of "convenience and necessity" to the seller. In 1963, Gulf Oil applied for such a certificate to distribute gas to Texas Eastern for a twenty-six year period. The certificate that FERC issued to Gulf mirrored the contract terms between Gulf and Texas Eastern.

In 1975, the Commission initiated a show cause order against Gulf for alleged contract violations and against Texas Eastern because it had not submitted a complaint to the agency about the violations. Gulf's failure to meet contract requirements goes back to 1971, when Gulf applied to the Commission to amend its certificate because it had mistakenly estimated the supply of one of its reserve fields.*fn7 Gulf's deliveries to Texas Eastern fell short of Texas Eastern's demands beginning in 1973; beginning in 1974, Gulf's deliveries fell short of the contract specified quantities. The Commission held that Gulf failed to comply with both its certificate of operation and its 1963 contract obligation with Texas Eastern. (FERC Opinions No. 780, I App.-B, p. 60-81, No. 780-A, p. 82-102). The Commission ordered Gulf to deliver a maximum of 625 Million cubic feet ("Mmcf") daily and it prescribed a "refund-recoupment" formula for reimbursement to Texas Eastern and its customers for the undelivered volumes of gas. The formula included an offset to the refund-recoupment up to the allowable force majeure volumes as provided in Article X of the contract.*fn8

Gulf Oil appealed the Commission's opinions and this court affirmed them in their entirety in Gulf Oil I. We therefore made several determinations which are binding in the instant case. First, Gulf Oil I settled the dispute of daily contract requirements. The court required Gulf to deliver daily a minimum of 500 Mmcf and a maximum of 625 Mmcf, unless Texas Eastern demanded less, until the contract expired. Over the life of the contract, Gulf was to deliver to Texas Eastern a total of 4.4 Trillion cubic feet ("Tcf"). Secondly, the court expressly rejected Gulf's contention that the failure of the Department of Interior to hold offshore lease sales constituted force majeure which excused Gulf from meeting its required daily quantity. The court found that Gulf's mistaken estimate of the sources of gas supply, which increased the need for offshore leases, was not the type of mistake included in the force majeure clause. The court further determined that the Gulf contract was a warranty contract and not a contract conditioned on the supply of available gas. Finally, the court found that the Commission had proper authority to design a remedy of refunds and recoupment of refunds to Texas Eastern and its customers consisting of an amount of money equal to the deficiencies in the daily delivery obligations.

The Commission's order as affirmed by the court in Gulf Oil I required Gulf to file regular reports computing the refunds attributable to the underdeliveries. (I App. p. 77). The Commission also ordered Gulf to "recoup refunds" through surcharges when the volumes remaining to be delivered under the contract equaled the volumes of prior underdeliveries. (I App. p. 78). Gulf was directed to tender refund payments to Texas Eastern within 30 days after the Commission approved Gulf's computations. The Commission directed Texas Eastern to survey its customers and the affected state regulatory commissions and to file a plan for the flow through of Gulf's payments. (I App. p. 78). The Commission contemplated that further proceedings would be held as to the distribution of the refund payments and the calculation of those volumes attributable to force majeure. (I App. p. 90).

B. Later Commission Proceedings.

1. The Force Majeure Hearing.

The Commission's decision of January 17, 1979 ordered a formal hearing before an Administrative Law Judge (ALJ) to resolve specified issues involving force majeure. (II App. 1-9). The Commission's order directed the ALJ to determine the accuracy and reasonableness of allowable force majeure volumes as designated in Article X. The hearing afforded Gulf an opportunity to show force majeure events under the contract which would excuse its daily delivery obligations (II App. p. 7-8).

Gulf argued that its daily warranty obligation required it to have available a maximum of 625 Mmcf less force majeure volumes (II App. p. 23). Gulf supported this claim on the theory that in order to produce a daily maximum of 625 Mmcf, Gulf would have to obtain gas from the fields ordinarily relied upon in addition to the reserve fields. Consequently Gulf would have been required to use all of its fields to produce the daily quantity. Gulf contended that its existing source of supply was insufficient to meet this demand. Gulf did not show whether it had sufficient quantities of gas available from specific fields to meet even its minimum daily obligation of 500 Mmcf.

To prove its force majeure claims, Gulf produced the "downtime" reports that it prepared whenever a field was shut down for any amount of time. Gulf prepared these reports immediately following each such incident and regularly notified Texas Eastern of its occurrence. Gulf classified each downtime as a force majeure. A shutdown occurred routinely, almost daily. Gulf's testimony also showed the use of preventive maintenance techniques to minimize the loss of ...


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