Mitchell Energy Corporation, Petitioner, v. Federal Energy Regulatory Commission, Respondent, 662 F.2d 1111 (5th Cir. 1980)

Mitchell Energy Corporation petitions for review of an order of the Federal Energy Regulatory Commission¹  directing Mitchell to refund more than $9 million allegedly collected in excess of legally authorized rates. This is the fourth time that a circuit court has been asked to review a Commission order arising from the facts of this case. Most recently, in Mitchell Energy Corporation v. FERC, 580 F.2d 763 (5th Cir. 1978) (hereinafter Mitchell I), this court reviewed a similar refund order of the Commission and found it necessary to remand the case back to that agency for further proceedings where the Commission had improperly used evidentiary standards applicable to a special rate case. We now review the Commission's order promulgated following remand and conclude that the Commission acted within its discretion in ordering and computing Mitchell's refund obligation and that such was adequately explained and justified in the Commission's order of August 8, 1980.

FACTS

This proceeding began in August, 1972, when Mitchell, a producer of natural gas, filed a petition seeking special relief from applicable area rates established in Opinion No. 607, Opinion and Order Determining Just and Reasonable Rates for Natural Gas Produced in Other Southwest Area (OSWA rates), 46 FPC 900 (1971), on rehearing, Opinion No. 607-A, 47 FPC 99 (1972), aff'd sub nom., Shell Oil Co. v. FPC, 484 F.2d 469 (5th Cir. 1973), cert. denied sub nom., Mobil Oil Corp. v. FPC, 417 U.S. 973, 94 S. Ct. 3180, 41 L. Ed. 2d 1144 (1974). In its petition, Mitchell sought to increase its rates charged for natural gas sales from its Boonesville Bend Field in Wise County, Texas from a "weighted average" rate of 18.859 cents per Mcf to 30.25 cents per Mcf.²  Hearings on the petition for special relief were halted by a settlement agreement, approved by all parties, which was adopted by the Commission in Opinion No. 649, Opinion and Order Granting Special Relief and Terminating Proceedings, 49 FPC 424 (1973). The settlement agreement provided Mitchell with the higher rate it sought in its petition in exchange for its agreement to drill at least 125 additional wells in the Wise County area and expend some $16.5 million in the United States on various drilling activities. The settlement agreement further provided that every five years, beginning in 1977, there would be an automatic price increase of 1 cent per Mcf and a redetermination of the 30 cent base rate.

Intervenors sought review of the order granting special relief in the United States Court of Appeals for the District of Columbia Circuit, and the case was remanded for consideration of additional evidence concerning Mitchell's costs and profits under the special rate. MacDonald v. FPC, 505 F.2d 355 (D.C. Cir. 1974). Following the remand and while the Commission was considering Mitchell's cost evidence with respect to the special relief issues, Opinion Nos. 699³  and 749⁴  were issued by the Commission. These opinions increased the prevailing area rates for new gas and flowing gas to 50 cents per Mcf and 23.5 cents per Mcf, respectively. Because the area and national rates now exceeded the special relief rate, Mitchell requested the Commission to permit it to withdraw its petition for special relief and effectuate the area rate which was applicable nationwide to producers of similar natural gas.⁵  The Commission granted Mitchell's request,⁶  but set for hearing the question of Mitchell's obligation, if any, to refund amounts collected pursuant to the special relief granted by Opinion No. 649.

At the hearing on the refund question, the ALJ used evidentiary standards proposed in MacDonald (the prior special rate case) to determine if Mitchell was entitled to charge the 30.25 cent rate authorized in Opinion 649 or was obligated to refund any amount in excess of a just and reasonable rate. The ALJ concluded that Mitchell should refund all amounts collected pursuant to the special relief order in excess of amounts Mitchell could have collected absent the special relief order. The Commission adopted the conclusion of the ALJ and denied rehearing.

On appeal, this Court found that the Commission had "erred in treating the evidentiary requirements set out in MacDonald as controlling" and remanded the case. Mitchell I, supra.

Upon remand, the Commission provided the parties further opportunity to comment on "the appropriate steps to be taken by the Commission in light of the opinion of the Fifth Circuit." Mitchell responded requesting a hearing in the event the Commission decided to apply an evidentiary standard other than the one proposed by Mitchell requiring examination of Mitchell's individual costs. On August 8, 1980, the Commission ordered Mitchell to refund all amounts collected under the special rates which exceeded the appropriate area and national rate applicable during the "locked-in" period.⁷  From an order denying rehearing, Mitchell appeals to this Court.

ISSUES

Mitchell raises three primary contentions, the first two of which concern the Commission's decision to order refunds and the third which concerns the Commission's computation of the refund obligation. First, Mitchell contends that the Commission erred in failing to follow this Court's mandate in Mitchell I because it refused to consider Mitchell's actual costs of production in determining if a refund was due. Second, Mitchell argues that the Commission abused its discretion by failing to give due weight to the equitable factors in this case which compel the waiver of any refund obligation. Finally, Mitchell contends that the Commission erred in refusing to adopt 23.5 cents per Mcf as a refund floor for the purpose of computing the extent of Mitchell's refund obligation.

THE REFUND OBLIGATION

Mitchell's first contention is based upon their reading of this court's previous decision in Mitchell I. A true reading of that case, however, reveals that the court was primarily concerned with the ALJ's use of the MacDonald special relief standards to determine if Mitchell's charges had been just and reasonable when "ordinar(y)" evidentiary standards for determining just and reasonable rates were applicable.⁸  In Mitchell I the court, without stating the particular standards, remanded the case to the Commission to apply "evidentiary standards by which just and reasonable rates and refund obligations ordinarily are determined." 580 F.2d at 765 (5th Cir. 1978). The Commission interpreted the court's order to require them to apply the just and reasonable area rate in effect during the locked-in period to determine Mitchell's refund obligation. Mitchell read the order to require the Commission to consider their individual cost evidence or "explain the reason for its departure." Under either reading of the court's order, however, we find that the Commission was within its discretion to order Mitchell to refund the excess over the just and reasonable area rates it received under the special pricing request it chose to withdraw. Furthermore, the reasons set forth in the Commission's order indicate that the Commission did not abuse its discretion in considering the equitable factors which Mitchell contends compel the waiver of any refund obligation.

As the Commission stated in its order and as the facts of this case reveal, Mitchell, in 1972, on its own initiative, applied to the Commission seeking special relief from the OSWA rates applicable to natural gas producers. It entered into an agreement in which it pledged to perform certain drilling activities, and accordingly, the Commission granted Mitchell the special relief which permitted it to charge higher prices for its gas than other producers. After area and national rates increased and the agreement granting special relief was no longer economical to Mitchell, and before Mitchell had completed the drilling activities it undertook to perform, it sought to escape from the agreement. In order to do so, Mitchell voluntarily withdrew its petition for special relief whereupon it was then permitted to charge higher rates under the newly established area and national rates. Because Mitchell chose to withdraw its special rate request, the Commission elected to treat Mitchell as it had treated other Southwest area producers; the Commission permitted Mitchell to receive the same revenues it would have received had it been charging the just and reasonable area rates which other Southwest area producers were permitted to charge during the locked-in period. The Commission stated in its order that "(a) producer's refund obligation is ordinarily the difference between the rate collected and the applicable just and reasonable rate." In this case, Mitchell was ordered to refund the difference between the special rate it charged and the just and reasonable area or national rate it could have charged had it never applied for special relief.

To excuse Mitchell from any refund obligation would permit it to obtain "dual" benefits. Mitchell would receive the benefit of the special relief settlement rate when such rate exceeded the OSWA rate and, when the OSWA rate surpassed the special relief rate, Mitchell could abrogate its special relief settlement agreement and charge its customers according to the area rates. A similar "dual" benefit concept was rejected in part in Mitchell Energy Corporation v. FPC, 519 F.2d 36 (5th Cir. 1975).⁹  Under these circumstances, it is apparent that the Commission was within its discretion to act as it did. Whatever variation, if any,¹⁰  by the Commission from the "evidentiary standards by which just and reasonable rates and refund obligations ordinarily are determined" was adequately justified and explained on remand.¹¹ 

THE REFUND FLOOR

Having found that the Commission was within its discretion to require Mitchell to refund the excess of the special rates it collected over the applicable just and reasonable area rates, the question arises as to the proper refund floor which should be used in calculating Mitchell's obligation. Mitchell contends that, if refunds are to be imposed, the Commission should recognize the Opinion No. 749 rate (23.5 cents per Mcf with respect to flowing gas) as a refund floor. Opinion No. 749 became effective July 1, 1976; prior to its enactment, the rate charged for flowing gas was 18.5 cents per Mcf as established in Opinion No. 607. Mitchell reads one provision of Opinion No. 749 as authorizing the application of the rates established within it to operate as a floor for all refund obligations arising after its enactment. We do not read Opinion No. 749 as authorizing the retroactive application of the 23.5 cent rate for flowing gas and accordingly, we shall respect the Commission's interpretation of the effect of Opinion No. 749 on the computation of refunds during the time period in which Opinion No. 607 rates were applicable. See South States Oil & Gas Company v. FERC, 653 F.2d 1052 (5th Cir. 1981). As the Commission stated, it would be inconsistent with their determination that Mitchell should be treated as all other Southwest producers if anything other than the area rate applicable during the locked-in period was used to compute Mitchell's refund obligation. Therefore, we must dismiss Mitchell's final claim.

AFFIRMED.