Mobil Oil Exploration & Producing Southeast, Inc. v. United Distribution Cos.
Headline: Major gas-market ruling upholds FERC’s orders setting a single national ceiling for old gas and allowing conditional preauthorized abandonments, shifting how producers, pipelines, and consumers negotiate prices nationwide.
Holding:
- Allows producers to seek higher old-gas ceiling prices under FERC rules.
- Requires pipelines and buyers to follow Good Faith Negotiation before price changes.
- May release old gas reserves, lowering new-gas prices and changing take-or-pay exposure.
Summary
Background
These cases concern two FERC orders (No. 451 and No. 451-A) that changed national natural gas rules. FERC collapsed many old “vintage” price categories into one ceiling (about $2.57 per million Btu when set), created a “Good Faith Negotiation” (GFN) process for renegotiating contracts, and allowed producers to abandon contracts under certain conditions. A divided Fifth Circuit panel vacated the orders, and the Supreme Court agreed to review that decision.
Reasoning
The Court asked whether the Natural Gas Policy Act gave FERC authority to set a single ceiling for old gas and to authorize the GFN and conditional abandonment procedures. The Court held that the statute’s language plainly allows the Commission to prescribe ceiling prices “for any natural gas (or category thereof),” and that the statutory requirement that prices be “just and reasonable” leaves substantial flexibility. The Court also found that FERC’s GFN and preauthorized abandonment rules satisfy the Act’s hearing and “permission” requirements because general rulemaking and the agency’s hearings were adequate here.
Real world impact
The decision lets FERC’s pricing and negotiation rules stand. Producers may seek higher ceiling-based prices, and purchasers must use the GFN process before certain contract changes take effect. FERC concluded the changes would release old gas reserves and could lower new-gas prices; affected parties may still ask FERC for further rulemaking on related take-or-pay issues.
Dissents or concurrances
The Fifth Circuit was divided below; its majority invalidated the orders while a dissent urged deference to the agency. Justice Kennedy did not participate in this Supreme Court decision.
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