MOBIL OIL EXPLORATION & PRODUCING SOUTHEAST, INC., ET AL.,
PETITIONERS V. UNITED DISTRIBUTION COMPANIES, ET AL.

   FEDERAL ENERGY REGULATORY COMMISSION, PETITIONER V. UNITED
DISTRIBUTION COMPANIES, ET AL.

   No. 89-1452, 89-1453

   In The Supreme Court Of The United States

   October Term, 1990

   On Writs Of Certiorari To The United States Court Of Appeals For
The Fifth Circuit

   Brief For The Federal Energy Regulatory Commission

                       PARTIES TO THE PROCEEDING

   The parties to the proceeding in No. 89-1452 are listed in the
appendix to the petition in that case at 76a-82a.  The petitioner in
No. 89-1453 is the Federal Energy Regulatory Commission.  The
respondents in that case are listed in the appendix to the petition at
83a-86a.

            TABLE OF CONTENTS
   Questions Presented
   Parties To The Proceeding
   Opinions below
   Jurisdiction
   Statutory and regulatory provisions involved
   Statement
      A. Historical background:  The course of wellhead
         price regulation
      B. The pricing scheme enacted in the NGPA
      C. Promulgation of Order No. 451
      D. The decision of the court of appeals
   Introduction and summary of argument
   Argument:
      I. The alternative price ceiling in Order No. 451 is
         fully consistent with the "just and reasonable"
         standard incorporated into Sections 104(b)(2)
         and 106(c) of the Natural Gas Policy Act of
         1978
         A. The NGPA expressly authorizes the Commission
            to adopt a "higher" ceiling price for old
            gas where, as here, that price is "just and
            reasonable"
         B. The settled judicial construction of the "just
            and reasonable" standard when it was incorporated
            into the Natural Gas Policy Act
            strongly supports the Commission's revision
            of the vintage pricing system for old gas
         C. The legislative history does not support the
            court of appeals' interpretation of Sections
            104 and 106
     II. The Commission was authorized by Section 7(b)
         of the Natural Gas Act to specify in Order No.
         451 the circumstances under which future
         abandonment of gas service is permitted
    III. The Commission was not required to implement
         a comprehensive solution to the "take-or-pay"
         problem in connection with Order No. 451 before
         raising the ceiling price for old gas
     IV. Congress's enactment of the Wellhead Decontrol
         Act confirms the soundness of Order No. 451
   Conclusion

                            OPINIONS BELOW

   The opinion of the court of appeals (Pet. App. 1a-60a) /1/ is
reported at 885 F.2d 209.  The orders of the Federal Energy Regulatory
Commission (J.A. 5-205 (Order No. 451), 206-435 (Order No. 451-A), and
437-467 (Order No. 451-B)) are reported at 51 Fed. Reg. 22,168;  51
Fed. Reg. 46,762;  and 52 Fed. Reg. 21,669, respectively.

                             JURISDICTION

   The judgment of the court of appeals was entered on September 15,
1989, and petitions for rehearing were denied on December 15, 1989.
Pet. App. 61a-62a.  The petitions for a writ of certiorari were filed
on March 15, 1990, and were granted on June 4, 1990.  The jurisdiction
of this Court rests upon 28 U.S.C. 1254(1).

             STATUTORY AND REGULATORY PROVISIONS INVOLVED

   Sections 4(a), 5(a) and 7(b) of the Natural Gas Act of 1938, 15
U.S.C. 717c(a), 717d(a) and 717f(b);  Sections 104 and 106 of the
Natural Gas Policy Act of 1978, 15 U.S.C. 3314 and 3316;  and 18
C.F.R. 157.301, 270.201, 271.402 and 271.602 (the regulations affected
by the Orders of the Federal Energy Regulatory Commission) are
reproduced in relevant part in an appendix to this brief.  App.,
infra, 1a-18a.

                          QUESTIONS PRESENTED

   1. Whether the Federal Energy Regulatory Commission lawfully
exercised its authority to raise the price ceiling for "old" natural
gas in conformity with the requirement in Sections 104(b)(2) and
106(c) of the Natural Gas Policy Act of 1978, 15 U.S.C. 3314(b)(2) and
3316(c), that the "higher" price be "just and reasonable within the
meaning of the Natural Gas Act."

   2. Whether Section 7(b) of the Natural Gas Act, 15 U.S.C. 717f(b),
permits the Commission to prescribe in advance and on a generic basis
the conditions under which the abandonment of services will be
authorized, rather than requiring case-by-case adjudication.

   3. Whether the court of appeals erred in holding that the
Commission could not adopt the orders at issue here (which increase
the price ceiling for old gas but establish a good faith negotiation
procedure to protect pipeline-purchasers against automatic imposition
of the increase) unless it first solved the problems created by
"take-or-pay" clauses in certain pipelines' natural gas contracts,
even though the Commission has addressed the "take-or-pay" problem in
separate administrative proceedings.

                               STATEMENT

   This case involves the validity of Order No. 451 of the Federal
Energy Regulatory Commission, which was issued in 1986 to address the
serious dislocations in the natural gas market that resulted from the
outdated pricing structure for "old" gas (gas that was already in
production on the date of enactment of the Natural Gas Policy Act of
1978 (NGPA), 15 U.S.C. 3301 et seq.).  Prior to Order No. 451, old gas
was divided into a number of categories ("vintages"), for which the
price ceiling varied according to such factors as the year production
commenced, the size of the producer, whether the gas was sold under a
renewal contract, and the region in which the gas was produced.  Order
No. 451 collapsed those diverse vintages into a single category
subject to a single price ceiling.  The Commission based its
modification of the old gas pricing structure on Sections 104(b)(2)
and 106(c) of the NGPA, which permit the Commission, "by rule or
order," to raise the ceiling price for "any" old gas to a "higher"
price, as long as it is "just and reasonable within the meaning of the
Natural Gas Act." 15 U.S.C. 3314(b)(2), 3316(c).  A divided court of
appeals in this case held that Order No. 451 was beyond the
Commission's authority under the NGPA, even though the court did not
disturb the Commission's judgment that the single price ceiling for
old gas was "just and reasonable" within the meaning of the Natural
Gas Act.

   A. Historical Background:  The Course of Wellhead Price Regulation

   1. Prior to enactment of the Natural Gas Policy Act of 1978, the
sale and transportation of natural gas in interstate commerce were
regulated by the Commission (and its predecessor, the Federal Power
Commission) exclusively under the Natural Gas Act of 1938.  Section
4(a) of the NGA imposes on the Commission an obligation to ensure that
all rates and charges requested by a regulated natural gas company in
connection with the transportation or sale of natural gas within the
Commission's jurisdiction are "just and reasonable." 15 U.S.C.
717c(a).  Section 5(a) of the NGA similarly provides that when the
Commission determines that any "rate, charge, or classification"
observed by a natural gas company in connection with the
transportation or sale of gas (or any "rule, regulation, practice, or
contract" affecting such rate, charge, or classification) is "unjust"
or "unreasonable," the Commission "shall determine the just and
reasonable rate, charge, classification, rule, regulation, practice,
or contract to be thereafter observed and in force, and shall fix the
same by order." 15 U.S.C. 717d(a).

   As this Court explained in Public Serv. Comm'n v. Mid-Louisiana Gas
Co., 463 U.S. 319, 327-331 (1983), the Commission, with the approval
of the courts, has followed a number of different approaches over the
years in giving content to the broad "just and reasonable" standard
under the NGA.  Initially, when the Commission confined its rate
regulation to interstate pipelines, it proceeded on a
company-by-company basis, studying the historical costs incurred by
each pipeline company in acquiring natural gas for, and transporting
gas to, its customers.  The Court sustained that approach in FPC v.
Hope Natural Gas Co., 320 U.S. 591 (1944), explaining that Sections 4
and 5 of the NGA do not bind the Commission "to the use of any single
formula or combination of formulae in determining rates," and that
"(u)nder the statutory standard of 'just and reasonable,' it is the
result reached not the method employed which is controlling." 320 U.S.
at 602.  The Court thus dispelled the notion, emanating from Smyth v.
Ames, 169 U.S. 466 (1898), that the only constitutionally permissible
rate structure is one based on the current fair value of the utility's
assets.  See Duquesne Light Co. v. Barasch, 109 S. Ct. 609, 616-620
1989).

   2. The Commission began to depart from its company-by-company,
historical-cost approach after Phillips Petroleum Co. v. Wisconsin,
347 U.S. 672 (1954), which held that the NGA requires the Commission
to regulate not only the downstream rates charged by interstate
pipelines, but also the upstream sales rates charged at the wellhead
by thousands of independent gas producers.  In response to Phillips,
and presented with an overwhelming number of producer rate cases to
process, the Commission turned to an "area rate" approach for
independent producers, while retaining the individualized
"cost-of-service" method of regulation for interstate pipelines.

   The area rate approach, as first articulated in 1960 in the
Commission's Statement of General Policy, No. 61-1, 24 F.P.C. 818,
provided for the establishment of a single rate schedule for all gas
produced in a given region, based on the region's average production
costs, investment, and rates of return.  Each area rate schedule
contained two separate price ceilings:  a lower ceiling for gas prices
established in "old" contracts and a higher ceiling for gas prices
established in "new" contracts.  Id. at 819.  The Commission rested
its two-tiered "vintage pricing" system on the premise that although
higher ceiling prices for new gas would encourage additional gas
production, "price could not serve as an incentive" for the production
of old gas and "any price above average historical costs, plus an
appropriate return, would merely confer windfalls." Permian Basin Area
Rate Cases, 390 U.S. 747, 797 (1968).  However, the Commission
anticipated that "these differences in price levels will be reduced
and eventually eliminated as subsequent experience brings about
revisions in the prices in the various areas." 24 F.P.C. at 819.

   In Permian Basin, the Court sustained the Commission's two-tiered
area rate approach.  390 U.S. at 795-799.  It held that the courts are
without authority to set aside any rate selected by the Commission
that is within a "zone of reasonableness," id. at 767, and that within
this zone, the Commission may "employ price functionally in order to
achieve relevant regulatory purposes" and "may, in particular, take
fully into account the probable consequences of a given price level
for future programs of exploration and production." Id. at 797.
Accord Mobil Oil Corp. v. FPC, 417 U.S. 283, 320 (1974).

   3. By the time of the rapid rise in natural gas prices during the
early 1970s, it had become clear that the two-tiered area rate
approach, based on average historical costs, "was not working" and
"had led to serious production shortages." Mid-Louisiana Gas, 463 U.S.
at 330.  In response, the Commission shifted to a regime of uniform
"national rates" for most gas drilled after December 31, 1972.  In
Order No. 699 (National Rates for Natural Gas, 51 F.P.C. 2212 (1974)),
the Commission established a national rate ceiling for gas drilled
during the two-year period beginning January 1, 1973, and announced
its intention to establish separate price ceilings for gas drilled
during each succeeding two-year period.  Soon thereafter, in a further
refinement of its national rate policy, the Commission "shift(ed) from
a pure historical-cost-based to an incentive-price-based approach" and
"temporarily abandon(ed) the practice of vintaging." Mid-Louisiana
Gas, 463 U.S. at 330 (citing National Rates for Natural Gas, 52 F.P.C.
1604, 1615-1618, 1636 (1974) (Order No. 699-H)).  Specifically, in
Order No. 699-H, the Commission:  (1) prescribed a national rate
designed to "encourag(e) increased future drilling efforts and the
discovery of incremental gas supplies to avert ever deepening natural
gas shortages," 52 F.P.C. at 1615, and (2) announced that the
Commission would not prescribe different rates for succeeding biennial
vintages (as it had recently stated in Order No. 699), but would
instead establish a single maximum rate for all post-1972 gas and
periodically revise that single rate.  Id. at 1636-1638.  The Fifth
Circuit sustained this shift, noting that the vintage rate structures
had been "experimental" from the outset.  Shell Oil Co. v. FPC, 520
F.2d 1061, 1073-1074, 1077-1078 (1975), cert. denied, 426 U.S. 941
(1976);  see also Shell Oil Co. v. FPC, 491 F.2d 82, 87-89 (1974).
/2/

   The Commission's non-vintage pricing regime for post-1972 gas
proved to be short-lived.  In Order No. 770 (National Rates for
Natural Gas, 56 F.P.C. 509 (1976)), the Commission established a new
(and substantially higher) national rate ceiling for gas first sold in
the 1975-1976 biennium, but it allowed only a smaller increase in the
ceiling prescribed by Order Nos. 699 and 699-H for 1973-1974 biennium
gas.  This reinstitution of vintage pricing for post-1972 gas was
sustained by the D.C. Circuit in American Public Gas Ass'n v. FPC, 567
F.2d 1016 (1977), cert. denied, 435 U.S. 907 (1978), which, like the
Fifth Circuit in Shell Oil, stressed the experimental nature of the
Commission's treatment of vintaging.  567 F.2d at 1033-1034.  The D.C.
Circuit also sustained the Commission's decision in Order No. 770 to
increase the price ceiling for gas covered by renewal contracts,
finding it appropriate to place a portion of the burden of developing
new sources of supply on the consumers whose access to this cheaper
gas was "largely an historical accident." Id. at 1058.

   At about the same time, the Commission consolidated a number of the
pre-1973 rates for each separate producing area into a single
nationwide category comprised of gas flowing prior to January 1, 1973.
 Order No. 749 (National Rates for Natural Gas, 54 F.P.C. 3090
(1975)).  The Fifth Circuit sustained the considerably higher price
ceiling that resulted for the oldest of this pre-1973 gas, finding it
to be justified by administrative convenience and the need to factor
in an allowance for the "replacement cost" of exploring for and
developing new sources of supply.  Tenneco Oil Co. v. FERC, 571 F.2d
834, 841-842, cert. denied, 439 U.S. 801 (1978).

   Despite this consolidation of the pre-1973 area rates, the
Commission's regulations in effect in the mid-1970s continued to
provide for a number of separate "vintage" categories of gas, each
subject to its own price ceiling.  The broadest categories were
pre-1973 ("flowing") gas, 1973-1974 biennium gas, and post-1974 gas.
/3/ But there were three additional categories of pre-1973 gas as
well, covering three of the producer areas (Permian Basin, Rocky
Mountain, and Appalachian Basin) for which price ceilings higher than
the new national ceiling had already been established in separate
proceedings.  See Tenneco Oil Co., 571 F.2d at 837.  The Commission
also had created a separate category for gas covered by renewal
contracts, discussed above.  And to complicate matters still further,
each of the foregoing categories (except post-1974 gas) was subdivided
into two subcategories, one for large producers and one for small
producers.  As of December 1978, the price ceilings for these 15
categories and subcategories ranged from a high of $1.630 per million
BTU's (for all post-1974 gas) to a low of $0.332 per million BTU's
(for large-producer pre-1973 gas).  See 18 C.F.R. 271.101 (Table II),
at 367 (1990).

   This, then, was the collection of price ceilings in effect when
Congress enacted the Natural Gas Policy Act of 1978.

   B. The Pricing Scheme Enacted In The NGPA

   The national rate approach, coupled with the Commission's
supervision of the complex set of vintage price ceilings, proved
inadequate to solve the problems besetting the production and
distribution of natural gas.  The rate structure caused ceiling prices
for interstate gas sales to fall considerably below prices the same
gas could command in the intrastate market, which was not federally
regulated.  The resulting price dichotomy soon resulted in severe gas
shortages in the interstate market.  Congress responded to this
situation by enacting the Natural Gas Policy Act.  See
Transcontinental Gas Pipe Line Corp. v. State Oil & Gas Bd., 474 U.S.
409, 420-421 (1986) (Transco);  Mid-Louisiana Gas, 463 U.S. at
330-331.

   The NGPA instituted a "national market price regulatory scheme,"
covering intrastate as well as interstate sales, the purpose of which
is "to assure adequate supplies of natural gas at fair prices."
Transco, 474 U.S. at 421.  The price ceilings established by the NGPA
depended primarily upon the date the gas was first produced and the
relative difficulty of producing it.  Thus, the NGPA established
higher ceiling prices for new or hard-to-produce gas and, at the same
time, prescribed a scheme of phased deregulation for most such gas.
Sections 102, 103, 105, 107, and 108 (15 U.S.C. 3312, 3313, 3315,
3317, 3318).  Under that scheme, "the price ceilings for certain
'high-cost' gas were eliminated in 1979, for certain 'old' intrastate
gas and 'new' gas in 1985, and for certain other 'new' gas in 1987."
FERC v. Martin Exploration Management Co., 486 U.S. 204, 207 (1988);
see Section 121, 15 U.S.C. 3331.

   The NGPA adopted a different approach for "old" gas and for certain
types of interstate gas subject to "rollover contracts." /4/ Sections
104 and 106, 15 U.S.C. 3314 and 3316, furnished initial NGPA price
ceilings for this gas by carrying forward the ceilings that previously
had been prescribed by the Commission under the NGA, but mandated that
those ceilings be automatically adjusted by a monthly inflation
factor.  15 U.S.C. 3314(b)(1), 3316(a).  The effect was to carry
forward (albeit adjusted for inflation) the same 15 vintage price
ceilings that happened to be in effect for old gas when the NGPA was
enacted.  Congress also recognized, however, that the price ceiling
for old gas "may be too low and authorize(d) the Commission to raise
it whenever traditional NGA principles would dictate a higher price."
Mid-Louisiana Gas, 463 U.S. at 333 (citing NGPA Sections 104 and 106).
 Specifically, Sections 104(b)(2) and 106(c) both authorize the
Commission, "by rule or order," to prescribe a "higher" ceiling price
for old gas, "if such price is * * * just and reasonable within the
meaning of the Natural Gas Act." 15 U.S.C. 3314(b)(2), 3316(c).

   The Court described the overall thrust of this comprehensive new
regulatory scheme in Mid-Louisiana, 463 U.S. at 333:

         In each category of gas, the statute explicitly establishes
      an incentive pricing scheme that is wholly divorced from the
      traditional historical-cost methods applied by the Commission in
      implementing the NGA.  The price is established either in terms
      of a dollar figure per million Btu's, or in terms of a
      previously existing price, and is inflated over time according
      to a statutory formula.

   C. Promulgation of Order No. 451

   The NGPA went far to remedy the disparity that had developed
between the interstate and intrastate natural gas markets under the
NGA, and the higher prices permitted by the NGPA led to increased gas
production, which alleviated shortages.  Nevertheless, as the court
below recognized, the "natural gas market became fraught with
distortions." Pet. App. 9a.  For example, although the greater
production fostered by the NGPA, coupled with decreased demand, led to
excess supply, prices paid by consumers continued to increase.
Furthermore, the lower ceiling prices for old gas that were carried
forward for the time being under the NGPA led to inadequate
development and premature abandonment of extensive reserves of old
gas, even though the marginal cost of producing old gas often was less
than the marginal cost of producing other types of gas.  The resulting
shift to production of new and high-cost gas, rather than development
of extensive old gas reserves, produced higher prices for consumers
and created incentives to import foreign oil and gas.  51 Fed. Reg.
22,174-22,175 (1986) (J.A. 32-36).

   Against this background, the Secretary of Energy, pursuant to
Section 403 of the Department of Energy Organization Act, 42 U.S.C.
7173, formally recommended that the Commission issue a notice of
proposed rulemaking to revise the pricing system for old gas.  50 Fed.
Reg. 48,540 (1985).  The Commission initiated those proceedings in
November 1985.  After reviewing extensive comments filed by all
segments of the natural gas industry and after holding a two-day
public conference, the Commission issued Order No. 451, at issue here,
in June 1986.  51 Fed. Reg. 22,168 (J.A. 5-205).  In December 1986,
the Commission issued Order No. 451-A, which reaffirmed the basic
approach of Order No. 451, while modifying certain of its details.  51
Fed. Reg. 46,762 (J.A. 206-436).

   1. Based on the voluminous record of the rulemaking proceedings,
the Commission concluded that the maximum lawful prices for old gas
should be raised, because the vintage prices "fail(ed) to assign a
reasonable share of the replacement cost or marginal cost of new
supplies to purchasers of old gas." 51 Fed. Reg. at 22,170 (J.A. 15).
The Commission made several critical findings on this point.  First,
it agreed with the Secretary of Energy and other commenters that
valuable supplies of inexpensive old gas that remained subject to the
price ceilings carried forward under Sections 104(b)(1) and 106(a) of
the NGPA were being inadequately developed or prematurely abandoned.
In the Commission's judgment, an increase in old gas prices would
encourage recovery of an additional 11 trillion cubic feet of natural
gas that otherwise would be permanently lost.  51 Fed. Reg. at 22,170,
22,172, 22,180, 46,774-46,779 (J.A. 15, 24, 54, 259-275).  Second, the
Commission determined that the various vintage ceilings, as then
preserved, kept old gas priced well below the competitive market price
for wellhead sales of higher-priced new gas, thereby creating an
artificial and unfair competitive advantage for those pipelines that
had access to large supplies of old gas and for the regions and
customers served by those pipelines.  "This means consumers, purely by
the accident of vintaging, pay different gas prices for reasons wholly
unrelated to the value of the commodity or the cost of replacing it."
Id. at 22,172, 46,766 (J.A. 25, 227).  /5/ Third, the Commission found
that the low prices for old gas further distorted the market by
permitting producers that had a cushion of old gas to "roll in" the
prices of new and deregulated gas with artificially low prices for old
gas, thereby enabling them to charge a higher price for incremental
supplies of new and deregulated gas than purchasers otherwise would be
willing to pay.  Id. at 22,172 (J.A. 25);  see generally id. at
46,765-46,768 (J.A. 223-233).

   For the foregoing reasons, the Commission found that the
then-existing vintage price structure for old gas was "the major cause
of the market distortions identified by the Commission," and it
accordingly determined that the price ceilings for old gas were unjust
and unreasonable within the meaning of the NGA.  51 Fed. Reg. at
22,182, 46,765-46,766 (J.A. 62, 223-224).  The Commission further
concluded that "the current problems being experienced in natural gas
markets would largely be remedied by collapsing vintages and raising
ceiling prices of below-market priced gas." Id. at 22,182 (J.A. 63);
see also id. at 46,766-46,767 (J.A. 224-231).  The Commission
therefore decided to consolidate the 15 separate vintage categories of
old gas into one category and to establish an alternative maximum
price that a producer may charge for gas in that category -- but only
to a willing purchaser.  See pages 13-15, infra.

   Specifically, this single new category was made subject to a price
ceiling equal to the highest of the ceilings then in effect for old
gas (that having a post-1974 vintage), adjusted monthly for inflation.
 51 Fed. Reg. at 22,183-22,185 (J.A. 69-77);  see 18 C.F.R.
271.402(c)(3)(iii) and (7), 271.602(a)(3).  The Commission explained
that the ceiling price for old gas should approximate, as closely as
possible, the replacement cost of that gas, in order to assure an
adequate long-term supply.  Because the Commission and the D.C.
Circuit had found the ceiling price for post-1974 gas to be just and
reasonable inasmuch as it was based on the then-current costs of
finding and producing gas -- and because the ceiling price for
post-1974 vintage gas had been adjusted for inflation since 1977 --
the Commission concluded that the ceiling as so adjusted (which stood
at $2.57 per million BTUs) approximated replacement cost in 1986 and
therefore was "just and reasonable" within the meaning of the NGA.  51
Fed. Reg. at 22,183-22,190, 22,194, 46,768, 46,771-46,774 (J.A. 69-95,
109-112, 233-235, 245-257).

   The Commission recognized that this alternative ceiling price
exceeded the then-current market price for old gas, but it noted that
the ceiling "is no higher than the highest vintage rate Congress
itself retained for flowing gas under the NGPA" -- i.e., the rate
carried forward by Section 104(b)(1) for post-1974 old gas.  51 Fed.
Reg. at 22,177 (J.A. 43).  Moreover, the Commission projected that in
the long term, market forces would result in lower (and more stable)
prices overall, as trillions of additional cubic feet of the
relatively low-cost old gas increasingly competed with higher-priced
categories of gas.  51 Fed. Reg. at 22,190-22,204, 46,779-46,784 (J.A.
95-141, 276-295).  The Commission found this projection to be
supported by:  (1) Congress's judgment when it enacted the NGPA that
the wellhead market for natural gas had become competitive, (2) the
declining price of gas that had been decontrolled under the NGPA, and
(3) the fact that the market price of other gas still subject to
regulation under different sections of the NGPA was substantially
below the statutorily prescribed ceilings.  Id. at 22,195-22,198 (J.A.
115-127).

   2. The Commission also included in Order No. 451 important
protections for pipelines and other purchasers.  By virtue of this
Court's decision in United Gas Pipe Line Co. v. Mobile Gas Serv.
Corp., 350 U.S. 332 (1956), a producer could not charge the higher
rate permitted by the Commission's new ceiling in Order No. 451 unless
its contract with the purchaser permitted the increase.  However, the
Commission recognized that many existing gas contracts contained
indefinite price-escalation clauses, under which the price the
purchaser was obligated to pay could rise to the maximum lawful price
allowed by the Commission under the NGA and the NGPA.  In the
Commission's view, producers that were parties to such contracts
should not automatically be entitled to receive the new ceiling price,
because the ceiling would then become a floor and the natural gas
market would be subject to the same sorts of distortions that led to
enactment of the NGPA.  51 Fed. Reg. at 22,204 (J.A. 141).
Accordingly, the Commission conditioned a producer's right to collect
higher rates under Order No. 451 upon the producer's entering into a
voluntary agreement with the existing purchaser to that effect or its
invocation of a structured "Good Faith Negotiation" (GFN) procedure
prescribed by Order No. 451.  See generally id. at 22,204-22,209,
46,784-46,802 (J.A. 141-163, 295-367).

   The GFN procedure, which is codified at 18 C.F.R. 270.201 (App.,
infra, 7a-16a), consists of several steps.  First, a producer may
request a purchaser to nominate the price at which it would be willing
to continue to purchase old gas under one or more contracts between
the parties.  18 C.F.R. 270.201(b)(1).  However, such a request is
deemed to constitute an offer by the producer to release the purchaser
from its contractual obligation to purchase any gas sold under any
existing contract between the two parties that includes the sale of
old gas (not merely the contract(s) named in the producer's request).
18 C.F.R. 270.201(b)(4).  Upon receipt of the producer's request, the
purchaser not only may nominate a price at which it would continue to
purchase gas under the contract(s) specified by the producer, but also
may make a counter-request of the producer to nominate a price at
which the producer would be willing to continue selling any gas (old
or new) under any contracts specified by the purchaser that cover at
least some old gas.  18 C.F.R. 270.201(b)(2).

   If, after the nominations, the producer and the purchaser are
unable to agree on a new price for gas covered by an existing
contract, the producer must continue sales to the purchaser at the
same price, although it may abandon its contract service obligations
to that purchaser if (1) it has executed a contract with another
willing purchaser for the released gas, and (2) it furnishes at least
30 days' notice to the former pipeline-purchaser.  See 18 C.F.R.
157.301, 270.201(c)(1) and (e)(4).  But the purchaser has an important
reciprocal right:  if the producer does not agree to the price the
purchaser nominates, the purchaser may terminate its purchase
obligations under any of the contracts named in its counter-request.
18 C.F.R. 270.201(c)(2) and (f)(3).  The GFN procedure thus serves as
an inducement for both parties either to reach agreement on a new
sales price or to release the gas for sale to others at market rates.

   3. Finally, the Commission rejected suggestions by some commenters
that it should use the Order No. 451 rulemaking as the vehicle for a
comprehensive resolution of various issues raised by so-called
"take-or-pay" clauses in natural gas contracts, /6/ or should refrain
from adopting Order No. 451 until the take-or-pay issue was finally
resolved.  The Commission reasoned that the effect of Order No. 451
would be to lower the overall market price of all gas, which would
mitigate the pipelines' take-or-pay exposure.  In addition, the
Commission pointed out that it was addressing the take-or-pay issue in
separate proceedings on Order No. 436, /7/ which had already induced
substantial settlements of pipelines' take-or-pay liabilities to
producers, and that the GFN process, if invoked by a producer as a
precondition to collecting higher rates for old gas, would have the
salutary effect of encouraging renegotiation of many contracts to
eliminate or modify the take-or-pay clauses.  51 Fed. Reg. at
22,174-22,175, 22,183, 22,196-22,197, 46,783-46,784 (J.A. 33-36,
66-69, 120-124, 292-295).  Indeed, the Commission pointed out that the
GFN procedure, permitting a purchaser to nominate a price it is
willing to pay for all gas (old and new) under existing contracts and
to terminate its contract obligation if the producer does not agree to
that price, "provides the purchaser with a powerful additional
bargaining card to negotiate a lower price for new gas in
multi-vintage contracts." Id. at 22,197 (J.A. 122).

   D. The Decision of the Court of Appeals

   Numerous producers and purchasers of natural gas thereafter sought
judicial review of Order No. 451 (as modified on rehearing by Order
No. 451-A).  With one exception, none of the respondents sought a stay
of the final Order pending review, and the court of appeals denied the
application by the one respondent (Williams Natural Gas) that did seek
a stay.  As a result, the new pricing system and Good Faith
Negotiation procedure established by Order No. 451 were permitted to
go into effect, and they have resulted in the renegotiation of
numerous producer-pipeline contracts since that time.  See 89-1452
Pet. 3, 13, 17-18, 26-27;  89-1453 Pet. 16, 26.

   1. On September 15, 1989, a divided panel of the court of appeals
held Order No. 451 invalid and vacated the Order in its entirety.
Pet. App. 1a-60a.  The court expressly did not suggest that the
Commission was "misguided" in its conclusion that the disorder in the
natural gas market had resulted, at least in part, from the vintage
pricing structure for old gas.  Id. at 20a.  Nor did it overturn the
Commission's finding that the higher ceiling price for old gas under
Order No. 451 is "just and reasonable" within the meaning of the NGA.
The court nevertheless held that the uniform ceiling price for all old
gas under Order No. 451 is wholly beyond the Commission's statutory
authority to prescribe.  Pet. App. 16a-23a.  The court dismissed the
Commission's reliance on the express authorization in Sections
104(b)(2) and 106(c) to impose "higher" rates for old gas, as long as
they are "just and reasonable," as a "somewhat ingenious application
of the plain meaning rule of statutory construction." Pet. App. 21a.
It instead believed that Sections 104(b)(2) and 106(c) should be read
to confer only "limited authority" on the Commission, and would be
"more appropriately interpreted as special relief measures to be
utilized in the event that existing congressional ceiling prices
become confiscatory." Pet. App. 22a-23a & n.24.

   The court did not point to any statutory language that confines the
Commission's authority under Sections 104(b)(2) and 106(c) in this
manner.  Rather, in rejecting the Commission's approach, the court
relied solely on floor statements by several Members of Congress
concerning what the court believed to be the "essence" of the
legislative compromise leading to enactment of the NGPA.  Pet. App.
17a-20a & n.22.  In its view, those floor statements (none of which
addressed the Commission's authority under Sections 104(b)(2) and
106(c)) revealed a legislative intent to concentrate the rewards of
higher prices solely on the development of new, high-cost gas and to
guard against what the court labeled "de facto deregulation" of old
gas prices.  Pet. App. 17a.  This legislative history, the court
concluded, did not authorize the Commission to "break() virgin ground"
under the just and reasonable standard by "abrogating the vintage
pricing structure" for old gas.  Id. at 22a-23a & n.24.

   The court also invalidated the provisions of Order No. 451 that
permit a producer to abandon existing service obligations if it does
not reach agreement with its pipeline customer on a new price under
the GFN procedure.  Pet. App. 24a-28a.  The court acknowledged that
the D.C. Circuit had found "no procedural objection" under Section
7(b) of the NGA, 15 U.S.C. 717f(b), to the Commission's
identification, in an otherwise valid rule, of circumstances "which
automatically trigger its approval of abandonment," and that the D.C.
Circuit likewise had found it "well-established that the Commission
need not hold an evidentiary hearing when no issue of material fact is
in dispute." Pet. App. 26a (quoting Associated Gas Distributors v.
FERC, 824 F.2d 981, 1015 n.17 (D.C. Cir. 1987), cert. denied, 485 U.S.
1006 (1988), and Kansas Power & Light Co. v. FERC, 851 F.2d 1479, 1484
(D.C. Cir. 1988)).  The court nonetheless believed that the Commission
"ha(d) abdicated its responsibility under Section 7(b) of the NGA" by
providing abandonment authorization on a generic, rather than on a
case-specific, basis and by placing undue reliance on the GFN
procedure.  Pet. App. 28a.  Moreover, although the Commission pointed
out that under Order No. 451, "prior abandonment approval has, in
fact, been granted by the Commission," id. at 27a, the court perceived
an inconsistency with United Gas Pipe Line Co. v. McCombs, 442 U.S.
529 (1979), in which this Court reversed an appellate decision that
permitted a producer to abandon sales without any prior Commission
approval.  Pet. App. 27a-28a.

   Finally, the court held that the Commission had erred in failing to
resolve the problem of high-cost take-or-pay contracts in the context
of Order No. 451, even though it recognized that the Commission was
addressing the very same problem in separate proceedings.  Pet. App.
29a-32a.  The court was unpersuaded by the Commission's finding that
the GFN procedure would ameliorate the problem in the context of this
proceeding.  Id. at 31a-32a.  The court regarded the GFN procedure as
too "one-sided" because it is initiated by the producer-seller and
because, the court believed, it offers insufficient bargaining power
to the pipeline-purchaser.  Ibid.; see also id. at 24a n.26, 28a.  The
court reached this conclusion even though it elsewhere acknowledged
that in the absence of the GFN procedure, a producer would
automatically be entitled to receive the higher ceiling price under a
price-escalation clause.  Id. at 29a.  /8/

   2. Judge Brown dissented.  Pet. App. 36a-60a.  He believed that the
majority had improperly "(f)ail(ed) to accord to the (Commission) the
expertise which Congress invests in it," "(o)verlook(ed) specific
congressional language giving express legislative authority to raise
the price of old gas," and "(s)ubstitute(d) its own judgment for that
of the Commission on what Congress has ordained the Commission may do
about the grave problems of the natural gas business." Id. at 36a-37a
(emphasis omitted).  In Judge Brown's view, "Congress could not have
been more explicit in authorizing the Commission to raise statutory
ceiling prices for committed or dedicated gas sales 'if such (higher)
price is just and reasonable within the meaning of the (NGA).'" Id. at
47a (quoting 15 U.S.C. 3314(b)(2) and 3316(c)).  "This means," he
continued, "that Congress granted the Commission the express authority
to raise the ceiling prices for vintage gas sales," and "(t)he
sweeping nature of this legislative grant is reflected by expressly
allowing this authority to be exercised 'by rule or order.'" Pet. App.
47a-48a.  Judge Brown also was of the view that the price ceiling
prescribed by the Commission is "just and reasonable" within the
meaning of the NGA, since the record "fully supports" the Commission's
judgment that "overall and in the long term prices would be lower than
otherwise because of the increased supply of relatively lower-priced
old gas into the open market competing with the more expensive,
incentive-priced and deregulated gas." Id. at 50a.

   Judge Brown further concluded that the pre-granted abandonment
authorization in Order No. 451 is lawful, Pet. App. 52a-55a, because
Section 7(b) of the NGA "does not require that the Commission act on
such matters only case-by-case." Id. at 53a.  Finally, he disagreed
with the majority's direction to the Commission "to consider, and once
and for all to solve, a matter so perplexing and complex as the issue
of take-or-pay contracts." Id. at 57a.  He pointed out that "reform
may take one step at a time," id. at 59a (quoting Williamson v. Lee
Optical of Oklahoma, Inc., 348 U.S. 483, 489 (1955)), and believed
that Order No. 451 in any event "provides pipelines with the means to
address take-or-pay problems" in negotiations under the GFN procedure.
 Ibid.

   3. On January 16, 1990, this Court stayed the mandate of the court
of appeals pending the timely filing and disposition of petitions for
a writ of certiorari.  No. A-503.

                 INTRODUCTION AND SUMMARY OF ARGUMENT

   Order No. 451 is one of several major administrative measures
adopted by the Federal Energy Regulatory Commission to address the
artificial regional disparities, production disincentives, and other
significant distortions that continued to plague natural gas
production and distribution in the United States in the mid-1980s.
After exhaustive analysis, the Commission concluded that the
anachronistic, multi-tiered system of vintage pricing still in effect
for "old" gas substantially contributed to these conditions, and it
therefore concluded that vintage pricing should be eliminated.

   Exercising its express authority under the NGPA to establish a
higher ceiling price for old gas as long as it is "just and
reasonable" within the meaning of the Natural Gas Act, the Commission
collapsed the 15 different vintages of old gas into a single category
to be covered by a single price ceiling.  The ceiling the Commission
chose was the one already in effect for one of the 15 vintages
(post-1974 old gas).  That ceiling previously had been found by the
Commission to be "just and reasonable" for post-1974 gas in Order No.
770 ten years earlier, had been sustained by the D.C. Circuit on
judicial review of Order No. 770 in American Public Gas Ass'n v. FPC,
567 F.2d 1016 (1977), cert. denied, 435 U.S. 907 (1978), and had been
carried forward by Congress itself through Section 104(b)(1) of the
NGPA.  After thoroughly reexamining that rate (as adjusted for
inflation in accordance with the NGPA), the Commission once again
found it to be "just and reasonable," this time for all categories of
old gas.

   The Commission also adopted a balanced and carefully structured
Good Faith Negotiation procedure that must be invoked by a producer as
a condition precedent to demanding rates permitted by the higher price
ceiling for old gas.  This procedure was designed to assure that the
ceiling did not unfairly prejudice pipelines that had agreed to
open-ended price-escalation clauses (which otherwise would have
permitted producers to collect higher rates on demand) and to afford
pipelines significant leverage in resolving their liability under
"take-or-pay" contracts with producers.

   Order No. 451 has had a significant effect on the natural gas
industry since it went into effect more than three years ago.  It has
led to the successful negotiation or renegotiation of numerous
contracts between producers and pipelines, some of which address
take-or-pay issues between the parties as well.  Moreover, the
Commission's projection when it issued Order No. 451 that the overall
price of natural gas would decrease has proven to be accurate, as the
natural gas market has become increasingly competitive.  The court of
appeals erred in now setting aside this important effort to reform the
pricing structure for old gas.

   I. The court of appeals did not disturb the Commission's expert
judgment that the system of disparate vintage price ceilings for old
gas no longer yielded rates that were "just and reasonable" within the
meaning of the Natural Gas Act standard incorporated into the NGPA and
that the single new ceiling adopted for old gas in Order No. 451 does,
by contrast, satisfy that flexible standard.  In any event, the
Commission's judgment on these points is sound and exhaustively
documented:  the new ceiling was designed to bring about lower prices
for consumers generally, create incentives to produce an additional 11
trillion cubic feet of old gas, reduce inequities among purchasers
that had unequal access to old gas, and remove obstacles in the
transition to the fully competitive market Congress envisaged.

   Nevertheless, without pointing to any statutory provision that
prohibits what the Commission did, the court of appeals held that the
Commission had exceeded its statutory authority for eliminating price
vintaging.  As a result, the court effectively removed from the
Commission's regulatory jurisdiction the price ceilings that the
Commission itself had put in place.  And in doing so, it accorded a
permanent and exalted status to the particular hodge-podge of price
ceilings that happened to be in effect for a brief time in the midst
of the far different and rapidly changing market and regulatory
climate that immediately preceded passage of the NGPA almost 12 years
ago.  These perverse results cannot be squared with the text of
Sections 104(b)(2) and 106(c) of the NGPA, which expressly
incorporates the flexible "just and reasonable" standard of the
Natural Gas Act, or with the experience under that standard preceding
enactment of the NGPA, when the Commission, sustained by the courts,
constantly revised the rates for these same categories of gas in
response to changing market and other conditions.  The court of
appeals' holding thus is inconsistent with the Commission's broad
mandate under the NGPA "to overse(e) a national market price
regulatory scheme." Transcontinental Gas Pipe Line Corp. v. State Oil
& Gas Bd., 474 U.S. 409, 421 (1986).

   II. The court of appeals likewise erred in invalidating the
provisions of Order No. 451's Good Faith Negotiation procedure that
specify in advance the conditions under which a producer is permitted
by the Commission to abandon its contract service obligations to the
purchaser.  Section 7(b) of the Natural Gas Act provides that "(n)o
natural gas company shall abandon * * * any service * * * without the
permission and approval of the Commission first had and obtained,
after due hearing, and a finding by the Commission * * * that the
present or future public convenience or necessity permit such
abandonment." Those requirements were satisfied here.  The Commission
gave its "permission and approval" for the abandonments covered by the
Order, based on a finding that the "public convenience or necessity"
would be served by releasing the gas to another purchaser when the GFN
procedure fails to result in an agreement between the parties.  And
because the relevant legislative-type facts supporting Order No. 451,
including its abandonment component, were resolved in the rulemaking
proceedings, no further hearing is "due" for relitigation of those
issues in the context of each individual abandonment.

   III. The court of appeals plainly overstepped its role by insisting
that the Commission must comprehensively solve the problems created by
"take-or-pay" clauses to which the pipelines themselves agreed before
the Commission may exercise its express authority under the NGPA to
raise the price ceiling for old gas.  The court was apparently unaware
of the extensive and largely successful undertakings by the Commission
to address the take-or-pay problem, which have resulted in the
settlement of current or future take-or-pay liabilities of pipelines
to producers totalling approximately $44 billion.  In any event,
established principles of judicial review preclude the court of
appeals from reordering the Commission's rulemaking proceedings and
priorities.

   IV. The soundness of the Commission's judgment in raising the
ceiling price of old gas and instituting the related measures in Order
No. 451 is confirmed by Congress's enactment of the Natural Gas
Wellhead Decontrol Act of 1989, Pub. L. No. 101-60, Section 2(b), 103
Stat. 158, which builds upon the Commission's efforts, including Order
No. 451, to promote a fully competitive natural gas market.

                               ARGUMENT

   I. THE ALTERNATIVE PRICE CEILING IN ORDER NO. 451 IS FULLY
CONSISTENT WITH THE "JUST AND REASONABLE" STANDARD INCORPORATED INTO
SECTIONS 104(b)(2) AND 106(c) OF THE NATURAL GAS POLICY ACT OF 1978

   In holding that the Commission is without authority to revise the
anachronistic system of vintage pricing for old gas, the court below
disregarded the plain meaning of the relevant statutory provisions and
the settled judicial construction of the "just and reasonable"
standard that Congress incorporated into the Natural Gas Policy Act.
Rather than seizing upon a few vague statements by individual Members
of Congress to fashion an absolute barrier to the Commission's actions
that appears nowhere in the Act, the court of appeals should have
measured the price features of Order No. 451 against the principles
developed under the "just and reasonable" standard that does appear in
the Act.  Under those principles, Order No. 451 is clearly valid.

   A. The NGPA Expressly Authorizes The Commission To Adopt A "Higher"
Ceiling Price For Old Gas Where, As Here, That Price Is "Just And
Reasonable"

   The starting point for any analysis of the Commission's statutory
responsibilities is, of course, the language of the NGPA itself.  "If
the statute is clear and unambiguous, 'that is the end of the matter,
for the court, as well as the agency, must give effect to the
unambiguously expressed intent of Congress.'" Sullivan v. Stroop, 110
S. Ct. 2499, 2502 (1990) (quoting K Mart Corp. v. Cartier, Inc., 486
U.S. 281, 291 (1988)).  But if the statute is ambiguous, the court
must defer to a reasonable administrative interpretation.  Chevron
U.S.A. Inc. v. NRDC, Inc., 467 U.S. 837, 843-844 (1984);  see Pension
Benefit Guaranty Corp. v. LTV Corp., No. 89-390 (June 18, 1990), slip
op. 12-17.  Even greater deference is required where, as here,
Congress has charged an agency with giving more particularized content
to broad statutory standards by issuing rules having legislative
effect.  Atkins v. Rivera, 477 U.S. 154, 162 (1986);  see also
Sullivan v. Zebley, 110 S. Ct. 885, 890 (1990).  And in the special
area of ratemaking, "the breadth and complexity of the Commission's
responsibilities demand that it be given every reasonable opportunity
to formulate methods of regulation appropriate for the solution of
intensely practical difficulties." The Commission's orders therefore
"may not be overturned if they produce 'no arbitrary result.'" Permian
Basin, 390 U.S. at 790.

   Here, as in the Court's last case arising under the NGPA, "(t)he
plain meaning of the statute decides the issue presented." FERC v.
Martin Exploration Management Co., 486 U.S. 204, 209 (1988).  Sections
104 and 106 of the NGPA unambiguously authorize the Commission to
increase the ceiling price for old gas and interstate rollover gas
"whenever traditional NGA principles would dictate a higher price."
Mid-Louisiana Gas, 463 U.S. at 333.  By contrast, the text of those
Sections lends no support whatever to the court of appeals' view that
Congress withheld that broad authority from the Commission and instead
froze the prior system of vintage pricing.  If the court of appeals
had any doubt on this score, however, it should have deferred to what
is, at the very least, a permissible interpretation of the relevant
statutory provisions by the expert agency charged with their
administration.

   1. Section 104(b)(1)(A)(i) and (ii) of the NGPA provides that the
maximum ceiling price for old gas shall be the "just and reasonable
rate * * * established by the Commission which was * * * applicable to
the first sale of such natural gas on April 20, 1977," adjusted by an
inflation factor for each month since April 1977.  15 U.S.C.
3314(b)(1)(A)(i) and (ii);  see Section 101, 15 U.S.C. 3311.  /9/
Section 106(a)(1) similarly provides that the ceiling price for gas
covered by an interstate rollover contract shall be "the just and
reasonable rate, if any, * * * established by the Commission" for the
gas on the effective date of the NGPA.  15 U.S.C. 3316(a)(i).  /10/ By
enacting these provisions, Congress carried forward for the time being
the ceiling price for each of the various vintages listed in the
Commission's regulations at the time the NGPA was enacted.

   Congress did not, however, mandate that the ceilings based on those
grandfathered rates (as adjusted for inflation) remain permanently
fixed.  To the contrary, it expressly authorized the Commission to
prescribe a different ceiling for old gas, just as it was free to do
under the NGA before the NGPA was enacted.  Section 104(b)(2) of the
NGPA provides (15 U.S.C. 3314(b)(2)):

         Ceiling prices may be increased if just and reasonable.  The
      Commission may, by rule or order, prescribe a maximum lawful
      ceiling price, applicable to any first sale of any natural gas
      (or category thereof, as determined by the Commission) otherwise
      subject to the preceding provisions of this section, if such
      price is --

         (A) higher than the maximum lawful price which would
      otherwise be applicable under such provisions;  and

         (B) just and reasonable within the meaning of the Natural Gas
      Act.

Section 106(c) of the NGPA, 15 U.S.C. 3316(c), which governs
interstate rollover contracts, is essentially identical.

   The only restrictions on the Commission's authority under Sections
104(b)(2) and 106(c) are:  (1) any revised ceiling price prescribed by
the Commission must be "higher" than the applicable grandfathered rate
(as adjusted for inflation), and (2) the higher rate must be "just and
reasonable within the meaning of the Natural Gas Act." Both of these
requirements were satisfied here.  First, the single ceiling price
adopted by the Commission in Order No. 451 is "higher" than each of
the ceilings carried forward by Sections 104(b)(1) and 106(a) --
except, of course, for post-1974 old gas, for which the ceiling price
remains the same.

   Second, the Commission found, after extensive analysis, that the
higher ceiling price is "just and reasonable" within the meaning of
the Natural Gas Act.  See pages 11-13, supra.  The price ceiling
selected by the Commission for all old gas is not an arbitrary number
without any relation to costs or prior ratemaking practices.  The
Commission collapsed all of the pre-NGPA vintages of old gas into a
single vintage subject to a single price ceiling that the Commission,
employing traditional NGA principles of "just and reasonable"
ratemaking, had already found to be a "just and reasonable" price, for
gas having a post-1974 vintage.  That determination, in Order No. 770,
was sustained by the D.C. Circuit in American Public Gas Ass'n v. FPC,
supra, and was carried forward by Congress itself in Section 104(b)(1)
of the NGPA.  The Commission rationally determined that this ceiling,
as periodically adjusted upward for inflation, did not become any less
"just and reasonable" simply because market prices had since dipped
below that level, presumably to the benefit of consumers.  See Martin
Exploration, 486 U.S. at 208 ("by 1984 the market price of natural gas
had plunged below the regulated price ceilings").  /11/ And because
the rationale for establishing different ceilings for the other
vintages of old gas had long since disappeared, it was not arbitrary
for the Commission to conclude that all of those other vintages should
now be brought under this same price ceiling.  That is especially so
since the uneven access of different pipelines and consumers to
low-cost old gas, which was in many instances an "historical
accident," American Public Gas Ass'n v. FPC, 567 F.2d at 1058, had led
to widely divergent prices for consumers and had seriously distorted
the increasingly competitive market for natural gas at the wellhead --
consequences that the Commission permissibly could determine were
neither "just" nor "reasonable."

   The Commission also explained that the price ceiling for post-1974
gas that it was extending to all old gas approximated the "replacement
cost" of that gas, which, in the current setting, corresponds to a
"just and reasonable" price ceiling.  Although that ceiling exceeded
the then-prevailing market price, the Commission concluded that from a
long-term, national perspective, permitting producers to bargain for a
price for old gas up to its replacement cost would satisfy the NGPA's
overriding objective of assuring an adequate supply of natural gas at
fair prices and, in particular, would result in production of an
additional 11 trillion cubic feet of old gas.  In the Commission's
judgment, as more of this relatively low-cost old gas began to compete
with higher-cost "new" and "hard-to-produce" gas, market forces
ultimately would drive overall gas prices down.  See pages 11-13,
supra.  As respondents concede (Br. in Opp. 9 n.5), the Commission's
projection of lower overall prices has proven to be accurate.
Although the price of old gas has risen in the short term (as the
Commission expected when it issued Order No. 451), the national
average wellhead price for all natural gas declined from $1.94 per Mcf
in 1986 to $1.71 per Mcf in 1989.  Energy Information Administration,
Dep't of Energy, Natural Gas Monthly, at 32 (Table 4) (Mar. 1990).

   2. The court of appeals did not attempt to refute either the
Commission's exhaustive analysis and findings in Order No. 451 or the
Commission's conclusion that the approach it adopted was just and
reasonable under traditional NGA principles.  In fact, the court
expressly did not suggest that the Commission was "misguided" in
concluding "that the disorder in the natural gas market has resulted,
at least in part, from the NGPA's vintage pricing structure which
compelled natural gas producers to sell gas at below replacement
costs," Pet. App. 20a, and it grudgingly acknowledged that the
Commission's solution to the pervasive problems besetting the natural
gas industry as a result was "arguably meritorious." Id. at 23.  But
the court believed Congress had tied the Commission's hands and
prevented it from implementing that solution.

   In the court of appeals' view, Sections 104(b)(2) and 106(c) must
be read to permit the Commission to adopt a higher price ceiling only
in "narrow()" circumstances where necessary to grant "special relief,"
such as where the rate permitted by the price ceiling would otherwise
be confiscatory.  Pet. App. 22a n.24.  Nothing in those provisions
supports the Court's crabbed construction.  To the contrary, both
Sections state that the Commission may prescribe a higher maximum
lawful price "applicable to any first sale of natural gas" governed by
those provisions, so long as the new ceiling is "just and reasonable."
15 U.S.C. 3314(b)(2), 3316(c) (emphasis added).  Congress's use of the
word "any" makes clear that the Commission's regulatory jurisdiction
over old gas prices is all-encompassing.  Compare United States v.
Monsanto, 109 S. Ct. 2657, 2662 (1989);  Public Employees Retirement
System v. Betts, 109 S. Ct. 2854, 2864 (1989).  Moreover, because the
single ceiling price the Commission selected in Order No. 451 had been
found to be "just and reasonable" when it was first adopted in 1976,
and because it has been adjusted regularly for inflation ever since,
it is difficult to see how it could ever become confiscatory.
Congress therefore must have had some purpose other than special
relief in mind when it enacted Sections 104(b)(2) and 106(c).

   In addition, as Judge Brown pointed out in dissent, the "sweeping
nature" of Sections 104(b)(2) and 106(c) is also reflected in their
authorization for the Commission to proceed "by rule or order." Pet.
App. 48a.  Since the "(e)xercise of this power is not confined to
case-by-case rate making," it is "entirely appropriate for it to be
used and employed generically." Ibid.  /12/ The broad scope of the
Commission's discretion is further reinforced by the fact that both
Sections permit a higher price ceiling for any "category" of old gas,
"as determined by the Commission."

   B. The Settled Judicial Construction Of The "Just And Reasonable"
Standard When It Was Incorporated Into The Natural Gas Policy Act
Strongly Supports The Commission's Revision Of The Vintage Pricing
System For Old Gas

   More fundamentally, the court of appeals' narrow construction of
the Commission's authority under Sections 104(b)(2) and 106(c) wholly
ignores the significance of the standard by which the Commission's
exercise of its authority is to be governed.  As respondents concede
(Br. in Opp. 19):  "The 'just and reasonable' standard that Congress
borrowed from the NGA and incorporated into the NGPA was familiar
statutory language that carried with it a regulatory scheme well-known
to Congress, the Commission, and the industry." Congress therefore
must be understood to have intended that the "just and reasonable"
standard would be interpreted in the same manner in the NGPA.  See
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353,
378-382 (1982);  Cannon v. University of Chicago, 441 U.S. 677, 699
(1979);  Morissette v. United States, 342 U.S. 246, 263 (1952).

   1. As we have explained (see pages 3-5, supra), prior to enactment
of the NGPA, the "just and reasonable" standard had been repeatedly
construed by the Commission and the courts, including this Court, to
accord the Commission a broad measure of flexibility and discretion.
The court of appeals' construction of Sections 104(b)(2) and 106(c) to
prohibit the Commission from departing from vintage pricing under the
"just and reasonable" standard in those Sections cannot be reconciled
with settled precedent.

   For example, this Court had made clear since the earliest days of
the NGA that the "just and reasonable" standard does not bind the
Commission "to the use of any single formula or combination of
formulae in determining rates" and that "(u)nder the statutory
standard of 'just and reasonable,' it is the result reached not the
method employed which is controlling." Hope Natural Gas Co., 320 U.S.
at 602;  see also FPC v. Natural Gas Pipeline Co., 315 U.S. 575, 586
(1942);  Wisconsin v. FPC, 373 U.S. 294, 309 (1963);  Permian Basin,
390 U.S. at 776-777;  FPC v. Texaco, Inc., 417 U.S. 380, 386-389
(1974).

   These principles were given particular emphasis in decisions of
this Court reviewing wellhead rates.  In Wisconsin v. FPC, the Court
held that the NGA's "just and reasonable" standard does not compel
unwavering adherence to the individual cost-of-service method of
setting rates, and it did so in terms that are fatal to the court of
appeals' view that the Commission cannot depart from the system of
vintage pricing for old gas (373 U.S. at 309):

      (T)o declare that a particular method of rate regulation is so
      sanctified as to make it highly unlikely that any other method
      could be sustained would be wholly out of keeping with this
      Court's consistent and clearly articulated approach to the
      question of the Commission's power to regulate rates.

See also Permian Basin, 390 U.S. at 767, 800;  FPC v. Texaco, 417 U.S.
at 386-393.

   What is more, prior to enactment of the NGPA, this Court had
repeatedly sustained the Commission's authority to require all
purchasers to bear part of the future costs of exploring for and
developing additional reserves of natural gas -- one of the principal
justifications for the Commission's departure from vintage pricing in
Order No. 451.  Thus, in Mobil Oil Corp. v. FPC, the Court rejected
the contention that the price previously established for the first
vintage of gas from the Southern Louisiana producing area could not
later be increased in the absence of evidence of increased costs (417
U.S. at 320):

      As between placing the burden of (expanding future production)
      on new or second vintage gas alone or spreading it over both old
      and new gas, (the Commission) judged the latter more equitable
      and more likely to lead to the immediately increased capital
      necessary in the face of a crisis.  We see nothing * * * to
      suggest that the Commission could not * * * place the burden of
      those payments on all users rather than on those alone who
      purchased gas in the future.

See also FPC v. Texaco Inc., 417 U.S. at 388 (encouraging exploration
"obviously involve(s) the rate structure and implie(s) a broad
discretion for the Commission");  Permian Basin, 390 U.S. at 797.
This consideration has even greater force here, because the Commission
determined that vintage pricing should be eliminated and higher rates
allowed in order to encourage production of vast reserves of old gas
that would otherwise go undeveloped.

   Finally, the history of the vintage pricing scheme itself refutes
the court of appeals' notion that it is an integral component of the
"just and reasonable" standard incorporated into the NGPA for old gas.
 The Commission did not adopt vintage pricing until 1960 -- more than
two decades after enactment of the NGA and its "just and reasonable"
standard -- and the Commission anticipated at the time that the
vintage approach would be only a temporary measure and would be phased
out when circumstances changed.  See Statement of General Policy, No.
61-1, 24 F.P.C. 818, 819 (1960).  In fact, as the Court noted in
Mid-Louisiana Gas, the Commission, prior to enactment of the NGPA, had
"shift(ed) from a pure historical-cost-based to an
incentive-price-based approach, * * * and * * * temporarily
abandon(ed) the practice of vintaging." 463 U.S. at 330 & n.10;  see
pages 5-6, supra.  Both the Fifth and D.C. Circuits had upheld
substantial modifications of the vintage pricing system (including the
institution of replacement-cost methodology) against claims that they
violated the "just and reasonable" standard of the NGA.  See Tenneco
Oil Co. v. FERC, 571 F.2d at 841-842, 847-848;  American Public Gas
Ass'n v. FPC, 567 F.2d at 1033-1034, 1057-1058;  Shell Oil Co. v. FPC,
520 F.2d at 1077-1078;  Shell Oil Co. v. FPC, 491 F.2d at 86-88.  And
just a few months prior to enactment of the NGPA, the Fifth Circuit
approved a Commission order -- which collapsed the pre-1973 vintages
of "flowing gas" into a single category subject to a single ceiling
price based on the historical costs incurred in the most recent (and
highest-cost) test year -- that is remarkably similar to the Order
invalidated by the same court in this case.  See Tenneco Oil, 571 F.2d
at 837-838, 841-842;  page 7, supra.

   It is the vintage price ceilings sustained by Permian Basin and the
court of appeals decisions just discussed that Congress carried
forward in Sections 104(b)(1) and 106(a) of the NGPA, expressly
recognizing in the statutory text that each was a "just and reasonable
rate * * * established by the Commission" under the NGA.  15 U.S.C.
3314(b)(1), 3316(a) (emphasis added).  Congress therefore must have
intended the Commission to have at least the same degree of discretion
it was found to have in Permian Basin and the appellate decisions to
revise the natural gas rates -- including the vintage-pricing system
-- under the "just and reasonable" standard carried forward in
Sections 104(b)(2) and 106(c).

   2. The court of appeals' only response to Congress's explicit
incorporation of the "just and reasonable" standard into Sections
104(b)(2) and 106(c) was to label the Commission's reliance on the
plain meaning of that incorporation as "somewhat ingenious." Pet. App.
21a.  But the court never suggested what that standard might mean if
it does not confer the sort of flexibility and discretion that the
Commission exercised here.  It simply asserted that the system of
multiple-vintage pricing in effect when Congress passed the NGPA was
too "significant (a) feature of the NGPA's design" to be abrogated by
the Commission, id. at 22a-23a, and thereby essentially read out of
the NGPA the "just and reasonable" language upon which the Commission
relied in consolidating all old gas into a single vintage.

   Contrary to the court of appeals' view, however, although the
various rates in effect in 1978 happen to have been based on a
multiple-vintage approach to ratemaking, nothing in the NGPA suggests
that it froze that particular approach (or the price ceilings it once
yielded) for all time.  Sections 104 and 106 in fact make no mention
of vintage pricing or any other ratemaking methodology.  They merely
continue in effect the "just and reasonable rate * * * established by
the Commission" for old gas, 15 U.S.C. 3314(b)(1), 3316(a) (emphasis
added) -- i.e., the end result of the Commission's application of the
vintage-pricing methodology it employed (albeit unevenly) during the
early 1970's.  See Hope Natural Gas, 320 U.S. at 602.  Because the
just and reasonable standard does not require the Commission to follow
any particular methodology in setting rates, Congress's decision to
carry forward a particular "rate" (subject to a subsequent increase
under the just and reasonable standard) does not imply that the
underlying methodology has become part of the NGPA and therefore
binding on the Commission.

   At bottom, the court of appeals' refusal to give effect to the
"just and reasonable" language Congress enacted was driven by the
court's belief that "Congress' intent was, as it has been in the past,
to protect the interests of consumers through incorporation of a
vintaged old gas pricing scheme." Pet. App. 22a.  But as we have just
explained, the protection Congress afforded consumers derives not from
a supposed incorporation of the vintaged-pricing scheme, of which
there is no suggestion in the NGPA, but rather from Congress's express
incorporation of the broad "just and reasonable" standard.

   There is a deeper flaw, moreover, in the court of appeals' decision
to construe Sections 104(b)(2) and 106(c) far more narrowly than their
language permits in order to further what it understood to be
Congress's "intent" to "protect the interests of consumers." The Court
has recognized the dangers of that approach even where Congress has
acted with a singular purpose:  "(N)o legislation pursues its purposes
at all costs.  Deciding what competing values will or will not be
sacrificed to the achievement of a particular objective is the very
essence of legislative choice -- and it frustrates rather than
effectuates legislative intent simplistically to assume that whatever
furthers the statute's primary objective must be the law." Rodriguez
v. United States, 480 U.S. 522, 525-526 (1987).  The point has even
greater force here, because the "just and reasonable" standard has
always been understood to require the Commission to consider a variety
of interests, not merely those of consumers (or a particular group of
consumers), in fixing or reviewing rates.

   In any event, the court of appeals' premise that Sections 104 and
106 embody an unqualified commitment to maintaining the lowest
possible prices for the particular pipelines and consumers that were
fortunate enough to have access to ample supplies of old gas is
refuted by the text of those Sections.  Both Sections provide for
automatic inflation adjustments in the ceiling price for old gas,
whether or not the resulting increases are justified by the producer's
historical costs.  And both Sections authorize the Commission to adopt
a different ceiling price only if it is higher than the one carried
forward by the NGPA.  If Congress was as single-minded in its
determination to assure the lowest possible price as the court of
appeals believed, it surely would have permitted the Commission to
lower the ceiling prices in appropriate circumstances as well.

   C. The Legislative History Does Not Support The Court Of Appeals'
Interpretation Of Sections 104 And 106

   The court of appeals attempted to avoid the force of the statutory
text and its historical background by relying on isolated statements
by several Members of Congress during the floor debates on the NGPA.
Pet. App. 17a-20a & n.22.  This Court has repeatedly stated, however,
that "'(a)bsent a clearly expressed legislative intention to the
contrary,' the words of the statute are conclusive." Hallstrom v.
Tillamook County, 110 S. Ct. 304, 310 (1989) (quoting CPSC v. GTE
Sylvania, Inc., 447 U.S. 102, 108 (1980)).  Here, the court of appeals
pointed to no clearly expressed legislative intention suggesting that
the term "just and reasonable" in Sections 104(b)(2) and 106(c) should
be interpreted in a manner that departs so drastically from its
settled meaning in the NGA.

   The floor statements upon which the majority relied consist largely
of general descriptions of the uncontroverted political compromises
that led to enactment of the NGPA and of the NGPA's policies of
protecting consumers while offering sufficient incentives for the
production of additional gas.  Those statements -- none of which
specifically addressed the scope of the Commission's authority under
Sections 104(b)(2) and 106(c) -- are fully consistent with the
Commission's approach in Order No. 451.  The NGPA ultimately protects
consumers of old gas not by permanently freezing whatever prices and
pricing system happen to have been in effect for old gas at the time
of enactment of the NGPA, but by carrying forward the "just and
reasonable" standard of regulation that previously had been applied to
the same gas under the NGA.

   Moreover, as the Commission observed, 51 Fed. Reg. at 46,765 (J.A.
220), other portions of the NGPA's legislative history, which were not
cited by the court below, demonstrate that Congress was aware of the
broad and flexible authority vested in the Commission under the "just
and reasonable" standard incorporated into Sections 104(b)(2) and
106(c) of the NGPA.  For example, Senator Abourezk found it "critical
to point out that (the NGA) does not require that the price set by the
FERC be cost-based, except that, in the absence of full cost
justification, the FERC must show the tangible benefits to consumers.
This is the 'end result test' established in FPC against Hope Natural
Gas Co." 124 Cong. Rec. 30,018 (1978).  He also observed that
"(n)othing prevents FERC setting the rates at whatever level is
necessary actually to elicit new supply." Ibid.  Senator Kennedy
similarly observed that the Commission enjoyed the authority under the
NGA "to establish prices which will bring forth gas at a 'just and
reasonable' price and to vary that price according to conditions." Id.
at 30,023.

   The court of appeals' reading of the legislative history also
ignores the origins of the "just and reasonable" standard in Sections
104(b)(2) and 106(c) as finally enacted.  The bill passed by the House
of Representatives would have extended controls for new gas,
Mid-Louisiana Gas, 463 U.S. at 331, but would have effectively frozen
the maximum lawful price of old natural gas on the basis of the
applicable just and reasonable price established by the Commission as
of April 1977 (as adjusted for inflation).  The House bill contained
no provision for subsequent increases in the price ceiling for old
gas;  a producer could collect a higher price only under a special
relief provision for high-cost gas.  /13/ By contrast, the bill passed
by the Senate would have deregulated new gas in the near future, but
"would have maintained Natural Gas Act regulation for all gas sold or
delivered in interstate commerce before January 1, 1977."
Mid-Louisiana Gas, 463 U.S. at 331.  /14/ Under the Senate bill, the
Commission plainly would have retained the authority it had under the
NGA's "just and reasonable" standard to abandon vintage pricing.  The
bill reported by the Conference Committee and enacted into law was a
hybrid:  it incorporated from the House bill the concept of statutory
price ceilings for old gas based on the just and reasonable rates
established by the Commission in April 1977, but it incorporated from
the Senate bill the retained power of the Commission to modify those
ceilings (but only to make them higher) under the just and reasonable
standards of the NGA.  Thus, Congress rejected an approach to
regulation of old gas that would have frozen prices in the way the
court of appeals construed Sections 104(b)(2) and 106(c) to require.
The court, in short, "read too much into * * * scattered bits of
legislative history." Pennhurst State School v. Halderman, 451 U.S. 1,
20 (1981).

   II. THE COMMISSION WAS AUTHORIZED BY SECTION 7(b) OF THE NATURAL
GAS ACT TO SPECIFY IN ORDER NO. 451 THE CIRCUMSTANCES UNDER WHICH
FUTURE ABANDONMENT OF GAS SERVICE IS PERMITTED

   The court of appeals also erred in invalidating the abandonment
provision of Order No. 451, which is an integral component of the Good
Faith Negotiation (GFN) procedure and, indeed, of the entire
rulemaking package.  Pet. App. 24a-28a.  Under Order No. 451, a
producer may abandon its service obligation to the purchaser under an
existing contract only if the purchaser elects not to continue buying
the gas in question, and only if the producer has entered into a
contract to sell the same gas to another purchaser, which ensures that
the gas will remain in the interstate market.  See pages 14-15, supra.
 The Commission reasonably concluded that where these conditions are
satisfied among the parties directly concerned, the producer should be
permitted to abandon its service obligations to the prior customer so
that it may begin to serve its new customer.

   The NGPA "comprehensively and dramatically" changed the wellhead
price regulation of natural gas sales.  Mid-Louisiana Gas, 463 U.S. at
322.  The NGPA did not, however, relieve the Commission of its
responsibility under the NGA to regulate the non-price features of
most old gas sales.  Of particular relevance here, the NGPA left
unaltered the requirement in Section 7(b) of the NGA, 15 U.S.C.
717f(b), that natural gas, once "committed or dedicated" to interstate
commerce, must continue to flow in interstate commerce until the
Commission authorizes the "abandonment" of that service.
Specifically, Section 7(b) provides that "(n)o natural-gas company
shall abandon * * * any service * * * without the permission and
approval of the Commission first had and obtained, after due hearing,
and a finding by the Commission * * * that the present or future
public convenience or necessity permit such abandonment." Order No.
451 complies with these express requirements of Section 7(b) in every
respect.  The Commission so concluded after thoroughly considering the
scope of its Section 7(b) authority when it issued Order No. 451.  See
51 Fed. Reg. at 22,171-22,172, 22,205-22,206, 46,785-46,787 (J.A.
21-23, 147-149, 301-309).  That reasonable interpretation of the NGA
by the agency charged with its administration is entitled to
considerable deference.

   A. In Order No. 451, the Commission expressly gave the "permission
and approval" required by Section 7(b) for the abandonments of service
covered by the Order, although it conditioned its approval upon the
future occurrence of several protective conditions:  (1) the inability
of the producer and the purchaser to reach agreement on a revised
price for old gas within the framework of the GFN procedure;  (2) the
producer's execution of a new contract to sell the released gas to a
new purchaser;  and (3) the purchaser's receipt of at least thirty
days' notice of contract termination.  See 18 C.F.R. 270.201(c)(1),
(e)(3) and (4), and (f)(5).  This Court specifically held in FPC v.
Moss, 424 U.S. 494 (1976), that Section 7(b) authorizes the Commission
to give advance approval of an abandonment.  /15/

   B. The Commission also made the requisite findings under Section
7(b) that, within the context of Order No. 451 as a whole, the
"present and future public interest or necessity permit (such)
abandonment." 51 Fed. Reg. at 46,785-46,787 (J.A. 301-306).  First,
the abandonment provision is but one feature of the Good Faith
Negotiation procedure, which was designed to serve the public interest
by protecting purchasers of gas under contracts having indefinite
price-escalation clauses against the automatic price increases they
otherwise would experience as a result of Order No. 451's higher price
ceiling for old gas.  The right of the producer to abandon service if
the parties cannot reach agreement on a new price prevents the
purchaser from exploiting the special protection afforded it by the
GFN procedure by refusing to bargain in good faith.

   The Commission further concluded that where the producer and
purchaser cannot reach agreement under the GFN procedure for the
continued sale of gas at a new price, the public interest would be
served by making prompt provision for the sale of that gas to another
purchaser, in order to ensure that the public will have adequate
supplies of natural gas.  /16/ This finding represents a legitimate
application of the Commission's policy that the propriety of
abandonment depends upon a comparison of the individual needs of
current gas consumers being served by the gas reserves against the
overall needs of the natural gas market in seeing that those reserves
remain dedicated to interstate commerce.  51 Fed. Reg. at 46,786 (J.A.
303-306);  see Consolidated Edison Co. of New York v. FERC, 823 F.2d
630, 632 (D.C. Cir. 1987) ("the statutory 'public convenience or
necessity' language frees (the Commission) to develop new policies to
accommodate a shifting energy marketplace");  Felmont Oil Corp., 33
F.E.R.C. Paragraph 61,333, at 61,657 (1985), rev'd on other grounds
sub nom. Consolidated Edison Co. v. FERC, 823 F.2d 630 (D.C. Cir.
1987).  As Judge Brown aptly noted in his dissent, "Order No. 451
would be a meaningless exercise if, despite the Commission's finding
that the vintage pricing system was unjust and unreasonable, pipelines
with dominant market power could nevertheless effectively nullify GFN
and shut in the gas or otherwise prevent increased supplies from
reaching the market at a competitive price." Pet. App. 52a.  By the
same token, the Commission concluded that "generally a purchaser's
loss of gas under abandonment provisions of the good faith negotiation
rule should not cause it, or the market it serves, to experience a
shortage of supply," because in light of market-responsive prices of
new gas and the elimination of shortages, purchasers should have no
difficulty finding alternative sources of supply.  51 Fed. Reg. at
46,786 (J.A. 304).

   The court of appeals nevertheless believed that the GFN process and
the conditions for abandonment are "one-sided" and producer-oriented.
Pet. App. 24a n.26, 28a, 31a-32a.  The court failed to appreciate the
purchaser's decisive role in the GFN process and the circumstances
that trigger it.  First, the GFN procedure was included in the Order
to protect purchasers from the consequences of automatic
price-escalation clauses.  Second, once the GFN process is triggered,
if the purchaser signals an intent to continue to purchase old gas at
a mutually agreed-upon price, the producer cannot "unilaterally"
abandon sales.  See id. at 59a (Brown, J., dissenting) (recognizing
that the GFN process affords pipeline-purchasers "substantial
bargaining leverage").  Third, the purchaser may often realize
substantial benefits under the GFN process, because it has an
opportunity to reopen the price terms of any contract with the
producer that involves the sales of some old gas, including contracts
that expose the purchaser to take-or-pay liability.  Fourth, the
purchaser has an important reciprocal right that corresponds to the
producer's right of abandonment:  once the produced triggers the GFN
process, the purchaser has the right to terminate any contracts
between the parties that cover at least some old gas, if the parties
do not reach agreement on a new price to be paid for gas under them.
For these reasons, the court's concerns about the fairness of the GFN
and abandonment process are unfounded and do not undermine the
Commission's "public interest or necessity" determination.

   C. Finally, the Commission's grant of permission to abandon
contract service in the circumstances specified in Order No. 451 is
fully consistent with the phrase "after due hearing" in Section 7(b).
The court below cited that phrase in support of its conclusion that
Section 7(b) requires the Commission to conduct "case specific"
inquiries into the merits of each individual abandonment application.
Pet. App. 26a-28a.  As the Commission observed when it issued Order
No. 451, however, a regime of individualized hearings would cause
administrative backlogs and substantial delays in achieving the
benefits of increased production and lower overall prices.  51 Fed.
Reg. at 46,785-46,786 (J.A. 302).  It also would detract from the
negotiations that the GFN feature of the Order was designed to
facilitate.  Section 7(b) does not require that Order No. 451 be
burdened with such self-defeating procedures.

   The courts consistently have held that an individualized
administrative hearing is "due" only when there are disputed issues of
material and historical fact that bear on the resolution of the matter
to be decided.  By contrast, legislative-type facts and questions of
policy -- such as those underlying the pricing, GFN, abandonment and
other provisions of Order No. 451 -- may be resolved through
rulemaking and need not be addressed again on a case-by-case basis.
See, e.g., Heckler v. Campbell, 461 U.S. 458, 467 (1983);  Permian
Basin, 390 U.S. at 774-777;  FPC v. Texaco, Inc., 377 U.S. 33, 41-44
(1964).  The rulemaking proceeding itself is the only hearing that is
"due" on those questions, and respondents were given a full
opportunity to participate in that proceeding.  See 51 Fed. Reg. at
46,786-46,787 (J.A. 304-309).  Having determined at the conclusion of
those rulemaking proceedings that the myriad relevant factors
justified the higher price ceiling it adopted in Order No. 451 from
the perspective of the natural gas market as a whole, the Commission
was not required to relitigate the wisdom of those statutory policy
judgments as applied to the circumstances of each contract between a
producer and pipeline.

   The apparent conclusion by the court below that the term "due
hearing" in Section 7(b) requires precisely that sort of
individualized hearing not only conflicts with the foregoing
principles, it also is inconsistent with a line of D.C. Circuit
decisions that have sustained the Commission's approach.  In
Associated Gas Distributors v. FERC, 824 F.2d 981 (1981), cert.
denied, 485 U.S. 1006 (1988), that court upheld the relevant
provisions of the Commission's comprehensive regulations permitting
interstate pipelines in certain circumstances to abandon their
contractual obligation to provide sales service when pipeline
customers choose to "convert" from sales service to firm
transportation service.  824 F.2d at 1013-1016.  The court concluded
that there is "no procedural objection to the Commission's
identification of circumstances, in an otherwise valid rulemaking,
which automatically trigger its approval of abandonment (i.e.,
establish a system of 'pre-granted' abandonment approval)." Id. at
1015 n.17.  Similarly, in Kansas Power & Light Co. v. FERC, 851 F.2d
1479, 1483-1486 (1988), the D.C. Circuit upheld the Commission's
authorization of pre-granted "limited term abandonment" against the
claim that the "due hearing" language found in Section 7(b) of the NGA
necessarily requires a trial-type evidentiary hearing.  And in
Panhandle Eastern Pipe Line Co. v. FERC, No. 89-1354 (D.C. Cir. June
29, 1990), the court reiterated that "the Commission may use a
rulemaking to identify circumstances where the public interest will be
served by a particular consent," and then, where appropriate, limit
the scope of later adjudications to whether those circumstances are
present.  Slip op. 5 (citing Heckler v. Campbell, 461 U.S. at 467).
/17/ Under Order No. 451, if a purchaser objects to a proposed
abandonment on the ground that the conditions specified in the Order
as prerequisites to receiving the Commission's approval are not
present, it may, of course, challenge the producer's proposed action
by filing a complaint with the Commission.  See 18 C.F.R. 385.206.
But where those conditions are present, the Commission has reasonably
concluded that its "permission and approval" of the abandonment should
be granted, in furtherance of the policies of Order No. 451 as a
whole.

   III. THE COMMISSION WAS NOT REQUIRED TO IMPLEMENT A COMPREHENSIVE
SOLUTION TO THE "TAKE-OR-PAY" PROBLEM IN CONNECTION WITH ORDER NO. 451
BEFORE RAISING THE CEILING PRICE FOR OLD GAS

   The court of appeals' errors in this case were not limited to its
construction of Sections 104(b)(2) and 106(c) of the NGPA and Section
7(b) of the NGA.  It also strayed far afield into a discussion of the
"take-or-pay" problem, and seemed to be of the view that the
Commission should have implemented a comprehensive solution to that
problem before raising the price of old gas under Order No. 451.  See
Pet. App. 29a-32a.

   Over the last several years, both the Commission and the natural
gas industry have grappled with the issues arising from "take-or-pay"
clauses found in sales contracts between producers and pipelines.  A
"take-or-pay" clause typically obligates a pipeline to purchase a
specified volume of gas at a specified price and, in the event it is
unable to do so, to pay for that volume.  See Transco, 474 U.S. at
412.  Most of these contracts were executed between 1977 and 1982,
years marked by serious natural gas shortages and high natural gas
prices.  See generally Pet. App. 29a-30a;  Associated Gas Distributors
v. FERC, 824 F.2d at 1021.  Market conditions changed dramatically in
the 1980s, however, upsetting the expectations of parties to
take-or-pay contracts.  Natural gas shortages of the type that led to
the enactment of the NGPA gave way to a market characterized by gas
over-supply, reduced gas demand, and lower gas rates.  Many pipelines
subsequently found themselves unable to take enough gas under
high-cost take-or-pay contracts to avoid substantial take-or-pay
liabilities, which were cumulatively worth many billions of dollars.

   After explaining the magnitude of the take-or-pay problem, Pet.
App. 29a-30a, the court of appeals expressed the belief that the
Commission had failed to address it.  Then, characterizing that
supposed inaction as both "regrettable and unwarranted," the court
appeared to require the Commission to address and solve the
take-or-pay problem as a condition precedent to the lawful
promulgation of Order No. 451.  See id. at 31a-32a.  If the court of
appeals did intend this to be an independent ground for invalidating
Order No. 451, it clearly overstepped the bounds of judicial review.

   The first error in what Judge Brown understood to be the majority's
direction to the Commission "to consider, and once and for all to
solve," the problem of take-or-pay contracts (Pet. App. 57a-58a
(Brown, J., dissenting)) lies in its failure to appreciate that the
Commission in fact has devoted great attention to the take-or-pay
problem.  Specifically, in combination with its efforts to induce a
more competitive market, the Commission initiated rulemaking
proceedings, primarily concerning Order Nos. 436 and 500, that were
intended to reduce overall take-or-pay liabilities and to allocate
take-or-pay costs equitably among all levels of the natural gas
industry.  /18/ Those efforts are described in detail in our petition
for a writ of certiorari (at 4-13) in FERC v. Associated Gas
Distributors, petition for cert. pending, No. 89-2016 (filed June 22,
1990), in which we seek review of the D.C. Circuit's invalidation of
one of the Commission's central initiatives to that end.  The
Commission's "equitable sharing" approach thus far has been quite
successful in promoting resolution of take-or-pay liability between
pipelines and producers, resulting in settlements reducing current and
future pipeline take-or-pay liability by a total of approximately $44
billion.  Those settlements have come at a cost to the pipelines of
approximately $9 billion, much of which has been passed on to pipeline
customers under the equitable sharing approach.  89-2016 Pet. 11, 17,
28-29.  /19/ The court of appeals' belief that nothing has been done
to address the take-or-pay problem therefore is completely without
foundation.  /20/

   The court below also erred in believing that the Commission was
insensitive to the take-or-pay issue when it adopted Order No. 451.
The Commission did not purport to offer a comprehensive solution to
that problem in Order No. 451, since, as it pointed out at the time,
take-or-pay issues were already being addressed head-on in separate
proceedings.  51 Fed. Reg. at 22,174-22,175, 22,196, 46,783-46,784
(J.A. 33-37, 120-121, 292-295).  But the Commission did take the
take-or-pay problem into account in fashioning Order No. 451.  In
fact, the Commission specifically intended the GFN procedure
established by the Order to encourage the settlement of take-or-pay
disputes and the renegotiation of "mixed" contracts for the sale of
both old gas and high-cost gas.  Id. at 22,196-22,197 (J.A. 120-122).
The court of appeals was of the view that the GFN procedure is
"one-sided" and fails to give pipelines sufficient leverage.  Pet.
App. 31a.  As we have explained (see page 42, supra), the court was
wrong.  See also Pet. App. 59a (Brown, J., dissenting) (noting the
"substantial bargaining leverage" thus provided to pipelines).  In any
event, this is precisely the sort of question on which a court should
not substitute its judgment for that of the expert agency charged by
Congress with making that very sort of prediction.  And as it turned
out, the Department of Energy reported to Congress during its
consideration of the Natural Gas Wellhead Decontrol Act of 1989,
discussed below, that take-or-pay issues were resolved in 33% of the
large-producer contracts that were renegotiated pursuant to or in
light of Order No. 451.  /21/

   Of course, Order No. 451 could not offer a comprehensive resolution
of all outstanding take-or-pay liabilities (particularly those
involving new gas), since it was directed primarily to the distinct
issue of price ceilings for old gas.  Our point is simply that, on its
own terms, Order No. 451 did address the issue.

   In these circumstances, the court of appeals plainly erred to the
extent it sought to direct the Commission to reorder its regulatory
priorities so as to address and solve the take-or-pay problem in the
context of raising the price ceilings for old gas -- most of which is
not subject to the take-or-pay contracts that were entered into
between 1977 and 1982.  This Court has made clear that an agency has
exceedingly broad discretion to determine the proper ordering of its
priorities and to select appropriate vehicles for addressing those
priorities.  In Vermont Yankee Nuclear Power Corp. v. NRDC, Inc., 435
U.S. 519 (1978), the Court held that it is "absolutely clear" that
"(a)bsent constitutional constraints or extremely compelling
circumstances the 'administrative agencies "should be free to fashion
their own rules of procedure and to pursue methods of inquiry capable
of permitting them to discharge their multitudinous duties."'" Id. at
543-544 (quoting FCC v. Schreiber, 381 U.S. 279, 290 (1965)).  Indeed,
in FPC v. Sunray DX Oil Co., 391 U.S. 9 (1968), the Court, applying
the same general principles, explicitly affirmed the discretion of the
Commission to address take-or-pay issues in proceedings of the
Commission's own choosing, namely, pipeline proceedings rather than
producer proceedings.  Id. at 49-52.  /22/

   Under these principles, the court of appeals had no authority to
direct the Commission to address the take-or-pay problem in the Order
No. 451 proceeding, "under penalty of forfeiting its judgmental
conclusion on increased price for old gas (and) abandonment." Pet.
App. 58a (Brown, J., dissenting).  Certainly nothing in Sections
104(b)(2) and 106(c) of the NGPA authorizes a court to impose such a
condition precedent.  Those Sections authorize the Commission to raise
the ceiling price of "any first sale of any natural gas," 15 U.S.C.
3314(b)(2), 3316(c) (emphasis added), without regard to whether that
gas (or other gas covered by a contract between the same producer and
purchaser) is subject to a take-or-pay clause.

   IV. CONGRESS'S ENACTMENT OF THE WELLHEAD DECONTROL ACT CONFIRMS THE
SOUNDNESS OF ORDER NO. 451

   The soundness of Order No. 451 under the NGPA standing alone is
reinforced by the basis on which Congress passed the Wellhead
Decontrol Act of 1989, which lifts controls on wellhead sales of
natural gas effective January 1, 1993.  Pub. L. No. 101-60, Section
2(b), 103 Stat. 158.  In its deliberations on that Act, Congress
recognized that "(c)hanges in the natural gas industry and in the
framework for Federal natural gas regulation that have occurred over
the past decade * * * make the repeal of remaining wellhead controls
appropriate." S. Rep. No. 39, 101st Cong., 1st Sess. 5 (1989).  Among
the Commission actions cited by Congress in this regard was Order No.
451, which Congress believed would function essentially as a
transitional device between the NGPA and decontrol.  Id. at 5-6;  H.R.
Rep. No. 29, 101st Cong., 1st Sess. 6 (1989).

   Moreover, Congress recognized in enacting the Wellhead Decontrol
Act that "(t)hrough (Commission) initiatives, more competition in the
interstate pipeline industry has brought lower prices to all
consumers, including captive residential consumers," and it premised
the future decontrol of natural gas on its disapproval of many of the
same market conditions and other factors the Commission sought to
address in promulgating Order No. 451.  H.R. Rep. No. 29, supra, at
3-4, 5-7;  S. Rep. No. 39, supra, at 3-6.  Congress further recognized
that as a result of the Commission's initiatives, "(w)hile about
one-third of our supplies are still controlled, most of those controls
are well above market levels," and only about 5% of the nation's total
gas supply was still subject to price controls at below-market levels.
 H.R. Rep. No. 29, supra, at 3-4;  S. Rep. No. 39, supra, at 3.  In
short, Congress's decision to proceed with wellhead decontrol because
of its approval of what the Commission had accomplished
administratively confirms the Commission's considered judgment that
the elimination of the vintage-pricing system in Order No. 451 (along
with other measures to promote competition in the natural gas
industry) comports with both the policies of the NGPA and the
long-term interests of consumers.

                              CONCLUSION

   The judgment of the court of appeals should be reversed.

   Respectfully submitted.

   KENNETH W. STARR

      Solicitor General

   LAWRENCE G. WALLACE

      Deputy Solicitor General

   EDWIN S. KNEEDLER

      Assistant to the Solicitor General

   WILLIAM S. SCHERMAN

      General Counsel

   JEROME M. FEIT

      Solicitor

   ROBERT H. SOLOMON

      Attorney Federal Energy Regulatory Commission

   AUGUST 1990

   /1/ "Pet. App." refers to the appendix to the petition for a writ
of certiorari in No. 89-1453.

   /2/ The Commission authorized "small producers" (those selling less
than 10 billion cubic feet of gas per year) to sell gas at
market-based prices, even if they were above otherwise applicable area
or national rates.  Exemption of Small Producers from Regulation,
Order No. 428, 45 F.P.C. 454 (1971).  In this manner, the Commission
proposed to remove all direct regulation of small producer rates and
instead subject those rates only to "indirect regulation" -- i.e., to
Commission review of the purchased-gas costs of the pipelines and
large producers that purchased from small producers.  In FPC v.
Texaco, Inc., 417 U.S. 380 (1974), the Court held that the NGA permits
the Commission to undertake such "indirect regulation" and to take
market prices into consideration (albeit not to the exclusion of all
other factors) when setting producer rates.  Id. at 387-391, 397-399.
However, the Court remanded the case to the Commission because it had
failed to articulate a sufficient basis for its order.  Id. at
395-397.

   /3/ On March 1, 1977, the Commission initiated proceedings to
establish yet another price ceiling for gas from wells commenced on or
after January 1, 1977.  Order Instituting National Rate Proceeding, 57
F.P.C. 1238.  However, the Commission took no action on this biennial
update after the NGPA bills were introduced in Congress.

   /4/ Section 2(12) of the NGPA defines a "rollover contract" as a
contract entered into on or after November 8, 1978, for the first sale
of natural gas that was previously subject to a contract that expired
at the end of a fixed term specified in the contract itself.  15
U.S.C. 3301(12).

   /5/ The Commission noted that as a result of differing access to
old gas, the average residential price of gas in Maine and Connecticut
in 1984 was $9.58 and $8.80 per thousand cubic feet (Mcf),
respectively, while in Arkansas and Kansas it was only $4.37 and $4.49
per Mcf. 51 Fed. Reg. at 22,176 (J.A. 39).

   /6/ Such a clause requires a pipeline to take a specified volume of
gas from a producer or, if it is unable to do so, to pay for the
specified volume.  See Transco, 474 U.S. at 412.

   /7/ Order No. 436, Regulation of Natural Gas Pipelines After
Partial Wellhead Decontrol, 1982-1985 FERC Stats. & Regs. (Regs.
Preambles) (CCH) Paragraph 30,665 (1985), aff'd in part and remanded
in part sub nom.  Associated Gas Distributors v. FERC, 824 F.2d 981
(D.C. Cir. 1987), cert. denied, 485 U.S. 1006 (1988).  The background
of the take-or-pay problem and the Commission's subsequent measures to
address it are explained in greater detail in our petition for a writ
of certiorari (at 4-13) in FERC v. Associated Gas Distributors,
petition for cert. pending, No. 89-2016 (filed June 22, 1990).

   /8/ The majority also struck down the related requirement in Order
No. 451 that a pipeline continue to transport old gas that is released
from its contract with the producer and sold to another purchaser.
Pet. App. 32a-35a;  see 18 C.F.R. 270.201(h).  As the majority
acknowledged (Pet. App. 32a n.34), however, and as respondents concede
(Br. in Opp. 12 n.6), the continuing transportation obligation is of
little practical significance, because all of the major interstate
pipelines have now applied for or accepted "blanket" transportation
certificates obligating them to provide transportation service to all
shippers on a non-discriminatory basis.  18 C.F.R. 284.8(b), 284.9(b),
284.221-284.226;  see S. Rep. No. 38, 101st Cong., 1st Sess. 6 (1989).
 In these circumstances, no petitioner has sought further review of
this transportation issue.

   /9/ The NGPA also carries forward any "just and reasonable rate"
established by the Commission after April 27, 1977, but before the
NGPA's effective date.  15 U.S.C. 3314(b)(1)(B).  This provision is of
little practical significance.

   /10/ Section 106(a)(2) provides an alternative ceiling of $0.54 per
million Btu's if that is higher than the rate previously established
by the Commission.  15 U.S.C. 3316(a)(2).

   /11/ There is no merit to respondents' contention (Br. in Opp.
21-23) that the Commission engaged in impermissible "de facto
deregulation" because the ceiling now is above the market price for
natural gas.  All old gas remains subject to a regulated price
ceiling, which may later be adjusted if necessary to assure just and
reasonable rates.  51 Fed. Reg. at 22,211, 46,764-46,765 (J.A.
170-171, 219-222).  That is all the NGA and NGPA require.  Indeed, the
ceiling price for post-1974 old gas that is carried forward by Section
104(b)(1), which stood at $2.94 as of April 1990 (18 C.F.R. 271.101
(Table II), at 376 (1990)), is above the market price;  and the
Commission cannot lower that ceiling because Section 104(b)(2)
requires that any revised ceiling be "higher." See Pet. App. 23a n.24;
 see also Mid-Louisiana Gas, 463 U.S. at 333.  It could not seriously
be maintained that post-1974 gas has for this reason become
"deregulated." There is no reason for a different conclusion with
respect to the other old gas to which the Commission has extended that
same ceiling.

   The decline in market prices recognized in Martin Exploration did,
however, restrict the Commission's options once it concluded that the
old gas vintage price structure no longer was just and reasonable.
The Commission could not have collapsed all of the vintage categories
into a single category subject to a ceiling at or below the market
price of old gas without lowering the ceilings applicable to the most
recent (and highest-priced) vintages, which would have violated the
requirement in Sections 104(b)(2) and 106(c) that any new ceiling be
"higher."

   /12/ As Judge Brown also observed, Pet. App. 48a n.7, the Fifth
Circuit previously had recognized, in a related context, that "(t)he
drafters' choice of the words 'rule or order' * * * clearly
contemplates the establishment of an industry-wide scheme." Texas
Eastern Transmission Corp. v. FERC, 769 F.2d 1053, 1061 (5th Cir.
1985), cert. denied, 476 U.S. 1114 (1986).

   /13/ H.R. 8444, 95th Cong., 1st Sess. Sections 405, 409 (1977), 123
Cong. Rec. 26,169 (1977);  see H.R. Rep. No. 496, 95th Cong., 1st
Sess. Pt. 4, at 104-106 (1977).

   /14/ See S. 2104, 95th Cong., 1st Sess. Section 3 (1977), as
amended, 123 Cong. Rec. 32,306 (1977).

   /15/ The court of appeals was mistaken in believing that the
abandonment provisions of Order No. 451 conflict with United Gas Pipe
Line Co. v. McCombs, 442 U.S. 529 (1979).  Pet. App. 27a.  There, the
Commission had failed altogether to give its "permission and approval"
for the abandonment at issue, and therefore it had not made an express
finding that the public convenience or necessity favored that
abandonment.

   /16/ The Commission summarized these points on rehearing (51 Fed.
Reg. at 46,785 (J.A. 302)):

      (A)bandonment under the good faith negotiation rule is in the
      public interest, since it is necessary to ensure that the goals
      of Order No. 451 of increased production of old gas and overall
      lower prices * * * are achieved.  These goals cannot be achieved
      unless producers can obtain the market-responsive prices
      permitted by the rule.  Without the possibility of abandonment,
      purchasers under existing contracts could prevent producers from
      obtaining those prices by insisting on continuation of the
      present price.

   /17/ The D.C. Circuit also expressly "disagree(d)" with the
decision of the court below in this case, "(t)o the extent that the
Mobil court reads United Gas Pipe Line Co. v. McCombs, 442 U.S. 529
(1976), as barring any provision for generic, pre-granted
abandonment." Slip op. 6.

   /18/ Order No. 436, Regulation of Natural Gas Pipelines After
Partial Wellhead Decontrol, 50 Fed. Reg. 42,408 (1985), 1982-1985 FERC
Stats. & Regs. (Regs. Preambles) (CCH) Paragraph 30,665 (1985), aff'd
in part and remanded in part sub nom.  Associated Gas Distributors v.
FERC, 824 F.2d 981 (D.C. Cir. 1987), cert. denied, 485 U.S. 1006
(1988).  The Commission subsequently repromulgated Order No. 436, with
certain revisions, as Order No. 500, 52 Fed. Reg. 30,334 (1987), FERC
Stats. & Regs. (Regs. Preambles) (CCH) Paragraph 30,761 (1987), record
remanded sub nom. American Gas Ass'n v. FERC, 888 F.2d 136 (D.C. Cir.
1989).  Following the remand, the Commission issued Order No. 500-H,
54 Fed. Reg. 52,344 (1989), FERC Stats. & Regs. (Regs. Preambles)
(CCH) Paragraph 30,867 (1989), on reh'g, Order No. 500-I, FERC Stats.
& Regs. (Regs. Preambles) (CCH) Paragraph 30,880 (1990), petitions for
review pending sub nom. American Gas Ass'n v. FERC, No. 87-1588 (D.C.
Cir. argued May 8, 1990).

   /19/ See Order No. 500-H, supra, FERC Stats. & Regs. at
31,522-31,523.

   /20/ This error by the court below is all the more remarkable
because it previously recognized in Transwestern Pipeline Co. v. FERC,
820 F.2d 733, 744 (5th Cir. 1987), cert. denied, 484 U.S. 1005 (1988),
that the "take-or-pay issue" is a "separate matter which is being
addressed in other proceedings" and that "(t)he Commission is not
ignoring the issue."

   /21/ See Natural Gas Price Controls:  Hearing on H.R. 1595 Before
the Subcomm. on Energy and Power of the House Comm. on Energy and
Commerce, 101st Cong., 1st Sess. 158-159 (1989).

   /22/ See also FPC v. Transcontinental Gas Pipe Line Corp., 423 U.S.
326, 333 (1976) (Commission should be permitted to "exercise its
administrative discretion in deciding how, in light of internal
organization considerations, it may best proceed to develop * * * the
methods, procedures, and time dimension of the needed inquiry");
Wisconsin Gas Co. v. FERC, 770 F.2d 1144, 1159-1160 (D.C. Cir. 1985)
("for the reviewing court to maintain its proper function, it cannot
require agencies to solve all problems that may be related to a
particular decision at the same time"), cert. denied, 476 U.S. 1114
(1986).

   APPENDIX