PUBLIC SERVICE COMMISSION OF THE STATE OF NEW YORK, PETITIONER v. MID-LOUISIANA GAS COMPANY, ET AL. ARIZONA ELECTRIC POWER COOPERATIVE, INC., PETITIONER v. MID-LOUISIANA GAS COMPANY, ET AL. STATE OF MICHIGAN, PETITIONER v. MID-LOUISIANA GAS COMPANY, ET AL. FEDERAL ENERGY REGULATORY COMMISSION, PETITIONER v. MID-LOUISIANA GAS COMPANY, ET AL. No. 81-1889 No. 81-1958 No. 81-2042 No. 82-19 In the Supreme Court of the United States October Term, 1982 On Writ of Certiorari to the United States Court of Appeals for the Fifth Circuit Brief for the Federal Energy Regulatory Commission TABLE OF CONTENTS Opinions below Jurisdiction Statutes involved Statement: A. The statutory and regulatory background B. The Commission's Rules C. The opinion of the court of appeals Introduction and summary of argument Argument: The Commission correctly determined that under the Natural Gas Policy Act it is required to accord "first sale" treatment only to wellhead or field sales of natural gas and not to transactions involving pipeline produced gas that has been transported by the producing pipeline as part of its mixed system supply and sold downstream to its system customers A. The Commission's interpretation is strongly supported by the literal language of Section 2(21)(B) of the Act B. The structure and history of the NGPA fully support the Commission's view C. The Commission's analysis is consistent with the policies underlying the NGPA 1. The Commission's approach will not perpetuate a dual market for interstate and intrastate gas or discourage increased production 2. The Commission properly recognized that the policies underlying the NGPA do not require that pipeline producers be treated in all instances identically to independent producers 3. The Commission properly exercised its authority under the Natural Gas Act in permitting sales of parity priced gas to be valued at NGPA levels 4. Both the court's intracorporate transfer "first Sale" and respondent's downstream "first sale" would create a substantial reworking of state and federal regulatory schemes in ways Congress could not have intended D. The court of appeals erred in failing to defer to the Commission's interpretation of the statute Conclusion Appendix OPINIONS BELOW The opinion of the court of appeals (Pet. App. A-1 to A-15) /1/ is reported at 664 F.2d 530. The orders of the Federal Energy Regulatory Commission (Pet. App. B-1 to B-13, B-14 to B49 and B-50 to B-82) are not reported. JURISDICTION The judgments of the court of appeals (Pet. App. C-1; 82-19 Pet. App. 1a-2a) were entered on December 23, 1981. Timely petitions for rehearing were denied on February 5, 1982 (Pet. App. C-3 to C-4). The petitions for a writ of certiorari were filed on April 12, 1982, in No. 81-1889; on April 23, 1982, in No. 81-1958; and on May 3, 1982, in No. 81-2042. Justice White extended to time for filing the petition in No. 82-19 to and including July 5, 1982 (a holiday), and that petition was filed on July 6, 1982. The petitions were granted on October 4, 1982. The jurisdiction of this Court rests on 28 U.S.C. 1254(1) and 15 U.S.C. (Supp. V) 3416(a)(4). STATUTE INVOLVED 1. Section 2(20 of the Natural Gas Policy Act of 1978, 15 U.S.C. (Supp. V) 330 (20), provides: The term "sale" means any sale, exchange, or other transfer for value. 2. Section 2(21) of the Natural Gas Policy Act of 1978, 15 U.S.C. (Supp. V) 3301(21) provides: (A) General rule The term "first sale" means any sale of any volume of natural gas -- (i) to any interstate pipeline or intrastate pipeline; (ii) to any local distribution company; (iii) to any person for use by such person; (iv) which precedes any sale described in clauses (i), (ii), or (iii); and (v) which precedes or follows any sale described in clauses (i), (ii), (iii), or (iv) and is defined by the Commission as a first sale in order to prevent circumvention of any maximum lawful price established under this chapter. (B) Certain sales not included Clauses (i), (ii), (iii), or (iv) of subparagraph (A) shall not include the sale of any volume of natural gas by any interstate pipeline, intrastate pipeline, or local distribution company, or any affiliate thereof, unless such sale is attributable to volumes of natural gas produced by such interstate pipeline, intrastate pipeline, or local distribution co;pany, or any affiliate thereof. QUESTION PRESENTED In Title I of the Natural Gas Policy Act of 1978 (entitled "Wellhead Pricing"), 15 U.S.C. (Supp. V) 3311 et seq., Congress established a new and intricate incentive pricing scheme for the "first sale" of natural gas. Unquestionably, this scheme was meant to reach gas produced and sold at the wellhead by independent independent producers and pipeline producers. The question presented is whether Congress also intended to require the Federal Energy Regulatory Commission to treat as a "first sale" within this pricing scheme either an intracorporate transfer of pipeline produced gas from a pipeline's production division to its transmission division, or the eventual sale of such gas to the pipeline's regular customers after the gas has been commingled with purchased gas and transported downstream by the pipeline as part of its general system supply. STATEMENT A. The Statutory and Regulatory Background 1. Most of the nation's natural gas supply is produced by independent producers who typically sell their output at the well head or elsewhere in the field /2/ to interstate and intrastate pipeline companies, which, in turn, transport the gas and resell it downstream to their regular system customers. A portion of the nation's gas supply, however, is produced by the pipelines themselves. /3/ Generally, this gas is commingled with the gas purchased from independent producers and is sold downstream as part of the pipeline's general system supply. Prior to the passage of the Natural Gas Policy Act of 1978 (NGPA), 15 U.S.C. (Supp. V) 3301 et seq., the Commission /4/ regulated the price of all gas transported and sold in interstate commerce under the Natural Gas Act, 15 U.S.C. (& Supp. V) 717 et seq. Pursuant to the Commission's authority under that Act, it developed discrete pricing schemes for gas produced by independent producers and for gas produced by pipelines. /5/ The Commission's regulatory approach with regard to independent producers focused on establishing uniform rates and on providing sufficient incentives to encourage producers to dedicate greater volumes of gas to the interstate market. /6/ On the other hand, the Commission, as early as 1942, treated pipeline production as an integral part of the pipeline's transmission business and regulated both production and transmission on a cost of service basis. In re Canadian River Gas Co., 3 F.P.C. 32, 40 (1942), aff'd sub nom. Colorado Interstste Gas Co. v. FPC, 324 U.S. 581 (1945). /7/ Under this methodology, a pipeline was permitted to recover only its actual costs of production including a reasonable return on investment. /8/ Over time, the Commission came to allow certain categories of pipeline production to be priced on a parity with independently produced gas (under area and national rates), but retained others on a cost of service basis. /9/ 2. By the late 1960's, however, in the face of a rapidly increasing demand for natural gas, there emerged a sharp division between the regulated interstate market, on the one hand, and the intrastate markets, which had not been subject to Commission regulation under the Natural Gas Act. By the 1970's, this artificial division had solidified and the nation's gas situation worsened. The prices for gas in the intrastate markets were substantially higher than in the interstate market; this price disparity adversely affected the dedication of gas to the interstate market, resulting in serious shortages of gas available for interstate sale. A central purpose of Congress in enacting the NGPA was to eliminate these dual markets and create a single national market where both interstate and intrastate purchasers would have equal access to new gas supplies without substantial price disparity. In addition, Congress sought to encourage the production of new gas through an incentive pricing scheme. Title I of the NGPA, entitled "Wellhead Pricing," serves both of these objectives by establishing an intricate system of pricing schedules for the "first sale" of natural gas. /10/ Section 2(21)(A) of the Act, 15 U.S.C. (Supp. V) 3301 (21)(A), defines "first sale" generally as "any sale of any volume of natural gas" to a specified purchaser, including an interstate pipeline, an intrastate pipeline, a local distribution company or an end user. However, Section 2(21)(B) provides that a "first sale" * * * shall not include the sale of any volume of natural gas by any interstate pipeline, intrastate pipeline, or local distribution company, or any affiliate thereof, unless such sale is attributable to volumes of natural gas produced by such interstate pipeline, intrastate pipeline, or local distribution company, or any affiliate thereof. 15 U.S.C. (Supp. V) 3301(21)(B). The Act defines "sale" as "any sale, exchange, or other transfer for value." Section 2(20), 15 U.S.C. (Supp. V) 3301(20). B. The Commission's Rules In a rulemaking commenced pursuant to the NGPA, /11/ the Commission interpreted the NGPA as having supplanted completely the incentive pricing system that the Commission had devised under the Natural Gas Act for gas produced by independent producers. It found that a sale of gas produced by independent producers falls within the statutory definition of "first sale" /12/ and thus is governed by the pricing scheme established in Title I. It determined further that a wellhead or field sale by a pipeline also qualifies as a "first sale" under the NGPA (Pet. App. B-2). In the Commission's view (id. at B-53), "(w) ellhead or field sales (by pipelines) clearly are sales attributable to a pipeline's * * * own production," since the gas is sold in the producing field in discrete blocks and not as part of the pipeline's general system supply. The Commission found, however, that a down stream sale by a pipeline to its system customers from its mixed system supply, which is comprised of volumes of gas purchased from independent producers commingled with gas produced by the pipeline itself, does not constitute a "first sale" under the Act. The Commission concluded that for a sale to be "attributable" in the statutory sense to a pipeline's own production, the sale would have to be "comprised exclusively" of that production (Pet. App. B-2, B-12). The Commission (id. at B-61) rejected the argument that "section 2(21)(B) guarantees a pipeline the right to collect a first sale price for all volumes of natural gas produced by that pipeline or distributor without regard to the type of transaction or the manner in which the gas is transferred." The Commission reasoned (id. at B-61 to B-62): Section 2(21)(B) speaks in terms of sales, not volumes of natural gas, and excludes a pipeline or distributor sale from first sale treatment "unless such sale is attributable to volumes of natural gas produced by such interstate pipeline, intrastate pipeline or local distribution company, or any affiliate thereof." The Commission stressed that if the NGPA were read to apply to routine intrastate pipeline or local distribution company sales from mixed system supply, federal regulation would displace the retail ratemaking jurisdiction of state and local authorities over such mixed volume sales, an intrusion into the local retail markets that was not intended by Congress in enacting the NGPA (id. at B-4, B-62). The Commission also rejected the contention made by some pipelines that the term "attributable" as used in the statute means "imputable," and that the statute thus requires the Commission to impute a "first sale" at the wellhead to an intracorporate transfer of gas from a pipeline's producing division to its transmission division. While the Commission was of the view that under its authority to prevent circumvention of the Act /13/ it has the power to define an intracorporate transfer as a "first sale," it concluded that such a determination was neither appropriate nor necessary (Pet. App. B-65 to B-66). It emphasized that such transfers had not been considered sales under the Natural Gas Act inasmuch as there were no contracts or certificates applicable to such hypothetical transactions. Nor did it find anything in the NGPA that compelled it to regard as a sale "an event that is recorded solely on the books and records of the pipeline and that occurs without * * * contract, bargaining, or certification" (id. at B-66). Thus, as a matter of statutory interpretation, the Commission concluded that the only sales involving pipeline produced gas that necessarily are entitled to "first sale" status under the NGPA are wellhead or field sales by a pipeline of its own production. 2. In a separate rulemaking under the Natural Gas Act, /14/ the Commission enunciated its policy with respect t pipeline production that is not sold at the wellhead or in the field but is commingled with purchased gas as part of the pipeline's system supply. It found that "Congress left to the Commission the task of harmonizing its statutory mandate to implement the NGPA pricing scheme with its continuing authority under the (Natural Gas Act) to determine the price treatment of natural gas produced by interstate pipelines and sold in mixed volume sales" (Pet. App. B-24; see also id. at B-18). In the Commission's view, the arguments in favor of a policy of pricing parity among independent and pipeline producers -- a policy that the Commission had initiated in 1969 and refined in 1972 (see note 9, supra) -- had become even "more compelling" with the enactment of the NGPA (Pet. App. B-24). The Commission recognized that "(i)f pipeline producers were held to pre-NGPA prices, or were subject to a newly established cost-based nationwide rate, they would in many instances be unable to compete with independent producers in acquiring new leases. The resulting disincentive to pipeline production would deny the pipeline customers a more certain stream of additional supplies" (id. at B-25). Accordingly, the Commission determined that "the valuation of pipeline production by reference to NGPA rates represents the most reasonable reconciliatio of consumer and producer interests and therefore achieves a just and reasonable result" (id. at B-31; footnote omitted). /15/ The Commission concluded, however, that a similar approach was not warranted as to pipeline production that had been receiving cost of service treatment. As the Commission pointed out (Pet. App. B-26 to B-27): Pipelines receiving such treatment have enjoyed the advantage of passing on to their customers the risks of the pipeline's production ventures. Pipelines have passed on the costs of acquiring leases and the costs of exploration and development, including dry hole costs and other costs associated with unsuccessful and marginally successful ventures, in exchange for assuring their customers the opportunity to enjoy the additional volumes resulting from successful ventures at a price determined on a cost-of-service basis. The Commission therefore will not extend pricing parity to pipeline production which prior to the enactment of the NGPA was valued on a cost-of-service basis rather than by reference to area or nationwide (rates). In the Commission's opinion, to "vary this policy * * * would deprive (pipeline customers) of price benefits they should receive in exchange for assuming the risk of a pipeline's production ventures" (id. at B073). C. The Opinion of the Court of Appeals The court of appeals vacated the Commission's rules (Pet. App. A-1 to A-15). The court held that "Congress clearly intended for any production attributable to (a pipeline) * * * to be accorded first sale status under the NGPA and * * * Congress contemplated that the intracorporate transfer of pipeline production to the pipeline would be treated as the first sale" (id. at A-15). Thus, the court ruled that the Commission had erred in limiting "first sale" treatment solely to sales of pipeline produced gas at the wellhead and in asserting Natural Gas Act jurisdiction under its parity pricing policy to pipeline production that, the court believed, was automatically entitled to NGPA prices under the "first sale" definition in the NGPA. The court refused to defer to the Commission on these matters, reasoning that t e Commission's approach was not based on a longstanding interpretation and was not in an area of agency expertise, and, while it was a contemporaneous interpretation of a new statute, the Commission had "had no input into the development of the term 'first sale'" (id. at A-7). Under the court's analysis, the first clause of Section 2(21)(B) was meant to deny "first sale" status to downstream sales of gas to a pipeline's customers (Pet. App. A-8). /16/ The court believed that the "unless" clause of Section 2(21)(B) could only have meaning if it is interpreted "as granting 'first sale' status to gas which is attributable to pipeline production" (Pet. App. A-9). Under the court's interpretation, "the intracorporate transfer from the production division of the pipeline to the transportation division of the pipeline would constitute the first sale" (id. at A-11). /17/ Otherwise, the court thought, all pipeline produced gas would be excluded from NGPA pricing (id. at A-8 to A-9), thus "creating a distinction between pipeline and independent producers" (id. at A-9) that the court believed was not supported by the purposes underlying enactment of the NGPA. The court summarily disposed of the Commission's approach with respect to the cost of service gas, noting that the Commission's cost of service decisions constituted "exceptions to the application of area or national rates (and) represent historical practices the effect of which is continually diminished as early wells cease producing gas. They do not affect our decision" (Pet. App. A-3 n.1). As for the Commission's rule under the Natural Gas Act applying NGPA prices to pipeline production that was subject to the parity pricing policy, the court characterized this approach as "sophistic" and "in no way justif(ying) departure from the congressional purpose in the first instance" (id. at A-9). INTRODUCTION AND SUMMARY OF ARGUMENT Some forty years ago, shortly after the inception of pipeline regulation under the Natural Gas Act, the Commission concluded that a pipeline's production and gathering operations were an integral part of its total operations, and, accordingly, it determined that the costs of such operations had to be taken into account in regulating the pipeline's rates and charges for the sale and transportation of gas in interstate commerce. In re Canadian River Gas Co., 3 F.P.C. 32, 40 (1942), aff'd sub nom. Colorado Interstate Gas Co. v. FPC, 324 U.S. 581 (1945). The broad question at issue were is the extent to which Congress, in enacting the NGPA, meant to modify that regulatory scheme as regards pipeline production. The decision below would completely eradicate this historical regulatory framework, and supplant it with NGPA pricing. But in Section 601 of the NGPA, 15 U.S.C. (Supp. V) 3431, Congress specifically delineated those areas in which the Commission's traditional Natural Gas Act authority is to be modified, and otherwise left it to the Commission, in the exercise of its discretion, to harmonize implementation of the NGPA with the existing scheme of regulation under the Natural Gas Act. Nowhere in these limitations did Congress address the Commission's treatment of pipeline production. In these circumstances, "(i)t is not lightly to be assumed that Congress intended to depart from a long established policy." Robertson v. Railroad Labor Board, 268 U.S. 619, 627 (1925). The central thrust of our argument is that if, as the court of appeals assumed, Congress meant to effect a complete overhaul of the Commission's role in regulating pipeline production, it would have expressed that intent in a more direct fashion. Congress had two basic purposes in enacting the Natural Gas Policy Act: (1) to eliminate the dual market for gas, and (2) to encourage increased gas production. Those purposes are clearly served by recognizing that independent producers are eligible for the pricing benefits of Title I. Application of the NGPA's incentive pricing provisions to the production and sale activities of independent producers has a direct impact in eliminating the disparities spawned by the bifurcated market problem. That goal is also served by granting "first sale" status to a pipeline's sale at the wellhead or in the field, which is the functional equivalent of an independent producer sale. Th re is no indication, however, that granting NGPA pricing to pipeline production across the board either would help to solve the dual market problem or is necessary to spur production of all categories of gas. In the main, application of NGPA prices to all pipeline production would do nothing but allow pipelines to revalue cost of service gas at higher levels and thus reap an unjustified windfall. The court of appeals, however, concluded that Congress intended NGPA prices to be applicable to all pipeline produced gas, and it construed the NGPA as requiring that a transfer of pipeline produced gas from a pipeline's production division to its transmission division (i.e., and "intracorporate transfer") be treated a "first sale." Several respondents present the alternative argument, rejected by the court below, that pipeline production is entitled to "first sale" treatment after it has been commingled with gas purchased from other sources and transported and sold downstream to the pipeline's regular customers as part of the pipeline's general system supply. The court of appeals erred in rejecting the Commission's view that, with respect to pipeline produced gas, only a sale comprised exclusively of pipeline production -- e.g., a wellhead sale -- constitutes a "first sale" and thus automatically qualifies for the incentive prices of the Act. The Commission's interpretation is consistent, not only with the policies of the NGPA discussed above, but also with the language, structure and history of the Act. Accordingly, the court below should have deferred to the reasonable construction by the agency charged with administering and enforcing the statute. Section 2(21) of the NGPA establishes the general rule that a pipeline's sale of its own production is not a "first sale." The statutory language clearly indicates that, in order to constitute a "first sale," a sale of gas by a pipeline must be "attributable" in its entirety to the pipeline's own production. A sale by a pipeline from its mixed system supply far downstream from the wellhead cannot be "attributable" to the pipeline's own production, because such a sale is comprised of gas from various sources. Moreover, an intracorporate transfer of gas also cannot constitute a "first sale" because it is not a "sale" as that term is defined in Section 2(20) of the Act. An intracorporate transfer, which merely reflects the entries in a pipeline's books and records, has none of the traditional indicia of a sale, such as a transfer of title or an exchange of consideration. The structure of the NGPA links the concept of "first sale" wit; "wellhead prices," which suggests that downstream sales do not qualify for the incentive pricing benefits of the Act. Other provisions of the NGPA indicate that Congress did not intend that an intracorporate transfer automatically qualifies for "first sale" treatment. In addition, the legislative history supports the Commission's view that "first sale" means an actual sale of gas in the field, and not a fictional transaction such as an intracorporate transfer, or a downstream sale from a pipeline's mixed system supply. Finally, adoption of either the "intracorporate transfer" theory or the "downstream sale" theory would disrupt the Act's carefully tailored regulatory structure and the delicate balance that Congress sought to preserve between federal and state regulation. ARGUMENT THE COMMISSION CORRECTLY DETERMINED THAT UNDER THE NATURAL GAS POLICY ACT IT IS REQUIRED TO ACCORD "FIRST SALE" TREATMENT ONLY TO WELLHEAD OR FIELD SALES OF NATURAL GAS AND NOT TO TRANSACTIONS INVOLVING PIPELINE PRODUCED GAS THAT HAS BEEN TRANSPORTED BY THE PRODUCING PIPELINE AS PART OF ITS MIXED SYSTEM SUPPLY AND SOLD DOWNSTREAM TO ITS SYSTEM CUSTOMERS Section 2(21)(B) of the NGPA provides that a sale of natural gas by a pipeline is not a "first sale" unless the "sale is attributable to" the pipeline's own production. The Commission interpreted this statutory language to mean that only a sale comprised exclusively of pipeline produced gas necessarily constitutes a "first sale," thus automatically qualifying for the incentive pricing benefits of Title I. The court of appeals held, however, that any gas produced by a pipeline must be given "first sale" treatment under the Act, even if that gas is not actually sold by the producing pipeline until after it has been commingled with gas purchased from other sources. In an effort to harmonize that result with the statutory language, the court concluded that an intracorporate transfer of gas from a pipeline's production division to its transmission division is a "first sale" within the meaning of the NGPA. Several respondents have advanced the alternative argument that the Commission must accord "first sale" treatment to a fixed portion of each downstream sale from a pipeline's mixed system supply based on the ratio of the pipeline's own production to its total system supply. We believe neither of these approaches is correct. It is our submission that the construction provided by the Commission -- the agency charged with administering and enforcing the statute -- is the most reasonable one, and that the court of appeals erred in rejecting it. A. The Commission's Interpretation is Strongly Supported by the Literal Language of Section 2(21)(B) of the Act As in all cases involving statutory construction, "we begin with the language of the statue itself" (Howe v. Smith, 452 U.S. 473, 480 (1981)), and we assume that "the legislative purpose is expressed by the ordinary meaning of the words used." Richards v. United States, 369 U.S. 1, 9 (1962). Thus, "(a)bsent a clearly expressed legislative intention to the contrary, that language must ordinarily be regarded as conclusive." Consumer Product Safety Commission v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980). See American Tobacco Co. v. Patterson, No. 80-1199 (Apr. 5, 1982), slip op. 5. The language of Section 2(21)(B) strongly supports the Commission's construction. 1. Section 2(21)(A) of the NGPA defines a "first sale" as any sale of natural gas to a pipeline, a local distribution company, or any person for use by such person. Section 2(21)(B), however, specifically excludes from the definition of "first sale" any sale by an interstate or intrastate pipeline, a local distribution company, or any affiliates thereof, unless such sale is attributable to volumes of natural gas produced by such interstate pipeline, intrastate pipeline, or local distribution company, or any affiliate thereof. Thus, the statute on its face establishes the general rule that pipeline sales are not "first sales." A particular sale of pipeline produced gas may only escape this general exclusion if the sale is "attributable" to the pipeline's own production. The Commission reasoned (Pet. App. B-61 to B-62) that because the term "attributable" qualifies "such sale," all volumes subject to the sale must be comprised of gas produced by the pipeline in order for the sale to be "attributable" to the pipeline's production. A sale by a pipeline from its mixed system supply downstream of the well head cannot be "attributable" to the pipeline's own production, because such a sale is comprised of gas from various sources. 2. Those respondents that contend that the Commission construed the statute too narrowly in denying "first sale" status to downstream sales would read into the statute words that were not put there by Congress. Section 2(21)(B) does not state "unless a portion (or a pro rata share) of such sale is attributable to volumes of gas produced by (a pipeline)." Instead, Congress specifically stated "unless such sale is attributable" to the pipeline's own production. As the court of appeals correctly concluded (Pet. App. A-8), Section 2(21)(B) bars a mixed system sale from being accorded "first sale" treatment: If (the) denial (in the first part of Section 2(21)(B)) of "first sale" status to pipeline sales had not been included in the NGPA, pipelines which bought gas produced by independent producers and then resold it would have been involved in two "first sales," once as purchaser from the independent producer and then as seller to its (resale) customer. The restriction operates to eliminate this possibility by denying "first sale" status to the downstream sale. This reading of Section 2(21)(B) is confirmed by other provisions of the NGPA. Thus, when Congress meant to limit the applicability of certain provisions, it used "attributable" in conjunction with qualifying language. For example, Section 110(a)(1), 15 U.S.C. (Supp. V) 3320(a)(1)(emphasis added), provides that a first sale price may exceed the maximum lawful price if the excess is necessary to recover State severance taxes attributable to the production of such natural gas and borne by the seller, but only to the extent the amount of such taxes does not exceed the limitation of subsection (b) * * * . To like effect, Section 503(e)(2)(B), 15 U.S.C. (Supp. V) 3413(e)(2)(B) (emphasis added), which allows a seller of natural gas to charge a special rate under the NGPA pending a determination whether the seller is entitled to that or a higher rate, authorizes the Commission to take measures to provide adequate assurance that funds, to the extent attributable to a price in excess of the appropriate maximum lawful price under (Title) I * * * are available in the event of such refund. Congress' failure similarly to modify "attributable" in Section 2(21)(B) reflects its intention that, in the context of that section, "attributable" means, as the Commission held, "exclusively comprised of." The only sale of gas by a pipeline that is exclusively comprised of pipeline production is a sale at the wellhead or its functional equivalent -- i.e., where "the pipeline commit(s) volumes of gas from an identifiable well to a particular purchaser and subsequently (withdraws) equivalent volumes from system supply for sale to the purchaser" (Pet. App. B-53 n.5; see also id. at B-3). /18/ 3. Moreover, the language of the statute offers no support for the court of appeals' conclusion that Congress meant to require the Commission to treat the physical movement of gas from a pipeline's producing division to its transmission division -- i.e., an intracorporate transfer -- as a "first sale." To begin with, in order for such a transfer to qualify as a "first sale," it must first constitute a "sale." Section 2(20) of the NGPA, 15 U.S.C. (Supp. V) 3301(20), defines "sale" as "any sale, exchange, or other transfer for value." It thus is clear that for any transfer or exchange of gas to come within the statutory definition, it must be for "value," i.e., for a fair consideration. See Black's Law Dictionary 1391 (5th ed. 1979) (defining "value" as "(a)ny consideration sufficient to support a simple contract"). As the Commission noted, however, intracorporate transfers involve merely "bookkeeping and accounting entries of a corporation rather than * * * actual sales" (Pet. App. B-5; see id. at B-66). There is no transfer of cash or other consideration and no change of title. In short, an intracorporate transfer has none of the traditional and usual indicia of the sale. Consistent with this notion, a "sale" under the Uniform Commercial Code similarly requires an exchange of consideration. U.C.C. Paragraph 2-106(6); see R. Anderson, Anderson on the Uniform Commercial Code Paragraph 2.106:6 (3d ed. 1981). Accordingly, the simple transfer of a commodity from one division of a corporation to another is not considered a transfer for value because ownership remains within the same corporate entity -- only the physical location of the commodity changes. /19/ This same approach traditionally has governed transactions under the Natural Gas Act. For example, a transportation agreement between a gas producer and a pipeline does not constitute a "sale" under the Natural Gas Act, since "(a)n essential ingredient of an exchange is a transfer of title * * * ." Public Service Electric & Gas Co. v. FPC, 371 F.2d 1, 4 (3d Cir. 1967). In addition, a sale under the Natural Gas Act must be governed by a contract and a certificate of public convenience and necessity. /20/ Intracorporate transfers of pipeline production have never been subject to these traditional requirements precisely because they have never been viewed as "sales" under that Act. Nor did Congress manifest any intent to depart from these traditional commercial principles in its definition of "first sale" in the NGPA. /21/ 1hus, Section 2(21) itself is devoid of any reference either to an "intracorporate transfer" or to the various divisions (e.g., production and transmission divisions) of a single corporate entity. On the contrary, the only entities referred to in the statute are "interstate pipelines, intrastate pipelines, local distribution companies and affiliates thereof." /22/ In short, giving the terminology used by Congress its "ordinary" and "common" meaning (Perrin v. United States, 444 U.S. 37, 42 (1977)) leads inescapably to the conclusion that Congress did not intead to grant automatic "first sale" status to the transfer of gas between the production and transmission divisions of a pipeline. Both the court of appeals' "intracorporate transfer" theory and respondents' "downstream sales" theory proceed from the erroneous premise that "Congress clearly intended for any (pipeline) production * * * to be accorded first sale status under the NGPA" (Pet. App. A-15). As our examination of the language of Section 2(21)(B) has shown, however, Congress did not manifest any such intent in its definition of "first sale." Thus, the major defect in the interpretations proferred by the court of appeals and respondents is that they disregard the settled principle that the plain language of a statute is usually the best guide of legislative intent. Because that language strongly supports the Commission's interpretation, there is no need to look further. Nevertheless, other available indicia of Congress' intent also support the Commission's position. B. The Structure And History of the NGPA Fully Support the Commission's View 1. The Commission's reading of the literal language of the statute is confirmed by the structure of the Act. Thus, Congress placed the incentive prices for "first sales" of gas in Title I of the NGPA, which it named "Wellhead Pricing." The term "wellhead sales" generally refers to sales made in the field by producers to pipelines. See, e.g., Maryland v. Louisiana, 451 U.S. 725, 730 (1981) ("Most often, the producer sells the gas to the pipeline companies at the wellhead * * * "). If there were any doubt as to the meaning of the language used by Congress in defining a "first sale," the structure of the Act removes that doubt by li,king "first sale" with "wellhead prices." A statutory title can assist in clarifying ambiguities in the statute /23/ and, to the extent that the meaning of Section 2(21)(B) may be regarded as uncertain, the title legitimately aids here in clarifying the legislative intent. The reference to "Wellhead Pricing" supports the Commission's conclusion that the statutory pricing scheme reflects "a distinction between a pipeline('s) * * * producer or field sales, and other sales that remain subject to Commission or state jurisdiction" (Pet. App. B-52). Moreover, Title VI of the NGPA, entitled "Coordination with the Natural Gas Act," defines in detail the relationship of the NGPA to the preexisting regulatory framework under the Natural Gas Act. While the Commission's Natural Gas Act jurisdiction is carefully limited in certain specific respects, Title VI fails to suggest any intent by Congress to repudiate the Commission's traditional treatment under the Natural Gas Act of pipeline production placed in system supply. /24/ That Congress meant no sharp break from forty years of regulatory history is underscored by Section 601(b)(1)(E), 15 U.S.C. (Supp. V) 3431(b)(1)(E). That section provides that the price of gas in first sales between an "interstate pipeline and its affiliate" will be deemed just and reasonable if it does not exceed the amount paid in comparable sales between persons not affiliated with interstate pipelines. The plain import of this provision is to safeguard against the possibility that affiliated companies might ignore market realities in contracting for maximum lawful rates. The section, however, makes no mention of intracorporate transfers. It seems fair to conclude -- given Congress' concern with price fixing between related entities -- that this omission was not inadvertent. Rather, it indicates that Congress did not contemplate that an intracorporate transfer would be deemed a "first sale" as a matter of statutory right; for if Congress had so contemplated, it surely would have inserted similar language limiting intracorporate transfers to prevailing market rates. /25/ 2. The legislative history relating to the term "first sale" also supports the Commission's view. Thus, the House Report on the proposed legislation clearly reflects Congress' understanding that the term "first sale" refers to an off-system sale at the wellhead: Maximum Lawful Price -- First Sale Concepts Part D establishes "maximum lawful prices" applicable to certain categories of "first sales" of natural gas under natural gas sales contracts. The Committee intends that the term "first sales" be applied by the Federal Power Commission to the first transfer of natural gas for value in an arms-length transaction. Therefore, the first sale price is essentially a wellhead price. H.R. Rep. No. 95-496 (Pt. 4), 95th Cong., 1st Sess. 103 (1977) (emphasis added). /26/ Neither the court of appeals' conclusion that Congress intended a "first sale" to encompass an intracorporate transfer, nor the alternative theory that a "first sale" necessarily includes a downstream sale from a pipeline's mixed system supply, can be squared with this unequivocal expression of congressional intent that "first sale" means an actual sale of gas in the field. This point is reinforced by the explanation of the Conference Report on the floor of the House by Congressman Dingell, Chairman of the Subcommittee on Energy and Power of the House Committee on Interstate and Foreign Commerce, and a leading proponent of the legislation in the House. Representative Dingell referred to the statutory price as "generally applicable to field sales * * * ." 124 Cong. Rec. 38362 (1978). /27/ 3. To be sure, there is little discussion in the debates and other relevant legislative sources focusing specifically on pipeline production. But the relative silence on this subject in the legislative record supports the Commission's interpretation of the scope of a "first sale" under the NGPA. It is clear that in enacting the Natural Gas Act Congress was concerned principally with the regulation of pipelines, not independent producers. See Phillips Petroleum Co. v. Wisconsin, supra, 347 U.S. at 688-689 (Douglas, J., dissenting). It is also clear that under the Natural Gas Act the Commission consistently had regulated pipeline production as an integral aspect of a pipeline's transmission business, and, for rate purposes, had treated the transmission and sale by a pipeline of its own production as "one wholesale * * * transaction." In re Columbian Fuel Corp., supra, 2 F.P.C. at 206. It was only in 1954, after this Court's decision in Phillips, that the Commission began to regulate the production and gathering operations of independent producers under the Natural Gas Act -- and then in a manner different from its regulation of pipeline production (see pages 3-5, supra). In Title I of the NGPA, Congress sought to effect significant modifications in the regulatory scheme that had emerged after Phillips. In so doing, it embarked upon a new incentive pricing approach primarily directed at wellhead sales of gas by independent producers. /28/ At the same time, however, Congress kept intact the Commission's traditional authority under the Natural Gas Act to set rates for pipeline sales of gas for resale in interstate commerce. See Columbia Gas Development Corp. v. FERC, 651 F.2d 1146, 1157 n.14 (5th Cir. 1981). In this setting, it would have been unnecessary for Congress to discuss pipeline production in any detail unless it meant to change the regulatory status of pipeline production. Although this Court has cautioned that the "silence of Congress may provide a treacherous guide to its intent," we submit that "it is almost inconceivable that Congress knowingly would have (disavowed Natural Gas Act regulation of pipeline production with respect to anything other than sales at the wellhead) without a word of comment." Watt v. Alaska, 451 U.S. 259, 271 n.13 (1981). 4. The legislative materials relied upon by the court below for its contrary view are not persuasive. First, the court pointed to a provision in Title II of the Act, which deals with incremental pricing (Pet. App. A-11 to A-12). In order to mitigate the consumer impact of the increased wellhead prices under Title I, Title II generally provides for the pass-through of the greatest portion of these increased costs to a discrete group of customers -- certain industrial users. For these purposes, each pipeline is required to determine the cost of acquiring the gas it sells; the amount of these acquisition costs in excess of a specified threshold is isolated in a separate account and that amount is passed through to the industrial users (until such users are paying the same price they would be paying for alternative fuel). Thus, for purposes of Title II, the "acquisition cost" of gas is just that: the pipeline's cost of acquiring the gas. Title II describes these acquisition costs as "first sale acquisition costs." Section 203, 15 U.S.C. (Supp. V) 3343, provides two rules for determining a pipeline's acquisition costs for purposes of incremental pricing. First, Section 203(b)(1), 15 U.S.C. (Supp. V) 3343(b)(1) provides generally that the "first sale acquisition cost" will be the price paid for gas "acquired in (a) first sale." However, Congress found it necessary to create a special rule for interstate pipeline production: "For purposes of this section, in the case of any natural gas produced by an interstate pipeline * * * the first sale acquisition cost of such natural gas shall be determined in accordance with rules prescribed by the Commission." Section 203(b)(2), 15 U.S.C. (Supp. V) 3343(b)(2). As the Commission observed, this provision "differs notably from the general rule in that it omits any reference to 'price paid' and does not indicate that such gas will be 'acquired in a first sale'" (Pet. App. B-68). These differences do not, however, establish that an intracorporate transfer must be regarded as a "first sale" in the very different context of Title I. An explanatory statement prepared by several principal sponsors of the NGPA in the House of Representatives specifically states that "the language (of) * * * section 203(b)(2) is limited in its applicability to * * * Title II." 124 Cong. Rec. 38367 (1978). Furthermore, if the court's intracorporate transfer theory is correct, Section 203(b) would have been entirely superfluous. If Congress had intended an intracorporate transfer automatically to constitute a "first sale" for the purpose of triggering the pricing provisions of Title I, there would have been no need for any special rule empowering the Commission to determine the amount of pipeline production acquisition costs. Equally wide of the mark is the reliance by the court below on the language of the Conference Report construing the Commission's rulemaking authority under Section 501 of the Act, 15 U.S.C. (Supp. V) 3411. That Report states only that * * * the Commission may define terms such as "transfer for value" used in the definition of first sale; it may also establish rules applicable to intracorporate transactions under the first sale definition. H.R. Conf. Rep. No. 95-1752, 95th Cong., 2d Sess. 116 (1978) (emphasis added). The court of appeals apparently read the phrase "under the first sale definition" as qualifying "intracorporate transactions." Accordingly, the court concluded that "(t)his comment assumes that intracorporate transactions will fall within the first sale definition. The decision which Congress committed to the Commission's judgment was whether regulations were necessary to govern those transactions" (Pet. App. A-12 to A-13). We disagree. The court overlooked the fact that in Section 2(21)(A)(v) of the NGPA, Congress authorized the Commission to define any sale as a "first sale" "in order to prevent circumvention of any maximum lawful price established" under Title I. Thus, the more reasonable interpretation of the Conference Report is that, by granting to the Commission the authority to define an intracorporate transfer as a "sale," and thus as a "first sale," Congress simply meant to provide the Commission with the means by which to implement its discretionary authority to foreclose circumvention under Section 2(21)(A)(v). /29/ The court's reading, on the other hand, adds a new and unsupported dimension to the statutory language. Surely, if Congress had intended a "first sale" automatically to include an "intracorporate transfer," it would have expressed that intent in a more direct manner. C. The Commission's Analysis is Consistent With the Policies Underlying the NGPA The court of appeals correctly identified two of the principal purposes of the NGPA: (1) to create a unified market for natural gas; and (2) to provide incentive prices for the production of new gas. Contrary to the court's view, the Commission's analysis is not inconsistent with either of these statutory goals. 1. The Commission's approach will not perpetuate a dual market for interstate and intrastate gas or discourage increased production There is no evidence that Congress viewed elimination of the dual market structure or the need to promote increased production as requiring across-the-board incentive pricing for all pipeline production. Pipeline production had, at best, only a marginal impact on the dual market problem. Regardless of the disparity in prices between intrastate and interstate markets, pipelines were not "shopping the marketplace," as were independent producers, in order to command the highest price for their gas. On the contrary, they were seeking in general to maintain sufficient reserves for their own system needs, whether interstate or intrastate. Accordingly, the court of appeals erred in concluding that if most production by intrastate pipelines and local distribution companies were not regulated under the NGPA the result would be the perpetuation of bifurcated markets; this conclusion assumes that unregulated intrastate pipelines would somehow extend their operations into the interstate market. But nothing in the NGPA suggests that Congress saw a need to alter pipeline distribution routes; instead, it is more reasonable to conclude that Congress believed that interstate pipelines would continue to serve the interstate market while intrastate pipelines would continue to serve their state markets. To be sure, encouragement of pipeline exploration and production through incentive pricing would operate to increase the supply of gas in whichever market a pipeline operates. But pipelines are only secondary sources of gas supply, and then primarily for their own systems. The basic congressional objective in t;e NGPA was to encourage exploration and development by independent producers, who provide supplies of gas to all systems, both interstate and intrastate. As construed by the Commission, Section 2(21)(B) serves this objective. Thus, an off-system sale of pipeline produced gas at the wellhead is a "first sale" entitled to NGPA incentive pricing because in such a transaction, which ordinarily involves a sale to another pipeline, the producing pipeline acts just like an independent producer. Accordingly, permitting the pipeline to price its production at NGPA levels for these producer-type transactions can aid in eliminating the bifurcated market. /30/ There is no similar functional equivalence or market impact when a pipeline producer transports and sells gas to its traditional customers as part of its system supply. 2. The Commission properly recognized that the policies underlying the NGPA do not require that pipeline producers be treated in all instances identically to independent producers a. The court of appeals erroneously assumed that Congress intended that there be no "distinction between pipeline and independent producers" and that "pipeline producers deserve the price encouragement of NGPA no less than other producers" (Pet. App. A-9). Contrary to the understanding of the court below, there is no evidence that Congress intended the Title I pricing scheme to apply without distinction to pipeline producers and independent producers -- or, for that matter, that all gas was automatically to receive incentive pricing under Title I. Instead, the relevant legislative materials show that Congress carefully sought to tailor the application of incentives to those categories of gas for which incentives would have a stimulating effect on gas production. The NGPA establishes ceiling prices that no one may lawfully exceed; it does nothing to limit or discourage establishment of prices below the ceiling. Prices may be fixed below the ceiling either by contractual commitment or state regulations. In Section 602(a), 15 U.S.C. (Supp. V) 3432(a), for example, Congress specifically provided that a state may continue to set rates for a "first sale" of gas produced and sold within the state, provided those rates do not exceed NGPA ceiling prices. /31/ Furthermore, independent producers are limited to the prices prescribed by their contracts. As the Conference Report explained, "maximum lawful prices are ceiling prices only. In no case may a seller receive a higher price than his contract permits." H.R. Conf. Rep. No. 95-1752, supra, at 74. See Section 101(b)(9), 15 U.S.C. (Supp. V) 3311(b)(9). In short, "the conferees attempted to focus producer incentives onto those categories of natural gas where increased discovery and production appear most feasible." Staff of Subcomm. On Energy and Power, House Comm. on Interstate and Foreign Commerce, 95th Cong., 2d Sess., Economic Analysis of H.R. 5289, Natural Gas Policy Act of 1978, at 8 (Comm. Print No. 95-62, 1978). See 124 Cong. Rec. 38360-38361 (1978) (remarks of Rep. Dingell) (focus of NGPA is on categories of production promising "the greatest supply response at the lowest cost to consumers"). See also Pennzoil Co. v. FERC, 645 F.2d 360, 374-376 (5th Cir. 1981), cert. denied, No. 81-340 (Jan. 11, 1982). /32/ Under this approach, independent producers do not inevitably qualify for full incentive pricing where their contracts prescribe a lower price. /33/ It would be anomalous in the extreme to conclude that Congress nonetheless meant to permit pipeline producers to qualify automatically for full NGPA prices by virtue of "intracorporate transfers" that are not governed by contracts or by other indicia of a commercial transaction. b. At the time of the enactment of the NGPA, pipeline production sold through a pipeline's own system was subject to Commission valuation on two distinct bases: cost of service or independent producer parity, with the major division between the two types of treatment turning on date of lease acquisition or well drilling. On the other hand, pipeline production sold off-system directly from a producer-pipeline's own well (i.e., at the wellhead) was priced at parity irrespective of lease or well date. In short, where pipeline producers performed in a manner functionally equivalent to independent producers, they uniformly were granted incentives in the same manner as independent producers -- those operating below the assumed average cost levels earned a greater return, while those operating at higher than average costs earned a lower return. Conversely, when pipelines transported the gas which they themselves produced and sold that gas downstream from mixed system supply, they were treated not as producers but as pipelines deemed to be involved in "one wholesale * * * transaction." In re Columbian Fuel Corp., supra, 2 F.P.C. at 206. As construed by the Commission, the NGPA itself makes no substantive change in this regulatory structure: pipeline produced gas sold off-system at the wellhead in a producer-type sale is a "first sale" entitled to Title I pricing; pipeline production placed in system supply does not qualify automatically for NGPA prices. In exercising its broad discretion under the Natural Gas Act, however, the Commission has granted NGPA pricing to those producers that previously had been receiving independent producer prices under the area or national rates, in order to strengthen system supply by enhancing their ability to compete with independent producers in the "continued development and additional production of natural gas" (Pet. App. B-25). At the same time, those pipeline producers that traditionally had been accorded cost of service treatment so that they could engage in "exploration and production activities while passing on the costs and risks of that investment to (their) purchasers" (id. at B-73) were continued on that basis. The reasons for this difference in treatment are self-evident. Under an incentive pricing system, a producing company can only hope that the applicable maximum price established by statute (or, prior to the NGPA, by the Commission's area or nationwide rate orders) is sufficient to cover the cost of unsuccessful ventures when it sells the output from its producing wells. If the incentive prices appear sufficiently high, the producer will be encouraged to take the gamble and risk its capital exploring in areas which may prove unproductive. /34/ Cost of service treatment, on the other hand, assures a pipeline producer that it will recover its actual costs of exploration, development and production, and that it will have the opportunity to earn a reasonable return on its investment. Most critically, the pipeline recovers amounts so expended whether or not its efforts are successful. Thus, a pipeline producer whose production is priced on a cost of service basis has no fear of loss which must be overcome by incentives; the pipeline can be confident that it will recover its costs and earn a profit from both successful and unsuccessful exploration. The only factors involved in the pipeline's determination to invest additional capital, therefore, are the needs of its customers and the relative cost of acquiring sufficient supply elsewhere. The pipeline's decisions regarding whether to increase production would not be influenced by incentive pricing, and incentive pricing is not likely to call forth any new gas. In short, the only likely effect of extending incentive pricing to cost of service pipeline producers would be to grant them an unjustified "windfall." Even where pipeline producers would not incur substantially higher costs and would not increase their output significantly, they nevertheless would be able to escalate their prices, at least prospectively, to the higher incentive levels of Title I. /35/ We submit that Congress could not conceivably have intended such an irrational result with such unfair consequences for consumers. /36/ 3. The Commission properly exercised its authority under the Natural Gas Act in permitting sales of parity priced gas to be valued at NGPA levels The court of appeals noted (Pet. App. A-9) that the Commission, exercising its authority under the Natural Gas Act, had extended NGPA prices to some pipeline producers under its parity pricing policy. See pages 9-11, supra. In the court's view, however, the Commission's argument in defense of this action was "sophistic," because "(i)t is not an agency's prerogative to alter a statutory scheme even if its alteration is as good or better than the congressional one. The fact that the agency gives back all or part of what it takes from the law's grant in no way justifies departure from the congressional purpose in the first instance" (id. at A-9). Of course, the court's cirticism of the Commission's action falls of its own weight if, as we have shown, the Commission's construction of the NGPA is correct. The Commission was not, as the court's language implies, seeking to retain jurisdiction over the pricing of interstate pipeline production under the Natural Gas Act in the face of a congressional directive in the NGPA withdrawing that jurisdiction. Rather, having rationally determined that the only class of pipeline sales that would constitute a "first sale" within the meaning of the statute was an off-system sale at the wellhead or in the field, the Commission properly concluded that Congress had left to it the "task of harmonizing its statutory mandate to implement the NGPA pricing scheme with its continuing authority under the (Natural Gas Act) to determine the price treatment of (system supply)" (Pet. App. B-24). In carrying out that responsibility, the Commission determined that if "pipeline producers were held to pre-NGPA prices, or were subject to a newly established cost-based nationwide rate, they would in many instances be unable to compete with independent producers in acquiring new leases" and, as a result, pipeline customers would be denied "a more certain system of additional supplies" (id. at B-25). /37/ The Commission, however, imposed a limitation on the valuation by reference to NGPA prices. In all events, the pipeline may not value its own gas eligible for parity pricing at a level exceeding amounts paid in comparable sales (Pet. App. B-37). See note 15, supra. Unlike producers, pipelines are not limited by contract in pricing their own gas. Without the comparable sales limitation, the pipeline could value its gas at a rate higher than what the independent producers could command. Under the court of appeals' decision, no such comparable sales limitation is apparent. The result is that the decision places pipelines in a more favorable position than independent producers, which must negotiate a contract with their purchasers to collect the full NGPA prices. In sum, if the Commission was correct that the statutory definition of a "first sale" excludes all pipeline produced gas from pricing under Title I of the NGPA with the exception of pipeline production sold off-system at the wellhead or in the field, then it follows that the Commission acted well within its Natural Gas Act authority in extending "parity pricing" at NGPA levels to those pipelines that in the past had received parity pricing with independent producers under area or national rates. /38/ 4. Both the court's intracorporate transfer "first sale" and respondents' downstream "first sale" would create a substantial reworking of state and federal regulatory schemes in ways Congress could not have intended The "downstream sale" theory advocated by some of respondents, as well as the "intracorporate transfer" theory espoused by both the respondents and the court of appeals, would entail substantial changes in t e existing regulatory framework despite the absence of any evidence that Congress intended such a result. Adoption of the "downstream sale" approach would override the existing division between state and federal regulation of pipeline sales of natural gas. As the Commission pointed out (Pet. App. B-62; see also id. at B-4), adoption of the "downstream sale" theory would result in the uniform application of first sale maximum lawful prices to all mixed volume retail sales made by pipelines and distributors. * * * The Commission finds no evidence in (Section) 2(21)(B) or in any other provision of the Statute that suggests that Congress intended to require the Commission to expand the field of federal ratemaking authority to include all mixed volume retail sales by intrastate pipelines or local distribution companies, the regulation of which has been the historic preserve of the states. In addition, under either the "downstream sale" theory or the "intracorporate transfer" theory, the natural gas industry may well be faced with uncertainties as to the proper interpretation and application of provisions of the NGPA other than the incentive pricing provisions of Title I. For example, the pipelines might argue that reimbursement for the costs of state severance taxes, compression, gathering, processing, treating, liquefying or transporting gas would no longer be determined under the standards developed pursuant to the Natural Gas Act, but rather would be computed under the different standards established in Section 110(a) of the NGPA, 15 U.S.C. (Supp. V) 3320(a). (See Pet. App. B-63.) The pipelines might also assert that under Section 601(a) of the NGPA, 15 U.S.C. (Supp. V) 3431(a), the Commission would lose its jurisdiction under the Natural Gas Act over certain production and gathering facilities of interstate pipelines. (See Pet. App. B-68 to B-69.) Finally, adoption of the "intracorporate transfer" theory would, as the Commission observed (Pet. App. B-5), "extend NGPA first sale jurisdiction to all corporations which produce their own natural gas." Several industrial corporations that consume their own natural gas filed comments with the Commission indicating that "no valid regulatory purpose would be served by extending the Commission's jurisdiction to cover such production" (id. at B-6). At the time it enacted the NGPA, Congress indicated its support for industrial self help programs. /39/ Development of such programs might be deterred by subjecting company-owned production to the filing and other regulatory obligations of the NGPA. D. The Court of Appeals Erred in Failing to Defer to the Commission's Interpretation of the Statute This Court has often noted that "the interpretation of an agency charged with the administration of a statute is entitled to substantial deference." Blum v. Bacon, No. 81-770 (June 14, 1982), slip op. 10. Thus, a court need not "find that the agency's construction was the only reasonable one or even the reading the court would have reached if the question initially had arisen in a judicial proceeding." FEC v. Democratic Senatorial Campaign Committee, 454 U.S. 27, 39 (1981). Instead, "the narrower inquiry (is) whether the Commission's (interpretation) was 'sufficiently reasonable' to be accepted by a reviewing court." Ibid. Respect for the agency's view is particularly appropriate "when the administrative practice at stake 'involves a contemporaneous construction of a statute by the men charged with the responsibility of setting its machinery in motion, of making the parts work efficiently and smoothly while they are yet untried and new.'" Udall v. Tallman, 380 U.S. 1, 16 (1965), quoting from Power Reactor Development Co. v. International Union of Electrical, Radio & Machine Workers, 367 U.S. 396, 408 (1961). As the Fifth Circuit itself has recently observed, "(t)he NGPA's complexity is but one more example of why federal courts show great deference to administrative interpretations of an agency's own statutes and limit their inquiry to whether the agency's actions are authorized and rational." Ecee, Inc. v. FERC, 645 F.2d 339, 360 (1981). If the court of appeals had applied these governing principles here, we submit that it would have been compelled to uphold the Commission's interpretation of the Act, for, as we have demonstrated, the Commission's view is supported by the language, structure, history and policies of the Act. In these circumstances, the court below should have deferred to the Commission's expertise and sustained its orders. The court of appeals gave several reasons for refusing to defer to the Commission (Pet. App. A-7): (1) the Commission's construction was not longstanding; (2) it purportedly did not concern an area particularly within the Commission's expertise; and (3) the Commission had no input into developing the term "first sale." These reasons do not withstand analysis. Although the Commission's construction was new, the statute itself is of recent vintage. Moreover, while the term "first sale" as used in the NGPA is new to the field of natural gas regulation, Congress, in delegating to the Commission the authority to administer and enforce the NGPA, was well aware that the Commission for many years had regulated "sales" of gas in interstate commerce under the Natural Gas Act, and Congress clearly intended the Commission to apply its expertise in carrying out its regulatory functions under the NGPA. Finally, the fact that the Commission did not propose the definition of "first sale" in the Act is an insufficient reason for disregarding the Commission's view. To be sure, where an agency actually drafts the legislation and steers it through Congress, its interpretation merits especially great weight. See Howe v. Smith, supra, 452 U.S. at 485. But that does not mean that an agency must provide evidence of actual participation in the drafting of a particular provision in a statute before its views may be entitled to deference. Rather, when an agency charged with administering a statute issues a substantially contemporaneous construction of that statute, the agency is presumed to be aware of congressional intent (see National Muffler Dealers Association v. United States, 440 U.S. 472, 477 (1979)), although that presumption may be overcome by a showing that the agency's interpretation is inconsistent with the statutory mandate. See FEC v. Democratic Senatorial Campaign Committee, supra, 454 U.S. at 32. Here, the Commission's construction accords with the intent of Congress. In addition, during the legislative process leading up to enactment of the NGPA there was considerable consultation between the appropriate congressional committees and their staffs and the Commission. See, e.g., 124 Cong. Rec. 38374-38375 (1978) (remarks of Sen. Jackson referring to letter from Commission Chairman Charles B. Curtis conveying the Commission's views concerning its ability to enforce the NGPA). That is all the more reason why the court of appeals should have deferred to the Commission's interpretation. CONCLUSION The judgment of the court of appeals should be reversed. Respectfully submitted. REX E. LEE Solicitor General ELLIOTT SCHULDER Assistant to the Solicitor General CHARLES A. MOORE General Counsel JEROME M. FEIT Solicitor NORMA J. ROSNER THOMAS E. HIRSCH III Attorneys Federal Energy Regulatory Commission NOVEMBER 1982 /1/ "Pet. App." refers to th appendix to the petition for a writ of certiorari in No. 81-1889. /2/ Sales in the gas field take place eith r at th wellhead or at a point along the gathering line. /3/ There is little compiled data available on the amount of gas produced by intrastate pipelines. With respect to interstate pipelines, the available data show that as of the end of calendar year 1981, interstate pipelines collectively owned 13.7 Tcf (trillion cubic feet) of natural gas reserves, which represent 13.9% of total United States reserves. Of gas actually produced in 1981, interstate pipelines were responsible for 5.3% of total. Energy Data Report, Domestic Natural Gas Reserves and Production Dedicated To Interstate Pipeline Companies, 1981, at 2 (U.S. Dept. of Energy, July 27, 1982). /4/ The Federal Power Commission was the predecessor of the Federal Energy Regulatory Commission. Both are referred to herein as the "Commission." /5/ This difference has historical roots. Until this Court decided, in Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672 (1954), that the Commission had jurisdiction under the Natural Gas Act to regulate wellhead sales by independent producers, the Commission was of the view that its regulatory authority extended only to the sale and transportation of natural gas by pipelines in interstate commerce. In re Columbian Fuel Corp., 2 F.P.C. 200, 206 (1940); In re Canadian River Gas Co., 3 F.P.C. 32, 40 (1942), aff'd sub nom. Colorado Interstate Gas Co. v. FPC, 324 U.S. 581 (1945). See Permian Basin Area Rate Cases, 390 U.S. 747, 756 n.7 (1968). /6/ This approach ultimately took the form of a pricing methodology that utilized a representative average cost of all producers in a particular area, rather than focusing on the individual costs of each entity subject to regulation. See Wisconsin v. FPC, 373 U.S. 294, 298-299 (1963). By this method, the Commission sought to "employ price functionally, as a tool to encourage discovery and production of appropriate supplies of natural gas." Permian Basin Area Rate Cases, supra, 390 U.S. at 760. The area rates, and the subsequently adopted national rates, specified separate, fixed components for "Successful Well Costs" and "Dry Hole Costs," so that a producer potentially could recover both types of costs from his sales of flowing gas. See National Rates For Jurisdictional Sales of Natural Gas, 56 F.P.C. 509, 543-544 (1976), aff'd sub nom. American Public Gas Association v. FPC, 567 F.2d 1016 (D.C. Cir. 1977), cert. denied, 435 U.S. 907 (1978). An incentive was thereby provided: those independent producers that operated below the average cost levels on which the area or nationwide rates were based, or that enjoyed a higher success rate in well completion, earned a greater return while those that operated at higher than average costs or encountered more dry holes earned less. In either case, however, the producers' costs could only be recovered through actual sales. /7/ This approach was presaged in the Commission's jurisdictional decision in In re Columbian Fuel Corp., supra, where the Commission differentiated between pipeline production and independent producer production. Its view was that "(w)here a big transporting company owned its own wells and gathering lines, there would be but one wholesale * * * transaction to bring under Federal regulation and all provisions of the Act involving production and gathering would apply." 2 F.P.C. at 206. /8/ Under the cost of service approach, a pipeline computes the amount of revenues needed, on a test year basis, to cover its exploration costs, including the return sought on production investment (i.e., rate base); this amount is then added to the revenue requirements for the pipeline's wholesale rates. See Pet. App. B-21. The net effect is to shift all risks to the consumers since pipeline producers are permitted to recover all prudently incurred costs, relating not only to successful drilling activities, but also to "dry hole costs and other costs associated with unsuccessful and marginally successful ventures * * * " (id. at B-27). /9/ As initially formulated in 1969 and refined in 1972, the Commission's regulatory scheme with regard to pipeline production was as follows: (1) When a pipeline producer functioned like an independent producer by selling its production directly in the field (a "field" or "wellhead" sale), usually to another pipeline, the Commission accorded those "off-system" sales independent producer pricing. As was the case with wellhead sales by independent producers, each off-system pipeline sale was made pursuant to a specific contract and, if a sale for resale in interstate commerce, pursuant to a certificate of public convenience and necessity issued by the Commission. In addition, the pipeline was required to file with the Commission a producer rate schedule covering the transaction, as would an independent producer in similar circumstances. See, e.g., Tenneco Corp., 28 F.P.C. 382 (1962) (listing numerous field sale contracts, certificates and rate schedules covering sales by producing affiliates to parent transmission company). (2) Pipeline production arising from post-October 7, 1969 leases or from wells commenced after January 1, 1973 (regardless of lease date) that was transported and sold through a pipeline's own transmission system (i.e., from mixed system supply) received independent producer pricing, absent a showing of "special circumstances" warranting cost of service treatment. See Pipeline Production Area Rate Proceeding (Phase I), 42 F.P.C. 738, 745 (1969), aff'd sub nom. City of Chicago v. FPC, 458 F.2d 731 (D.C. Cir. 1971), cert. denied, 405 U.S. 1074 (1972); Just and Reasonable National Rates for Sales of Natural Gas, 52 F.P.C. 1604, 1634 (1974). (3) All other pipeline production was continued on traditional cost of service methodology. /10/ Section 102 (15 U.S.C. (Supp. V) 3312) prescribes the maximum lawful price for first sales of "new" natural gas and certain gas produced from the Outer Continental Shelf; Section 103 (15 U.S.C. (Supp. V) 3313) prescribes the maximum lawful price for first sales of gas produced from new onshore production wells; Section 104 (15 U.S.C. (Supp. V) 3314) imposes ceiling prices for first sales of gas that was flowing in interstate commerce at the time of enactment of the NGPA, November 1978; Section 105 (15 U.S.C. (Supp. V) 3315) covers first sales of natural gas flowing in intrastate commerce as of November 1978; Section 106 (15 U.S.C. (Supp. V) 3316) establishes ceiling prices for both interstate and intrastate sales under "rollover" contracts; Section 107 (15 U.S.C. (Supp. V) 3317) prescribes the maximum lawful price for first sales of high-cost gas; Section 108 (15 U.S.C. (Supp. V) 3318) prescribes the maximum lawful price for "stripper well" natural gas; and Section 109 (15 U.S.C. (Supp. V)3319 establishes the first sale price for gas n ot covered by any of the foregoing categories. Section 121 (15 U.S.C. (Supp. V) 3331) establishes a schedule for deregulation of several of these categories of gas. /11/ Order No. 58 (Pet. App. B-1 to B-13), affirmed on rehearing in Order No. 102 (Pet. App. B-50 to B-82). /12/ I.e., as "any sale of any volume of natural gas" to a specified purchaser, including an interstate pipeline, an intrastate pipeline, a local distribution company or an end user. 15 U.S.C. (Supp. V) 3301(21)(A)(i), (ii), and (iii). /13/ Section 2(21)(A)(v), 15 U.S.C. (Supp. V) 3301(21)(A)(v), gives the Commission the authority to define as a "first sale" any sale of any volume of natural gas which precedes or follows any sale described in Section 2(21)(A)(i) through (iv), 15 U.S.C. (Supp. V) 3301(21)(A)(i) through (iv), in order to prevent circumvention of any maximum lawful price established under the NGPA. In addition, Section 501(a), 15 U.S.C. (Supp. V) 3411(a), gives the Commission broad rulemaking authority to carry out the purposes of the NGPA. The Conference Report explains that "(t)he authority to prescribe rules and orders necessary to carry out the provisions of this Act includes the authority to issue rules and orders necessary to prevent circumvention of the Act." H.R. Conf. Rep. No. 95-1752, 95th Cong., 2d Sess. 116 (1978). To this end, the "Commission may define terms such as 'transfer for value' used in the definition of first sale; it may also establish rules applicable to intracorporate transactions under the first sale definition." Ibid. /14/ Order No. 98 (Pet. App. B-14 to B-49), affirmed on rehearing in Order No. 102 (Pet. App. B-50 to B-82). /15/ In making that determination, the Commission ruled, under its Natural Gas Act aut,ority, that "pipeline production may not be valued at a rate in excess of t,e amount paid in comparable sales between persons not affilitated with the interstate pipeline or with each other" (Pet. App. B-37). /16/ To this extent, the court agreed with the Commission's determination that the language of Section 2(21)(B) precludes giving "first sale" treatment to a sale from a pipeline's mixed system supply to a regular customer even though that sale may include pipeline produced gas, since it also contains gas purchased from independent producers that already has received "first sale" treatment (Pet. App. A-8). /17/ The court noted that the Commission had refused to treat an intracorporate transfer as a "first sale" based on its view that no "sale" takes place in such a situation (Pet. App. A-14). /18/ The court of appeals incorrectly viewed this identifiable downstream sale to a particular purchaser as inconsistent with the Commission's wellhead sale analysis (Pet. App. A-10). However, such a sale is tantamount to a producer sale, in which a local distribution company buys gas in a first sale directly from a producer at the wellhead and has the gas transported by a pipeline and delivered from the pipeline's general system supply. A similar arrangement can be made between a distributor and a pipeline producer. In either situation, the sale is governed by a contract that commits gas from particular wells, leases or ot er producing properties, and is for all intents and purposes a wellhead-type sale. On the other hand, any other sale by a pipeline from its general system supply is not so tied to production from any particular well, lease or other property. /19/ The courts have held th,at the transfer of a commodity within a single corporation is not a sale, since such a transfer involves neither a transfer of title nor an exchange of consideration. See Utah Concrete Products Corp. v. State Tax Commission, 101 Utah 513, 520-521, 125 P.2d 408, 412 (1942); Coulter Electronics, Inc. v. Department of Revenue, 365 So.2d 806, 808-809 (Fla. Dist. Ct. App. 1978). Cf. Carlton v. United States, 385 F.2d 238, 242 (5th Cir. 1967). /20/ As to the requirement of a contract, see 15 U.S.C. 717c(c), and (d); United Gas Co. v. Mobile Gas Corp., 350 U.S. 332, 345 (1956) ("The Natural Gas Act * * * recognizes the need for private contracts of varying terms and expressly provides for the filing of such contracts as a part of the rate schedules"). As to the requirement of a certificate of public convenience and necessity, see 15 U.S.C. (& Supp. V) 717f(c); Sunray Mid-Continent Oil Co. v. FPC, 364 U.S. 137, 156 (1960) ("An initial application of an independent producer, to make movements of natural gas in interstate commerce, leads to a certificate of public convenience and necessity * * * ."). /21/ On two prior occasions, Congress used the term "first sale," but this earlier usage offers little guidance in construing the term as used in the NGPA. In the Emergency Petroleum Allocation Act of 1973, 15 U.S.C. (& Supp. V) 751 et seq. (EPAA), Congress authorized the President to set allocation and price rules for a "first sale" of petroleum products. In Section 403(d) of the Department of Energy Organization Act, Pub. L. No. 95-91, 91 Stat. 585, the Commission was empowered to permit parties to serve written interrogatories upon one another in a rulemaking involving the "charges for the 'first sale' of natural gas by a producer or gatherer to a natural gas pipeline under the Natural Gas Act." In both statutes the term "first sale" was not defined. In implementing the EPAA, the Federal Energy Administration exercised its discretion to define "first sale" so as to prevent circumvention of EPAA ceiling prices. Thus, a company that both produced its own petroleum and purchased oil from others for resale could charge whatever the market allowed for that portion of the total volumes sold that came from its own production -- which was deemed to be involved in a "first sale" -- but was limited to ceiling prices for the remaining volumes. Marvin E. Boyer Co., 3 F.E.A. Paragraph 83,088 (1976). Here, as we show below (pages 27-28, infra), Congress similarly empowered the Commission to permit "first sale" status to be imputed where necessary to prevent circumvention of NGPA prices, but the Commission in the exercise of its discretion has determined that imputing "first sale" status to pipeline intracorporate transfers of gas is neither necessary nor appropriate. Moreover, the EPAA did not contain any limitation on the term "first sale"; in contrast, the NGPA specifically precludes "first sale" treatment for any pipeline sale "unless such sale is attributable to" the pipeline's own production. In the DOE Act, a "first sale" specifically refers only to a sale from a producer or gatherer to a pipeline. There is no reference in that Act to a pipeline's sales of its own production and no indication that Congress intended to encompass such sales. In sum, as used in each of these prior statutes, the term "first sale" had discrete and independent meanings. Furthermore, both earlier statutes were enacted to serve functions entirely distinct from the goals of the NGPA. The term "first sale" is specifically defined in the NGPA, and that definition does not incorporate or refer either to the EPAA or the DOE Act. Finally, nothing in the legislative history of the NGPA suggests that Congress intended either the EPAA or the DOE Act to guide construction of the term "first sale" as it appears in Section 2(21) of the NGPA. /22/ In addition, the definitions of these entities in the NGPA focus solely on the transportation of natural gas, without reference to production. For example, an "interstate pipeline" is defined as "any person engaged in natural gas transportation subject to the jurisdiction of the Commission" under the Natural Gas Act. 15 U.S.C. (Supp. V) 3301(15) (emphasis added). Moreover, the definitions of "affiliate" and "person" under the Act clearly contemplate separate and formal entities. See 15 U.S.C. (Supp. V) 3301(26), and (27). /23/ See Chemec:evi Tribe of Indians v. FPC, 420 U.S. 395, 403-404, 413 (1975); 2A Sutherland Statutory Construction Section 47.03, at 73 (C. Sands Rev. 1973). /24/ The NGPA leaves intact the Commission's existing authority under the Natural Gas Act to regulate sales for resale by interstate pipelines. Section 601 of the Act, 15 U.S.C. (Supp. V) 3431, limits the Commission's jurisdiction under the Natural Gas Act only over prices paid in certain first sales and guarantees that pipelines may pass through to their customers these first sale prices. It is only to this limited extent that the Commission's traditional ratemaking authority over pipeline sales for resale is affected. /25/ The correctness of this conclusion is underscored by the fact that Section 5 of the Senate bill (S. 2104, 95th Cong., 1st Sess. (1977), as amended by Section 206 of the Bentsen-Pearson amendment (see 123 Cong. Rec. 30186 (1977)), the counterpart of Section 601(b)(1)(E), contained an "affiliated entities limitation" that included pipeline production. That section would have provided that where a pipeline "purchases new natural gas from an affiliate or produces new natural gas from its own properties" (emphasis added), the pass-through of that cost to the pipeline's customers would be limited to prices prevailing for equivalent sales between nonaffiliated persons. This reference to pipeline production was deleted in conference. /26/ At another point, the House Report used "wellhead sale" as synonymous with the statutory term "first sale": "()he Federal Power Commission is authorized to establish adjustments in the first sale (wellhead) price * * * ." H.R. Rep. No. 95-496 (Pt. 4), supra, at 103 (emphasis added). /27/ Additional evidence of Congress' intent concerning the scope of a "first sale" is provided by the rejection of a proposal under which all new gas, including all pipeline produced gas, would automatically have qualified for higher prices. The Senate Bill that was sent to conference would have decontrolled prices for all new gas "sold or delivered in interstate commerce for the first time after January 1, 1977." S. 2104, 95th Cong., 1st Sess. (1977), as amended by Section 204(7) of the Bentsen-Pearson amendment (123 Cong. Rec. 30186 (1977)) (emphasis added). This language was deleted in conference; as ultimately enacted, the statute limits application of the incentive pricing provisions to situations involving a "first sale" of gas rather than mandating NGPA prices for all pipeline gas "sold or delivered." Deletion of the "sold or delivered" language by the Conference Committee "'militates against a judgment that Congress intended a result that it expressly declined to enact.'" North Haven Board of Education v. Bell, No. 80-986 (May 17, 1982), slip op. 16, quoting from Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 199-200 (1974). /28/ Thus, the House bill stated that one of the purposes of the proposed legislation was * * * to bring the natural gas market into better balance by reducing the demand for natural gas and increasing the supply through the establishment of a uniform and incentive-based pricing system for new natural gas which provides fair and equitable producer revenues and protects consumers * * * . H.R. 8444, Section 401(b)(2), 95th Cong., 1st Sess. (1977) (emphasis added). /29/ For example, the court of appeals was concerned that to adopt the Commission's interpretation would "be to leave intact state regulation of intrastate pipeline and local distribution company production * * * (and) thus * * * perpetuate * * * the dual market structure Congress sought to eliminate" (Pet. App. A-10). Even assuming that the court was correct as to the impact of this interpretation on the marketplace (but see pages 29-30, infra), the Commission could remedy this impact by defining an intracorporate transfer as a "first sale" (see Pet. App. B-6 to B-8)). /30/ A central assumption underlying the decision of the court of appeals is that pipeline producers do not engage in any off-system wellhead sales; the court therefore believed that under the Commission's interpretation of Section 2(21)(B) the "unless" clause of that statute would be rendered a "nullity" (Pet. App. A-8). The court's assumption is unfounded. Pipelines in fact do make off-system sales of their own production at the wellhead. See, e.g., 50 F.P.C. 727 (1973); 17 F.E.R.C. Paragraph 63,007 (1981). See also "FERC For; No. 2: Annual Report of Natural Gas Companies (Class A and Class B)," filed by El Paso Natural Gas Company for the year ending Dec. 31, 1981, at 311-10 to 311-18, reprinted in the Appendix, infra, 1a-10a. (In the left-hand column, entitled "Name of Other Gas Utility," the pipeline lists a substantial number of wellhead sales.) Furthermore, these producer-type sales are afforded "first slae" status under the Commission's interpretation of NGPA Section 2(21)(B). See 18 C.F.R. 270.203(a). Undeniably, such sales are hardly comparable in volume or number to indipendent producer sales; but that is simply because pipelines -- unlike independent producers -- are basically in the business of serving the needs of their system customers. /31/ Section 602(a) states: "Nothing in this chapter shall affect the authority of any State to establish or enforce any maximum lawful price for the first sale of natural gas produced in such State which does not exceed the applicable maximum lawful price, if any, under subchapter I of this chapter." /32/ Indeed, the Fifth Circuit itself has pointed out that "the NGPA did not intend indiscriminate application of the incentive." Columbia Gas Development Corp. v. FERC, supra, 651 F.2d at 1160. Instead, that court has recognized that incentive pricing rests on the notion that "availability of a higher price (is) necessary to spur production * * * ." Pennzoil Co. v. FERC, 671 F.2d 119, 123 (1982) (emphasis in original). /33/ As regards gas sold by independent producers from existing wells from which gas flowed in interstate commerce prior to enactment of the NGPA, no incentive is required. Accordingly, in Section 104 of the Act, 15 U.S.C. (Supp. V) 3314, Congress provided that the maximum lawful price for such gas is the just and reasonable rates set by the Commission's area and national rate orders, escalated monthly for inflation. The legislative history shows that "(n)arrowing the definition of new natural gas to exclude other categories that would be produced even without deregulation was perceived as a necessity to eliminate unjust enrichment of producers while also lowering consumer costs of degegulation." Staff of Subcomm. on Energy and Power, House Comm. on Interstate and Foreign Commerce, 95th Cong., 1st Sess., Economic Analysis of Natural Gas Policy Alternatives, at 10-11 (Comm. Print No. 95-31, 1977). /34/ Indeed, incentive prices are based on recognition of the fundamental principle that risk assumption by investors in the gas industry is directly proportional to the expected return on investment. In Southern Louisiana Area Rate Cases v. FPC, 428 F.2d 407, 426 n.46 (5th Cir. 1970), for example, the court affir;ed a price schedule adopted by the Commission which provided special incentives for new production in recognition of the manner in which these incentives would encourage producers to engage in riskier forms of production. /35/ The consequences that would flow from the court of appeals' decision can be illustrated by considering the treatment of gas produced by an interstate pipeline from pre-1973 wells on pre-October 8, 1969 leases. That gas has always been valued by the pipeline on a cost of service basis. If cost of service valuation were maintained, the pipeline would continue to be reimbursed by the gas consumer, as it as in the past, for all reasonable costs incurred in producing gas from these wells. These costs include the expense of acquiring the leases, paying royalties, and drilling all wells, including unsuccessful wells (dry holes). Under the decision of the court below, this same pipeline would be allowed, at least prospectively, to value the gas from these old wells at the higher NGPA levels. For several reasons, this would present the pipeline with a substantial windfall. First, because wells that produce gas which is not eligible for parity pricing are, by definition, old wells, most of the requisite expenditures relating to the wells have already been made by the pipeline and paid for by its customers; the operation of a well in its later years is relatively inexpensive. Second, because they were drilled prior to 1973, most of these wells are substantially depleted and have low rates of production. Therefore, they likely would qualify as stripper wells under NGPA Section 108. Stripper well natural gas is eligible for the highest ceiling prices established in the NGPA. Compare NGPA Section 102(b) and 103(b) with Section 108(a). Thus, a pipeline that under cost of service rates had been fully recovering its costs at a level as low as 26› per MMBtu could esclate its prices up to the current Section 108 price of $3.535 MMBtu (effective January 1, 1983), without incurring any additional expenses. See 18 C.F.R. 271.101. The additional $3.27 per MMBtu would be pure profit. It is quite possible that most of the gas currently under cost of service regulation would qualify for stripper well prices. Congress established the Section 108 stripper well prices to give producers an incentive to invest additional capital so as to enhance recovery of gas from nearly depleted wells which otherwise would likely have been abandoned. Cost of service pipeline producers need no such incentives, however, because their cost of service treatment assures them compensation for whatever amount they prudently invest in order to enhance gas recovery from these low producing wells. In short, pipelines would enjoy a substantial windfall in collecting the high stripper well price under NGPA Section 108 for gas from old wells which require little additional expenditure by the pipeline. This result is contrary to the intent of Congress in enacting the NGPA. See 124 Cong. Rec. 38362 (1978) (remarks of Rep. Dingell) ("The Natural Gas Policy Act provides reasonable price incentives, while avoiding windfall profits * * * "). /36/ In a closely analogous context, the Fifth Circuit rejected a view of the NGPA that would have allowed an independent producer to obtain an unjustified windfall. In Columbia Gas Development Corp. v. FERC, supra, the Commission determined that independent producers that held "optional procedure" certificates could not collect the higher ceiling rates under the NGPA for gas that remained subject to the Natural Gas Act. The certificate procedure had been developed by the Commission in an effort to stimulate producer production. Thus, under the Commission's regulations, independent producers could sign contracts for the production of gas at rates higher than prevailing area or nationwide ceiling rates when the producer determined that the higher rate was sufficient to justify new drilling. The Commission would then determine in a single proceeding whether the public convenience and necessity justified issuance of the certificate and whether the agreed upon rate was just and reasonable. If it so determined, the agreed upon rate was not subject to challenge in a proceeding under Section 4 of the Natural Gas Act, 15 U.S.C. 717c. In return, the producer would agree to a moratorium of future rate increases with respect to the gas covered by the certificate. In upholding the Commission's refusal to permit collection of NGPA prices for optional procedure certificated gas, the court stated (651 F.2d at 1157 n.13): Petitioners argue that the lack of any express statutory provision dealing with optional procedure certificates, and the lack of any discussion of those certificates in the legislative history, supports the view that Congress did not intend the singular treatment of optional procedure sales in Order Nos. 64 and 64-A. Such silence is not supportive of the petitioners, however. It would take express treatment of optional procedure certificate gas for such gas to fall outside the general principles of the NGPA that continue the certificate conditions. Here, as in Columbia Gas, there is no evidence that Congress in the NGPA intended to overturn an established regulatory practice. /37/ If a pipeline producer were not allowed NGPA pricing levels for gas eligible for parity pricing, the pipeline would have to value this gas under the applicable area or national rates established by the Commission pursuant to the Natural Gas Act. In such a case, the pipeline would at a minimum be denied the escalation factor tied to inflation that was incorporated by Congress into the area and nationwide rates under NGPA Section 104(b)(1)(A), 15 U.S.C. (Supp. V) 3314(b)(1)(A). See NGPA Section 101(a), 15 U.S.C. (Supp. V) 3311(a); see also 124 Cong. Rec. 38364 (1978) (remarks of Rep. Dingell). The increase authorized by the inflation adjustment is not insubstantial. For example, in January 1982, the differences between the NGPA Section 104 price (which includes the inflation adjustment) and the Natural Gas Act price for gas from a well drilled after 1974 is approximately $0.50/MMBtu. The difference increases monthly. See 18 C.F.R. 2.56a(a)(1), (2) and 271.101. If gas eligible for parity pricing also qualifies for a higher NGPA price (e.g., as stripper well natural gas under NGPA Section 108), the disparity between the applicable Natural Gas Act and NGPA rates is much greater. /38/ Respondents read too much into the Commission's 1969 parity pricing policy in arguing that it supports the fiction that intracorporate transfers are "sales." To be sure, for purposes of simplifying pipeline rate proceedings, the Commission has allowed the cost of production valued by reference to area and nationwide rates to be passed through to downstream customers in the same fashion as the cost of gas purchased from independent producers (see Pet. App. B-55 n.9). However, the Commission consistently has viewed this process as involving only "one wholesale * * * transaction" (In re Columbian Fuel Corp., supra, 2 F.P.C. at 206), i.e., the actual sale to the pipeline's downstream customers. Thus, there has never been any regulatory focus on the so-called "intracorporate transfer" from the pipeline's producing division to its transmission division. The mechanism under which these costs are passed through to customers is called, in Commission parlance, a "Purchased Gas Adjustment Clause," or "PGA." See 18 C.F.R. 154.38. A PGA permits semi-annual adjustments to rates to reflect changes in, among other things, the cost of "purchased gas." For the limited purposes of the PGA mechanism, "purchased gas costs" are defined in 18 C.F.R. 154.38(d)(4) n.1 to include the value of a pipeline's own production where a pipeline has been operating on the same basis as an independent producer, i.e., assuming all production risks, and recovering costs only through actual sales of gas under area or national rates. /39/ See 15 U.S.C. (Supp. V) 3363(d); 15 U.S.C. (Supp. V) 717f(c)(2)(B). Appendix Omitted