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March 24, 2017

COA - Generally applicable statement is allowed in contested case order so long as it is made after public notice and hearing

An agency may issue a generally applicable statement in an order in contested cases when the order is issued after public notice and a public hearing, held the Michigan Court of Appeals in In re Antrim Shale Formation re Operation of Wells Under Vacuum, Nos. 327723 and 330161

This action arises from the Michigan Public Services Commission’s grant of approval to natural gas producers to operate wells in the Antrim Shale Formation under vacuum.  Several parties, including the appellant oil companies, intervened in the applications.  The oil companies opposed operating wells in a vacuum, asserting that such operations would effectively drain gas from adjacent areas, infringing on the correlative rights of adjacent well operators.  In lieu of resolving the issue on a case-by-case basis, the Commission held a public hearing to consider whether it should permit gas well operations in a vacuum from the Antrim Shale Formation.  After reviewing various evidence on the issue, including expert testimony, the Commission granted the natural gas producers’ applications.  Moreover, the Commission decided, among other things, that “all current and future natural gas wells produced from the Antrim Shale Formation may operate under a vacuum,” subject to certain conditions.

On appeal, the appellant oil companies provided multiple arguments asserting error in the Commission's decision.  Among those arguments, the appellants asserted that the Commission exceeded its statutory authority by issuing a blanket order covering production in the Antrim Shale Formation because its decision was a contested case and applied only to parties to that case.  The Court of Appeals disagreed, reasoning that although Michigan’s Administrative Procedure Act generally prohibits an agency from making a generally applicable statement in an order in contested cases, such orders may be issued after public notice and hearing.  Because the Commission held a public hearing before issuing its order allowing gas well operations in the Antrim Shale Formation, the order was within the Commission’s statutory scope. 

The appellants also argued that the Commission’s order was unlawful because it failed to protect the correlative rights of other owners of wells in the formation.  According to the appellants, a common pool of gas existed in the formation, requiring the Commission to equitably limit the natural gas producers’ use of the formation.  The Court also disagreed with this assertion, reasoning that no evidence of a common pool was presented in this action.  Accordingly, the Court affirmed the Commission’s decision.  

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