# Wisconsin v. Federal Power Commission/Dissent Clark

* Court Documents
* Case Syllabus
* Opinion of the Court
* Dissenting Opinion Clark
United States Supreme Court
373 U.S. 294
Wisconsin v. Federal Power Commission
Argued: Jan. 9, 1963. --- Decided: May 20, 1963
MR. JUSTICE CLARK, with whom THE CHIEF JUSTICE, MR. JUSTICE BLACK and MR. JUSTICE BRENNAN join, dissenting.
The Sisyphean labors of the Commission continue as it marches up the hill of producer regulation only to tumble down again with little undertaken and less done. After 16 years without regulation under the Act, resulting from the Commission's position that it had no jurisdiction over the production of gas, this Court decided Phillips Petroleum Corp. v. Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed. 1035 (1954). The Court there charged the Commission with supervision over Phillips' operating expenses, both producing and gathering, and directed the Commission to fix a just and reasonable rate for the sale of Phillips' gas. Five years later the Presiding Examiner determined Phillips' 1954 cost of service to be 11.662¢ per Mcf. and allowed it a 9.25% rate of return. He directed and Phillips filed a preliminary rate per Mcf. for 1954 and an adjusted rate for subsequent years. A year and a half later the Commission handed down its decision. It found Phillips' 1954 cost of service to be 11.1009¢ per Mcf. and determined that a fair return would be 11%. It found Phillips' jurisdictional revenues substantially less in 1954 than these allowables and, contra to the recommendation of the Examiner and its own staff, it terminated all save two of the § 4(e) proceedings, discharged Phillips from further refund obligation thereunder and dismissed its own § 5 investigation of these and subsequent rates covering some 95 substantial rate increases made by Phillips. In addition, it assumed from these 1954 figures that the rates were 'probably' not excessive through 1958 and invited motions to dismiss these proceedings, thus approving existing and increased rates for the 1955-1959 period on the sole basis of 1954 costs and revenues. It also concluded that there was 'nothing in the record to show that these past rates * * * are unduly discriminatory or preferential,' 24 F.P.C., at 576, despite the fact that they varied from 5.5¢ per Mcf. to 13.5¢, with one at 17¢ per Mcf. But this is not all. Concurrently with this action the Commission issued sua sponte a Statement of General Policy No. 61-1, 24 F.P.C. 818, 25 Fed.Reg. 9578, in which it discarded its long-established cost method in favor of an area basis of fixing rates. It promulgated two lists of area prices, one covering initial rates under § 7 certificates and another for increasing rates for gas sold under existing contracts subject to § 4(e). In arriving at these price levels the Commission said that it considered 'all of the relevant facts available to us,' including cost information, 'existing and historical price structures, volumes of production, trends in production, price trends in the various areas over a number of years, trends in exploration and development, trends in demands, and the available markets for the gas.' 24 F.P.C., at 819. For the new gas level § 7 certification price, there can be no doubt that the level established as a guide is the highest permanently certificated rate in the respective areas as of September 1960. The other gas level announced (for § 4(e) contracts) was but the average weighted price for gas sold from the respective areas in 1959. It is therefore accurate to say that both levels were based on existing price structures as of September 1960, i.e., averaged field prices. The Examiner, contrary to the Commission, had found the cost method not only more accurate but entirely feasible and, in comparison with the area method, no more delaying. The parties themselves, including Phillips, concurred in the conclusion that Phillips' rates should be determined by the Examiner on the basis of its over-all cost of service. Nevertheless the Commission held to the contrary and, in addition, issued the statement of policy and accompanying price levels without notice, hearing or record and has since amended them several times in like manner. In this summary fashion the Commission junked its cost-of-service regulation program, wasted a half-dozen years of work thereon and is now experimenting with a new, untried, untested, inchoate program which, in addition, is of doubtful legality. As a consequence the consumers of gas all over the United States and particularly in the large metropolitan cities of the Eastern Seaboard, the Midwest and the West Coast will pay for the Commission's area pricing wildgoose chase. I predict that in the end the consumer will find himself to be the biggest goose of the hunt and the small producer the dead duck.
I cannot let this pass without saying that, as a result of the Court's approval of the Commission's action here, the gas consumers of this country will suffer irretrievable loss amounting to billions of dollars. I shall now offer a few examples in the Commission's rate-base calculation of 1954 that support this conclusion.
1. GROSS ERRORS IN THE COST OF SERVICE COMPUTATIONS.
As the Court has pointed out, the Commission terminated not only the § 5(a) proceeding but also 10 consolidated § 4(e) proceedings against Phillips, the latter on the ground that the revenue received by it for the periods involved was less than cost of service. In view of this disposition it is necessary, aside from the contention that there was no basis for dismissal of those proceedings covering years subsequent to 1954 on that year's findings, for us to examine the basis of its cost-of-service findings for 1954. The dismissal orders are all predicated upon the 1954 cost of service and if it be erroneous the whole basis for the orders of dismissal falls. Thus, while the petitioners have not here argued the specific challenges raised before the Commission and the Court of Appeals, their contention that the Commission abused its discretion in terminating the § 4(e) proceedings necessarily includes the question of the validity of the determination of cost of service. In addition, the likelihood that the Court's affirmance will be regarded as an approval of these highly questionable standards for cost-of-service determination, thus fostering their application in other cases, calls for discussion of them.
Aside from its direct expenditure for purchased gas the largest single item of Phillips' costs appears to be its exploration and development expense, which was allowed in the amount of some $58,313,230 before allocation. We first examine it and other items going into cost of service.
(a) Exploration and development, depletion allowance, allocation and interest costs.-Exploration and development expense for 1954 on the books of the company was $47,474,039, including undeveloped lease rentals, drilling tools, expired and surrendered leases, dry holes and land and geological activities. On these expenditures a 'return and taxes' item was allowed of $10,839,194. Why the consumer should pay on these items, particularly 'dry holes' ($11,306,964), expired and surrendered leases ($9,479,898) and undeveloped offshore leases ($17,765,332) is a matter for the experts; but it appears to me that since Phillips charged off the dry holes in its taxes and the consumers got nothing whatever in 1954 from expired and surrendered leases and undeveloped offshore leases, such expense should not be included in the rate base. This expense alone amounted to 4.281¢ per Mcf. of the total allowed cost of service of 11.1009¢. Moreover, in this connection, Phillips also enjoyed a tax depletion allowance of 27 1/2% on all gas production. This allowance for the year 1954 was $44,784,723, giving Phillips a tax saving of over $20,000,000. This latter sum was included in the rate base. However, depletion is allowed as an incentive to exploration and certainly its savings should be deducted from Phillips' total expense in this regard. Since the book deficit between total revenue and cost of service for 1954 was $8,900,000, it appears that a correction of this item alone would turn that deficit into a nice profit.
(b) Allocation of cost between oil and gas.-Much of the gas produced for interstate sale is 'associated gas,' i.e., it is produced along with oil and is known as casing-head gas. Fifty-seven percent of Phillips' gas production is associated gas but it accounted for only 13.42% of its combined revenue. In addition some wells produce condensate liquids and condensate gas which must be separated through gasoline plants. The question is how much of the expense of exploration, operation, etc., of wells should be chargeable to gas. Phillips used a B.t.u. method which allocated 61.88% of the expense to gas. The Commission cut this to 32.742%, equivalent to 4.281¢ per Mcf. The Examiner had recommended 30.46% while the Wisconsin experts came up with 20.812% and Pacific with 23.98%. As is noted above only 13.42% of Phillips' combined revenue comes from associated gas while 86.58% comes from oil. Still the Commission has allocated almost one-third of the exploration cost to gas, which only brings in one-seventh of the combined revenue. This is a most important item since each 1% shift means over a half million dollars in the rate base.
(c) Purchased gas.-If allowed increased rates Phillips says its cost of gas will rise automatically under its percentage type purchase contracts. This item of $1,671,733 was disallowed by the Examiner since the suppliers were not shown to have been entitled to any increase. As the Commission points out an increase in rate would not increase the percentage Phillips was obligated to pay. It would require Phillips to pay the pro-rata increase in rates due on percentage gas, but it recoups this plus a profit when that gas is sold. I submit, as the Examiner found, that the allowance of this million and a half in the cost basis is erroneous. Increases through automatic escalator clauses-which effect the same result-are not permitted because not based on any increase in cost of production. In approving this practice in percentage contracts the Commission creates a perfect loophole for these producers and invites more contracts of this nature.
(d) Interest.-Expense for money borrowed for 1954 amounted to $9,892,308. On its tax return Phillips claimed an allowance of only $3,743,077. This variance in cost of money seems to have occurred by reason of an exchange of Phillips' outstanding bonds for common stock. The Commission allowed the larger figure on the basis that it was a 'known change' that probably would not occur in other years. It is interesting to note that the 'known change' theory was not applied to the 'San Juan transfer' made in 1955. If applied there it would have made a difference against Phillips of some $8,000,000 in its 1954 rate base. Certainly common fairness would require the application of the 'known change' theory to all cases, not simply an isolated one.
It is readily apparent that the Commission's cost-of-service calculations for 1954 are full of holes. In addition, assuming, as I do not, that the 1954 cost is correct the Commission should not be permitted to extend that cost and the 1954 revenue into subsequent years through 1958 and hold that they too are deficit years. This is, on its face, not in keeping with rate-making procedures. Moreover, the record itself shows the error of the Commission's method. The Examiner found that, on Phillips' own presentation of its costs, the over-all deficiency for 1956 'was not significantly higher than that derived in Phillips' 1954 test year cost of service.' 24 F.P.C., at 773. Phillips' revenues, however, increased each year subsequent to 1954. In 1957 they were some $8,000,000 above 1954; they increased some $17,000,000 in 1958 and about $28,000,000 in 1959. In 1960 revenue was $90,856,248, which was practically twice that of 1954 ($45.6 million). These facts, all known to the Commission, required a reappraisal of the cost of service for all years subsequent to 1954, rather than the arbitrary use of the 1954 figures. The necessary data could have been quickly obtained from Phillips which, of course, had its total revenues readily available and, I am sure, had its cost basis for each § 4 increase likewise calculated.
II. THE DISMISSALS AND THEIR CONSEQUENCES.
The real problem, however, is not so much in Phillips' 1954 level, for that has long since gone by the board and the consumer may as well forget it. The increased levels that became effective between 1954 and the date of the decision in April 1959 are the main rub. The Examiner understood this when, in his final order, he directed Phillips to file uniform rates which would, when applied to sales made in 1954, bring Phillips its 1954 costs and allowed return. He further directed that the same schedule of rates be applied to all sales made subsequent to 1954 and through the date of his decision and to all sales thereafter. Under this requirement if the subsequent cost of service did increase and was not offset by increased revenues the company could recoup itself with § 4 rate increases. This the Commission refused to do and thereby left Phillips free to collect rates as high as 23.5¢ per Mcf. and subject to no refund. The Commission excused itself on the ground that there would be no reason to fix Phillips' rates on a cost basis since it was going to adopt the area plan. It also found the staleness of the test year prevented its application to subsequent years but obviously this was not the reason. In the first place, it used the 'stale' test year of 1954 to justify its finding of deficit through 1958. In addition all parties had agreed upon that year. Investigation covered 1955 and 1956. Hearings began in June 1956 and ran through 1957. Phillips itself presented 1956 data, the latest full year at the time of the closing of the hearings. They were used to show that the cost experience of 1954 was identical for all practical purposes with 1956 and the Examiner so found. It required 15 months for the Examiner to decide the case and prepare a more comprehensive and detailed report which reflected his rear grasp of the problems. See 24 F.P.C. 590-818. Thus, like many major administrative proceedings, this one took five to six years to complete. But, I ask, if this makes the test year stale what of all the other major rate cases? Those that reach us not infrequently have been in the Commission for an equal or longer period. Even if stale, the Commission should not have dumped the whole investigation, hearing, Examiner Report, and staff work down the drain. Before doing so, and in the same opinion, it had already laid down detailed standards in the case for determining cost of service. Indeed it had not only determined the cost to Phillips but had formulated the standards governing its rate of return and calculated its allowable return thereunder. All of this it then discarded. Admitting that additional statistics for subsequent years might have been necessary, such data would have been concerned solely with the application of these already determined standards to those years.
The dismissal of the § 4(e) and § 5(a) cases is the more unfortunate and indicates a disturbing disregard of the consumer interest. On the § 4(e) cases the Court says 'most of Phillips' increased rates now in effect are the subject of pending § 4(e) proceedings * * *.' At this very moment Phillips is making sales at nonrefundable rates as high as 23.5¢ per Mcf. which produce annual revenues more than $3,000,000 in excess of the Commission's SGP 61-1 price levels. On this score in 1956 the Commission authorized a large number of § 7 high price sales without providing for any conditions. This action was reversed in Atlantic Refining Co. v. Public Service Comm'n of New York, 360 U.S. 378, 79 S.Ct. 1246, 3 L.Ed.2d 1312 (1959), and like cases. Although § 5 proceedings have been filed on these cases there are substantial numbers of other such sales that have never been tested and are not now contested. Section 5 proceedings operate prospectively and so, of course, all of the sales are nonrefundable. The statistics indicate that of the 1960 revenue received by 13 major producers about $250,000,000 (roughly 83%) is not subject to refund. Furthermore, the Court says that the rates covered by the § 4(e) proceedings dismissed herein 'were 'locked in,' their validity for the future was not at issue; the sole question was whether all or any part of the increases had to be refunded by Phillips.' The fact is that the Commission has used this same 'stale' 1954 price year which it discarded, including its income level, in determining that refunds were not due for the subsequent four years and in dismissing those proceedings. Hence dismissal forecloses any recovery of excess rates for the periods covering those proceedings, i.e., the four-year period 1954-1958, which the Commission has found nonrefun dable. As I have shown, the 1954 rate as determined by the Commission has serious questions as to its legality. Certainly the subsequent years-based entirely on it-should not have been dismissed. While it may be true, as the Court says, that 'refund obligations * * * do not provide as much protection as the elimination of unreasonable rates' it must be remembered that here the § 5(a) case was also dismissed. Why this precipitous action? The proceedings had been on the books for six years! Why did not the Commission leave them pending until final determination of Phillips' responsibility on all of its more than 95 filings? The Commission makes no answer. There is none.
The dismissal of the § 5(a) proceeding was likewise unjustified. Continuation of the proceeding would have required a remand but the conclusion of the Court that 'several years might have elapsed' before a determination of the issue is a bad guess. It has been two years since this dismissal and there is nothing in sight as yet for a final decision on the Permian Basin area proceeding. The Commission has 22 more areas to go. Meanwhile all areas, including Phillips', have escaped regulation for the years 1954-1963, a total of nine years. If in 1960 the Commission had remanded the § 5(a) proceeding it could long since have been decided, since the enormous increase in Phillips' revenue for 1960 ($45.6 million in 1954 to $90.8 million in 1960) would have definitely shown an excessive rate. The Examiner had found, contrary to the conclusion of the Court, that the 1956 cost of service was not 'significantly higher' than 1954. All that would have been necessary was to project this to the three-year period 1957-1959, inclusive. Phillips, I wager, could have done this almost overnight, if it did not already have the figures available. The Commission in determining the standards to be used had allowed every cost item save the allocation on associated gas which could have been easily corrected on the percentages involved. The remainder of Phillips' system of accounting had received the approval of the Commission and would have readily revealed its costs.
The Court says that a new § 5(a) proceeding can be filed. This is true, but if it were filed tomorrow, more than nine years will already have been lost to the consumer!
The Commission, in my view, had no valid excuse for dismissing the § 4(e) and § 5(a) proceedings. It followed exactly the opposite course in Hunt Oil Co., 28 F.P.C. 623. The Court dismisses this case as inapposite but its technical distinction merits no discussion. As I see it the conclusion in Hunt not to dismiss the pending proceedings is in direct conflict with the action taken here.
I have considered this record page by page-line by line-and have given the Commission's action my most careful attention. There is but one conclusion-namely, that the Commission erred in its determination of the 1954 cost of service and return; and in dismissing the § 4(e) and § 5(a) proceedings, rather than concluding the case by determining a just and reasonable rate, it acted in an arbitrary and unreasonable manner entirely outside of the traditional concepts of administrative due process.
III. THE FALLACY OF THE STATEMENT OF GENERAL POLICY.
As the Court says, the validity of the Statement, SGP 61-1, and the rates accompanying it is not before the Court. But despite this declaration I notice that the Court proceeds to discuss the Statement and strongly implies a view as to its validity. I think it both premature and dangerous to pass any judgment at this stage of the proceedings. There are serious legal questions lurking in the application of the policy and we should not intimate its approval until a definitive case is presented under it. I deem it appropriate to raise these questions here not to join issue on the merits but only to outline the reasons for my reservations about the Court's consideration of this aspect of the case. While I do have serious doubts about both the wisdom and the legality of this approach to price determination, this is certainly not the case in which to give them full-dress treatment.
It is of course true that the cost-of-service method is not the 'sine qua non of natural gas rate regulation.' It is not so much that the Commission must follow a single method but rather that, in abandoning a historic, presently used and undoubtedly legal one in the summary manner done here, it left the production of gas without the required regulation which the Congress has directed. It can hardly be denied that the Commission's action will leave producers for a number of years-estimated by the Court of Appeals at up to 14-without effective regulation and will result in irreparable injury to the consumer of gas. The only brakes on spiraling producer prices are the 'guide prices' which the Commission attached to its SGP 61-1. These, rather than being legally established rates, are nonreviewable guides reflecting the highest certificated rate or weighted price. They have no binding effect. Indeed, they may well establish a floor rather than a ceiling.
In addition, area pricing must run the hurdle of legal attack and, to be constitutionally sound, must include a showing that the individual producer at the area rate fixed will recover his costs; otherwise it would be confiscatory and illegal. I cannot share the Court's optimistic view that the Commission's area rate, tested by 'the 'reasonable financial requirements of the industry' in each production area,' is likely to do this. The facts of gas industry life make it crystal clear that one producer's costs very immeasurably from another's and cannot be leveled off-at least until discovered. For example, Phillips' dry holes cost about $11,000,000, its surrendered leases $9,000,000 and its undeveloped offshore ones $17,000,000. Are these items to be included in the 'reasonable financial requirements' used to fix the rate of the area? If they are it will be unfair for the reason that other producers in the area may or may not have had such costs. Inevitably, the area average will be lower than the high cost producer. Hence the 'financial requirements of the industry' will not satisfy him. If the rate is set by the 'financial requirements' of the higher cost producer it will be higher than that necessary to make it just and reasonable to the lower cost producer, thus resulting in a windfall to the latter. If the 'financial requirements' of the lower cost producer are used it will result in a rate that will confiscate the gas of the higher cost producer. If the higher and lower costs are averaged, as the Commission indicates it intends to do, then the higher cost producer will still not recover his costs and the rate will be confiscatory. On the other hand the lower cost producer will receive a windfall. And so, as I see it, the area plan is in a squeeze-i.e., any criteria the Commission uses would not reflect individual just and reasonable rates. Moreover, it must be remembered that the burden of proving just and reasonable rates is on the producer and he cannot be precluded from offering relevant proof of his cost. This he will demand in the event his statistics show his costs above those fixed for his area. And so the cold truth is that, after all of its area pricing investigation and the fixing of a rate pursuant thereto, the producer aggrieved at that rate may demand and be entitled to a full hearing on his cost. The result is additional delay, delay and delay until the inevitable day when there is no more gas to regulate.
Typical of this simple fact of gas industry life is the announcement last November 15 that the Commission staff had recommended two prices for the gas of the Permian Basin (Phillips) area. It was below the 'guidelines' of the Commission's SGP 61-1 and, further, suggested that these prices be ceilings but not floors. Immediately there sprang up vigorous protest. Independent producers threatened to withdraw their support of the area pricing plan. A meeting was held in Washington with the Commission where it was insisted that 'realistic and uniform prices' be followed in each area consistent with the 'implied promise' of the original SGP 61-1 in this case. The producers were assured three months later that the 'staff's position is not necessarily that of the Commission.' See Tipro Reporter, Feb.-Mar. 1963. It does not require a crystal ball to see what will happen regardless of the conclusion of the Commission. If it decides to make the rates suggested a floor, the respective independent producers will require individual cost proceedings; if the rates are made both a floor and a ceiling, thousands of old rates will be raised to the floor and the consumer will pay the bill.
That the Commission's problems are difficult goes without saying. But as complicated as they appear to be it seems entirely feasible for it to solve them. Other agencies have been faced with like congestion problems. Indeed both the National Labor Relations Board and the Wage and Hour Administration found that they could not process all situations confronting them. They adopted procedures that exempted the inconsequential ones. See 23 N.L.R.B.Ann.Rep. 7-8 (1958). The suggestion that the Commission do likewise has much merit. It appears that in 1953, the year before Phillips, of all the producers then selling in interstate commerce, each of 4,191 producers sold less than 2,000,000,000 cubic feet of gas annually, the total of their sales being only 9.26% of the gas then sold in interstate commerce. See Landis, Report on Regulatory Agencies to the President-Elect(1960), 55. In the Commission's opinion in this case it stated that there were 3,372 producers selling interstate in 1960. The number has therefore decreased almost a thousand since the Phillips decision in 1954, which indicates that some of the smaller producers have escaped from their interstate commitments. However, if all of those who escaped were in the less than 2,000,000,000 cubic feet bracket there would still remain some 3,000 producers whose sales are miniscule. It therefore appears to me that inconsequential producers by the hundreds might well be temporarily exempted. The Commission could then concentrate on the large producers (20 of them control over 50% of the interstate gas) without the pressures incident to the smaller ones. The integrated producer of large volume is inevitably going to be the low cost producer. Hence his rate will be an effective floor from which the small producer rates might well be adjusted. This would give the consumer rate protection over the overwhelming amount of interstate gas more quickly and would give assurances to the small producer that he would be protected from confiscation.
IV. INCONSEQUENTIAL MATTERS.
There are two inconsequential matters that the Court discusses. The first is the escalation clause in several of Phillips' contracts. The Commission has promulgated a series of rule-making orders condemning spiral escalation clauses as being against the public interest. By Orders Nos. 232 and 232A, 25 F.P.C. 379 and 609, respectively, 26 Fed.Reg. 1983 and 2850, it announced that these clauses in contracts executed on or after April 3, 1961, would be without effect. And Order No. 242, 27 F.P.C. 339, 27 Fed.Reg. 1356, announced that contracts containing such clauses would be unacceptable for filing after April 2, 1962. The Commission argues that the contracts under attack here were all dated prior to 1954 and hence its order refusing to find them void should be upheld. This is, of course, a non sequitur. Nor is it understandable how the clauses become effective against the public interest and unacceptable in 1961 but the identical provisions are blessed with validity prior to that date. I cannot subscribe to such a doctrine. However, since the Court requires the producer to 'establish its lawfulness wholly apart from the (escalation) terms of the contract' I cannot become excited over it. Obviously the clauses have no effect whatsoever in determining the reasonableness of a rate from the public standpoint. They do have the effect of triggering the filing of increased rates. They should be completely outlawed by the Commission when the two § 4(e) proceedings left pending are decided.
The other miniscule point when compared to the basic questions in the case is whether Phillips' widely varying rates were 'on their face unduly discriminatory and preferential,' as contended by petitioners in No. 72. The Court refrains from passing on this issue, regarding it as not raised in the court below or on rehearing before the Commission. Section 19(b) of the Act precludes a court on review from considering an objection not raised in the petition for rehearing before the Commission, but it appears that petitioner Wisconsin adequately raised the issue of discrimination in its rehearing petition, and the Commission in denying rehearing stated that Phillips' rates 'normally vary greatly * * * and there is nothing to show that these rates are discriminatory or preferential.' 24 F.P.C., at 1009. I regret that the Court has chosen this occasion to stand on technicality, compare Federal Trade Comm'n v. Henry Broch & Co., 368 U.S. 360, 363, 82 S.Ct. 431, 433, 7 L.Ed.2d 353 (1962), when public interest stands the loss. The patently discriminatory nature of the rate increases, resulting in rates varying from 5.5 to 17.5¢ per Mcf. cannot seriously be questioned. The Examiner found that on the date of the Phillips decision its prices ranged from 1.2¢ to a high of 15.7¢ per Mcf. He concluded that to continue such a rate structure would preserve 'for Phillips an unduly discriminatory general rate structure, which would be contrary to the public itnerest * * *.' 24 F.P.C., at 790. The Commission staff also found that 'Phillips contract rates vary so widely, even as between contracts for the same service from the same producing areas, as to patently contravene the public interest, generating and perpetuating undue preference and undue discrimination.' Id., at 790-791. While the issue of discrimination was raised only generally in the Court of Appeals, it was implicit in the broad questions on which we granted certiorari. While the issue is minor as compared to the primary issues here, it certainly results in a miscarriage of justice for the Court, on such a highly technical ground, to permit the Commission's disposition to stand, to the irreparable injury of the consumers of gas
As I reminded in the beginning, the Congress directed that gas moving in interstate commerce be sold at just and reasonable rates. The basis of such a determination must have some reference to the costs of the service. The Commission has, however, failed to require this. Instead it has declared the 1954 test year, which it thoroughly investigated, to be 'stale' but nevertheless used its findings for that year to release Phillips from regulation not only for 1954 but also for the four succeeding years. Pursuant thereto it dismissed the § 4(e) proceedings and a § 5(a) proceeding covering those periods. In addition the Commission has abandoned its cost-of-service program of rate fixing and has embarked on an area basis regulation which is highly questionable. It has also promulgated, without any hearing, rates as guidelines that have no support in evidence as to their justness and reasonableness. Through this course of conduct the Commission's program of producer regulation-of which Phillips is the keystone has permitted the continued collection of untested, unreasonable, unjust, discriminatory and preferential rates. This situation under the present timetable will continue for years. For these reasons I believe that the public interest requires that this case be reversed and remanded to the Commission with directions to fix the just and reasonable rates of Phillips involved herein. I therefore dissent.

## Notes

* ↑ For a discussion of the problems lurking under the decision see the separate dissents of Mr. Justice DOUGLAS and of the writer, 347 U.S., at 687, 690, respectively, 74 S.Ct., at 801, 802, 803, 98 L.Ed. 1035.
* ↑ The 11.1009¢ figure for unit cost of service was announced in the Commission's order amending its opinion and denying rehearing. The figure was subject to redetermination for purchased gas costs, gathering taxes and royalties.
* ↑ The Presiding Examiner found '(a)ny failure * * * to allow * * * rates sufficient to recoup * * * proper cost of service as here determined, would be inherently unfair and contrary to the public interest. It might also raise a serious question with respect to possible violation of the constitutional prohibition against confiscation.' 24 F.P.C., at 780.
* ↑ Phillips sold 688,811,312 Mcf. of natural gas in 1954; it purchased 407,984,210 Mcf. and produced 375,690,912 Mcf. Its jurisdictional sales ran 71.9% of this total. (The difference between the total volume sold and the somewhat higher total volume produced and purchased results from company uses, losses, residue returned to leases, etc.)
* ↑ The properties of Phillips known as the San Juan transfer were made in 1955 and involved a total 'known change' of some $8,000,000 which was not allowed. The assigned reason was that other properties were added but I find no support in the record for this conclusion.
* ↑ In this connection, it appears strange that the Commission has exempted producers from the Uniform System of Accounts required of natural gas companies, 18 CFR, c. 1, part 201. No system has as yet been prescribed for producers. Moreover, the annual reports required from pipelines enable the Commission to promptly determine pipeline expense, returns, earnings, etc. This report for producers merely shows sales under each rate schedule. Finally, pipelines, when filing § 4 rate increases, must attach detailed cost justification. No such requirement is made of producers.
* ↑ The situation is even more extreme in South Louisiana where 55% of the gas is now flowing at prices which exceed the Commission's 'initial price' ceiling; over 94% is flowing at prices exceeding the Commission's 'increased price'; and over 70% is flowing at prices which exceed the level the Commission found 'inline' for CATCO gas after our remand in Atlantic Refining Co. v. Public Service Comm'n of New York, 360 U.S. 378, 79 S.Ct. 1246, 3 L.Ed.2d 1312 (1959).
* ↑ The Court seems to admit that the protection the Congress envisaged in § 4(e) is in practice illusory. First it comes too late; next, many of the consumers entitled to refunds cannot be found, etc. See Federal Power Comm'n v. Tennessee Gas Transmission Co., 371 U.S. 145, 154-155, 83 S.Ct. 211, 216-217, 9 L.Ed.2d 199 (1962). An even more realistic consideration is that these refunds have been permitted to reach the astronomical figure of $158,000,000 a year, of which amount Phillips has been receiving some $74,000,000. If the 'evil day' for the producer ever arrives where he must pay up, from where will the money come? It would bankrupt the average producer. The Commission would necessarily, in order to protect the service of interstate customers, be obliged to compromise or forgive them.
* ↑ Four cases involving major producers have been decided by the Examiners and five investigations of other major producers have now been completed. These nine producers, with Phillips, handle 30% of all interstate gas. Still no major rate case has been decided since Phillips. Only two area cases are under investigation. These two areas-Permian and South Louisiana-furnish only 32% of all interstate gas. The South Louisiana case will take several years to complete.
* ↑ Wisconsin's petition for rehearing, in point (1), challenged the Commission's policy statements regarding rate regulation, on the ground that 'the issue in this case is to determine whether the jurisdictional rates and charges or classifications demanded, observed, charged or collected by Phillips, or any rules, regulations, practices or contracts affecting them, are unjust, unreasonable, unduly discriminatory or preferential. Natural Gas Act §§ 4, 5.' (Emphasis added.)
* ↑ See points 1 and 2, Brief of Long Island Lighting Co., petitioner in No. 74, on petition for review of the Commission's order in the Court of Appeals.
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