Document: 391 U.S. 9 88 S.Ct. 1526 20 L.Ed.2d 388 FEDERAL POWER COMMISSION, Petitioner,v.SUNRAY DX OIL COMPANY et al. The UNITED GAS IMPROVEMENT COMPANY, Petitioner, v. SUNRAY BROOKLYN UNION al., Petitioners, COMMISSION STANDARD CO. OF TEXAS, etc., COMPANY. SHELL PUBLIC SERVICE COMM'N NEW YORK. SKELLY YORK SUPERIOR Nos. 60, 61, 62, 80, 97, 111, 143, 144, 231. Argued Jan. 22 and 23, 1968. Decided May 6, [Syllabus from pages 9-14 intentionally omitted] Peter H. Schiff, Washington, D.C., for Federal Power commission. William T. Coleman, Jr., Philadelphia, Pa., Morton L. Simons, Chicago, Ill., Public Service Commission of New York Distributors. K. Tell, Houston, Tex., Thomas G. Johnson, City, Kilbourne, II, Francis Caskin Justin R. Wolf, the Producers. Mr. Justice HARLAN delivered opinion Court. 1 These cases present questions arising out issuance by Commission, pursuant to § 7 Natural Gas Act, 52 Stat. 824, as amended, 15 U.S.C. 717f, 'permanent' certificates authorizing producers sell natural gas pipelines transportation resale in interstate commerce. 2 An understanding issues requires some background. Section 7(c) Act provides that a company may engage sale subject Commission's jurisdiction only if it has obtained certificate public convenience necessity. Such issue after notice hearing interested parties, although proviso enables emergency temporary without hearing, pending determination an application permanent certificate. 7(e) states are be granted if, finds proposed 'is or will required future necessity * *.' That section further attach 'such reasonable terms conditions require.' 3 Prior 1954, construed empowering regulate sales not producers. This Court held contrary Phillips Petroleum Co. State Wisconsin, 347 672, 74 794, 98 L.Ed. 1035. Since then, been engaged continuing effort adapt provisions regulation producer sales. method finally resolved upon determining 'just reasonable' rate at which 4 sold was conduct number area proceedings, looking establishment maximum rates within each producing area. recently approved us Permian Basin Area Rate Cases, 390 747, 1344, 312. Other proceedings underway, they eventually encompass areas accounting 90% all See U.S., 758, n. 18, 1355. decision rely on means establishing just under §§ 5 its implementation, have thus far occupied more than decade. During this period, obliged rest interim 7. In early years following Court's first decision, supra, took narrow view powers, field price began soar.1 Matters came head so-called CATCO proceeding, certificated largest quantity theretofore dedicated commerce above those then prevailing, ground denied refusal dedicate might result eventual shortage supply. Atlantic Refining (CATCO), 360 378, 79 1246, 1312, should done more. stating 'was so framed afford consumers complete, effective bond protection excessive charges.' 388, S.Ct., 1253. noted charged reasonable.' However, stated proving inordinately time-consuming, that, because became prospectively, consumer had no excess charges collected during pendency proceedings. said: 6 '(T)he inordinate delay presently existing processing most careful scrutiny responsible reaction initial proposals fact prices leaped one plateau higher levels another (makes) consideration prime importance. is important formative period when rules being evolved. Congress, 7(e), authorized condition such manner require. Where keeping with interest line approval triggering general rises increase applicant's reason 'favored nation' clauses otherwise, exercise discretion believes necessary.' 391, 1255. After courts, work system move, contracts sale, interval preceding rates. It based 'in-line' current taking into account possibility other due most-favored-nation clauses.2 courts generally excluded gave diminished weight were 'suspect' embodied still judicial review; contained issued ex parte representations producers; occurred before representatives East Coast distributors (commonly referred 'seaboard interests') erroneously excluded.3 hesitation,4 decided bar presenting cost evidence in-line admission would make hearings too long-drawn-out. price, conditioned provide could initially greater price. also limit level raised, escalation contract, given completion relevant proceeding.5 8 United Improvement Callery Properties, Inc., 382 223, 86 360, 284. There properly refuse hear impose moratoria increases specified levels. review erroneous, remand insert new requiring refund amounts subsequently determined now originated applications produced three Texas Railroad districts Gulf Coast, entered between 1958 1963. conditional certification District 4, 31 F.P.C. 623, appealed Appeals Tenth Circuit. upheld against challenges both seaboard interests, rejecting particular charge interests erred certificates. 370 F.2d 181. same opinion, Circuit power order refunds past appealed, reiterated reversing appeal 36 309, ordering refunds. 376 578. 10 Orders conditionally certificating Districts 3, 34 897 930, together Columbia single court circumstances giving set prices. No raised appeal, but did hold committed error reserving pipeline question, whether there need sold. 126 U.S.App.D.C. 26, 373 816. 11 We certiorari consolidated argument, 389 811, 29, 19 64, consider matters: (1) Did err here issue? (2) unconditioned price? (3) Must request decide proceeding itself actually needed public, deal proceedings? For reasons follow, we affirm reverse question. matter 'need.' uphold orders full. I. 12 acted correctly setting review. adequately resolve necessary precise idea functions 13 One function serves 'ceiling' containing condition. effect preventing contractually legally limited, free, 30 days' raise extent contract permits, 4(e) suspend effectiveness five months increased turns thereafter found area.6 14 A second constitutes 'floor' below Act. filing increase, own authority undertake determine reasonable, simultaneously suspending up months. If suspension expires 'by order, require natural-gas furnish any ordered keep accurate accounts detail received *, and, (sic) refund, interest, portion justified.' practice files where progress, thereby rendering provision 4(e).7 16 sometimes contended operating non-reviewable permanently lower power, merely entire difference rate.8 never passed contention,9 twice rejected dictum. Sunray Mid-Continent Oil FPC, 364 137, 146, 80 1392, 1623, interpreted meaning 'the empowered collect increment accounting, case increase.' Callery, '(t)he fixing establishes firm operate, rate, contingent obligation turn price.' 227, 363. 17 adhere dicta Mid-Continent. outcome comports better language does alternative. true gives charges' excessive, expressly increment. provision, appears earlier sentence, 'amounts intended extend amounts, requirement logically extended them also. Viewing broadly, why interpretation preferable. seems incontestable consistently sells final, certificate, attempt simply amount reparation repeatedly power.10 anomalous treat trigger leave smaller net return all. therefore cannot 4(e). 18 floor conceivably serve significantly different ends,11 shall give separate these two appropriate begin function, apparently viewed almost entirely explicit their effects floors.12 A. thrust court's use conditioning prevent large jumps prices, At time, hoped receiving abridged establish near approximations later established. concluded hope illfounded, exclusion data hearings. 228 solely contemporaneous rates, can assurance arrived bear relationship rate. Any necessarily belief approximate closely 'true' market price—the Although doubtless relationship, economists argued intimate,13 contradict basic assumption caused production subjected must underlain namely, purchasing pipeline, whose purchase expense entitled pass customers part lacks sufficient incentive bargain down.14 21 fulfilled mandate ensure lack purchaser bargaining drastic rise freeze pre-CATCO resulted locking structure abrupt leaps prior CATCO, well risking erosion through disregard rising costs. Hence, reference contemporary which, though reflection indirect available trends. And exclude, possible, review, reflect impermissible CATCO. Thus, doctrine developed time see 226—228, 362—363, rational permissible way implementing requirement. Turning methods used acceptable ways 23 On September 28, 1960, post-CATCO involved issuing Statement General Policy No. 61—1, 24 818. announced ceiling district. 2, 18¢ per Mcf (thousand cubic feet) gas. With respect August 30, 1962, 15¢ contracted date Statement. 28 401. here. date, scheduled known Amerada 1962. 396. March 1964, terminated 623. study 16¢ Mcf. reaching conclusion, relied primarily comparison two-year life years, mirror substantial quantities currently moving 25 desire certificates, 1.4% recognized 'suspect,' largely consisted very 'in-lineness' determined. risk considering overbalanced take ignore great bulk unreliability refused accept 17.2¢ average relying teachings draw lowest level.' F.P.C., 637. placed 'some measure weight' guideline promulgated 1960. 82% post-Policy moved Mcf, '(i)n final analysis our action informed judgment utilization expertise handling thousands applications.' 636—637. 26 partial reliance challenged who claim 'improper' factors high period. 27 conclude, extraordinary attends finding make, resulting law. concede do object They complain temporarily germane indication 25—26. Guideline function. exact admittedly arbitrary, place 'lid' gideline insofar represented trends absence free market. evidently weight, since 2¢ lower. think justified. 29 Consideration warranted pointed trends, especially light 98.6% flowing Their additional justification. greatly delaying levels.15 Had allowed abuse weight. Finally, 'zone reasonableness' aside adopted see, e.g., FPC Pipeline Co., 315 575, 585—586, 62 736, 742—743, 1037, allow rises. end spectrum considered 1¢ rise. To Sinclair 25, executed 12, 1958, January 1, 1964.16 Hawkins initiated 16, October 725. dividing question groups, afterward. 22, 1965, 897, 930. 32 pre-Policy issue. contend high. factors. First, full about 40% moving. Second, 'not undue' force 60% flowed. Third, assigned original, area, 'do show economic area.' 937. Fourth, volumetric median 15.29¢ weighted Fifth, 53% 16¢. 33 fixed 17¢ reaffirmed earlier-established previous attack Superior Company asserts low. confine ourselves contention interests. arriving moderate volumes 16.2¢, small volume 16.5¢, 18¢. accorded '(reflects) 16.17 cents' 903. exactly Sinclair. 902. 43% 17¢. sustained challenge holding attacked parties. 35 assert taken 3. sustain contention. much larger percentage 4. appear discussion nonetheless indicating trends.17 acknowledged relative according force. circumstances, conclude exceeded Nor find selection information it. particularly Hawkins, ranged nearer say either fall outside rate-setting discretion. 29. previously breach directive avoid excessively increases. 37 contends established pre- periods low reasons, mainly certain relatively All 38 already described. 31. four comparatively 16.2¢. 72% sales, comprising 'a little half' total gas, less. 17.5¢ above, even regarded suspect. 15.16¢ except suspect above. 39 Superior's strongly pressed allegedly failing nine large-volume 20¢ inclusion strength 'strong (upward) effect' impact 'discounted.' 40 'six Trunkline 704 (the Commission's) petition dismissed timely.' 41 quoted Texaco Seaboard 593, 597, discounted 'would aside, failure permit proper party intervene, save procedural defect PSC case.' went point remaining ground.18 42 discounting Those emerged believe defect. compelled 43 1955—1956 Coastal Transmission Company. justification again cited Among justifications put forward company, neither nor yet operation, included higher-than-normal allowance risk. factor alone justify 44 next settlement orders. conceded settlements then-prevailing enforced Commission.19 Hearing Examiner supply independent 45 complains alleged enough intrastate 31, 33, sufficiently what gone before, refusing intra-state submitted that: 46 'these cover anything representative comparable arrays.' 904. 47 incorrectly estimated rather actual periods. justification, 1962 Moreover, made significant difference, agrees20 enhanced slight weight.21 B. 48 floors. nowhere refers 'excessive rates' 4(a) commands move. Logically, seem imply assure 'complete, protection' to, permitted accompanied liable down prove 49 Despite apparent logic, imposed type, occasionally price.22 suggested conditions. dissent imposition unaccompanied held, over dissent, compelling invalidated 50 original conditioned. payment until said elsewhere duty 'where due, direct earliest possible moment consistent process.' Comm'n Tennessee 371 145, 155, 83 211, 199' 230, 364. 51 achieve distinct regulatory goals, 11, regretable entertained separating aspects 'in-line price' cases. precedents instance floor. Callery. speed identical. say, therefore, breached suitable looked examine role way, impermissibly disputed range it, stating: 53 'While points direction 54 beyond 55 assailed enunciate principle motivated selecting level.23 preferable explained reasoning, prevailing indicates probably exceed proceeding.24 addition, unmoved obvious desirability bringing close prolonged belongs era ended.25 despite weaknesses seen 56 case, similar (Sinclair). 4; articulate principles it.26 vulnerable likely Coast. Yet considerations lead approve broad Previous fragmentary forthcoming slightly, all, 17¢.27 desirable outmoded brought close. constrained law, II. 57 major powers 58 717f(c), contains permits 'issue emergency, maintenance adequate service customers, certificate.' Most applied then-guideline 'emergency' threatened loss unless deliveries begin.28 Eight specifying ordered. include express condition, contain cautionary respecting action.29 59 history follows. When retroactive virtually identical Skelly validity (has) appeal.' 401, 413. denying rehearing Skelly, amplified warn 'to proceed equitable regardless ultimate right refunds.' 1065, 1069. While Circuit, prospective us. request, commerce, 'so denature value authorization actions serious jeopardy.' 225. 60 117 287, 329 242, broader penetrating analysis.' U.S.App.D.C., 295, F.2d, 250. subsequent Amerada, clear depend presence considerations. deferred parties submit briefs. 638—639. briefing issue, sums exception expended royalties taxes 309. 61 deferring ripe Relying 270 404, lacked reasoned undermine confidence destroy stability. themselves position curiam opinion. erred. producers' support appealable orders, 19(b) 717r(b), sought days not, here, argument unpersuasive. Temporary normally parte, receipt form letter.30 procedure quoting 40, potentially persons.31 recipient aware 63 immediately suggest, encourage appeals impair usefulness immediate delivery emergencies. flow consume severely hamper performance least itself,32 for. 64 'final' creating vested rights, altered prospectively. related last, flaw. diminish utility. discourage prompt frustrate objectives allowing operate long intervals33 basis minimal Commission. 65 third contention, coincides rationale Mid-Continent, retroactively unmodifiable assured operate. reasoning. requested permission normal procedures, unfair termination procedures retrospectively conform interest. 66 strengthened supra. old. expectations created overridden surely lesser induced 'unconditioned' producer's outstanding, price.34 C. 67 remains precluded exercising proceeding.35 background nature followed reached imposing amounted 68 irrevocable rationally plan budgets lives worded arguments foreclosed upholding course 45. 69 repeated indications refunds, 41—42, inequitable instance, pronouncements unusual kind precisely opportunity re-briefing. deprive case. note individual pleas relief obligation, hardship,36 relief.37 Therefore, regrettable road led requirements straighter,38 authority. III. 70 last (Sinclair Hawkins) asserted alleging several obligated 'take-or-pay' foreseeably pay fot it.39 71 perfunctory Its dealt declining come grips certification. directed take-or-pay positions 'economically 'inferior' way.' 72 regulates ways. expand facilities supplies obtain necessity, hearing. considers many matters, including needs pipeline's supply.40 grants co-called 'budget' spend limited gaspurchasing annual basis, approval.41 objection.42 periodic reports pipelines,43 collects publishes material pipelines' positions.44 73 deciding end-use45 aspects, place, requisite readily outstanding contracts, situation contracts. possession producer. Decision end-use alternative uses buy collectively pipelines; know customer receive supplies.46 proceeding,47 cumbersome lengthen commended endeavoring shorten.48 pipline supplemented forms forum confront evinced concern adverse pipelines, stressed pre-1964 maintain twelve-year reserves. 1964 flexible.49 1965 detailed contractual provisions.50 1967, rule-making begun 1961, prescribed rule paid making payments.51 75 steps alleviate problems. Persons want views rule-making52 build handle persons objections proceeding.53 seeks acquire ask facilities, authority,54 opportunities protect 76 undertaken devoted wasteful uses, Transcontinental Pipe Line Corp., 365 435, 377. proceedings.55 inappropriate, entail erection anticipate seeking devote inferior withheld limited. objection conservation 77 Of course, neglect statutory 'necessity.'56 implies unneeded contentions. record us, forum. events demonstrate inadequate, arenas objection. 78 foregoing need. Affirmed reversed part. MARSHALL

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