Source: https://supreme.justia.com/cases/federal/us/360/378/
Timestamp: 2019-04-18 15:24:59+00:00

Document:
Four independent producers applied to the Federal Power Commission under § 7(e) of the Natural Gas Act for a certificate of convenience and necessity authorizing the sale to an interstate pipeline company of an enormous quantity of natural gas from wells in the Gulf of Mexico off the shore of Louisiana at a much higher rate than the pipeline company was then paying for gas. The pipeline company intervened, as did some of its distributor customers and other interested parties, the latter urging a lower rate. After twice refusing to issue the certificate on the ground that the record was insufficient to support a finding that public convenience and necessity required the sale at the proposed rate, the Commission was told that the producers would not dedicate the gas to the interstate market unless a permanent certificate was granted unconditionally and at the rate proposed. Upon rehearing, but without additional evidence, the Commission then issued such a certificate.
1. The facts that the producers limited their application to a firm price agreed upon between them and the pipeline company, refused to accept certification at a lower price, and threatened to cancel the contract and withhold the gas from interstate commerce did not deprive the Commission of jurisdiction. Pp. 360 U. S. 387-388.
2. The order of the Commission granting the certificates was in error, and it must be vacated and the case remanded to the Commission for further proceedings. Pp. 360 U. S. 382, 360 U. S. 388-394.
required by public convenience and necessity is crucial, and a permanent certificate should not be issued unless the proposed rate has been shown to be in the public interest. Pp. 360 U. S. 388-391.
(b) When the price proposed in an application under § 7(e) is not in keeping with the public interest because it is out of line or because its approval might trigger general price rises or an increase in the applicant's existing rates, the Commission, in the exercise of its discretion, may attach such conditions as it may deem necessary. P. 360 U. S. 391.
(c) In granting such conditional certificates, the Commission does not determine initial prices, nor does it overturn those agreed upon by the parties. Rather it so conditions the certificates that the consuming public may be protected while the justness and reasonableness of the prices fixed by the parties are being determined under other sections of the Act. Pp. 360 U. S. 391-392.
(d) If unconditional certificates are issued where the rate is not clearly shown to be required by the public convenience and necessity, relief is limited to § 5 proceedings, and full protection of the public interest is not afforded. P. 360 U. S. 392.
(e) The record contains insufficient evidence to support a finding of public convenience and necessity prerequisite to the issuance of permanent certificates. Pp. 360 U. S. 392-394.
257 F.2d 717 affirmed on different grounds.
"on which to base a finding that the public convenience and necessity requires the sale of these volumes of gas at the particular rate level here proposed."
"important as is the issue of price, that, as far as the public is concerned, the precise charge that is made initially is less important than the assurance of this great supply of gas"
for interstate markets. 17 F.P.C. at 881.
here, the applicant circumscribes the scope of that inquiry by attaching a condition to its application requiring the Commission to forego the consideration of an element which may be necessary in the formulation of its judgment."
Public Service Comm'n of New York v. Federal Power Comm'n, 3 Cir., 257 F.2d 717, 723. Concluding that the Commission had no jurisdiction to conduct such "a limited inquiry," ibid., it vacated the order granting the certificates and remanded the case to the Commission. The importance in the administration of the Act of the questions thus posed required the granting of certiorari, 358 U.S. 926 (1959). We have concluded that the Court of Appeals was in error in deciding that the Commission had no jurisdiction. However, for reasons hereafter developed, we hold that the order of the Commission in granting the certificates was in error, and we therefore affirm the judgment of the Court of Appeals.
Commission. [Footnote 3] The latter is the petitioner in No. 536, which has been consolidated with No. 518.
other requirements place a greater burden on Tennessee and, in practical effect, increase the stated price of the gas to it.
his recommendation on the approval of Tennessee's application in Docket G-11107 above mentioned.
"The importance of this issue in certificating this sale cannot easily be overemphasized. This is the largest reserve ever committed to one sale. This is the first sale from the newly developed offshore fields from which large proportions of future gas supplies will be taken. This is the highest price level at which the sale of gas to Tennessee Gas has been proposed."
"These factors make it abundantly evident that, in the public interest, this crucial sale should not be permanently certificated unless the rate level has been shown to be in the public interest."
"the record does not contain sufficient evidence on which to base a finding that the public convenience and necessity requires the sale of the gas at that particular rate level."
"the primary consideration that the public served through the Tennessee Gas system is greatly in need of increased supplies of natural gas. . . . In view of these circumstances and the fact that the record does not show that the 21.4-cent (plus 1 cent for taxes) rate is necessarily excessive, we agree with the presiding examiner that this certificate proceeding . . . should not assume the character of a rate proceeding under Section 5(a)."
"is higher than Tennessee Gas is paying under any other contract, it should be subject to prompt investigation under Section 5(a) as to its reasonableness."
reversal of the judgment, but attacks the ground upon which the Court of Appeals bottomed its remand, namely, lack of Commission jurisdiction to consider the limited proposal of petitioners. The Commission's brief suggests that the Court not reach the issue tendered by petitioners, i.e., must the Commission, in a § 7 proceeding, decide whether the proposed initial rate is just and reasonable? Instead, the Commission says, if the judgment must be affirmed, it would be better to base the affirmance on the ground that its order "was not supported by sufficient evidence, and hence constituted an abuse of discretion in the circumstances of the particular case. . . ." Brief for the Federal Power Commission, p. 31. Petitioners oppose such a disposition, contending the evidence was quite substantial.
the Commission's second order. While the refusal might have been couched in more diplomatic language, it had no effect on the Commission's power to act on the rehearing requested. Even though the Commission did march up the hill only to march down again upon reaching the summit, we cannot say that this about-face deprived it of jurisdiction. We find nothing illegal in the petitioners' rejection of the alternative price proposed by the Commission and their standing firm on their own.
"the intention of Congress that natural gas shall be sold in interstate commerce for resale for ultimate public consumption for domestic, commercial, industrial, or any other use at the lowest possible reasonable rate consistent with the maintenance of adequate service in the public interest."
"proposed service, sale, operation, construction, extension, or acquisition . . . will be required by the present or future public convenience and necessity,"
issues a certificate of public convenience and necessity therefor, § 7(c), 15 U.S.C. § 717f(c). Section 7(e) vests in the Commission control over the conditions under which gas may be initially dedicated to interstate use. Moreover, once so dedicated, there can be no withdrawal of that supply from continued interstate movement without Commission approval. The gas operator, although to this extent a captive subject to the jurisdiction of the Commission, is not without remedy to protect himself. He may, unless otherwise bound by contract, United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U. S. 332 (1956), file new rate schedules with the Commission. This rate becomes effective upon its filing, subject to the 5-month suspension provision of § 4 and the posting of a bond, where required. This not only gives the natural gas company opportunity to increase its rates where justified, but likewise guarantees that the consumer may recover refunds for moneys paid under excessive increases. The overriding intent of the Congress to give full protective coverage to the consumer as to price is further emphasized in § 5 of the Act, 15 U.S.C. § 717d, which authorizes the Commission, sua sponte or otherwise, to institute an investigation into existing rates and charges and to fix them at a just and reasonable level. Under this section, however, the rate found by the Commission to be just and reasonable becomes effective prospectively only. Gas purchasers, therefore, have no protection from excessive charges collected during the pendency of a § 5 proceeding.
Phillips Petroleum Co. v. Wisconsin, 347 U. S. 672, was decided in 1954, cases instituted under § 5 are still in the investigative stage. This long delay, without the protection of refund, as is possible in a § 4 proceeding, would provide a windfall for the natural gas company, with a consequent squall for the consumers. This the Congress did not intend. Moreover, the fact that the Commission was not given the power to suspend initial rates under § 7 makes it the more important, as the Commission itself says, that "this crucial sale should not be permanently certificated unless the rate level has been shown to be in the public interest." 17 F.P.C. 563, 575.
This is especially true where, as here, the initial price will set a pattern in an area where enormous reserves of gas appear to be present. We note that, in petitioners' proof, a map of the Continental Shelf area off of the coast of Louisiana shows that the leases here involved cover but 17 out of a blocked-out area covering some 900 blocks of 5,000 acres each. The potential of this vast acreage, in light of discoveries already made as shown by the record, is stupendous. The Commission has found that the transaction here covers the largest reserve ever committed to interstate commerce in a single sale. Indications are that it is but a puff in comparison to the enormous potentials present under the seabed of the Gulf. The price certificated will, in effect, become the floor for future contracts in the area. This has been proven by conditions in southern Louisiana, where prices have now vaulted from 17 cents to over 23 cents per MCF. New price plateaus will thus be created as new contracts are made, and, unless controlled, will result in "exploitation" at the expense of the consumer, who eventually pays for the increases in his monthly bill.
"just and reasonable" rate hearing is a prerequisite to the issuance of producer certificates. What we do say is that the inordinate delay presently existing in the processing of § 5 proceedings requires a most careful scrutiny and responsible reaction to initial price proposals of producers under § 7. Their proposals must be supported by evidence showing their necessity to "the present or future public convenience and necessity" before permanent certificates are issued. This is not to say that rates are the only factor bearing on the public convenience and necessity, for § 7(e) requires the Commission to evaluate all factors bearing on the public interest. The fact that prices have leaped from one plateau to the higher levels of another, as is indicated here, does make price a consideration of prime importance. This is the more important during this formative period when the ground rules of producer regulation are being evolved. Where the application, on its face or on presentation of evidence, signals the existence of a situation that probably would not be in the public interest, a permanent certificate should not be issued.
There is, of course, available in such a situation a method by which the applicant and the Commission can arrive at a rate that is in keeping with the public convenience and necessity. The Congress, in § 7(e), has authorized the Commission to condition certificates in such manner as the public convenience and necessity may require. Where the proposed price is not in keeping with the public interest because it is out of line or because its approval might result in a triggering of general price rises or an increase in the applicant's existing rates by reason of "favored nation" clauses or otherwise, the Commission, in the exercise of its discretion, might attach such conditions as it believes necessary.
"a single statutory scheme under which all rates are established initially by the natural gas companies, by contract or otherwise, and all rates are subject to being modified by the Commission. . . ."
United Gas Pipe Line Co. v. Mobile Gas Service Corp., supra, at 350 U. S. 341. On the other hand, if unconditional certificates are issued where the rate is not clearly shown to be required by the public convenience and necessity, relief is limited to § 5 proceedings, and, as we have indicated, full protection of the public interest is not afforded.
there evidence supporting the finding that the producers "would seek to dispose of their gas elsewhere than to Tennessee Gas and the interstate market," ibid. While the Commission says that statements were made in argument, apparently by counsel, that this was the case, we find no such testimony. Since some 90% of all commercial gas moves into the interstate market, the sale of such vast quantities as available here would hardly be profitable except interstate.
These considerations require an affirmance of the judgment with instructions that the applications be remanded to the Commission for further proceedings.
* Together with No. 536, Tennessee Gas Transmission Co. v. Public Service Commission of New York et al., also on certiorari to the same Court.
"(e) Except in the cases governed by the provisos contained in subsection (c) of this section, a certificate shall be issued to any qualified applicant therefor, authorizing the whole or any part of the operation, sale, service, construction, extension, or acquisition covered by the application, if it is found that the applicant is able and willing properly to do the acts and to perform the service proposed and to conform to the provisions of the Act and the requirements, rules, and regulations of the Commission thereunder, and that the proposed service, sale, operation, construction, extension, or acquisition, to the extent authorized by the certificate, is or will be required by the present or future public convenience and necessity; otherwise such application shall be denied. The Commission shall have the power to attach to the issuance of the certificate and to the exercise of the rights granted thereunder such reasonable terms and conditions as the public convenience and necessity may require."
These are the Atlantic Refining Company, Cities Service Production Company, Continental Oil Company, and Tidewater Oil Company, all petitioners in No. 518 and sometimes known as CATCO.
Tennessee operates a pipeline system extending from gas fields in Texas and Louisiana through Arkansas, Mississippi, Tennessee, Kentucky, West Virginia, Ohio, Pennsylvania, New Jersey, New York and into Massachusetts, New Hampshire, Rhode Island, and Connecticut. It serves some 80 distributing companies which, in turn, serve millions of consumers in the various States which its pipeline traverses.
These increases were later limited to 2 cents per MCF. The escalator clauses apparently were inserted in lieu of "favored nation" clauses, but by letter, not a part of the contracts, "favored nation" clauses were to be substituted at a later date on certain contingencies.
"Including the gas which Tennessee proposes to purchase under these contracts, some 240,000 M.c.f. per day (14.73 p.s.i.a.), it is estimated that the weighted average cost of all gas to Tennessee in 1958 will be some 13.70 cents per M.c.f., as compared with 12.73 cents if the gas here proposed to be purchased is excluded."
17 F.P.C. 563, 570. Thus is the .97-cent figure derived. It is, however, a misleading figure, for the estimate for 1958 includes the 22.4-cent gas for only two months of 1958, November and December. There is no indication in the record as to what the cost increase would be if the weighted average were calculated by including the 22.4-cent gas for the full year.
The brief is not signed by the Solicitor General, but by both the General Counsel and the Solicitor of the Federal Power Commission.
The 1942 amendments to § 7, 56 Stat. 83, were not intended to change this declaration of purpose. See Hearings, House Interstate and Foreign Commerce Committee, on H.R. 5249, 77th Cong., 1st Sess. 18-19; H.R.Rep. No. 1290, 77th Cong., 1st Sess.; S.Rep. No. 948, 77th Cong., 2d Sess.
Tennessee has subsequently filed an application with the F.P.C. requesting higher rates designed to produce some $19,000,000 additional annual revenue. Tennessee Gas Transmission Co., Docket G-17166.
MR. JUSTICE HARLAN, whom MR. JUSTICE FRANKFURTER joins, concurring.
I agree with the judgment of the Court on the ground that the findings upon which the Commission based its conclusion that the public convenience and necessity required the issuance to petitioners of unconditional final certificates find no support in the record. There is no evidence supporting what appear to be the crucial findings that (1) "the public served through the Tennessee Gas system is greatly in need of increased supplies of natural gas," particularly insofar as this finding implies that this need is immediate and cannot be satisfied from Tennessee's existing reserves, and that (2) there was serious danger that producer petitioners' gas would be permanently lost to the interstate market unless an unconditional certificate were granted on their terms. This makes it unnecessary to consider at this stage any of the other questions sought to be presented by the parties.

References: § 7
 § 7
 § 5
 v. 
 § 7
 § 7
 § 717
 v. 
 § 4
 § 5
 § 717
 § 5
 v. 
 § 5
 § 4
 § 7
 § 5
 § 7
 § 7
 § 7
 v. 
 § 5
 v. 
 § 7