Source: https://supreme.justia.com/cases/federal/us/417/380/
Timestamp: 2019-10-20 16:12:13
Document Index: 454233132

Matched Legal Cases: ['§ 7', '§ 4', '§ 7', '§ 717', '§ 4', '§ 717', '§ 16', '§ 4']

FPC v. Texaco, Inc. :: 417 U.S. 380 (1974) :: Justia US Supreme Court Center
Justia › US Law › US Case Law › US Supreme Court › Volume 417 › FPC v. Texaco, Inc.
The FPC asserted its intention of reviewing small producer prices to maintain reasonable rates, and specified that small producers remain subject to § 7(b) of the Natural Gas Act. The Court of Appeals set aside the FPC order, holding that the small producer blanket certificate procedure contravened the FPC's statutory responsibilities under §§ 4 and 5 of the Act to ensure "just and reasonable rates." It viewed the order as merely calling for rates that were not unreasonably high as compared with the highest contract prices for large producer sales or the prevailing market price in the intrastate market, and
WHITE, J., delivered the opinion of the Court, in which all Members joined except STEWART, J., who took no part in the consideration or decision of the cases.
This litigation involves the validity of Order No. 428 of the Federal Power Commission, 45 F.P.C. 454 (1971), which provides a blanket certificate procedure for small producers of natural gas, and relieves them of almost all filing requirements. The rates of small producers would no longer be directly regulated, but would be subjected to indirect regulation through the review of purchased gas costs of the pipelines and large producers to whom these
Page 417 U. S. 383
Page 417 U. S. 384
Id. at 457. The issue would be resolved either in pipeline rate cases, a proceeding limited to the tracking increase, or in
Page 417 U. S. 385
The Commission also made clear that small producers remain subject to the requirements of § 7(b) of the Act, 15 U.S.C. § 717f(b), with respect to the abandonment of jurisdictional sales, including those sales dealt with in the order. The order also limited the use of indefinite price escalation clauses in small producer contracts, and
Page 417 U. S. 386
The Court of Appeals set aside the Commission order, holding that, under the statute, all natural gas sold in interstate commerce must carry just and reasonable rates, and that, even if indirect regulation was permissible under the statute, Order No. 428 was infirm because nothing in it satisfied the Commission's "duty to insure that all rates are just and reasonable.'" 154 U.S.App.D.C. at 173, 474 F.2d at 421. Instead, the order was thought merely to call for rates that were not unreasonably high as compared with the highest contract prices for large producer sales or the prevailing market price in the intrastate market -- "factors which [the Commission] does not regulate or which derive solely from market forces." Ibid. Nor could the court accept the possible argument that market forces themselves would produce just and reasonable rates, particularly when it understood the Commission itself to take the position that the just and reasonable standard was in no event mandatory. The Court of Appeals accordingly set aside the Commission's order.
The Commission does not contend in this Court that the Act permits it to exempt small producer rates from regulation or to regulate those rates by any criterion less demanding than the just and reasonable standard mandated by §§ 4 and 5 of the Act, 15 U.S.C. §§ 717c and 717d. Its major propositions are, first, that Order No. 428, when properly understood, provides for just and
Page 417 U. S. 387
"To declare that a particular method of rate regulation is so sanctified as to make it highly unlikely that
Page 417 U. S. 388
"The Act was intended to create, through the exercise of the national power over interstate commerce, 'an agency for regulating the wholesale distribution to public service companies of natural gas moving interstate;' Illinois Gas Co. v. Public Service Co., 314 U. S. 498, 314 U. S. 506; it was for this purpose expected to 'balanc[e] . . . the investor and the consumer
Page 417 U. S. 389
390 U.S. at 390 U. S. 776-777. It followed that Commission action taken in the pursuit of a legitimate statutory goal enjoyed the presumption of validity, id. at 390 U. S. 767, and that he who would upset the rate order under the Act carries "the heavy burden of making a convincing showing that it is invalid because it is unjust and unreasonable in its consequences.'" Ibid.
Page 417 U. S. 390
"that the purchasing pipeline,
Page 417 U. S. 391
FPC v. Hope Natural Gas Co., 320 U.S. at 320 U. S. 601. All that is protected against, in a constitutional sense, is
Page 417 U. S. 392
Any broadside assertion that indirect regulation will be confiscatory is premature. The consequences of indirect regulation can only be viewed in the entirety of the rate of return allowed on investment, and this effect will be unknown until the Commission has applied its scheme in individual cases over a period of time. Moreover, the "regulation of producer prices is avowedly still experimental," id. at 390 U. S. 772, and Order No. 428 asserts the
Page 417 U. S. 393
If, in the course of the necessary bargaining with small producers, the large producers and the pipelines are given no guidance whatsoever as to what the standards of the Commission may be, the risk of incurring unrefundable expenses that may later be disallowed is considerably enhanced. The scope of this possible difficulty is measured by the standards, or lack of them, by which the Commission will review the purchased gas costs of the large producers and the pipelines. As Order No. 428 reveals, the Commission is surely aware of the problem, and we would expect additional attention to be given this question in the course of the remand proceedings which, as explained in Part III, we think are necessary here. [Footnote 5]
Page 417 U. S. 394
154 U.S.App.D.C. at 175, 474 F.2d at 422. Whatever the position of the Commission heretofore has been, it wisely does not challenge that aspect of the Court of Appeals judgment. Sections 4 and 5 of the Act require that all gas rates be just and reasonable; and the Court held in Phillips that this very prescription applies to the rates of all gas producers. The Commission may have great discretion as to how to insure just and reasonable rates, but it is plain enough to us that the Act does not empower it to exempt small producer rates from compliance with that standard.
But § 16 obviously does not vest authority in the Commission to set unjust and unreasonable rates, even for small producers. It does not authorize the Commission to set at naught an explicit provision of the Act. No producer is exempt from §§ 4 and 5. Neither the Permian Basin Area Rate Cases nor FPC v. Louisiana Power & Light Co., 406 U. S. 621 (1972),
Page 417 U. S. 395
The Court of Appeals also read Order No. 428 as failing to provide a mechanism for insuring that small producer rates will be just and reasonable. In its view, the order provided a pure market standard for the approval of the purchased gas costs of large producers and pipelines, a standard which fell short of the requirements of the Act. Accordingly, it set aside the order. The Commission does not assert here that it is free under the Act to equate just and reasonable rates with the prices for gas prevailing in the market place. Its major remaining contention is that the Court of Appeals misread Order No. 428, and that the order, properly understood, contemplates a scheme of indirect regulation that would assure just and reasonable small producer rates for natural gas and that would judge small producer rates not only by market factors, but by all the relevant considerations necessary to arrive at the considered judgment contemplated by the Act. For present purposes, then, the Commission accepts the Court of Appeals' construction of the Act, but insists that the order is consistent with the statute as so construed. In this posture of the case, we think it clear that Order No. 428 cannot stand in its present form, and that the cases should be remanded for further proceedings before the Commission. We have studied the order with care, and we cannot accept the construction of it that the Commission now presses upon us. At the very least, the order is so ambiguous that it falls short of that standard
Page 417 U. S. 396
It is true that pipeline and large-producer costs for new small producer gas were not to be "unreasonable," but the implication appears to be that reasonableness would be judged by the standard of the marketplace. It
Page 417 U. S. 397
For the purposes of the proceedings that may occur on remand, we should also stress that, in our view, the prevailing price in the marketplace cannot be the final measure of "just and reasonable" rates mandated by the Act. It is abundantly clear from the history of the Act and from the events that prompted its adoption that Congress considered that the natural gas industry was heavily concentrated and that monopolistic forces were
Page 417 U. S. 398
Page 417 U. S. 399
The Court is not unresponsive to the special needs of small producers who play a critical role in exploratory efforts in the natural gas industry and ameliorating the supply shortage. The requirements of the Act, however, do not distinguish between small and large producers with respect to just and reasonable rates. Even if the effect of increased small producer prices would make a small dent in the consumer's pocket, when compared with the rates charged by the large producers, the Act makes unlawful all rates which are not just and reasonable, and does not say a little unlawfulness is permitted. Moreover, there is no finding in the Commission's order as to the actual impact the projected market price increases would have on consumer expenditures for gas, and the Commission is previously on record in its Permian decision, as stating: "[T]he impact of small producer prices on consumers is by no means de minimis on an area basis, and is of great impact in some situations." 34 F.P.C. 159, 235 (1965).
Page 417 U. S. 400
"there is a clear possibility that competition will not be effective, at least in some cases, in holding prices to reasonable levels. Accordingly, to remove the authority to regulate, as this bill would do, does not seem to me to be wise public
Page 417 U. S. 401