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SUNRAY MID-CONTINENT OIL CO. V. FPC, 364 U. S. 137 - Volume 364 - 1960 - Full Text - US Supreme Court Center - USSC Cases - Nolo
US Supreme Court Center > Volume 364 > SUNRAY MID-CONTINENT OIL CO. V. FPC, 364 U. S. 137 (1960) > Full Text
SUNRAY MID-CONTINENT OIL CO. V. FPC, 364 U. S. 137 (1960)
Held: the Commission did not exceed its authority in issuing a certificate unlimited as to time. Pp. 364 U. S. 138-158.
(a) To hold that the Commission must place a time limitation upon such a certificate (1) would greatly impair its control under § 7(b) over the abandonment by natural gas companies of their facilities and services subject to the jurisdiction of the Commission, and (2) would make unavailable the procedural safeguards under §§ 4(d) and 4(e) which are applicable to rate changes. Pp. 364 U. S. 141-147.
(b) A different conclusion is not required by the language of § 7(e) authorizing the Commission to issue a certificate "authorizing the whole or any part of the operation, sale, service, construction, extension, or acquisition covered by the application." Pp. 364 U. S. 147-151.
(c) The authority of the Commission to issue a certificate unlimited as to time should not be denied on the theory that it could accomplish the same result indirectly, either (1) by denying all application for limited certificates or (2) by prescribing conditions under § 7(c) that the certificates be permanent. Pp. 364 U. S. 151-152.
(d) The conclusion here reached is supported by the consistent administrative practice of the Commission in making a clear distinction between the underlying "service" to the public and the contractual means by which it is implemented. Pp. 364 U. S. 152-154.
(e) The conclusion here reached is not inconsistent with that reached in United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U. S. 332. Pp. 364 U. S. 154-156.
(f) An initial application of an independent producer to sell natural gas in interstate commerce leads to a certificate of public convenience and necessity under which the Commission controls the basis on which the gas may be initially dedicated to interstate use, Atlantic Refining Co. v. Public Service Commission, 360 U. S. 378; and, once so dedicated, there can be no withdrawal of that supply from continued interstate movement without Commission approval. P. 364 U. S. 156.
(g) Other objections to the Commission's order either are not properly before this Court or are without merit. Pp. 364 U. S. 156-158.
This case presents an important question under the Natural Gas Act. [Footnote 1] This question central to the case is: when a company, proposing to make, under contract, jurisdictional sales [Footnote 2] of natural gas in interstate commerce,
Petitioner Sunray Mid-Continent Oil Company, an independent producer of natural gas, entered into a contract with United Gas Pipeline Company, an interstate transmission company. The contract covered considerable acreage owned by, or under mineral least to, petition in Vermilion and Lafayette Parishes, Louisiana, in and about what is called the Ridge field. Under it, United agreed to take an annual amount of gas from petition equivalent to 4.5625 per cent of petitioner's gas reserves in the area covered by the agreement; [Footnote 3] and United had the right, in addition, to call for any amount up to 150 per cent of the amount it had annually agreed to take. The term of the agreement was 20 years. The initial price provided was 20.5 cents per thousand cubic feet (Mcf.); and the price was to increase one cent per Mcf. every five years. [Footnote 4]
This Court held in Phillips Petroleum Co. v. Wisconsin, 347 U. S. 672, that by virtue of § 1(b) of the Act, sales of gas by an independent producer to a pipeline "in interstate commerce . . . for resale for ultimate public consumption" came within the scope of the Act. [Footnote 5] Petitioner had no certificate of public convenience and necessity authorizing sales in interstate commerce from the field in question. Accordingly, in order to carry out its contract with United, it was necessary for petitioner to apply for a certificate from the Commission, which it did.
The Commission, upholding its examiner's recommendations, rejected the contentions of petitioner that there should be issued to cover the contract only a certificate limited to the term of the contract itself, and tendered it a certificate without time limitations. [Footnote 6] 19 F.P.C. 618. Petitioner applied for a rehearing of the Commission's order. Basic to this application was the contention that
Petitioner did not avail itself of its undoubted right to stand firm on its own application, and reject the proffered certificate. Cf. Atlantic Refining Co. v. Public Services Comm'n, 360 U. S. 378, 360 U. S. 387-388. [Footnote 7] Instead, it accepted the Commission's certificate and commenced deliveries of gas under it, reserving its right to object, on review, to the certificate's unlimited nature. The Court of Appeals for the Tenth Circuit rejected petitioner's objections, and affirmed the order of the Commission, 267 F.2d 471. In view of the importance of the central question presented, to which we have already alluded, we granted certiorari. 361 U.S. 880. We are in agreement with the Court of Appeals, and affirm its judgment.
Section 7(b) of the Natural Gas Act regulates the abandonment by natural gas companies of their facilities and services subject to the jurisdiction of the Commission. [Footnote 8] The section follows a common pattern in federal
utility regulation [Footnote 9] in forbidding such abandonment "without the permission and approval of the Commission first had and obtained." The Commission is to extend permission for an abandonment of service only on a finding
If petitioner's contentions, as to the want of authority in the Commission to grant a permanent certificate where one of limited duration has been sought for, were to be sustained, the way would be clear for every independent producer of natural gas to seek certification only for the limited period of its initial contract with the transmission company, and thus automatically be free at a future date, untrammeled by Commission regulation, to reassess whether it desired to continue serving the interstate market. And contracts -- as did the 1947 contract in the companion case to the one at bar, Sun Oil Co. v. Federal Power Comm'n, post, p. 364 U. S. 170, might provide for termination in the event of a rate reduction by the Commission. Petitioner's theory, by tying the term of the certificate to the contract, would mean that such a reduction of rates would under those circumstances enable the producer to cease supplying gas, without obligation to justify its cessation
The consequences of petitioner's argument do not stop there. The identical provisions of the Natural Gas Act regulate pipeline companies as well as independent producers. If producers can insist in their certificates on the inclusion of a provision relieving them in advance from their obligation to continue the supply of gas, as of a date certain, pipeline companies -- whose dealings with local distributing companies generally also take the form of a "sale" of gas to them -- could insist on a similar provision. If an individual producer were thus left free to discontinue his supply, the transmission company would be forced to find a supplier of gas elsewhere, and make connection with him, to continue its service; and the consumer ultimately would pay the bill for the rearrangement. If the pipeline company were left free to cease its service to the local distribution company, a local economy which had grown dependent on natural gas as a fuel would be at its mercy. And this, though the primary practical problem that led to the passage of the Act was the great economic power of the pipeline companies as compared with that of communities seeking natural gas service. See Federal Power Comm'n v. Hope Natural Gas Co., 320 U. S. 591, 320 U. S. 610.
And there are practical consequences, related to rate control, which are even more concrete. The companion case, Sun Oil Co. v. Federal Power Comm'n, post, p. 364 U. S. 170. If petitioner's certificate of public convenience must expire with its first contract with United, service after then -- under a new contract or otherwise -- will require a new certificate. And under that certificate, petitioner may file, pursuant to § 4(c) of the Act, [Footnote 10] its
rates for the "new" service. The only power the Commission would have, under the Act, with respect to those rates, would be to bear the burden of proof in an investigation under § 5 of the Act, [Footnote 11] that the rates are unjust or unreasonable, and thereupon order a new rate, solely for prospective application. Last Term, in the so-called Catco case, Atlantic Refining Co. v. Public Service Comm'n, supra, at 360 U. S. 389, we had occasion to remark that "the delay incident to determination in § 5 proceedings through which initial certificated rates are reviewable appears nigh interminable." At oral argument, counsel for the Commission confirmed that no contested major producer's § 5 case had been finally adjudicated by the Commission in the six years since this Court's decision in the Phillips case. In contrast to § 5 are the protections that would be available if at the conclusion of the original contract the producer's certificate remained in full force and effect. Then the rates to be charged under a new contract or otherwise would have to be filed as rate changes under § 4(d) of the Act, with 30 days'
notice to the Commission and the public. [Footnote 12] Under § 4(e), the Commission, on complaint of any State, state commission, or municipality, or sua sponte, may order a hearing on the new rate, and suspend the effectiveness of the rate for five months. [Footnote 13] At the hearing, the gas company
changes, but without compliance with the procedures of §§ 4(d) and 4(e), and subject to revision only in procedures which are likely to "provide a windfall for the natural gas company with a consequent squall for the consumers," as we said in Catco. 360 U.S. at 360 U. S. 390. When attached to the leverage of a power to abandon service at a contract's termination, without contemporaneous Commission approval, this power to exercise contractual control not only over rates but over the mode of their regulation, would be a substantial one indeed. And, like the power to force an advance license for the abandonment of the continued supply of gas, the power would be one enjoyed by pipeline companies and producers alike. Further, declaration today of a want of authority in the Commission to issue a certificate of longer duration than that of a sales contract attached to the application would have a retroactive effect; it would at least furnish a guide to the construction of certificates issued previously on such applications. See Sun Oil Co. v. Federal Power Comm'n, post, p. 364 U. S. 170.
This Court declared as early as the Hope Natural Gas case that the primary aim of the Natural Gas Act was "to protect consumers against exploitation at the hands of natural gas companies." 320 U. S. 320 U.S. 591, 320 U. S. 610. We reiterated that declaration last Term in Catco, and observed that "The Act was so framed as to afford consumers a complete, permanent and effective bond of protection from excessive rates and charges." 360 U.S. at 360 U. S. 388. Against the backdrop of the practical consequences of the petitioner's claim and the purposes of the Act, we look to the details of its argument that the Commission is limited, in granting its certificate of public convenience and necessity, to a term certificate of the duration petitioner has proposed.
"to any qualified applicant therefor, authorizing the whole or any part of the operation, sale, service, construction, extension or acquisition covered by the application. [Footnote 14]"
load of negative meaning which nothing in the legislative history indicates that it was to bear. Even without the illumination of the purpose of the Act, it could be argued with equal force that all that was meant was that the certificate to be granted be one sufficient to authorize the specific "sale" proposed; which an unlimited certificate clearly is, in any case. But, apart from this, petitioner's contention depends on the assumption that the provisions relied upon speak only in terms of the specific "sale" contemplated by the parties and not in terms of a "service" in the movement of gas in interstate commerce, of which "service" the initial "sale" is the commencement. For, under § 7(e), the Commission is authorized to issue a certificate authorizing the "service" covered by the application, as well as a "sale"; and since § 7(c), [Footnote 15] which details
the acts for which a certificate is a prerequisite, sets forth no specific antecedent for the "service" to which § 7(e) refers, it might well be thought that one who "engage[s] in the transportation or sale of natural gas," which § 7(c) does refer to, is performing a "service" within the meaning of § 7(e). Certainly there is no more likely antecedent in § 7(c). The structure of § 4(c) presents the same feature, [Footnote 16] and that of the abandonment provisions of § 7(b) themselves [Footnote 17] looks the same way.
itself gives positive indication that the "service" which the Commission's certificate may authorize is something quite apart from simply the specific sales which § 7(c) forbids without a certificate sufficient to authorize them. To be sure, § 7(e) requires that the applicant be found willing to perform the "service" in question; but surely such willingness can be inferred from its willingness to enter into a long-term sales contract. To say that the finding cannot be made in view of the applicant's declared desire to stop and have a look in 20 years as to its continued desire to be subject to regulation, and that this is a limit on its willingness to perform the service that the certificates must respect, is to make effective regulation turn on the desire of the regulated enterprise to be subject to it. [Footnote 18] The willingness to make the proposed "sale" thus must imply willingness to perform the "service" which it represents. Thus, even as a verbal argument, petitioner's contentions lack persuasiveness.
be subject to judicial review; and once it were held that the Commission had no authority to award a certificate of longer duration than that prayed for, such an indirect method of attaining the same end might well meet judicial condemnation as arbitrary. There is also some suggestion that the Commission might use its power, under § 7(e), of attaching to the certificate "such reasonable terms and conditions as the public convenience and necessity may require," to attach the "condition" that the certificate be permanent. But again, once want of power to do this directly were established, the existence of power to achieve the same end indirectly through the conditioning power might well be doubted; and the acceptance of a certificate for a longer duration than requested might not be said properly to be a "term or condition" of a limited one at all. [Footnote 19] We think the Commission's power to protect the public interest under § 7(e) need not be restricted to these indirect and dubious methods.
pipeline company. That contract may provide in explicit terms for an adjustment of rates at a future time -- even one foreordained in a precise amount. Yet when the adjustment is made pursuant to the contract, the adjustment is subject, as a "change" in rates, to the procedures of §§ 4(d) and 4(e) -- however explicit the upward adjustment was in the contract from the start. Cf. Texas Gas Transmission Corp. v. Shell Oil Co., 363 U. S. 263. This position of the Power Commission is evidence that the service in which the producer engages is distinct from the contract which regulates his relationship with the transmission company in performing the service. And it has been upheld in every Court of Appeals case on the question. Episcopal Theological Seminary of the Southwest v. Federal Power Comm'n, 106 U.S.App.D.C. 37, 269 F.2d 228; Bel Oil Corp. v. Federal Power Comm'n, 255 F.2d 548, and companion cases; Continental Oil Co. v. Federal Power Comm'n, 236 F.2d 839; Cities Service Gas Producing Co. v. Federal Power Comm'n, 233 F.2d 726; Mississippi River Fuel Corp. v. Federal Power Comm'n, 121 F.2d 159. See United Gas Pipe Line Co. v. Memphis Light, Gas & Water Div., 358 U. S. 103, 358 U. S. 110. If the Act does not contemplate that in a seller's contract there may inhere the power, of the contract's own accord, to effect a rate change at a future date unchecked by the regulatory scheme, it is hard to believe that it contemplated that contracts would of necessity have the effect of providing for a discontinuance of service, without further leave of the Commission.
3 F.P.C. 3, 9. This ruling was made by Commissioners who had been in office during the passage of the Act. [Footnote 20] It was not a fundamental ruling on a broad question of jurisdiction as to which a court might enjoy a wider latitude of review. See Phillips Petroleum Co. v. Wisconsin, 347 U. S. 672, 347 U. S. 678. It was rather an early implementation and application of a detail of the statutory scheme by the Commission in a regulatory setting before it. The ruling has been followed, see Panhandle Eastern Pipe Line Co., 11 F.P.C. 167, 172, and we think this contemporaneous and consistent construction, pointing again to a distinction between the underlying "service" to the public and the contractual means by which it is implemented, is to be afforded weight in the construction we make.
Third. But against these considerations, it is urged that United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U. S. 332, establishes dominant factors which impel one to the construction petitioner would put on the Act. Petitioner claims that Mobile establishes a principle that the Act (unlike many other regulatory schemes) [Footnote 21] in general preserves the integrity of private contracts, and that the judgment below is in conflict with that principle.
The petitioner states accurately enough the principle that Mobile establishes. See 350 U.S. at 350 U. S. 338, 350 U. S. 344. But the conclusion petitioner asserts does not follow. In Mobile, this Court held that, where a seller of gas had entered into a contract for the sale, it could not, by virtue of the provision in § 4 for rate changes, file an increase in rates that violated the terms of the contract. This was because the scheme of the Act was one which built the regulatory system on a foundation of private contracts.
The short of the matter is that Mobile recognized that there were two sources of price and supply stability inherent in the regulatory system established by the Natural Gas Act -- the provisions of private contracts and the public regulatory power. See 350 U.S. at 350 U. S. 344. Petitioner now urges an application of that decision that could
360 U.S. at 360 U. S. 389. That remedy he has, as the Court there said, in the "change" power under § 4(d) when his contract has expired or where his contract permits its use during its term. Under a similar Act, this Court has held to the same effect as we hold today. Pennsylvania Water & Power Co. v. Federal Power Comm'n, 343 U. S. 414, 343 U. S. 423-424.
of natural gas." The point was not raised before the Commission, and accordingly is not for our consideration here, [Footnote 22] and we might say, in any event, that the point is not for evaluation in this certification proceeding, but rather on the specific facts presented in the context of an abandonment application by petitioner under § 7(b), after the expiration of its contract, when and if it desires to make one. We intimate no view as to its merit. [Footnote 23]
here. [Footnote 24] From the fact that the Commission has issued certificates in the presence of what may prove to be physical limitations on the service to be rendered under them, [Footnote 25] it does not follow that the Commission cannot take care lest these physical problems in the continuation of supply become further complicated by the legal certificate term limitations for which the petitioner contends.
Of course the economics of the industry might preclude an unyielding assumption of such a position. See 360 U.S. at 360 U. S. 394.
See, e.g., Armour Packing Co. v. United States, 209 U. S. 56, 209 U. S. 80-82.
I think that the Natural Gas Act, particularly as construed by the Court in Phillips Petroleum Co. v. Wisconsin, 347 U. S. 672, recognizes this important distinction. The basic jurisdictional framework of the Natural Gas Act is found in § 1(b), which provides:
The word "sale," in its ordinary sense, signifies a transaction limited in duration and amount. Section 7(c) requires certification of a sale, and there is nothing in the Act which suggests that the certification is to be broader than the jurisdictional act which it authorizes. On the contrary, § 7(e), infra, p. 364 U. S. 163, directs the Commission to issue a certificate authorizing "the . . . sale . . . covered by the application." The Court suggests that a perpetual certificate does in fact authorize the specific sale proposed, and that to say that the Commission can authorize no more than that is to "load" the statutory language with a negative implication which was never intended. However, authorizing a producer to sell in perpetuity is certainly something different from authorizing him to make a specific sale. It could hardly be contended that a statutory direction to the Commission to authorize "the . . . sale . . . covered by the application" permits it to authorize some different sale.
The Court further says that the provisions of § § 4 (c) [Footnote 2/1] and 7(b) [Footnote 2/2] present the same feature. In § 4 (c), the word "service" again appears as part of an omnibus definition which refers to a number of antecedents. Even assuming, as the Court does, that the only antecedent is "transportation or sale," there is no reason to suppose that
Finally, the Court points to the requirement of § 7(e), ante, p. 364 U. S. 148, that the applicant for a certificate be willing and able "to do the acts and perform the service proposed." From this, it infers that all the matters for which § 7(c), ante, p. 364 U. S. 149, requires a certificate "must be justified in terms of a service' to which they relate." I should have thought it quite plain that an applicant is required to "perform the service proposed" only if a service is proposed. Perhaps it would have been more apt for Congress to have said "do the acts and/or perform the services proposed," but I cannot understand how the clause as written can be read as meaning that whatever the applicant proposes must be both an act and a service.
I must conclude that there is nothing in the statute which makes "sale" the equivalent of "service." On the contrary, the terms are always used disjunctively. A sale, as a jurisdictional ground distinct from either transportation or the maintenance of jurisdictional facilities (§ 1(b) ante, p. 364 U. S. 160) is a limited transaction. A certificate authorizing a sale authorizes no more and, in my view, must be regarded as expiring when the underlying sale terminates, except in a situation where the Commission has properly conditioned issuance on continuance of the certificate for a longer period. See post, p. 364 U. S. 167. It is suggested that the Commission has consistently held that the obligation to provide service persists even after a particular contract terminates. See United Gas Pipe Line Co., 3 F.P.C. 3; Cabot Gas Corp., id., 357; Godfrey L. Cabot, Inc., id., 582; Panhandle Eastern Pipe Line Co., 11 F.P.C. 167, 172. All those cases, however, involved pipeline companies
The Court asserts that a construction of the statute contrary to the one it reaches will result in intolerable consequences, primarily in two respects. First, it says, producers and pipelines would be able to abandon their undertakings at the end of the contract term without a showing that the public convenience and necessity justify such abandonment, thus defeating the policy of § 7(b) of the Act, and giving the industry a lever to avert regulation of any kind. Second, it concludes, producers would be able, at the expiration of their contracts, to file a higher price as an initial rate under a new certificate. This would force the Commission, it is said, to test the reasonableness of the rate under § 5(a), ante, p. 364 U. S. 144, where the Commission has the burden of proof and where experience has shown the procedure to be subject to great delays, and would avoid the rate-change procedures of § 4(e), ante, p. 364 U. S. 145, where the producer has the burden of proof and the effectiveness of the rate can be suspended pending investigation.
There is a more basic reason, however, why the evils which the Court imagines do not exist. The Commission is required to issue a certificate only if the applicant's proposal is required by the public convenience and necessity. The vast majority of sales are, of economic necessity, bona fide transactions of substantial duration (see United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U. S. 332, at 350 U. S. 344) and will, of course, be approved in ordinary course. But surely, if a proposal contains such disingenuous provisions as the Court suggests, its certification would not be in the public interest. The Court's fear that denial of the certificate under such circumstances would be overturned on review is the sheerest speculation, especially in an area where the Commission is entrusted with such wide discretion.
Furthermore, the Commission can tender a perpetual certificate under its § 7(e) power to attach reasonable terms and conditions. [Footnote 2/3] But in such a case, it would have to bear the burden of showing that the public convenience and necessity require such a condition. What the Court in effect permits the Commission to do here is simply to attach the condition without such a showing. If, as the Commission stoutly maintains, a limited certificate would constitute a serious threat to the public interest then surely it is not too much to ask it to show that fact before tendering a producer a certificate different from the one he has requested. And where the Commission has fairly made such a showing, I cannot believe with all deference
I fear this is another instance where the Court has taken impermissible liberties with statutory language in order to remedy what it considers an undesirable deficiency in the way Congress has written the statute. Cf. United States v. Republic Steel Corp., 362 U. S. 482, 362 U. S. 493 (dissenting opinion).
* [These opinions apply also to No. 321, Sun Oil Co. v. Federal Power Comm'n, post, p. 364 U. S. 170.]
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