Source: https://www.legalcrystal.com/case/102021/fpc-vs-sunray-dx-oil-co
Timestamp: 2016-12-11 03:18:49
Document Index: 201573850

Matched Legal Cases: ['§ 4', '§ 7', '§ 7', '§ 4', '§ 7', '§ 7', '§ 7', '§ 4', '§ 4', '§ 7', '§ 4', '§ 7', '§ 19', '§ 7', '§ 717', '§ 4', '§ 4', '§ 7', '§ 7', '§ 4', '§ 4', '§ 4', '§ 4', '§ 4', '§ 4', '§ 4', '§ 4', '§ 4', '§ 4', '§ 7', '§ 4', '§ 19', '§ 717', '§ 7', '§ 7', '§ 7', '§ 717', '§ 4', '§ 154', '§ 19', '§ 717', '§ 157', '§ 157', '§ 157', '§ 157', '§ 260', '§ 1']

Fpc Vs Sunray Dx Oil Co - Citation 102021 - Court Judgment | LegalCrystal
Save as PDF Add a Tag Add a Note Semantics Visualize Fpc Vs. Sunray Dx Oil Co. - Court Judgment	LegalCrystal Citationlegalcrystal.com/102021CourtUS Supreme CourtDecided OnMay-06-1968Case Number391 U.S. 9AppellantFpcRespondentSunray Dx Oil Co.Excerpt:
fpc v. sunray dx oil co. - 391 u.s. 9 (1968)
the federal power commission (fpc) has decided to rely on area rate proceedings to establish just and reasonable rates for producer sales under §§ 4 and 5 of the natural gas act. pending completion of those proceedings the fpc has rested interim producer regulation on § 7. under that section, natural gas may be sold only pursuant to an fpc certificate of public convenience and necessity, which, under § 7(e), may..... Judgment:
The Federal Power Commission (FPC) has decided to rely on area rate proceedings to establish just and reasonable rates for producer sales under §§ 4 and 5 of the Natural Gas Act. Pending completion of those proceedings the FPC has rested interim producer regulation on § 7. Under that section, natural gas may be sold only pursuant to an FPC certificate of public convenience and necessity, which, under § 7(e), may be conditioned "in such manner as the public convenience and necessity may require." In
Atlantic Rfg. Co. v. Public Serv. Comm'n (
360 U. S. 378
, this Court held that the FPC should use its § 7 conditioning power to prevent large initial contract price advances, pending the determination under §§ 4 and 5 of just and reasonable rates, which would become effective only prospectively. The FPC thereafter began to use its conditioning power to determine maximum initial prices at which sales could occur, basing these "in-line" prices upon current prices in the area of the proposed sale but excluding current prices which for various reasons were "suspect." In
United Gas Improvement Co. v. Callery Properties, Inc.,
382 U. S. 223
, this Court generally approved this regulatory approach, holding that the FPC might properly refuse to hear cost evidence in such "in-line" price proceedings, and that,
when issuance of permanent certificates was held erroneous on judicial review, the FPC might, on remand, impose new certificate conditions for refunds of amounts previously collected above the subsequently determined in-line price. On September 28, 1960, the FPC began its post-
regulation of sales in Texas Railroad Commission Districts 2, 3, and 4, the three Texas Gulf Coast districts which are involved in these proceedings, by issuing its General Policy Statement, announcing a guideline ceiling price for new sales in each district of 18˘ per Mcf. On March 23, 1964, at the conclusion of the District 4 (
) proceeding, the FPC determined an in-line price of 16˘ per Mcf for sales contracted after the issuance of the Policy Statement. The FPC relied primarily on a comparison of prices in contracts entered into since the Policy Statement and during the preceding two years. The FPC noted that 82% of post-Policy Statement sales were at 16˘ or more per Mcf. It gave "some measure of weight" to its 18˘ Policy Statement guideline price. Some weight was also accorded to prices under temporary certificates because only 1.4% of the gas in the
area was moving under permanent certificates, though the FPC was mindful that the temporary prices were "suspect," and took their unreliability into account when it rejected the 17.2˘ average contract price. The FPC's conditional certification of proposed sales in District 4 was appealed to the Court of Appeals for the Tenth Circuit. That court upheld the FPC's price line against contentions by certain consumers and distributors (the "seaboard interests") that the 16˘ price was too high and that, in fixing that price, the FPC erred in taking account of prices at which gas had been sold under temporary certificates. On September 22, 1965, the FPC issued its in-line price orders in the District 2 (
) and District 3 (
) proceedings reaffirming an earlier established price of 16˘ for the pre-Policy Statement period in District 3, and for the later period fixing a 16˘ price in District 2 and 17˘ in District 3. In fixing the 16˘ District 2 price the FPC gave full weight to the permanently certificated prices at which about 40% of the gas in the area was then moving; some but "not undue" force to the temporary prices at which 60% of the gas currently flowed; accorded "some weight" to the original, unconditioned prices in the area and to the 16˘ volumetric median and 15.29˘ volumetric weighted average prices for post-Policy Statement sales, and recognized that 53% of the gas in the area was moving at prices at or below 16˘. In fixing the 16˘ District 3 price, the FPC gave full force to permanently certificated sales of small volumes of gas below 16˘ and comparatively large volumes
at 16˘ and 16.2˘; considered the fact that a little less than half the total volume of gas was sold at 16˘. or less; gave "some weight" to permanently certificated sales of very large volumes at 17.5˘ or above (even though those were regarded as "suspect" prices), and apparently considered the weighted average price of 15.16˘ for all except the latter suspect sales. In fixing the 17˘ District 3 price the FPC gave full weight to the permanently certificated sales of moderate volumes of gas at 15˘ and 16.2˘, a small volume at 16.5˘, and large volumes at 18˘; gave "some weight" to temporary prices; noted that the 17˘ price reflected the weighted average of 16.17˘ for permanently certificated sales; accorded some weight to original, unconditioned prices in the area, and considered the fact that 43% of all permanently certificated area sales were at or above 17˘. The FPC's orders conditionally certificating the proposed sales in Districts 2 and 3 were appealed together to the Court of Appeals for the District of Columbia Circuit, which sustained the seaboard interests' contention that the post-Policy Statement prices for Districts 2 and 3 were too high and that the FPC erred in considering temporary and unconditioned prices. It rejected Superior Oil Company's contention that the initial prices in District 3 for both pre- and post-Policy Statement periods were too low, Superior having urged that the FPC erroneously excluded from consideration nine large-volume sales at 20˘ per Mcf when it set the 16˘ price in District 3; that, in fixing the initial prices, the FPC erroneously excluded a number of 1955-1956 sales at 17.5˘ to Coastal Transmission Company; that, with respect to both time periods, the FPC erroneously failed to consider prices embodied in settlement orders; that the FPC failed to take enough notice of temporary prices and refused to consider prices of intrastate sales, and that, for both periods, the FPC had incorrectly relied on estimated, rather than actual
volumes of gas sold. The FPC did not expressly consider whether any of the "in-line" prices it fixed were suitable when regarded as refund floors,
a level below which the FPC may not order refunds pursuant to § 4(e) of the Natural Gas Act. Most of the producers in the District 4 proceeding had applied for and been granted temporary certificates under § 7(c) of the Act, those certificates authorizing them to sell gas at or below 18˘ per Mcf, the then-guideline price. Eight certificates provided for refunds should the eventual in-line price be lower than that charged under the temporary certificate; the other certificates contained only general cautionary language respecting further FPC action. The FPC ultimately ordered the District 4 producers to refund sums collected under the temporary
1. The post-Policy Statement period initial price of 16˘ per Mcf in District 4 was not based on impermissible factors, and was not unreasonable. Pp.
391 U. S. 28
(a) The FPC did not abuse its discretion in giving some weight to the guideline and temporary prices (especially since 98.6% of the gas was flowing under temporary certificates), since both those types of prices, like permanently certificated prices, give some indication of cost trends. P.
391 U. S. 29
(b) The 16˘ price, which was at the lower end of the spectrum of current prices considered by the FPC, was within the "zone of reasonableness" within which the FPC has rate-setting discretion, and satisfied the
mandate against abrupt price rises. Pp.
2. The FPC did not abuse its discretion in establishing the in-line prices in Districts 2 and 3. Pp.
391 U. S. 32
(a) The FPC's consideration of temporary and unconditioned contract prices was proper. P.
(b) The 16˘ and 17˘ initial prices were within the "zone of reasonableness," and did not breach the
directive. P.
(c) The FPC properly discounted the force of the 20˘ sales which were out of line with respect to the post-
price structure and which the FPC had reason to believe would have been set aside on judicial review had it not been for a procedural defect. P.
391 U. S. 34
(d) The prices to Coastal Transmission Company (a pipeline company which, at the time of the sales, did not have a certificate
(e) The FPC had discretion to disregard the prices embodied in the settlement orders as not supplying independent evidence of market trends. P.
391 U. S. 35
(f) The FPC gave adequate consideration to temporary prices, and it properly rejected evidence of intrastate prices as not covering the entire area or being representative. P.
(g) Actual volumes of gas sold during 1962 and 1963 were not known, and FPC's reliance on estimated volumes was therefore justified. Pp.
3. An in-line price is a "refund floor" below which the FPC may not order refunds under § 4(e) of the Natural Gas Act. Pp.
391 U. S. 22
4. The in-line prices fixed here were not impermissibly high when viewed as refund floors. Pp.
391 U. S. 36
(a) Though it was regrettable that the FPC did not explicitly consider whether or not the in-line prices it fixed were suitable when regarded as refund floors, it was not obliged in this instance to do so.
See Callery, supra.
391 U. S. 37
(b) The 16˘ price in the District 4 proceeding was not beyond the FPC's power when viewed as a refund floor, since it was near the lower end of the price range suggested by the price evidence. P.
391 U. S. 38
(c) The 16˘ price in the District 2 proceeding and the 17˘ price in the similar District 3 proceeding (neither of which is likely to exceed the probable Texas Gulf Coast area rate) were within the FPC's authority when viewed as refund floors; despite the weaknesses in the FPC's opinion with respect to these aspects, it is desirable to terminate this protracted and outmoded proceeding. Pp.
391 U. S. 39
5. In the exercise of its power to condition permanent certificates under § 7(e), the FPC may require producers to refund amounts collected under outstanding, unconditioned temporary certificates in excess of the finally established in-line price. Pp.
391 U. S. 43
(a) Parties, at least those other than the producer itself, may challenge a temporary certificate at the time a permanent certificate is applied for, notwithstanding the time limits on appeal set out in § 19(b) of the Act. Pp.
(b) To hold that refunds could not be ordered for the interim period on the ground urged by the producers that a temporary certificate creates vested rights which maybe altered only prospectively would contravene the objectives of the Natural Gas Act. P.
391 U. S. 44
(c) When a producer, due to an emergency, has requested permission to deliver gas before normal certification procedures are completed, it is not unfair in return for that permission that, when those procedures are terminated the producer's terms may be retrospectively altered to conform to the public interest. Pp.
6. Neither the procedure followed nor the result reached by the FPC in ordering refunds constituted an abuse of discretion because of the particular circumstances of the
proceeding. Pp.
391 U. S. 45
7. The FPC did not abuse its discretion in deciding that the question whether the gas to be sold is actually needed by the public can be better dealt with in pipeline, rather than producer, proceedings. Pp.
391 U. S. 47
(a) Data about the purchasing pipeline's total gas supply, its take-or-pay situation under outstanding sales contracts, the purchasing pipeline's customers and the alternative uses for gas by other pipelines which might buy it are not in the producers', but in the pipelines', possession. P.
391 U. S. 49
(b) The pipeline proceedings, supplemented by other forms of regulation available to the FPC, will, so far as appears from the present record, provide an adequate forum in which to confront both the take-or-pay and end-use aspects of the need issue. Pp.
391 U. S. 50
Nos. 60, 61, and 62, 370 F.2d 181, affirmed in part, reversed in part; Nos. 80 and 97, 376 F.2d 578, and Nos. 111, 143, 144, and 231, 126 U.S.App.D.C. 26, 373 F.2d 816, reversed.
These cases present questions arising out of the issuance by the Federal Power Commission, pursuant to § 7 of the Natural Gas Act 52 Stat. 824, as amended, 15 U.S.C. § 717f, of "permanent" certificates authorizing producers to sell natural gas to pipelines for transportation and resale in interstate commerce.
Prior to 1954, the Commission construed the Natural Gas Act as empowering it to regulate only sales of gas by pipelines, and not sales by producers. This Court held to the contrary in
Phillips Petroleum Co. v. Wisconsin,
347 U. S. 672
. Since then, the Commission has been engaged in a continuing effort to adapt the provisions of the Act to regulation of producer sales. The method finally resolved upon for determining the "just and reasonable" rate at which § 4 of the Act requires that natural gas be sold was to conduct a number of area rate proceedings, looking to the establishment of maximum producer rates within each producing area. This method of regulation has recently been approved by us in the
. Other area rate proceedings are underway, and they will eventually encompass areas accounting for some 90% of all the gas sold in interstate commerce.
390 U. S. 758
The decision to rely on area rate regulation as the means for establishing just and reasonable rates under §§ 4 and 5 of the Act, and its implementation, have thus far occupied more than a decade. During this period, the Commission was obliged to rest interim producer rate regulation on § 7. In the early years following this Court's first
the Commission took a narrow view of its § 7 powers, and the field price of natural gas began to soar. [
] Matters came to a head in the so-called
proceeding, in which the Commission certificated the sale of the largest quantity of natural gas theretofore dedicated to interstate commerce at a price above those then prevailing, on the ground that, if it denied the certificate the refusal of producers to dedicate the gas might result in an eventual shortage in supply. This Court held in
Atlantic Rfg. Co. v. Public Serv. Comm'n (CATCO),
The Court began in
by stating that the Natural Gas 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
. The Court then noted that the Act required that all rates charged be "just and reasonable." However, the Court stated that the determination of just and reasonable rates under § § 4 and 5 was proving to be inordinately time-consuming, and that, because those rates became effective only prospectively, the consumer had no protection from excess charges collected during the pendency of those proceedings. The Court said:
360 U. S. 391
decision, the Commission, under the scrutiny of the courts, began to work out a system for determining the maximum initial prices at which gas should move, pursuant to contracts of sale, during the interval preceding establishment of just and reasonable rates. It based this "in-line" price upon current prices for gas in the area of the proposed sale, taking into account the possibility that the proposed rate might result in other price rises due to most-favored-nation clauses. [
Commission and courts generally excluded from consideration or gave diminished weight to those current prices which were "suspect" because they were embodied in permanent certificates still subject to judicial review; because they were contained in temporary certificates issued on the
representations of producers; or because they had been certificated in proceedings which occurred before this Court's
decision or in proceedings from which representatives of East Coast consumers and distributors (commonly referred to as the "seaboard interests") had been erroneously excluded. [
] After some hesitation, [
] the Commission decided to bar producers from presenting cost evidence at in-line price proceedings, on the ground that its admission would make the hearings too long drawn out. After determining the in-line price, the Commission conditioned the permanent certificate to provide that the producer could not initially sell the gas at a greater price. The Commission also began to condition certificates so as to limit the level to which the price might be raised, pursuant to escalation clauses in the contract, during a given period or pending completion of the relevant area rate proceeding. [
This Court generally approved this method of regulation in
. There, the Court held that the Commission might properly refuse to hear cost evidence in in-line proceedings, and that the Commission might
impose moratoria on price increases above specified levels. The Court also held in
that, when issuance of permanent certificates is held on judicial review to have been erroneous, the Commission may, on remand, insert in the new certificates conditions requiring refund of amounts collected under the erroneously issued certificates in excess of the subsequently determined in-line price.
Orders of the Commission conditionally certificating the proposed sales in Districts 2 and 3, 34 F.P.C. 897 and 930, were appealed together to the Court of Appeals for the District of Columbia Circuit. In a single opinion, that court held that, in the circumstances of the cases before it, the Commission had erred in giving weight to sales under temporary certificates when it set the in-line prices. No issue as to refund power was raised in the
One function of an in-line price is that it serves as a "ceiling" on the rate at which gas may be sold under the certificate containing the price condition. However, its effect in preventing contractually authorized price rises is legally limited, for, under § 4 of the Act, a producer
is free, upon 30 days' notice to the Commission, to raise its price to the extent that its contract permits, subject to the Commission's power under § 4(e) to suspend the effectiveness of the increase for a period of five months and to order refunds if the increased rate turns out to be higher than the just and reasonable rate thereafter found for the area. [
"by order, require the natural gas company to furnish a bond . . . to refund any amounts ordered by the Commission, to keep accurate accounts in detail of all amounts received by reason of such increase . . and, upon completion of the hearing and decision, to [
] order such natural gas company to refund, with interest, the portion of such increased rates or charges by its decision found not justified. "
The Commission's practice has been that, when a producer files a rate increase on a contract in an area where an area rate proceeding is in progress, its application is consolidated into the area rate proceeding, thereby rendering it subject to the refund provision of § 4(e). [
It has sometimes been contended that, when a producer operating under a nonreviewable permanent certificate increases its price under § 4, the permanently certificated price is not a lower limit on the refund power, and that, if the eventual just and reasonable area rate is below the permanently certificated price, the Commission may order a refund not merely of the price increase, but of the entire difference between the increased rate and the just and reasonable rate. [
] The Commission has never passed on this contention, [
] and this Court has twice rejected it in dictum. In
Sunray Mid-Continent Oil Co. v. FPC,
364 U. S. 137
364 U. S. 146
, the Court interpreted § 4(e) as meaning that
Callery, supra,
382 U. S. 227
We adhere to the dicta in
Sunray Mid-Continent.
That outcome comports better with the
language of § 4(e) than does the alternative. It is true that § 4(e), in terms, gives the Commission power to refund "the portion of such increased rates or charges" found to be excessive, and does not expressly limit the refund to the rate increase or increment. However, the accounting provision, which appears earlier in the same sentence, requires that the producer account only for the "amounts received by reason of such increase." If it had been intended that the refund obligation should extend to greater amounts, the accounting requirement logically should have extended to them also. Viewing the Act more broadly, there is another reason why this interpretation of § 4(e) is preferable. It seems incontestable that, if a producer consistently sells gas at the price specified in a final, permanent certificate, and does not attempt to increase its price, the Commission may not order it to make refunds simply because the just and reasonable rate for its area turns out to be below the in-line price. This would amount to a reparation order, and this Court has repeatedly held that the Commission has no reparation power. [
] It would be anomalous to treat an increased price as a trigger for a refund obligation which would leave the producer with a smaller net return than if it had never increased its price at all. We therefore consider and hold that an initial price which is authorized in a final, unconditioned permanent certificate is a lower limit below which a refund cannot be ordered under § 4(e).
Since an initial price and a refund floor conceivably may serve significantly different ends, [
] we shall give
separate consideration to these two functions of the in-line prices now under review. It is appropriate to begin with the initial price function, because, in the proceedings before us, the Commission apparently viewed the in-line prices it was setting almost entirely as initial prices, and gave no explicit consideration to their effects as refund floors. [
The thrust of this Court's
opinion was that the Commission should use its § 7 conditioning power to prevent large jumps in initial contract prices, pending the determination of just and reasonable rates. At one time, the Commission apparently hoped that, by receiving abridged cost evidence, it could establish maximum initial prices which would be near approximations of the just and reasonable rates which would later be established. The Commission eventually concluded that this hope was ill-founded, and, in
this Court approved the Commission's exclusion of cost data from certification hearings.
382 U. S. 228
and n. 3.
In view of the Commission's decision to rely solely upon contemporaneous contract prices in setting initial rates, there can be no assurance that an initial price arrived at by the Commission will bear any particular relationship to the just and reasonable rate. Any such assurance would necessarily be based on a belief that the current contract prices in an area approximate closely the "true" market price -- the just and reasonable rate. Although there is doubtless some relationship, and some economists have argued that it is intimate, [
] such a belief would contradict the basic assumption that has caused natural gas production to be subjected to regulation and which must have underlain this Court's
-- namely, that the purchasing pipeline, whose cost of purchase is a current operating expense which the pipeline is entitled to pass on to its customers as part of its rates, lacks sufficient incentive to bargain prices down. [
One way in which the Commission might have fulfilled the
mandate to ensure that the lack of purchaser bargaining incentive did not result in too drastic an interim price rise would have been to freeze prices at their pre-
levels. However, this would have resulted in locking into the price structure some of the abrupt leaps in price which had occurred prior to
as well as risking the eventual erosion of producer incentive through disregard of rising costs. Hence, it was reasonable for the Commission to set initial prices by reference to contemporary contract prices, which, though not an accurate reflection of the "true" market price, were the only indirect evidence available to the Commission of cost trends. And it was also within the Commission's discretion to exclude, where possible, those contract prices still subject to Commission and court review, because those prices might reflect price jumps impermissible under
Thus, the initial price doctrine as it had developed by the time of
Callery, see
382 U. S. 226
-228, was a rational and permissible way of implementing the
requirement. Turning to the particular proceeding now under review, we hold that the methods there used by the Commission were also acceptable ways of determining initial prices.
On September 28, 1960, the Commission began its post-
regulation of sales in the districts here
involved by issuing its Statement of General Policy No. 61-1, 24 F.P.C. 818. The Policy Statement announced the ceiling price at which new sales would be certificated in each district. For each of Texas Railroad Commission Districts 2, 3, and 4, the Policy Statement ceiling was 18˘ per Mcf (thousand cubic feet) of gas. With respect to District 4, the Commission on August 30, 1962, determined an in-line price of 15˘ per Mcf for sales contracted prior to September 28, 1960, the date of the Policy Statement. 28 F.P.C. 401. That decision is not in issue here. On the same date, the Commission scheduled a proceeding, known as the
proceeding, to determine the in-line price for sales contracted between September 28, 1960, and August 30, 1962. 28 F.P.C. 396.
On March 23, 1964, the Commission terminated the
proceeding by issuing the first of the orders here under review. 31 F.P.C. 623. The Commission determined that the in-line price for the period under study should be 16˘ per Mcf. In reaching this conclusion, the Commission relied primarily on a comparison of prices in contracts entered into during the two-year life of the Policy Statement and the preceding two years, on the ground that the in-line price should mirror the price at which substantial quantities of gas were currently moving in interstate commerce.
This desire to reflect current conditions also caused the Commission to give some weight to prices under temporary certificates, because only 1.4% of the gas in the area was currently moving under permanent certificates. The Commission recognized that these temporary prices were "suspect," and that they largely consisted of the very prices whose "in-lineness" was then being determined. However, the Commission decided that the risk of considering such prices was overbalanced by the fact that not to take them into account would be to ignore the
prices at which the great bulk of gas was then moving in commerce. The Commission did take the unreliability of the temporary prices into consideration when it refused to accept the 17.2˘ average contract price for all sales as the in-line price, relying as well upon its belief that "the teachings of
require that we draw the line at the lowest reasonable level." 31 F.P.C. at 637. The Commission also placed "some measure of weight" on its Policy Statement guideline price promulgated in 1960. The Commission further noted that 82% of the gas sold under post-Policy Statement contracts moved at 16˘ or more per Mcf, and stated that,
We cannot conclude, given the extraordinary discretion which necessarily attends such a finding as the Commission was required to make, that the Commission took into account any impermissible factors or that the resulting initial price was too high as a matter of law. The seaboard interests apparently concede that contract prices are relevant in fixing initial prices, for they do not object to the Commission's consideration of permanently certificated prices. They complain only of the weight given the guideline and temporarily certificated prices. However, permanently certificated prices are germane only because they provide some indication of cost trends.
391 U. S. 25
-26. Guideline and temporary prices may serve the same function.
The Commission's District 4 guideline price, though its exact level was admittedly arbitrary, did place a "lid" on contract prices in the area for the period. The guideline price was therefore relevant to the determination of initial prices insofar as contract prices in the area would have been higher but for the guideline price, and to the extent that those higher prices would have represented cost trends and not merely the absence of a free market. The Commission evidently did not give the guideline price great weight, since it set the initial rate some 2˘ lower. We think that the weight given was justified.
Consideration of the temporary prices was also warranted because they pointed to cost trends, especially in light of the fact that 98.6% of the gas was then flowing under temporary certificates. Their use had an additional justification. In District 4, the seaboard interests evidently challenged almost all applications for permanent certificates at prices above 15˘ per Mcf, thereby greatly delaying the issuance of permanent certificates at higher levels. [
] Had the Commission refused to consider any but permanently certificated prices in setting the initial price, it would, in effect, have allowed the seaboard interests to determine that price. We consider that the Commission did not abuse its discretion in giving the temporary prices some weight.
Finally, we hold that the ceiling price of 16˘ was within the "zone of reasonableness" within which the courts may not set aside rates adopted by the Commission,
see, e.g., FPC v. Natural Gas Pipeline Co.,
315 U. S. 585
-586, and that it fulfilled the
mandate not to allow abrupt price rises. The 16˘ price was at the lower end of the spectrum of current prices
considered by the Commission, and it embodied only a 1˘ price rise.
To determine the in-line prices in Texas Railroad Commission Districts 2 and 3, for which the Policy Statement had also set a ceiling price of 18˘ per Mcf for sales after September 28, 1960, the Commission set two separate proceedings. The District 2 or
proceeding, scheduled on March 25, 1964, involved the establishment of in-line prices for sales under contracts executed between May 12, 1958, and January 1, 1964. [
] The District 3 or
proceeding, initiated on March 30, 1964, involved sales under contracts executed between September 16, 1958, and October 1, 1963.
31 F.P.C. 725. In both proceedings, the Commission began by dividing all of the sales in question into two groups, those contracted prior to the date of the Policy Statement and those contracted afterward. The two proceedings were terminated by two Commission orders of September 22, 1965, determining in-line prices for each area during each period. 34 F.P.C. 897, 930.
In the District 2 or
proceeding, the Commission set an initial price of 15˘ per Mcf for the pre-Policy Statement period and 16˘ for the later period. The 15˘ price is not here in issue. The seaboard interests contend that the 16˘ price was too high. In fixing the 16˘ price, the Commission took into account five factors. First, it apparently gave full weight to the permanently certificated prices at which about 40% of the gas in the area was currently moving. Second, it gave some, but "not undue," force to the temporary prices at which 60% of the gas currently flowed. Third, it assigned "some weight" to the original, unconditioned contract prices in the area, on the ground that those prices "do show economic trends in the area." 34 F.P.C. at
937. Fourth, the Commission took into consideration the 16˘ volumetric median price and the 15.29˘ volumetric weighted average price of all permanently and temporarily certificated sales in the area after the date of the Policy Statement. Fifth, it took into account the fact that 53% of the gas in the area was presently moving at prices at or below 16˘.
In the District 3 or
proceeding, the Commission fixed an initial price of 17˘ per Mcf for the post-Policy Statement period and reaffirmed an earlier-established 16˘ initial price for previous sales. The seaboard interests attack the 17˘ price as too high. Superior Oil Company asserts that both prices are too low. We confine ourselves at present to the contention of the seaboard interests. In arriving at the 17˘ price, the Commission considered five factors. First, it gave full weight to the permanently certificated sales of moderate volumes of gas at 15˘ and 16.2˘, a small volume at 16.5˘, and large volumes at 18˘. Second, it accorded "some weight" to temporary prices. Third, it noted that the 17˘ price "[reflects] the weighted average price of 16.17 cents" for permanently certificated sales. 34 F.P.C. at 903. Fourth, it gave "some weight" to original, unconditioned contract prices, for exactly the same reason as in
34 F.P.C. at 902. Fifth, the Commission took into consideration the fact that 43% of all permanently certificated sales in the area were at prices at or above 17˘.
On appeal, the Court of Appeals for the District of Columbia Circuit sustained the challenge of the seaboard interests to both the
post-Policy Statement prices, holding that it was error for the Commission to give any consideration to temporary and unconditioned contract prices. 126 U.S.App.D.C. 26, 373 F.2d 816. That decision is attacked by all of the producer parties.
The producers assert that the Court of Appeals erred in holding that the Commission should not have taken into account temporary and unconditioned contract prices when it fixed the post-Policy Statement prices for Districts 2 and 3. We sustain this contention. It is true that, in Districts 2 and 3, a much larger percentage of the gas was currently moving under permanent certificates than in District 4. However, for reasons which appear in our discussion of the District 4 proceedings,
-29, the temporary and unconditioned contract prices were nonetheless germane as indicating cost trends. [
] The Commission acknowledged their relative unreliability by according them only a diminished force. In these circumstances, we cannot conclude that the Commission exceeded its authority by giving them any weight at all.
Nor do we find any error in the Commission's selection of the 16˘ and 17˘ initial prices from the information before it. Although these prices, and particularly the 17˘ price in
ranged nearer the high end of the price spectrum than did the District 4 price, we cannot say that either was so high as to fall outside the "zone of reasonableness" within which the Commission has rate-setting discretion.
. And since the initial prices decided upon were only 1 above those previously prevailing, they did not breach the
directive to avoid excessively large price increases.
The Superior Oil Company contends that the initial prices established in District 3 for both the pre- and post-Policy Statement periods were too low for a number of reasons, mainly because the Commission excluded
The data considered by the Commission in setting the 17˘ District 3 post-Policy Statement price have already been described.
391 U. S. 31
. In establishing the 16˘ pre-Policy Statement price, the Commission took into account four factors. First, it gave full force to permanently certificated sales of small volumes of gas at prices below 16˘ and of comparatively large volumes at 16˘ and 16.2˘. Second, it took into consideration the fact that 72% of all sales, comprising "a little more than half" the total volume of gas, occurred at prices of 16˘ or less. Third, the Commission gave "some weight" to permanently certificated sales of very large volumes of gas at 17.5˘ or above, even though it regarded those prices as suspect. Fourth, the Commission apparently took into account the weighted average price of 15.16˘ for all sales except the suspect sales at 17.5˘ and above.
Superior's most strongly pressed contention is that the Commission erred in allegedly failing to consider nine large-volume sales at 20˘ per Mcf when it set the 16˘ initial price for the pre-Policy Statement period. The Commission recognized in its opinion that the inclusion of these sales at full strength would have a "strong [upward] effect" upon the average of all prices for the period. However, it concluded that the impact of the price should be "discounted." The Commission noted that
"six of the nine sales were involved in
Trunkline Gas Co., et al.,
21 FPC 704 . . . with respect to which [the New York Public Service Commission's] petition for review was dismissed because not timely."
34 F.P.C. at 902.
The Commission then quoted from an earlier decision,
Texaco Seaboard Inc.,
29 F.P.C. 593, 597, in which it discounted the effect of the same sales on the ground that they
"would have been set aside, for failure to permit a proper party to intervene, save for the procedural defect in the PSC review action in the
The Commission went on to point out that two of the three remaining 20˘ sales also had been certificated in proceedings from which the exclusion of the New York Commission had been upheld on the same procedural ground. [
We think that the Commission acted within its discretion in discounting the force of these 20˘ sales. Those sales were out of line with respect to the price structure which emerged after
and the Commission had reason to believe that they would have been set aside on judicial review had it not been for a procedural defect. We do not think that the Commission was compelled to give full weight to these prices.
Superior also contends that the initial prices established for the pre-Policy Statement period were too low because the Commission excluded from consideration a number of 1955-1956 sales at 17.5˘ to Coastal Transmission Company. In justification for giving discounted effect to these prices, the Commission again cited its
Texaco Seaboard
decision, 29 F.P.C. 593, in which it also discounted those sales. Among the justifications put forward in
was the fact that Coastal was, at the time of the sales, a new pipeline company, which neither had a certificate nor was yet in operation, so that the prices may have included a higher than normal allowance for risk. We think that this factor
Superior next asserts that, with respect to both time periods, the Commission erred in failing to take account of certain prices embodied in settlement orders. It is conceded by Superior that all of these settlements occurred at the then-prevailing guideline or in-line prices enforced by the Commission. [
] We hold that the Hearing Examiner and the Commission had discretion to disregard these sales, since they did not supply independent evidence of market trends.
Superior further complains of the Commission's alleged failure to take enough notice of temporary prices and its refusal to consider prices of intrastate sales. The Commission did give some consideration to temporary prices,
391 U. S. 33
, and, for reasons which appear sufficiently from what has gone before,
391 U. S. 26
, we hold that it did not err in refusing to give them more weight. We also hold that the Commission acted within its discretion when it rejected evidence of intrastate prices submitted by the producers on the ground that:
Finally, Superior asserts that the Commission acted incorrectly in relying on estimated, rather than actual, volumes of gas sold during both periods. We find acceptable the Commission's justification, which was that actual volumes were not known for the years 1962 and 1963. Moreover, use of actual volumes would have made no significant difference, since Superior agrees [
that the only result would have been to give enhanced force to the 20˘ sales, which properly were given only slight weight. [
We now turn to the question whether the price levels established by the Commission in these proceedings were proper when regarded as refund floors. This Court stated in
that the Natural Gas 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
. Since the Natural Gas Act nowhere refers to "in-line" prices, the "excessive rates" referred to must be rates in excess of the just and reasonable rate at which § 4(a) commands that all gas must move. Logically, this would seem to imply that to assure the "complete, permanent and effective bond of protection" referred to, any rate permitted to be charged during the interim period before a just and reasonable rate can be determined must be accompanied by a condition rendering the producer liable for refunds down to the just and reasonable rate, should that rate prove lower than the initial rate specified in the certificate.
Despite this apparent logic, the Commission seems never to have imposed a refund condition of this type, though it has occasionally considered the function of an in-line price as a refund floor in determining the level of
the price. [
] The courts seem never to have suggested that the Commission impose such conditions. In
this Court without dissent approved the Commission's imposition of an initial price unaccompanied by any such refund condition. The
Court also held, over a single dissent, that, in compelling producers to refund excess amounts charged under permanent certificates later invalidated on judicial review,
"the Commission could properly measure the refund by the difference between the rates charged and the 'in-line' rates to which the original certificates should have been conditioned. The Court of Appeals would delay the payment of the refund until the 'just and reasonable' rate could be determined. We have said elsewhere that it is the duty of the Commission, 'where refunds are found due, to direct their payment at the earliest possible moment consistent with due process.'
Federal Power Comm'n v. Tennessee Gas Transmission Co.,
371 U. S. 145
371 U. S. 155
382 U. S. 230
In view of the fact that an initial price and a refund floor might be used to achieve distinct regulatory goals,
11, it seems regrettable that the Commission and courts apparently have never entertained the possibility of separating these two aspects of an "in-line price" in particular cases. However, we think that, in light of
and the other precedents ,the Commission was not obliged in this instance to give explicit consideration to the establishment of a distinct refund floor. The same factors are present here as in
The need to speed refunds to consumers and to assure producers of a firm price are identical. We cannot say, therefore, that the Commission breached any duty in failing expressly to consider whether the prices it fixed were suitable when regarded as refund floors.
Although we have approved the in-line prices in these cases when looked at as initial prices, we have yet to examine them in their role as refund floors. Viewing them in that way, we hold that they were not impermissibly high. In the District 4 or
proceeding, the only disputed price is the 16˘ price for the post-Policy Statement period. The Commission fixed that price at a point near the lower end of the price range suggested by the price evidence before it, stating:
"While there is evidence that points in the direction of a higher price we believe the teachings of
require that we draw the line at the lowest reasonable level."
31 F.P.C. at 637. We consider that the 16˘ price was not beyond the Commission's power, when regarded as a refund floor.
proceeding, the only price assailed as too high is the 16˘ price for the post-Policy Statement period. That price was nearer the high end of the spectrum of suggested prices than was the price established in District 4. The Commission did not enunciate the general principle which motivated it in selecting the 16˘ price level. [
] Although it would have been preferable for the Commission to have explained its reasoning, we believe that the price was permissible when regarded as a refund floor. The 16˘ price embodied an increase of only 1˘ per Mcf over the previously prevailing price. Such evidence as is now available
indicates that the 16˘ price probably will not exceed the just and reasonable price which will be established for the Texas Gulf Coast in a pending area rate proceeding. [
] In addition, we are not unmoved by the obvious desirability of bringing to a close this already prolonged proceeding, which belongs to an era of regulation apparently now ended. [
] We therefore hold that, despite the weaknesses in the Commission's opinion, the price established was within the Commission's authority when seen as a refund floor.
case, the only price challenged as excessive is the 17˘ price for the post-Policy Statement period. The District 3 proceeding was similar to that, in District 2 (
). The price decided upon was again nearer the high end of the suggested range than that in District 4; again, the Commission did not articulate the general principles which motivated it. [
] The District 3 price is even more vulnerable to attack than that in District 2, because it is 1˘ higher, and therefore more likely to be above the just and reasonable
rate for the Texas Gulf Coast. Yet similar considerations lead us to approve it as being within the Commission's broad discretion. The 17˘ price represented only a 1˘ increase over the previous District 3 price. The fragmentary evidence now available about the forthcoming just and reasonable rate indicates that it will be only slightly, if at all, below 17˘. [
] It is again desirable that a prolonged and outmoded proceeding be brought finally to a close. Hence, we are constrained to hold that the 17˘ District 3 price was not excessive as a matter of law, when looked at as a refund floor.
The next major issue is whether the Commission acted within its powers when it ordered the producers in the District 4 or
proceeding to refund amounts previously collected under unconditioned temporary certificates, to the extent that the prices charged under those certificates exceeded the eventual in-line price.
Most of the producers involved in the Amerada proceeding applied for and were granted such temporary certificates, authorizing them to sell gas at or below the then-guideline price of 18˘ per Mcf. The "emergency" which most of these producers cited to justify the issuance of the certificates was an economic emergency which threatened them with loss of all or part of their gas supply unless deliveries
could begin. [
] Eight of the certificates contained a condition specifying that, should the eventual in-line price be lower than that charged under the certificate, a refund of the difference might be ordered. The other certificates did not include an express refund condition, although they did contain general cautionary language respecting further Commission action. [
The history of the refund orders now under review is as follows. When seaboard interests proposed the retroactive imposition of refunds in virtually identical circumstances in the 1962
proceeding, the Commission decided not to order refunds because
28 F.P.C. 401, 413. In denying rehearing in
the Commission amplified its reasons, stating that, because there was in the temporary certificates no explicit language to warn the producers of the possibility of a refund,
28 F.P.C. 1065, 1069. While
was pending on appeal in the District of Columbia Circuit, the seaboard interests moved the Commission to insert prospective refund conditions in the temporary certificates of producers in the
proceeding now before us. In denying that request, the Commission stated that, because the producers
The Court of Appeals for the District of Columbia Circuit held on appeal in
117 U.S.App.D.C. 287, 329 F.2d 242, not only that the Commission had power to order retroactive refunds but that, in the
proceeding itself, it should subject the question to "a broader and more penetrating analysis." 117 U.S.App.D.C. at 295, 329 F.2d at 250. In its subsequent in-line price decision in
Amerada,
the Commission noted that, in
the Court of Appeals had made it clear that the refund power did not depend upon the presence of express refund conditions, but upon equitable considerations. Since the hearings before the Commission in
had taken place prior to the decision on appeal in
the Commission deferred decision of the refund question in
so that the parties might submit further briefs.
31 F.P.C. at 638-639. After full briefing of the refund issue, the Commission ordered the
producers to refund all sums collected under the temporary certificates in excess of the in-line rate, with the exception of amounts expended for royalties and production taxes prior to the date of the decision on appeal in
and in reasonable reliance upon the Commission's orders. 36 F.P.C. 309.
On appeal of the Commission's
order setting the in-line price and deferring the refund question, the Court of Appeals for the Tenth Circuit noted the issuance of the subsequent Commission order compelling refunds and held that the refund issue was ripe for judicial review. Relying in part upon its earlier decision in
270 F.2d 404,
We consider that, in so holding, the Tenth Circuit erred. The producers' initial contention in support of the opinion below is that temporary certificates are appealable orders, and that under § 19(b) of the Natural Gas Act, 15 U.S.C. § 717r(b), review must be sought within 60 days of the issuance of the certificate and not, as here, at the time of application for a permanent certificate. We find this argument unpersuasive. Temporary certificates normally are issued
upon receipt of an application from a producer in the form of a letter. [
] This procedure is authorized by a proviso to § 7(e) of the Act, quoted
391 U. S. 40
, which permits the Commission to issue temporary certificates without any notice to potentially interested persons. [
] Hence, no one but the producer recipient may be aware of the issuance of a temporary certificate within the appeal period.
Moreover, to hold that a temporary certificate must be challenged immediately or not at all, as the producers suggest, might encourage appeals which would impair the usefulness of temporary certificates. Temporary certificates are intended to permit immediate delivery of gas in emergencies. To delay the issuance of the certificate
and the flow of the gas until the completion of judicial review which might consume months or years would severely hamper the performance of this function. We therefore hold that parties, at least those other than the producer itself, [
] may challenge a temporary certificate at the time a permanent certificate is applied for.
The producers' second argument is that a temporary certificate is a "final" order creating vested rights, and that it may be altered only prospectively. This contention is related to the last, and has much the same flaw. To encourage early attack on temporary certificates would diminish their utility. Yet to discourage prompt challenges and simultaneously to hold that refunds could not be ordered for the interim period would in large part frustrate the objectives of the Natural Gas Act by allowing producers to operate for long intervals [
] on the basis of their own representations and with only minimal regulation by the Commission.
The producers' third contention, which coincides with the rationale of the Tenth Circuit below and in its previous decision in
Sunray Mid-Continent, supra,
is that temporary certificates must be retroactively unmodifiable in order that producers may be assured of a firm price at which to operate. We cannot accept this reasoning. When a producer has requested permission to begin delivery of gas prior to completion of normal certification procedures, due to an emergency, we think it not unfair that, in return for that permission, it accept the risk that, at the termination of those procedures the terms proposed
We are strengthened in that view by this Court's decision in
Callery, supra.
The Court there held that, when a permanent certificate, containing no refund condition, is held on judicial review to have embodied too high an in-line price, the Commission may, on remand, condition the new permanent certificate to require refund of the excessive charges received under the old. If the producer expectations created by a permanent certificate may thus be overridden by the public interest, then the surely lesser reliance induced by an "unconditioned" temporary certificate issued on the producer's own representations should not bar a later refund requirement. For all of these reasons, we hold that, in the exercise of its power to condition permanent certificates under § 7(e), the Commission may require producers to refund amounts collected under outstanding, unconditioned temporary certificates in excess of the finally established in-line price. [
It remains to be considered whether the Commission was precluded from exercising its refund power in the particular circumstances of the
] The background and nature of the
orders have already been described. We conclude that neither the procedure followed nor the result reached by the Commission in imposing the
refunds amounted to an abuse of discretion.
The producers assert that they were entitled to an irrevocable assurance of price in order that they might rationally decide whether to dedicate their gas to interstate commerce, and so that they might plan their budgets during the lives of the temporary certificates. However, we believe that such generally worded arguments are foreclosed by our decision upholding the Commission's refund power, for, in the course of that decision, we rejected the producers' claim that they were legally entitled to an assurance of a firm price at which to operate.
The producers further contend that the Commission's repeated indications that it would not order refunds,
391 U. S. 41
-42, made the ordering of refunds inequitable in this instance, in that the Commission's pronouncements caused the producers to place unusual reliance upon the prices authorized by the temporary certificates. However, this kind of reliance is precisely what the Commission gave the producers an opportunity to prove on re-briefing. We cannot say that the Commission exceeded its discretion in finding that the producers did not show such reliance as to deprive the Commission entirely of refund power in this case. We note further that the Commission did give consideration to individual pleas for relief from the refund obligation, due to alleged hardship, [
] and that, in other proceedings the Commission has
granted such relief. [
] Therefore, although it is regrettable that the road which led to these refund requirements could not have been straighter, [
] we hold that the Commission did not exceed its authority.
The third and last major issue is whether the Commission erred in failing to make a reasoned finding that there was a public need for the gas certificated in the District 2 and District 3 (
) proceedings. In those proceedings, the New York Public Service Commission asserted that there was no public need for the gas, alleging in particular that several of the purchasing pipelines were already obligated under "take or pay" provisions of existing contracts either to take more gas than they could foreseeably use or to pay for it. [
In both proceedings, the Commission refused to give more than perfunctory consideration to the issue of "need." Its stated justification was that the need question should be dealt with in pipeline, rather than producer, proceedings. The Court of Appeals for the District of Columbia Circuit held that the Commission erred in declining to come to grips with the need issue in the course of producer certification. 126 U.S.App.D.C. 26, 373 F.2d 816. That court held that the Commission should have directed itself not only to the "take or pay" positions of the purchasing pipelines, but to the question whether those
pipelines proposed to sell the gas to customers who would use it in an "economically
inferior' way."
The Commission regulates pipelines in a number of different ways. When a pipeline must expand its facilities significantly in order to take on new supplies of gas, it is required by § 7(c) of the Natural Gas Act, 15 U.S.C. § 717f(c), to obtain a certificate of public convenience and necessity, which may be issued only after notice and hearing. In these certification proceedings, the Commission considers many matters, including the needs of the pipeline's customers and its gas supply. [
] The Commission also grants pipelines so-called "budget" authority to spend limited amounts on gas-purchasing facilities on an annual basis, without further Commission approval. [
] This authority is granted only after notice and opportunity for objection. [
] In addition, the Commission requires periodic reports from all pipelines, [
] and collects and publishes material on the supply of gas, including data on the pipelines' "take or pay" positions. [
We think that the Commission did not abuse its discretion in deciding that the need issue, in both its "take or pay" and end use [
] aspects, can be better dealt with in such pipeline proceedings than in producer proceedings. In the first place, the requisite information is more readily available in pipeline proceedings. To resolve the "take or pay" issue, it is necessary to have information about the total gas supply of the purchasing pipeline, its outstanding sales contracts, and its "take or pay" situation under those contracts. These data normally will be in the possession of the pipeline, but not of the producer. Decision of the end use question must be based on information not only about the customers of the purchasing pipeline, but about the alternative uses to which the gas might be put by other pipelines which might buy it. This information will be known collectively by a number of pipelines; an individual producer cannot even know what customer of the purchasing pipeline will receive the gas it supplies. [
] Although it might be possible for the Commission to require the relevant pipeline or pipelines to furnish all this information in each producer certification proceeding, [
] that procedure would be cumbersome, and would
lengthen the producer proceedings, which we have previously commended the Commission for endeavoring to shorten. [
In the second place, there is reason to believe that the pipeline proceedings, supplemented by other forms of regulation available to the Commission, will provide an adequate forum in which to confront both aspects of the need issue. Turning first to the "take or pay" question, we note that the Commission has evinced a continuing concern about it. The current adverse "take or pay" positions of some pipelines, stressed by the seaboard interests in these proceedings, apparently were due in some part to a pre-1964 Commission requirement that each pipeline maintain a twelve-year supply of gas in order to assure adequate reserves. In 1964, this requirement was made more flexible. [
] The Commission in 1965 ordered pipelines to submit more detailed reports on their contractual "take or pay" provisions. [
] And in 1967, at the termination of a rulemaking proceeding begun in 1961, the Commission prescribed by rule that contractual "take or pay" provisions must allow the purchasing pipeline at least five years in which to take gas previously paid for without making additional payments. [
Thus, the Commission itself has taken steps to alleviate "take or pay" problems. Persons who want the Commission to take additional action have adequate opportunity to present their views during the Commission's rulemaking [
] or pipeline proceedings. If a pipeline must build substantial new facilities to handle the gas in question,
then interested persons may express their objections in the certification proceeding. [
] Those who believe that a pipeline which seeks "budget" authority is in such a "take or pay" position that it should not be allowed to acquire new gas may ask that the authority be denied or conditioned. Although some gas may be taken by pipelines through existing facilities, without even "budget" authority, [
] these opportunities for a hearing seem sufficient to protect the public interest.
The Commission has undertaken to assure that gas is not devoted to wasteful end uses, and this Court has upheld its exercise of such authority.
See FPC v. Transcontinental Gas Pipe Line Corp.,
365 U. S. 1
. The Commission has dealt with this question primarily in pipeline certification proceedings. [
] This does not seem inappropriate, since any new use of significant amounts of gas will normally entail the erection of substantial new pipeline facilities, requiring certification. Persons who anticipate that a pipeline which is seeking "budget" authority will devote the gas to inferior end uses may request that the authority be withheld or limited. We believe that these opportunities for objection are adequate to protect the public interest in conservation of gas.
Of course, our approval of the Commission's decision to deal with the need question in pipeline proceedings does not imply that the Commission may neglect its statutory
duty to assure that sales of gas are required by the public "necessity." [
] This statutory obligation implies that, when interested parties assert that the Commission has permitted or is about to permit the sale of significant quantities of unneeded gas, then the Commission must supply an adequate forum in which to hear their contentions. We hold only that, so far as appears from the record before us, pipeline proceedings can serve as such a forum. If subsequent events should demonstrate that existing pipeline proceedings are inadequate, then the Commission must provide new arenas for objection.
* Together with No. 61,
United Gas Improvement Co. v. Sunray DX Oil Co. et al.,
Brooklyn Union Gas Co. et al. v. Federal Power Commission et al.,
Federal Power Commission v. Standard Oil Co. of Texas, a Division of Chevron Oil Co., et al.,
and No. 97,
United Gas Improvement Co. v. Sunray DX Oil Co.,
also on certiorari to the same court, No. 111,
Shell Oil Co. v. Public Service Commission of New York,
No. 143,
Skelly Oil Co. et al. v. Public Service Commission of New York et al.,
Federal Power Commission v. Public Service Commission of New York et al.,
and No. 231,
Superior Oil Co. v. Federal Power Commission et al.,
on certiorari to the United States Court of Appeals for the District of Columbia Circuit.
Johnson, Producer Rate Regulation in Natural Gas Certification Proceedings:
in Context, 62 Col.L.Rev. 773, 782-788 (1962).
See, e.g., United Gas Improvement Co. v. FPC,
283 F.2d 817;
Public Serv. Comm'n v. FPC,
109 U.S.App.D.C. 292, 287 F.2d 146;
United Gas Improvement Co. v. FPC,
287 F.2d 159;
290 F.2d 133 and 147;
California Oil Co., W. Div. v. FPC,
315 F.2d 652.
A two-party most favored nation clause assures a producer that he will receive the highest price currently being paid by his purchaser to any producer in the same area. A three-party most favored nation clause guarantees a producer the highest price presently being paid to any producer in the area by any purchaser.
See, e.g., Pure Oil Co.,
25 F.P.C. 383.
29 F.P.C. 593;
Hassie Hunt Trust (Operator),
30 F.P.C. 1438,
aff'd sub nom. Continental Oil Co. v. FPC,
378 F.2d 510.
See United Gas Improvement Co. v. Callery Properties, Inc.,
See, e.g., Placid Oil Co.,
30 F.P.C. 283. In 1961, the Commission, by rule, prospectively limited the forms of the escalation clauses themselves.
In the cases before us, the Commission did utilize its auxiliary power,
391 U. S. 19
-20, to limit the amount of such § 4 increases, but the producers remained free after six months (
30 days' notice plus five months' suspension) to raise their prices at least 10%, if their contracts permitted. In 1961, after many of the contracts in these cases had been entered into, the Commission issued a rule which prospectively limited the types of escalation clauses which might be included in contracts.
Order No. 232, 25 F.P.C. 379. This order was modified by Order No. 242, 27 F.P.C. 339.
18 CFR § 154.93;
FPC. v. Texaco Inc.,
377 U. S. 33
377 U. S. 42
30 F.P.C. 1354, 1357.
2 Joint Initial Staff Brief, Hugoton-Anadarko-Texas Gulf Coast Area Rate Proceedings, F.P.C. Docket Nos. AR 64-1 and AR 64-2, at 486-488.
The Commission specifically reserved decision of this question in its decision in the Permian Basin area rate proceeding.
34 F.P.C. 1068, 1074-1075.
See, e.g., FPC v. Hope Natural Gas Co.,
320 U. S. 618
Montana-Dakota Utils. Co. v. Northwestern Public Serv. Co.,
341 U. S. 246
341 U. S. 254
31 F.P.C. at 629-637; 34 F.P.C. at 900-904, 933-938.
M. Adelman, The Supply and Price of Natural Gas 25 (1962).
See, e.g., Permian Basin Area Rate Cases,
390 U. S. 792
-795; E. Newner, The Natural Gas Industry 148-177, 209-290 (1960).
Brief for Sunray DX Oil Company
11, 23-26.
4 Joint Appendix 128.
The seaboard interest.s apparently followed the same course in Districts 2 and 3 as in District 4, challenging all applications for permanent certificates at prices above 15˘ per Mcf.
Brief for Shell Oil Company
8, 19-21.
34 F.P.C. at 902, n. 3. It appears that the last of the sales was also in this category.
3 Joint Appendix 131, 136, n. d;
Astral Oil Co.,
22 F.P.C. 658 and 858.
Brief for the Superior Oil Company 36, n. 48.
at 390.
Superior also claims that the Commission abused its discretion by considering sales at prices below 14˘ in fixing the initial rates for both periods, even though it had excluded such sales in previous District 3 in-line proceedings. Superior did not mention this point in its petition for rehearing before the Commission.
3 Joint Appendix 314(i); Exceptions of the Superior Oil Company to the Decision of the Hearing Examiner,
In the Matter of H.L. Hawkins & H.L. Hawkins, Jr. (Operator),
F.P.C. Docket No. G-18077. Hence, the question is not properly before us.
Natural Gas Act § 19(b), 15 U.S.C. § 717r(b).
See, e.g., Texaco Seaboard Inc.,
29 F.P.C. 593, 599.
The Hearing Examiner, who also arrived at a 16˘ price, apparently relied upon a general standard different from that used by the Commission in the District 4 or
Quoting from the Commission's opinions in
Texaco-Seaboard Inc.,
27 F.P.C. 482, 485, and
30 F.P.C. 1438, 1445, the Examiner said:
The Commission staff has recommended a just and reasonable rate of 16.8˘ per Mcf for new gas well gas sold in the Texas Gulf Coast under contracts dated after December 31, 1960, and delivered at a central point.
2 Joint Initial Staff Brief, Hugoton-Anadarko-Texas Gulf Coast Area Rate Proceedings, F.P.C. Docket Nos. AR 64-1 and AR 64-2, at 375. The suggested just and reasonable rate for post-1960 new gas well gas delivered at the wellhead is 16.4˘ per Mcf.
About 90% of Texas Gulf Coast gas is centrally delivered.
at 390-391.
During oral argument, counsel for the Commission stated that the Commission has suspended all contested in-line price proceedings pending completion of the area rate proceedings for the areas involved. The just and reasonable rates determined in those proceedings apparently will automatically become the in-line prices for those areas.
390 U. S. 22
, n. 114.
The Hearing Examiner was equally unspecific.
34 F.P.C. at 914
Brief for the Federal Power Commission 49, n. 37.
1 Joint Appendix 71-72.
1 Joint Appendix 78-81; 18 CFR § 157.17.
The Court of Appeals for the Fifth Circuit has held that the producer itself must challenge the certificate within 60 days after it is issued.
Texaco, Inc. v. FPC,
290 F.2d 149. There is no occasion for us to pass on the correctness of that decision.
Some of the producers involved in the
proceeding delivered gas under temporary certificates for more than 2 1/2 years.
1 Joint Appendix 71
No party has contended that the refunds should have been based on the eventual just and reasonable rate, and we think it clear that the Commission did not exceed its authority in founding them on the in-line price.
Because the Court of Appeals held that the Commission lacked power to require refunds, it did not pass on the producers' contentions that the refunds actually ordered were inequitable. Those contentions were presented to this Court in the producers' reply brief. Although we normally do not review orders of administrative agencies in the first instance,
see, e.g., FPC v. United Gas Pipe Line Co.,
386 U. S. 237
386 U. S. 247
, we consider it appropriate in this instance to resolve this question without remand to the court below for initial consideration, in order that this extended proceeding may at last come to an end.
Compare, e.g., Permian Basin Area Rate Cases,
390 U. S. 822
, n. 114;
Chicago & N.W. R. Co. v. Atchison, T. & S.F. R. Co.,
387 U. S. 326
387 U. S. 355
36 F.P.C. 962 (memorandum opinion and order confirming Amerada order requiring refunds).
See Turnbull & Zoch Drilling Co.,
36 F.P.C. 164, 166-167.
1 Joint Appendix 159-162 (unreported opinions of Commissioners Morgan and Ross concurring in the Commission's Feb. 5, 1963, denial of prospective refund conditions in
See, e.g., Transwestern Pipeline Co.,
36 F.P.C. 176, 191-199;
Transcontinental Gas Pipe Line Corp.,
F.P.C. Docket No. CP 65-181 (Phase II), Opinion No. 532, Nov. 6, 1967.
See also FPC v. Transcontinental Gas Pipe Line Corp.,
At present, "budget" authority permits a pipeline to expend on gas purchasing facilities the lesser of $5,000,000 or 1.5% of its existing plant investment, with the total cost of any single gas purchase project not to exceed the lesser of $500,000 or 25% of the total budget amount.
18 CFR § 157.7(b).
§ 157.9
Annual reports must be made to the Commission describing the prior year's construction.
§ 157.7(b)(3).
§ 260.7.
Federal Power Commission, Annual Reports, 1963-1967; Federal Power Commission, The Gas Supplies of Interstate Natural Gas Pipeline Companies, Calendar Years 1963 and 1964 (February 1966); Federal Power Commission, The Gas Supplies of Interstate Natural Gas Pipeline Companies, Calendar Years 1964 and 1965 (August 1967).
See California v. Lo-Vaca Gathering Co.,
379 U. S. 366
379 U. S. 369
-370;
Mississippi River Fuel Corp. v. FPC,
102 U.S.App.D.C. 238, 252 F.2d 619, 623-625.
The Commission elsewhere has conceded that the administrative burden of such a procedure would not be unbearable.
Memorandum for the Federal Power Commission in
Austral Oil Co. v FPC,
No. 504, October Term, 1967, at 5-6.
See FPC v. Hunt,
376 U. S. 515
376 U. S. 527
Order No. 279, 31 F.P.C. 750.
Order No. 301, 34 F.P.C. 76.
Order No. 334, 37 F.P.C. 110.
18 CFR § 1.3 (notice requirement for substantive rulemaking proceedings).
The seaboard interests apparently achieved considerable success in a pipeline certification proceeding which grew out of the
proceeding now under review.
See Lone Star Gas Co.,
36 F.P.C. 497;
Lone Star Gas Co.,
F.P.C. Docket No. CP 65-118, Order Vacating Certificates, Sept. 15, 1967.
Counsel for the Commission estimated on oral argument that 25% of the gas involved in the
proceedings could be attached at existing facilities.
391 U. S. 48
and n. 40.
The Commission has attempted to fulfill this duty by regulating both the "take or pay" and end use aspects of the need question.
391 U. S. 51