Case Name: PACIFIC GAS TRANSMISSION COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Pacific Gas and Electric Company et al., Intervenors
Court: United States Court of Appeals for the District of Columbia Circuit
Jurisdiction: District of Columbia
Decision Date: 1976-04-09
Citations: 175 U.S. App. D.C. 366
Docket Number: No. 74-2046
Parties: PACIFIC GAS TRANSMISSION COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Pacific Gas and Electric Company et al., Intervenors.
Judges: Before BAZELON, Chief Judge, CLARK, Associate Justice of the Supreme Court of the United States, and MacKINNON, Circuit Judge.
Reporter: United States Court of Appeals for the District of Columbia Circuit
Volume: 175
Pages: 366–371

Head Matter:
536 F.2d 393
PACIFIC GAS TRANSMISSION COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Pacific Gas and Electric Company et al., Intervenors.
No. 74-2046.
United States Court of Appeals, District of Columbia Circuit.
Argued Dec. 15, 1975.
Decided April 9, 1976.
As Amended May 28, 1976.
Rehearing Denied June 2, 1976.
Sanford M. Skaggs, Walnut Creek, Cal., with whom Peter W. Hanschen, Los Angeles, Cal., was on the brief for petitioner.
Philip R. Telleen, Atty. F. P. C., Washington, D.C., for respondent; Drexel D. Journey, Gen. Counsel, F. P. C., Robert W. Perdue, Deputy Gen. Counsel, Allan Abbot Tuttle, Sol. and William D. Braun, Atty. F. P. C., Washington, D.C., were on the brief.
Raymond N. Shibley, Washington, D.C., with whom Brian D. O’Neill, Washington, D.C., was on the brief for intervenor Bank of America Nat. Trust and Sav. Ass’n.
Malcolm H. Furbush, San Francisco, Cal., Daniel E. Gibson, Oakland, Cal., and Howard V. Golub, San Francisco, Cal., were on the brief for intervenor Pacific Gas and Elec. Co.
K. R. Edsall and E. R. Island, Los Angeles, Cal., were on the brief for intervenor Southern Cal. Gas Co.
Before BAZELON, Chief Judge, CLARK, Associate Justice of the Supreme Court of the United States, and MacKINNON, Circuit Judge.
Sitting by designation pursuant to 28 U.S.C. § 294(a).

Opinion:
Opinion for the Court filed by Mr. Justice CLARK.
Dissenting opinion filed by Chief Judge BAZELON.
Mr. Justice CLARK:
The petitioner, Pacific Gas Transmission Company (PGT) is engaged in the transportation of natural gas from production fields in the Province of Alberta, Canada, to communities in Northern and Central California, pursuant to orders and certificates of the Federal Power Commission (Commission). PGT sells its gas to its parent company, the Pacific Gas and Electric Company (P, G and E), in accordance with a tariff approved by the Commission. Prior to the instant decision, that tariff was set on a cost of service basis covering the cost of gas and other operating expenses, depreciation,, amortization, taxes, and return on its investment. As a result any fluctuation in its cost of gas was reflected in the monthly billing arrangement between Pacific Gas Transmission and its parent without prior Commission approval.
On May 15, 1978, PGT made an informal filing with the Commission of an amendment to a contract it had made with an affiliated supplier, Alberta Southern Gas Company, Ltd. The amendment provided for a one-cent increase per thousand cubic feet (Mcf) in the price of gas to PGT to provide a fund for the exploration and development of gas reserves in Canada to be committed for sale to PGT. The Commission initially rejected the informal filing but later rescinded that Order and instituted a Section 5 investigation "to determine whether PGT's cost of service tariff should be modified to limit or redefine the costs which may be reflected as purchased gas costs in PGT's rates." 15 U.S.C. § 717d. The Commission had previously expressed some concern about permitting PGT to pass on as purchased gas costs to P, G and E, and in turn to P, G and E's customers, the exploration and development expenses of Canadian producers without proper guarantee that the resulting benefits would accrue to its U.S. customers. This resulted in the entry of the Order in controversy here after a full hearing before an administrative law judge. The Order requires that prior filings be made with the Commission before any increases in PGT's cost of gas purchased from its Canadian supplier and that resulting increases in cost of service charges be subject to suspension and refund under Section 4 of the Natural Gas Act.
(1) PGT's Objections: The Question Involved :
Four basic questions are raised about the Order of the Commission: • (1) May the Commission "arbitrarily treat PGT differently than other regulated importers by subjecting PGT alone to indirect regulation?" (2) May the Commission amend PGT's existing tariff "without giving PGT notice of its intended amendment and without providing PGT an opportunity to be heard?" (3) May the existing tariff be amended "without substantial evidence to support its finding that the existing tariff is unreasonable?" and (4) May the existing tariff be amended "without an express finding, based upon substantial evidence, that the resulting tariff, as amended, is just and reasonable?" The form of the questions is reminiscent of the query: "When did you stop beating your wife?" As we see it, the substantive question here is a simple one and may be stated in simple terms: "Does the Commission have the power under Section 5(a), and in accordance with the Natural Gas Act, to require that, before increasing its wholesale rate, PGT file an application and seek approval of the increase under the provision of Section 4 of the Act?" We find that it does.
(2) The Background:
Since PGT asserts arbitrary action on the part of the Commission without notice as well as without substantial evidence, we believe it necessary to fill in the bare bones direction of the pre-order procedure heretofore given us. PGT provoked the action of May 15, 1973 by directing to the Commission its letter notice of an amendment that had been made to PGT's gas purchasing contract with its affiliate, Alberta and Southern Gas Company Ltd. The Commission then instituted a Section 5(a) proceeding, and on April 30, 1974, a public hearing was held before an Administrative Law Judge. After hearing testimony, receiving briefs, and hearing oral argument, he issued his initial opinion dated July 1, 1974. Among other things, he found that the Canadian border price of gas to PGT was scheduled to increase from 38 to 70 cents per Mcf on July 1, 1974, and that prior stability in the border price was jeopardized through the planned adoption of a new formula for determining the border price, i. e. by reference to prices for competing alternative energy sources in the markets served by Canadian gas.
The Administrative Law Judge found this situation to be a "change of considerable significance and unquestionable certainty in the ground rules" under which the tariff had originally been approved. See Pacific Gas Transmission Co., 24 FPC 134 (1960). He therefore concluded that the "heretofore reasonable tariff, which operated reasonably in the past, has become unreasonable in that it permits price increases, however massive and however unrelated to cost, to be reflected in the cost of service without prior Commission approval." We find that time has certainly proven his prediction to be true. He concluded that these consequences far outweighed the adverse effect that prior Commission approval might have on PGT and that the Commission must devise procedures that will enable it to promptly decide in advance the increases to be allowed in the price of Canadian gas. The Administrative Law Judge then suggested that PGT's tariff be revised so as to require approval by the Commission of any increases in PGT's cost of gas purchases from its Canadian suppliers, whether imposed or required by Canadian authorities.
The Commission entered such an Order on September 3, 1974; however, on suggestion of an Intervenor, Bank of America, on rehearing, the Order as to PGT's tariff was modified on November 1, 1975 to read as follows:
PGT's tariff be amended by adding, at the end of paragraph 3.1(1) of Rate Schedule PG-1, the following sentence: Provided, that a prior filing must be made with the Federal Power Commission pursuant to Section 4 of the Natural Gas Act before there is reflected in Seller's cost of service charges any increase in its cost of gas purchased from its Canadian supplier either that is imposed or required by Canadian authorities or that reflects a price for purchased gas higher than the price heretofore reflected in the Canadian supplier's price; the increase in Seller's cost of service charges shall be subject to suspension by the Commission pursuant to said Section 4 and, if so suspended, shall thereafter be collected subject to refund as provided in said Section 4.
(3) The Commission's Power Under Section 5(a):
The Commission's order was appropriate. As has been indicated, the initial cost of service tariff of PGT permitted an automatic increase in its rates without prior Commission approval when there was any increase in its cost of gas. The Commission had found that such an automatic method of increase was unjust and unreasonable under the changing conditions above described. Thus it ordered that thereafter tariffs be filed under Section 4 of the Act, 15 U.S.C. § 717c, prior to any higher price being reflected in PGT's tariff to P, G and E for purchased gas. Under the Commission's Section 4 authority, the new higher price could be suspended by the Commission for five months and thereafter could be collected subject to refund.
We find such an Order clearly within the power of the Commission under Section 5(a) of the Natural Gas Act. As this court said in American Smelting and Refining Company v. FPC, 161 U.S.App.D.C. 6, 494 F.2d 925, 940-941 (1974), cert. denied, sub nom. Southern California Gas Company et a 1. v. FPC, 419 U.S. 882, 95 S.Ct. 148, 42 L.Ed.2d 122 (1974), the Commission's authority under Section 5(a) is exercised in:
a two-step adjudicatory process: first, the Commission must find that an existing condition is unjust or discriminatory; second, the Commission must prescribe the remedy for that condition. Each step requires the Commission to draw a legal conclusion, viz.: the illegality of an existing condition and the justness and reasonableness of the remedy.
Here the Commission concluded that the. new competitive fuel criterion by the Canadian authorities, the attempt to add the one-eent per Mcf exploration cost to the price of purchased gas (which was later rescinded), and the impending price increase of July 1, 1974 (from 38<f to 70<p per Mcf), with others to follow ($1, $1.40 and $1.60 per Mcf) constituted a radical change of circumstances from the situation in 1960 when the tariff was first approved. ' In light of newly developed situations these changes made the tariff "unreasonable insofar as it deprived the Commission of authority to decide in advance whether PGT should be permitted to reflect certain types of increased costs in its charges." In short, whilé the Commission did not find a specific rate unjust or unreasonable or discriminatory, it did find, as it was obliged to do under the existing facts, that the existing tariff so directly controlled the going rate for purchased gas as to render it unjust and unreasonable in that it permitted any new rate fixed for purchased gas by the Canadian authorities to be passed on automatically to P, G and E and thence to the two million customers of P, G and E in California. Such a practice, if permitted to continue, would be an abdication of the Commission's statutory duty, making it a rubber stamp for Canadian authority, and inevitably subjecting gas consumers to unjust and unreasonable rates fixed by the Canadian authority ipse dixit. This result the Commission could not permit because it would continue a practice that would not protect the millions of customers of P, G and E in California from unjust and unreasonable rates.
After such a finding, the Commission had not only the power but the solemn duty to take immediate action. Moreover, if the existing PGT cost of service tariff were continued, the Commission would be obliged on each occasion of an increase order from Canadian authorities to test the fairness and reasonableness of PGT rates only under Section 5 of the Act, a method which empowers prospective rate relief only. Thus the two million California customers would be exposed to unquestionably excessive charges while Section 5 proceedings dragged on and on. The Commission therefore found Section 5 protection inadequate and required that future increases in PGT rates due to increases in the price of Canadian gas be processed through the procedures of the Commission under authority of Section 4 of the Act. Under Section 4, the Commission may suspend an increased rate for up to five months and thereafter require a refund of amounts collected in excess of the rates eventually determined to be just and reasonable.
The parade of horribles that PGT suggests will lead to its destruction as a result of such an Order are hardly tenable. Witness the 100 percent increase that it received under Section 4 procedures on August 1, 1975, less than three months after its application was filed. Thereafter, on November 1, 1975, with the ink hardly dry on the first authorization, it received another one of approximately 15 percent. The Federal Power Commission is not known for its niggardliness. In any event, as the Commission found, it cannot abdicate where the public interest is so deeply involved; both here and now that interest requires the complete bond of protection afforded by Section 4. Should conditions change, it will be soon enough to pursue other remedies.
Nor do we find any merit whatever in PGT's contention that the Commission does not have the power to modify the PGT cost of service tariff. Such absurdities merit no discussion. Likewise the due process claim is unsupportable. PGT, as well as the several intervenors, were afforded a full and complete opportunity to be heard and present evidence before the Administrative Law Judge. Indeed, PGT participated in the hearing and not only presented evidence but was fully heard.
The Order of the Commission is therefore
Affirmed.
. The Canadian National Energy Board (NEB) has announced that the export price of gas to the United States should not be materially less than the least cost alternative for energy from indigenous sources. The price of gas for export is subject to review by NEB, which is required to report its findings and recommendations to the Governor-in-Council who then may establish a new minimum price which becomes a condition of the export license.
. On September 30, 1974, an application to increase PGT rates from 70$ to $1 per Mcf was made, and on May 13, 1975, this was increased to $1.40. On August 1, 1975, the Commission made effective without suspension a $1.40 per Mcf price, and on November 1, 1975, a $1.60 per Mcf price became operative. Altogether these charges make the present rate over four times what it was on June 30, 1974 (38$ per Mcf).
« delay incident to determination in § 5 proceedings . . appears nigh interminable." Atlantic Refining Company et al. v. Public Service Commission of New York, 360 U.S. 378, 389, 79 S.Ct. 1246, 1254, 3 L.Ed.2d 1312, 1320 (1959).