Earl Warren: Number 60, Federal Power Commission, Petitioner, versus Sunray DX Oil Company et al. and companion cases, number 61 to 62, 80, 97, and 111, 143, 144 and 271. Mr. Schiff.
Peter H. Schiff: Mr. Chief Justice and may it please the Court. The group of cases before the Court today are part of the Commission's interim program for determining initial certificate prices for the sales by independent producers of natural gas. This is interim awaiting the Commission's determination of just and reasonable rates in area rate proceedings. Under this interim program which this Court has -- had the occasion to discuss in the second Phillips case and has dealt with to some extent in the Callery case in 1965. The Commission building on another decision of this Court the CATCO case which was decided in 1959, that was under the style of Atlantic Refining Company and Public Service Commission of New York has been using its conditioning power under Section 7 of the Natural Gas Act to stabilize prices, producer prices or in the words of this Court to attempt to hold the line. As an early part of this interim program, the Commission at the time that it decided the second Phillips case that is the case where it concluded that the just and reasonable rates of independent producers should be determined on a area basis. The Commission promulgated a statement of general policy designating 23 pricing areas and for each of these pricing areas, it established a ceiling price above which the Commission would not permit gas to add on the market under the certificates of public convenience and necessity. If there was no objection, the Commission would issue a premise certificate at those prices. If there were objection, the Commission would issue temporary certificates if the proper allegations were made by the producers and requested such certificates. These ceilings or guidelines as they have been referred to were issued in September of 1960. And while some of these guidelines has subsequently been adjusted downward, the guidelines themselves did clamp a lid on the price rise that have been generated in the market. During the same general period of time, the Commission in attempting to apply the requirement to hold line commends the series of the so-called in-line proceedings and the case is there before the Court now fit into that category. The Commission as part of this interim program has had more than 25 proceedings to determine the appropriate initial certificate price for producer sales and these are related to 13 pricing areas. As a result of this program, the price rise as I've indicated would stop and the program as Mr. Solomon told you during the course of the Permian Basin argument has resulted in price reductions below the proposed contract levels of about $134 million. This included both the fully adjudicated cases as well as settlements which generally followed the principles. It does not include the amounts of money that are involved in these cases. The -- essentially the in-line program that I have described should be viewed as being in the past tense because except for the Texas Gulf Coast area which is involved here and the South Louisiana area, there is no dispute as to the appropriate initial certificate price and the price question at least poses no barrier to the issuance of permanent certificates. And in the Texas Gulf Coast areas and in the South Louisiana area, it is my understanding that the Commission will not conduct further in-line proceedings of the type that are involved here but that instead it will issue the -- as it had issue temporary authorization for the guideline prices and then determine the final certificate price on the basis of the just and reasonable determination to be made in the pending area rate proceedings. Now, in saying this I do not wished to give the impression that this case is of no consequence because indeed the resolution of the series of conflicting Court of Appeals' decisions will determine the disposition of -- in the neighborhood of $20 to $30 million. The present group of cases arise from three different commission proceedings relating to something more than a hundred sales by independent producers. Each proceeding related to one of the pricing areas in the Texas Gulf Coast in the Commission for these purposes has followed the designations of areas of the Texas Railroad Commission. So, the Commission had a separate proceeding for Texas District 4 which with the first case at -- in time and another one for Texas District Number 2 and a third one for Texas District Number 3. And the cases arise from two different Courts of Appeals. The first one, relating the so-called Amerada case comes from the decisions by the Tenth Circuit and the other two cases which have been generally referred to by the Courts and the Commission as the Hawkins and Sinclair cases were decided at the -- at one time by the Court of Appeals for the District of Columbia Circuit.
Earl Warren: We'll recess now, Mr. Schiff. Mr. Schiff, you may continue your argument.
Peter H. Schiff: Mr. Chief Justice as I was saying before lunch, these cases involved about hundred sales of independent producers from the various pricing districts on -- in the Texas Gulf Coast. The sales involved were all contracted for during the period from about 1958 to 1963. And in just about all instances, the sales commenced under a temporary authorizations which are issued on the basis of producer allegations of emergency and without any notice for hearing. The -- for the period prior to the policy statement which was issued in September 1960, the temporary in some instances ranged up to a price of 20 cents. And for the period after that, there were no prices that were charged although there are some higher contracts but no price is charged at above the 18-cent guideline price level. In the first of the three proceedings that is here which is known as -- was known as the Amerada proceeding before the Commission and with respect to which -- there are two volumes of the joint appendix, numbers 1 and 2, that case involves sales in Texas District Number 4 and in all instances, the contracts involved were executed after the date of the policy statement in 1960.
Hugo L. Black: Right. Did the guidelines or policy statement was 18-cents or --
Peter H. Schiff: The policy statement guideline was 18 cents. The Commission in its opinion in this case fixed the in-line prize at 16 cents and it deferred for later consideration the question of whether it should order of refunds with the respect to most of the temporary authorizations involved because these temporaries did not have an expressed warning that refunds might be issued in connection with the permanent certificate. The reason for the deferral was that in an earlier case, the Commission had held that in its view it would not be equitable to require the producers, although they had charged excess amounts during the temporary authorization to make refunds, simply on the ground that there had been no expressed warning of this possibility. The Court of Appeals for the District of Columbia Circuit, in the case which has been referred to in the briefs of the Skelly case decided that the Commission in those circumstances would as the Commission itself believed have the power to order refunds and that in addition, the -- in its view, the Commission had not adequately considered the equitable factors relating to refunds. This decision was decided by the Court of Appeals for the District of Columbia Circuit just about two month before the Commission's decision in Amerada and since the Court had told the Commission that it should give more penetrating analysis of the equitable considerations, the Commission followed that same course here. On review, the Tenth Circuit stating its view that the Commission would have no power to order any refunds in these circumstances said that the Commission had erred in deferring the refund question. But it did find that the Commission's determination of the 16-cent in-line price was properly supported. In so doing, it rejected tax by producers that this 16-cent price was too low and also the contentions of the New York Commission and various eastern distributors whom we have referred to as the “seaboard interests” collectively, their contentions that the line should have been no more than 15 cents. During the pendency of the Tenth Circuit proceedings, the Commission in fact concluded the deferred refund proceeding and held that, with very limited exceptions, the producers as an equitable matter should make refunds of all the amounts in excess of the 16-cent in-line price that the Commission had determined.
Byron R. White: But Mr. Schiff, before that, had the Commission actually denied a -- some sort of a request from distributor groups to alter the temporary certificates to provide for the refund obligation?
Peter H. Schiff: Yes, I think in --
Byron R. White: In this very case -- in these -- on
Peter H. Schiff: In these very cases and on -- I think the order is in early 1963, the Commission had denied a request by the some of the interveners to impose a condition for refunds.
Byron R. White: Well, now would you -- would you suggest that -- or did the Court of Appeals suggest that the -- that the Commission does not have the power to issue a temporary certificate without the obligation for refund? Let's assume the circuit here said it expressly there should be no obligation to refund.
Peter H. Schiff: If -- well I -- I believe that even -- I'm not sure Mr. Justice White, in these cases --
Byron R. White: Because that's really what you have here, isn't it? Is that the Commission saying, “We refused to modify these certificates to provide for an expressed -- to expressly provide for refund because we don't think it would -- we don't intend to have and make a refund”, that what they've said.
Peter H. Schiff: Well, the Commission in effect in that order was saying that we have previously expressed our views in the Skelly case that it would not be equitable to order refunds in the absence of an expressed condition, and we don't think that we should change the nature or the condition after the service under the temporary had already commenced.
Byron R. White: At least they --
Peter H. Schiff: Now --
Byron R. White: They said that by -- with these temporary certificates, we haven't -- we have not intended and don't intend to require a refund?
Peter H. Schiff: I think there's no question, but that was what the Commission was saying. Even though there is some language in the -- in all of these temporary authorizations which said that the grant of the temporary authorization with -- is without prejudice to the final disposition of the rate questions and --
Byron R. White: Well, you -- you don't suggest that the Commission wouldn't have the power to --
Peter H. Schiff: Well, it is our -- it is our -- well, that it would have the power to say, “We will not order refunds” I think the thrust of these -- the opinions of the District of Columbia Circuit and of the D.C. and of the Fifth Circuit is that at least in the present circumstances, in the way these temporaries are issued without any notice are -- and for the benefit of the producers who are claiming that they -- they have to flare their gas that their gas maybe drained, these are their own representations of emergency. I think in these circumstances that the -- it is implicit in our decision that in these circumstances, we cannot impose -- we can't relieve the producers of a refund obligation.
William J. Brennan, Jr.: But the point is -- in that would you find in the Court of Appeals' decision in D.C. and in the Fifth Circuit?
Peter H. Schiff: Well, that --
William J. Brennan, Jr.: It's a point of view which the Commission didn't share until they announced this, is that right?
Peter H. Schiff: The Commission was -- before that had never -- has never said it could not order refunds even in those circumstances. Well, let me -- if I may describe the problem that arose or the situation that developed. The Commission in some instances, in issuing these temporary authorizations did impose express refund conditions and in others it did not impose expressed refund conditions. In 1959, the Tenth Circuit in the Sunray case set aside the Commission temporary authorization where the Commission had imposed a refund obligation. And it said, it decided on the ground that the obligation was too indefinite because the Commission said you may have to make refunds down to the certificate price that we ultimately determined. And the Tenth Circuit seemed to take the view that the Commission would have to put a floor in on any refund condition that it might impose. Thereafter, the Commission in most instances, at least where the price was at the level that the Commission viewed to be the appropriate guideline price did not insert any refund conditions although it did include in their certificates the warning that this price is -- or these temporaries are without prejudice to what the Commission might ultimately do. But there was never any expressed statement by the Commission at any time that it could not order refunds in these circumstances. And indeed when this issue was first decided, I think in the Skelly case, the Commission said, “We don't think it would be equitable because we hadn't given you notice”, and of course there was this course of conduct only Commission which -- the Commission in these cases has acknowledges, lead the producers to think that they might not have to make refunds. But we don't think that this goes to the power of the Commission to order refunds. At most, we think, it goes to the question of whether it is equitable to require them to make refunds and that before the producers can be -- or that the mere fact of reliance doesn't prove that there has been -- and doesn't even show that there has been any detrimental reliance thereon. On the other hand, the consumers for whom the Act is -- for whose protection the Act was primarily adopted have had no notice before these temporaries are even issued. Now, in that respect, at the time of this February 5th order, Justice White, the temporaries had already been issued, the service had already commenced.
Byron R. White: And those who didn't -- haven't had notice came in and asked that they can --
Peter H. Schiff: Well, they asked that prospectively that there'd be a refund condition imposed and the Commission adhering to its view in the Skelly case that no, we don't think we should change it. But, this wouldn't have given the producers the option, for example that the Tenth Circuit had said in Sunray, they should have by being able to reject the certificate if they didn't like the terms and conditions. We would merely have been putting in something supplemental and at that point, I don't think that the Commission's grant or denial of the motion would have very much legal significance. If the Commission had granted the -- had modified it, of course I think it would have cutoff any equitable argument that the producer should thereafter not have to make refunds.
Byron R. White: Well, at least I gather then the Commission's views of whether it's equitable or not had changed to some extent.
Peter H. Schiff: I think that is certainly true. That in light of the -- the --
Byron R. White: With some help from the courts?
Peter H. Schiff: That's right. That is very, very much so. But then, this is the -- I think the story of all of everything in these in-line proceedings that's been a constant course of Commission decisions and approval by the Court in some instance, disapproval and as these cases as well as two other cases which are pending on certiorari petitions that this point show that the lower courts have been totally at odds with each other and in some instance with the Commission and obviously in others is not. The -- I think as long as I have been discussing the refund issue to this extent, I will proceed with that and connote that in the other two cases involved here, involving the other two districts and the one which came up from the District of Columbia Circuit, there was no discussion of the refund question except to say that the deferral of the refund question there was appropriate. And I will get back to those in discussing the issues on the merits. In our view, the -- we believe that the Commission's power to order refunds in this case is very much the same issue that this Court decided in 1965 in the Callery case. In the Callery case, the Commission had originally issued permanent certificates of public convenience and necessity at the level of about 22 cents and above. This was the level which had been disapproved in the earlier CATCO case. The Commission's decisions in these cases were set aside both by summary reversal in one instance by this Court and by a series a Court of Appeals decisions holding that the Commission hadn't adequately considered the price question. On remand from those cases, the Commission found that the appropriate in-line price was 20 cents. However, in the meantime, the producers had been selling their gas under these permanent certificates they had started after the hearing and after the certificate order. But with knowledge that there was going to be Court review or that it had not in fact been instituted. There was no condition inserted or given by either the Commission or the courts prior to the time that they commend service. The Commission ordered the refunds down to the price ultimately found to be the appropriate in-line price. It was argued in that case the Commission had no power to order refunds because we lack reparations authority. The Court held, however, in agreeing with the Commission that the lack or reparations authority does not apply to a situation where the order under which rates are collected is in itself not a final order. Now, in Callery, it is true that the order was subject to Court review. In this instance, we do not believe that these temporary authorizations which are issued on ex parte basis on the basis of producer representations of emergency without any notice or hearing and without any realistic opportunity to obtain court review that the temporaries have any greater claim to finality than did the certificates under which service was rendered in the cases involved in the Callery case. If anything, there's even less claim to finality here. The argument which seems to the contrary that is pressed is of temporary authorizations can be reviewed. And of course, there have been a number of cases in which temporaries have been reviewed and generally, at the instance of the producers themselves whether not been satisfied with the condition -- price reduction conditions or other conditions that the Commission has imposed. There has been one instance where the New York Commission obtained review of temporary authorizations. Its challenge was principally that we had no power to issue temporary authorizations at all. The New York commend the District of Columbia Circuit and sustained the Commission's power to issue temporary authorizations, it indicated that it if temporaries were going to achieve the objective that they were intended to, of permitting a producer to start service quickly because of these emergencies that do exist in the field and basically they're economic emergencies, that there could be no comprehensive review of a temporary authorization. And of course, there is no actual notice or any formal notice to the -- any of the distributors. If they are careful and keep tabs of what's going on in the public information office at the Commission, there is narrow file, I don't know when they started which shows the temporaries that are issued, but there is no notice to them. There is no opportunity to object. And if there was going to be review, the whole purpose of temporaries could not be achieved. To give finality to the temporaries, we suggest, would convert them into a limited term permanent certificates without any real scrutiny of the -- of them in light of the public interest and we believe that the Callery decision as to the power of the Commission is fully controlling.
Abe Fortas: Mr. Schiff, is it possible that in the Section 4 or Section 5 proceeding, a company that let's say in Amerada case would get a higher rate?
Peter H. Schiff: Yes, it's possible.
Abe Fortas: Now, that would not relay the fact, would it?
Peter H. Schiff: No, Your Honor.
Abe Fortas: Suppose I got a lower rate, would they -- would the Commission have power to require refunds to those who had paid the in-line price?
Peter H. Schiff: Well, the in-line price being the price which has been permanently certificated, my answer is no. That would then be a firm price which the Commission would not -- it couldn't go back for the at least the period prior to the initiation of a -- of an increased rate proceeding.
Abe Fortas: Why is that? How do you work that out on the statute? In other words, if you have power to require a refund when you fix an in-line price, why don't you have a power to require refunds when you fixed a price under -- under Section 4 or Section 5 proceeding?
Peter H. Schiff: Well, the Commission's rate powers are under Section 5, there are two determinant just and reasonable rates to be charged thereafter. Under Section 4, the Commission has a power to order refunds from the time that a rate become -- goes into effect subject to -- to refund. The -- to order refunds for the period prior that time would under the cases where there has been a final Commission decision be regarded as reparations which this Court in cases relating both to the Federal Power Act and the Natural Gas Act has indicated that the Commission has no reparations authority which is derived from the legislative history of the Act as well.
Abe Fortas: Let's take a company that has -- has had a permanent certificate and now for the fixed in-line prices, affecting that company, is that right?
Peter H. Schiff: No, let's had -- the company would have had temporary authorization and then we would fix the in-line price which would be the permanent certificate price.
Abe Fortas: But none of the companies affected by this order has a permanent certificate?
Peter H. Schiff: Well, they do under the orders which the Commission has issued and which are under review.
Abe Fortas: That's what I thought. And -- but even there, you say that the Commission has power to order a refund?
Peter H. Schiff: No, the power that we -- to refund that we exercised in this case was at the time that we issued the permanent certificates in these cases, we said that you should make refunds for the period of time during which you are collecting and selling under your temporary authorization. We --
Abe Fortas: Do you say that -- well, let me see. I guess I don't understand this. Is it your position that just as soon as -- as the Commission -- does the Commission say that as soon as a permanent certificate is issued, the power to order refunds ceases?
Peter H. Schiff: Once a permanent certificate is at least finally approved by the Courts, the power to issue -- to go behind that rate ceases.
Byron R. White: Unless you reserve some power in it?
Peter H. Schiff: Unless we reserve some power --
Byron R. White: But you --
Peter H. Schiff: -- except --
Byron R. White: But you put a condition on subject to refund?
Peter H. Schiff: In the permanent cert --
Byron R. White: -- because of just and reasonable -- yes.
Peter H. Schiff: Oh, I'm sure that we can, in the permanent certificate but --
Abe Fortas: Do you do it?
Peter H. Schiff: On the permanent certificate -- well there have been some -- and not in the producer cases. We have imposed some price conditions even on permanent certificates especially pipelines that --
Abe Fortas: Pipeline?
Peter H. Schiff: -- but this is subject to future revision. But --
Abe Fortas: From --
Peter H. Schiff: -- the specific kind of condition that you mentioned, no.
Abe Fortas: So that all we have to concern ourselves with here is companies that have received a temporary certificate so far as the refund question is concerned?
Peter H. Schiff: That's right, Your Honor. As I'm -- as I indicated that the -- we think that the Tenth Circuit was plainly incorrect in finding that the Commission had no power to order refunds on grounds of finality. The Tenth Circuit although it alleged not to pass on the equities of the situation, also held in saying that the Commission had no power to order refund. It said that in its view for the good of the public, the consumers, the distributors, the pipelines and the producers, certainty and stability are prime importance. And it also stated in its opinion that the repricing of gas without warning cannot help but have a severe impact on the operations of the producer. It seems to us that these factors to the extent, they are relevant as to whether refunds should be required or not, relate not to the Commission's power but to the -- the equities of the circumstances. And that this is a question which the Commission should be allowed to pass on in the first instance and which as a matter of fact, the Commission did pass on in the separate proceeding. And at that time, the producers in the Commission's view made no showing of being harmed by not having had notice of the refund condition. The Commission assumed that they could properly -- had properly relied on the Commission's own course of conduct in the thinking that they would not make refunds. But the Commission found that there were only two situations where the producers had shown harm. One was that the producers had paid out royalties with respect to the difference between the in-line price and the higher price being collected. And it appeared that even if these royalties -- this amount could be recouped from the royalty owners, that the practicalities of such recoupment would be prohibitive. It also appeared that in some instances it might not be possible to recover state production taxes paid to the State of Texas although there would be a possibility of setoff where they were continuing sales to the extent that such setoff was not possible, the Commission held that producers should be relieved of any obligation to make refunds as to those amounts. In fact, these amounts are less than the -- or probably about an eighth of the total amount that of the excess collections. Other than that, there were various allegations by the producers that the -- their financial stability would be affected and that they shouldn't be required to order refunds because of the adverse effects on budgeting and planning. And in the Commission's view, it was difficult to understand how in reliance on the transitory nature of these temporaries, that any real long-range commitments could be made with respect to -- on that basis. It also did not think that there would be any refund themselves, would have any significant impact on the operation of producers. However, it did recognized expressly in another case which came out about the same time is these, that if a producer could demonstrate that by making a large refund, the smaller producer would have to make a large refund and that this would cause him serious present difficulties, that the Commission would permit this to be refunded over a period of time, that it had no intention or desire to use the refunding process to put any company into bankruptcy or other dire restraints. But unless this was shown which hasn't been shown at any of the cases at the dockets before this Court, the Commission felt that this did not provide a reason for excusing the refunds or the excess amounts collected when if judged in the context that the consumers during this period of time have been paying excess amounts of money. The -- I do wished to urge, the Tenth Circuit did not pass on the reasonableness of the Commission's assessment of the equities because in its view, the Commission simply had no power to order refunds and the assessment of the equities came up in a second proceeding. We have urged in our petition and in our brief that the Court decide this issue now even though the Tenth Circuit has not passed on it. I suggest that this is especially appropriate because this question of power as viewed by the Tenth Circuit and the question of the equities seems to be closely interrelated.
Speaker: What's the total refund figure has been?
Peter H. Schiff: Our estimate is that for the period prior to the Commission's order or orders, not just here but also in -- on the cases relating the South Louisiana and another case involving the Texas Gulf Coast, both of which are the cases are pending on certiorari petitions, that under the Commission's order, the refund obligations would be in the neighborhood of $10 million, this would be increased perhaps by an equivalent amount but I think by somewhat less depending on the disposition of the price question. And I'd like -- I'd now liked to turn to the price level question. I've indicated that the Tenth Circuit sustained the Commission's determination of 16-cent in-line price. The District of Columbia Circuit dealing with the proceedings coming up from the two other Texas Gulf Coast areas thought that the Commission's -- in both of those areas, the Commission had sales relating both to the period before the Policy Statement and for the period after the Policy Statement. For the pre-Policy Statement period in Texas District 2, it found an in-line price of 15 cents which is not the issue here are at all. And for the periods subsequent to the Policy Statement for that area, it's on the 16-cent in-line price. This is challenged by the “seaboard interests” and the Commission's decision in this respect that were set aside by the District of Columbia Circuit. Similarly, in the Texas District 3 which is the part of the Gulf Coast which is adjacent to South Louisiana, the Commission found a 16-cent pre-Policy Statement in-line price which I may say was in reaffirmance of earlier decisions on this point. That price is challenged by the superior oil companies being too low. And for the post-Policy Statement period, the Commission found an in-line price of 17 cents which is challenged by the “seaboard interest” as being too high and by the Superior Oil Company as being too low. The question of price is as the Commission has recognized, at least since this Court's decision in 1959 in the Callery -- in the CATCO case, a question of the major importance in our producer certificate cases. In line with that -- this Court's decision, however, it's been recognized that the determination of the proper price at which sales can commence should be done in a expeditious type of proceeding and not in a just and reasonable -- not as in a case involving the determination of just and reasonable rates. The -- the objective is to -- if the price is too high is to reduce it quickly pending further consideration of what the just and reasonable price may be. So the problem faced in these cases is how to determine the price line for the interim period that is fair and reasonable while avoiding protracted proceedings that necessarily accompany the determination of just and reasonable rates. The Commission has utilized a in-line pricing approach which was fashioned principally on the basis of the teachings of the Ninth Circuit in the case of United Gas Improvement Company against Federal Power Commission which was decided in 1960 and has been -- was at that time followed by three other Courts of Appeals. I think that case pretty well sets forth the standards have been followed. There the Ninth Circuit stated that the price line is intended to reflect current conditions in the industry. Therefore, comparable prices upon which it is based must be prices under which a substantial amount of natural gas presently moves in interstate commerce. Now, all the Court cases since that time with the exception of the District of Columbia Circuit in this case, including this Court in Callery have recognized that this in-line price should reflect current market conditions. At the same time, the Ninth Circuit in what is referred to as the UGI case held that the Commission could not simply look at the prices -- contemporaneous prices at -- in the area without recognizing that some of those prices were in itself the result of improper Commission action. But specifically, what had occurred in the UGI cases was that the Commission had approved 22-cent prices in a very -- in various prior proceedings and then it looked at those prices to approve the price involved in that case. But the earlier 22-cent prices had all resulted and had all leapfrogged up to that level because of the Commission's improper decision in the CATCO case where it had approved price of about 21-and-a-half cents even though before that time, all the prices in the area was substantially less. So in the UGI case, the Court formulated what's been known as the suspect price stock during that the Commission cannot simply simply accept its face value prices which appeared to have leapfrogged as result of prior Commission errors. But in that case, the Ninth Circuit also rejected a contention by the distributor groups that the Commission couldn't consider any prices other than those which had received full Commission approval in a -- in a adjudicated hearing type of case. What they were thinking of there was that in many instances, that there is no objection, the Commission will issue permanent certificates at the prices that it deems appropriate. The Ninth Circuit said if you couldn't look at any of those prices, you would simply have a rollback of prices because there would might not be any substantial volumes of gas that you could look at to determine what the current market conditions were. Now, following the UGI cases, the Commission itself never treated the suspect price doctrine as the case which precluded the Commission from giving any effect to prices which had not been finally approved. Thus, in the Skelly case which I've referred to in connection in one of the refund question, the Commission stated that it had given some or be it discounted way to temporary authorizations. But until the cases that at least the Amerada case here involved, most of the early cases there had in fact been substantial volumes of gas that had moved at prices that near the -- near the line that Commission determined. There are a fair number of non-suspected prices. In Amerada, the situation was quite different, only about 90 -- about 90% of the gas in the area during the period of time covered by the contracts at issue was flowing under temporary certificates, and most of these were prices from 16 to 18 cents. There were a few prices, few sales but not really very small volumes which are at lower prices. The reason for this is that the “seaboard interests” during this period of time were challenging all prices above the 14-and-a-half to 15-cent levels, so the Commission foreclosed from issuing permanent certificates and a situation developed where the Commission would be unable to make any assessment of current conditions on the basis of the contract prices in the area. Because no substantial volumes of gas could be looked at, that is if we accepted the position of the “seaboard interests”. Now, in this connection, I may add that the Commission with the approval of this Court held that the cost evidence should not be considered in these cases because that would simply preclude the possibility of an in-line determination before the just and reasonable determination. The Commission did not in these circumstances think it appropriate to ignore temporary authorizations or some of the contract prices. But it took a middle course, it looked at all the market contract price evidence in the area and it carefully examined them. It looked that the trends between the period before the Policy Statement and the period after the Policy Statement and it discounted the effect of the pricing because it recognized as had the Court in the UGI case that some of the prices in the area were obviously the result of market distortions stemming, one, from the fact that the pipeline cost -- pipeline purchases are have -- have imperfect bargaining motivations to keep the prices down and secondly that there had been some Commission action which may have tended to move up prices. So, on other hand, it also did not think it appropriate to base its in-line determination only on those prices to which the consumer interests had not objected because if it had done that, it would simply have been rubberstamping one individual parties or one group of parties' view as to what the market conditions should be. And in the Commission's view, the assessment on a balance basis should be made by the Neutral Regulatory Agency which has been assigned this task by the Congress.
Potter Stewart: These temporary authorizations that -- which we spoke of, these temporary certificates, they are granted on ex parte application and how much of the hearing and how much time and so on?
Peter H. Schiff: There's no hearing at all.
Potter Stewart: None at all?
Peter H. Schiff: None at all.
Potter Stewart: It's an ex parte application.
Peter H. Schiff: It's an application, some of which are in the record here which says we have a drainage problem.
Potter Stewart: It's an allegation of some kind of an emergency?
Peter H. Schiff: Some kind of economic emergency.
Potter Stewart: And then, is there a price specified?
Peter H. Schiff: Yes, in the temporary (Voice Overlap). Well, the Commission will -- if the price is above what the Commission has said to be the guideline price, the Commission will condition it down. It will not mention price at all in its order if the price is within those guidelines.
Potter Stewart: But now, which guidelines are --
Peter H. Schiff: The Policy Statement guidelines or -- well, those are the ones that have -- that would apply.
Potter Stewart: The Policy Statement would --
Peter H. Schiff: That's right.
Potter Stewart: -- be applicable here. So what -- that was 18 cents?
Peter H. Schiff: Well, it was 18 cents and -- until 1962.
Potter Stewart: Right. So that anything 18 cents or below would have been --
Peter H. Schiff: It would --
Potter Stewart: -- approved?
Peter H. Schiff: -- have been temporary certificate.
Potter Stewart: It would have been approved on a temporary certificate assuming that the Commission accepted the allegation of the emergency as sufficient to authorize the issuance of such temporary certificate, is that right?
Peter H. Schiff: That's right, Your Honor.
Potter Stewart: It would be automatically approved so far as price went if it was 18 cents and below, is that fair to say?
Peter H. Schiff: That's right.
Byron R. White: And that would stick to 16 cents.
Peter H. Schiff: That's right, Justice White. The District of Columbia Circuit in holding that the Commission had improperly looked at these temporary authorizations in two of the areas involved, based its decision in good part on the view that current market conditions were simply irrelevant and it derived that interpretation from the fact that in this Court in Callery had affirmed the exclusion of cost in economic evidence. But it overlooked the fact that that exclusion was to permit the -- was for administrative purposes. That it was a matter of administrative necessity that the Commission not look at this evidence which the Commission itself after a series of hearings had concluded would not be useful unless they were expanded into full blown rate proceedings. Certainly nothing in the Commission's opinion or in this Court's opinion in Callery that at all suggests that the line should not be based on current conditions. To the contrary, this Court's opinion in Callery says that the line appropriately relates to contemporaneous sales in the area. The District of Columbia Circuit also based its decision in part on the fact that it thought that they would -- that even though they might be a freeze in the line under its view which it recognized that there might be, that the producers would be protected by being able to avail themselves of the right to file increased rates after the date of the Commission's order. But we think that this approach of the Court relying on the increased rate provisions of the Act is not only unfair to the producers for reasons that I believe the producer counsels will explain some detail. But that it -- this would not have implemented the interests of the consumer in the best way possible in our view. The one purpose of in-line pricing was to discourage the filing of increased rates. And the Commission experienced at the time of the decisions in these cases was that if the Commission made an in-line determination which might reasonably be expected to reflect market conditions, producers would not file for increased rates thereafter at this in-line price. On the other hand, if there were an artificially low in-line price, predicated solely on the fact that increased rates could be filed any event, there were the substantial chance that thereafter there would be increased rate filings even higher levels. And of course those would be passed on to the consumers and while there is a refund remedy under the Act and while we think this is useful, this Court has repeatedly agreed with us that the protection to consumers from refunds is far from perfect. Now, I want to make it very clear that the Commission in these -- making these various in-line determinations recognized that it could not simply accept the contract prices, the temporarily certificated prices at face value. This had been the voice of the Commission's orders in the UGI cases which had been referred. But the Commission in these cases did not accept them at face value. For example, in Amerada, the Commission found that the weighted contract average of all the post-Policy Statement prices was about 17.2 cents and it found that the much of the gas was flowing up -- at prices up to 18 cents. But the in-line price that the Commission determined was 16 cents. Again, in Texas District 3 in the Sinclair case which I may say is likely different because in that case, there were in fact substantial volumes of gas and the majority of the gas was flowing under permanent certificates. And the Commission's opinion shows on its face that the Commission looked principally at the permanent certificates. Now, on that instance, there were -- 40% of the gas flowing under permanent certificates was being sold at 18 cents. New York or the “seaboard interests” suggest that this 18-cent price should be suspect because it was at a level that if it had thought about it, it would have objected too, but it didn't object to it at the time that the prices were approved. Yet, the Commission didn't allow an 18-cent line but in this instance it allowed a 17-cent line. In the case where the evidence showed that looking solely at permanent certificates, the weighted average price from the period before the issuance of the Policy Statement to the period after the issuance of the Policy Statement had risen by a cent. Now, there is one further point that I would like to make on these cases and there has been a suggestion in the reply brief of the “seaboard interests” that in someway, the Commission has applied a different standards in the cases relating to the Texas Gulf Coast from the standards that had been applied in cases relating to South Louisiana. And the basis for this suggestion is that in South Louisiana, the Commission in a number of cases has found that the line which was originally determined for the period at which the sales were made in 1956, that's the CATCO sale of 20 cents, has not changed even through the end of 1962. This is perfectly true. But in the last of those cases which was called the Union Texas case before the Commission and the Pan American case in the Tenth Circuit in which is pending here on the refund question principally and also on one price element, the Commission's opinion shows that the Commission there looked at temporary authorizations. It compared the weighted average prices under permanent certificates from -- to the -- in the different years. And it also looked and examined the weighted average price of the temporary authorizations. On the basis of its analysis of the fact in that case, the Commission concluded that the evidence which is the same type of evidence that was considered here simply didn't show a change in the price line. In the Texas Gulf Coast, it's considered appraisal of the evidence there but the same of type of evidence lead it to a different result, because in fact there it concluded that the price line for the periods after the Policy Statement were with, in each of the three areas, they sent higher than the price line that it had determined for the prior period. But obviously, a different result resulting from a reasonable considered assessment of the record in each case doesn't show any inconsistency.
Byron R. White: Mr. Schiff, what are you going to do when you do have area rates as a point of reference? You suggested awhile ago that your in-line price should probably be the just and reasonable price?
Peter H. Schiff: Well, in the Permian Basin decision, the Commission said that the -- it would use the just and reasonable price as the in-line price. But also, in a case coming from the Permian Basin, and it's pending in this Court but I don't remember the number.
Byron R. White: Well, when all the -- when all the area --
Peter H. Schiff: We did the same thing.
Byron R. White: When all the area rates are finally set or had been set at least initially, will this problem arise again or not?
Peter H. Schiff: No, I don't believe so. It -- in the Commission's view, the -- if there is to be any change in the in-line price, it will have to be by showing that there had been some changes in the factors which make up the just and reasonable determination.
Byron R. White: So they'll have to be a redetermination of the just and reasonableness before the in-line price is going to go up?
Peter H. Schiff: Yes, at least as to the prospective just and reasonable price. As you recall, we fixed both an old gas price and the new gas price and new certificates would presumably call for a new gas price which might be adjusted. But that is what the Commission contemplates doing in -- as soon the just and reasonable rates are determined. And in this case, or in these areas, the Commission is no longer setting down anymore in-line proceedings of the type here involved because the just and reasonable -- the cases involving just and reasonable rates relating to the Texas Gulf Coast and South Louisiana had so for advance that it would seemed to be the wise course to let our in-line determination rest on the determination in those area rate proceedings.
Byron R. White: And that the -- and if their temporary certificates -- they will just continue in effect?
Peter H. Schiff: They will continue in effect and they will be subject to refund. In part, depending on this Court's decision, in part not, the -- all the sales in the South Louisiana area since about the middle of 1964 --
Byron R. White: Express.
Peter H. Schiff: -- express refund condition and since early 1967, all temporaries are issued with a refund condition which has a floor of 2 cents below either the guideline price or the in-line price whichever is lower. And the Commission has viewed that that floor would be certainly -- would tend to be low enough not to pose any problems thereafter.
Byron R. White: Well, in these cases, you were discussing Mr. Justice Fortas, if -- if you're staying in this -- in setting these particular in-lines prices, and then the just and reasonable rates were established in an area proceeding, and those just and reasonable are lower than the in-line price?
Peter H. Schiff: Well, the -- I may have misspoken myself before you, but I think that question before related to refunds, if the --
Byron R. White: That's what I was --
Peter H. Schiff: -- if the just and reasonable rate --
Byron R. White: So does mine.
Peter H. Schiff: Well, we won't order further refunds in the cases involved here because those sales will then have been permanently certificated. In the Texas District 3 case, the Superior Oil Company makes a number of challenges to the Commission's price line being too high -- too low, excuse me. Principally, they argue that we should have relied on some high-priced gas being sold at 20 cents. As to that argument, the Commission said that we would give some weight to those. But in those cases, the “seaboard interests” I think specifically the New York Commission had been denied intervention the Commission proceedings, it then went to Court, but it chose the wrong the time to challenge its exclusion of interventions and its petition for review was dismissed by the District of Columbia Circuit. Nevertheless, it was apparent to the Commission that those 20-cent prices were higher than the Commission would have allowed or should've allowed at that time that what before this procedural clerk it would not have been allowed. And therefore those prices should certainly not betaken as reflecting the line, in other words, be given the full weight. The Commission gave discounted weight to that. I would like to say that Superior has mad a number of arguments which it did not make to the Commission and it has suggested in its reply brief but these arguments, but we weren't specific, they were generally encompassed within our arguments. We have suggested in our brief that under this Court's interpretation of Section 19 (b) of the Gas Act which requires objections not -- requires all objections that to be raised in Court have to be made specifically in petition for rehearing to the Commission, that in light of those cases, the Superior's objections may not be considered. I don't propose to go into them, as a matter of fact, the objections have far involved in a few other cases which we have referred to in our brief, some of them not considering low price sales, was specifically rejected by the Fifth Circuit. But I do think that -- I want to stress the fact that we think it's important that parties to Commission cases do a price the Commission specifically of the objections that they are urging so that the Commission will be given an opportunity to deal with those in the orders on rehearing and so that if cases do come to Court, the Court rather than being asked to pass on questions without any prior Commission consideration, that it have the Commission's consideration. Of course this Court has viewed that requirement as strict statutory bar to consideration and we would urge that that interpretation be continued. On the in-line question, finally, I think it is fair to say that the Commission recognized that it had a very difficult evidentiary problem. It's perfectly plain that the evidence that it had to consider was far from what might be ideal in showing current market conditions. Obviously, it did not. The ideal evidence has caused an economic evidence which is introduced in the just and reasonable cases if it was going to do its job, it couldn't look at that. But we suggest that the Commission did a careful reasonably considered assessment of the evidence at hand and since it did not consider materials which should have been excluded, we request that the Commission's in-line determination in each of these three cases -- Commission cases be sustained. Now finally, there is an issue in the two cases arising from the District of Columbia Circuit and this is the issue which has been referred to as the question of need. And the question specifically is whether the Commission in considering each independent producer application must specifically determine on an evidentiary basis in each instance that there is public need for the gas that each producer proposes to sell.
Speaker: That issue has been derived in the permanent certification?
Peter H. Schiff: No, that -- that issue was not presented in the -- in the Tenth Circuit case. It has arisen in another case in the -- the Continental case decided by the Fifth Circuit, where the Fifth Circuit sustained the Commission's view that the question of need may should appropriately be considered in pipeline proceedings rather than in the individual producer proceeding. The District of Columbia Circuit seemed to hold that as a theoretical matter, this question of need should be disposed within the producer cases, but as a practical matter, it recognized that really, you couldn't do it in the producer cases and they said that we are not requiring an extensive hearing in each producer case, but that's the -- the Commission should make in its view, references to other cases to informal staff studies, to Policy Statements whenever it decides producer cases. And I may say that while -- we did not seek certiorari on the question. We think that the Court was wrong, but we also thought that administratively, it might be possible for the Commission to comply with what the District of Columbia Circuit had indicated. Although, I will be very frank in saying that we're not sure what useful public interest would be served by doing what the D.C. Circuit has said instead of the Commission's present procedures.
Hugo L. Black: Just what exactly did they want you to do?
Peter H. Schiff: Well, I think the best thing to do is read from the Court's decision which is in Volume 4 of the Joint Appendix. And starting at page 265 from the pagination at the bottom of the --
Hugo L. Black: 265?
Peter H. Schiff: Yes, this is the pagination at the bottom of the page, Justice Black. The Court says that, “Although we remand this case so that the FPC can consider the issue of public need, we recognize an obvious tension between the statutory requirement that it do so and administrative feasibility. The public convenience in necessity includes many considerations, but there -- if there is to be any effective certification of the producers, the FPC must sometimes stop short of the ideal. It is evident too that the FPC must have great latitude in its choice of procedures.” We are not demanding the FPC hold a long complex hearing in each case -- in each of its many producer application cases. But it does not seem too difficult to have the producer's customers or the pipeline's customers testified by the take-or-pay situation regarding the broader aspects of the nature of the gas business or of conservation, the FPC may consider studies of its staff, may after study issue Policy Statements. And it goes on a little later and says, “Then it would not be necessary to relitigate need in each issue. The FPC need only show that the broad statement or study covers the particular certification before it”. In short, we do not now prescribe any particular method for deciding need, nor, as our discussion of what public need means exhaustive. And it indicates that these decisions should be made before the gas starts coming into the market. And this seems to be -- this is an undesirable objective but the suggestions of the “seaboard interests” and I think in this instance, particularly the New York Commission that this can be met by looking at the need question with respect to producer applications, where most of the sales of previously commenced under temporary authorizations is totally unrealistic.
Speaker: It sounds to me is that the -- that these D.C. Circuit said there, if we're satisfied by the paragraph of the Commission's order?
Peter H. Schiff: Well, this -- yes Justice Harlan and it was for this reason that the Commission did not seek cert even though there seems to be a ostensible conflict between that decision and the decision of the Fifth Circuit which said that if the Commission consider its need, then in the producer cases, considers at the way the New York Commission was urging, that it be considered, it would have to be a full evidentiary hearing. Now, the Fifth Circuit sustained the Commission. The District of Columbia Circuit in effect said put in the paragraph in your order. We thought that we -- we couldn't live with that. And as I say, I don't think it is very useful.
Speaker: How do you view this now?
Peter H. Schiff: Well, this is what I wanted to get to. The -- when gas is sold by producers, it of course has to be picked up by pipelines though jurisdictional facilities. Now, I want to make it perfectly plain at the outset because it may have been somewhat misleading in our brief not every producers sale has a corresponding pipeline certificate proceeding. In this case, we have examined the Hawkins and Sinclair files and I'd say that it -- in about 75% of the gas, there were actually some new pipeline facilities that were needed to pick up the gas involved. Now, the Commission approved gas purchasing facilities in one of several ways. There have -- there are many pipeline expansion cases and frequently of course, these include request to build into a particular field and to purchase particular supplies of gas. In addition to that, there are many -- most of these pipelines have come into the Commission and request what is known as the budget type certificate. Now, under the budget type certificate, the company is authorized to attach new supplies of gas in the following year provided that the facilities themselves are reasonably inexpensive. The -- now the -- however, the Commission's consideration of need is not restricted to these because the Commission requires detailed information to be filed by the pipeline companies with respect to what their -- what gas is being sold throughout the country. The deliverability under these supplies and then -- it's very detailed information which shows where the gas is coming from. The Commission has required this since 1964 and the staff of the Commission examines these reports and is then in the position to determine at least in its view whether the company supply is adequate or inadequate and it has advised, called in the pipelines to try to explain why isn't there enough gas here. In other situations, we have called the pipelines in to explain, why are you paying for gas which you are not taking. These are the prepayments that the New York Commission refers to. So that there is a continuing surveillance by the Commission, all this question of need, both inadequacy and perhaps the oversupply although in the past, to a large extent, the problems are related to insufficient supplies. However, in 1964, the Commission did recognize -- the Commission up to 1964 had a policy that you had to have enough deliverability, enough gas to assure that you could serve your markets for 12 years. This meant that the pipelines would have to go out and buy enough gas to meet this requirement even though they may -- might be taking some gas that they might not need at that particular time. The Commission at the same time that it imposed the reporting requirement, detailed reporting requirement with respect to gas supplies, announced that it was relaxing this firm 12-year deliverability requirement and more recently, this year, it has indicated that as a result of this realization, it appears that the prepayment problem has diminished to some extent because this gives the pipelines greater flexibility. But in essence then, the Commission reviews the supply problem on this informal basis and also in the formal cases and of course, in many of these pipeline expansion cases, it looks at what is needed by the ultimate market. It looks at questions of conservation, of end-use, increasing in the question of whether gas should be used to -- for oil or fuel by electric generation, generating plants, it's an issue which the Commission has to face up to. And in these formal proceedings, it is our view that there is ample opportunity for any of the parties who feel that the gas supplies either inadequate of more than adequate. There's ample opportunity for them to participate and request that the Commission put the consideration into a formal record and that all the parties put the matters into a formal record. It is also perfectly plain that even if the question of need were to be considered in a producer application, that the evidence relating to what the -- for the need for this gas would have to come from the pipelines who would know what their need is and perhaps from the pipelines customers, because plainly, this is not information which -- to which the producers themselves are previewed. And this seems to be conceded but, it says while this isn't too difficult, you can then -- they can call the pipeline witnesses. We suggest that the procedure which the distributors urge which is much broader, I may say, than the procedure which the District of Columbia Circuit seemed to envision, would enable any purchasing customer, any other interested party who would be entitled to intervene in the Commission proceeding to in effect force the Commission to convert any given producer case into what would amount to a National Gas Survey. It is very difficult to see how one can really draw the line once the floodgate is opened.And of course, if this were -- if this had happened in these cases, the Commission had accepted that proposition in these cases, it could not have decided the in-line question in any expeditious fashion. We suggest that the argument that need be considered here at the request of the consumer interest is really no different from the request which was turned down in the Callery cases that the producers are entitled to demonstrate the supply and demand situation by extensive evidence. These are the opposite sides of the coin and it seems to us that the Fifth Circuit is completely correct in saying that the decision in Callery approving the Commission's administrative judgment as to in-line cases should also be followed here. Perhaps one word should be said about what these prepayments are. There's been a -- before the Commission, the only specific question of with respect to need that was raised by the consumer interest was the allegation that some of the pipelines involved had large prepayment balances. Producers sell to pipelines under long term contracts and they are normally obligations under which the pipelines must take a certain amount of gas which is usually related to the reserves underlying the contract or else pay for it. However, this doesn't mean that if -- if you pay for some gas not taken, that there's an immediate forfeitures. As a matter of fact, the Commission has had virtually no situations of any forfeiture. And there is a period in which the pipelines can make up the gas previously paid for and not taken. During this period of make up, the amount of money that has been paid out is included in the pipelines rate face, essentially its working capital so that there is then -- a return would be earned on that and this could have some consequence in the event of a rate case. However, as the Commission pointed out and it is really quite in the nature of the gas producing business that at times, a pipeline will have to buy gas a little bit before it needs all of that to assure that it has the adequate deliverability when its existing reserves start declining. In addition to that, most pipelines have had rapid expansion and they have to go out and buy gas to make sure that they will be able to meet their commitments in the future, because gas unlike staple products, has to be bought when it can be found and at particular location. And of course, some gas supplies are much better than other gas supplies because they are near existing pipelines and can be utilized more efficiently. So in these circumstances, it is not surprising that the Commission said that there are sometimes some slight prepayment situations. In some instances, although in only one instance here, a pipeline has a substantial prepayment situation and that's United Gas Pipeline Company. And most of the gas which was being sold that it involved in these cases, is no longer being sold. And then an authorization was approved for that, so very little gas to that pipeline company is now at issue here. But however that may be, an in depth study of the question of whether a pipeline needs the gas to meet its actual delivery requirements, a question which is not directly related to whether or not its -- in the past for example, it has had to pay for some gas it couldn't use. In itself would present a complex problem which would greatly complicate -- would have complicated these in-line proceedings. And we think that the Commission's view that questions this type are appropriately to be considered in pipeline proceedings both to the informal methods I've described and through formal hearing procedures is plainly reasonable in the proper exercise of the Commission's regulatory functions. For these reasons, we asked that all the Commission orders here under review be affirmed by this Court. Thank you.
Earl Warren: Mr. Coleman.
William T. Coleman, Jr.: Good afternoon Mr. Chief Justice and may it please the Court. My client, the United Gas Improvement Company sells gas to the ultimate consumer in Philadelphia and elsewhere in Pennsylvania. It's petitioner -- it is a petitioner in number 61 and 97. In each case, it seeks to reverse the judgments of the Tenth Circuit which one, affirm the Commission decision, that the public interest and necessity price for 1960 through 1962 sales of natural gas in Railroad District Number 4 was 16 cents per Mcf, the so called in-line issue, but the same decision reversed the Commission decision that it had the power to and should order refunds in these proceedings. In other words, UGI supports the Commission's argument on the refund issue but disagrees with its argument with attempts to justify the change from a 15-cent line to a 16-cent line. And exercising that restraint which most lawyers can't do, I've decided to leave to Mr. Simons who is petitioner -- who represents the petitioners in numbers 62 and the respondents in numbers 111, 143 and 144 to cover in the main, the in-line issue and I will direct my argument principally unless the Court wishes questions on the other issues to the refund issue. With respect to the refund issue, the basic issue is whether the Natural Gas Act provides authority for the Commission to require the producers to refund the amounts collected above the public interest and necessity price during the protracted period in which said producers and consumers were litigating that question, that is, what is the appropriate price? The producers would deny such power where the excessive amounts were collected. While the sales were made by the producers operating under the informal, temporary, ex parte letter which according to the producers did not -- in haec verba specifically say that they would have to refund the amount. Actually, as we view it, the issue is even more narrow. For Section 7 (e) of the Act which we set forth on page 4 of our brief, provides that the Commission should have the power to attach to the issuance of permanent certificates such reasonable terms and conditions as the public convenience and necessity may require. Thus as we view it, the narrow question is, is there anything the Natural Gas Act which would make the refund conditions here imposed unreasonable as a matter of lore? Now, this Court's decision in the Callery case which interprets the same language that I've just read and on this point, the Court was unanimous, held that the Commission had such power. And the Fifth Circuit just nine months ago in Continental Oil Company read the statute in the same way. And three years earlier, in the Skelly case, the D.C. Circuit which didn't have the benefit of your decision the Callery case also read the statute in the same way. And the decision of the Tenth Circuit which reached -- which reaches a different result interestingly enough, never cites, quotes nor discusses this statutory language that I referred to. Now, I would appreciate it if the Court would indulge with me for just a moment in a bit of history. And you will recall that for the last five years, at least once a term, you've had before you a case dealing with the Commission's regulatory problem including the terms and condition under which the initial sale of gas could be made in interstate commerce. And in each case, even though it's the pipeline who's the buyer and therefore should be the one in contesting whether this price is too high never appears before you but actually it's the distribution companies, the New York Commission, the California Commission and other persons representing the consumers. Now, the sure reason for this absent -- absence is at least twofold.In the first place, a lot of these pipeline companies also produce natural gas, so they -- therefore they have an interest to say the price isn't high as possible. And secondly, whatever the pipeline pays the producer for this gas gets put in the cost of service and therefore they can pass it on to the local distribution companies who've been -- would have to charge the consumer. Now, when the local distribution company began to apply upon interstate natural gas for their gas supply and the early cases show that the pipelines were able to buy gas as low as 2 to 4 cents per Mcf. But by 1956, as this Court knows from the CATCO case, the unregulated price had gone up to approximately 23.8 cents per Mcf. And therefore, this Court in the CATCO case said, that you could not issue a permanent certificate until after there had been a hearing and a determination as to whether the price was the appropriate price. Now, once this was done, the UGI along with the New York Public Service Commission established the litigation throughout the various Circuits that the Commission had a responsibility to see that the price charge was no greater than other prices which had been certificated. Now, this approach and these decisions were eventually approved by this Court in the Callery dealing with permanent certificates. These decisions certainly kept the price of natural gas down. But it also meant that the producer could not introduce a gas into interstate commerce, commence a sale until after there's been a hearing and a finding as to what was the appropriate price. And even though the Commission had decided that the appropriate price for example was 22 cents, if the distributors and the New York Commission then took it to the Court and got a reversal, this Court in Callery held that when you get around to making the final certificate, you can impose a refund condition. As the result of these decisions, the battleground between the consumer and the producers shifted. The producers began to attach to their application for permanent certificate or they would file it shortly thereafter, a request for temporary authorization to commence the sale of gas immediately and they could do this because Section 7 (c) says that in the emergency situation, you can ex parte without a hearing, without any evidence, without any finding get this temporary relief. Now, at this point, I'd like to direct the Court's attention to Volume 1 of the record, pages 78 and 79. And you will note that in their finding, the application of Sunray Mid-Continent for the temporary authorization. And as you read this, you will note that there is no allegation that this is the in-line price. There is no request for a hearing, there is no evidence attached to it. This is the application. You will also note that the reason given for the request is not that they want to help the consumer, not that they want to help the pipeline but they have a problem peculiar to themselves. Namely, that they had built a well right next to another well. The other well had been certificated on behalf of another producer and if these people couldn't turn that gas on, this first producer would take the gas. So this was an economic detriment to the -- to the Sunray, not to anyone else. You will note that that letter was received by the Commission on January 23rd, 1961. And then when you turn to page 80 and 81, you will see what is here called a temporary certificate. It is merely a letter from the Commission which went out on February 14th, 21 days. The consumers never notified, no hearing, no contest. It says that we accept your request for temporary authorization but acceptance of the rates schedule for temporary service is no assurance that it will be accepted by the Commission for permanent service. The Commission then specifically points out that the acceptance for filing should not be construed as constituting approval of any rate, charge, classification or any rule, regulation or practice affecting such rate of service. And then in the last paragraph and if you indulge me just to read this, this constitutes all requisites, temporary authorization to commence the sale of gas. But such authorization and acceptance of the rate schedule are without prejudice to such final disposition of certificate application as the record may require. Now, there's some statement that the producer wasn't on warning but I think that as I read that language, it certainly to the best of all human possibility, tried to tell the producer, you can turn this gas on stream, but when we finally get around to the hearing, this -- you may well be affected. And to answer -- to answer your question Mr. Justice White, I do feel that if the certificate had said that the Commission denied that it had the authority on permanent certification to order the refund, that that would have been contrary to your decision in CATCO and that decision certainly if we gotten to the D.C. Circuit would have been reversed.
Byron R. White: Oh, with these -- with these initial prices under the temporary certificate guideline pricing?
William T. Coleman, Jr.: They were -- they were not more than the guideline price, Your Honor, that that's true Mr. Justice White.
Byron R. White: The Commission had set the guideline prices for initial sales?
William T. Coleman, Jr.: Well, if you mean by set, that the Commission had issued --
Byron R. White: May have suggested them?
William T. Coleman, Jr.: -- suggested them, and that -- those guideline prices are reproduced in the Sunray brief in the appendix in 7 (a). I wish you would read about seven lines from the bottom which says that this is well affecting the substantive right of any party. Now, if you're going to hold that somehow that guideline price changes what would otherwise be the consumer's right, you, by definition saying that it affects our substantive right. And I think that that was the suggested price and what the administrative, the Commission was saying is as far as the Commission was concerned, if you did at this price, we will issue the temporary letter. But it was also clear that the consumer who weren't permitted to intervene would attack that price which we did and by a trial before the Commission, we demonstrated that the 18 cent was too high and it should not be more than 16-cents and in fact we argue it should not be more than 15. And when we really get around the litigation, it was determined that the consumer was right and therefore, if you hold that merely because the Commission mentioned certain figures, that that affects our right, and I think you're doing contrary to what the public --
Byron R. White: Well, the question I asked earlier was -- if the permission in this case had said in its certificate, these initial prices shall not be subject to refund. My question was whether the Commission had the power to say -- not only to say that but to act in accordance with it.
William T. Coleman, Jr.: I would -- I would take the position that the Commission would not have such power and that type of certificate would have been reversed by the Court. That's -- that's our position.
Byron R. White: You -- don't you -- don't you really just about you have to get to that in this case --
William T. Coleman, Jr.: No sir.
Byron R. White: -- where the --
William T. Coleman, Jr.: No sir.
Byron R. White: -- where the Commission has -- has turned down a request to expressly condition the temporary on refunds?
William T. Coleman, Jr.: Well, I'd like to answer that question right now, Your Honors, if you will give about a minute and half to answer it, because I have to give you a better history, that contrary to what the producers say, the producers claim that from 1956 until the D.C. Circuit reversed in the Skelly Oil case that there was announced Commission, a policy that they would not impose such refunds. Now, the only case that they cite and this is on page 50 of Sunray's brief, in the Signal Oil case which went up to the Third Circuit. Now, despite the fact in their brief they claim that the Third Circuit had made the decision that they could not order the refund. I read that opinion five times, there is no such a language in the case that all the -- that case dealt with whether if you issue the temporary certificate at there at 12 cents, and then when you got around to the permanent hearing, you reduced it to 10 cents, could you do that without having a just and reasonable finding? The Commission said you could. The Third Circuit said you could. And the producer somehow, because the Commission didn't also say in refund in the 2 cents difference, that nobody asked them to do, the consumers weren't involved in that case, the point wasn't litigated, they say that that is the decision which demonstrates that this was an announcement of Commission policy. Now, certainly, the absence of one swallow to change the metaphor doesn't make a winner. And the fact is that in January 1962, in the CATCO case on remand, and we reproduce this on page 18 of our brief, the Commission specifically holds that in unconditioned temporary certificates with didn't have the refund provision that you still could order the refunds. So in 1962, you have this -- you have the Signal Oil case where the issue was not argued. It was not passed upon, there was no such decision, no language, then you have the CATCO on remand. The next case is the Skelly Oil case. We, the consumer interest urged in Skelly Oil that even though the words weren't in the temporary, you still could impose a condition. The Commission in August 1962 decided the case against us. We then took the only relief we can do other than go to the corner bar where you lose the case, we took an appeal. And that appeal was pending in the D.C. Circuit. Then as cautious lawyers, because the Commission has said that we had no authority to do this, or at least we shouldn't do it, unless the condition is in there, we then asked the condition to do it. And the Commission said that they were not in the midst of a hearing before the evidence was in, it was not going to put in the condition. We then won the case in the D.C. Circuit which says that from the beginning, even without imposing such a condition, we had this power. Now, I think under those circumstances, it's kind of difficult to say that the consumer now should be estopped from claiming that the Commission does have the authority and they should exercise the power. I would next like -- and I'd also like to point out that the language that I read is as clear a warning as people could give that there was no finality to this right. And I certainly would say as a lawyer, I would advise my client that there was more finality to the Callery property. The final decision of the Commission which held what the rights should be, nobody asked for a stay and that was the rate -- it was a final order subject only to appeal and this Court had no problem there saying that if it turned out you were wrong, you could impose the condition. I would next like to turn to another point in the case which is a -- which arises from the fact that before the Commission, this case was decided in two parts. In opinion 422, the Commission held that they had the power but left to a later hearing whether there were any -- there was any reason why as a matter of equity, the power should not be exercised. An appeal was taken to the Tenth Circuit. The Tenth Circuit decided that there was no power. Thereafter, the Commission decided that on the equities, the consumers were entitled to the refund. When that case was appealed to the Tenth Circuit, the Tenth Circuit said, “Well, we already said you had no power, so we never get to the equity question”. Now, both points were then brought to this Court and I'd like to urge that this Commission should affirm the decision of the Commission in its entirety rather than holding that the Tenth Circuit was incorrect as a whole, on the question of power, and then sending it back to the Tenth Circuit to pass on the equity questions. Now, the reasons for asking for this is in one, that there are a lot of precedents of this Court where you've done it, or you've done just this. Particularly, when you're dealing with the Federal Power Commission because by time these cases get to you the first time, there's such a long time and these contracts are only 20-year contract and seven years have gone by already. So we do think that you ought to decide it now. You do have the full case here. And as I said, one third of the time is already gone by. Now, the only reason why the Commission -- the producers and on this point, what the Commission said that we will accept all of your factual allegations in your brief and whatever you claim on the facts, we will decide the issue on that basis. So the producers can't complain that they could put in more evidence because they said, “Well, whatever you said and represented in your brief, we will decide on that basis”. But their first reason is that they relied upon the absence of the expressed provision. I'd like to recall your attention again, the CATCO on remand case were held that they did have the authorities, so it seems to me that they ought not to be relying upon that. Secondly, we submit that the temporary authorization did contain such a warning and thirdly, that the producers had executed these contracts before they received any type of authorization. So if you execute a contract in 1960, you then file it and you apply for temporary authority in 1961. I failed to see how and what you did in 1961 can affect the situation. The second reason they gave was that -- that during the time when they thought that they would not have to make these refunds --
Abe Fortas: They wouldn't have made the sales, Mr. Coleman, would they?
William T. Coleman, Jr.: What's that?
Abe Fortas: They wouldn't have made the sales before they got the temporary authorization?
William T. Coleman, Jr.: Well, they couldn't do that, Your Honor.
Abe Fortas: Yes, so that the sales that they made we made pursuant to the temporary authorization --
William T. Coleman, Jr.: Yes.
Abe Fortas: -- although they were under the terms of a prior contract?
William T. Coleman, Jr.: Yes sir. And also, they were made under temporary authorization which represented that if you don't give it to us, we're going to lose our gas. It's going to be flared. It's going to be drained. So, it seems to me that the business decision was between whether for the next seven years, they were going to get zero or were they're going to get 16 or 18 cents because that's the allegation on which the Commission issued the temporary authorization.
Potter Stewart: Wasn't there a -- wasn't there a -- didn't the Commission turned down a request for a provision in the temporary authorization explicitly reserving the power for you to make refunds?
William T. Coleman, Jr.: Your Honor, I -- I answer that question with respect to Mr. Justice White.
Potter Stewart: I beg your pardon.
William T. Coleman, Jr.: That's the order of February 5th, 1963. And that was done after we had lost Skelly before the Commission but taken an appeal to the D.C. Circuit. And then out of fondness of cautions, the lawyers say, “Well, if we're wrong there we're going to try to at least cut down on losses. Why don't you do it now?” The Commission said they would not do it in the interim because they were still holding the hearing, but then we won the first case which said that ab initio we had the power even though there was not such condition.
Potter Stewart: You don't think that goes -- you don't think that history goes to the equities of the situation at all?
William T. Coleman, Jr.: No sir, because I just don't think that by reading the temporary authorization language, reading CATCO on remand, reading the general history here that the producer could reasonably say that he could keep this money. Now, the one reason they gave which appealed to the Commission was that -- that while they were collecting the higher amount, they were paying royalties and taxes to the -- royalties to the owner and taxes to the State of Texas and since they paid it not under protest, they may not be able to get it back. So the Commission took care of that saying, during the interim before -- from the time you started until Skelly was decided, we will let you deduct the taxes. The third reason they gave and only two of them gave this reason, namely Humble and Texas Oil was that by collecting these amounts, thinking that they were not subject to refund, that they took budgetary positions and financing which they otherwise would not have done. And the Commission there found that involved with Humble Oil was only $1500 of refund and involved with Texas was only $25,000 and since that these are both multimillion, if not billion dollar corporation, it would beyond comprehension that that amount of money could really affect their planning. The other reason given was that there was no proof to these refunds would go to the ultimate consumer and the Commission has followed the policy there of saying that we will direct this money as far down the chain as we under our power can do. Also, the New York Commission and the other Commissions have been very active in seeing that this money did go to the ultimate consumers. Now, the fifth and last reason was that you should wait until the just and reasonable hearing before you order the refund. Now, if the opinion of Mr. Justice Harlan in the Callery case had prevailed, perhaps that would make some sense. But once this Court in Callery said that you measure it by the in-line price rather than by the just and reasonable price and I think that reason goes by the Board. As I said at the beginning on my argument, the basic issue here is having one CATCO, having finally decided the proposition that gas could not go into interstate commerce at any price higher than the public convenience and necessity price, does the consumer now lose the ball -- lose the ballgame by saying that when you are able to block the producer, because they couldn't get a permanent certificate which required a hearing that he can get a greater rate by coming back the next day, asking for temporary relief under a letter, which letter the consumers never got served with -- didn't know anything about it, there was no hearing, and that that letter agreement has greater validity, more power and more significance than the permanent certificate would have had without a hearing.
Abe Fortas: Well, what do you --
Hugo L. Black: Do you mean --
Abe Fortas: say about the effect, if any, of the guideline prices?
William T. Coleman, Jr.: Well, I think the guideline prices ought to have no effect whatsoever Your Honor because they were issued without a contest and they were strictly the suggestion of the Commission as to how it would act internally pending the resolution of the area rate case, pending the resolution of the in-line cases.
Abe Fortas: I suppose, but it's possible that you take a producer who operating under a temporary certificate and he sold his gas at the guideline price, a guideline price being the Commission price -- there was no reservation -- expressed reservation in the -- or explicit or specific reservation in the temporary certificate, his feelings might be hurt if the Commission later ordered a refund cutting back behind the guideline price.
William T. Coleman, Jr.: Well, they -- they should not be hurt Your Honor and I assure you they won't be hurt -- more hurt than that of the consumer who has litigated, has had a finding that he is right, and then finds out because it took him seven years to get here, that that the producer by a letter which nobody contested gets rights that he wouldn't have gotten if he'd asked for a permanent certificate, if the Commission had wrongly issued the permanent certificate and would gotten here by way of the Callery rule. And I would like Your Honor or this -- I think it's the brief for respondents Sunray DX, it's the green one, on 7 (a) when the Commission made these announcements. And it says, “These price levels as announced by Appendix A attached to this statement are for the purpose of guidance and initial action by the Commission and they're used to not deprived any party of substantive rights or fix”, repeat “or fix the ultimate justness and reasonableness of any rate level”. And actually, I think the producers attempted to take the guidelines to Court and the Court held that it was not an appealable order because it was just a policy announcement. It's just as though a Commission may say, “Well, as far as we're concerned, if you do A, B and C, we will not do anything. But if some litigant comes in and he makes a protest, we will then hear it.” We did come in, we made the protest we want.
Hugo L. Black: You referred several times to the fact that this producer's letter was not served on the consumer, would it make any difference to your argument if it had been?
William T. Coleman, Jr.: I think not, Your Honor for this reason, after these cases got into the Commission and the consumer's custody said, “Well, certainly you can't continue to issue these ex parte orders because we don't know about them and if these are going affect our rights, we should know about them”. By this time, we had lost Skelly so we thought -- we thought we were right, but we had to go the Court to have our rights vindicated if we did. The Commission then for the first time began to take the letter and put it in the public reference office. And the New York Commission by great diligence, by going there everyday, going through every document, finally found one which is the J. Ray McDermott which had been issued. The Commission then appealed that to the D.C. Circuit and the D.C. Circuit held that the Commission could not be reversed because the order was tentative and when you get around to the hearing on the permanent certificate at that point, the Commission could order that the difference between the price charge in the temporary and the actual public convenience and necessity price should be charged. So, the D.C. Circuit which is the only Circuit that has really looked at all aspects of this problem had made it clear that that -- you're in a dilemma here, that if you hold that the temporary certificate has this great substantive effect that the producers would have, then you certainly have to give the consumer an opportunity to contest it. Now, if you're going to contest it before the Commission, you have to have the same hearing that you -- that you said you had to have in CATCO. Now, if you had that hearing, it's going to take you a year or two to get it resolved. Now, if the producer in the meantime is losing its gas to the drainage or flaring, he can't afford to wait two years. So the only alternative is to issue an ex parte, to issue it without a hearing, without a contest and then when the parties have the contest, determine that you have to refund the difference between what you were charging and what is determined as the public convenience and necessity price. That's what the D.C. Circuit did. McDermott and Skelly Oil and we submit that that's the appropriate way that this matter should be handled.
Byron R. White: Mr. Coleman, at what price is it does the producers has been selling gas since the in-line price determination?
William T. Coleman, Jr.: Well, they have been selling it -- because I don't think there's been a stay -- they would be selling it at --
Byron R. White: At the in-line?
William T. Coleman, Jr.: -- the 16 cents.
Byron R. White: At the in-line prices?
William T. Coleman, Jr.: Yes.
Byron R. White: Which is set in this case?
William T. Coleman, Jr.: Oh! I -- pardon me. The stays had been granted --
Byron R. White: Oh! I see.
William T. Coleman, Jr.: So they still are selling it at the 18 cents.
Byron R. White: Yes, but if -- if they had done -- if they hadn't been selling at the in-line price, but it was determined in this proceeding, that the in-line price was set to high, then under Callery, they would have to make a refund back to the --
William T. Coleman, Jr.: Well, they could have been doing that, Your Honor. You can only fix an in-line price after you had a litigated hearing.
Byron R. White: I understand, which there has been in this case?
William T. Coleman, Jr.: Well, that's -- that's the issue this here before you now.
Byron R. White: I know, but you're claiming for example, in-line price that was set is too high.
William T. Coleman, Jr.: Yes sir. That's a direct appeal, we tell you.
Byron R. White: Now, let assume you won --
William T. Coleman, Jr.: We hope we do --
Byron R. White: -- on that.
William T. Coleman, Jr.: -- on that point.
Byron R. White: Assuming then that -- and the producers had been charging the higher in-line price meanwhile, there would be a refund.
William T. Coleman, Jr.: Yes sir.
Byron R. White: Under -- under Callery?
William T. Coleman, Jr.: Yes sir.
Byron R. White: Yes.
William T. Coleman, Jr.: There is no doubt. And what we are saying is that where they were charging 18 cents under a letter, at which we couldn't contest --
Byron R. White: That's right.
William T. Coleman, Jr.: And we by contesting could convince even the Taft Commission that it should be 16 cents, that we ought to get the 2 cents back. Now, if we are successful in this Court, it rolls back to 15 cents and I think if Callery means anything, it means that we get that one penny back, and it seems to me that if after a full hearing and a trial, you -- you get the one cent back under the permanent certificate, and it seems to me that it follows as night as the day although in the law, a lot of times, you can't be this confident that you have to give us back the three cents and that's what we submit is the issue here. And therefore we urge that --
Hugo L. Black: What you're saying is that they've collected more than the Commission has now held, for the fair and reasonable rate, that you've been denied a refund of this difference.
William T. Coleman, Jr.: Yes. Well, it's not -- it's the public convenience --
Hugo L. Black: Right.
William T. Coleman, Jr.: -- and necessity pricing.
Hugo L. Black: Whatever you want to call it.
William T. Coleman, Jr.: Yes sir.
Hugo L. Black: Public convenience and necessity.
William T. Coleman, Jr.: Yes sir. And also --
Hugo L. Black: They've collected a rate above that.
William T. Coleman, Jr.: That's right. Yes sir.
Hugo L. Black: And that you're insisting that you have the right to recover it.
William T. Coleman, Jr.: That's a reason --
Hugo L. Black: The refund.
William T. Coleman, Jr.: That's a reasonable condition under Section 7 (a) in a permanent certificate that where a producer interjects gas in interstate commerce before he gets a final certificate and he does it under representation that if you don't let me do it, I'm going to lose my gas forever, that is a reasonable condition for the Commission to say that now that we've determined, you should have been charging only 16 cents if they're right, or 15 cents if we're right, you also have to pay back the additional two or three cents depending upon what --
Hugo L. Black: Should you win, no further hearings would be necessary?
William T. Coleman, Jr.: If we win, no further hearings would be necessary.
Hugo L. Black: That's already been computed.
William T. Coleman, Jr.: It's already been -- well, it's been -- it's been computed in the sense that that -- that anyone who can read can make the computation and then I think I under the order --
Hugo L. Black: Three cents.
William T. Coleman, Jr.: What's that?
Hugo L. Black: Three cents.
William T. Coleman, Jr.: Three cents, and under the order you could -- you have to know how many volumes they sold. The order says within 30 days, they have to come in and file what the figure is and then they file it and then they pay it back.
Speaker: Well, it's good theoretically or maybe theoretical or not, so far on the question of equity --
William T. Coleman, Jr.: Well, no Your Honor.
Speaker: -- will going to be interpreted.
William T. Coleman, Jr.: I thought that the second half of my argument was --
Speaker: You are --
William T. Coleman, Jr.: -- determine --
Speaker: -- going to determine that up here?
William T. Coleman, Jr.: Up here and that if you send it back -- just look at the dates, these contracts executed 1960-62. They had got the temporary authorization in 1961. The Commission 422 I think is 1964, by the time they get around to 501, you're in 1966, you then go to the Court of Appeals, it's 1968 now, and these contracts are only 20-year contracts Your Honor, at some point, I think the Court ought to decide it and decide it finally --
Abe Fortas: Are you asking --
William T. Coleman, Jr.: -- and not send it back.
Abe Fortas: Are you asking for interest?
William T. Coleman, Jr.: What's that? Oh yes. I -- well, only -- what Callery says, Your Honor, that to -- if the producers have been unjustly enriched that the remedy is that the Commission also impose interest and I think that right now is 7%. And therefore --
Speaker: What's the -- what's the approximate amount in case that your company will get if you prevail.
William T. Coleman, Jr.: That's hard to tell you, Your Honor, because our company is really divided into two parts in the sense that we operate on behalf of the City of Philadelphia, the Philadelphia Gasworks. We also own as a normal public utility upstate companies. I would say, if you don't hold me to the figure, it's about a $150,000 or $200,000.
Speaker: What would you do with that refund?
William T. Coleman, Jr.: What do we do with it? That which goes the upstate companies, would go back to the consumers by way of a rate reduction. That which comes to the City of Philadelphia because the City of Philadelphia has an operating agreement with the UGI which says that for $800,000 regardless of the profit is, that's all the UGI gas. Any excess goes into the City Treasurer and that there are two or three cases in the Seventh or Eighth Circuit which I think in the Natural Gas case which is the whole -- and as a matter of law that when you can demonstrate, the money goes back into the general public treasure, that's the same as if you paid it to the consumer.
Speaker: Producer's taxes?
William T. Coleman, Jr.: What's that?
Speaker: Producer's taxes.
William T. Coleman, Jr.: Not only that, but it helps us to begin to solve some of the tremendous problems of the urban community, so we'd very much liked it to go back. Thank you.
Earl Warren: We'll recess now.