Opinion ID: 309621
Heading Depth: 1
Heading Rank: 1

Heading: history of the controversy

Text: 13 The Commission's authority to regulate interstate sales of natural gas derives from the Natural Gas Act of 1938 which declares that the business of transporting and selling natural gas for ultimate distribution to the public is affected with a public interest. 15 U.S.C. Sec. 717(a). The Commission is empowered to set aside and modify any rate or contract which it determines after hearing to be unjust, unreasonable, unduly discriminatory or preferential. 14 A brief history of some of the antecedent events is necessary. In 1954 the Supreme Court decided in Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed. 1035 (1954), that independent producers of natural gas are natural gas companies within the meaning of Sec. 2(6) of the Act. From this time forward, the Commission has labored with obvious difficulty to regulate a diverse and growing industry under the terms of an ill-suited statute. In re Permian Basin Area Rate Cases, 390 U.S. 747, 756, 88 S.Ct. 1344, 1354, 20 L.Ed.2d 312 (1968). 15 Following the Phillips decision, the Commission undertook the regulation of rates of approximately 2,500 producers selling gas in interstate commerce and did so on a company-by-company basis. The result of all this was somewhat ineffectual. See Permian Basin, supra, at 757 n. 13, 88 S.Ct. 1344. Thus in 1960 the Commission undertook to regulate producers on an area basis, whereby a uniform ceiling price applicable to all producers would be established based upon producers' actual costs, area data for the flowing gas costs and national data for new gas-well costs. See Phillips Petroleum Co., 24 FPC 537, 540 (1960), aff'd sub nom. Wisconsin v. FPC, 112 U.S.App.D.C. 369, 303 F.2d 380 (1961), aff'd, 373 U.S. 294, 83 S.Ct. 1266, 10 L.Ed.2d 357 (1963). The Commission spent five years with its first area rate case which involved the establishing of rates for the Permian Basin. See Permian Basin Area Rate Proceeding, 34 FPC 159 (1965). This case was reviewed by the Supreme Court and the area rate procedure was affirmed. In re Permian Basin Area Rate Cases, 390 U.S. 747, 88 S.Ct. 1344, 20 L.Ed.2d 312 (1968). 16 As a result of the approval given in the Permian Basin case, the Commission instituted a number of other similar proceedings. 1 These proceedings were lengthy and cumbersome, and as a result of this experience the Commission undoubtedly considered some of the admonitions given in the Permian Basin opinion which included: the Commission should continue to examine both the premises of its regulatory methods and the consequences for the industry's future of its rate-making orders; 2 Permian is the first of many steps toward a more expeditious and effective system of regulation. 3 Based on these statements and the ruling in the Permian case, the Commission issued a notice of proposed rulemaking which called for the issuance of rules fixing just and reasonable rates for independent producers in the Appalachian and Illinois Basin Area. 4 In less than a year after its notice rates were prescribed for these areas. 5 17 The next step was for the Commission to embark on a nationwide rulemaking proceeding, whereby it sought information on independent producers' costs of exploring and developing natural gas, gas supply, rate of return and general revenue requirements and prices for new gas sales. 35 Fed.Reg. 11638 (1970). Public hearings of record were held and arguments were heard concerning the Commission's attempt to promulgate rates through a rulemaking procedure. See 36 Fed.Reg. 13585 (1971). See also Order No. 435 which established some rates under Sec. 7 of the Gas Act. This case is currently on appeal, American Public Gas Ass'n v. FPC, D.C.Cir., No. 71-1812. 18 This led to the issuing of notice of proposed rulemaking and order procedures for the Rocky Mountain area. 36 Fed.Reg. 13621 (1971). This notice provided that just and reasonable rates would be issued for gas contracts dated before October 1, 1968. It provided also for determination as to whether the rates under Order 435 were to apply to contracts dated between October 1, 1968 and June 17, 1970. Except for these specifics contained in the notice, the rulemaking proceedings in Docket No. R-389A continued in effect. It was thus clear that informal rulemaking was being employed since the order outlined the manner in which data was to be submitted and provided that the Commission's staff would composite and reconcile such data. It named the petitioners herein together with the purchasing pipelines. It allowed other persons to become parties by filing a notice of intention to respond by August 2, 1971. 19 The petitioners challenged the new rulemaking procedures. These challenges were, however, unsuccessful before the Commission. Motions for rehearing and for reconsideration were made in which the present contentions as to the necessity for evidentiary hearings were made. The Commission rejected the contention that an adjudicatory hearing was required, stating that both the Natural Gas Act and the Administrative Procedure Act recognized the use of rulemaking procedures by notice to interested parties and the opportunity to submit written material. 6 20 The Phillips Petroleum Company then filed its petition seeking review in this court. Amerada Hess Corporation on behalf of itself and others filed a petition for review in the Court of Appeals for the District of Columbia. This petition was transferred and consolidated with the Phillips case for the purposes of this review. 21 The matter submitted for review herein is Notice Instituting Proposed Rulemaking and Order Prescribing Procedure, which document was, as previously noted, issued by the Commision on July 15, 1971 in Docket No. R-425. This was called by the Commission a rulemaking procedure having the purpose of more quickly effectuating the Commission's task of fixing just and reasonable rates. The Commission ordered: 22 (1) completion by petitioners and pipelines producing natural gas of questionnaires covering flowing gas costs and operational data on an individual company 1969 test year basis. 23 (2) composition of such data by the Commission's staff before October 22, 1971, the results being available to any party on request. 24 (3) verified written responses to the proposed rulemaking before November 12, 1971. 25 (4) a conference on August 3, 1971, for developing the issues and procedures to be followed in the proceeding, as such appears to be warranted in the public interest. 26 No specific rates were set forth in the notice or release. 27 It is noteworthy that the Commission has initiated the procedure for setting area rates and by doing so it was engaging in a rulemaking proceeding. However, its notice or release also formulated a procedure to be used in the area rate proceeding. This is also a rulemaking proceeding. Thus the question on the merits which we are called on to review is the validity of the proposed procedure of the Commission which in effect abolishes the traditional trial-type hearing and substitutes for it the informal evaluation of written submissions.II. JURISDICTION TO REVIEW 28 Petitioners assert that there is jurisdiction pursuant to Sec. 19(b) of the Natural Gas Act, 15 U.S.C. Sec. 717r(b). The Commission does not deny this, for they are equally desirous of having a determination of the validity of the proposed procedure. Hence, the Commission takes the position that the orders entered are final and that the attempted review is not a premature effort. This court is obligated, however, to view the condition and determine for itself that there is jurisdiction to determine the case. See Sunray DX Oil Co. v. FPC, 351 F.2d 395, 397 (10th Cir. 1965). 29 In the proposed rulemaking procedure, specific rates, terms or conditions are not set forth. It is a rule which prescribes standards for the setting of area rates in the Rocky Mountain region and to that end it orders submission of certain data. Thus it is clear that the Commission is presently engaged in an exercise of its rulemaking power, even though it is merely formulating the procedure to be used. 30 The matter before us is a question of law and not of fact. However, it is procedural in its nature, even though it may have profound substantive effects, and we are mindful that mere procedural orders have been held to be not within the scope of the circuit courts of appeal. See FPC v. Metropolitan Edison Co., 304 U.S. 375, 385, 58 S.Ct. 963, 82 L.Ed. 1408 (1938). But this line of cases goes to the proposition that courts will not interfere with the administrative process and will limit themselves to review of an actual order following a hearing. See FPC v. Metropolitan Edison Co., supra; Amerada Petroleum Corp. v. FPC, 285 F.2d 737 (10th Cir. 1960); United Gas Pipe Line Co. v. FPC, 206 F.2d 842 (3d Cir. 1953); Eastern Utilities Associates v. SEC, 162 F.2d 385 (1st Cir. 1947). If the order is as bad as the petitioners claim, it would require a holding that there exists a denial of rights guaranteed by the due process clause of the Fifth Amendment and a holding also that the Commission is acting beyond the law and outside the Administrative Procedure Act as well. Violations of this magnitude would render the entire proceeding invalid, and it could be raised following the setting of rates, but there would be much wasted motion in proceeding in this manner. 31 The statute in question, Sec. 19(b), provides for judicial review of final agency orders and under such a statute challenges to newly promulgated agency regulations prior to their application against particular individuals have often been entertained. See FCC v. ABC, 347 U.S. 284, 74 S.Ct. 593, 98 L.Ed. 699 (1954); Columbia Broadcasting System v. United States, 316 U.S. 407, 425, 62 S.Ct. 1194, 86 L.Ed. 1563 (1942); Gardner v. Toilet Goods Ass'n, 387 U.S. 167, 87 S.Ct. 1526, 18 L.Ed.2d 704 (1967); Toilet Goods Ass'n v. Gardner, 387 U.S. 158, 87 S.Ct. 1520, 18 L.Ed.2d 697 (1967); Abbott Laboratories v. Gardner, 387 U.S. 136, 87 S.Ct. 1507, 18 L.Ed.2d 681 (1967). In the latter three cases Mr. Justice Harlan, writing for the Court, mentioned two applicable criteria: first, whether the issues tendered are appropriate for judicial resolution, that is to say e. g., whether specific facts were needed in order to decide the case and, secondly, whether the impact on the parties is substantial. In one of the food, drug and cosmetic act cases, Toilet Goods Ass'n v. Gardner, supra, it was determined that a question existed as to whether the threatened inspection would ever materialize. In the other two cases, Abbott Laboratories v. Gardner, supra, and Gardner v. Toilet Goods Ass'n, supra, it was held that a pre-enforcement judicial review was justified because the questions were straightforward legal ones not depending on specific facts and, secondly, that the regulations had an immediate substantial impact on the manufacturers involving large expenditures and the risk of serious penalties. 32 In our case the petitioners present a clear-cut legal issue, alleged deprivation of procedural due process, and it could not be made any clearer by factual background. Furthermore, the impact is immediate and the cost of its application, if it proves to be invalid, is substantial. The delay which would result from remanding this case for full-scale procedure would be great and unquestionably injury would result to the petitioners and would be felt by the public at large. The words of Chief Justice Stone in Columbia Broadcasting System v. United States, 316 U.S. 407, 425, 62 S.Ct. 1194, 1204, 86 L.Ed. 1563 (1942), come to mind: 33 The ultimate test of reviewability is not to be found in an overrefined technique, but in the need of the review to protect from the irreparable injury threatened in the exceptional case by administrative rulings which attach legal consequences to action taken in advance of other hearings and adjudications that may follow, the results of which the regulations purport to control. 34 Accordingly, we view the present order as one which is appropriate for judicial review and resolution since it tenders a pure question of law and, secondly, the hardship to the petitioners which would result from refusal to review the question would be of great magnitude, and we conclude that the case is a proper one for the exercise of this court's jurisdiction.