Opinion ID: 349481
Heading Depth: 1
Heading Rank: 2

Heading: Validity of the Reporting Requirement

Text: 6 Since Congress has expressly delegated rule making authority to the FPC, 8 the rules which it issues are legislative in nature. See 1 K. Davis, Administrative Law Treatise § 5.03, at 299 (1958). 9 Therefore, they possess the force and effect of law if they are (a) within the granted power, (b) issued pursuant to proper procedure, and (c) reasonable. Continental Equities, Inc. v. Commissioner of Internal Revenue, 551 F.2d 74, 82 (5th Cir. 1977), quoting 1 K. Davis, Administrative Law Treatise § 5.03, at 299 (1958), and K. Davis, Administrative Law of the Seventies § 29.01-1, at 654 (1976) (supplementing 1958 Treatise); cf. Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 415-17, 91 S.Ct. 814, 823, 28 L.Ed.2d 136, 153-54 (1971) (non-formalized decision making). This principle supplies the structure for our discussion of the validity of the reporting requirements imposed by Orders 543 & 543-A.
7 The petitioners do not challenge the FPC's authority to promulgate rules requiring them to furnish it with information concerning their production, transportation, and disposition of natural gas. The existence of that general power is conclusively established by the Act. 10 Instead, they contend that the FPC exceeded its statutory power in issuing the orders under attack to the extent that they require entities that are affiliated producers of natural gas company gas that term is defined in 18 C.F.R. § 157.40(a)(2) (1977), but not themselves natural gas companies as that term is defined by Section 2 of the Natural Gas Act, 15 U.S.C.A. § 717a(6) (1976), to complete Form 64. In Continental Oil, we held that the FPC could compel entities that were natural gas companies within the meaning of the Act to report information concerning their non-regulatable intrastate sales. See 519 F.2d at 33-34; see also Union Oil Co. of California v. FPC, supra, 542 F.2d at 1038-39. The question here is whether the FPC may go further and (a) require statutory natural gas companies to report information concerning the expenditures of affiliates whom they control, or (b) require the affiliates themselves to complete and file Form 64. 11 8 As the Supreme Court stated in Panhandle Eastern Pipe Line Co. v. Public Service Commission of Indiana, 332 U.S. 507, 516, 68 S.Ct. 190, 195, 92 L.Ed. 128, 137 (1947): 9 Three things and three only Congress drew within its own regulatory power delegated by the Act to its agent, the Federal Power Commission. These were: (1) the transportation of natural gas in interstate commerce; (2) its sale in interstate commerce for resale; and (3) natural gas companies engaged in such transportation or sale. 10 See also FPC v. Louisiana Power & Light Co., 406 U.S. 621, 636, 92 S.Ct. 1827, 1836, 32 L.Ed.2d 369, 382 (1972). In addition to whatever power may be derived from category (3), category (2) grants the FPC jurisdiction to require submission of expenditure data pertaining to the operations of affiliates controlled by statutory natural gas companies whether it seeks such data from the statutory natural gas companies or from the affiliates themselves. 11 The congressional delegation of power to regulate the interstate sale of natural gas for resale has long been held to encompass the power to fix the price at which such sales shall be made. 12 For effective and meaningful price regulation, the FPC must be able to insure the integrity of its information about producer expenditures for exploration and development which are critical components of cost and essential for determining a just and reasonable rate. The FPC argues that without exploration and development expenditure data of affiliates controlled by statutory natural gas companies, accurate analysis of production costs would be impossible, because transfers of property between affiliates might result in interstate sales being made from higher-cost properties and intrastate sales from lower-cost properties. This would distort the true cost of production for interstate sales and mislead the FPC in setting a proper national rate. The principal aim of the Act was to protect consumers against exploitation at the hands of natural gas companies. FPC v. Hope Natural Gas Co., 320 U.S. 591, 611, 64 S.Ct. 281, 291, 88 L.Ed. 333, 349 (1944). Therefore, if the FPC lacked the power to compel both statutory natural gas companies and their controlled affiliates to disclose the affiliates' exploration and development expenditures, it would be unable to prevent the artificial shifting of properties among affiliates and powerless to accomplish the primary purposes of the Act. As we explained in Continental Oil, when information is essential to effective ratemaking, the FPC is authorized to procure it. 519 F.2d at 33. 12 Other sections of the Act, while falling short of specifically empowering the FPC to gather from affiliates the information sought by Form 64, support the view that the FPC's investigatory powers are broad and are not limited by the constraints which Congress has placed on the regulatory and rate-setting jurisdiction of the FPC. See Union Oil Co. of California v. FPC,supra, 542 F.2d at 1039. For example, section 14(a) of the Act authorizes the FPC to 13 investigate any facts . . . which it may find necessary or proper . . . to aid in the enforcement of the provisions of this chapter or in prescribing rules or regulations thereunder, or in obtaining information to serve as a basis for recommending further legislation to the Congress. 14 15 U.S.C.A. § 717m(a) (1976) (emphasis added). Similarly, section 5(b), 15 U.S.C.A. § 717d(b), permits the FPC to investigate the costs of producing natural gas even where it lacks the authority to set rates. Moreover, section 8 provides that 15 The books, accounts, memoranda, and records of any person who controls directly or indirectly a natural-gas company subject to the jurisdiction of the Commission and of any other company controlled by such person, insofar as they relate to transactions with or the business of such natural-gas company, shall be subject to examination on the order of the Commission. 16 15 U.S.C.A. § 717g(c) (1976) (emphasis added). 17 Mitchell contends that 15 C.F.R. § 157.40(a)(2) (1976) furnishes an improper basis for defining affiliates for the purpose of determining who must complete Form 64 because it was originally designed for another purpose. We think this is irrelevant. The regulation defines an affiliate as an entity that is either (a) controlled (in a practical sense) by a natural gas company, or (b) possesses a director in common with a natural gas company (in which case a conclusive presumption of control arises). In our view, the definition of the term affiliated producer contained in § 157.40(a)(2) of the regulations is both workable in this context and rationally related to the accomplishment of the purposes which the affiliate filing requirement of Order No. 543 is designed to serve. We find the FPC acted within the power granted to it in promulgating Form 64.
18 Superior and Mitchell contest the procedure by which the FPC adopted Form 64 promulgating Orders No. 543 and No. 543A. We find that the FPC, in promulgating Form 64, satisfied both the Administrative Procedure Act and the relevant provisions of the Natural Gas Act. 19 Superior and Mitchell do not challenge the FPC's compliance with the informal rule making provisions set forth in section 4 of the APA. 13 5 U.S.C.A. § 553 (1967). Rather, they maintain that, because section 19(b) of the Natural Gas Act adopts a substantial evidence test for the factual components of an FPC order, 14 this court must require the FPC to implement additional fact-finding procedures that can produce a record able to withstand a stricter scrutiny than courts give an informal rule making proceeding governed solely by the APA. We do not agree. 15 20 A court reviewing informal rule making under section 10(e) of the APA, after determining that the agency acted within the Constitution and its enabling statute, must determine whether the agency action was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. 5 U.S.C.A. § 706(2)(A) (1967). The APA also requires that a substantial evidence standard be applied to adjudications and to actions reviewed on the record of an agency hearing provided by statute. 5 U.S.C.A. § 706(2)(E) (1967). The Supreme Court has defined the two standards as follows: 21 Under the arbitrary and capricious standard . . . . (a) reviewing court must consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment . . . . 22 Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 285, 95 S.Ct. 438, 442, 42 L.Ed.2d 447, 455 (1974). 23 Substantial evidence is more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. 24 Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229, 59 S.Ct. 206, 217, 83 L.Ed. 126, 140 (1938). It is generally accepted that the latter standard allows for a considerably more generous judicial review than does the former. Abbott Laboratories v. Gardner, 387 U.S. 136, 143, 87 S.Ct. 1507, 1513, 18 L.Ed.2d 681, 688 (1967). However, in Florida Peach Growers Ass'n v. United States Dep't of Labor, 489 F.2d 120, 128-29 (5th Cir. 1974), quoting Associated Indus. of New York State, Inc. v. United States Dep't of Labor, 487 F.2d 342, 349-50 (2d Cir. 1973), this circuit acknowledged that when applied to informal rule making, the two criteria tend to converge. A respected authority in the field of administrative law agrees. 16 25 Whether there be any practical difference in the result of a review under the two concepts, it is clear that an effort to apply the substantial evidence standard to informal rule making is sure to produce awkward results. Difficulties occur because informal rule making does not produce the hearing-type record to which substantial evidence review is customarily applied. See Florida Peach Growers Ass'n v. United States Dep't of Labor, supra, 489 F.2d at 128; Mobil Oil Corp. v. FPC, 157 U.S.App.D.C. 235, 257, 483 F.2d 1238, 1260 (1973). 17 26 The scope of review provision in the Natural Gas Act, Section 19(b), provides that (t)he finding of the Commission as to the facts, if supported by substantial evidence, shall be conclusive. 15 U.S.C. § 717r(b) (1976). (Emphasis supplied.) When the Commission is developing rates or making particularized rules which depend upon determinations of fact, Section 19(b) requires that the FPC develop in the record those facts upon which the ultimate decision rests. Then, review must test the substantiality of those facts. This requirement of the Natural Gas Act limits the substantial evidence test to findings of fact. Thus, the statutory approach differs from many others, such as that contained in the Occupational Health and Safety Act, which couples informal rule making power with the requirement that (t)he determinations of the Secretary shall be conclusive if supported by substantial evidence in the record considered as a whole. 29 U.S.C.A. § 655(f) (1975). See Florida Peach Growers Ass'n v. United States Dep't of Labor, supra. Section 19(b) of the Natural Gas Act does not oblige the FPC to develop a record demonstrating that substantial evidence compelled the adoption of policy-based legislative rules unless the process involves findings of fact. The meaning of substantial evidence does not change, but the extent to which the Natural Gas Act's conclusive presumption displaces the APA's informal rule making provisions varies with the degree to which FPC action rests upon findings of facts rather than policy decisions within the agency's discretion. 27 Our analysis of Section 19(b) requires that we reject the approach taken by the Ninth Circuit in Union Oil v. FPC, 542 F.2d 1036 (9th Cir. 1976). In Union Oil, the Ninth Circuit determined that the FPC acted properly in promulgating Form 40 only if substantial evidence indicated that the agency's need for the information outweighed the burden to producers of getting the information and reporting it. Adopting this formulation of a factual basis for the FPC's order would require the agency to show not only that substantial evidence supported factual components of agency action, but that it compelled the promulgation of Form 64. This approach, adopted in Union Oil, would always subject the FPC's policy decisions to formal fact-finding standards and would constrain its rule making authority contrary to Section 19(b), which does not undertake to supplant APA requirements for broad-based policy decisions. 28 Absent clear and specific congressional requirements, we decline to import into informal rule making those formalities developed for the adjudicatory process and basically unsuited for policy rule making. See American Airlines, Inc. v. CAB, 123 U.S.App.D.C. 310, 315, 359 F.2d 624, 629 cert. denied, 385 U.S. 843, 87 S.Ct. 73, 17 L.Ed.2d 75 (1966). Not only do we fail to discern a clear and specific legislative intention that the FPC employ additional procedures in actions such as these, we see no such intent whatsoever. An agency need not make findings of fact in the conventional sense in a Section 553 proceeding. Florida Sugar Cane League, Inc. v. Usery, 531 F.2d 299, 303 (5th Cir. 1976), quoting General Telephone Co. of the Southwest v. United States, 449 F.2d 846, 862 (5th Cir. 1971). See also, United States v. Florida East Coast Railway, 410 U.S. 224, 93 S.Ct. 810, 35 L.Ed.2d 223 (1973). 29 The promulgation of Form 64 resulted from the FPC's decision that submitting data in the prescribed form would aid the agency in performing its regulatory duties under the Natural Gas Act and would not disproportionately harm producers. At the root of this choice lies not ascertainable fact but a policy decision about how precise factual data must be for the FPC to determine reasonable rates under a broad statutory mandate. 18 While we do not adopt a single rule for all rule making, we recognize that many legislative judgments cannot be anchored securely and solely in demonstrable fact, Industrial Union Dep't, AFL-CIO v. Hodgson, 162 U.S.App.D.C. 331, 340, 499 F.2d 467, 476 (1974), and consequently these policy choices are not susceptible to the same type of verification or refutation by reference to the record as are factual questions. National Asphalt Paving Ass'n v. Train, 176 U.S.App.D.C. 296, 304, 539 F.2d 775, 783 (1976). Thus, we scrutinize the instant broad policy decision only to determine whether the FPC acted arbitrarily and capriciously. 30 Even though neither the APA nor the Natural Gas Act requires that procedures not prescribed by Section 553 be used in this rule making, we still must ask whether the agency abused its discretion by not using additional procedures. See Jicarilla Apache Tribe of Indians v. Morton, 471 F.2d 1275, 1285-86 (9th Cir. 1973); United Telegraph Workers v. FCC, 141 U.S.App.D.C. 190, 195, 436 F.2d 920, 925 (1970). (T)he Commission should 'realistically tailor the proceedings to fit the issues before it.'  Mobil Oil Corp. v. FPC,157 U.S.App.D.C. 235, 249, 483 F.2d 1238, 1252 (1973). The petitioners challenge the procedural foundation of the orders on the ground that the FPC should not have denied the producers' persistent requests for a conference with the FPC's staff. The FPC replies that the notice and comment procedures amounted to a conference on paper, and that nothing more was needed. We agree. We ordinarily will defer to an agency's choices concerning its procedures because in making such choices agencies are best situated to determine how they should allocate their finite resources. See Wisconsin v. FPC, 373 U.S. 294, 313-14, 83 S.Ct. 1266, 1277, 10 L.Ed.2d 357, 370 (1963). 31 As we explained in Alabama Ass'n of Insurance Agents v. Board of Governors of the Federal Reserve System, 533 F.2d 224, 236-37 (5th Cir. 1976), 32 as partners with the agencies, in the effectuation of Congressional will through the administrative process . . . (the courts) do not function to strike down agency action because of merely formal or technical flaws. . . . (Citations omitted.) For this reason, a court must not only examine whether an agency's promulgation of a challenged regulation complies with the procedural requirement; it must also determine whether . . . any procedural flaw so subverts the process of judicial review that invalidation of the regulation is warranted. 33 Here, the producers have not explained why they were not able adequately to present their views through written comments or what they could have done by way of an oral conference with the staff that they could not have done without it. Under these circumstances, the agency need not come forward to explain why it chose not to grant one. 34 In sum, out review is under the arbitrary and capricious standard. The agency was not required to develop a substantial evidence record as would be required if we were presented with a factual finding. The procedures adopted were within the agency's proper discretion and were not shown to be insufficient.
35 Because the order promulgating Form 64 originated in a policy decision of the agency and not as the outgrowth of factual determinations, the standard of review is whether the agency's action was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. 5 U.S.C. § 706(2)(A) (1967). Under that standard we determine whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment. Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc., supra, 419 U.S. at 285, 95 S.Ct. at 442, 42 L.Ed.2d at 455. Our scope of review is narrow, see Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. at 416, 91 S.Ct. at 824, 28 L.Ed.2d at 153, and we must defer to the FPC's exercise of its expertise, see Permian Basin Area Rate Cases, 390 U.S. 747, 767, 88 S.Ct. 1344, 1360, 20 L.Ed.2d 312, 336 (1968); FPC v. Hope Natural Gas Co., 320 U.S. 591, 602, 64 S.Ct. 281, 288, 88 L.Ed. 333, 344 (1944). 36 The regulatory need for the data sought by Form 64 has not dissipated, as the petitioners contend, because the Ninth Circuit in Union Oil set aside the Orders adopting and implementing companion Form 40 (Orders Nos. 526 and 526-A). Although the FPC originally designed Form 40 and Form 64 for use with Form 45 as part of an integrated data collection system, the present unavailability of reliable reserve data by use of Form 40 does not destroy the value to rate making of Form 64, from which can be obtained valuable information about production, expenditures, and exploration and development activities. 37 Comparing this case with Union Oil underscores the reasonableness of the agency's actions. The GAO certified the proposed form for use, as required by the Federal Reporting Services Act, 44 U.S.C.A. §§ 3501 et seq. (1969 & 1977 supp.). But, most important, the FPC did not treat the objections raised against proposed Form 64 in a summary or cursory fashion as it did those raised against proposed Form 40 in Union Oil. 542 F.2d at 1037 & 1042-43. Rather, the FPC extensively altered its questionnaire to alleviate problems raised by producers. Among other things, the FPC (1) reduced the duration of the cost data series needed for trending from 10 to 5 years, (2) eliminated the requirement to report data on an area as well as a national basis, (3) eliminated the portion of Form 64 that overlapped with Form 40, (4) exempted producers whose annual production was at or under 250,000 Mcf, (5) granted additional time to file completed questionnaires, (6) modified the form in which data was to be reported for present and past years, and (7) altered its position on the availability of Form 64 data to the public. 38 The FPC did not change every feature of Form 64 that some producers found objectionable, nor respond to all of their suggestions and criticisms. It was not required to do so. Cf. Portland Cement Ass'n v. Ruckelshaus, 158 U.S.App.D.C. 308, 327, 486 F.2d 375, 394 (1973), cert. denied, 417 U.S. 921, 94 S.Ct. 2628, 41 L.Ed.2d 226 (1974). The FPC's behavior does reflect a sensitivity to producer concerns. (G)iven an essentially legislative task to perform, (the FPC) has carried it out in a manner calculated to negate the dangers of arbitrariness and irrationality. Alabama Ass'n of Insurance Agents v. Board of Governors of the Federal Reserve System, 533 F.2d 224, 237 (5th Cir. 1976), quoting Automotive Parts & Accessories Ass'n v. Boyd, 132 U.S.App.D.C. 200, 208, 407 F.2d 330, 338 (1968). Reasonableness requires no more. 39