Opinion ID: 513412
Heading Depth: 2
Heading Rank: 2

Heading: The Limit of the Commission's Authority Under Sec. 4

Text: 53 We must therefore determine whether the imposition of this new rate was within the scope of the Commission's authority. Section 4 contains clear language on this point: 54 Whenever any such new schedule is filed the Commission shall have authority ... to enter upon a hearing concerning the lawfulness of such rate, charge, classification, or service; and, pending such hearing and the decision thereon, the Commission ... may suspend the operation of such schedule and defer the use of such rate, charge, classification or service ... and after full hearings, either completed before or after the rate, charge, classification, or service goes into effect, the Commission may make such orders with reference thereto as would be proper in a proceeding initiated after it had become effective. 55 15 U.S.C.A. Sec. 717c(e) (1976) (emphasis added). 56 Surprisingly, although this court has on a number of occasions analyzed the scope of authority under Sec. 4, and although the highlighted language clearly contains limits on the Commission's authority with respect to the issuance of orders after a Sec. 4 determination that a proposed rate is unlawful, the limiting language has apparently been nowhere explicitly interpreted by a reviewing court. It seems plain nonetheless that the reference made by this part of the statute is to Sec. 5. For Sec. 5, it is well-established, see Northern Natural Gas Co. v. FERC, 827 F.2d 779, 781 (D.C.Cir.1987); see also Sea Robin Pipeline Co. v. FERC, 795 F.2d 182 (D.C.Cir.1986), is the section of the statute that governs a proceeding initiated after [a rate] has become effective. 57 Section 5 defines the power of the Commission after it has reached a determination of unlawfulness as follows: 58 [T]he Commission shall determine the just and reasonable rate, charge, classification, rule, regulation, practice, or contract to be thereafter observed and in force, and shall fix the same by order. 59 15 U.S.C.A. Sec. 717d (1976) (emphasis added). It is apparent that the difference between Secs. 4 and 5 goes to the burden of proof on demonstrating that a proposed or existing rate, respectively, is unlawful. 10 Once this determination has occurred under either section, however, the Commission is required to reach a further determination: the just and reasonable rate to be fixed in place of either an unlawful proposed or existing rate. Thus it appears evident that the FERC has the authority to impose a new rate in a proceeding initiated under Sec. 4 if the pipeline cannot carry its burden on its proposed rate provided that the FERC reaches the determination that the rate it seeks to impose is just and reasonable. 60 In a case substantially similar to the instant case, the FERC 11 reached the same interpretation under the Federal Power Act, 16 U.S.C.A. Secs. 791a-828c (1985). In Northern States Power Co. (Wisconsin), 18 F.E.R.C. p 63,022 (February 1, 1982), the ALJ rejected the power company's argument that 61 if this Commission should find [the rate schedule proposed for a new category of service] unjust and unreasonable the Commission should reject it but not redesign it to make it just and reasonable. 62 18 F.E.R.C. at 65,089. The ALJ interpreted the language--a proceeding initiated after it had become effective--in Sec. 205(e) of the Power Act to be a reference to Sec. 206(a): 63 Whenever the Commission ... shall find that any rate ... is unjust, unreasonable, unduly discriminatory or preferential, the Commission shall determine the just and reasonable rate, charge classification, rule, regulation, practice, or contract to be thereafter observed and in force, and shall fix the same by order. 64 16 U.S.C.A. Sec. 824e(a) (1985). The Supreme Court has held that the Natural Gas Act and the Federal Power Act are in all material respects substantially identical, FPC v. Sierra Pacific Power Co., 350 U.S. 348, 353, 76 S.Ct. 368, 371, 100 L.Ed. 388 (1956) and constructions of one are authoritative for the other. Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571, 577 n. 7, 101 S.Ct. 2925, 2930 n. 7, 69 L.Ed.2d 856 (1981). Thus the ALJ's interpretation, above, is equally applicable to the Natural Gas Act. 65 The Supreme Court has similarly interpreted identical language in the Interstate Commerce Act, 49 U.S.C.A. Secs. 1-27 (1959) (Secs. 1-23, 26a-27, repealed 1978), in connection with rail regulation. Section 15(7) of this Act provided that 66 after full hearing whether completed before or after the rate ... goes into effect, the commission may make such order with reference thereto as would be proper in a proceeding initiated after it had become effective. 67 49 U.S.C.A. Sec. 15(7) (1959) (repealed 1978). The Court held: 68 It seems too plain for argument that such broad authority is ample for the modification of either proposed or existing rates or both. The power granted the Commission under Sec. 15(1) to deal with rates schedules already effective supports that view. For once the Commission finds the rate to be unjust or unreasonable or unjustly discriminatory or unduly preferential or prejudicial or otherwise unlawful, the Commission is granted the power under Sec. 15(1) to determine and prescribe the just and reasonable rate. The Commission is not bound either to approve or disapprove in toto the new rates that are proposed. It can modify the proposal in any respect and require that the proposed rates as modified or wholly different rates be substituted for the present ones. 69 Ayrshire Collieries Corp. v. United States, 335 U.S. 573, 582-83, 69 S.Ct. 278, 283-84, 93 L.Ed. 243 (1949). 70 This interpretation of the relationship between Secs. 4 and 5 of the Natural Gas Act, that the power of the Commission with respect to remedying an unlawful rate whether proposed or existing is the same and is limited only by the requirement that it determine that the remedial rate prescribed is just and reasonable, 12 clarifies the construction of these sections by both the Supreme Court and this circuit. In FPC v. Sierra Pacific Power Co., supra, the Court observed [substituting the relevant sections of the Natural Gas Act for the equivalent sections in the Federal Power Act]: 71 [t]he Commission has undoubted power under [Sec. 5] to prescribe a change in contract rates whenever it determines such rates to be unlawful.... If the proceedings here satisfied in substance the requirements of [Sec. 5], it would seem immaterial that the investigation was begun as one into the reasonableness of the proposed rate rather than the existing contract rates. 72 350 U.S. at 353, 76 S.Ct. at 371. Similarly, in connection with its review of the power of the Commission in conditioning certificates under Sec. 7 of the Natural Gas Act, the Court has noted that [i]t is true that the Act does not require a determination of just and reasonable rates in a Sec. 7 proceeding as it does in one under either Sec. 4 or Sec. 5. Atlantic Refining Co. v. Public Service Commission of New York, 360 U.S. 378, 390, 79 S.Ct. 1246, 1254, 3 L.Ed.2d 1312 (1959) (emphasis added). 73 Recent decisions in this circuit are consistent with the same principle. See Sea Robin Pipeline Co. v. FERC, 795 F.2d 182, 183-84 (D.C.Cir.1986); ANR Pipeline Co. v. FERC, 771 F.2d 507, 513-14 (D.C.Cir.1985); Cities of Batavia, Naperville, Etc. v. FERC, 672 F.2d 64, 75-77 (D.C.Cir.1982); Public Service Commission of New York v. FERC, 642 F.2d 1335, 1342-46 (D.C.Cir.1980), cert. denied, 454 U.S. 879, 102 S.Ct. 360, 70 L.Ed.2d 189 (1981) (Transco ); City of Willcox v. FPC, 567 F.2d 394, 401-02 (D.C.Cir.1977), cert. denied, 434 U.S. 1012, 98 S.Ct. 724, 54 L.Ed.2d 755 (1978). See also Northern Natural Gas Co. v. FERC, 827 F.2d 779, 791 n.44 (D.C.Cir.1987) (summarizing several of the above holdings). Each of these cases involved a rate review initiated by a pipeline filing proposed changes to existing rate schedules pursuant to Sec. 4. The combined import of these cases is summarized in Sea Robin: 13 74 If the Commission enters upon a hearing concerning the lawfulness of a proposed rate increase, the pipeline bears the burden of proving that the rate sought is just and reasonable.... Section 4 limits the Commission's authority to acceptance (in whole or in part) or rejection of the pipeline's proposed rates; the section does not authorize FERC to substitute rates of its own design for the rates proposed by the pipeline. [Citation to Transco.] This restriction guarantees that rates generally will be set, in the first instance, by the pipelines themselves.... Section 5 of the Act ... empowers the Commission, in certain circumstances, to take the initiative in setting rates. The Commission may order a pipeline to change to a specified new rate, either pursuant to a staff proposal or at the request of a third party, if FERC finds that the existing rate is unjust or unreasonable and the proposed new rate is both just and reasonable.... The proponent of the change-whether the Commission staff or a third party--bears the burden of proof under section 5. [Citation to ANR Pipeline.] If, in the course of a section 4 proceeding, FERC decides to take action authorized by section 5, the Commission may do so without initiating an independent proceeding.... But section 5 authority, regardless of the context in which it is exercised, may be pursued only in accordance with the requirements and constraints imposed by section 5. 75 795 F.2d at 183-84 (emphasis added). 76 Although the highlighted language read out of context might suggest no remedial authority at all in Sec. 4, the purport of the full discussion is completely reconcilable with the statutory language empowering the Commission in Sec. 4 to make such orders ... as would be proper in a proceeding initiated after [a rate] had become effective, i.e., Sec. 5. All of the above cases involved remedial orders (which changed existing rates) in response to a finding that the pipeline's proposed rates were unlawful. Where existing rates are on file, it is clear, both prongs of the Sec. 5 procedure are triggered if the order is to be one that would be proper in a [Sec. 5] proceeding. Such an order must be supported by (1) a determination that the presumptively just and reasonable existing rate is no longer just and reasonable and (2) a determination that the alternative rate (alternative to both existing and proposed rates) that the Commission seeks to impose as a remedy is just and reasonable. Both of these prongs, whether arising in a remedial order for unlawful proposed rates under Sec. 4 or a review of existing rates under Sec. 5, are governed by the Sec. 5 procedural requirement placing the burden of proof on the Commission. 77