Opinion ID: 339393
Heading Depth: 1
Heading Rank: 3

Heading: The Validity of the Reporting Requirements.

Text: 21
22 The proceeding leading to the entry of Orders 526 and 526-A was begun by the publication, pursuant to 5 U.S.C. § 553, of a Notice of Proposed Rulemaking. Authority for the proposed new rule was stated to be sections 8, 10, 14, and 16 of the Natural Gas Act (15 U.S.C. §§ 717g, 717i, 717m, and 717o ). The proceeding was a rulemaking proceeding, not an adjudicative one. The authority of the Commission to obtain information and to require reports is broad. 1 But none of the sections cited specifies the procedure to be used in deciding to exercise that authority when the Commission desires to exercise it by rule or regulation. 23 In fact, the proceedings were conducted in the manner prescribed in the Administrative Procedure Act. Presumably the Commission felt, properly, we think, that its procedure in this case was governed by the Rulemaking section of that Act, 5 U.S.C. § 553. That Act distinguishes between rulemaking (§ 553) and adjudications (§ 554). The former does not require a trial type hearing; the latter normally does. (See § 556.) Because the Natural Gas Act does not require a trial type hearing for rulemaking, the Administrative Procedure Act does not. (See 5 U.S.C. § 553(c).) 24 The record compiled in a rulemaking proceeding conducted under § 553 is not the type of record that courts of appeals are accustomed to have before them in reviewing decisions of trial courts or of administrative agencies. We tend to consider such less formal records as somehow suspect, because the evidence has not been presented under adversary type proceedings, and so has not received the rigorous testing by confrontation and cross-examination that we usually demand as a basis for fact finding. In this case, for example, most of the evidence consists of ex parte written statements, some verified on oath, some not, and of comparable oral comments presented at a conference held on August 14-15, 1974. At the conference, the parties making the statements were asked some questions, but were not sworn and not cross-examined. Such records tend to make courts nervous, even though the proceeding does comply with § 553. 2 25 The Administrative Procedure Act attempts to draw a clear line between rulemaking and adjudication, and to make the words rule, rulemaking, order, and adjudication into words of art, implementing the distinction. See 5 U.S.C. § 551(4), (5), (6), and (7). There is also an attempt to apply different standards of review to the two types of proceedings. See 5 U.S.C. § 706, making the substantial evidence test applicable to adjudicative proceedings under §§ 556 and 557, and thus, by implication, not applicable to a § 553 proceeding. 26 The Natural Gas Act, however, does not attempt to draw such a clear line. It refers more or less indiscriminately to rules, regulations, and orders. 3 It provides for court review at the behest of any party to a proceeding under the Act who is aggrieved by an order issued by the Commission in such proceeding (§ 19(b), 15 U.S.C. § 717r(b); it provides that (t)he finding of the Commission as to the facts, if supported by substantial evidence, shall be conclusive (id.). And as we have seen, § 10(a) expressly provides that periodic reports, such as Form 40, can be prescribed by rules and regulations or order. 27 Thus we are reviewing, under authority of the Natural Gas Act, an order adopting and effectuating a rule or regulation as authorized under that Act, in a proceeding prescribed under the Administrative Procedure Act, but under a standard embodied in the Natural Gas Act. 28 Under comparable circumstances some courts have read the substantial evidence test as the approximate equivalent of the arbitrary and capricious test. Associated Industries of N.Y.S. v. U.S. Dept. of Labor, 2 Cir., 1973, 487 F.2d 342, 347-50. Under this standard of review, the court only requires that the agency offer some reasoned explanation. Id. at 354. This seems to indicate that no evidentiary record is required to support the factual premises of the agency if the rule is accompanied by a reasonable statement of why the agency finds the facts to be as it finds them to be. See also Phillips Petroleum v. FPC, 10 Cir., 1973, 475 F.2d 842. 29 We think, however, that Congress expected greater scrutiny when the enabling statute contains a substantial evidence test. The mere statement of a rationale by the agency, without any evidentiary support, does not provide the reviewing court with a record upon which it can determine whether the factual findings are supported by substantial evidence. As Judge Leventhal has noted in remanding an order to the agency to compile a more complete record, (i)t is not consonant with the purpose of a rule-making proceeding to promulgate rules on the basis of inadequate data, or on data that . . . is (sic) known only to the agency. Portland Cement Assn. v. Ruckelshaus, 1973, 158 U.S.App.D.C. 308, 486 F.2d 375, 393. 30 We believe that the dilemma between the time and cost saving advantages of informal rulemaking and the need for an adequate record on review can be avoided if we require that a notice and comment record permitted under § 553, while it need not be the formal adjudicative record required under §§ 556 and 557, must contain sufficient factual data, however informally presented, to provide substantial evidentiary support for the action taken. If the Commission does not have the needed data, section 14 of the Act, 15 U.S.C. § 717m, gives it ample tools with which to obtain them. 31 As the District of Columbia Circuit noted in adopting a similar approach: 32 There is no reason . . . to conclude that Congress in establishing these limits intended to preclude all the possible formulations that might lie in between the two extremes. 33 Mobil Oil Corp. v. FPC, 1973, 157 U.S.App.D.C. 235, 483 F.2d 1238, 1253. Different issues may lend themselves to varying types of procedures, and the Commission should 'realistically tailor the proceedings to fit the issues before it.'  Id. at 1252. 34 In this case, we look to the record to see whether it contains substantial evidence which supports a conclusion that the reporting burden on the producers is outweighed by the Commission's need to have reservoir data. While a detailed explanation might be sufficient to establish that there is need for the data, there must, at least in the face of objection, be evidence that the data are reasonably available to the producers. This does not mean that the Commission must have conducted an adjudicative hearing, or, for that matter, any oral hearing. It only means that before the Commission can conclude that its need outweighs the producers' burden, in the face of a strong contrary showing, it must show that the judgment is reasonably supported by substantial evidence which appears somewhere in the record. 35 The foregoing, we think, is consistent with the views expressed by the Supreme Court in the Permian Basin Area Rate Cases, 1968, 390 U.S. 747, 88 S.Ct. 1344, 20 L.Ed.2d 312. There the Commission in attempting to carry out what is perhaps its most basic function, rate making, by means of individual adjudicative procedures, had gotten hopelessly bogged down. It then took a different approach a rulemaking type of procedure looking toward the establishment of area maximum rates. In reviewing the orders that resulted from the proceeding, the Court said (p. 767, 88 S.Ct. p. 1360): 36 Section 19(b) of the Natural Gas Act provides without qualification that the finding of the Commission as to the facts, if supported by substantial evidence, shall be conclusive. More important, we have heretofore emphasized that Congress has entrusted the regulation of the natural gas industry to the informed judgment of the Commission, and not to the preferences of reviewing courts. A presumption of validity therefore attaches to each exercise of the Commission's expertise, and those who would overturn the Commission's judgment undertake the heavy burden of making a convincing showing that it is invalid because it is unjust and unreasonable in its consequences. FPC v. Hope Natural Gas Co., supra, (320 U.S. 591), at 602 (64 S.Ct. 281, at 288, 88 L.Ed. 333). 37 We apply the same principles here. 38
39 The producers claim that the Commission's adoption of Form 40 is arbitrary and capricious because it places a severe burden on natural gas producers, because it is duplicative, the necessary information being available from other agencies, and because the Commission has no regulatory need for the data demanded. After summary consideration of each of these contentions, the Commission concluded by a three to two vote: 40 We find that any burden that may be imposed upon the natural gas industry as the result of our adoption of FPC Form No. 40 is substantially outweighed by our need to know the status of the nation's proved reserves of natural gas. 41 (R. 587) 42 As to this, there was a vigorous dissent. 43 The above-quoted decision of the Commission is a policy decision, and, as such, may only be overturned on review if found to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. 5 U.S.C. § 706(2)(A). However, under 15 U.S.C. § 717r(b), that policy judgment may only pass this test if the factual premises upon which it rests are supported by substantial evidence, 15 U.S.C. § 717r(b). As the District of Columbia Circuit has noted, the object of review is to determine whether a reasoned conclusion from the record as a whole could support the premise on which the Commission's action rests. City of Chicago v. FPC, 1971, 147 U.S.App.D.C. 312, 458 F.2d 731, 744. 44 Our review of the record convinces us that the factual premises upon which the Commission's decision rests are not supported by substantial evidence. There is no evidence from which the FPC could conclude that the data required on Form 40 on a by reservoir basis were or could easily become available. The only evidence is to the contrary. There is no evidence, but only assertion, that the Commission has a regulatory need for the data in the form required, and none upon which to base a finding as to whether the necessary data were or were not available from other agencies of the federal government. 45 Although there was no evidence before the Commission to contradict the unanimous statements of the producers that natural gas reserve data are not kept by them on a by reservoir basis and that such data would be extraordinarily expensive to obtain, the Commission majority found that (t) here is little doubt that the information required to be submitted on FPC Form No. 40 is possessed by the respondents. (R. 574) The sole basis for this factual conclusion is that the companies are required annually to report the same data to the Internal Revenue Service under the Tax Regulations, 26 C.F.R. § 1.611-2(g) (1975). This assertion is simply wrong. The portion of the regulation on which the Commission relies deals with information as required . . . with respect to each such mineral property or improvement. . . . The word property is then defined in 26 C.F.R. § 1.614-a as each separate interest owned by the taxpayer. Thus, the data required by the I.R.S. are based on ownership, lease, or working interests, not on a reservoir basis as the Commission requires in Form 40. The Commission's factual determination that the data required are available is not supported by any evidence, much less by substantial evidence. 46 The producers do not claim that the Commission has no regulatory need for reserve data; they only claim that the Commission does not need those data on a reservoir basis. The Commission disagrees, but again without any evidence in the record to contradict the claim. The only statement in its order that the Commission makes about its regulatory need for reservoir data is too general to be helpful. Therein the majority states: 47 Furthermore the submission of company held reserves information without the submission of individual reservoir data . . . would detract from the reliability of the submissions and would materially impair the Staff's ability to efficiently audit the underlying basis for the company wide estimates without a painstaking investigation of company records. 48 (R. 576) 49 There is no explanation of why data submitted on a field, lease interest, or any other commonly recorded and reported basis are less reliable without accompanying data on a reservoir basis. Likewise, no reasons are given which would explain why by reservoir data are needed in the auditing process. While we can conceive of possible explanations for such statements, an agency's findings must be explained, not merely explainable. Environmental Defense Fund v. EPA, 1972, 150 U.S.App.D.C. 348, 465 F.2d 528, 539. And see Securities and Exchange Comm. v. Chenery, 1943, 318 U.S. 80, 95, 63 S.Ct. 454, 87 L.Ed. 626; Friendly, Chenery Revisited: Reflections on Reversal and Remand of Administrative Orders, 1969, Duke L.J. 199. Again, the Commission's factual finding is not supported by substantial evidence. 50 Finally, as for the producers' claim that all necessary data are available from other federal agencies, no evidence on the record suggests, nor does the FPC claim, that other agencies do not have substantial natural gas reserve data. The Commission majority's only response to this claim is that: 51 It has not been shown and it cannot be shown that such data will be useful to this Commission nor that such data will ever be available to us. Information collected by an agency for one regulatory purpose under one statute on a confidential basis could not in fairness to the parties submitting such data be disclosed to the public or other agencies without some hearing with respect to the disclosure of such data and findings that public disclosure overrides private needs for non-disclosure of proprietary data. 52 (R. 576) 53 That the Commission should rest its rejection of the producers' claim of administrative duplication primarily on the grounds of its inability to get such confidential data from the other agencies is remarkable, considering the Commission's own position on the public availability of information submitted on Form 40. It is also difficult to accept the notion that fairness to parties submitting data to other agencies cuts off Commission access to the data when the parties for whom the Commission purports to be so concerned are the same parties who are asking that the Commission seek that information from the other agencies. We are also unable to find any evidence in the record on the basis of which it could be found that data obtained from other agencies would be of no use to the Commission. 54 Once again, the Commission's factual finding is not supported by substantial evidence. Moreover, the Commission has flatly disregarded the Congressional injunction in Section 11(c) of the Act (15 U.S.C. § 717j(c)): 55 In carrying out the purposes of this chapter, the Commission shall, so far as practicable, avail itself of the services, records, reports, and information of the executive departments and other agencies of the Government, and the President may, from time to time, direct that such services and facilities be made available to the Commission. 56 The Commission attempts to avoid the issues raised by the producers by arguing that it is the General Accounting Office, not the Commission, that must weigh the reporting burden against the public need for the requested data. (R. 576) While it is true that 44 U.S.C. § 3512 orders the GAO to review the relative interests whenever an administrative agency attempts to collect information from an industry, subsection (d) of that section states that the independent regulatory agency shall make the final determination as to the necessity of the information in carrying out its statutory responsibilities and whether to collect such information. Thus it is the Commission, not the GAO, that has final responsibility. 57 The Supreme Court has held that even though one agency may have primary responsibility for making certain findings, other agencies must also assume such responsibility when the finding relates to their specific responsibilities. See Gulf States Utilities Co. v. FPC, 1973, 411 U.S. 747, 757-62, 93 S.Ct. 1870, 36 L.Ed.2d 635 (holding that the Commission must consider antitrust policies); Udall v. FPC, 1967, 387 U.S. 428, 87 S.Ct. 1712, 18 L.Ed.2d 869 (holding that the Commission must consider all adverse environmental impacts of its rulings). Thus, the Commission cannot here avoid its responsibility for basing its policies in supportable fact. 58 We conclude that the factual premises upon which the Commission's orders rest are not supported by substantial evidence. The Commission's brief is full of factual statements and rationalizations that do not appear anywhere in the record. This will not do. We review the Commission's decision, not its counsel's post hoc rationalizations. 59