Opinion ID: 339939
Heading Depth: 2
Heading Rank: 2

Heading: The Power to Change Contract Prices

Text: 69 Two decisions of the Supreme Court, read conjunctively, make it crystal clear that the commission possesses only limited power to raise prices for natural gas above those contractually fixed by the parties. In United Gas Pipe Line Company v. Mobile Gas Service Corporation, 256 a regulated pipeline supplying natural gas to a distributor filed with the Commission a new rate schedule purporting to increase the price of its gas above that specified in its contract with the distributor. The Commission rejected the latter's complaint but, on review, the Court held that the Act did not empower the pipe line to unilaterally change the contract rate. 257 The Act, the Court stated, evinces no purpose to abrogate private rate contracts. To the contrary, by requiring contracts to be filed with the Commission, 258 the Act expressly recognizes that rates to particular customers may be set by individual contracts. 259 Rejecting the contention that Sections 4(d) and (e) 260 and 5(a) 261 are alternative rate-changing procedures, the court said: 70 These sections are simply parts of a single statutory scheme under which all rates are established initially by the natural gas companies, by contract or otherwise, and all rates are subject to being modified by the Commission upon a finding that they are unlawful. The Act merely defines the review powers of the commission and imposes such duties on natural gas companies as are necessary to effectuate those powers; it purports neither to grant or to define the initial rate-setting powers of natural gas companies. 262 71 Section 5(a), authorizing the Commission to set aside or modify any rate found to be unjust, unreasonable, unduly discriminatory, or preferential[,] the Court continued, is neither a 'rate-making' nor a 'rate-changing' procedure. It is simply the power to review rates and contracts made in the first instance by natural gas companies and, if they are determined to be unlawful, to remedy them. 263 And since the Act does not define the power of natural gas companies either to make or change rates and contracts, 264 [t]he obvious implication is that, except as specifically limited by the Act, the rate-making powers of natural gas companies were to be no different from those they would process in the absence of the Act: to establish ex parte, and change at will, the rates offered to prospective customers; or to fix by contract, and change only by mutual agreement, the rate agreed upon with a particular customer. 265 So, the Court concluded, there is nothing in the structure or purpose of the Act from which we can infer the right, not otherwise possessed and nowhere expressly given by the Act, of natural gas companies unilaterally to change their contracts. 266 72 In Mobile, the Court also noted, however, that this interpretation, while precluding natural gas companies from unilaterally changing their contracts simply because it is in their private interests to do so, does not deprive them of an avenue of relief when their interests coincide with the public interest. 267 The Court explained: 73 Section 5(a) authorizes the Commission to investigate rates not only upon complaint of any State, municipality, State Commission, or gas distributing company but also upon its own motion. Thus, while natural gas companies are understandably not given the same explicit standing to complain of their own contracts as are those who represent the public interest or those who might be discriminated against, there is nothing to prevent them from furnishing to the Commission any relevant information and requesting it to initiate an investigation on its own motion. And if the Commission, after hearing, determines the contract rate to be so low as to conflict with the public interest, it may under Sec. 5(a) authorize the natural gas company to file a schedule increasing the rate. 268 74 On the same day Mobile was decided, the Court announced its opinion in FEderal power Commission v. Sierra Pacific Power Company. 269 The question there was whether the Commission could increase the rate specified in a contract by which an electric utility agreed to supply power to a distributor. The Commission allowed the increase solely on the ground that the contract rate yielded less than a fair return on the utility's net invested capital. 270 The asserted basis for the increase was Section 206(a) of the Federal Power Act 271 which, similarly to Section 5 of the Natural Gas Act, authorizes the Commission to fix the just and reasonable rate for electricity if the existing rate is unjust, unreasonable, unduly discriminatory, or preferential. 272 The Court pointed out that while it may be that the Commission may not normally impose upon a public utility a rate which would produce less than a fair return, it does not follow that the public utility may not itself agree by contract to a rate affording less than a fair return or that, if it does so, it is entitled to be relieved of its improvident bargain. 273 In such circumstances, said the Court, the sole concern of the Commission would seem to be whether the rate is so low as to adversely affect the public interest--as where it might impair the financial ability of the public utility to continue its service, cast upon other consumers an excessive burden, or be unduly discriminatory. 274 Observing that the purpose of the power given the Commission by Sec. 206(a) is the protection of the public interest, as distinguished from the private interests of the utilities, 275 the Court deemed it clear that a contract may not be said to be either 'unjust' or 'unreasonable' simply because it is unprofitable to the public utility. 276 75 These decisions furnish the standard by which the administrative action under scrutiny must be gauged. In recent years, the Supreme Court has applied them to uphold the Commission's refusal to fix minimum area rates for producers at levels above their contract prices. 277 The regulatory system created by the Act the Court declared, contemplates abrogation of these agreements only in circumstances of unequivocal public necessity. 278 We ourselves have applied the Mobile-Sierra doctrine, 279 and the Commission has relied on it to justify its refusal to override Southern Louisiana producers' contract prices with higher minimum area rates. 280