Opinion ID: 339939
Heading Depth: 2
Heading Rank: 1

Heading: Certification of Conventional Natural Gas Sales

Text: 35 A conventional gas-sale contract sets a price for each unit--each Mcf--of gas to be supplied, frequently with a provision escalating the price. When a sale is sought to be certified, the price is subject to scrutiny by the Commission in the exercise of its authority, under Section 7 of the Natural Gas Act, 150 to attach such conditions to the certificate as are necessary in the public interest. 151 36 The Supreme Court's decision in Phillips Petroleum Company v. Wisconsin 152 opened the door to Commission regulation of sales by producers to interstate pipelines, and Sections 4 153 and 5 154 of the Act armed the Commission with general authority to establish just and reasonable rates for the gas sold. But full-fledged rate proceedings are, by their very nature, unsuited to the needs of price review when a producer seeks certification of a sale. 155 Such proceedings are extraordinarily time-consuming, 156 and any relief from excessive rates emanating from those under Section 5 is prospective only. 157 Consumers were thus exposed to irremediable excessive charging while rate-reform proceedings were pending. 158 Even when area rate proceedings came into vogue as the preferred method of setting producer rates, 159 the exigencies of interim price protection remained. 160 37 In the CATCO litigation, 161 the Supreme Court focused on the problem, emphasizing the vital importance of price regulation under Section 7: 38 [T]he inordinate delay presently existing in the processing of Sec. 5 proceedings requires a most careful scrutiny and responsible reaction to initial price proposals of producers under Sec. 7 ... The fact that prices have leaped from one plateau to the higher levels of another ... [makes] price a consideration of prime importance. This is the more important during this formative period when the ground rules of producer regulation are being evolved .... The Congress, in Sec. 7(e), has authorized the Commission to condition certificates in such manner as the public convenience and necessity may require. Where the proposed price is not in keeping with the public interest because it is out of line or because its approval might result in a triggering of general price rises or an increase in the applicant's existing rates by reason of favored nation clauses 162 or otherwise, the Commission in the exercise of its discretion might attach such conditions as it believes necessary. 163 39 Following CATCO, the Commission undertook to assure that the prices at which producer sales were certificated did not exceed in-line prices--the field prices at which the bulk of contemporaneous gas transaction not suspect took place. 164 The Supreme Court, in turn, approved the practice as a means of holding the line on prices in the interest of consumer protection until the Commission could determine just and reasonable rates for the gas. 165 This technique streamlined the Section 7 certification process, and the Commission was enabled to certificate sales on the basis of comparative pricing alone, without need to delay the process by indulgence in orthodox rate-making. 166 40 The Act spells out the processes by which producer rates set at in-line levels may be altered. After Section 7 certification, a producer may, under Section 4, vie for a higher price by the simple expedient of a 30-day notice to the Commission and the public. 167 The Commission may, however, suspend the proposed increase for a maximum period of five months while it investigates and acts on the application. 168 Before it may finally approve the increase, the Commission must find that it does not exceed the just and reasonable rate for gas of its vintage, 169 and the burden of proof on that issue is on the applicant. 170 Pending the outcome of the proceeding, the producer remains under a liability to refund the excess of any increase above the eventual just and reasonable price. 171 And should the Commission see a need to launch its own investigation of a producer's initial rates, it may institute a proceeding for that purpose under Section 5 of the Act. 172 41 Case-by-case determination of just and reasonable producer rates on the traditional cost-of-service basis, however, proved to be an intractable process which threatened to inundate the Commission's regulatory function. 173 The solution which the Commission eventually devised was the previously-mentioned scheme of area-wide rate determinations. 174 The scheme won Supreme Court approval in the Permian Basin Cases 175 and, in the Court's words, began a new era in the regulation of natural gas producers. 176 The Commission's regulatory effort with respect to Rayne Field, as we have seen, was destined to reach that era. 177