Opinion ID: 270900
Heading Depth: 1
Heading Rank: 1

Heading: The Orders and Rate Settlements

Text: 5 A review of the pertinent orders and rate settlement agreements is essential to an understanding of the case.
6 United's Refunds. 7 The challenged orders relate to three United increased rate filings (F.P.C. Docket Nos. RP61-18, RP63-1, and RP65-1) filed January 18, 1961, June 15, 1962, and July 15, 1964, respectively. The rates became effective, after the statutory five months suspension period, June 15, 1961, January 1, 1963, and February 1, 1965. The first two increased rates were put into effect subject to refund after the suspension period. The rates proposed in RP65-1 were reduced, before becoming effective, in accord with a settlement agreement, between United and its customers, approved by the Commission order of December 23, 1964. 8 (1) In Opinion No. 428, 31 F.P.C. 1180 (May 14, 1964), Opinion No. 428-A, 32 F.P.C. 687 (September 2, 1964) and Opinion No. 428-B, 32 F.P.C. 879 (September 30, 1964), the Commission settled most of the issues in United's RP63-1 rate increase proceeding. In Opinion No. 428 the Commission found that United's rates in effect from January 1, 1963 were excessive and ordered United to refund the excessive rates to its pipeline customers and ordered all jurisdictional customers of United to flow through to their customers all refunds received from United. The customers were not required to make refunds, if they protested, until they had been afforded a hearing. 9 In Opinion 428-A the Commission denied a rehearing but modified the order relating to refunds by specifying that United should retain all refunds due its customers under Docket No. RP63-1, pending 'further order of the Commission directing disposition of those amounts'. Along with this modification, the Commission ordered United's customers, including the petitioner, to file reports indicating whether they would flow through or retain any amounts United might refund. The Commission, without passing on the contention that it could not order refunds by United's customers, explained the procedure as follows: 10 'Concededly, this is a novel question of great regulatory importance. But, we are here not concerned with the justness or reasonableness of these customers' present rates, per se. Rather, we are here faced with the proper and equitable distribution of a fund of money created by our own process. Under the Natural Gas Act we are concerned with the protection of the public interest involved in '   selling natural gas for ultimate distribution to the public.' Merely ordering United to make refunds to its immediate customers could not fully discharge our responsibilities. We think, however, some modification of ordering paragraph (J) is appropriate to conform to the procedure recently prescribed in our order approving a settlement in Humble Oil & Refining Company, 32 FPC 49, Docket Nos. G-9287 and G-9288, issued July 8, 1964, where we provided that Humble should compute and report the amount of potential refunds and retain these amounts subject to further order. In general we shall follow this procedure here.' 32 F.P.C. at 695 4 11 The same modifying order (No. 428-A) directed United to retain all refunds that might thereafter become due to the petitioners' customers and to United's jurisdictional customers as a result of an earlier United settlement (Docket No. RP61-18) approved by Commission order March 12, 1962. The Commission denied United's application for a rehearing in Opinion No. 428-B September 30, 1964. 12 In No. 22031 (Natural Gas) and in No. 22041 (Texas Eastern), the petitioners attack the order and Opinion No. 428, as modified by Nos. 428-A and 428-B, in United's last decided rate case No. RP63-1, ordering United temporarily to retain the amounts refundable to its customers under its 1961 and 1963 dockets. 13 (2) In the United 1964 Rate Settlement Approval Order, 32 F.P.C. 1515, (December 23, 1964) the Commission approved the settlement of all United's rate increase cases then pending before the Commission or this Court including No. RP65-1. The Commission again directed United to retain all amounts refundable to Texas Eastern under the 1962 United settlement (No. RP61-18) and 1964 opinions (No. RP63-1). The order also provides for retention of refunds arising under this new RP65-1 settlement. February 19, 1965, in denying Texas Eastern's application for a rehearing, the Commission explained its position as follows: 14 'Texas Eastern advances a number of reasons why it believes any refusal on the Commission's part to order United to pay over the amounts in question to it without condition or limitation would be legally or equitably unsound. We do not believe it necessary or appropriate to consider these claims here, since they are all considerations which Texas Eastern can restate and which we will consider in reaching our final determination upon the basis of the factual record made in the hearing to be held in this matter.    Texas Eastern will, of course, be fully heard on all relevant claims before we reach any conclusion adverse to its claims to entitlement to the refunds from United. We reiterate that we have not yet determined whether it is or is not entitled to retain any or all of such amounts. 15 However, Texas Eastern's apparent view that the Commission must decide the validity of its claims on the pleadings and cannot in the exercise of its discretion defer such determination until after it can do so in the light of a full hearing record in an ancillary proceeding in which other interested parties will also have an opportunity to present factual information and legal arguments they may deem material is clearly lacking in merit.' 33 F.P.C. at 304-305. 16 In No. 22462 Texas Eastern petitions for review of this settlement order.
17 In No. 22870 Texas Eastern petitions for review of an April 21, 1965 order (RP65-27) directing Humble Oil & Refining Company to release a portion of refundable amounts the Commission had ordered frozen July 8, 1964 (32 F.P.C. 49, 52). In that order the Commission explained at length its purposes and proposed procedure: 18 The purchasers of gas under the various rate schedules to which this settlement proposal relates are all natural gas pipeline companies subject to our jurisdiction under the Natural Gas Act, and many of these purchasers in turn have customers who are natural gas pipelines. Some of these pipeline customers of Humble or of Humble's customers are required under express provisions of outstanding orders of this Commission to flow through to their customers all or part of any of the refunds they may receive from Humble as a result of this settlement; others may choose to do so in the absence of such express provisions. But in view of our duty to insure that the ultimate consumers of gas actually receive all of the benefits of our rate regulation to which they may be entitled, we shall take action here to assure that, within the limits of our jurisdictional reach, the refunds to be ordered actually flow to those parties legally and equitably entitled thereto. 19 We are not here determining that a pipeline purchaser from Humble or one down the line in the chain of resales between the producer and ultimate consumer are never entitled as a matter of law or equity to retain all or part of the refunds received from a supplier. We conclude only that merely because a pipeline is under no special express requirement to flow refunds through to its customers and did not previously pass on to its customers the producer's price increase (or higher gas costs arising from sales temporarily certified at prices higher than that fixed in the settlement), does not determine that it is entitled to retain such refunds. 20 In the April order before us, the Commission directed Humble to release a portion of its refunds to United, Southern Natural Gas Company, and Texas Gas Transmission Corporation. At the same time it directed these three companies to defer the flow-through of any portion of these refunds attributable to Texas Eastern. 5 No. 22870 was not consolidated with the cases now before us. However, because of the similarity of No. 22870 with the cases now before us, the Court and the parties considered the petitioner's motion for a stay and the respondent's motion to dismiss the petition.
21 In its order of February 19, 1965, denying Texas Eastern's application for rehearing in RP63-1, the Commission explained that it would pass on the merits of Texas Eastern's contentions in the ancillary proceeding contemplated by the settlement order as to those customers who claimed a right to retain for themselves refunds from United. October 4, 1965, the Commission initiated such a proceeding and ordered Texas Eastern to prepare reports by November 19, 1965, in preparation for hearings on issues involved in distribution of the retained refunds. Texas Eastern moved October 13, 1965 under the All Writs Section (28 U.S.C. 1651) for a stay of the refund hearing order to protect this Court's jurisdiction in its review of the retention orders. The Commission thereupon postponed the effective date of the hearing order to January 3, 1966 and later extended it to a date to be fixed after the issuance of this opinion. Texas Eastern has also filed a petition (No. 22351) for review and stay of this hearing under Section 19 of the Act.
22 (1) January 25, 1961 the Commission approved the Texas Eastern 1961 Rate Settlement (Docket Nos. G-12706 and G-18841), 25 F.P.C. 172. This settlement established rates for Texas Eastern's future sales based upon a test year cost-of-service determination. The settlement takes into account rate increases then being paid by Texas Eastern to some of its suppliers (including United), under pending applications that might later be denied. Texas Eastern agreed to flow through to its own customers any refunds that might be received from its suppliers in certain of their pending proceedings listed in an appendix to the agreement. The flow-through provision would apply from December 1, 1959 to the effective date of Texas Eastern's next rate increase. Among the applications listed were six of United filings: Nos. G-9547, G-10592, G-12801, G-15360, G-18406, and RP60-2. 23 (2) The United 1962 Rate Settlement, 27 F.P.C. 504 (March 12, 1962) covered all the dockets enumerated in the appendix to the Texas Eastern 1961 settlement plus an additional docket, No. RP61-18, based on a 1961 United application not mentioned in the 1961 Texas Eastern settlement. As a result of this 1962 settlement, United made refunds to Texas Eastern both for flow-through to Texas Eastern's customers and for Texas Eastern's own enjoyment under Docket No. RP61-18. 24 The settlement in Docket No. RP61-18 also obligated United to flow through future refunds received from its suppliers to Texas Eastern and other jurisdictional customers. Accordingly, the Commission's order issued March 12, 1962 approving the settlement, required that United 'shall pass on to its jurisdictional customers    such refunds including interest as it may receive from its suppliers under Sections 4 and 7 proceedings under the Natural Gas Act in accordance with Article V' of the settlement agreement. 25 Texas Eastern asserts, as fundamental to its position, that it absorbed a rate increase as a result of the United settlements. Texas Eastern contends that (a) the new United rates were higher than the cost of gas reflected in its own rate settlements for the periods covered; and (b) that the company did not 'track' United's increases with subsequent increases to their own customers. Texas Eastern asserts a net increase of $1,336,000 a year brought about by the United rate changes in RP61-18 and RP63-1, or $2,225,000 for the 20 month period covered (January 1, 1963 to August 31, 1964). 26 The Commission concedes that petitioners did not 'track' the United rate filings with applications of their own. And it agrees, for sake of argument, that the new United rates might be higher than the old. But the Commission urges that even the $2,225,000 United rate increase Texas Eastern allegedly absorbed falls short of the $6,204,696 in refunds claimed for the same 20 month period. The Commission would look not only to the difference in United's rate schedules, but also to petitioners' 'actual average cost of gas' for the period, including zone differentials and average load factors. In short, the petitioners are in sharp disagreement with the Commission on the increase-decrease issue. The Commission has made no findings on the issue, however, and has discussed it only in the briefs, arguing that the present record is insufficient to make adequate findings on this point.