Opinion ID: 106611
Heading Depth: 1
Heading Rank: 2

Heading: the dismissals and their consequences.

Text: The real problem, however, is not so much in Phillips' 1954 level, for that has long since gone by the board and the consumer may as well forget it. The increased levels that became effective between 1954 and the date of the decision in April 1959 are the main rub. The Examiner understood this when, in his final order, he directed Phillips to file uniform rates which would, when applied to sales made in 1954, bring Phillips its 1954 costs and allowed return. He further directed that the same schedule of rates be applied to all sales made subsequent to 1954 and through the date of his decision and to all sales thereafter. Under this requirement if the subsequent cost of service did increase and was not offset by increased revenues the company could recoup itself with § 4 rate increases. This the Commission refused to do and thereby left Phillips free to collect rates as high as 23.5¢ per Mcf. and subject to no refund. The Commission excused itself on the ground that there would be no reason to fix Phillips' rates on a cost basis since it was going to adopt the area plan. It also found the staleness of the test year prevented its application to subsequent years but obviously this was not the reason. In the first place, it used the stale test year of 1954 to justify its finding of deficit through 1958. In addition all parties had agreed upon that year. Investigation covered 1955 and 1956. Hearings began in June 1956 and ran through 1957. Phillips itself presented 1956 data, the latest full year at the time of the closing of the hearings. They were used to show that the cost experience of 1954 was identical for all practical purposes with 1956 and the Examiner so found. It required 15 months for the Examiner to decide the case and prepare a more comprehensive and detailed report which reflected his clear grasp of the problems. See 24 F. P. C. 590-818. Thus, like many major administrative proceedings, this one took five to six years to complete. But, I ask, if this makes the test year stale what of all the other major rate cases? Those that reach us not infrequently have been in the Commission for an equal or longer period. Even if stale, the Commission should not have dumped the whole investigation, hearing, Examiner Report, and staff work down the drain. Before doing so, and in the same opinion, it had already laid down detailed standards in the case for determining cost of service. Indeed it had not only determined the cost to Phillips but had formulated the standards governing its rate of return and calculated its allowable return thereunder. All of this it then discarded. Admitting that additional statistics for subsequent years might have been necessary, such data would have been concerned solely with the application of these already determined standards to those years. The dismissal of the § 4 (e) and § 5 (a) cases is the more unfortunate and indicates a disturbing disregard of the consumer interest. On the § 4 (e) cases the Court says most of Phillips' increased rates now in effect are the subject of pending § 4 (e) proceedings . . . . At this very moment Phillips is making sales at nonrefundable rates as high as 23.5¢ per Mcf. which produce annual revenues more than $3,000,000 in excess of the Commission's SGP 61-1 price levels. [7] On this score in 1956 the Commission authorized a large number of § 7 high price sales without providing for any conditions. This action was reversed in Atlantic Refining Co. v. Public Service Comm'n of New York, 360 U. S. 378 (1959), and like cases. Although § 5 proceedings have been filed on these cases there are substantial numbers of other such sales that have never been tested and are not now contested. Section 5 proceedings operate prospectively and so, of course, all of the sales are nonrefundable. The statistics indicate that of the 1960 revenue received by 13 major producers about $250,000,000 (roughly 83%) is not subject to refund. [8] Furthermore, the Court says that the rates covered by the § 4 (e) proceedings dismissed herein were `locked in,' their validity for the future was not at issue; the sole question was whether all or any part of the increases had to be refunded by Phillips. The fact is that the Commission has used this same stale 1954 price year which it discarded, including its income level, in determining that refunds were not due for the subsequent four years and in dismissing those proceedings. Hence dismissal forecloses any recovery of excess rates for the periods covering those proceedings, i. e., the four-year period 1954-1958, which the Commission has found non-refundable. As I have shown, the 1954 rate as determined by the Commission has serious questions as to its legality. Certainly the subsequent yearsbased entirely on it should not have been dismissed. While it may be true, as the Court says, that Refund obligations . . . do not provide as much protection as the elimination of unreasonable rates it must be remembered that here the § 5 (a) case was also dismissed. Why this precipitous action? The proceedings had been on the books for six years! Why did not the Commission leave them pending until final determination of Phillips' responsibility on all of its more than 95 filings? The Commission makes no answer. There is none. The dismissal of the § 5 (a) proceeding was likewise unjustified. Continuation of the proceeding would have required a remand but the conclusion of the Court that several years might have elapsed before a determination of the issue is a bad guess. It has been two years since this dismissal and there is nothing in sight as yet for a final decision on the Permian Basin area proceeding. The Commission has 22 more areas to go. Meanwhile all areas, including Phillips', have escaped regulation for the years 1954-1963, a total of nine years. If in 1960 the Commission had remanded the § 5 (a) proceeding it could long since have been decided, since the enormous increase in Phillips' revenue for 1960 ($45.6 million in 1954 to $90.8 million in 1960) would have definitely shown an excessive rate. The Examiner had found, contrary to the conclusion of the Court, that the 1956 cost of service was not significantly higher than 1954. All that would have been necessary was to project this to the three-year period 1957-1959, inclusive. Phillips, I wager, could have done this almost overnight, if it did not already have the figures available. The Commission in determining the standards to be used had allowed every cost item save the allocation on associated gas which could have been easily corrected on the percentages involved. The remainder of Phillips' system of accounting had received the approval of the Commission and would have readily revealed its costs. The Court says that a new § 5 (a) proceeding can be filed. This is true, but if it were filed tomorrow, more than nine years will already have been lost to the consumer! The Commission, in my view, had no valid excuse for dismissing the § 4 (e) and § 5 (a) proceedings. It followed exactly the opposite course in Hunt Oil Co., 28 F. P. C. 623. The Court dismisses this case as inapposite but its technical distinction merits no discussion. As I see it the conclusion in Hunt not to dismiss the pending proceedings is in direct conflict with the action taken here. I have considered this record page by pageline by lineand have given the Commission's action my most careful attention. There is but one conclusionnamely, that the Commission erred in its determination of the 1954 cost of service and return; and in dismissing the § 4 (e) and § 5 (a) proceedings, rather than concluding the case by determining a just and reasonable rate, it acted in an arbitrary and unreasonable manner entirely outside of the traditional concepts of administrative due process.