Document: 439 U.S. 508 99 S.Ct. 765 58 L.Ed.2d 773 FEDERAL ENERGY REGULATORY COMMISSION, Petitioner,v.PENNZOIL PRODUCING COMPANY et al. No. 77-648. Argued Nov. 28, 1978. Decided Jan. 16, 1979. Syllabus Respondent pipeline company purchases for resale in the interstate market natural gas produced from a Louisiana field by respondent oil companies (Producers), whose prices are subject to regulation petitioner Commission. Under their lease agreements with field's owner, Producers pay royalties pegged "market value" or price" of gas. Following dispute over lessor's contention that those terms related unregulated price intrastate rather than lower Commission-regulated rates, parties ultimately agreed increased royalty payments based on values Alternatively would abandon delivery portion and deliver it instead as payment kind lessor. The settlement agreement was be binding only if rate increase alternative abandonment approved Commission, which then petitioned special relief. Commission denied relief, holding contrary its mandate permit costs passed Producers' customers were calculated any basis other just reasonable involved, and, relying part FPC v. Texaco, Inc., 417 380, 94 2315, 41 141, concluded "not free" allow value an market. also request. Court Appeals reversed remanded, 5 Cir., 553 F.2d 485, concluding had "authority consider reasonableness incurred," "necessarily requires consideration price"; failed explain why differ production costs; should determine merits requests. court, following opinion Southland Royalty Co. FPC, 543 1134, disagreed issue. Held : 1. Natural Gas Act does not deny authority give relief individual producers where escalating function of, otherwise upon, product sale is regulated misconstrued Texaco contrary. Pp. 514-517. 2. encroached upon Commission's rate-making when strongly suggested required grant long imprudent granted will merely sustain profits, since obliged automatically relieve bind facing prices. "All protected against, constitutional sense, rates fixed higher confiscatory level." supra, at 392, 2323. 517-519. 3. In view record, remand proper so first instance may clearly enunciate whether what extent area due costs, denied, adequately judgment. 519-520. 4. On issue, erred relied judgment later California Co., 436 519, 98 1955, 56 505. Moreover, questions unrelated considered remand. 520-521. vacated remanded. Stephen R. Barnett, Dept. Justice, Washington, D.C., petitioner. Jeron L. Stevens, Houston, Tex., Pennzoil Producing Thomas G. Johnson, Shell Oil Mr. Justice WHITE delivered Court. 1 major issue this case involves Federal Energy Regulatory herein, refuse applicable nationwide set Fifth Circuit aside have been decision under Act, 52 Stat. 821, amended, 15 U.S.C. § 717 seq., did exceptional pass through A secondary question 7(b) 717f(b), application our last Term 505 (1978), rev'g 1134 (CA5 1976). 2 * United Pipe Line (United) respondents (Producers) Gibson southern Louisiana. exceed established relevant proceedings.1 owner field, After commencement state-court litigation involving these references market,2 Commission,3 lessor reached whereby 78¢ per 1,000 cubic feet (increasing 1.5¢ year beginning 1976) 150% highest rate. alternative, However, allowed charge amount resulting permitted desired abandonment.4 3 referred subsequent petition supported intervenor United, Administrative Law Judge who, after hearing, petition. his review cases, ceiling while absolutely prohibited, available demonstrated "that [their] overall incurred operation particular well group wells Commission-established or, even more stringently, out-of-pocket expenses revenues." App. 171. administrative law judge neither Producer satisfied burden proof respect. Nor made 4 affirmed but took somewhat different approach.5 Acknowledging purposes no jurisdiction rates,6 nevertheless noted regulate charged sold commerce asserted "inconsistent" "contrary" involved. Relying 141 (1974), 55 F.P.C. 400, 404-405 (1976).7 order denying rehearing, said "does power base gas."8 Price thus without accepting rejecting findings respect relationship between revenues. request rejected determination above "to reflect cost 'market value' price' obligations." 487 1977). Asserting "has taken plus profit approach regulation," believed seeking expense, "do seek profits maintain margins already determined reasonable." Id., 488. doing price," production. Ibid. court considerations Mobil Corp. 283, 2328, 72 entitled "determination merits" rates. F.2d, 6 Based 1976), II 7 If read granting producer variance national accommodate forbidden circumstance, surely correct disagreeing Permian iBasin Area Rate Cases, 390 747, 88 1344, 20 312 (1968), urged "nothing Constitution require[s] provide exceptions rates," least revenues, pointed out procedure Brief O.T. 1967, Nos. 90 al., p. 64. Similarly, responding possibility certain percentage total used setting stated—in Appeals—that "the hypothetical stage becomes reality Commission." 1973, 73-437 62. This proceeded similar assumption, saying "in event affected individualized relief." U.S., 328, S.Ct., 2355. 8 None foregoing consistent proposition totally place them untenable position. scope discretion vested establish public interest, we could hold forbids regardless circumstances. 9 do understand extend such situations. Indeed, brief before states "with approval courts, [it] has policy authorize departures unless can show revenues See, e. g., Op. 699, 51 2212, 2279, aff'd, Power 520 1061 (C.A.5), certiorari 426 941 [96 2661, 49 394.]" Petitioner 34. suggest generally inapplicable cases because costs. 10 Nevertheless, initial rehearing indicated free' "it power" upon,9 Erroneously, think, sought support conclusions inTexaco, 399, 2327, reminded "[i]n subjecting anticompetitive conditions industry, Congress assumed 'just reasonable' conclusively reference price." We not, however, hold, increases tied gas." 13; see id., 19, 21. Our concern small might exempted indicate se unjust unreasonable purport circumscribe severely decide formulas methods employ ensure underscored wide See 387-393, 2321-2324. III 11 convinced, trenched ratemaking granted, profits. 12 Sections §§ 717c 717d, sustaining maximum areawide basis, "courts adopted within 'zone reasonableness,' " Basin 797, 1376. arriving "no single method need followed." Wisconsin 373 294, 309, 83 1266, 1274, 357 (1963). Specifically, adhere "rigidly cost-based much less one base[s] each producer's own costs." Oil, 308, 2346. While recognizing approach, 'high operators seriously . others,' Basin, 769, 1361, quoting Bowles Willingham, 321 503, 518, 64 641, 649, L.Ed. 892 (1944), refused invalidate inadequate proposal 'out pocket connection well' exceed[s] revenue 770-771, 1361-1362. 13 "[a] methodology approved" implicit conclusion whatever they enjoyed therefore must all increases, emphasizing simply price. It noted, employed purely cost-plus approach. To contrary, recognized "deviation[s] pricing" "found responsibility interests 'the interests' ." 308-309, 2346, 792, 1373. Furthermore, notion maintain, exclusion considerations, margin incompatible specific basic precept regulation. "The fixing prices, like applications police power, reduce property being regulated. But fact reduced mean invalid." Hope 320 591, 601, 281, 287, 333 (1944). decline. 14 Given unsure meaning Appeals' statement "were requests." think too into rising "is there prepared forestall declining claim "provide automatic adjustments compensate anticipated decided same day Mobil, faced acted arbitrarily failing pipelines large put direct eliminated, find themselves increase. "[R]equiring assume risk bargaining working balance involved." 2324. 16 Likewise, obligation 391-392, statutory if, determines reject requests presenting colorable thing,10 outside "zone reasonableness," 1375; Pipeline 315 575, 585, 62 736, 742, 86 1037 (1942). IV 17 Although narrowly confined functions remand, agree returned As said, despite indications opinions below failure address Judge's seem take position here recognition proceeding irrelevant. Expressing adherence 1975), cert. 941, 96 394 (1976), points make showing 34-35. At time, disaffirms suggestion sustained ground itself rely upon. agency's reluctance understandable, 395-397, 2325-2326; Burlington Truck Lines States, 371 156, 168-169, 239, 245-246, 207 (1962); SEC Chenery Corp., 332 194, 196, 67 1575, 1577, 91 1995 (1947). upshot that, given state course involved case, adequate explanation Cf. Lines, 167-168, 245. If, perhaps now suggests, forth followed this, proceed complete task reviewing Judge. V 18 With abandonment, apparent error here. appears us, unrelated. unavailable appear light. event, better wisdom vacate directions return entire further appropriate proceedings. 19 So ordered. STEWART POWELL case. time prescribed Opinion 598, Proceeding (Southern ), 46 86, enf'd sub nom. Placid 483 880 1973), aff'd (1974); 699-H, Just Reasonable National Rates Sales Gas, 1064 (1976). takes construction clauses federal law, "market" 35-37, n. 22. Compare Lightcap 221 Kan. 448, 562 P.2d 1, 434 876, 228, 54 156 (1977), pending, 76-1694; Kingery Continental F.Supp. 349 (WD Tex.1977), 149 U.S.App.D.C. 310, 319-320, 463 256, 265-266 (1971), 406 976, 92 2409, 32 676 (1972). Policy 1978, Pub.L. 95-621, 3351, wellhead gas, including dedicated market, December Act's ceilings. remain some differential previously separate agreements, consented additional release pursuant approval. framed "whether [the Commission] legally form either solely selling obligated receives 404 256 said: "In instant proceeding, impetus such, cannot incremental settlement, regarding payments, factors point, note Supreme Court's warning free equate marketplace. Accordingly, believe values, result '. afford complete, permanent, effective bond protection excessive charges.' F.P.C., 405. 901 explained: computed percent reasons rates." 902. separately filed another litigant, observed allowance "would depend paid area", "individual royalty, particularly value." 1377, 1379 increasing provided tentative formally price, 405, [unregulated] royalties." 316, 2349; 769-770, 1361 (1968).

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