Document: 373 U.S. 294 83 S.Ct. 1266 10 L.Ed.2d 357 WISCONSIN et al., Petitioners,v.FEDERAL POWER COMMISSION al. CALIFORNIA Petitioners, v. FEDERAL LONG ISLAND LIGHTING CO. Nos. 72, 73 and 74. Argued Jan. 9, 1963. Decided May 20, Kent H. Brown, Albany, N.Y., for petitioners in No. 72. William M. Bennett, Chief Counsel, California Public Utilities Commission, 73. J. David Mann, Jr., Washington, D.C., Richard A. Solomon, respondent Federal Power Commission all three cases. Kenneth Heady Phillips Petroleum Company Mr. Justice HARLAN delivered the opinion of Court. 1 Almost nine years have passed since this Court's decision Co. Wisconsin, 347 672, 74 794, 98 L.Ed. 1035, holding that has jurisdiction over rates charged by an independent producer natural gas. The present case, involving same producer, (Phillips),1 is a sequel to earlier strikingly illustrates unique problems confronting its efforts achieve goal effective regulation I. 2 Following remand proceeding under § 5(a) Natural Gas Act,2 reinstituted general investigation lawfulness Phillips' with respect sales gas interstate commerce. Later, it consolidated 12 proceedings 4(e) Act3 which involved certain specific rate increases filed 4(d) between June 1954 1956. All these had been suspended maximum five-month period permitted statute (§ 4(e)) subsequently gone into effect subject refund any portion might ultimately be found excessive (ibid.). With one minor exception, each superseded subsequent increase,4 were turn are separate not now before us.5 3 Hearings did begin until 1956 extended almost 18 months. parties proceeded on assumption was determined basis jurisdictional cost service test year 1954,6 four full-scale cost-of-service studies presented. A Examiner April 1959 issued comprehensive (24 F.P.C. 590) comprising 200 pages, he $57,280,218. He then ordered calculate which, when applied volumes, would produce revenues substantially equal service. This rate, appropriate adjustments quality, pressure, etc., company's schedules file at time approval. 4 Over later, September 1960, litigation. 24 537. Its basic conclusion individual company method, based theories original prudent investment, workable or desirable method determining producers 'ultimate solution' lay what come known as area approach: 'the determination fair prices gas, reasonable financial requirements industry' various producing areas country. F.P.C., 547. means established basis, rather than basis. As initial steps toward end, two things proceedings. First, promulgated Statement General Policy (S.G.P. 61—1), amended several occasions, set forth area-by-area 'price levels' increased filings producers, stated absence compelling evidence certificate rates, suspend exceeded price levels.7 Second, announced series hearings, designed cover major area. (At least Permian Basin, well way.) 5 here, gave reasons rejecting unsuitable method. 542—548. In particular emphasized that, unlike business typical public utility, no fixed, determinable relationship investment public. huge yield only trickle while small lead bonanza. Thus concept 'prudent investment,' calculating call necessary capital also protect consumers from charges, seemed wholly out place. Further, noted rise staggering allocation problems, could result such anomalies widely varying coming single field even jointly owned well, create intolerable administrative burden requiring thousand producers. 6 Returning it, decided despite disapproval whole case having tried final should made. It resolve number difficult questions, including those relating production exploration costs, costs extracted liquids, return, arrived system-wide $55,548.054—a figure ($45,568,291) year.8 7 hand, turned proceedings, through 1956, produced about $5,250,000 annually, considerably less total deficit year. there nothing record show 'unduly discriminatory preferential.' concluded order refunds increases, view continuing deficit, superseded, purpose and, exceptions, they terminated. 8 exceptions concerned 'spiral escalation' clauses contracts,9 kept open because proper amount depended if any, allowed pipeline customers their own pending Commission. refused hold spiral void ab initio, fact increase terminated resulted operation escalation clause. 9 recognized remained 100 other Phillips, case. said indicated 1958 inviting motions terminate prior 1959, thus limiting future consideration after. Whether invitation accepted disclosed, but event none us now. Turning existing first considerable disagreement how whether approximately uniform throughout country vary aware both greatly (and especially after 1958) therefore 'deem prescribe require upon record.' 575—576. Concluding adequately protected potential obligations 4(e), pricing standards Policy, intiated, termination investigation. 11 On application rehearing, rejected suggestion reopen submission data. 1008. 'interest exigencies will better served brought basis,' 'more expeditious sales.' 1009. claim erred terminating some inexcess average unit service, reiterating showing undue discrimination preference revenue resulting make up shown determination. review, Court Appeals, thorough informative opinion, affirmed 112 U.S.App.D.C. 369, 303 F.2d 380. Judge Fahy, dissenting part, argued ultimate solution, so far finished deciding justness reasonableness past rates. To failed do so, believed, clear abuse discretion. We granted certiorari importance administration Act. 369 870, 82 1139, 275. 13 arguments parties, briefs bench, covered broad range subjects, actions proceedings—past, present, future—that today. collateral subjects side focus precise questions here review: (1) refusing reject clauses; (2) leaving limited purpose; (3) discontinuing current Of considered stated, third vigorously pressed clearly principal issue II. 14 California, alone among petitioners, challenges Commission's refusal declare initio contracts dockets based.10 Such clauses, contends, manifestly inconsistent interest, constitute mechanism '(c)onsumers caught maelstrom.' 15 But we grave doubts question may raised time. dockets, appear premature, still pending, eventually disallowed depend themselves docket, made fully proceeding, sale Michigan-Wisconsin appears affect interests, whom properly represent 'aggrieved' 19 (b))11 order. 16 see merit California's contention. true prospectively accept filing containing clauses,12 quite different matter declared ineffective simply provisions. contract clause type, course, permit resort provisions If challenged, must establish apart terms contract. sustained right seller effect, authorized him United Pipe Line Memphis Light, Water Division, 358 103, 79 194, 153. more scope, depending occurrence external events. III. 17 others purpose, primatrily Wisconsin New York. considering contentions, again end 'locked in' increases13 merits. finding annual 1954. Petitioners' objection overall, (per Mcf.), during 1955—1959 allowed. never rose significantly above Commission.14 Moreover, claim, nor record, higher per years. And assuming decline, bring costs. exceeding later propriety dockets. factors stale purposes unjust unreasonable increases. Petitioners improperly just reasonable. contention goes form substance did. Since in,' validity issue; sole part refunded Phillips. Having substantial concluded, obligation imposed. 20 urged rehearing court below, most exceed contention, stating normally separated points conditions, little gained entering protracted 'when already earning service.' 21 believe justified,15 abandoned theory merely cost. Rather, urge variation great compel 'discriminatory preferential se.' unlawful discrimination, mere differences Act se unlawful. event, need reach merits us. presented step required 19(b) preserve point judicial review. See, e.g., Sunray Mid-Continent Oil Comm'n, 364 137, 157, 80 1392, 1403—1404, 1623. IV. 22 justified Preliminarily, important observe accomplishments 61—1, taken pursuant extent, however, matters bear proceeding. 23 recognize, constituted discretion, discretion good deal narrower initiate inquiry. See Minneapolis 111 16, 212. Underlying petitioners' position claims interim development regulation, take many evolve, held invalid. 1. mind feasibility although undertake experiment. closest lawful invalidity approach predictable. believed departure concepts little, chance being sustained, hard say abused undertaking For sure fail, abandoned, virtually foreseeable prospect regulation. Difficult be, warrant breakdown process. 25 sanctified highly unlikely keeping consistent articulated power regulate repeatedly followed Comm'n Pipeline Co., 315 575, 62 736, 86 1037; Hope 320 591, 64 281, 88 333; Colorado Interstate 324 581, 65 829, 89 1206, reaffirm principle Hope: 26 'We supra, bound use formula combination formulae rate-making function, moreover, involves making 'pragmatic adjustments.' Id., page 586, 743, 1037. challenged courts, 'viewed entirety' meets Under statutory standard 'just reasonable' reached employed controlling.' 602, S.Ct., 287, 288, 333. 27 More specifically, sine qua non Indeed cost, base told lawful, established, very asked impermissible ago. 28 whatever extent requisite element indication fall short constitutional standards. 'reasonable area, 547, advised oral argument composite data Surely, cannot developed likelihood high deprive consumers, low rate.16 29 recognize unusual difficulties inherent regulating commodity gas.17 judgment, backed sound persuasive reasoning, feasible suitable share hopes prove solution. 30 2. walked line cross it—a words, received Here, 1954, too 1960 inadequacy, unlawfulness taking further action continuation remanding receipt None specifically purposes, 1960; fortiori today918 31 measured against alternative: additional evidence. undoubtedly consumed energy, staff, certainly another hearing examiner, appeal petition review complex issues. short, alternative definitive immediately near future. Indeed, elapsed regards become producer. 32 3. contended receive protection charging others) sees light day. Were importantly our exercise connection noted. does paint picture interest sacrificed altar private profit. Indications catch Although time, observed risen dramatically, grossly unreasonable. 33 collected refund. Refund obligations, true, provide much elimination Tennessee Transmission 371 145, 154—155, 211, 216—217, 199, significant ignored, do. 34 Third, upward trend arrested, actually downward.19 purport note 7, levels statement, along implementation program announced, played role accomplishing result. 35 Fourth, remembered problem transitional exist reopened new evidence; way predicting rendered, inevitably substantial. evident choice protection. There either protection, though doubtless room improvement, 36 forcing unduly delay useful information purposes. vigor, states facilities stage) proceed expeditiously investigations. estimates Basin 35% roughly 10% completed complete remanded alone. warns similar investigations, adherence deems unworkable, providing long run. 37 dispute tell error law—abused best allocate resources. sustained; ripe basis; manifest conditions exists, reversal sheer act interference details postponing realized. 38 Finally, them abeyance Hunt 623,20 circumstance significance. At counsel assured remains free reactivate delayed circumstances otherwise warrant. distinction suspension substance. retains flexibility formative 39 Affirmed. 40 MR. JUSTICE CLARK, THE CHIEF JUSTICE, BLACK BRENNAN join, dissenting. 41 Sisyphean labors continue marches hill tumble down undertaken done. After without Act, Corp. 1035 (1954).1 supervision operating expenses, gathering, directed fix Five Presiding 11.662¢ Mcf. 9.25% return. preliminary adjusted half handed decision. 11.1009¢ Mcf.2 return 11%. allowables contra recommendation save discharged thereunder dismissed covering 95 addition, assumed figures 'probably' invited dismiss approving revenues. 'nothing * preferential,' 576, varied 5.5¢ 13.5¢, 17¢ all. Concurrently sua sponte 818, Fed.Reg. 9578, discarded long-established favor fixing lists prices, certificates increasing sold 4(e). arriving 'all relevant facts available us,' information, 'existing historical structures, volumes production, trends years, development, demands, markets gas.' 819. level certification price, can doubt guide highest permanently certificated respective 1960. (for contracts) weighted 1959. accurate structures i.e., averaged prices. Examiner, contrary entirely comparison delaying. themselves, concurred over-all Nevertheless statement policy accompanying notice, times like manner. summary fashion junked program, wasted half-dozen work thereon experimenting new, untried, untested, inchoate doubtful legality.3 consequence States particularly large metropolitan cities Eastern Seaboard, Midwest West Coast pay wildgoose chase. I predict consumer find himself biggest goose hunt dead duck. 42 let pass saying approval suffer irretrievable loss amounting billions dollars. shall offer few examples rate-base calculation support conclusion. 43 GROSS ERRORS IN COST OF SERVICE COMPUTATIONS. 44 pointed out, latter ground periods disposition necessary, aside dismissal year's findings, examine findings orders predicated erroneous falls. Thus, necessarily includes affirmance regarded questionable determination, fostering cases, calls discussion them. 45 Aside direct expenditure purchased gas4 largest item expense, $58,313,230 allocation. items going 46 (a) Exploration depletion allowance, costs.—Exploration expense books $47,474,039, undeveloped lease rentals, drilling tools, expired surrendered leases, dry holes land geological activities. expenditures 'return taxes' $10,839,194. Why items, 'dry holes' ($11,306,964), leases ($9,479,898) offshore ($17,765,332) experts; me off taxes got included base. amounted 4.281¢ 11.1009¢. connection, enjoyed tax allowance 1/2% production. $44,784,723, giving saving $20,000,000. sum However, incentive savings deducted regard. book $8,900,000, correction nice 47 (b) Allocation oil gas.—Much 'associated gas,' casing-head Fifty-seven percent associated accounted 13.42% combined revenue. addition wells condensate liquids gasoline plants. exploration, operation, chargeable used B.t.u. allocated 61.88% cut 32.742%, equivalent recommended 30.46% experts came 20.812% Pacific 23.98%. comes 86.58% oil. Still one-third brings one-seventh 1% shift million dollars 48 (c) Purchased gas.—If says automatically percentage type purchase contracts. $1,671,733 suppliers entitled increase. obligated pay. pro-rata due recoups plus profit sold. submit, found, erroneous. Increases automatic escalator clauses—which result—are practice creates perfect loophole invites nature. 49 (d) Interest.—Expense money borrowed $9,892,308. claimed $3,743,077. variance seems occurred reason exchange outstanding bonds common stock. larger 'known change' probably occur interesting 'San Juan transfer' 1955.5 difference $8,000,000 Certainly fairness isolated one. 50 readily apparent calculations full holes. assuming, not, correct extend is, face, procedures. itself shows presentation deficiency 'was derived 773. revenues, 1957 1954; $17,000,000 $28,000,000 $90,856,248, practically twice ($45.6 million). These facts, reappraisal arbitrary figures. quickly obtained am sure, likewise calculated.6 51 DISMISSALS AND THEIR CONSEQUENCES. 52 real problem, level, board forget it. became date main rub. understood when, his order, would, schedule thereafter. requirement offset recoup thereby left collect 23.5¢ excused adopt plan. staleness prevented obviously reason. place, 'stale' justify 1958. agreed Investigation 1955 began ran 1957. data, latest closing hearings. They experience identical practical found. months decide prepare detailed report reflected rear grasp problems. 590—818. took five six complete. But, ask, makes cases? Those infrequently longer period. Even stale, dumped investigation, hearing, Report, staff drain. Before doing laid formulated governing calculated allowable thereunder. discarded. Admitting statistics solely 53 cases unfortunate indicates disturbing disregard interest. 'most *.' moment nonrefundable $3,000,000 excess SGP 61—1 score conditions. reversed Atlantic Refining Service York, 360 378, 1246, 1312 (1959), numbers tested contested. Section operate nonrefundable. indicate $250,000,000 (roughly 83%) refund.8 Furthermore, herein 'were Phillips.' discarded, income dismissing Hence forecloses recovery four-year 1954—1958, nonrefun dable. shown, serious legality. years—based it—should dismissed. While says, 'refund rates' precipitous action? years! leave responsibility filings? answer. none. 54 unjustified. Continuation 'several elapsed' bad guess. sight yet go. Meanwhile areas, Phillips', escaped 1954—1963, decided, enormous $90.8 1960) definitely rate. Court, 'significantly higher' project three-year 1957—1959, inclusive. wager, done overnight, available. every easily corrected percentages involved. remainder system accounting revealed 55 filed. tomorrow, lost consumer! 56 my view, valid excuse exactly opposite course 623. dismisses inapposite technical discussion. conflict here. 57 page—line line—and given careful attention. conclusion—namely, return; concluding acted manner outside traditional 58 FALLACY STATEMENT GENERAL POLICY. 59 Statement, declaration notice proceeds discuss strongly implies validity. think premature dangerous judgment stage legal lurking intimate deem raise join outline reservations aspect wisdom legality give full-dress treatment. 60 'sine regulation.' follow abandoning historic, presently Congress directed. hardly denied years—estimated Appeals 14—without irreparable injury brakes spiraling 'guide prices' attached 61—1. These, legally nonreviewable guides reflecting price. binding effect. floor ceiling. 61 run hurdle attack constitutionally sound, include fixed recover costs; confiscatory illegal. optimistic area,' likely this. industry life crystal producer's immeasurably another's leveled off—at discovered. example, $11,000,000, $9,000,000 ones $17,000,000. Are requirements' area? unfair Inevitably, lower 'financial satisfy him. windfall latter. confiscate averaged, intends do, confiscatory. hand windfall. plan squeeze—i.e., criteria uses reflect proving precluded offering proof demand cold truth thereto, aggrieved delay, inevitable day regulate. Typical simple announcement last November (Phillips) below 'guidelines' further, suggested ceilings floors. Immediately sprang vigorous protest. Independent threatened withdraw meeting Washington where insisted 'realistic 'implied promise' 'staff's Commission.' Tipro Reporter, Feb.-Mar. ball happen regardless decides floor, proceedings; ceiling, thousands old bill. 63 That saying. complicated solve Other agencies faced congestion National Labor Relations Board Wage Hour Administration process situations adopted procedures exempted inconsequential ones. N.L.R.B.Ann.Rep. 7—8 (1958). merit. 1953, selling commerce, 4,191 2,000,000,000 cubic feet 9.26% Landis, Report Regulatory Agencies President-Elect(1960), 55. 3,372 decreased smaller commitments. who bracket remain 3,000 whose miniscule. hundreds temporarily exempted. concentrate (20 control 50% gas) pressures incident integrated volume adjusted. overwhelming quickly9 assurances confiscation. INCONSEQUENTIAL MATTERS. discusses. rule-making condemning By Orders 232 232A, 379 609, respectively, 1983 2850, executed 3, 1961, Order 242, 339, 1356, unacceptable 2, 1962. argues dated hence upheld. sequitur. Nor understandable 1961 blessed date. subscribe doctrine. requires 'establish (escalation) contract' excited Obviously whatsoever standpoint. triggering completely outlawed decided. 66 miniscule compared 'on face refrains passing issue, regarding precludes petitioner petition,10 denying 'normally regret chosen occasion stand technicality, compare Trade Henry Broch & 368 360, 363, 431, 433, 353 (1962), stands loss. patently nature 5.5 17.5¢ seriously questioned. ranged 1.2¢ 15.7¢ structure 'for structure, itnerest 790. 'Phillips widely, contravene generating perpetuating discrimination.' 790—791. generally Appeals,11 implicit certiorari. primary issues results miscarriage justice ground, stand, V. 67 reminded beginning, moving commerce reference has, Instead year, thoroughly investigated, nevertheless release succeeding Pursuant thereto periods. embarked questionable. promulgated, guidelines reasonableness. Through conduct regulation—of keystone continued collection unreasonable, unjust, situation timetable directions herein. dissent. 'independent' engage affiliated company. Stat. 823, U.S.C. 717d(a), provides: 'Whenever motion complaint State, municipality, State commission, distributing company, charge, classification demanded, observed, charged, natural-gas transportation rule, practice, affecting discriminatory, preferential, determine classification, thereafter force, order: Provided, contained currently unless accordance company; decrease unlawful, lowest rates.' amended, 76 (Supp. IV) 717c(e), authority enter concerning ness service; thereon, delivering affected writing suspension, defer beyond go initiated effective. expiration period, filing, proposed change Where charges effective, may, furnish bond, approved amounts keep accounts detail increase, specifying behalf paid, completion decision, refund, justified. charge sought increased, speedily possible.' exception $21,234, An intervening called 'locked-in' significance refundability infra, pp. 304—305. phrase 'jurisdictional service' (i.e., depreciation, depletion, taxes, base) jurisdiction. 'test 1954' calendar changes No challenge originally issued, 9578. expressly guidance party substantive rights level.' redetermined $54,525,315, Mcf, gathering royalties. 12.16¢ provided specified index points, customer's resale customer proportionally increased. supra. 831, 717r(b). 232, 1983, inoperative 5, requirements, determinations, 8, Data reports, follows: 8.9¢ (1955); 9.4¢ (1956); 9.9¢ (1957); 11.1¢ (1958); 12.3 (1959). inconsistency recent 623, stated: 'Our examination convinces always company-wide year.' 626. us, prevailing merited supplementation Hunt, pursue inquiry p. 314, infra. interpret Detroit 97 260, 230 810, suggest court, express wells, 'at departure.' U.S.App.D.C., 268, F.2d, 818. Whatever meant context, author case: seek deter pursuing (the method) using lines.' 379, 390. Panhandle 113 94, 305 763. opinions Jackson 628 660, 300—315, 333, 608—615, 841—845, 1206. rendered mean becomes pilot length complexity, 'increased greatly' presumably learned suppose incapable march South Louisiana, downward settlement ordering refunds. said: 'It hope timely Hunt's assure adequate unreasonably early aspects understanding reactivation dictate.' dissents DOUGLAS writer, U.S., 687, 690, 801, 802, 803, 1035. amending rehearing. redetermination '(a)ny failure allow sufficient determined, inherently possible violation prohibition confiscation.' 780. 688,811,312 407,984,210 375,690,912 71.9% total. (The somewhat uses, losses, residue returned etc.) properties San transfer assigned added strange Uniform System Accounts companies, CFR, c. 1, 201. prescribed reports pipelines enable promptly returns, earnings, etc. schedule. pipelines, attach justification. extreme Louisiana 55% flowing 'initial price' ceiling; 94% price'; 70% 'inline' CATCO admit envisaged illusory. First late; next, 199 (1962). realistic astronomical $158,000,000 receiving $74,000,000. 'evil day' ever arrives up, come? bankrupt necessarily, customers, obliged compromise forgive Four Examiners investigations completed. handle 30% Only areas—Permian Louisiana—furnish 32% Wisconsin's (1), statements classifications rules, regulations, practices them, preferential. §§ 4, 5.' (Emphasis added.) Brief Long Island Lighting 74, Appeals.

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