306 F.2d 334 | 5th Cir. | 1962
These cases raise the common question of whether the Federal Power Commission in granting a temporary certificate for the sale of natural gas at a specified initial sales price may lawfully prescribe as a condition that such price may not be increased without express approval of the Commission. The effect of such a condition is to deny to the producer the opportunity of filing a § 4(d) (e) subsequent rate increase. We hold
.. ,, . ,. . , , While this question is almost sub- .... . , ., .. merged m the seemingly unavoidable „ . „ , . , ,, fiood of papers which consumes another , , , ...... . natural resource while adjudicating this . „ , , .... one, each of these ten separate petitions „ . ... . . . . for review and the underlying orders, .... „ , .. . petitions for rehearing, orders on rehear-f . , , r. , mg, and post-certification orders present substantially the same facts. Fortunately, what we can readily identify as the natural gas Bar, shows a commendable cooperation in streamlining into a single consolidated record and consolidated briefs and argument all of the essential materials — but no more — without costly repetition or duplication.
While, as we stated, these involve many different dockets concerning rates or sales in the Alvin, Alta Loma and Chenango Fields within the Texas Railroad District No. 3, for all practical purposes the cases are the same and present this one basic question. Moreover, very little factual detail even as to a typical case is needed, Some dates and times are, however, important in showing the sequence and to pinpoint the complaints of the Producer. A brief synopsis of the Alta Loma proceedings will suffice.
On July 1,1960, the Commission issued a permanent certificate under § 7(e) to the Producer for the sale of gas to the pipeline purchaser. The rate prescribed was 200 Mc£. The 20-year contract as originally proposed called for an initial price of 200 with four escalations of 20 , „ T each every four years. In granting the , . . permanent certificate, the Commission re- . , ,, , ,, . , ’ ., ... quired that this be altered by prescribing . , „ . ... a single 30 escalation at the end of the „ , , m7 . , , . first ten years. This was -accepted and . ~ , , service commenced. That Order, as such, ... .... not under review m these cases,
Thereafter new production was brought in on this pooled gas unit. On December 15, 1960, the Producer entered into individual gas sales contracts with the Pipeline purchaser for the sale of this additional gas. The price fixed was 200 Mcf, but with four 20 escalations.
It is helpful to digress here to point out two things. First, while the initial price,
Presumably in the usual form and without the statement of any reasons, the Commission by letter order of April 7, 1961,
[1] That the total initial price not exceed 18 cents per Mcf at 14.65 psia;
[2] that there be filed within 20 days a supplement to the rate schedule consistent with [1] above and a revised billing statement;
[3] that the temporary authorization be accepted in writing by a responsible official of the company.
On May 5, 1961, the Producer filed its acceptance of this temporary authority but without prejudice to a claimed right to seek removal of conditions [1], [2] and [3] and to seek an increased rate in accordance with terms of the amended rate schedule filed contemporaneously. Filed presumably in compliance with Condition [2] was a contract amendment stating that the initial price would be 18¢ Mcf for the first thirty (30) days following commencement of deliveries and thereafter 20¢. Deliveries had, in the meantime, commenced under the temporary authorization on April 19, 1961. Contemporaneously with the filing of its acceptance, the Producer also formally sought rehearing of the Order of April 7 imposing conditions [1], [2] and [3].
Again we digress to point out that the Commission did more than deny the petition for rehearing. It changed its Order of April 7 substantially. This action forms an additional complaint of the Producer here. That action was taken on May 31, 1961. That Order (a) denied the application for rehearing, and (b) rejected the amended rate schedule on the ground it appeared to authorize an increase from the 180 rate during the continuance of temporary authorization. Then, to remove doubt it (c) expressly modified the language of the authorization to provide explicitly that no change from the 18¢ rate could be made during its term.
While that ordinarily would be the cutoff date, the record as certified shows that subsequent action was taken by the Commission. On November 2, 1961, the Commission sent the Producer a Letter Order which amplified its previous orders and modified them on one respect. This letter undertook to state reasons for the prior action generally in terms that the imposition of the 180 price condition was taken in keeping with policy Statement No. 61-1. It further stated that upon reconsideration, the Commission had determined that it should permit the filing of the contract amendment which it had rejected earlier. This was, the Commission explained, merely to afford a contract basis for the collection of the authorized 180 rate. It was made clear, however, that this was “for the express purpose of permitting there to be on file the contractual agreement between you and [the pipeline Purchaser] under which you will be receiving 180 per Mcf.” And it sounded the warning that “this should not be construed as permission for you to file for an increased rate pursuant to section 4(d) of the * * * Act during the pendency of the temporary authorization.” The Commission thus made plain that in the new condition of the Order of May 31, 1961,
The Producer asserts three principal complaints, the first two of which we think have no merit.
There is, first, the contention that after the grant of temporary authorization by the Order of April 7, 1961, imposing its Conditions [1], [2] and [3], the Commission could not make these conditions more onerous by its Order of May 31. It emphasizes two things, one of which is that condition [1] spoke precisely in terms of the “initial price” not exceeding 180, the other being that it commenced deliveries on April 19,1961. The suggestion seems to be that this is too much changing of the rules in the middle of the game. There is nothing to this. The Producer sought a change in the rules. The Producer was unhappy with the Order of April 7 and — by its conditional acceptance with express reservation of rights and its simultaneous application for rehearing — sought to obtain a new ruling by the Commission. If anything as fresh as the Order of April 7, 1961, had to have anything to keep it alive as a matter within the continued reconsideration of the Commission at
Somewhat akin to this criticism is the further procedural one that the Letter Order of November 2, 1961, is of no consequence in this record. The Commission asserts that since this occurred prior to its certification of the record, the Commission continued to have jurisdiction. § 19(b), 15 U.S.C.A. § 717r(b). But we do not have to decide this specifically. The reasons asserted, perhaps retrospectively, in support of its May 31 modification is but a forecast of the rationale elucidated by the General Counsel to sustain the Order. In any case, it is the Order that is in issue. What the Commission says, as with the Court’s opinion, is of great importance and its intrinsic weight is not affected by the time of its deliverance when, as was the case here, it is on a temporary certificate, as to which no formal record is or can be made. So far as the modification which allows the filing of the amended contract, previously rejected by the Commission, is concerned we regard that as an accomplished fact. It merely spells out what is otherwise so plain in the Commission’s actions that it was permitting the sale under a contractual arrangement, but on the express positive condition that no increases in the rate would be allowed whether in, or not in, the contract.
The second complaint is more substantial. In effect it is that there was no reasonable basis for requiring a price reduction from 200 to 180. If the Producer were to establish this contention, it is not likely that, at this juncture, we would even reach the problem of the prohibition of § 4(d) increases.
Both as to the specific reduction in the initial sales price and in the related problem of requiring a price reduction — as distinguished from collection of the contract price under an obligation to refund the difference — great reliance is placed upon the decisions of the 10th and 7th Circuits in the cases reversing the BTU adjustment condition. The Pure Oil Co. v. F.P.C., 7 Cir., 1961, 292 F.2d 350; Sohio Petroleum Co. v. F.P.C., 10 Cir., 1961, 298 F.2d 465; Eason Oil Co. v. F.P.C., 10 Cir., 1961, 298 F.2d 468; and see also from the 3rd Circuit, J. M. Huber Corp. v. F.P.C., 3 Cir., 1961, 294 F.2d 568. For our present purposes, we can accept the standards elucidated in those opinions, but they do not compel any reversal here.
It is important to bear in mind a factor we discuss in greater detail later on. We are here dealing with temporary authorization. There is, and can be, no formalized record in the traditional sense. What tools are we to use, then, by which to construct a thesis showing that it was completely arbitrary for the Commission to have required an effective reduction in price ? The Producer emphasizes the previous permanent certification of a 200 rate in the related sale. But aside from whatever uncertainty is now cast upon that decision,
Nor do we find any basis for attacking the Commission’s choice between a reduction in the initial price, rather than an order permitting collection of the contract rates subject to refund. There are a whole host of problems, legal and administrative, wrapped up in this choice. In the Commission’s limited facility for study of the probable ultimate merits of a sale when considering an application for temporary authority, the circumstances would, we think, have to be quite unusual to warrant a Court differing with this conclusion inevitably calling for the nicest of expert judgments.
But we view the express prohibitions of § 4 increases as beyond the pale of administrative discretion. We do not think that under the guise of a condition of a temporary authorization, the Corn-mission can forbid what Congress has expressly allowed to a natural gas producer. We reach this conclusion by application of the principles discussed and followed in Texaco, Inc. v. F.P.C., 5 Cir., 1961, 290 F.2d 149, and American Liberty Oil Co. v. F.P.C., 5 Cir., 1962, 301 F.2d 15. We do not, however, regard, as do the parties in various aspects, that either or both of these decisions is directly and positively controlling. As is perfectly plain, there is and must be a difference between a permanent certificate and a temporary authorization. Consequently, what is said in Texaco with regard to action permissible for a permanent certificate does not necessarily apply for a temporary.
These cases start with the recognition that conditions may be imposed. And, of course, the factor deemed to be of such importance in CATCO was the beginning price. Thus, the Supreme Court held, the Commission, without making a rate case out of it, had the duty to take into account price as that might bear specifically, generally, immediately or remotely, on the public interest. In Texaco we did, of course, state that “The power of the Commission to condition a certificate is co-extensive with its power to reject or deny a certificate * * * because the power to reject an application for certificate completely is harsher than the power to grant it on any reasonable condition,” 290 F.2d 149, 156. But we did not intend this to declare that since the Commission had it within its actual power not to grant an application, it could therefore impose any conditions that, no
The idea of reasonableness was therefore implicit in equating outright denial and grant subject to conditions. We spelled it out plainly in American Liberty where, of the grant of a temporary we declared, “This is not to say that the Commission can act arbitrarily, whimsically or in a manner that amounts to a clear abuse of its discretion.” 301 F.2d 15, 18. Elaborating on this we then adopted as our own the standards suggested by the Commission. “The reasonableness of the Commission’s determination must be viewed in light of the summary and ex parte nature of a grant of such temporary authorization * * ” and “ * * * the Commission’s action * * * can be set aside only if the court were to determine that the order issuing a conditioned certificate was a clear abuse of discretion, i. e., arbitrary, whimsical, or capricious action, or that the order was otherwise as a matter of law erroneous on its face.” 301 F.2d 15, 18.
This envisages, of course, that there is a line past which the Commission may not go. The line is different for a permanent, rather than a temporary. The line may be a fuzzy one and difficult to locate. But somewhere there is a mark.
Up to now the line has not been permitted to go so far as to obliterate specific sections of the Natural Gas Act by requiring that one seeking to make an interstate sale must agree to forego and relinquish for an indefinite period of time safeguards and rights which Congress has established. On the contrary, what was done in Cateo and by us in Texaco demonstrates that the necessity for conditioning a grant of a certificate is to fulfill the aims of the Act by an accommodation of all of its demands. Thus, the Court in Cateo had this to say. “In granting such conditional certificates, the Commission does not determine initial prices nor does it overturn those agreed upon by the parties. Rather, it so conditions the certificate that the consuming public may be protected while the justness and reasonableness of the price fixed by the parties is being determined under other sections of the Act.” 360 U.S. 378, at 391, 79 S.Ct. 1246, at 3 L.Ed.2d 1312. In a very practical way we made just such an accommodation in Texaco. Thus, by rejecting a highly legalistic impediment supposedly founded on Mobile,
Without even remotely implying that a permanent and a temporary are to be treated always alike, we can see no distinction in this area when viewed either as a matter of statutory power in the
To allow this prohibition of § 4 condition, we would be as much as saying that in determining whether the addition of the proffered gas to the interstate market serves the public interest the rates to be prescribed are not those fixed under the sales contract by the parties. Rather the rates are those (a) fixed by the Commission in the first place and which are to continue until (b) the Commission itself fixes another level. This is a complete abandonment of the approach deliberately selected by Congress and which, all must agree, was a radical break with traditional utility-type regulation.
The consequences are too awesome for us to assume that Congress ever committed such undefinable legislative judgments to an administrative agency. There is, first, the status of the producer under a temporary. His rights may be temporary, but his duties are not, or at least on the present holding they are not. Like the ancient covenant running with the land, the duty to continue to deliver and sell flows with the gas from the moment of the first delivery down to the exhaustion of the reserve, or until the' Commission, on appropriate terms, permits cessation of service under § 7(b), 15 U.S.C.A. § 717f (b). Sun Oil Co. v. F.P.C., 1960, 364 U.S. 170, 80 S.Ct. 1388, 4 L.Ed.2d 1639; Sunray Mid-Continent Oil Co. v. F.P.C., 1960, 364 U.S. 137, 80 S.Ct. 1392, 4 L.Ed.2d 1623; Continental Oil Co. v. F.P.C., 5 Cir., 1959, 266 F.2d 208. That means that, for good or evil, a producer under a temporary is subject to all of the regulations, restraints and duties of a natural gas company, § 2(6), 15 U.S.C.A. § 717a(8). Nothing in § 4 or in § 7 outlining the grant of certificate, or anything elsewhere in the Act takes from such producer the rights as a natural gas company which the law accords as a part of the duties imposed. Such producer is required under § 4(a) as a “natural-gas company” to maintain “just and reasonable” rules, regulations and rates, is forbidden under § 4(b) to “make or grant any undue preference” in “rates, charges, services, facilities * * * ” and under § 4(c) is obliged to maintain and “keep open * * * for public inspection” its “schedules showing all rates and charges for * * * sale * * and under § 4(d) to make no change, without Commission approval, except upon “thirty days’ notice.” Finally, the critical § 4(e) prescribes that súeh proposed rate shall be in effect. It first provides that whenever a new rate is filed by a natural gas company “the Commission shall have authority * * * to enter upon a hearing concerning the lawfulness of such rate * * * and, pending such hearing * * may suspend the operation of such schedule and * * * rate, * * * but not for a longer period than five months * * But it then goes on to provide
Moreover, this subjugation of such a producer under a temporary to the almost perpetual control of the Commission is more than an academic theoretical. It is a clear and present — and largely unavoidable — -fact. It is no reflection on the Commission or its over-burdened and energetic staff to take practical cognizance of the great delay in processing these matters. On the contrary, one can have only a genuine respect for the manner in which all grapple with this monumental and increasingly unmanageable task as the result of fallout from Phillips Petroleum Co. v. Wisconsin, 1954, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed. 1035. But despite strenuous efforts and the importation of resourceful, new plans and methods for coping with it, the fact is that progress is slow, so slow indeed that it is hardly progress.
Even from our remote position, it seems safe to conclude that never will the Commission be able to process certificates on an individualized basis. The hopes for a practical solution must rest in generalized area-pricing or similar resourceful adaptations of law and life.
This is important for we have to view Commission action in terms of its broad and inescapable impact. It is no answer to the awesome implications thus revealed to suggest that as to these particular dockets, the Commission has, so we are informed, assigned them to a hearing which, perhaps by now has actually taken place. The problem presented in these hearings will be essentially the one presented in Cateo and if it, and the many other numerous cases coming to this Court from the Commission, are any guide, it is almost certain that we are dealing with orders which cannot become final for two or three years more.
of the problem for adjudication. In view of the structure of the Natural Gas Act, this time is irreplaceable to the producer. This is so even though the decision of the Commission on the grant of the permanent or, perhaps even later, in a § 4 or § 5 determination of just and lawful rates, approves the proposed initial contract rate (or at least one higher than the conditioned rate).
And finally, the condition is so awesome because — and it is no mere reductio ad absurdum to say — if the Commission may set aside § 4 and the rights, privileges and protections which it accords to a natural gas company subject to all of the obligations of the Act, then there is no end to the legislative tampering which the Commission may undertake. It may just as well deny the producer the right of review by rehearing or petition to the Courts under § 19(b).
The condition is erroneous on its face and the cause must be reversed and remanded for further consistent proceedings.
Congress has subjected a temporary natural-gas producer to § 4 and all other parts of the Act. Congress has extended to all natural gas companies, permanent or temporary, the protection and rights of § 4 and the Act. Each is interlocked.
That which Congress has joined together, let not the Commission put asunder.
Reversed and remanded.
. The procedure worked out by trial and error and a good deal of give and take by the Solicitor of the Commission, counsel representing various parties and intervenors, and our Clerk over the past five years m the handhng of these complicated records in natural gas cases is the source for our recently adopted rule prescribing a like optional procedure for general cases. The essence of it is that briefs are exchanged before the record is printed so that counsel, in thereafter jointly designating the printed record, know exactly what is, and is not, presented. Thus, in this case covering these ten dockets, plus another (No.. 19,218), everything required is covered in 320 printed pages. This is a practice the Court encourages.
See Amended Rules 24(a), 5 Circuit, 28 U.S.C.A., effective as of June 1, 1962.
. These are the subjeet of our dockets 19113 and 19214 and 19114 and 19213 concerning Commission Docket Nos. 0161-1283 and 1282, respectively,
. It now seems to be agreed that, despite some ambiguous discrepancies, under the peculiar mechanics of certain adoptive contracts, the rates in the sales contract ™ Docket Nos. 19153, 19154, 19155, 19156 (covering Commission Dockets ■^os> C-161-1343, 1344, 1345 and 1346) are with a single 30 escalation at ení^ ten yeai-s-
. This is a prerequisite to the invocation of the temporary-authorization provisions of § 7(c) and Natural Gas Regulations § 157.28(c), 18 CFR § 157.28(c).
. This Order of April 7 is the first Order under review in this proceeding. See note 8, infra.
. The letter Order of May 31 prescribed that condition [1] of the letter Order of April 7, 1961, was "modified to read as follows:
"[1] that the total initial price tinder this authorization shall not exceed 180 per Mef * * *, with such rate to be effective for the duration of the temporary authorization and until a clif-ferent prospective rate is established."
. The notice of proposed change in the rates was ified on May 12, 1961, to be effective on May 19, 1961 in accordance with the terms of the amended contract. Deliveries had commenced 30 days earlier on April 19, 1961. No question has been raised about the sufficiency of that notice
. The Order of May 31 including the action on July 26 is the subject of the second petition to review filed in this Court. See note 5, supra.
Thus we see how the paper mill burden may increase by operation of the mandatory rehearing prerequisite of § 19(b).
. See note 6, supra.
. The Commission’s letter of November 2, 1961, continued: “The condition in the temporary authorization preventing you from charging or collecting more than 180 per Mcf during the term of that authorization without express and prior Commission approval is necessary to permit the Commission to carry out its duty to give careful scrutiny to producer prices in issuing permanent certificates. See, e. g., Atlantic Refining Co. v. Public Service Commission, 360 U.S. 378 [79 S.Ct. 1246, 3 L.Ed.2d 1312], If you were to be allowed to use the procedures of Section 4(d) of the Natural Gas Act during the period of your temporary authorization, the Commission could not prevent increased rates from becoming effective even though those rates might irrevocably breach the price line or trigger price increases. * *
. There is some suggestion that this might be affected by the action of the Court of Appeals in Public Service Commission of State of New York v. F. P. C., 1961, 111 U.S.App.D.C. 153, 295 F.2d 140, cert. denied, 1961, 368 U.S. 948, 83 S.Ct. 388, 7 L.Ed.2d 343, reversing the Commission’s refusal to allow the New York Public Service Commission to intervene.
. United Gas Improvement Co. v. F. P. C., 5 Cir., 1961, 290 F.2d 133, cert. denied sub nom., Sun Oil Co. v. United
. Along with shorthand references to § 4 and § 5 proceedings, etc., the words “temporary” or “temporaries” seem destined to become a part of the jargon too.
. United Gas Pipe Line Co. v. Mobile Gas Service Corp., 1956, 350 U.S. 332, 76 S.Ct. 373, 100 L.Ed. 373.
. In the report of the Commission, Opinion No. 338, in the Phillips case of September I960, 24 F.P.C. 537, demonstrating the absurdity of a traditional cost of service approach, the Commission described its plight in these words. “An illustration of the administrative impossibility of separate determinations for all producers’ rates is found in the fact that there are 3,372 independent producers with rates on file with this Commission. The producers have on file with us 11,-091 rate schedules and 33,231 supplements to these schedules. Currently, 570 of these producers are involved in 3,278 producer rate increase filings now under suspension and awaiting hearings and decisions. The number of completions of independent producer rate cases per man-year during the first 6 years following the Phillips decision indicate that nearly 13 years would be required for our present staff to dispose of the 2,313 cases pending on July 1, 1960. Within this 13-year period an additional estimated 6,500 cases would have been received.
“Thus, if our present staff were immediately tripled, and if all new employees would be as competent as those we now have, we would not reach a current status in our independent producer rate work until 2043 A.D. — eighty-two and one-half years from now. Of course, we could expect to improve our techniques and thus shorten the time required to process these cases. If we increased our efficiency one thousand percent, we would achieve current status in 1968 — eight and two-tenths years from now. * * 24 F.P.C. at-. The Commission, with whatever help it can marshal from Congress, perseveres in its determination to make some headway. Justifiably pointing to some improvement the Commission’s outlook is very guarded. The Commission’s first quarterly report (Release No. 11,991; G-6559) of May 1962 reflects that “ * * * the Commission had made a small reduction in its backlog of independent producer gas certificate cases during the year * * reducing them from 3,122 to 3,026. But in the 3,026 producer certificate cases pending as of March 31, 1962, a total of 2,096 have been granted temporaries. Headway is being made. In the first quarter of calendar year 1962, a total of 606 certificate cases were disposed of in contrast to 217 in the previous quarter and 301 in the same quarter of 1961. However, the backlog will be a long time fixture for against 606 dispositions, there were 423 new filings. At today’s pace the dispositions exceed new filings on an annual basis by a net of some 720 cases. Thus it will take 4% years to eliminate the backlog of 3,026 cases.
In independent producer rate filings and actions, there were 2,845 filings under suspension aggregating $168,654.-424. Many of these are involved in the two area rate proceedings, one of which is now in progress in Docket No. AR61-1, but the Commission concludes a “significant decrease in number of suspensions on hand is not anticipated pending conclusion of [the first area rate] hearing.”
The Commission through its chairman is currently seeking a 31% increase in appropriations to obtain an adequate staff to eradicate this obstacle.
. The hopes and fears of all the years— for the natural gas business at any rate
. In seeking the increased appropriations (note 15, supra), the chairman is reported as testifying that the present Permiam Basin area rate proceeding would not be settled for a year or two. Moreover, until it and the South Louisiana proceeding are well along, the Commission would not likely initiate any others.
. Any specialized treatment of pending certification applications likewise tends to imperil either the utility, or the broad legality, of the area pricing system envisaged in 61-1. By its terms the rates specified in the appendix “are for the pmrpose of guidance and initial action by the Commission” for use by it “in the absence of compelling evidence calling for other action” in passing upon “proposed initial sales” and “ * * * rate changes filed under existing contracts which call for a rate exceeding the indicated price level * *
. As to this we are not here dealing with academic theoretical. For the Producer,, pursuing essentially what the Commission has done with regard to the post-record letter of November 2, 1961, has brought to our attention a current temporary (Docket No. C162-216 of October 6, 1961) in which to a condition [2] fixing the rates to “remain in effect until changed by Commission order” the Commission attaches another condition that the producer not seek any rehearing or review:
“(3) The temporary authorization with, conditions attached shall be accepted as-issued and without reservations for further review after commencement of service, within 30 days herefrom by written acceptance * * *. If reconsideration of such temporary authorization is-sought, service hereunder shall not be started. If service is commenced under-this authorization, the conditions attached shall be effective and the service may not be discontinued without permission of the-Commission * *
. So long as F. P. C. v. Panhandle Eastern Pipe Line Co., 1949, 337 U.S. 498, 69 S.Ct. 1251, 93 L.Ed. 1499, stands, § 1(b) denies power to do this.
. We do not undertake to blueprint the matters requiring reconsideration. But it is quite clear that as condition [1] as amended (notes 6, 8, 10) was illegal and void, the filing of the amended contract and the proposed rate increase were legal. The rate represented by the proposed increase became effective on its filing subject to a maximum of five months’ suspension. But since it is a certainty that the Commission would have exercised the right of suspension, the collection thereafter must be deemed to have been under an order for z-efund.