467 F.2d 361 | D.C. Cir. | 1972
Lead Opinion
The Federal Power Commission (FPC) in the Southern Louisiana Area Rate Proceeding recognized that this country is now facing a critical shortage of natural gas,
The rationale behind this decision is that the advance payments will help to give the gas producers the necessary investment capital to finance the development and production needed to alleviate the gas shortage, and the pipelines will be encouraged to make such advance payments if they are allowed to include the payments in their rate base, thus virtually simultaneously shifting the cost of the advance payments to the pipelines’ customers, the natural gas consumers. This treatment of advance payments to producers was proposed to the FPC by the pipelines, on the theory that “the costs so incurred [by making advance payments] should be recoverable from customers in rates because such costs are directly associated with the acquisition of gas supply for [the pipelines’] customers and, . . . absent such advances, such gas supply would be unavailable.”
In a Notice of Proposed Rulemaking, issued 23 January 1970 in response to the proposal of the pipelines,
On 2 October 1970 the FPC issued Order 410, which indicated that the FPC approved of a method of accounting treatment of advance payments, apparently in line with the thinking of the pipelines, whereby “advance payments for gas would be recorded as prepayments- and unrecovered advance pay
. several respondents opposed alternative method C because it was believed that if it were adopted, it would be a depressant to development of future sources of supply of natural gas, and therefore not in the public interest. The Commission agrees with the comments in opposition.11
Next, on 8 January 1971, in response to petitions for rehearing of Order 410, the FPC issued Order 410-A, which gave further amplification of the treatment to be accorded advance payments. On the same day the FPC issued a Notice of Proposed Rulemaking in Docket No. R-411, the object of which notice was “to afford all parties further opportunity to comment” on the treatment of advance payments and particularly advances for exploration and lease acquisition costs.
In addition to some minor changes in the pipelines’ Balance Sheet Account for Advance Payments, Account 166, Order 410-A enlarged upon the scope of Order 410 insofar as the FPC indicated that “advances by pipelines to independent producers for exploration and lease, acquisition costs will be assured of accounting and rate treatment pursuant to Order 410 as modified herein.”
On 10 November 1971 the FPC issued Order No. 441, in Docket No. R-411. Probably the most important feature of Order 441 was to add a new account, “167, Other Advance Payments for Gas,” which is not to be a rate-base account,
In other provisions of Order 441 the FPC provided that “for rate purposes advanced payments to pipeline affiliated producers shall be treated the same as advances to independent producers,”
Thus the FPC resolved some of the questions that it had left open in Order 410-A, by deciding that, in general, payments to affiliated producers would be treated the same for rate base purposes as payments to unaffiliated producers, although this would not be so where the pipeline acquired a “working interest” in the producer, and in the case of both independent and affiliated producers, advance payments for exploration and lease acquisition would not be afforded rate-base treatment. Order 441 also provided that “All advances made under contracts executed prior to the issuance of this order shall receive rate treatment in accordance with the provisions of Order Nos. 410 and 410-A.” Order 441 is temporary in effect, and is to apply only to contracts executed before 1 January 1973.
In its brief, filed before Order 441, the Public Service Commission of the State of New York (New York) raised three issue: (1) whether the FPC could lawfully allow pipelines to include advance payments to producer suppliers in the rate base, when the FPC “either did not consider or gave inadequate consideration to the questions of whether the producers could receive such advance payments or, if so, their effect upon the lawful price they may charge for gas”; (2) whether there was any basis for the FPC’s authorizing rate-base treatment for advance payments made to production affiliates of pipelines, or for exploratory or lease acquisition purposes; and (3) whether the procedures adopted to protect against unjust enrichment of the pipelines as a result of advance payments paid for by their customers or for undue delay in eliminating advance payment accounts are adequate.
I. The Authorization to Pipelines to Treat Advance Payments as Part of the Rate Base
New York’s challenge to the FPC’s decision to treat some advance payments made by the pipelines as rate-base items appears to rest on two grounds. The first is New York’s accusation that “the basis for the Commission’s action is obscured by the lack of an adequate statement of purpose in its Notice of Proposed Rulemaking, and almost complete absence of any discussion of the comments, or other statements of the reasons for its actions, in Orders 410 and 410-A. . ”
A. The Basis for the Action of the Commission
We think that the basis for the action of the Commission is quite clear. It had become well-known by the time of the orders in the case at bar that a dangerous shortage of gas was developing.
In any case, we agree with the FPC that since the proceeding in the case at bar was pursuant to the FPC’s rule-making authority under the Natural Gas Act,
As Judge McGowan said in Automotive Parts & Accessories Association v. Boyd (1968),
In addition to the adequacy of basis for the FPC’s action under Section 4(b) of the APA, there is another aspect of the present situation that would compel us to uphold the determination of the FPC that certain advance payments by pipelines' may be entered into the rate base. We read the three orders, 410, 410-A, and 441, as an on-going effort by the FPC to determine experimentally the proper solution with regard to advance payments to help alleviate the gas shortage. We are impressed with the fact that the FPC has demonstrated a willingness to assimilate criticism from parties such as New York, and adjust its treatment of advance payments to conform with the realities of the natural gas market. This is perhaps best demonstrated by the FPC’s comments which accompanied its decision in Order 441 to remove advance payments for exploration and lease acquisition from the rate base:
Our review of the various comments and available data has persuaded us that advances for exploration and lease acquisition have not shown to be an effective vehicle for stimulating the widespread participation in natural gas production for which their encouragement was intended. Moreover, there is some indication that the availability of advances for such purposes by creating competition among pipelines to make such advances may be having the effect of increasing the amounts expended on lease acquisition without a proportionate improvement in gas supply.34
It appears to us that what the FPC is attempting to do in this area is to reach an accommodation of conflicting interests, through experimentation, that will result in the proper alleviation of the gas shortage. In doing so we think that the FPC is making policy decisions of the type it was created to make, and we are reluctant to disturb them.
The thrust of New York’s argument here is that it is impermissible for the FPC to have authorized the pipelines to make advance payments to producers before it has passed on the two producer-rate cases where the validity of such advance payments is an issue.
We think that the three orders, 410, 410-A, and 441, do indeed show that the FPC has arrived at the conclusion that in principle it is legal for both the payor to pay and the payee to receive. This does not necessarily affect the determination in the two pending producer-rate cases, which may finally turn on considerations unique to those two companies. Further, for reasons which are elaborated infra, we do not accept New York’s argument that there is not another opportunity available for a challenge to the advance payments in the conventional pipeline rate proceedings which must take place for each particular advance payment arrangement under 15 U.S.C. §§ 717c and 717d (1963).
We regard the three orders as “the fashioning of policies, remedies, and sanctions, ... in order to a- ive at maximum effectuation of Congressional objectives,” and in such activity the breadth of agency discretion is at its zenith.
Similarly, it appears clear that if the FPC wishes to proceed with separate regulatory proceedings and determinations for pipelines and producers, there is authority for such a scheme. We take this to be the meaning of the comment of the Supreme Court in the Permian Basin Area Rate Cases (1968), that “the Commission is empowered, for purposes of its rules and regulations, to ‘classify persons and matters within its jurisdiction and prescribe different requirements for different classes of persons or matters. . . . ”
New York has argued that even if it retains the right to challenge individual pipeline certificate proceedings, it will do the New York consumers no good “once that the horse has got out of the barn,” and advance payments have been declared permissive in principle.
At this stage this argument is j speculative, but even if it were not,.' though we might feel sympathy for the plight of the New York consumers who would be forced to condone advance payments or survive without gas, this alone would not be grounds to overrule the de
We can find no authority cited by New York that shows the FPC to have engaged in such illegal conduct. New York appears to place great reliance on the CATCO case, Atlantic Refining Co. v. Public Service Commission (1959),
We thus uphold the FPC’s determination in the orders that are here under attack that, in principle, advance payments, under certain circumstances, may be made by pipelines to producers, and that decision necessarily assumes the right of a recipient to receive it under proper circumstances. We do not, of course, reach any determination of the propriety of any particular advance payment which may be challenged in a conventional pipeline rate proceeding under 15 U.S.C. § 717.
II. Remaining Arguments
The second and third issues pressed by New York do not require extended discussion. These arguments are concerned with some of the particular aspects of the method which the FPC has chosen to implement its scheme for alleviating the gas shortage. We find the language in the Permian Rate Cases dispositive of these questions:
. we have heretofore emphasized that Congress has entrusted the regulation of the natural gas industry to the informed judgment of the Commission, and not to the preferences of reviewing courts. A presumption of validity therefore attaches to each exercise of the Commission’s expertise, and those who would overturn the Commission’s judgment undertake “the heavy burden of making a convincing showing that it is invalid because it is unjust and unreasonable in its consequences.” . . . We are not obliged to examine each detail of the Commission’s decision; if the “total effect of the rate order cannot be said to be unjust and unreasonable, judicial inquiry under the [Natural Gas Act] is at an end.”44
As we have shown, we are convinced that the “total effect of the rate . order” is a reasonable attempt to increase the available capital for development of gas production, which, under the circumstances of the present gas shortage, we find to be a valid exercise of the
Perhaps the most that New York has been able to demonstrate is that certain provisions of the FPC’s new rules (and by no means all of them) favor the interests of the pipelines and the producer in increasing the gas supply at minimum cost to them, at the expense of a higher rate for the New York consumers. It appears to us that, in light of its particular expertise in the area, the FPC has determined that this is the best way to ensure that the necessary capital for development will be forthcoming. Even on its face this is not unreasonable, since ultimately the consumers must be ready to shoulder the costs of such operations, if they are necessary to supply them with power. This is so because under the due process clause of the Constitution no public utility could be compelled to absorb its own costs and not pass them on to the consumer.
The Federal Power Commission’s primary mission under the Natural Gas Act is to protect - the consumer, though it must also strive to reach a^ balance between the consumer, producer, / and those whose interests fall in between.
The decisions of the Federal Power Commission in the orders appealed from are
Affirmed.
. FPC Docket Nos. AR 61-2, et al. and AR 69-1. Opinion No. 598, issued 16 June 1971, at 23. See also Southern Louisiana Area Rate Cases v. FPC, 428 F.2d 407, 437 (5th Cir. 1970), cert. denied, Municipal Distributor Group v.
. See Southern Louisiana Area Rate Proceeding, supra note 1, at 19ff. and 32ff.
. Id., at 6.
. See FPC Order No. 410, Order Amending Regulations Under the Natural Gas Act, Uniform System of Accounts for Class A and Cla^s B Natural Gas Companies and Annual Report Form No. 2, issued 2 October 1970; Order No. 410-A, Order Amending Regulations Under the Natural Gas Act, Uniform System of Accounts for Class A and Class B Natural Gas Companies, issued 8 January 1971; and Order No. 441, Order Amending Regulations Under the Natural Gas Act, Uniform System of Accounts for Class A and Class B Natural Gas Companies and Annual Report Form No. 2, issued 10 November 1971 (Docket No. R-411, Accounting and Rate Treatment of Advance Payments to Suppliers for Exploration and Lease Acquisition of Gas Producing Properties). The three above orders will be referred to hereafter simply as Order 410, Order 410-A, and Order 441.
. Notice of Proposed Rulemaking, Docket No. R-380, issued 28 January 1970, Appendix, p. 1.
. Id., at 1.
. Id., at 2.
. Order 410, Appendix, p. 31.
. Ibid. This was called by the FPC, “Alternative A,” and was one of the three methods of treatment that it had been considering. See Appendix, pp. 31-32.
. Appendix, p. 32.
. Id., at 33.
. Order No. 441, at 1. The end result of this Notice of Proposed Rulemaking in Docket No. R — 411 was Order 441, issued 10 November 1971. See infra, text accompanying notes 15-18. This order was issued after the briefs were filed in the case at bar, but we granted the FPC’s motion to lodge Order 441, and another order entitled “Order of Clarification and Denial of Rehearing or Modification,” issued 7 January 1972, in the present proceeding. As .there was ample oportunity to discuss these latest developments in oral argument, no party was prejudiced by their introduction into the record, and we agreed with the FPC that it “would allow this Court to be apprised of the most recent determinations by the Commission in the subject matter be-for this Court on appeal.” Motion to Lodge Commission Orders, filed 17 January 1972, at 2.
. Appendix, p. 56 (emphasis supplied).
. Ibid, (emphasis supplied).
. See Order 441, at 7.
. Id., at 4. '
. “Working interest” was defined as “embodying operating rights and/or the right to share in production or revenues from the producing venture, so that its receipt of production or revenues will increase as the production or revenues from the producing venture increase, without any termination of such right to receive production or revenues after the return of the amount of any related advance payment.” Order 441, at 5.
. Order 441, at 5.
. Order 441, by removing from the rate-base advance payments for exploration and lease acquisition purposes, and by certain other measures, obviated some of the arguments of New York, and after Order 441 was issued, New York filed a petition for rehearing of that order with the FPC in which the objections which it had to the legality of the advance payments scheme were somewhat differently stated. According to the FPO’s “Order of Clarification and Denial of Rehearing or Modification,” in Docket No. R-411, issued 7 January 1972, New York made four arguments against the treatment of advance payments authorized by Order No. 441: 1) New York opposes as “unlawful” the FPC’s authorization of rate base treatment for advance payments made for development purposes through 31 December 1972, (This appears to be essentially the same as the first argument made by New York in its brief filed with us.), 2) New York opposes as “unlawful” that portion of Order No. 441 which provides that all advances made prior
. Brief for New York, at 17.
. Id., at 19.
. See Southern Louisiana Area Rate Cases v. FPC, 428 F.2d 407, 437 (5th Cir. 1970), cert. den. 400 U.S. 950, 91 S.Ct. 241, 27 L.Ed.2d 257 (1970).
. See supra, notes 5, 10, and 11 and accompanying text.
. 15 U.S.C. § 717o (1963).
. See Brief for Respondent, at 6ff.
. 5 U.S.C. § 553(b) and 553(c) (1967).
. See Appendix, at 1-3.
. Id., at 2-3.
. 5 U.S.C. § 553(c).
. 132 U.S.App.D.O. 200, 407 F.2d 330.
. 132 U.S.App.D.C., at 207, 407 F.2d at 337.
. 132 U.S.App.D.C., at 208, 407 F.2d, at 338.
. See supra, text accompanying notes 5, 10, and 11.
. Order 441, p. 5.
. Though this is not precisely the same situation insofar as the doctrine of primary jurisdiction is applicable, since the resolution of the issues here 1ms become somewhat more definite, the need for experimentation here, and our reluctance to disturb the policy judgment of the agency is similar to that in our recent decision in Delta Air Lines, Inc. v. C.A.B., 147 U.S.App.D.C. 272, 455 F.2d 1340 (decided 1 December 1971).
. See Permian Basin Area Rate Cases, 390 U.S. 747, 771-772, 88 S.Ct. 1344, 20 L.Ed.2d 312 (1968); New York v.
. The two proceedings to which New York refers are El Paso Natural Gas Co., EPC Docket No. CP 66-306, and Shell Oil Company, EPC Docket No. Cl 66-897.
. Niagara Mohawk Power Corp. v. FPC, 126 U.S.App.D.C. 376, 382, 379 F.2d 153, 159 (1967).
. 390 U.S. 747, 787, 88 S.Ct. 1344, 1370, 20 L.Ed.2d 312.
. Brief for New York, at 22-24.
. 360 U.S. 378, 79 S.Ct. 1246, 3 L.Ed.2d 1312.
. See New York Reply Brief, at 2; New York Brief, at 17.
. 360 U.S., at 392, 393, 79 S.Ot. at 1255-1256.
. 390 U.S. at 767, 88 S.Ct. at 1360.
. This experimental character is exemplified by the difference between the treatment of advance payments for exploration and lease acquisition accorded by the three orders. We note in passing that except for the very limited time period between orders 410-A and 441, the issue of advance payments for exploration and lease acquisition purposes as rate base items, raised by New York in its second argument, is mooted by order 441, which removes them from the rate base. As for the advance payments for exploration and lease acquisition which may have gone into the rate base during the interim period before order 441, we would not disturb these, even though the Commission has decided that this will not be permitted in the future, since such anomalies are to some extent unavoidable when the Commission must proceed by trial and error, as we think it has had to do in the case at bar.
. Mesa Petroleum Co. v. FPC, 441 F.2d 182, 186 (1971) (5th Cir. 1971).
. Cincinnati Gas & Electric Co. v. FPC, 389 F.2d 272, 276 (6th Cir. 1968); Atlantic Refining Co. v. FPC, 115 U.S.App.D.C. 26, 316 F.2d 677, 678 (1963); see also FPC v. Natural Gas Pipeline Co., 315 U.S. 575, 585, 62 S.Ct. 736, 86 L.Ed. 1037 (1942); Lynchburg Gas Co. v. FPC, 119 U.S.App.D.C. 23, 336 F.2d 942 (1964) (concurring opinion).
Rehearing
ON PETITION FOR REHEARING
The Public Service Commission of the State of New York has requested us to
One of the important factors in reaching our decision was the temporary character of the FPC order under review (Order 441 remains in effect only through 31 December 1972), and our belief that it represented a justifiable experiment in the continuing search for solutions to our nation’s critical shortage of natural gas. See opinion at 367-368, 369-370. The principal justification for allowing rate base capitalization of advance payments made by the pipeline companies — and the implicit approval in principle of such payments to producers —was to provide additional capital to producers to stimulate exploration and development activities that would result in easing the gas shortage. Fundamental to the concept of any experiment is the assumption that the data developed from the experience thereunder will be subjected to meaningful review, analysis, and evaluation before the experimental practice is allowed to continue or to become institutionalized as a more permanent procedure.
In approving this temporary order, we had no intention of abridging that concept nor of approving capitalization of advance payments beyond its stated expiration date without the FPC having first carefully evaluated the experience under Order 441 to determine whether its justifying objectives are being satisfactorily met at an acceptable level of ultimate economic cost to the nation’s gas consumers. We would accordingly expect that the FPC will not continue, or extend the effective date of, the practices authorized by Order 441 without further proceedings in which New York and all other interested parties will be given the opportunity to demonstrate the effectiveness or the futility of this experiment.