Bel Oil Corporation v. Federal Power Commission

• Decision Date: 23 April 1958
• Docket Number: 16584.,16583,No. 16581,16581
• Parties: BEL OIL CORPORATION, Petitioner, v. FEDERAL POWER COMMISSION, Respondent. UNION OIL COMPANY OF CALIFORNIA, and The Louisiana Land and Exploration Company, Petitioners, v. FEDERAL POWER COMMISSION, Respondent. Morris RAUCH et al., Petitioners, v. FEDERAL POWER COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Fifth Circuit

255 F.2d 548 (1958)

BEL OIL CORPORATION, Petitioner, v. FEDERAL POWER COMMISSION, Respondent.

UNION OIL COMPANY OF CALIFORNIA, and The Louisiana Land and Exploration Company, Petitioners, v. FEDERAL POWER COMMISSION, Respondent.

Morris RAUCH et al., Petitioners, v. FEDERAL POWER COMMISSION, Respondent.

Nos. 16581, 16583, 16584.

United States Court of Appeals Fifth Circuit.

April 23, 1958.

Richard E. Gerard, Cullen R. Liskow, Liskow & Lewis, Lake Charles, La., for Bel Oil Corp.

Bennett Boskey, Washington, D. C., and James D. Heldt, Dallas, Tex., for Nebo Oil Co., amicus curiae.

Willard W. Gatchell, Gen. Counsel, W. Russell Gorman, Asst. Gen. Counsel, Howard E. Wahrenbrock, Solicitor, Louis C. Kaplan, Atty., Washington, D. C., for Federal Power Commission.

George D. Horning, Jr., Washington, D. C. (Hogan & Hartson, Washington, D. C., on the brief), for petitioner Union Oil Co. of California.

R. Graham Heiner, New York City (Cahill, Gordon, Reindel & Ohl, Loftus E. Becker, New York City, on the brief), for Louisiana Land & Exploration Co.

Paul A. Smith (Smith & Fulton, Houston Tex., of counsel), for petitioner Morris Rauch and others.

LeBoeuf, Lamb & Leiby, James O'Malley, Jr., Craigh Leonard, William R. Joyce, Jr., New York City, for Consolidated Edison Co. of N. Y., Intervenor.

David K. Kadane, Edward M. Barrett, Bertram D. Moll, Mineola, N. Y., for Long Island Lighting Co., Intervenor.

William R. Duff, Washington, D. C., J. Harry Mulhern, Edward S. Kirby, Newark, N. J., for Public Service Elec. & Gas Co., Intervenor.

Kent H. Brown, George H. Kenny, Albany, N. Y., for Public Service Comm. of N. Y., Intervenor.

Cullen & Dykman, Jackson A. Dykman, Edwin F. Russell, Robert B. Lisle, Brooklyn, N. Y., for Brooklyn Union Gas & Long Island Lighting Co., Intervenors.

Vincent P. McDevitt, Samuel G. Miller, Eugene J. Bradley, Philadelphia, Pa., Ledoux R. Provosty, Alexandria, La., for Philadelphia Electric Co., Intervenor.

Morgan, Lewis & Bockius, J. David Mann, Jr., Washington, D. C., John E. Holtzinger, Jr., Philadelphia, Pa., for The United Gas Improvement Co., Intervenor.

James B. Henderson, Vice President and Gen. Counsel, William H. Davidson, Jr., Houston, Tex., Richard J. Connor, Gallagher, Connor & Boland, John T. Miller, Jr., Washington, D. C., for Transcontinental Gas Pipe Line Corp., Intervenor.

Before TUTTLE, JONES and WISDOM, Circuit Judges.

TUTTLE, Circuit Judge.

These petitions, presented on a single record, seek review of an order of the Federal Power Commission, Opinion No. 300, reported at 16 F.P.C. 100-118, dismissing certain rate filings of the petitioners as independent producer natural gas companies.¹ The rate increases would have been from 8.79 cents to 16 cents per Mcf, plus a 1 cent state tax.

On June 7, 1954, the three parties all had contracts with Transcontinental Gas Pipe Line Corporation (Transco), under which they agreed to furnish certain minimum quantities of gas for a period of twenty years, for which the price was fixed "temporarily" at 8.7915 cents per Mcf until November 1, 1954, and 16 cents per Mcf thereafter, with an automatic escalation of one cent every five years. It was on June 7, 1954, that the Supreme Court decided Phillips Petroleum Co. v. State of Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed. 1035. The Commission subsequently, by Orders 174, 174A and 174B permitted all independent natural gas companies engaged on or since June 7th in jurisdictional sales to file their rates in effect on that date without any supporting data to justify any increases that had theretofore been put into effect. The companies were permitted to file copies of their contracts in lieu of detailed rate schedules.

Petitioners filed their contracts, all of which provided for an automatic increase, on November 1, 1954. Two of the petitioners also filed notice of the increase to 16 cents. The Commission thereupon ordered all of these increases suspended under the authority of Section 4(e) of the Act. After the period of suspension the rates were permitted to go into effect under the terms of the Act which require reimbursement by petitioners if they should not ultimately be entitled to the rate charged.

A number of local distributing companies and state commissions intervened to oppose the rate increase and Transco intervened on behalf of the petitioners.

After several postponements, urged by petitioners, extended hearings were held. In general it can be stated that the evidence offered by petitioners consisted of proof of the competitive conditions in the Louisiana fields, the contracts negotiated by petitioners and others in that field, and evidence that the contracts were negotiated at arm's length. After the presentation was concluded, without any cross examination or counter proof by interveners, a motion was made to dismiss on the ground that applicants had not sustained their burden of proof that the higher rate was "just and reasonable."

The Commission entered its "Order Postponing Action on Motion to Dismiss and Referring Proceedings to Examiner" in which it said:

"* * * The fact that contracts have been entered into in good faith and in arm\'s-length bargaining does not make them immune from the regulation in the public interest prescribed by Congress, nor are producer contract terms per se an indication that the prices agreed upon are just and reasonable either initially or as subsequently increased pursuant to escalation clauses or otherwise. (See Colorado Interstate Gas Co. v. F.P.C., 10 Cir., 1944, 142 F.2d 943, 953, affirmed 324 U.S. 581, 65 S.Ct. 829, 89 L.Ed. 1206; Mississippi River Fuel Corp. v. F.P.C., 8 Cir., 1941, 121 F.2d 159, 163).

"The exhibit submitted by applicants to show relative field prices is merely a numerical listing of contract prices for gas sold within the pricing area and is insufficient to justify the proposed increases.

"It may be observed that in providing for Commission responsibility in connection with rate filings the Natural Gas Act makes no distinction between independent producers and interstate pipeline companies. If they are subject to the Act, the same criteria and procedures are prescribed for rate-fixing purposes, since both classes are natural gas companies under the Act. The Commission is free, within the ambit of its statutory authority in rate fixing, to make the pragmatic adjustments which may be called for by particular circumstances (F.P.C. v. Natural Gas Pipeline Co., 315 U.S. 575, 586, 62 S.Ct. 736, 86 L.Ed. 1037). While it is true that the source of our authority over rates of independent producers is contained in Sections (4) and (5) of the Natural Gas Act, we do not say that in fixing the rates of natural gas companies which are independent producers we are compelled to apply the same formula as that applied in fixing the rates of natural gas companies which are interstate pipeline companies.

"In dealing with the rates of interstate pipeline companies, we have pointed to the burden placed by Section 4(e) of the Act upon those natural gas companies seeking approval for rate increases and in appropriated cases have pointed to the failing of some companies to present evidence which would justify the increases, for which reason we have denied applications for approval, and in these actions we have judicial approval. (Mississippi River Fuel Corp. v. F.P.C., 8 Cir., 1941, 121 F.2d 159, 165). The independent producers which are applicants herein are under the same burden as interstate pipeline companies to justify any proposed rate increases, even if their operations may differ.

"Upon consideration of all of these matters and the evidence so far presented, we would be required to grant the motion to dismiss and to terminate these proceedings, for the evidence does not show that the requested increased rates would be just and reasonable. Nevertheless, solely because this is the first series of cases involving the rates of independent producers upon which we have acted, we will allow Applicants a further period of time beyond which we do not propose to extend the resumption of the hearing, rather than granting the motion to dismiss forthwith.

* * * * *

"The Applicants should now be fully prepared to demonstrate the lawfulness of the proposed increases or we must deny the applications and dismiss the proceedings. Reasonable consideration of the rights of the other parties and of the general public will justify no further delays."

Upon the reconvened hearing petitioners introduced additional evidence tending to show that petitioners did not possess any dominating position in the industry, that natural gas is competitive with other non-regulated fuels, that the proposed prices were comparable with unregulated prices for local consumption; that maintenance of such a price is necessary to provide appropriate incentives for exploration and production of natural gas in Louisiana. No evidence was offered to show the actual cost of service to the producers — that is no evidence as to any economic factors related to their financial interests or needs, none as to operating expenses or capital costs, as to the return or profits they were earning under the 8.79 cent rate or which they would earn under the 16 cent rate, no evidence to indicate whether the rate was necessary to maintain credit and to attract capital. It can fairly be assumed, we think, that the failure to adduce such evidence was part of petitioners' trial strategy to make more persuasive their argument in favor of a field price basis, for rate purposes, for in the brief of Union Oil is the following statement:

"It was the judgment of petitioners that evidence of that type would have led to confusion in the presentation of their case and prejudiced the chances of acceptance by the Commission of the principles which petitioners urged on the Commission as the proper basis of regulation."

Because of the absence of the financial type of evidence, a motion was again...