1623 Sunrayoil Co v. Federal Power Commission

• Citation: 80 S.Ct. 1392,364 U.S. 137
• Decision Date: 27 June 1960
• Docket Number: MID-CONTINENT,No. 335,335
• Parties: . 4 L.Ed.2d 1623 SUNRAYOIL CO., Petitioner, v. FEDERAL POWER COMMISSION
• Court: United States Supreme Court

364 U.S. 137

80 S.Ct. 1392.

4 L.Ed.2d 1623

SUNRAY MID-CONTINENT OIL CO., Petitioner,

v FEDERAL POWER COMMISSION.

No. 335.

Argued April 26 and 27, 1960.

Decided June 27, 1960.

Mr. Melvin Richter, Washington, D.C., for petitioner.

Mr. Howard E. Wahrenbrock, Washington, D.C., for respondent.

Mr. Justice BRENNAN delivered the opinion of the Court.

This case presents an important question under the Natural Gas Act.¹ This question , central to the case, is: When a company, proposing to make, under contract, jurisdictional sales ² of natural gas in interstate commerce applies for a certificate of public convenience and necessity as required by the Act, and requests that the certificate be limited in time to the duration of a contract for the sale of gas which it has entered, does the Federal Power Commission have the authority to tender it, instead, a certificate without time limitation?

Petitioner Sunray Mid-Continent Oil Company, an independent producer of natural gas, entered into a contract with United Gas Pipeline Company, an interstate transmission company. The contract covered considerable acreage owned by, or under mineral least to, petition in Vermilion and Lafayette Parishes, Louisiana, in and about what is called the Ridge field. Under it, United agreed to take an annual amount of gas from petition equivalent to 4.5625 per cent of petitioner's gas reserves in the area covered by the agreement; ³ and United had the right, in addition, to call for any amount up to 150 per cent of the amount it had annually agreed to take. The term of the agreement was 20 years. The initial price provided was 20.5 cents per thousand cubic feet (Mcf.); and the price was to increase one cent per Mcf. every five years.⁴

Section 7(c) of the Natural Gas Act provides that "no natural-gas company * * * shall engage in the transportation or sale of natural gas, subject to the jurisdiction of the Commission * * * unless there is in force with respect to such natural-gas company a certificate of public con- venience and necessity issued by the Commissioner authorizing such acts or operations." This Court held in Phillips Petroleum Co. v. State of Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 796, 98 L.Ed. 1035, that by virtue of § 1(b) of the Act, sales of gas by an independent producer to a pipeline "in interstate commerce * * * for resale for ultimate public consumption" came within the scope of the Act.⁵ Petitioner had no certificate of public convenience and necessity authorizing sales in interstate commerce from the field in question. Accordingly, in order to carry out its contract with United, it was necessary for petitioner to apply for a certificate from the Commission, which it did.

Petitioner's application for the certificate contained the request that the certificate sought "provide for its own expiration on the expiration of the * * * contract term so as to authorize Applicant to cease the delivery and sale of gas thereunder at that time." The Commission, upholding its examiner's recommendations, rejected the contentions of petitioner that there should be issued to cover the contract only a certificate limited to the term of the contract itself, and tendered it a certificate without time limitations.⁶ 19 F.P.C. 618. Petitioner applied for a rehearing of the Commission's order. Basic to this application was the contention that "The Commission is without authority to issue a certificate to an applicant authorizing more than the whole or some part of the sale covered by the application for certificate of public convenience and necessity * * *." The Commission denied the rehearing application. 19 F.P.C. 1107.

Petitioner did not avail itself of its undoubted right to stand firm on its own application, and reject the proffered certificate. Cf. Atlantic Refining Co. v. Public Services Comm., 360 U.S. 378, 387-88, 79 S.Ct. 1246, 1252, 1253, 3 L.Ed.2d 1312.⁷ Instead it accepted the Commission's certificate and commenced deliveries of gas under it, reserving its right to object, on review, to the certificate's unlimited nature. The Court of Appeals for the Tenth Circuit rejected petitioner's objections, and affirmed the order of the Commission, 267 F.2d 471. In view of the importance of the central question presented, to which we have already alluded, we granted certiorari. 361 U.S. 880, 80 S.Ct. 151, 4 L.Ed.2d 118. We are in agreement with the Court of Appeals, and affirm its judgment.

The practical reasons behind petitioner's superficially self-abnegating desire to have a limited rather than an unlimited authorization from the Commission are obvious from a study of the Natural Gas Act's provisions. Obvious also is the damaging effect that acceptance of petitioner's central contention would have upon the policies of the Act.

I.

Section 7(b) of the Natural Gas Act regulates the abandonment by natural-gas companies of their facilities and services subject to the jurisdiction of the Commission.⁸ The section follows a common pattern in federal utility regulation ⁹ in forbidding such abandonment "without the permission and approval of the Commission first had and obtained." The Commission is to extend permission for an abandonment of service only on a finding "that the available supply of natural gas is depleted to the extent that the continuance of service is unwarranted, or that the present or future public convenience or necessity permit such abandonment." The proposal of petitioner was for a certificate that would by its own terms expire when the contract with United expired. Thus at the end of the period, petitioner would become free to cease supplying gas to the interstate market from the Ridge area without further leave of the Commission, and without there having been made the findings that Congress deemed necessary.

If petitioner's contentions, as to the want of authority in the Commission to grant a permanent certificate where one of limited duration has been sought for, were to be sustained, the way would be clear for every independent producer of natural gas to seek certification only for the limited period of its initial contract with the transmission company, and thus automatically be free at a future date, untrammeled by Commission regulation, to reassess whether it desired to continue serving the interstate market. And contracts—as did the 1947 contract in the companion case to the one at bar, Sun Oil Co. v. Federal Power Comm., 364 U.S. 170, 80 S.ct. 1388, might provide for termination in the event of a rate reduction by the Commission. Petitioner's theory, by tying the term of the certificate to the contract, would mean that such a reduction of rates would under those circumstances enable the producer to cease supplying gas, without obligation to justify its cessa- tion of this service as being consistent with the public convenience and necessity.

The consequences of petitioner's argument do not stop there. The identical provisions of the Natural Gas Act regulate pipeline companies as well as independent producers. If producers can insist in their certificates on the inclusion of a provision relieving them in advance from their obligation to continue the supply of gas, as of a date certain, pipeline companies—whose dealings with local distributing companies generally also take the form of a "sale" of gas to them—could insist on a similar provision. If an individual producer were thus left free to discontinue his supply, the transmission company would be forced to find a supplier of gas elsewhere, and make connection with him, to continue its service; and the consumer ultimately would pay the bill for the rearrangement. If the pipeline company were left free to cease its service to the local distribution company, a local economy which had grown dependent on natural gas as a fuel would be at its mercy. And this, though the primary practical problem that led to the passage of the Act was the great economic power of the pipeline companies as compared with that of communities seeking natural gas service. See Federal Power Comm. v. Hope Natural Gas Co., 320 U.S. 591, 610, 64 S.ct. 281, 291, 88 L.Ed. 333.

And there are practical consequences, related to rate control, which are even more concrete. The companion case, sun Oil Co. v. Federal Power Comm., 364 U.S. at page 170, 80 S.Ct. at page 1388, illustrates them. If petitioner's certificate of public convenience must expire with its first contract with United, service after then—under a new contract or otherwise—will require a new certificate. And under that certificate, petitioner may file, pursuant to § 4(c) of the Act,¹⁰ its rates for the "new" service. The only power the Commission would have, under the Act, with respect to those rates, would be to bear the burden of proof in an investigation under § 5 of the Act,¹¹ that the rates are unjust or unreasonable, and thereupon order a new rate, solely for prospective application. Last Term in the so-called Catco case, Atlantic Refining Co. v. Public Service Comm., supra, 360 U.S. at page 389, 79 S.ct. at page 1254, 3 L.Ed.2d 1312, we had occasion to remark that "the delay incident to determination in § 5 proceedings through which initial certificated rates are reviewable appears nigh interminable." At oral argument, counsel for the Commission confirmed that no contested major producer's § 5 case had been finally adjudicated by the Commission in the six years since this Court's decision in the Phillips case. In contrast to § 5 are the protections that would be available if at the conclusion of the original contract the producer's certificate remained in full force and effect. Then the rates to be charged under a new contract or otherwise would have to be filed as rate changes under § 4(d) of the Act, with 30 days' notice to the Commission and the public.¹² Under § 4(e), the Commission, on complaint of any State, state commission, or municipality, or sua sponte, may order a hearing on the new rate, and suspend the...