Federal Power Commission v. Hunt, 273

• Decision Date: 30 March 1964
• Docket Number: No. 273,273
• Citation: 11 L.Ed.2d 878,84 S.Ct. 861,376 U.S. 515
• Parties: FEDERAL POWER COMMISSION, Petitioner, v. H. L. HUNT et al
• Court: U.S. Supreme Court

376 U.S. 515

84 S.Ct. 861

11 L.Ed.2d 878

FEDERAL POWER COMMISSION, Petitioner,

v H. L. HUNT et al.

No. 273.

Argued March 2, 1964.

Decided March 30, 1964.

Richard A. Solomon, Washington, D.C., for petitioner.

Richard F. Generelly, Washington, D.C., for respondents.

Mr. Justice CLARK delivered the opinion of the Court.

The issue in this case is whether the Federal Power Commission, when granting an application for a temporary certificate authorizing the sale of natural gas in interstate commerce, can impose a condition that the applicant shall not increase its certificated price pending a hearing on the applicant's petition for permanent authority. Each of the seven applications involved here requested temporary operating authority to sell natural gas in interstate commerce on emergency grounds, as provided by § 7(c) and (e) of the Natural Gas Act.¹ In each case the Federal Power Commission conditioned the temporary grant of authority upon, inter alia, the producer's maintaining the initial price, without increase, during the period of the temporary authorization. On appeal, the Court of Appeals set aside this condition, holding that it was beyond the power of the Commission and conflicted with the right of a producer to initiate a higher contract rate under § 4 of the Act. 306 F.2d 334. We granted certiorari because of the importance of the question to the enforcement of the Natural Gas Act. 375 U.S. 810, 84 S.Ct. 70, 11 L.Ed.2d 47. We conclude that the Commission can impose such a condition in granting temporary authorizations under § 7 and therefore reverse the judgments.

I.

While this case involves applications for seven different temporary authorizations, the essential facts as to each, save the dates and gas fields, are the same. Since the parties and the Court of Appeals have treated the sale by the Hassie Hunt Trust as typical, we shall do likewise.

The Hunts are producers of natural gas in the Alta Loma area in Galveston County in Texas Railroad District No. 3. In July 1960, the Commission issued a permanent certificate authorizing sales of natural gas from the Alta Loma and other areas to the Peoples Gulf Coast Natural Gas Pipeline Co., 24 F.P.C. 1. The authorization was conditioned upon the producer's filing an amended contract providing for an initial price of 20¢ per Mcf., with an escalation of 3¢ after 10 years. The original contract had allowed four 2¢ escalations at four-year intervals. The order was found defective, however, because the Public Service Commission of New York, which sought a lower initial price, had been refused intervention before the Commission. See Public Service Comm'n v. Federal Power Comm'n, 111 U.S.App.D.C. 153, 295 F.2d 140, cert. denied, sub. nom. Shell Oil Co. v. Public Service Comm'n, 368 U.S. 948, 82 S.Ct. 388, 7 L.Ed.2d 343. Thereafter the Commission vacated its issuance of the certificate and ordered a new hearing on the question of initial price. 26 F.P.C. 689.

In the meantime, after the issuance, but prior to the vacating, of the July 1960 certificate, the Commission issued General Policy No. 61—1, 18 CFR § 2.56, 24 F.P.C. 818, which fixed the guideline for initial prices for Texas Railroad District No. 3 at 18¢ per Mcf., 2¢ below the initial price allowed in the July 1960 certificate.

Thereafter, on February 27, 1961, the Hassie Hunt Trust applied for a permanent certificate of public convenience and necessity allowing sales from a new well in this same area to Natural Gas Pipeline Company of America, the successor to Peoples Gulf Coast. It also applied for temporary authorization to begin service immediately under the emergency provisions of the Commission's Regulations issued under § 7(c) of the Act. 18 CFR § 157.28. The emergency was alleged to result from the 'necessity of paying shutin royalties and the incurrence of drainage through sales by others to pipeline companies other than Natural.' The new sale was covered by a 20-year contract, dated December 15, 1960, with provisions identical to those of the earlier contract, i.e., an initial price of 20¢ per Mcf. with 2¢ escalations at four-year intervals. The Commission on April 7, 1961, granted the temporary authorization subject to three conditions: (1) that the total initial price not exceed 18 per Mcf. and thus be in keeping with the guideline rate set for Texas Railroad District No. 3, (2) that within 20 days supplements to the contracts be filed consistent with this price, and (3) that the temporary authorization be accepted in writing within 20 days. Deliveries were commenced by the producer on April 19 before these conditions were met. On May 5 a conditional acceptance was filed reserving the right to seek removal of the conditions imposed and tendering an amended contract providing for an 18¢ initial price for 30 days with 20¢ per Mcf. thereafter. The Commission rejected this conditional acceptance and subsequently, in order to make clear its position, specifically provided that the initial rate was to be 18¢ and that there was to be no change therein pending the hearing on permanent authorization. The proposed 20¢ rate was rejected and thereafter this review followed.

The Court of Appeals sustained the 18¢ initial price but held that the Commission had no power to condition temporary authorizations so as to preclude the filing and collection of increased rates pursuant to § 4 of the Act.

II.

Once again we are confronted with a question solely of the proper interpretation of the Natural Gas Act. This time we must determine the interplay of §§ 4 and 7. These sections are the avenues through which the natural gas producer may, by contract or otherwise, initially propose the dedication of his natural gas supply to interstate movement (§ 7) and, once so dedicated by order of the Federal Power Commission, thereafter initiate changes in existing rates (§ 4). We will proceed with separate analyses of these two sections.

Section 7(c) came into the Natural Gas Act in 1942 and provides the method by which gas may be dedicated and certificated into interstate commerce. It prohibits a natural gas producer from engaging in the transportation or sale of natural gas 'unless there is in force with respect to such natural-gas company a certificate of public convenience and necessity issued by the Commission authorizing such acts or operations.' In order to secure such certificates, applications are filed with the Commission and in due course the applicants are afforded a hearing. Sections 7(c) and (e) of the Act command that a certificate shall be issued if the Commission finds it 'required by the present or future public convenience and necessity' and if the applicant meets certain tests of reliability, such as ability and willingness to perform. In issuing such certificates, the Commission has 'the power to attach to the issuance of the certificate and to the exercise of the rights granted thereunder such reasonable terms and conditions as the public convenience and necessity may require.' § 7(e).

Hearings under § 7(e) for permanent certification are time consuming. The Congress, realizing this, provided in § 7(c) that 'the Commission may issue a temporary certificate in cases of emergency, to assure maintenance of adequate service or to serve particular customers, without notice or hearing, pending the determination of an application for a certificate, and may by regulation exempt from the requirements of this section emporary acts or operations for which the issuance of a certificate will not be required in the public interest.' Pursuant to this authorization the Commission adopted a regulation which sets out standards for emergency authorizations and requires the applicant to file 'a statement of intention to invoke this section.' 18 CFR § 157.28(c). The Commission grants the temporary certificate, where it deems necessary, without notice or hearing. Under the terms of the regulation, this authorization continues until final Commission action under §§ 4 and 7, 'without preju- dice to such rate or other condition as may be attached to the issuance of the certificate.' 18 CFR § 157.28.

It must be noted, however, that § 7 does not stipulate that the Commission must find the initial rate to be just and reasonable but simply that the service proposed is required by the present and future public convenience and necessity. Nor does § 7 grant the Commission power to suspend the rate authorized in permanent or temporary certificates issued under that section. Once a permanent certificate is granted the Commission can correct an improper rate only under § 5 of the Act, 52 Stat. 823, 15 U.S.C. § 717 d, which likewise has no suspension provision. In the light of this inability to suspend the initial rate granted under a § 7 certificate, the Commission attaches conditions to the certificate of authority which it deems necessary to afford consumers the 'complete, permanent and effective bond of protection from excessive rates and charges' for which we found the Act was framed in Atlantic Refining Co. v. Public Service Comm'n, 360 U.S. 378, 388, 79 S.Ct. 1246, 1253, 3 L.Ed.2d 1312 (1959). 'The heart of the Act,' we said there, was in those provisions of § 7(e) 'requiring initially that any 'proposed service, sale, operation, construction, extension, or acquisition * * * will be required by the present or future public convenience and necessity,' * * * and that all rates and charges 'made, demanded, or received' shall be 'just and reasonable,' § 4, 15 U.S.C. § 717c.' In this case, the Commission concluded that when granting temporary certificates it must look even more carefully to the present and future public convenience and necessity and interpose such conditions precedent as would, in its view, fully protect consumers from excessive rates and charges.

Section 4 was included in the original Act of 1938. 52 Stat. 822, 15 U.S.C. § 717c. It provides in part that 'no change shall be made by any naturalgas...