421 F.2d 17 (6th Cir. 1970), 19260, Ashland Oil & Refining Co. v. Federal Power Commission

Docket Nº:19260.
Citation:421 F.2d 17
Case Date:January 15, 1970
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit

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421 F.2d 17 (6th Cir. 1970)




No. 19260.

United States Court of Appeals, Sixth Circuit.

January 15, 1970

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B. J. Bradshaw, Houston, Tex., for petitioner; Alan R. Vogeler, Cincinnati, Ohio, Richard L. McGraw, Jay W. Elston, Houston, Tex., on brief; Kyte, Conlan, Wulsin & Vogeler, Cincinnati, Ohio, Fulbright, Crooker, Freeman, Bates & Jaworski, Houston, Tex., of counsel.

David F. Stover, Atty., F.P.C., Washington, D.C., for respondent; Richard A. Solomon, Gen. Counsel, Peter H. Schiff, Solicitor, Leo E. Forquer, Asst. Gen. Counsel, F.P.C., Washington, D.C., on brief.

Kenneth Heady, Bartlesville, Okl., for intervenor; Lloyd G. Minter, John R. Rebman, Bartlesville, Okl., Augustus Beall, III, Cincinnati, Ohio, on brief; Hoover, Beall & Eichel, Cincinnati, Ohio, of counsel.

Before PHILLIPS, Chief Judge, and CELEBREZZE and McCREE, Circuit judges.

PHILLIPS, Chief Judge.

Ashland Oil & Refining Company (Ashland) petitions to review and set aside a declaratory order of the Federal Power Commission issued September 3, 1968, rehearing denied, November 1, 1968. 40 FPC 390, 1202. The controversy originated in a contract dispute between Ashland and Phillips Petroleum Company (Phillips). 1 Ashland claims a right to recover for certain increased rates involved in the sale of natural gas to Phillips. Phillips resists the claim. The Commission interpreted its regulations to mean that Ashland is not entitled to recover from Phillips for the period prior to 1966 because Ashland had not filed rate increase notices with the Commission during that period.

In 1945 the Michigan-Wisconsin Pipe Line Company (Michigan-Wisconsin) applied to the Commission for a certificate of public convenience and necessity covering the construction of a proposed pipeline from the Texas Panhandle area to customers in Michigan and Wisconsin. Michigan-Wisconsin proposed to buy gas from Phillips, which in turn was to obtain part of its supply from a group of producers, including Ashland's predecessor. Phillips entered into two contracts with Ashland's predecessor. One was executed in 1945 and amended in 1950; the other was executed in 1953. These contracts provided that Phillips would pay a specific initial price for gas purchased by it, with periodic increases every five years. The contracts further provided that if Phillips increased its resale rate, Ashland's predecessor would be entitled to a proportional increase in its base rate. The latter provision is described as a spiral escalation clause, the

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effect of which is to allow increased rates to Ashland's predecessor in event Phillips increased its rates to Michigan-Wisconsin. The gas purchased from Ashland is gathered by Phillips and transported to its plant in Sherman, Texas, where it is processed and the residue sold to Michigan-Wisconsin.

The contracts and amendments were executed prior to the decision of the Supreme Court in 1954 in Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed. 1035, holding producers to be subject to federal regulation. Soon after this decision was rendered the Commission determined that contract rates in effect as of the date of the Supreme Court decision should be filed as initial producer rates. Ashland's predecessor made this required filing with the Commission to reflect its contract prices as of June 7, 1954. During the period between 1954 and 1966 Ashland and its predecessor did not make any filings with the Commission for any rate increases. During the same period Phillips had filed for a number of increases on its sales to Michigan-Wisconsin, and the Phillips increases had become effective. The Commission found that none of the filings of Phillips purported to cover Ashland or could be treated as filings on behalf of Ashland. The declaratory order expressly states that under the regulations of the Commission Phillips was 'neither obligated nor authorized to make any filing for Ashland.' In 1966 Ashland filed rate increase notices for its sales to Phillips, which were permitted to become effective. After that date Ashland has received from Phillips the price it considers proper. The present controversy involves the period between February 1, 1955, and April 30, 1966. Ashland claims, inter alia, that Phillips owes it $527,194.97, based on rate increases made by Phillips during that period. Phillips maintains that it cannot pay the claimed increases lawfully because Ashland did not file rate increase notices. The Commission so interpreted its regulations in its declaratory order.

On March 28, 1967, Ashland sued Phillips in the United States District Court for the Southern District of Texas to recover the sums claimed to be due under the contracts, as well as for certain other relief not involved in this review. This action subsequently was transferred to the Northern District of Oklahoma, where it is still pending. Phillips filed a motion in the District Court to dismiss that suit on the ground that the complaint failed to state a cause of action, since Ashland had not filed its claimed increases with the Commission, or, alternatively, on the ground that the controversy was within the exclusive jurisdiction of the Commission. This motion to dismiss was denied by the District Court on November 7, 1968, after the entry of the declaratory order of the Commission under review in the present proceeding.

On November 15, 1967, after the initiation of the action in the District Court, Phillips filed a petition with the Commission for a declaratory order. On September 3, 1968, the Commission issued its declaratory order, ruling that under its regulations Ashland and its predecessor made no proper filing of the claimed...

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