Placid Oil Company v. Federal Power Commission
| Decision Date | 11 June 1973 |
| Docket Number | No. 71-2761.,71-2761. |
| Citation | 483 F.2d 880 |
| Parties | PLACID OIL COMPANY et al., SoLa II, Petitioners, v. FEDERAL POWER COMMISSION, Respondent. |
| Court | U.S. Court of Appeals — Fifth Circuit |
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Paul W. Hicks, Dallas, Tex., Robert W. Henderson, Donald K. Young, Dallas, Tex., William J. Grove, Washington, D. C., J. P. Hammond, Tulsa, Okl., for petitioners.
Richard V. Mattingly, Jr., Gordon Gooch, Gen. Counsel, Leo E. Forquer, Sol., J. Richard Tiano, First Asst. Sol., William P. Diener, Asst. Sol., F. P. C., Washington, D. C., for respondent.
Thomas G. Johnson, Houston, Tex., for intervenor Shell Oil Co.
Martin N. Erck, John R. Rebman, Houston, Tex., for intervenor Humble Oil & Ref. Co.
Robert F. LeBlanc, R. J. Leithead, Tulsa, Okl., for intervenor Cities Service Oil Co.
Richard F. Generelly, Francis H. Caskin, Washington, D. C., for intervenors Callery Properties, Inc. and others.
William O. Strong, III, John E. Watson, Houston, Tex., for intervenor Tenneco Oil Co.
William A. Sackmann, Findlay, Ohio, for intervenor Marathon Oil Co.
Frank P. Saponaro, Jr., Washington, D. C., for intervenor Superior Oil Co.
Ronald J. Jacobs, Tulsa, Okl., for intervenor Skelly Oil Co.
B. James McGraw, Warren M. Sparks, Tulsa, Okl., for intervenor Gulf Oil Corp.
Homer D. Johnson, William C. Charlton, Pampa, Tex., for intervenor Cabot Corp.
John M. Young, J. Donald Annett, Kirk W. Weinert, Houston, Tex., for intervenor Texaco, Inc.
Tom Burton, Houston, Tex., for intervenor Continental Oil Co.
Derrill Cody, Willard P. Scott, Oklahoma City, Okl., for intervenor Kerr-McGee Corp.
Frederick Moring, Washington, D. C., for intervenor Associated Gas Distributors.
C. William Cooper, Hartford, Conn., William Warfield Ross, Washington, D. C., Tilford A. Jones, Bethesda, Md., for intervenor United Distribution Co.
Edward J. Kremer, Dallas, Tex., Charles E. McGee, Washington, D. C., for intervenor Atlantic Richfield Co.
Edwin S. Nail, Tulsa, Okl., for intervenor Amerada Hess Corp.
Neal Powers, Jr., Houston, Tex., for intervenors Freeport Minerals Co., U. S. Oil Co. of La., Inc., U. S. Oil of La., Ltd., John W. Mecom, Lake Washington, Inc. and E. Cockrell, Jr.
Justin R. Wolf, Washington, D. C., Woollen H. Walshe, New Orleans, La., for intervenor The California Co.
Richard F. Remmers, Oklahoma City, Okl., for intervenor Sohio Petroleum Co.
Dee H. Richardson, George C. Bond, Los Angeles, Cal., for intervenor Union Oil Co. of Cal.
John L. Williford, Kenneth Heady, Bartlesville, Okl., for intervenor Phillips Petroleum Co.
Lange Hoffman, Houston, Tex., for intervenor Pennzoil Producing Co.
Jerome J. McGrath, Washington, D. C., for intervenor Independent Natural Gas Assn. of America.
Clyde E. Willbern, Houston, Tex., for intervenor Getty Oil Co.
Sherman S. Poland, Washington, D. C., H. H. Hillyer, New Orleans, La., for intervenor The Louisiana Land & Exploration Co.
Murray Christian, Herbert W. Varner, Houston, Tex., for intervenor Superior Oil Co.
Cecil N. Cook, Houston, Tex., for intervenor E. Cockrell, Jr., etc.
John T. McMahon, Houston, Tex., for intervenor Ashland Oil, Inc.
Frank W. Frisk, Jr., Washington, D. C., for intervenor American Public Power Assn.
Edward Berlin, Washington, D. C., for intervenor Consumer Federation of America.
Reuben Goldberg, Charles F. Wheatley, Jr., Washington, D. C., George E. Morrow, Memphis, Tenn., for intervenor Municipal Distributors Group.
T. C. McCorkle, Tulsa, Okl., for intervenor Amoco Production Co.
Tom P. Hamill, Houston, Tex., Carroll L. Gilliam, Washington, D. C., for intervenor Mobil Oil Corp.
Michael H. Rosenbloom, Washington, D. C., Joseph J. Klovekorn, Albany, N. Y., for intervenor Public Service Comm. of N. Y.
George Spiegel, James F. Fairman, Jr., Washington, D. C., for intervenor Fuels Committee of Fla. Mun. Utilities Assn.
Before JOHN R. BROWN, Chief Judge, and BELL and MORGAN, Circuit Judges.
Today we must decide if what FPC has said — in response to what we said about what FPC said about what the Supreme Court said — is supported by "substantial evidence on the record as a whole". In short, we must review FPC Op: 598 which undertakes to establish the "just and reasonable" rates at which natural gas producers may sell gas in the Southern Louisiana Area (SLA). This followed in the footsteps of our Austral Oil Co. v. FPC, 5 Cir., 1970, 428 F.2d 407, which we now denominate as SoLa I in the almost certain assurance that what we write today will be known far and wide as SoLa II, and with the hope — for which there is no such assurance — that there will be no SoLa III, or IV, or V.
Nearly twenty years have elapsed since the Supreme Court, in Phillips I,1 first held that it was incumbent upon FPC to regulate the well-head sales by producers of natural gas to interstate pipelines. For six years FPC wandered frantically in its attempt to regulate each producer individually. Realizing that its resources were being exhausted more rapidly than the gas under scrutiny with little to show for it, FPC, in Phillips II,2 decided to abandon the individual producer method of rate regulation and to invoke its rule-making powers to establish area-wide rate ceilings for the industry as a whole. Accordingly, it established seven geographically identifiable producing areas and commenced its formidable task.3
The first efforts of FPC to establish rates for the SLA reached fruition in Op: 546. After an extensive review in this Court, we decided — largely because of the fact that area rates were an "experiment" for FPC, and in spite of our very serious reservations about the adequacy of FPC's conclusions (particularly its failure to assess the probable consequences of its action in terms of supply and demand) — to affirm Op: 546. SoLa I: 428 F.2d 407. But our opinion on rehearing, 1970, 444 F.2d 125, cert. denied sub nom. 1970, 400 U.S. 950, 91 S.Ct. 241, 27 L.Ed.2d 257, was very significant. Charting the parameters of that decision is therefore a prerequisite to effective review of this case. For we must determine whether, as FPC would have us believe, what we said must happen is really what we got.
Op: 546, reviewed by this Court in SoLa I, followed the Permian-approved method of a multi-tiered rate structure. Thus, the permissible rate varied from 17.0¢/Mcf to 20.0¢/Mcf,4 depending, as with wine, on the vintage of the gas — the only difference being that the newer, or newest, gas was the most dear. The theory behind this multi-tiered system was that a greater price had to be allowed for new gas. This was because its cost had to include an increment to account for the need for committing new reserves to the interstate market, and also because in the economic situation of the day, gas had achieved a greater value than before. Thus, in determining the cost per Mcf, the flowing gas costs were determined from historical data for SLA. The theory was that the rate ceilings should be adjusted to allow for recoupment of these costs. The costs for new gas, on the other hand, were based upon nationwide data and a 12% rate of return. To insure rate stability in the immediate future FPC ordered a five year moratorium on increased rate filings above the rate set by Op: 546. FPC also ordered substantial refunds.5
Op: 546 was challenged by both consumer and producer interests. Nearly every feature of the plan was assaulted. Except for its statutory advocate, the general counsel, scarcely a good word was said of Op: 546. The battle raged over two claims. The consumer interests argued that FPC had unlawfully padded the rate with non-cost items. On the other hand, the counter-contention of the producers was that FPC had failed to adequately take account of the severe shortage in the supply of natural gas reserves and the importance of price when it established the rates. As to non-cost factors which are clearly labeled and justified, we held that they may be used to further the overall purposes of the regulatory undertaking:
Non-cost factors may be used to influence market variables such as supply and demand, to create price stability, to influence industry structure, to simplify a rate schedule, and for many other purposes, but only if they are clearly identified and explained.
As to the acute shortage of gas, we expressed great disappointment that FPC had failed to consider the proposed rates in terms of the effect which they might have on our nation's supply of natural gas. This inescapably is a matter of gas reserves. Realizing that FPC might want to rectify this omission in its future consideration of the appropriate rates for SLA, we took careful pains, especially in the opinion on rehearing, to make sure that our affirmance of the Op: 546 rate structure would not impair FPC's authority to formulate a more flexible plan if the need arose. SoLa I: 444 F.2d 125.
Of course, SoLa I was also very instructive as an indication of the standard of review which this Court should, in the post-Permian era, employ in reviewing rate determinations by FPC. Realizing that "FPC must evaluate each rate set against policies as broad as the Natural Gas Act itself," SoLa I: 435, and that area rate regulation was still in the "experimental" stage, we continued the very flexible, but realistic, standard established by Permian:
The Permian decision thus indicates that a reviewing court must look to both individual components and overall effect of rates set by the Commission, but that the Commission has broad discretion that is not to be ineffectuated by either theoretical disagreement with its methods or by discovery of inadequacies that are...
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