Public Service Commission of State of N. Y. v. Federal Power Commission
| Decision Date | 27 August 1975 |
| Docket Number | 24823,Nos. 24716,s. 24716 |
| Citation | 177 U.S.App.D.C. 272,543 F.2d 757 |
| Parties | , 177 U.S.App.D.C. 272 PUBLIC SERVICE COMMISSION OF the STATE OF NEW YORK, Petitioner, v FEDERAL POWER COMMISSION, Respondent, Texas Eastern Transmission Corporation et al. SUN OIL COMPANY, Petitioner, v FEDERAL POWER COMMISSION, Respondent, Texas Eastern Transmission Corporation and Philadelphia Gas Works Division of UGI Corporation, Intervenors. GENERAL CRUDE OIL COMPANY, Petitioner, v FEDERAL POWER COMMISSION, Respondent, Texas Eastern Transmission Corporation and Philadelphia Gas Works Division of UGI Corporation, Intervenors. M.H. MARR, Petitioner, v FEDERAL POWER COMMISSION, Respondent, Texas Eastern Transmission Corporation and Philadelphia Gas Works Division of UGI Corporation, Intervenors. CONTINENTAL OIL COMPANY, Petitioner, v FEDERAL POWER COMMISSION, Respondent, Texas Eastern Transmission Corporation and Philadelphia Gas Works Division of UGI Corporation, Intervenors. TEXAS EASTERN TRANSMISSION CORPORATION, Petitioner, v FEDERAL POWER COMMISSION, Respondent, Sun Oil Company et al., Intervenors. to 24825, 24836, 24846. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Morton L. Simmons, Washington, D.C., for petitioner in No. 24716.
Bruce R. Merrill, Houston, Tex., with whom Tom Burton, Houston, Tex., Stanley M. Morley, and Francis H. Caskin, Washington, D.C., were on the brief, for petitioners in Nos. 24823, 24824, 24825 and 24836 and intervenors Sun Oil Co., Gen. Crude Oil Co., Continental Oil Co. and M.H. Marr in Nos. 24716 and 24846.
J. Evans Attwell, Houston, Tex., for petitioner in No. 24846 and intervenor Texas Eastern Transmission Corp.
Kenneth E. Richardson, Atty., Federal Power Commission, with whom Gordon Gooch, Gen. Counsel, and J. Richard Tiano, Asst. Sol., Federal Power Commission, were on the brief, for respondent. Israel Convisser, Atty., Federal Power Commission at the time the record was filed, also entered an appearance for respondent.
William T. Coleman, Jr., Philadelphia, Pa., was on the brief for intervenor Philadelphia Gas Works Division of UGI Corporation in Nos. 24823, 24824, 24825, 24836 and 24846.
Before FAHY, Senior Circuit Judge, and TAMM and ROBINSON, Circuit Judges.
We are called upon to review three orders promulgated by the Federal Power Commission in lengthy proceedings arising and conducted under the Natural Gas Act. 1 The Commission has granted four producers of natural gas leave to sell their leasehold interests in substantial proven reserves to an interstate pipeline, and the pipeline authority to construct and operate facilities enabling it to take gas therefrom. These grants have, however, been conditioned upon terms which are continuing subjects of complaint by the producers, the pipeline, and others as well.
The producers are Sun Oil Company, General Crude Oil Company, M.H. Marr and Continental Oil Company. The pipeline is Texas Eastern Transmission Corporation (Texas Eastern). 2 Other litigants in this court are the Public Service Commission of the State of New York (PSC) and the Philadelphia Gas Works Division of UGI Corporation (PGW). 3
The orders under attack emanate from a series of Commission proceedings extending over a period of more than thirteen years. But notwithstanding its longevity, the controversy arrived here in a posture far from a final resolution. We have painstakingly examined its diffuse history, analyzed its multifaceted issues and pondered the complex problems emerging. Then, finding and identifying error in their administrative treatment, we are led to a disposition which, fortunately, will bring this long-standing litigation to a just and early end.
A. Producer-Pipeline Transactions
By contracts executed on February 1, 1957, the producers agreed to sell, and Texas Eastern to buy, their natural gas production in Rayne Field, 4 in Southern Louisiana, at an initial price of 23.9 cents per Mcf. 5 Shortly thereafter, the producers applied to the Commission for certificates of public convenience and necessity authorizing the sale, 6 and Texas Eastern sought a certificate permitting construction of new pipeline facilities extending its system to Rayne Field. 7 Because the unit price specified by the contract was high, 8 the applications were opposed by PSC and nine distributor intervenors. Hearings were held and on April 15, 1958, the presiding examiner recommended that the sale and construction be unconditionally certificated. 9 Exceptions to the examiner's decision were noted, but before the Commission ruled on them the Court of Appeals for the Third Circuit rendered its decision in the so-called CATCO litigation, 10 reversing an earlier Commission order granting unconditional certification of gas sales at an initial price lower than the 23.9-cent price involved in the pending application. 11 The Third Circuit's decisional ground was that the applicants for certification had not discharged their burden of demonstrating that the sale price they proposed was justified in terms of public convenience and necessity. 12
After that pronouncement, Texas Eastern and the producers renegotiated, and on December 4, 1958, agreed upon another arrangement. Instead of a conventional well-held sale of the gas at a 23.9-cent price, the new plan provided for sales to Texas Eastern of the producers' leasehold interests in the gas reserves in place. 13 The aggregate sale price was some $134 million, 14 which equated during the early years 15 to about 23.5 cents per Mcf for the gas, a figure out of line with prevailing prices. 16 The producers terminated their original contracts with Texas Eastern and withdrew their applications for certification. 17 Texas Eastern moved to amend its certificate application to reflect these developments, and to reopen the administrative hearing.
B.Opinion No. 322 And Its Demise
On June 23, 1959, the Commission overruled objections to the new proposal and, in its Opinion No. 322, awarded Texas Eastern an unconditional certificate to build and operate the facilities needed to effectuate the lease-sale. 18 While the Natural Gas Act gave the Commission regulatory authority over the sales of gas which Texas Eastern's original contracts with the producers had contemplated, 19 the Commission held that it lacked jurisdiction over sales of their gas leases, 20 and that for that reason it was under no obligation to determine, as a precondition to certification of pipeline construction related to those leases, whether the $134 million price was compatible with the public interest. 21 As a result, the producers' gas soon began to flow through Texas Eastern's pipelines for interstate distribution; and over the years ensuing, the flow has continued and the out-of-state prices paid to the producers have, as cost-of-service items, been reflected in the rates Texas Eastern has charged its customers.
Opinion Nov. 322 was, however brought to this court for judicial review, and was reversed. 22 Our opinion predated the holding in United Gas Improvement Company v. Continental Oil Company 23 that the Commission possessed jurisdiction over the sale of the leasehold interests. 24 We stated that while the Commission was empowered to certificate the pipeline construction without passing on the financial merits of the lease-sale arrangement, its order indicated general approval of the terms of that arrangement; and that to the extent that the order purported to do so, it was unsupported by substantial evidence in the record. 25 We realized that a determination of the reasonableness of proposed rates is not an express statutory requirement in a proceeding seeking authorization to extend pipeline facilities, 26 but we also recognized that the economic fact of escalating natural gas prices "does make price a consideration of prime importance." 27 We read the Supreme Court's CATCO decision "as holding that where a natural gas company seeks an unconditional certificate to make new sales of natural gas at proposed prices which are 'out of line' with existing prices, or which will tend to have an inflationary impact on the natural gas market, it is under an obligation to demonstrate upon the record the reasons why such increased prices are justified by the 'public convenience and necessary.' " 28 And we held that irrespective of whether the parties' lease-sale was beyond the Commission's regulatory jurisdiction, Texas Eastern's pipeline construction and its sales of Rayne Field gas were jurisdictional matters, and the price paid by Texas Eastern to the producers was a factor demanding consideration since Texas Eastern's acquisition costs would become relevant in the regulation of sales by Texas Eastern to its customers. 29 We remanded the case to the Commission with instructions to either disclaim any approval of the $245 million price or "reopen the record in the certificate proceeding to permit Texas Eastern to establish by adequate evidence that the acquisition costs which it proposed to incur will be consistent with the public convenience and necessity." 30
On remand, the Commission took the latter course, and after further hearings, reached two conclusions. On February 6, 1963, in Opinion No. 378, 31 it reversed its earlier position on jurisdiction over the lease-sale and held that it indeed did have jurisdiction. 32 After discovering that power, however, the Commission recognized that the proceeding was not in a posture enabling final disposition. It was essential that the producers, who were not parties to the remanded proceeding, file an application for a certificate of public convenience and necessity for approval of their sale, 33 and the nature of the lease-sale transaction presented novel difficulties in the way of price regulation. 34 The parties were given six months to work out new...
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