80 42 Atlantic Refining Co v. Public Service Commission of State of New York Tennessee Gas Transmission Co v. Public Service Commission of State of New York, Nos. 518

• Court: United States Supreme Court
• Writing for the Court: CLARK
• Citation: 3 L.Ed.2d 1312,79 S.Ct. 1246,360 U.S. 378
• Parties: See 80 S.Ct. 42. ATLANTIC REFINING CO., Cities Service Production Company, Continental Oil Company, et al., Petitioners, v. PUBLIC SERVICE COMMISSION OF STATE OF NEW YORK, Long Island Lighting Co., et al. TENNESSEE GAS TRANSMISSION CO., Petitioner, v. PUBLIC SERVICE COMMISSION OF STATE OF NEW YORK, Long Island Lighting Co., et al
• Docket Number: Nos. 518,536
• Decision Date: 22 June 1959

360 U.S. 378 79 S.Ct. 1246 3 L.Ed.2d 1312 See 80 S.Ct. 42. ATLANTIC REFINING CO., Cities Service Production Company, Continental Oil Company, et al., Petitioners,

v.

PUBLIC SERVICE COMMISSION OF STATE OF NEW YORK, Long Island Lighting Co., et al. TENNESSEE GAS TRANSMISSION CO., Petitioner, v. PUBLIC SERVICE COMMISSION OF STATE OF NEW YORK, Long Island Lighting Co., et al.

Nos. 518, 536. Argued May 20, 21, 1959. Decided June 22, 1959.

Motion to Amend Judgment Denied Oct. 12, 1959.

[Syllabus from pages 378-379 intentionally omitted]

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Mr. David T. Searls, Houston, Tex., for petitioners Atlantic Refining Co. et al.

Mr. Harry S. Littman, Washington, D.C., for petitioner, Tennessee Service Comm.

Mr. Kent H. Brown, Albany, N.Y., for respondent, Public Service Commission of State of New York.

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Mr. Edward S. Kirby, Newark, N.J., (Messrs. David K. Kadane and Bertram D. Moll, Mineola, N.Y., on the brief), for respondents Long Island Lighting Co. and Public Service Electric & Gas Co.

Mr. Justice CLARK delivered the opinion of the Court.

This proceeding tests the jurisdiction, as well as the discretion, of the Federal Power Commission in the certificating of the sale of natural gas under § 7(e) of the Natural Gas Act of 1938, 52 Stat. 821, 56 Stat. 84, as amended, 15 U.S.C. § 717 et seq., 15 U.S.C.A. § 717 et seq.¹ The Commission has issued a certificate of public convenience and necessity to petitioners, producers of natural gas,² to sell to petitioner Tennessee Gas Transmission Co. 1.67 trillion cubic feet of natural gas at an initial price of 224 c ents per MCF,

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including a tax of 1 cent per MCF. Continental Oil Co., 17 F.P.C. 880. In the same proceeding and on the same evidence it had twice refused to issue such an unconditional certificate because of insufficient evidence or testimony 'on which to base a finding that the public convenience and necessity requires the sale of these volumes of gas at the particular rate level here proposed.' On the second occasion it proposed to petitioners that the certificates be conditioned upon an initial price of 18 cents per MCF (including the 1-cent tax), to be increased to 22.4 cents per MCF (including the 1-cent tax) after the first 24-hour delivery period, the latter rate to be subjected to the 'just and reasonable' provisions of § 4 of the Act, 15 U.S.C. § 717c, 15 U.S.C.A. § 717c. The petitioners refused this proposal, and Tennessee advised the Commission that unless the certificates were issued without such conditions, CATCO would not dedicate its gas to the interstate market. Upon rehearing, after argument but without additional evidence, the Commission issued the certificates declaring 'important as is the issue of price, that as far as the public is concerned, the precise charge that is made initially is less important than the assurance of this great supply of gas' for interstate markets. 17 F.P.C., at 881.

The respondents, other than the Public Service Commission of the State of New York, are public utilities in New York and New Jersey. They buy gas from petitioner Tennessee for distribution in those States. They and the New York Commission oppose the issuance of the certificates on the ground that their issuance will increase the price of gas to consumers in those States, of whom there are over a million, using Tennessee's gas. Upon the issuance of the certificates the respondents filed petitions for review with the Court of Appeals. It held that 'Congress has not given the Commission power to inquire into the issue of public convenience and necessity where, as

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here, the applicant circumscribes the scope of that inquiry by attaching a condition to its application requiring the Commission to forego the consideration of an element which may be necessary in the formulation of its judgment.' Public Service Commission of State of New York v. Federal Power Commission, 3 Cir., 257 F.2d 717, 723. Concluding that the Commission had no jurisdiction to conduct such 'a limited inquiry,' ibid., it vacated the order granting the certificates and remanded the case to the Commission. The importance in the administration of the Act of the questions thus posed required the granting of certiorari, 1959, 358 U.S. 926, 79 S.Ct. 317, 3 L.Ed.2d 300. We have concluded that the Court of Appeals was in rro r in deciding that the Commission had no jurisdiction. However, for reasons hereafter developed we hold that the order of the Commission in granting the certificates was in error and we, therefore, affirm the judgment of the Court of Appeals.

The natural gas involved here is of a Miocene sand located below seabed out in the Gulf of Mexico some 15 to 25 miles offshore from Cameron and Vermilion Parishes, Louisiana. The petitioners in No. 518 are each independent natural gas producers. They jointly own oil and gas leases (25% to each company) which they obtained from Louisiana covering large acreages of the Continental Shelf off the Louisiana coast. Jurisdiction over the Continental Shelf is claimed by the United States and the question is now in litigation. The Congress has continued existing leases in effect pending the outcome of the controversy over the title. 67 Stat. 462, 43 U.S.C. (Supp. I, 1954) §§ 1331—1343, 43 U.S.C.A. §§ 1331—1343. The four companies' joint venture has resulted in the discovery of huge fields of natural gas and they have dedicated some 1.75 trillion cubic feet of gas from 95,000 acres of their leases to the petitioner Tennessee Gas Transmission Company, a natural gas company subject to the jurisdiction of the

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Commission.³ The latter is the petitioner in No. 536 which has been consolidated with No. 518.

The four contracts dedicating the gas to Tennessee run from each of the petitioner producers. The contracts call for an initial price of 22.4 cents per MCF for the gas, including 1-cent tax, with escalator clauses calling for periodic increases in specific amounts.⁴ In addition, they provide for Tennessee to receive the gas at platforms on the well sites out some 15 to 25 miles in the Gulf. This requires it to build approximately 107 miles of pipeline from its nearest existing pipeline point to the offshore platforms at wellhead. The estimated cost was $16,315,412. It further appears that the necessity for the certificates was based on an application of Tennessee, Docket G 11107, in which Tennessee requested certification to enlarge and extend its facilities. This program included the building of a pipeline from southeast Louisiana to Potland, Tennessee, which would carry a large proportion of the gas from these leases. Its cost was estimated at $85,000,000. In addition the contracts provide that Tennessee give free carriage from the wells to the shore of all condensate or distillate in the gas for the account of producers who have the option to separate it from the gas at shore stations. We need not discuss the contract provisions more minutely, though respondents do claim that

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other requirements place a greater burden on Tennessee and in practical effect increase the stated price of the gas to it.

The Presiding Examiner on March 29, 1957, found that the sales were required by the public convenience and necessity. Continental Oil Co., 17 F.P.C. 563. While he found that the proposed price was higher than any price Tennessee was then paying, he pointed to other prices currently paid for onshore sales 'for smaller reserves and smaller future potentials.' Id., at 571. The average weighted cost of gas to Tennessee he found would be increased, if the contract price was certificated, by .97 cent per MCF.⁵ However, he said that no showing hd b een made that this would lead to an increase in Tennessee's rates to jurisdictional customers or result in an increase in the price governing its other purchases. He refused to condition the certificates on the acceptance of a lower price by the parties on the ground that no 'showing of imprudence or of abuse of discretion by management,' ibid., had been made that indicated the proposed price could not be accepted temporarily as consistent with the public convenience and necessity, pending review in a § 5(a) proceeding. However, he did condi-

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tion his recommendation on the approval of Tennessee's application in Docket G—11107 above mentioned.

The Commission, as we have indicated, took three strikes at the recommendations of the Examiner. On April 22 it reversed his finding on public convenience and necessity because the evidence was insufficient as to price. It said:

'The importance of this issue in certificating this sale cannot easily be overemphasized. This is the largest reserve ever committed to one sale. This is the first sale from the newly developed offshore fields from which large proportions of future gas supplies will be taken. This is the highest price level at which the sale of gas to Tennessee Gas has been proposed.

'These factors make it abundantly evident that, in the public interest, this crucial sale should not be permanently certificated unless the rate level has been shown to be in the public interest.' Id., at 575.

The Commission granted petitioners temporary certificates and remanded the proceeding to the Examiner 'to determine at what rates the public convenience and necessity requires these sales' of natural gas to Tennessee under a permanent certificate. Id., at 576. The producers immediately moved for modification, asserting that they could not present sufficient evidence 'within any reasonable period in the future' to meet the necessities of the remand and, further, could not 'afford to commence construction until at least the initial rate (question) is resolved.' The Commission on May 20, however, reiterated its belief that 'the record does not contain sufficient evidence on which to base a finding that the public convenience and necessity requires the sale of the gas at that...