Alexander v. Federal Energy Regulatory Commission

• Decision Date: 08 November 1979
• Docket Number: No. 78-1466,78-1466
• Citation: 609 F.2d 543
• Parties: Clifford L. ALEXANDER, Secretary of the Army, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Cities Service Gas Company, Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 543

609 F.2d 543

197 U.S.App.D.C. 288

Clifford L. ALEXANDER, Secretary of the Army, Petitioner, v. FEDERAL ENERGY REGULATORY COMMISSION, Respondent, Cities Service Gas Company, Intervenor.

No. 78-1466.

United States Court of Appeals District of Columbia Circuit.

Argued Sept. 12, 1979.

Decided Nov. 8, 1979.

Katherine Gruenheck, Atty., Dept. of Justice, Washington, D.C., with whom Barbara Allen Babcock, Asst. Atty. Gen., Ronald R. Glancz and Freddi Lipstein, Attys., Dept. of Justice, and Peter Q. Nyce, Atty., Dept. of Army, Washington, D.C., were on the brief, for petitioner.

George H. Williams, Jr., Atty., Federal Energy Regulatory Commission, Washington, D.C., with whom Howard E. Shapiro, Sol. and McNeil Watkins, II, Atty., Federal Energy Regulatory Commission, Washington, D.C., were on the brief, for respondent.

Melvin Richter, Washington, D.C., with whom Daniel R. Hopkins, Asst. Gen. Counsel, Cities Service Gas Co., Oklahoma City, Okl., was on the brief, for intervenor.

Before MacKINNON and WILKEY, Circuit Judges, and GORDON, Senior District Judge.

Opinion for the Court filed by Senior District Judge JAMES F. GORDON.

Concurring opinion filed by Circuit Judge WILKEY.

JAMES F. GORDON, District Judge: ¹

This case involves a ruling by the respondent, the Federal Energy Regulatory Commission (hereinafter FERC), that the sale of natural gas from the intervenor, the Cities Service Gas Co., to the Army with a portion of that gas then being conveyed to Defense Family Housing (hereinafter DFH) is not a "sale in interstate commerce of natural gas for resale for ultimate public consumption" within the meaning of the Natural Gas Act, 15 U.S.C.A. § 717 Et seq. (1976 & Supp.1979), and therefore not within the rate jurisdiction of the FERC. DFH houses army personnel on the Ft. Leavenworth Army base. The petitioner, the Secretary of the Army, has appealed this decision to this Court which has jurisdiction pursuant to 15 U.S.C.A. § 717r(b) (1976). Cities Service has been a party to this action since its intervention at the time of the Secretary's application for rate jurisdiction in March of 1974.

There are three issues which have been presented by the counsel for the petitioner (1) Whether this transaction is a "sale for resale" for purposes of 15 U.S.C.A. § 717(b) (1976); (2) Whether the gas sold by Cities Service to the Army is subject to the FERC's rate jurisdiction under the comingling doctrine, and; (3) Whether the FERC decision resulted in discrimination against the Army. At the oral argument, counsel for petitioner conceded that their entire case would fall or stand by the resolution of the first issue. ² For the following reasons, the decision of the FERC is affirmed.

I.

Since 1963, the Army has been trying to bring the natural gas sold to it by Cities Service for its Fort Leavenworth facilities within the rate jurisdiction of the FERC (formerly the Federal Power Commission, hereinafter FPC). In September of that year during a general rate proceeding for Cities Service, the Army filed a petition with the FPC claiming that all the natural gas sold to it by Cities were "sales for resale" and subject to the FPC's rate jurisdiction. On February 24, 1964, the FPC severed this issue from the general rate proceeding and instituted a separate proceeding to determine this issue.

In 1966, the FPC issued Opinion No. 489, 35 FPC 571 (1966) (TR. 160-65). The FPC found that of all the gas sold to the Army, only 6.7% Of it was actually "resold" for jurisdictional purposes, this amount going to small commercial users at Ft. Leavenworth. However, the FPC could find no basis for concluding that it should extend the jurisdictional rate for this small amount to the rest of the gas sold to the Army. The FPC generally characterized this sale as a sale to the Army for its direct use. It based this decision on the fact that the Army had not previously sought authorization from the FPC for jurisdictional rates, as well as previous case law, ³ and the long history of Cities Service selling this gas to the Army with both parties considering this to be a nonjurisdictional direct sale. The FPC, however, did not attempt to enter a definitive ruling on this matter, and left the parties to negotiate an agreement over its findings. The FPC also stated that should these negotiations not be fruitful, the Army would be authorized to file an application pursuant to Section 7(a) of the Act for a ruling to require Cities Service to provide all or part of the gas at jurisdictional rates.

The parties did attempt negotiations, but, alas, impasse. After giving the required notice, Cities Service terminated its contract with the Army in March, 1971, but it has continued since to supply the Ft. Leavenworth facility with natural gas. The parties could not agree as to the proper compensation to be paid Cities Service for the gas sold, the Army allegedly paying only jurisdictional rates. In 1973, Cities Service filed suit in the United States Court of Claims against the United States on an alleged implied-in-fact contract to recover on a quantum meruit basis compensation for the sale of gas to the Ft. Leavenworth facilities. Cities Service Gas Co. v. United States, 205 Ct.Cl. 16, 500 F.2d 448 (1974). Pursuant to a court order entered in that case on March 1, 1974, the Army filed an application under § 7(a) of the Act for a determination on whether the gas sold by Cities Service was within the jurisdiction of the FPC. ⁴

A hearing before an administrative law judge (hereinafter ALJ) was held on January 20, 1975, to determine the merits of the Army's application. On June 10, 1977, the ALJ issued a decision denying the Army's application. The ALJ found that of the total volume of gas sold, only 4.34% Of the gas was actually a sale in interstate commerce for resale under § 717(b). ⁵ Of the remainder, 52.13% Was a direct nonjurisdictional sale to the Army, this not being in dispute among the parties. What was in dispute was the remaining 43.53% Which the Army delivered to DFH. The Army contended that this was a resale for purposes under the Act, but the ALJ determined that this was not a resale but merely an "interdepartmental transaction" within the Army for its own use. (TR. 200-17). ⁶

The Army appealed the ALJ's decision, and on January 26, 1978, the FERC entered an opinion and order affirming the initial decision (TR. 218-23). An order denying the Army's application for a rehearing was entered on March 28, 1978 (TR. 228-29). As previously mentioned, an appeal was subsequently taken to this Court.

II.

Whether the transfer of gas from the Army to the DFH is a resale for jurisdictional purposes or whether it is merely an interdepartmental transfer within the Army is a question of law and not of fact and so the standard of review found in 15 U.S.C.A. § 717r(b) (1976) is not controlling. ⁷ The standard of review on a jurisdictional decision of the FERC is whether the decision was without an adequate basis in law. Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672, 678, 74 S.Ct. 794, 98 L.Ed. 1035 (1954); Louisiana Land & Exploration Co. v. Federal Energy Reg. Comm'n., 574 F.2d 204, 206 (5th Cir. 1978). Another consideration for this Court is that great deference should be given to an agency's interpretation of its own regulations. United States v. National Ass'n. of Sec. Dealers, 422 U.S. 694, 719, 95 S.Ct. 2427, 45 L.Ed.2d 486 (1975); Chemehuevi Tribe of Indians v. Federal Power Comm'n., 420 U.S. 395, 410, 95 S.Ct. 1066, 43 L.Ed.2d 279 (1975); Udall v. Tallman, 380 U.S. 1, 16, 85 S.Ct. 792, 13 L.Ed.2d 616 (1965).

The Court disagrees with the petitioner's assertion that it should give weight to the opinions of the Comptroller General concerning interagency transfers. Questions on review concerning the authority of the FERC are for the Court to decide and this responsibility should not be abdicated to the Comptroller General. See, Greene County Planning Bd. v. Federal Power Comm'n., 559 F.2d 1227, 1238-39 (2d Cir. 1977). Furthermore, it would be inappropriate to consider these opinions at this level in that they were not raised as an objection in the application for rehearing as is required by 15 U.S.C.A. § 717r(b) (1976). No where in the application is there a specific reference to supposed failure to follow the Comptroller's General's opinion as error to be considered on appeal, and this Court considers that it would be inappropriate to consider this issue at this time. See, Federal Power Comm'n. v. Colorado Interstate Gas Co.,348 U.S. 492, 498, 75 S.Ct. 467, 99 L.Ed. 583 (1955); Rhode Island Consumer Council v. Federal Power Comm'n., 164 U.S.App.D.C. 134, 504 F.2d 203, 212 (D.C.Cir.1974); see also, Vanceburg v. Federal Energy Regulatory Comm'n.,187 U.S.App.D.C. 196, 571 F.2d 630, 642 (D.C.Cir.1977); North Carolina v. Federal Power Comm'n., 174 U.S.App.D.C. 475, 479, 533 F.2d 702, 706 (D.C.Cir.1976); Indiana & Mich. Elec. Co. v. Federal Power Comm'n., 163 U.S.App.D.C. 334, 502 F.2d 336, 339 (D.C.Cir.1974).

In any event we do not consider that the Comptroller General's opinions run Contra to our conclusion. It is appellant's claim that the Comptroller General's opinions interpreting Section 601 of the Economy Act of 1932, 31 U.S.C.A. § 686 (1976) ⁸ require courts to conclude that the instant transaction is a "sale for resale for ultimate public consumption" because "interagency reimbursement cost recoveries are to be consistent with government-private contractor reimbursement cost recoveries." Appellant's Br. at 20. However, the relevant statute and opinions are directed to assuring that the bookkeeping adjustment of the respective appropriation accounts reflect the full "actual cost" when goods or services are requisitioned from one agency by an order of another agency under the authority of Section 601. In such instances the statute and opinions do not operate to establish or alter the basic character of the requisitional order as an...