Callery Properties, Inc. v. Federal Power Com., 20872

• Decision Date: 22 September 1964
• Docket Number: 20885,20967,20989,and 21028.,20890-20892,No. 20872,20872
• Citation: 335 F.2d 1004
• Parties: CALLERY PROPERTIES, INC., Petitioner, v. FEDERAL POWER COMMISSION, Respondent. The SUPERIOR OIL COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent. Caroline Hunt SANDS and Loyd B. Sands, Petitioners, v. FEDERAL POWER COMMISSION, Respondent. PLACID OIL COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent. Margaret Hunt HILL, Trustee for Hassie Hunt Trust, Petitioner, v. FEDERAL POWER COMMISSION, Respondent. J. RAY McDERMOTT & CO., INC., Petitioner, v. FEDERAL POWER COMMISSION, Respondent. OCEAN DRILLING & EXPLORATION COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent. J. R. FRANKEL et al., Petitioners, v. FEDERAL POWER COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Fifth Circuit

335 F.2d 1004 (1964)

CALLERY PROPERTIES, INC., Petitioner, v. FEDERAL POWER COMMISSION, Respondent.

The SUPERIOR OIL COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent.

Caroline Hunt SANDS and Loyd B. Sands, Petitioners, v. FEDERAL POWER COMMISSION, Respondent.

PLACID OIL COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent.

Margaret Hunt HILL, Trustee for Hassie Hunt Trust, Petitioner, v. FEDERAL POWER COMMISSION, Respondent.

J. RAY McDERMOTT & CO., INC., Petitioner, v. FEDERAL POWER COMMISSION, Respondent.

OCEAN DRILLING & EXPLORATION COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent.

J. R. FRANKEL et al., Petitioners, v. FEDERAL POWER COMMISSION, Respondent.

Nos. 20872, 20885, 20890-20892, 20967, 20989, and 21028.

United States Court of Appeals Fifth Circuit.

August 14, 1964.

Rehearings Denied September 22, 1964.

COPYRIGHT MATERIAL OMITTED

Richard F. Generelly, Gene Perry Bond, May Shannon and Morley, Washington, D. C., for Callery Properties, Inc. H. W. Varner and Roland B. Voight, Houston, Tex., for The Superior Oil Co., Murray Christian, Houston, Tex., of counsel.

Thomas G. Crouch, Robert W. Henderson, Dallas, Tex., for Caroline H. Sands and others and Margaret H. Hill, etc.

Paul W. Hicks, Shreveport, La., for Placid Oil Co.

William G. Love, Houston, Tex., for J. Ray McDermott & Co.

H. H. Hillyer, Jr., New Orleans, La., for I. R. Frankel and others.

J. Evans Attwell, Houston, Tex., for Ocean Drilling & Exploration Co.

Howard E. Wahrenbrock, Sol., Richard A. Solomon, Gen. Counsel, William I. Harkaway and Josephine H. Klein, Attys., and Robert L. Russell, Asst. Gen. Counsel, F.P.C., Washington, D. C., for respondent.

William T. Coleman, Jr., Philadelphia, Pa., for United Gas Improvement Co.

Vernon W. Woods, Shreveport, La., for United Gas Pipe Line Co.

Morton L. Simons, Washington, D. C., for Long Island Lighting Co., Philadelphia Electric Co., United Gas Improvement Co., and Public Service Commission of New York State.

Kent H. Brown, Albany, N. Y., for Public Service Comm. of N. Y.

Samuel G. Miller, Donald Blanken, Philadelphia, Pa., for Philadelphia Electric Co.

Thomas F. Ryan, Jr., Washington, D. C., for Transcontinental Gas Pipe Line Co.

Robert W. Maris, Philadelphia, Pa., for United Gas Improvement Co.

David K. Kadane, Bertram D. Moll, Mineola, N. Y., for Long Island Lighting Co.

Edward M. Barrett, Mineola, N. Y., for Long Island Lighting Co.

Henry P. Sullivan, Philadelphia, Pa., for Philadelphia Electric Co.

Aaron M. Fine, Philadelphia, Pa., for United Gas Improvement Co.

Before RIVES and BROWN, Circuit Judges, and GROOMS, District Judge.

JOHN R. BROWN, Circuit Judge.

These cases present important questions under the Natural Gas Act, 15 U.S. C.A. § 717. These include the nature of the hearing and the scope of the pertinent evidence bearing on price in a § 7 application for permanent certificate, the legality of retroactive rate refund, and the validity of a moratorium on post-certificate § 4 price increases.

The cases are not new for us, certainly not, as to one case. Their presence here bears out the prediction of the dissenter¹ that "this case will be back several years and thousands of pages later."² Without assaying the balance of the dissenter's prophesy that "no one will know more than is known now," it is ironic that we hold that we do not know enough because the Commission declined to receive and evaluate important evidence. Thus, in their fifth year, these applications must now go back to have the kind of hearing which we, and other Courts of Appeals, directed.

I.

These are all fallout from Catco³ in which the Supreme Court reversed the unconditioned certificate because the 21.4¢ price was "out of line."

Within a short time after affirmance by the Third Circuit on August 4, 1959, of the Transco-Seaboard case,⁴ the FPC in 6 separate formal hearings involving a total of 69 producer applications issued unconditioned certificates for South Louisiana (and offshore) sales at initial contract prices ranging from 21.4¢ per Mcf where no tax reimbursement was due to 23.8¢ including tax reimbursement. But within 4 months, the Third Circuit's Transco-Seaboard decision was summarily reversed.⁵ On appeals taken by various distributor-intervenors, the grant of the certificates was reversed by this Court and Courts of Appeals for the Third, Ninth, Tenth, and D.C. Circuits.⁶

On May 10, 1961, the FPC consolidated the remanded proceedings with the Southern Louisiana area rate proceeding.⁷ On January 10, 1963, the FPC denied motions of some intervenor-distributors for security on possible rate refunds. Expressing the view that it has "power to redetermine these proceedings on the basis of the respective records as originally made and in the light of additional facts of which we may take official notice" without further hearing, the Commission nevertheless determined to "adhere to the view that it would be fair and wiser in the present circumstances to offer the applicants a further opportunity to adduce evidence in docket numbers AR61-2 et al. In support of their proposed prices." But it ordered that rate collections "shall be subject to such refund provisions as the Commission may lawfully prescribe by its final order * * * to the extent, if any, that the rate which has been collected exceeds the rate ultimately found to accord with the requirements of the public convenience and necessity."⁸ In overruling the petitions for rehearing, the FPC on March 7, 1962, severed the proceedings from AR61-2 and then "consolidated them for the limited purpose of determining the public interest, initial price, or prices, applicable to these proceedings."⁹ In this order of March 7, 1962, the FPC noted that six weeks earlier, in the remanded Catco dockets, it had found the in-line level in South Louisiana to be 18.5¢ per Mcf, plus 1.5¢ tax reimbursement where applicable. Rejecting contentions by intervenor-distributors that a like finding should peremptorily be entered in these proceedings, the Commission nonetheless concluded that it "should afford the producers further opportunity to be heard."

The hearings thus scheduled were held before an Examiner June 18-21, 1962. At the outset of the hearing, the producers sought to introduce what the Examiner described as "a tremendous mass of cost-type, economic and financial evidence." This cost-of-service evidence followed generally the pattern used by the Commission in prior determinations. Broadly speaking it demonstrated that on a cost-of-service basis the cost to the producers was considerably in excess of the contract price sought to be certificated in the pending applications. Other evidence bore upon the minimum financial requirements for finding and producing gas. These also used techniques and methods employed by the Commission in determining analogous minimum financial requirements. Other evidence showed the demand and supply situation existing both nationwide and in South Louisiana. Some was detailed, indicating that the demand for gas is increasing far in excess of the annual additions of gas supply. Other evidence tied this directly into the exploration for, and finding of, new gas supplies to meet the increased demands, the relation of field prices to those efforts, the impact of lowered prices on exploratory activity, and the like. Other evidence showed the nationwide increase in the current cost of new gas supply over the pre-Catco prices, the increase in the weighted average contract price in this period in relation to drilling and exploratory costs, and refutation of the assertion that contract prices in South Louisiana have leaped from plateau to plateau. We need not describe it in any greater detail since in affirming the Examiner's rejection of the evidence, the Commission characterized it as "economic and financial evidence" including that relating to "an individual company or on an area-wide basis" without regard to whether it was "the type characterized as cost-of-service studies, cash flow studies, demand-supply, cost, profit and market price trends, area cost-revenue trends, comparative well cost data and gas replacement costs * * *."

On the motion of the intervenor-distributor supported by Commission staff, the Examiner rejected all of this evidence. In his decision of December 7, 1962, he (1) concluded that the in-line price for the pending sales was 18.5¢ per Mcf plus 1.5¢ per Mcf tax reimbursement where applicable, (2) directed that the producers refund with interest, all amounts previously collected in excess of the in-line levels of 18.5¢ and 20.0¢.¹⁰ Accepting in the main all of the Examiner's findings and conclusions, the FPC by opinion 398, issued July 17, 1963, took these actions. It unanimously sustained the exclusion of producer cost data, and the finding that the in-line price was 18.5¢. By a 4-1 vote it approved the refunds.¹¹ In addition, the Commission — on the basis of a finding that rate filings to levels in excess of 23.55¢ per Mcf would cause widespread triggering throughout Southern Louisiana — imposed a moratorium on filings in excess of 23.55¢ until July 1, 1967, or until the conclusion of the pending Southern Louisiana AR61-2 proceeding, whichever is earlier.¹²

Petitions for review have been filed by the producers (see note 6, supra). The questions presented for our decision are these. (1) Did the Commission err in excluding the proffered cost and economic data evidence? (2) Did the Commission err in imposing a moratorium on price increases in a permanent certificate? (3) Did the Commission err in ordering refunds of the amounts previously collected? (4) Did the Commission err in fixing the in-line price at the 18.5¢ level? (5) Did the Commission err as to take-or-pay refund provisions? (6) Did the Commission err in making the refund order applicable to Frankel and Placid's Docket No. 13184?

II. Exclusion of Cost Evidence

We think that a proper consideration of ...