Gulf Oil Corp. v. F. P. C.

• Court: U.S. Court of Appeals — Third Circuit
• Writing for the Court: Before SEITZ, Chief Judge, ALDISERT and ROSENN; MAX ROSENN; ALDISERT
• Citation: Gulf Oil Corp. v. F. P. C., 563 F.2d 588 (3rd Cir. 1977)
• Decision Date: 07 September 1977
• Docket Number: Nos. 76-2596 and 77-1050,s. 76-2596 and 77-1050
• Parties: GULF OIL CORPORATION, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Philadelphia Gas Works, Texas Eastern Transmission Corporation, Milton Clark, Frederick W. Rose, and St. Regis Apartment, Ltd., on behalf of themselves and all others similarly situated (PGW's customers), Washington Urban League, Public Service Electric and Gas Company, Connecticut Public Utilities Control Authority, Massachusetts Department of Public Utilities, Rhode Island Division of Public Utilities and Carriers, Rhode Island Attorney General and Rhode Island Customers' Council (New England), Public Service Commission of the State of New York, the Brooklyn Union Gas Company, Philadelphia Electric Company, Intervenors. CONNECTICUT PUBLIC UTILITIES CONTROL AUTHORITY, Massachusetts Department of Public Utilities, Rhode Island Division of Public Utilities and Carriers, Rhode Island Attorney General, and Rhode Island Consumers' Council, Petitioners, v. FEDERAL POWER COMMISSION, Respondent, Philadelphia Gas Works, Gulf Oil Corporation, Bay State Gas Company, Boston Gas Company, Bristol and Warren Gas Company, Cape Cod Gas Company, Commonwealth Gas Company, the Connecticut Gas Company, Connecticut Natural Gas Corporation, Fall River Gas Company, the Hartford Electric Light Company, Town of Middleborough, Municipal Gas and Electric Department, New Bedford Gas and Edison Light Company, North Attleboro Gas Company, City of Norwich, Department of Public Utilities, Pequot Gas Company, Providence Gas Company, South County Gas Company, the Southern Connecticut Gas Company, Tiverton Gas Company, Public Service Electric and Gas Company, Milton Clark, Frederick W. Rose and St. Regis Apartments, Ltd. (PGW's customers), Algonquin Gas Transmission Company, Philadelphia Electric Company, Intervenors.

Page 588

563 F.2d 588

GULF OIL CORPORATION, Petitioner, v. FEDERAL POWER COMMISSION, Respondent,

Philadelphia Gas Works, Texas Eastern Transmission

Corporation, Milton Clark, Frederick W. Rose, and St. Regis

Apartment, Ltd., on behalf of themselves and all others

similarly situated (PGW's customers), Washington Urban

League, Public Service Electric and Gas Company, Connecticut

Public Utilities Control Authority, Massachusetts Department

of Public Utilities, Rhode Island Division of Public

Utilities and Carriers, Rhode Island Attorney General and

Rhode Island Customers' Council (New England), Public

Service Commission of the State of New York, the Brooklyn

Union Gas Company, Philadelphia Electric Company, Intervenors.

CONNECTICUT PUBLIC UTILITIES CONTROL AUTHORITY,

Massachusetts Department of Public Utilities, Rhode Island

Division of Public Utilities and Carriers, Rhode Island Attorney General, and Rhode Island Consumers' Council, Petitioners, v. FEDERAL POWER COMMISSION, Respondent,

Philadelphia Gas Works, Gulf Oil Corporation, Bay State Gas

Company, Boston Gas Company, Bristol and Warren Gas Company,

Cape Cod Gas Company, Commonwealth Gas Company, the

Connecticut Gas Company, Connecticut Natural Gas

Corporation, Fall River Gas Company, the Hartford Electric

Light Company, Town of Middleborough, Municipal Gas and

Electric Department, New Bedford Gas and Edison Light

Company, North Attleboro Gas Company, City of Norwich,

Department of Public Utilities, Pequot Gas Company,

Providence Gas Company, South County Gas Company, the

Southern Connecticut Gas Company, Tiverton Gas Company,

Public Service Electric and Gas Company, Milton Clark,

Frederick W. Rose and St. Regis Apartments, Ltd. (PGW's

customers), Algonquin Gas Transmission Company, Philadelphia

Electric Company, Intervenors.

Nos. 76-2596 and 77-1050.

United States Court of Appeals Third Circuit.

Argued June 7, 1977.

Decided Sept. 7, 1977.

Carroll L. Gilliam, Grove, Jaskiewicz, Gilliam & Cobert, Washington, D.C., for petitioners Gulf Oil in No. 76-2596 and as intervenor in 77-1050.

R. Daniel Prentiss, Dept. of Atty. Gen., Division of Civil Litigation & Charitable Trusts, Providence, R. I., for petitioners Connecticut Public Utilities Control Authority, et al.

Allan Abbot Tuttle, Sol. F. P. C., Washington, D.C., for respondent.

James W. McCartney, Vinson, Elkins, Searls, Connally & Smith, Houston, Tex., for intervenor, Texas Eastern Transmission Corp.

Morton L. Simons, Simons & Simons, Washington, D.C., for intervenor, Washington Urban League.

Drexel D. Journey, Gen. Counsel, Robert W. Perdue, Deputy Gen. Counsel, Allan Abbot Tuttle, Sol., Scott M. DuBoff, Edgar K. Parks, Attys., F.P.C., Washington, D.C., for Federal Power Commission.

Warren M. Sparks, Sparks & Sparks, Tulsa, Okl., B. James McGraw, Gulf Oil Corp., Houston, Tex., Carroll L. Gilliam, Keith R. McCrea, Craig W. Hulvey, Washington, D.C., for Gulf Oil Corp., of counsel, Grove, Jaskiewicz, Gilliam & Cobert, Washington, D.C.

R. Daniel Prentiss, Sp. Asst. Atty. Gen., Dennis J. Roberts, II, Andrew L. Niven, Legal Analyst Southern New England Regulatory Project, Providence, R. I., for Connecticut Public Utilities Control Authority, et al.

Jack D. Head, Houston, Tex., James W. McCartney, Judy M. Johnson, Atty., Vinson & Elkins, Houston, Tex., for Texas Eastern Transmission Corp.

A. Grant Sprecher, Stephen Schachman, Barry J. Hart, Obermayer, Rebmann, Maxwell & Hippel, Philadelphia, Pa., for Philadelphia Gas Works.

Thomas E. Wiener, Goodis, Greenfield, Henry & Edelstein, Philadelphia, Pa., for Customers of Philadelphia Gas Works.

Peter H. Schiff, Gen. Counsel, The Public Service Commission of the State of New York, Albany, N. Y., Richard A. Solomon, Sheila S. Hollis, Atty., Wilner & Scheiner, Washington, D.C., for The Public Service Commission of the State of New York.

Barbara M. Gunther, Atty., Michael W. Hall, Cullen & Dykman, Brooklyn, N. Y., for The Brooklyn Union Gas Co.

Morton L. Simons, Simons & Simons, Washington, D.C., Victor H. Kramer, David C. Vladeck, Institute for Public Interest Representation, Washington, D.C., for Washington Urban League.

OPINION OF THE COURT

Before SEITZ, Chief Judge, ALDISERT and ROSENN, Circuit Judges.

MAX ROSENN, Circuit Judge.

These petitions raise numerous questions concerning an order by the Federal Power Commission ("FPC") requiring Gulf Oil Corporation ("Gulf") to deliver to the pipelines of the Texas Eastern Transmission Company ("Texas Eastern") large quantities of natural gas. Gulf urges that the FPC order be set aside, several New England states ("New England") ¹ ask that the order be modified, and a group of intervenors ² argue that the Commission's order should be enforced in full. Finding no merit in either Gulf's or New England's petition, we affirm the Commission's order without modification.

I. BACKGROUND

This dispute grows out of a certificate of public convenience and necessity issued to Gulf by the FPC in 1964. That certificate followed a 1963 "Precedent Agreement" between Gulf and Texas Eastern wherein they agreed to enter into a "Gas Purchase Contract" upon the receipt by each of an appropriate certificate from the FPC.

Upon issuance of the certificates, Gulf commenced performance in accordance with the terms of the contract and the certificate. Within a few years, however, Gulf discovered that it had vastly overestimated the reserves of its West Delta Block 27 Field located in Plaquemines Parish, Louisiana, the field from which Gulf had expected to draw most of the natural gas for the Texas Eastern contract. In 1971, citing the mistake in its reserve estimate, Gulf applied to the Commission for a certificate amendment increasing the price at which it supplied gas to Texas Eastern. In Opinion Nos. 692 and 692-A, issued in 1974, the FPC denied Gulf's application for an amendment and Gulf did not seek judicial review of the Commission's decision.

Since 1973, Gulf's deliveries to Texas Eastern have fallen short of Texas Eastern's demands and since 1974, short of the contract specified quantities. On November 7, 1975, the FPC issued the show cause order which initiated this proceeding. After a hearing, the Administrative Law Judge concluded that Gulf was obligated to deliver greater quantities of gas than it had been and he ordered certain performance and refunds on the part of Gulf. The Commission, in Opinion No. 780, agreed with the conclusions of the Administrative Law Judge. Gulf and a number of other parties petitioned for rehearing but in Opinion No. 780-A the Commission held to its prior decision. This appeal followed.

On review, we are empowered to "affirm, modify, or set aside (the Commission's) order in whole or in part," Section 19(a) of the Natural Gas Act of 1938, 15 U.S.C. § 717r (1970). The scope of our review is defined by the Administrative Procedure Act, 5 U.S.C. § 706 (1970). ³

II. GULF'S DELIVERY OBLIGATIONS

The first question before us concerns the quantity of gas which Gulf is obligated to deliver. The Commission found that under the certificate of public convenience and necessity, Gulf is obligated to deliver 625,000 MCF (thousand cubic feet) of gas per day to Texas Eastern except when Texas Eastern demands less. Gulf maintains that its obligation, if any, is limited to 500,000 MCF per day.

Although our concern is with the meaning of the certificate, see Sunray Mid-Contract Oil Co. v. FPC, 364 U.S. 137, 152-54, 80 S.Ct. 1392, 4 L.Ed.2d 1623 (1960), it is to the Gulf-Texas Eastern contract that we must turn. The reason is that the certificate alone has little substance. At its core is the incorporation by reference of Gulf's application; the application in turn refers to the terms of the precedent agreement and the gas purchase contract. The scope of the certificate, therefore, is in large part defined by the terms of the contract. ⁴

Several provisions of the contract are relevant to this issue. The first is Article II, P 1(a), which provides that after a start-up period ending on November 1, 1968, the "Daily Contract Quantity" will be established at 500,000 MCF per day. The second relevant provision is Article I ("Scope of Agreement"), P 4:

Seller (Gulf) warrants and agrees that there will be provided under the terms of this Agreement a quantity of gas sufficient to enable Seller to have available for delivery hereunder on any day or days a volume not less than one hundred twenty-five per cent (125%) of the Daily Contract Quantity . . . .

Article II ("Quantity of Gas") contains two additional provisions of importance. Under paragraph 1(b), Texas Eastern agreed to purchase or pay for if available and not taken

a quantity of gas equal to eighty per cent (80%) of the sum of (the) Daily Contract Quantity . . . multiplied by the number of days in (the) year . . . .

Paragraph 1(c) gives Texas Eastern the right

to purchase from Seller hereunder at any time, and from time to time, quantities of gas greater than the Daily Contract Quantity . . . ; provided that Seller shall not be obligated to deliver in any day a quantity of gas in excess of one hundred twenty-five per cent (125%) of (the) Daily Contract Quantity.

Another relevant provision, Article XII states:

This Agreement shall . . . remain in full force and effect for a term of twenty-six (26) years from the date of initial deliveries of gas hereunder, or to the date on which four billion four hundred thirty-seven million six hundred seventy-five thousand (4,437,675,000) MCF of gas . . . has been delivered to Buyer(,) whichever shall first occur.

Gulf insists that if these provisions of the contract are read together, it becomes clear that some sort of "swing" in deliveries is contemplated. In Gulf's view, Texas Eastern is entitled to receive and Gulf is obligated to provide no more than the Daily Contract Quantity ("DCQ") 500,000 MCF except on those "infrequent days when customers create a peak demand on (Texas Eastern's) system." On days when...