Lynchburg Gas Company v. Federal Power Commission, 17738.

• Decision Date: 26 June 1964
• Docket Number: No. 17738.,17738.
• Citation: 336 F.2d 942,119 US App. DC 23
• Parties: LYNCHBURG GAS COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Atlantic Seaboard Corporation et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

119 US App. DC 23, 336 F.2d 942 (1964)

LYNCHBURG GAS COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent Atlantic Seaboard Corporation et al., Intervenors.

No. 17738.

United States Court of Appeals District of Columbia Circuit.

Argued November 21, 1963.

Decided June 26, 1964.

Mr. Morton L. Simons, Washington, D. C., for petitioner.

Miss Josephine H. Klein, Atty., Federal Power Commission, with whom Messrs. Richard A. Solomon, Gen. Counsel, Howard E. Wahrenbrock, Sol. and Abraham R. Spalter, Asst. Gen. Counsel, Federal Power Commission, were on the brief, for respondent.

Mr. Peter H. Schiff, Atty., Federal Power Commission, also entered an appearance for respondent.

Mr. Edward S. Pinney, New York City, with whom Messrs. Giles D. H. Snyder and William C. Hart, New York City, were on the brief, for intervenors.

Before FAHY, WASHINGTON and BURGER, Circuit Judges.

PER CURIAM.

The judgment of the court is that the order of the Commission under review in this proceeding is set aside and the case is remanded to the Commission for further proceedings. Judge Fahy states his reasons in an opinion in which Judge Washington concurs except Part II which discusses the contention of petitioner that the approved rate is an unreasonable restraint upon trade and is discriminatory in violation of the antitrust laws. Judge Washington files a separate concurring opinion in which Judge Fahy concurs except he believes a decision of the antitrust issue would be appropriate. Judge Burger also files an opinion, dissenting in part and concurring in part.

FAHY, Circuit Judge.

Lynchburg Gas Company petitions for review of an order of the Federal Power Commission authorizing a rate schedule of the Atlantic Seaboard Corporation, a pipeline affiliate of the Columbia Gas System. The rate is applicable to Seaboard's sales to resale customers which obtain less than their full requirements from Seaboard. Lynchburg has been a small customer of Seaboard since 1947, serving the City of Lynchburg and thereabouts, and until 1961 obtained its total requirements from Seaboard. Since then, however, it has purchased, with Commission permission, a portion of its supply from Transcontinental Gas Pipe Line Corporation (Transco), whose pipeline, originating in the Texas Gulf Coast area and traversing Virginia on a course approximating that of Seaboard, supplies primarily the populous markets in the Middle Atlantic Seaboard area.

Seaboard's basic rate structure is a combination of a demand and a commodity charge. The demand charge takes care of approximately half the cost to Seaboard of its necessary facilities, and is billed on the basis of the maximum volume a buyer has the right to take, though no gas is taken. The commodity charge is designed to recover the other half of Seaboard's fixed costs and also its variable costs, and is billed on the basis of the gas actually taken. The larger the volume the lower the unit cost, since the demand charge is then spread over a larger number of units.

At the time of the hearing Seaboard's rate applicable to the area here affected was $3.25 per Mcf. demand charge and 32.18¢ per Mcf. commodity charge, so that at 100% load factor¹ the unit cost was 42.9¢ per Mcf. and at 50% load factor was 53.5¢ per Mcf.² Transco's rates applicable to Lynchburg are lower than Seaboard's. They were $3.10 per Mcf. demand, and 28¢ per Mcf. commodity, but were reduced in February 1963 to $2.91 per Mcf. demand and 27.3¢ per Mcf. commodity.

In view of the fact that Lynchburg under a long-term service agreement with Seaboard remains bound to pay Seaboard's demand charge, it serves Lynchburg's interest to continue purchasing part of its supply from Seaboard. However, Lynchburg would benefit by so apportioning its purchases between Seaboard and Transco as to yield the lowest average unit cost, and could do this were it able to purchase at a high load factor from Transco, thus taking full advantage of the latter's low commodity charge.³

Seaboard filed under Section 4(d) of the Natural Gas Act a proposed commodity-demand "partial requirements" (PR) rate to supplement its previous rate. The ensuing proceedings led to a decision by the Commission to modify, and as modified to approve, a Seaboard schedule of rates which would require Lynchburg and other "partial requirements" customers in certain circumstances to pay a minimum commodity charge not required to be paid by full requirements customers. The effect of this charge is to require the partial requirements customer to purchase from Columbia or to pay for, even if not actually used, a minimum volume of gas both annually and monthly. This rate becomes effective as to Lynchburg should its purchases from Transco cause it to take from Seaboard less than a certain amount calculated on the basis of eighty per cent of Lynchburg's base-period⁴ load factor. Also included in the approved schedule are provisions which permit the minimum charge to be redetermined if Lynchburg's industrial sales increase or decrease by ten per cent. Lynchburg's present petition is for review of the rate schedule as approved.

The justification the Commission found for the PR rate is that approximately half of Seaboard's fixed costs are allocated to its commodity charge, and if Lynchburg were to reduce its commodity payments by reducing its base load purchases it would cut down its contribution to Seaboard's fixed costs. The Commission reasoned that if this reduction were substantial Lynchburg would cease to bear its fair share of such fixed costs. Since Seaboard must recover these costs if it is to remain in business the result would be that other Seaboard customers would be obliged to assume a disproportionate share by paying higher rates. This, the Commission concluded, would place an undue burden upon customers not having a second source of supply.

I.

The Commission first contends that Lynchburg is not a party aggrieved under Section 19(b) of the Act and its petition accordingly should be dismissed. The Commission says the record is devoid of evidence to support Lynchburg's contention that the PR rate schedule unreasonably restrains competition to Lynchburg's disadvantage. We think "aggrievement" does not depend upon a resolution of this question. There is aggrievement when a customer's rate is increased, or other economic injury is likely to flow from the action sought to be reviewed. The former is illustrated by Associated Indus. of New York State v. Ickes, 134 F.2d 694 (2d Cir.), vacated for mootness, 320 U.S. 707, 64 S.Ct. 74, 88 L.Ed. 414 (1943), the latter by the leading case of Federal Communications Comm'n v. Sanders Bros. Radio Station, 309 U.S. 470, 60 S.Ct. 693, 84 L.Ed. 869 (1940). And see the cases reviewed in Philco Corp. v. Federal Communications Comm'n, 103 U.S.App.D.C. 278, 257 F.2d 656 (1958), cert. denied, 358 U.S. 946, 79 S.Ct. 350, 3 L.Ed.2d 352 (1959). But the Commission points out that the PR rate, even if it might theoretically have an economic impact upon Lynchburg in the future, has none at present. Accepting Lynchburg's statement that the base period which would be used to determine the minimum bills would be the period of highest load factor in Lynchburg's history — 66% — the Commission says the order would impose a minimum commodity bill at a load factor of 52.8%, and Lynchburg does not allege that its load factor has ever been, or that it probably might be, lower than this in any reasonably foreseeable conditions. Lynchburg, countering, states inter alia that in order to avoid a "penalty" under Seaboard's minimum annual bill provision for the twelve months ended October 31, 1962, it was forced to cut back on its supply from Transco in June, July, August, September, and October, 1962.

Assuming that Lynchburg will currently not be required to pay more under the new rate or, to avoid doing so, to take less gas from Transco than otherwise it would do, the fact is that the PR rate is designed to and has the purpose of restraining Lynchburg's freedom of action in obtaining its supply. This purposeful exercise of control by the Commission over the freedom of Lynchburg aggrieves it. See Columbia Broadcasting System, Inc. v. United States, 316 U.S. 407, 422, 62 S.Ct. 1194, 86 L.Ed. 1563 (1942); City of Pittsburgh v. Federal Power Comm'n, 99 U.S.App.D.C. 113, 237 F.2d 741 (1956). Moreover, as a practical matter the time for review is now, within the statutory period after the action sought to be reviewed is taken, and not after the rendition of a bill contested as not due because of the invalidity of a rate long since approved. Aggrievement need not await this, in light of the intended influence of the order upon the business operations and management decisions of Lynchburg.

II.

Coming to the merits the principal contention of Lynchburg is that the PR rate is an unreasonable restraint upon trade and is discriminatory in violation of the antitrust laws. While the Commission is not responsible for the enforcement of these laws, nevertheless, as the Commission recognized, "part of the content of `public convenience and necessity' as used in § 7 of the Natural Gas Act is found in the laws of the United States. City of Pittsburgh v. Federal Power Comm'n, 99 U.S.App.D.C. 113, 237 F.2d 741." California v. Federal Power Comm'n, 369 U.S. 482, 484-485, 82 S.Ct. 901, 903, 8 L.Ed.2d 54 (1962). So, too, as to Sections 4 and 5 of the Act. United States v. Philadelphia National Bank, 374 U.S. 321, 353-354, 83 S.Ct. 1715, 10 L.Ed.2d 915 (1963).

The rate has anti-competitive features, but private enterprise subject to the Act is not free to compete without some public restraint essential to the accomplishment of the purposes of the Act. See United States v. El Paso Natural Gas Co., 376 U.S. 651, 84 S.Ct. 1044, 12 L.Ed.2d 12, decided April 6, 1964. Invalidity is not necessarily found in a reasonable difference in rates charged the same customer by different sources of supply, or in...