Natural Gas Pipeline Co. v. FEDERAL POWER COM'N
| Decision Date | 26 February 1958 |
| Docket Number | No. 11862.,11862. |
| Parties | NATURAL GAS PIPELINE COMPANY OF AMERICA, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Dorchester Corporation, Intervenor. |
| Court | U.S. Court of Appeals — Third Circuit |
Carl McGowan, Chicago, Ill. (Ross & O'Keefe, Clarence H. Ross, Roland D. Whitman, Chicago, Ill., on the brief), for Natural Gas Pipeline Co. of America.
C. Louis Knight, Washington, D. C. (Willard W. Gatchell, Gen. Counsel, Federal Power Commission, Washington, D. C., on the brief), for respondent.
Gene M. Woodfin, Houston, Tex. (James J. Flanagan, Dunnington, Bartholow & Miller, New York City, Vinson, Elkins, Weems & Searls, Houston, Tex., on the brief), for intervenor Dorchester Corp.
Before McLAUGHLIN, KALODNER and STALEY, Circuit Judges.
The dispositive question here is, what was the lawful contract rate on June 7, 1954 for gas sold by intervenor, Dorchester Corporation to petitioner?
Dorchester is an independent producer of natural gas in Oklahoma. It is the immediate successor of Panoma Corporation which had originally succeeded the partnership of Harrington and Marsh as such producer.1 Natural, the petitioner, on December 1, 1946, contracted with that partnership for the purchase of natural gas from the Guymon-Hugoton field in Oklahoma. The contract ran expressly until January 1, 1965 and at buyer's option as long thereafter as sellers are able to deliver gas in paying quantities from reserves allocated to the agreement. The price of 5.12¢ per Mcf (14.65 psia) increased to 6.253¢ per Mcf on July 1, 1951 until July 1, 1956 and thereafter was fixed at 7.145¢ per Mcf.
By its article Fourteenth the agreement is "* * * subject to present and future valid laws and present and future lawful orders of all regulatory bodies now or hereafter having jurisdiction over the parties * * *."2 On July 29, 1952 the order of the Oklahoma Corporation Commission fixed 9.8262¢ per Mcf (14.65 psia) as the minimum price for which gas produced in the Guymon-Hugoton field may be first purchased or sold. Natural advised Panoma, which had by then succeeded the partnership, that the Oklahoma Commission order did not apply to gas purchased by Natural under the December 1, 1946 contract, as amended. It stated that it was appealing from the order and that, pending final adjudication of its validity as to the contract gas, it would under protest pay in accordance with the state commission order and "In the event such order shall be held invalid or inapplicable to the gas sold and delivered by you to us under such contract, Natural will assert the right under familiar doctrines of business compulsion, unjust enrichment and restitution to a return to Natural of the additional payments so made under protest, with lawful interest thereon."
On Natural's appeal the Oklahoma Supreme Court on April 27, 1954, Natural Gas Pipeline Co. of America v. Corporation Commission, 272 P.2d 425, affirmed the state commission's order. An appeal was taken to the United States Supreme Court, 349 U.S. 44, 75 S.Ct. 578, 99 L.Ed. 866. On June 7, 1954, the litigation took on a new complexion, for it was on that date that the United States Supreme Court, independent of the foregoing, announced its opinion in Phillips Petroleum Co. v. State of Wisconsin, 1954, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed. 1035. The effect of that decision was to render Dorchester, as a producer of natural gas, subject to regulation by the Federal Power Commission under the Natural Gas Act, 15 U.S.C.A. § 717 et seq. Formerly producers such as Dorchester, not engaged in interstate transport of natural gas, had regarded themselves as exempt from such regulation. The Commission subsequently issued orders3 providing the mechanics for bringing independent producers under the Commission's supervision. Dorchester was thereby required to file "rate schedules, as defined in § 154.93, setting forth the terms and conditions of service and all rates and charges for such transportation or sale effective on June 7, 1954." Rate schedules were defined in § 154.93 as meaning "* * * the basic contract and all supplements or agreements amendatory thereof, effective and applicable on and after June 7, 1954, showing the service to be provided and the rates and charges, terms, conditions * * *" etc.
On July 1, 1954 Dorchester had succeeded Panoma.4 On October 28, 1954 it tendered to the Commission for filing, the contract with Natural plus three supplements. Two of these were bona fide amendments to the contract and of no special importance. The third was a copy of the Oklahoma Corporation Commission's minimum price order, then on appeal to the United States Supreme Court, which Dorchester claimed fixed the actual contract price as of June 7, 1954 at 9.8262¢ per Mcf. Natural protested this to the Commission as illegal and requested that if the Commission did accept the nine cent rate for filing, that is, temporarily, that the payments in excess of the six cent contract rate be held in escrow, to be returned to Natural in the event the state minimum rate was finally declared illegal by the Supreme Court. On November 30, 1954 the Commission accepted for filing Dorchester's tender, on the condition that the 9.8262¢ per Mcf minimum price be upheld by the United States Supreme Court. Thereafter Natural paid for its gas at that rate reserving the right to recover the excess if it were found to be unlawful.5
On December 6, 1954, Dorchester presented for filing its Supplement #4 which called for a rate of 10¢ per Mcf under the contract. The Commission suspended this proposed change until March 1, 1955, and called for a hearing as to its lawfulness. On April 7, 1955, four days before the Supreme Court filed its opinion invalidating the state-fixed rate, on Dorchester's motion, the Commission by order permitted the ten cent rate to become effective as of March 1, 1955. This was subject to further order of the Commission after the above referred to hearing and contingent upon Dorchester posting a $41,000 bond covering refund of any portion of the increase eliminated by the Commission as a result of the hearing. Because the required bond merely took care of any difference between the Oklahoma Commission minimum of 9.8262¢ and the sought for ten cent figure, Natural asked that the Commission reconsider the amount of the bond and that it be made sufficient to protect the difference between the contract 6.253¢ and the ten cents allowed Dorchester. It was about this time that the Supreme Court on April 11, 1955, holding Phillips Petroleum Co. v. State of Wisconsin to be controlling, ruled the 9.8262¢ rate invalid as having been imposed beyond the power of the State. Natural Gas Pipeline Company of America v. Corporation Commission of State of Oklahoma, 1955, 349 U.S. 44, 75 S.Ct. 578, 99 L.Ed. 866.6 Thereafter a hearing was held on Natural's protest at the inadequacy of the bond to be required of Dorchester pending the Commission's determination of entitlement to the 10¢ rate. On September 14, 1955 the Presiding Examiner of the Commission sustained the protest and ordered a bond in the sum of $742,000. On November 14, 1955 while the uncompleted hearing on the lawfulness of the ten cent rate was in recess, the Commission reversed its Presiding Examiner and reinstated the $41,000 bond. It did so simply by stating that the 9.8262¢ rate was the one actually effective and being paid on June 7, 1954. The facts that it was under protest, that a lesser amount was paid for a short time thereafter, or that the rate was subsequently declared invalid were, according to the Commission, irrelevant to the determination of the effective rate on June 7, 1954. The Commission in fact rejected its earlier conditional acceptance of the 9.8262¢ rate as having been a condition improvidently granted. Thereafter, in view of this, when the ten cent rate hearing was resumed Dorchester withdrew its filing of that rate. It was agreed by everyone that all the evidence as to that question had been offered and that the record was closed. The intermediate decision was omitted on motion and the record certified to the Commission. The latter, on January 5, 1956, dismissed the ten cent rate and reinstated the 9.8262¢ rate, relying apparently on the November 14th order which had found that to be the effective rate on June 7, 1954. Dorchester was ordered to refund the difference between the ten cent amount paid and 9.8262¢, from the date of the allowance of the ten cents. The Commission in this fashion made it clear that so far as it was concerned the 9.8262¢ rate was the one effective and applicable on June 7, 1954. Thus Natural was deprived of its contract rate through a unilateral filing of a higher rate by Dorchester, with no hearing or finding by the Commission — the only regulatory agency with authority over the contract rate — as to the illegality of that rate.
Another move in this astonishing sequence of events had occurred on December 27, 1955, when Dorchester "to remove any uncertainty with respect to the status of the rate proceeding * * *" filed a 9.8262¢ rate to be effective as of March 1, 1955. Natural objected to this procedure. The Commission referred to it in its January 5, 1956 order but did nothing else regarding it, and acted as above outlined. On February 3, 1956, the Commission by letter stated that it had decided to treat the December 27, 1955 filing as Supplement #6 (there was no Supplement #5) to be effective at the expiration of the thirty days statutory notice which had elapsed January 27, 1956, and that the 9.8262¢ rate became effective on that date. Once more Natural objected. On February 24, 1956, the Commission, accepting that protest as an application for rehearing on its February 3rd decision, denied it.
In our endeavor to ascertain the legal rate on June 7, 1954 for the gas contracted for by Natural...
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