Oklahoma Natural Gas Co. v. FEDERAL POWER COM'N

• Decision Date: 22 May 1958
• Docket Number: No. 13783.,13783.
• Citation: 257 F.2d 634
• Parties: OKLAHOMA NATURAL GAS COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Natural Gas Pipeline Company of America, et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

257 F.2d 634 (1958)

OKLAHOMA NATURAL GAS COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Natural Gas Pipeline Company of America, et al., Intervenors.

No. 13783.

United States Court of Appeals District of Columbia Circuit.

Argued February 5, 1958.

Decided May 22, 1958.

Mr. John S. Carlson, Tulsa, Okl., of the bar of the Supreme Court of Oklahoma, pro hac vice, by special leave of Court, with whom Mr. Norman A. Flaningan, Washington, D. C., was on the brief, for petitioner.

Mr. Robert Lee Russell, Washington, D. C., for respondent. Messrs. Willard W. Gatchell, General Counsel, Federal Power Commission, Howard E. Wahrenbrock, Solicitor, Federal Power Commission, and Alvin A. Kurtz, Attorney, Federal Power Commission, Washington, D. C., were on the brief for respondent.

Mr. Clarence H. Ross, Chicago, Ill., with whom Mr. John A. Kratz, Washington, D. C., was on the brief, for intervenor, Natural Gas Pipeline Co. of America.

Mr. Raybourne Thompson, Houston, Tex., of the bar of the Supreme Court of Texas, pro hac vice, by special leave of Court, with whom Messrs. John J. Wilson, Washington, D. C., and Warren M. Sparks, Tulsa, Okl., were on the brief, for intervenor, Oil Drilling, Inc., et al. Mr. Frank H. Strickler, Washington, D. C., also entered an appearance for intervenor, Oil Drilling, Inc., et al.

Before BAZELON, DANAHER and BASTIAN, Circuit Judges.

BASTIAN, Circuit Judge.

This appeal seeks review of an opinion and order of the Federal Power Commission (Commission), Opinion No. 299 and accompanying order of December 4, 1956, 16 F.P.C. 80, 16 PUR 3d 277 (1956), amendatory order of January 22, 1957, 17 F.P.C. 67, and order of January 31, 1957, 17 F.P.C. 85, in issuing certificates of public convenience and necessity pursuant to § 7(e) of the Natural Gas Act, as amended. (Acts of June 21, 1938, c. 556, 52 Stat. 824; February 7, 1942, c. 49, 56 Stat. 83; July 25, 1947, c. 333, 61 Stat. 459; 15 U.S.C.A. § 717f).

Natural Gas Pipeline Company of America (Natural), an intervenor in this proceeding, since 1931 has operated a natural gas pipeline from the Panhandle field in Texas to Joliet, Illinois, and, together with its affiliate, Texas Illinois Natural Gas Pipeline Company, supplies the entire natural gas requirements of the metropolitan Chicago area. Natural's existing pipeline, which has a capacity of 510,000 Mcf per day, is presently being operated at more than 98% load factor. The record shows that a growing and unsatisfied demand for natural gas exists in this area. Natural sought to accommodate this demand and, to accomplish this, contracted with three independent producers, Sunray Mid-Continent Oil Company, Warren Petroleum Corporation, and Oil Drilling, Inc., intervenors in this proceeding, to buy at an initial price of 13.9¢ per Mcf the large gas reserves of 78,000 Mcf per day which those producers had discovered in Jack and Wise Counties, Texas.

In October 1954, Natural and its proposed producer-suppliers (hereinafter referred to as Producers) made applications to the Commission for certificates of public convenience and necessity pursuant to § 7(e) of the Act. Natural's application sought permission to extend its Chicago-Texas Panhandle pipeline from Fritch, Texas, southeasterly through major gas-producing areas of southern Oklahoma to a point in Grandy County, Oklahoma, thence southerly to certain gas fields in Jack and Wise Counties in the north central part of Texas, a distance of some 350 miles. Producers' applications sought permission to sell and deliver their gas to Natural in accordance with their contracts with Natural.

Lone Star Gas Company (Lone Star), which had been the sole large buyer of gas in northern Texas, filed a rival application under § 7(c) of the Act. Under this proposal Lone Star would supply 80,000 Mcf of gas to Natural at Fritch, Texas, through a 230.5-mile pipeline which would be built from its existing line in Cotton County, Oklahoma.

Oklahoma Natural Gas Company (Petitioner) is, and has been for over fifty years, engaged in the distribution of natural gas in Oklahoma. It serves approximately 335,000 customers and uses approximately 125 billion cubic feet of natural gas annually. It now purchases, and is expected in the future to purchase, approximately 60% of its required gas supplies in southern Oklahoma at a maximum price of 10¢ per Mcf.

In the proceedings before the Commission, permission to intervene in each and all of the proceedings was granted by the Commission to Petitioner, Cities Service Gas Company, Upham Gas Company, Consolidated Gas Utilities Corporation, Central Illinois Electric and Gas Company, Iowa Power and Light Company, State Fuel Supply Company, and the City of Chicago, Illinois. Natural and Lone Star each were intervenors in the proceedings involving the application of the other.

The gas utility intervenors opposed the granting of certificates and, alternatively, asked that, if certificates were granted to Producers, such certificates be conditioned on Producers receiving no more than 11¢ per Mcf of gas, which was alleged to be the prevailing price in the area of Jack and Wise Counties.

After separate hearings on the two proposals, the proceedngs were consolidated. The examiner rendered a consolidated decision which rejected the application of Lone Star and approved those of Natural and Producers, subject, however, to a condition which effected a reduction in the initial price to be charged Natural by Producers. The examiner was of the opinion that such a condition was required by the Commission's opinion in In re Cities Service Gas Co., et al., 12 PUR 3d 3 (1955), which he regarded as controlling and not restricted to the facts in that case.

All parties excepted to the examiner's decision. The Commission permitted the proceedings to be reopened for the introduction in evidence of matters that had occurred since the close of the initial hearings, including amendments to the contracts with Producers reducing their initial price by 1¢ per Mcf with provisions respecting price escalation.

After further testimony, the Commission ordered the omission of an intermediate decision of the examiner and issued its order of December 4, 1956. That order again granted the applications of Natural and Producers without any condition as to price, but it did provide:

"The grant of the certificates herein shall not be construed as a waiver of the requirements of Section 4 of the Natural Gas Act, or of Section 154 of the Commission\'s Rules and Regulations thereunder requiring the filing of rate schedules for the service herein authorized, and is without prejudice to any findings or orders which have been or may hereafter be made by the Commission in any proceeding now pending or hereafter instituted by or against the applicants. Further, the action taken in this proceeding shall not foreclose nor prejudice any future proceedings or objection relating to the operation of any price or related provision in the gas purchase contracts herein involved."

The order again denied Lone Star's application for construction of its proposed facilities. The Commission, however, found that there was demand for gas beyond the supply now authorized, and authorized Lone Star to sell to Natural and average daily volume of 80,000 Mcf of natural gas and a daily maximum of 100,000 Mcf at the point of intersection between Lone Star's existing pipeline and Natural's proposed line in southern Oklahoma. The Commission also required Natural, in the event of Lone Star's acceptance of such authorization, to file with the Commission an application for a certificate of public convenience and necessity for facilities necessary to increase the sales capacity of its system between Fritch, Texas, and Joliet, Illinois, by 100,000 Mcf per day. Lone Star accepted the plan, and Natural filed its application pursuant to the Commission's order. Only Petitioner has appealed from the Commission's decision.

Under § 7(e) of the Natural Gas Act, the Commission has authority to issue a certificate to any qualified applicant if it finds that the applicant is able and willing properly to perform the proposed service and that the service "is or will be required by the present or future public convenience and necessity." Of course, the section also authorizes the imposition of conditions.

Petitioner's main contentions are that the Commission erred in granting the certificate to Producers without imposing a price condition, because, it was contended, Natural's proposed price exceeded the prevailing price in southern Oklahoma, and that the Commission did not make a finding that the increased rate proposed by Producers was "just and reasonable," as required by § 4(a) of the Act, 15 U.S.C.A. § 717c(a). That section requires that all rates and charges made or received by any natural gas company shall be "just and reasonable," and provides that any rate which is not "just and reasonable" is unlawful.

Petitioner asserts that, in a proceeding for a certificate of public convenience and necessity under § 7(e), when the rate is challenged by a party raising a substantial question as to its reasonableness, § 4(a) imposes a mandatory duty on the Commission, as an essential prerequisite to the granting of permission to make the sale, to insure that the proposed rates are just and reasonable. Petitioner further contends that the Act does not state that the provisions of § 4(a) shall not apply to a sale to be authorized under § 7(e); that the prohibition of § 4(a) against sales that are not just and reasonable is all-inclusive and pervades the entire Act; and that § 4(a) applies to any and all sales, hence it applies to a sale as soon as it is commenced.

Petitioner claims the record does not support a finding, and the Commission did not find, that the increased rate proposed by Producers was "just and reasonable." This error, Petitioner asserts, requires that the order granting the certificates be...