Phillips Petroleum Company v. Federal Power Com'n

• Decision Date: 16 November 1955
• Docket Number: 5096.,No. 5095,5095
• Citation: 227 F.2d 470
• Parties: PHILLIPS PETROLEUM COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent. PHILLIPS PETROLEUM COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Tenth Circuit

227 F.2d 470 (1955)

PHILLIPS PETROLEUM COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent.

PHILLIPS PETROLEUM COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent.

Nos. 5095, 5096.

United States Court of Appeals Tenth Circuit.

November 16, 1955.

Kenneth Heady, Bartlesville, Okl., (Rayburn L. Foster, Harry D. Turner, H. K. Hudson and James G. Williams, Jr., Bartlesville, Okl., were with him on the brief), for petitioner.

Lambert McAllister, Washington, D. C. (Willard W. Gatchell, Abraham R. Spalter and Francis J. Walsh, Washington, D. C., were with him on the brief), for respondent.

Charles V. Shannon, Washington, D. C. (John Dern, Arthur R. Seder, Jr., Chicago, Ill., and Knowles & Shaw, Denver, Colo., were with him on the brief), for Intervenor Michigan Wisconsin Pipe Line Co.

Before BRATTON, MURRAH and PICKETT, Circuit Judges.

MURRAH, Circuit Judge.

These are petitions under Section 19 (b), 15 U.S.C.A. § 717r(b), of the Natural Gas Act, 52 Stat. 821, to review and set aside orders of the Federal Power Commission, purporting to suspend certain rate schedules filed or offered for filing with the Commission for natural gas sold by the petitioner, Phillips Petroleum Company, an independent producer of natural gas, to Michigan Wisconsin Pipe Line Company, for resale. While the appeals were consolidated and come to us on one record, only one question of law is common to both cases, and we will therefore consider them separately.

Number 5096.

An historical statement is essential to a clear perception of the questions involved. On December 11, 1945, and before Michigan commenced operations, Phillips entered into a contract with it for the sale of natural gas, to be delivered at its Hansford County, Texas, processing plant. This review is concerned only with the production and sale of natural gas from lands referred to in the contract as "dedicated acreage". The contract, as amended December 1, 1949 provided for a base price of 6.6997 ¢ per mcf, to be escalated in the same ratio as Michigan's resale rates exceeded 25 ¢ per mcf, if the Bureau of Labor Statistics Wholesale Price Index was thirty points higher than its December 1934 level, but in no event would Phillips' price during the first five years be less than 7.5930 ¢ per mcf. Until March 1951, Phillips' sale price to Michigan under the contract was the minimum. In that month, however, Michigan applied for an increase in its rates from 28 ¢ to 31.5 ¢ per mcf. This rate was suspended by the Commission under Section 4(e) of the Act, 52 Stat. 822, 15 U.S.C.A. § 717c (e), and a hearing to determine a reasonable rate was ordered under Docket No. G-1678. While that case was pending, and in October 1951, the suspension order having expired under Section 4(e), Michigan began charging its customers the increased rate of 31.5 ¢ under bond to refund any portion of the increased rates ultimately found not to be justified after the hearing. In accordance with the "formula in the contract" between Phillips and Michigan, the parties entered into a letter agreement, under the terms of which Phillips' unregulated rates to Michigan were adjusted upwards in ratio to Michigan's increased rates, subject to refund to the extent that Michigan's increased rates were not sustained by the Commission. The formula prescribed in the contract gave Phillips a rate of 8.4416 ¢ per mcf (31.5/25 x 6.6997) for its unregulated sales to Michigan.

In June 1952, and while the first proceedings were still pending, Michigan filed another application for a further rate increase from 31.5 ¢ to 35 ¢ per mcf. This rate was also suspended and a hearing ordered under Docket No. G-1996. Upon the expiration of the statutory suspension period (December 12, 1952), Michigan commenced charging its customers the increased rate of 35 ¢, and thereupon entered into another like letter agreement with Phillips providing for an upward adjustment of Phillips' sale price in accordance with the escalator clause of its original contract, as amended. Effective January 1953, Michigan accordingly paid Phillips 9.3753 ¢ per mcf for its gas, subject to refund to the extent that Michigan's increased rate was not ultimately sustained by the Commission. And, Phillips was being paid this unregulated contract rate for its sales to Michigan when, on June 7, 1954, it was authoritatively determined that such sales were within the regulatory jurisdiction of the Commission. See Phillips Petroleum Co. v. State of Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L. Ed. 1035.

In recognition of its newly established jurisdiction, the Commission, on August 6, 1954, promulgated additional regulations in which it established June 7, 1954, as the arbitrary cut-off date on which all rate schedules for the sale of natural gas or services subject to the jurisdiction of the Commission were frozen. Every independent producer of natural gas subject to the jurisdiction of the Commission was ordered to, on or before October 1, 1954, file with the Commission rate schedules setting forth the terms and conditions of service and all rates and charges for such transportation and sale of natural gas effective on June 7, 1954, to be evidenced by a statement showing actual billings for a recent month; and it was further provided that no change could be made in any such rate schedules without first filing a change in rates at least thirty days before the effective date thereof pursuant to Section 4(d) of the Natural Gas Act and the applicable regulations. And, "rate schedule" was specifically defined as the basic contract and all supplements or agreements amendatory thereof effective and applicable on or after June 7, 1954. See Regulations 154.92-4, 19 F.R. 5081.

In compliance with these regulations, Phillips filed numerous contracts with amendments and supplements reflecting rates and charges in effect on June 7, 1954 for the wholesale of natural gas subject to the jurisdiction of the Commission. Among the contracts filed on August 31, 1954 as Rate Schedule No. 4 was the contract with Michigan dated December 11, 1945, together with the amendments of August 9, 1948 and December 1, 1949 and the letter agreements of October 31, 1951 and January 15, 1953. As a part of the same schedule, Phillips filed changes in its rate schedule to permit it to recover, in accordance with its contract with Michigan, seventy-five per cent of the increase in the Texas gross production tax, effective September 1, 1945. The letter agreements were denominated by the Commission as Supplements Nos. 8 and 11. The proposals for rate increases to cover the increase in the Texas gross production tax were denominated Supplement No. 1 to Supplements Nos. 6 and 7.

On September 30, 1954, the thirtieth day after the filing of Rate Schedule No. 4, the Commission sent a telegram to Phillips stating: "Supplemental rate schedule filed on August 31, 1954 suspended pending investigation and further order of the Commission. Two orders follow by mail." On the next day, October 1st, the Commission entered a formal order reciting that the "rate increases proposed by Phillips in Supplements Nos. 8 and 11 the two letter agreements and Supplement No. 1 to Supplements Nos. 6 and 7 pertaining to the recovery of the Texas excise tax to FPC gas rate Schedule No. 4 has not been shown to be justified and may be unjust, unreasonable and otherwise unlawful." And, "furthermore, the rate increases proposed in Supplements Nos. 8 and 11 relate to matters considered in Opinion No. 275 in the Matter of Michigan Wisconsin Pipe Line Company, Dockets Nos. G-1678 and G-1996, and accompanying order issued July 30, 1954." The Commission having granted a rehearing in Opinion No. 275, and Phillips' wholesales to Michigan having become jurisdictionally relevant to Michigan's resales, it was deemed "proper and in the public interest that pending such reconsideration the rate increases filed by Phillips applicable to gas purchased by Michigan be suspended." Treating the letter agreements (Supplements Nos. 8 and 11) as proposals for rate increases not in effect June 7, 1954, the Commission suspended the rates being collected in accordance therewith, and ordered a hearing "concerning the lawfulness of the rates, charges, classifications and services contained in Phillips FPC Gas Rate Schedule No. 4, as supplemented, as proposed to be further supplemented by Supplements Nos. 8 and 11 and Supplement No. 1 to Supplements Nos. 6 and 7."

On rehearing, the Commission entered its second order of December 8, 1954, modifying in part its prior order of October 1st. After referring to and quoting from its prior order concerning the relevancy of Phillips wholesales to Michigan's resales, the Commission noted that since its October 1st order, it had, on November 29th, issued its Opinion No. 275A and accompanying order modifying its prior Opinion No. 275, in which it recognized that failure to accord Phillips some increase in its sale price under the escalator clause of its contract "would carve out an unwarranted exception to the policy established" under its applicable regulations, and would "be somewhat unfair to Phillips when compared to the treatment accorded other independent producers * * *." The Commission accordingly found that on the basis of equal treatment with other producers, Phillips was equitably entitled to a rate which would give effect to Michigan's resale rate of 31.25 ¢, which the Commission had found to be proper in its Opinion No. 275A. Phillips was accordingly granted permission to file a new supplement to its FPC Gas Rate Schedule No. 4 to reflect as of June 7, 1954 a rate of 8.374 ¢ for its gas sales involved in this appeal. And, Supplement No. 1 to Supplements Nos. 6 and 7 providing for increase in rates based upon the increase in the Texas gross production tax, were allowed to take effect, provided that the filing of the new supplemental rate schedule should in no way affect the pending...