PUBLIC SERVICE COM'N OF STATE OF NY v. FEDERAL POWER COM'N
| Decision Date | 07 February 1967 |
| Docket Number | 19941,19800,No. 19796,19919,19957.,19796 |
| Citation | 373 F.2d 816 |
| Parties | PUBLIC SERVICE COMMISSION OF the STATE OF NEW YORK, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Skelly Oil Company, Sun Oil Company, Callery Properties, Inc., Shell Oil Company, Pan American Petroleum Corporation, Superior Oil Company, Humble Oil & Refining Company, W. S. Kilroy et al., and Kilroy Properties, Inc., H. L. Hawkins & H. L. Hawkins, Jr., Placid Oil Company et al., Intervenors. PUBLIC SERVICE COMMISSION OF the STATE OF NEW YORK, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Monsanto Company, Mrs. James R. Dougherty et al., W. A. Stockard et al., Edwin M. Jones Oil Company, Shell Oil Company, H. D. Bruns & MPS Production Company, Continental Oil Company, Lamar Hunt, Intervenors. LONG ISLAND LIGHTING COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Lamar Hunt, Mrs. James R. Dougherty et al., W. A. Stockard et al., Edwin M. Jones Oil Company, Intervenors. CONTINENTAL OIL COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent. The SUPERIOR OIL COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
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Morton L. Simons, Washington, D. C., with whom Kent H. Brown, Albany, N. Y., was on the brief, for petitioner in Nos. 19796 and 19800.
Joseph C. Johnson, Houston, Tex., of the bar of the Supreme Court of Texas, pro hac vice, by special leave of court, with whom Bruce R. Merrill and Thomas H. Burton, Houston, Tex., were on the brief, for petitioner in No. 19941.
Homer J. Penn, Houston, Tex., for petitioner in No. 19957. Herbert W. Varner, Houston, Tex., and William T. Kilbourne, II, Washington, D. C., were on the brief for petitioner in No. 19957.
Joel Yohalem, Atty., F. P. C., with whom Richard A. Solomon, Gen. Counsel, and Howard E. Wahrenbrock, Sol., F. P. C., were on the brief, for respondent.
Sherman S. Poland, Washington, D. C., with whom Donald B. Robertson, Washington, D. C., was on the brief, for intervenor Skelly Oil Co. in No. 19796, argued on behalf of all intervenors.
Oliver L. Stone, New York City, was on the brief for intervenor Shell Oil Co.
Richard F. Generally, Washington, D. C., was on the brief for intervenors Callery Properties, Inc., H. L. Hawkins, H. L. Hawkins, Jr., and Monsanto Co.
J. Evans Attwell, Houston, Tex., was on the brief for intervenor W. S. Kilroy and others.
James K. Schooler, Houston, Tex., was on the brief for intervenor Humble Oil & Refining Co.
Carroll L. Gilliam and Philip R. Ehrenkranz, Washington, D. C., were on the brief for intervenor Pan American Petroleum Corp.
Bernard A. Foster, Jr., and Donald B. Robertson, Washington, D. C., were on the brief for intervenors Mrs. James R. Dougherty and others, Edwin M. Jones Oil Co. and W. A. Stockard and others.
Morton L. Simons, Washington, D. C., and Bertram D. Moll, Mineola, N. Y., also entered appearances for petitioner in No. 19919.
Robert E. May, Washington, D. C., also entered an appearance for intervenor Sun Oil Co.
Robert W. Henderson, Dallas, Tex., also entered an appearance for intervenor Lamar Hunt.
Before BAZELON, Chief Judge, WILBUR K. MILLER, Senior Circuit Judge, and TAMM, Circuit Judge.
We are to review a Federal Power Commission (FPC) order certificating sales of natural gas from producers to interstate pipelines. The sales were certificated in the Hawkins (Texas Railroad District No. 3)1 and Sinclair (Texas Railroad District No. 2)2 proceedings, which are consolidated here.
The New York Public Service Commission challenges the certificates on three grounds. First, there was no showing of public need for the gas. Second, the "in-line" price was too high. And third, the FPC erroneously postponed deciding whether the producers should be required to refund amounts in excess of the in-line level which were collected under a temporary certificate. Superior and Continental (producers) challenge the in-line price as too low. Superior claims also that the FPC set too high an interest rate on funds which would be retained by the producers in excess of the amount allowed by the permanent certificates. The intervenors support the FPC's determinations, although some of them think that the in-line price should have been higher.
We face some confusion about whether New York properly raised the issue of public need. At the prehearing conference in the Hawkins proceeding, New York limited the issue to whether or not the pipelines needed the gas.3 However, in its exceptions to the Examiner's initial decision New York said, "In view of (a) the absence of any evidence of public need for the gas and (b) the many indications that pipelines in the Gulf Coast area are presently suffering from take-or-pay problems,4 the application should be denied."5 This raised the issue of the public's need for the gas. New York used the take-or-pay problems to alert the FPC to a potentially harmful situation and obligate it to give reasons why, in spite of those problems, the sales should be certificated.6 New York reiterated its position in a petition for rehearing before the FPC.7
In Sinclair, New York raised the issue in the same terms as in the Hawkins proceeding.8 And again, after the FPC refused to consider the issue, New York repeated its contentions in a petition for rehearing.9 Since New York presented the issue of public need in its petition for rehearing in both the Hawkins and Sinclair proceedings, our review is authorized by Section 19(b) of the Natural Gas Act.10
The most obvious element of public necessity is the demand for the gas. In several cases decided before CATCO, the existence of an unsatisfied market was considered of great importance. For example, in Oklahoma Natural Gas Co. v. Federal Power Commission11 the court allowed the need in the Chicago market to outweigh even considerations of the price of the gas. And in United Gas Improvement Co. v. Federal Power Commission,12 because the demand for the gas was shown to be great, the court did not insist that the FPC regulate the initial price.13
Since these cases were decided, the Supreme Court has held, in CATCO, that the initial price is extremely important. But CATCO does not suggest that the public's need for the gas is irrelevant. Indeed, the Court seems to have imposed on the producer the burden of proving public need before certification. In part, the Court reversed the Commission's certification in CATCO because there was no "support whatever in the record for the conclusory finding on which the order was based that `the public served through the Tennessee Gas system is greatly in need of increased supplies of natural gas.'"14
But market demand is not the only relevant factor. In the Transco case,15 the question was whether the FPC, "through its certification power, may prevent the waste of gas committed to its jurisdiction."16 The Supreme Court said "no one disputed that natural gas is a wasting resource and that the necessity for conserving it is paramount."17 The dispute was whether the "public convenience and necessity," referred to in § 7(e) of the Natural Gas Act, included considerations of conservation, or whether the FPC was precluded from considering that factor. In affirming the Commission's action, the Court decided that conservation was relevant to public convenience and necessity. Transco was a pipeline certificate case, and the instant case is a producer certificate case. But pipelines and producers are certificated under the same statute, and, at least without strong evidence, we should not say that conservation is relevant in one case and not in the other. The public's interest in conserving gas is no less when the applicant for a certificate of public convenience and necessity is a producer.
The parties do not explicitly deny the relevance of market demand and conservation, but we are asked to disregard the issue of public need for four other reasons. First, it was not properly raised below. We have already dealt with that argument. Second, the public need for the gas should be determined in a pipeline certificate or pipeline rate case, not in a producer certificate case. Third, the FPC can postpone consideration of public need until it completes its pending rule-making proceeding on the problem of take-or-pay contracts. And fourth, "because of the nature of the gas business and the obligation of pipeline companies to the consuming public, it is to be expected that such companies will occasionally have long-term contracts for supplies which will give them gas for future, even though the supplies may be slightly in excess of their present-day needs."18 We will deal with the last three contentions in turn.
1. According to New York, the issue of public need should not be decided only in a pipeline certificate or rate case. New York argues that if the gas is sold to a pipeline which is unable to use it, and if the pipeline must either take the gas or pay for it nonetheless, then the loss sustained by the pipeline will be reflected in the price charged to the public utility and ultimately in the price charged to the consumer. The FPC could eliminate this problem by ruling that the pipeline's investment in the unused gas was "imprudent" and refusing to allow the pipeline to add its cost to the rate base. However, the FPC has cited no case in which the cost of unused gas was eliminated from the rate base. To the contrary, there is some indication that the FPC may be allowing at least part of the loss to be shifted to the consumer.19 Indeed, it would seem difficult for the FPC first to certificate a sale to a pipeline and then to claim that the pipeline's investment in the gas was imprudent.
Regardless of how the FPC uses its "imprudent investment" doctrine, there is another reason why the public's need for the...
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