Texaco, Inc. v. Federal Power Commission

• Decision Date: 12 December 1972
• Docket Number: 71-1561,71-1612,71-1603,71-1727 and 71-1729.,71-1647,71-1722,No. 71-1560,71-1627,71-1560
• Citation: 474 F.2d 416
• Parties: TEXACO, INC., Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Mrs. James R. Dougherty, et al., Intervenors. CONSOLIDATED GAS SUPPLY CORPORATION, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Mrs. James R. Dougherty et al., Intervenors. James M. FORGOTSON, Sr., an Independent Natural Gas Producer, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Mrs. James R. Dougherty et al., Texaco, Inc., Intervenors. PUBLIC SERVICE COMMISSION OF the STATE OF NEW YORK, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Texaco, Inc., Intervenor. INDEPENDENT NATURAL GAS ASSOCIATION OF AMERICA, Petitioner, v. FEDERAL POWER COMMISSION, Respondent. WARREN PETROLEUM CORPORATION, Petitioner, v. FEDERAL POWER COMMISSION, Respondent. TENNESSEE GAS PIPELINE COMPANY, a Division of Tenneco, Inc., Petitioner, v. FEDERAL POWER COMMISSION, Respondent. PHILLIPS PETROLEUM COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, TEXACO, INC., Intervenor. v. TEXACO, INC., Petitioner, v. FEDERAL POWER COMMISSION, Respondent.
• Court: U.S. Court of Appeals — District of Columbia Circuit

474 F.2d 416 (1972)

TEXACO, INC., Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Mrs. James R. Dougherty, et al., Intervenors.

CONSOLIDATED GAS SUPPLY CORPORATION, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Mrs. James R. Dougherty et al., Intervenors.

James M. FORGOTSON, Sr., an Independent Natural Gas Producer, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Mrs. James R. Dougherty et al., Texaco, Inc., Intervenors.

PUBLIC SERVICE COMMISSION OF the STATE OF NEW YORK, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, Texaco, Inc., Intervenor.

INDEPENDENT NATURAL GAS ASSOCIATION OF AMERICA, Petitioner, v. FEDERAL POWER COMMISSION, Respondent.

WARREN PETROLEUM CORPORATION, Petitioner, v. FEDERAL POWER COMMISSION, Respondent.

TENNESSEE GAS PIPELINE COMPANY, a Division of Tenneco, Inc., Petitioner, v. FEDERAL POWER COMMISSION, Respondent.

PHILLIPS PETROLEUM COMPANY, Petitioner, v. FEDERAL POWER COMMISSION, Respondent, TEXACO, INC., Intervenor. v. TEXACO, INC., Petitioner, v. FEDERAL POWER COMMISSION, Respondent.

Nos. 71-1560, 71-1561, 71-1603, 71-1612, 71-1627, 71-1647, 71-1722, 71-1727 and 71-1729.

United States Court of Appeals, District of Columbia Circuit.

Argued October 25, 1972.

Decided December 12, 1972.

Rehearing Denied February 5, 1973.

Mr. Michael J. Manning, Atty., F.P.C., for respondent. Messrs. Gordon Gooch, Gen. Counsel, Leo E. Forquer, Solicitor, and George W. McHenry, Jr., First Asst. Solicitor, F.P.C., were on the brief, for respondent. Mr. J. Richard Tiano, First Asst. Solicitor, F.P.C., at the time the record was filed, also entered an appearance for respondent.

Mr. Benjamin F. Vaughan, III, Austin, Tex., with whom Mr. R. James George, Jr., Austin, Tex., was on the brief, for intervenors Mrs. James R. Dougherty and others.

Messrs. J. Donald Annett, Houston, Tex., and Kirk W. Weinert, Washington, D. C., were on the brief for petitioners in No. 71-1560 and No. 71-1729 and Intervenor, Texaco, Inc.

Messrs. Norman A. Flaningam, Charles R. Brown, and Richard J. Connor, Washington, D. C., were on the brief, for petitioners in No. 71-1561.

Mr. Edward H. Forgotson, was on the brief, for petitioners in No. 71-1603.

Messrs. Norman A. Flaningam, Charles R. Brown, and Richard J. Connor, Washington, D. C., were on the brief, for petitioners in No. 71-1561.

Messrs. L. Dan Jones and William I. Powell, Washington, D. C., filed a brief on behalf of the Independent Petroleum Assn. of America, as amicus curiae urging affirmance.

Messrs. Philip R. Ehrenkranz, Washington, D. C., and Clyde O. Martz, Denver, Colo., filed a brief on behalf of Anderson Oil Co. and others and Hickerson Oil Co., and others as amici curiae urging affirmance.

Mr. Richard A. Solomon, Washington, D. C., with whom Messrs. Peter H. Schiff, Albany, N. Y., and Saul W. Baernstein, were on the brief, for petitioner in No. 71-1612.

Mr. Christopher T. Boland, Washington, D. C., with whom Messrs. Robert G. Hardy and Jerome J. McGrath, Washington, D. C., were on the brief, for petitioner in No. 71-1627, also argued for petitioners in Nos. 71-1561 and 71-1722.

Mr. John T. Ketcham, Washington, D. C., with whom Messrs. Kenneth Heady, Bartlesville, Okl., Warren M. Sparks, Tulsa, Okl., Charles E. McGee and Robert J. Haggerty, Washington, D. C., were on the brief, for petitioner in Nos. 71-1647 and 71-1727, also argued for petitioners in Nos. 71-1560 and 71-1729.

Before FAHY, Senior Circuit Judge, and ROBINSON and WILKEY, Circuit Judges.

WILKEY, Circuit Judge:

Petitioners seek review of orders of the Federal Power Commission¹ in Docket No. R-393, a rulemaking proceeding instituted by a Notice² entitled "Exemption of Small Producers From Regulation."³ These orders exempted all existing and future sales by "small producers"⁴ from direct rate regulation. Small producers could, thereunder, contract for the sale of their gas at any obtainable rates. The Commission proposed indirectly to control such rates by regulating, under standards set forth in the orders, the costs allowed to be incorporated in the rates of large producers and pipelines on resale of gas which originated with small producers. Even if resale rates were found excessive because the cost of small producer gas was "unreasonably high," small producers would be under no duty to refund the absorbed excess to the large producers and pipelines. Since we conclude that the Commission exceeded its authority under the Natural Gas Act, the orders in Docket No. R-393 must be set aside.

I. The Ends

Our conclusion herein challenges neither the Commission's motives nor its opinion that some form of deregulation of small producers might benefit the consumers of natural gas. The orders represent an imaginative attempt to deal with problems of enormous magnitude. A critical gas shortage, which has been judicially recognized,⁵ faces the nation. The Federal Power Commission is confronted with an ever-increasing regulatory burden — and limited resources. These combine to produce administrative delay and threaten the Commission's ability adequately to control natural gas prices.

Since small gas producers have historically accounted for as much as 80% of new exploration, but have less ready access to the necessary capital than do large producers, after thorough study the Commission concluded that generally beneficial exploration activity would be encouraged by assuring stable revenue flows to small producers. From deregulation of small producers, realization of their full contract prices at market levels would become a certainty. Since the small producers only account for 10.5% of the gas put into pipelines, the FPC felt that any cost hike resulting from deregulation would have a minimal effect on consumers. Obviously, any step towards deregulation would lessen the Commission's administrative load.

This court also recognizes that the Commission was engaged, in good faith, in what it felt was a valid extrapolation from judicial comments as to which solutions to these problems would be acceptable. In FPC v. Hunt, Justice Clark made the following suggestion for dealing with the Commission's docket congestion:

The techniques of the National Labor Relations Board might be studied with a view to determining whether its exemption practices . . . might be helpful in the solution of the Commission\'s problems.⁶

In more recent cases, this court has explicitly encouraged experimentation to meet the threat of a gas shortage.⁷ Given traditional judicial deference to the agency's expertise, the FPC obviously concluded that it would be allowed to embark upon, and later evaluate, an experimental approach to achieving the purposes of the Natural Gas Act.

II. The Means

However, Congress has prescribed limits on the Commission's authority. The orders considered here can be upheld only if they comply with the specific provisions of the Natural Gas Act. The Commission may, of course, classify different types of producers, alter some filing requirements, and "make the pragmatic adjustments which may be called for by particular circumstances."⁸ However, the FPC must act "within the ambit of its . . . statutory authority."⁹ The Commission may not ignore the command of Section 4 (15 U.S.C. § 717c(a)):

All rates and charges made, demanded, or received by any natural-gas company for or in connection with the . . . sale of natural gas subject to the jurisdiction of the Commission . . . shall be just and reasonable, and any such rate or charge that is not just and reasonable is hereby declared to be unlawful. Emphasis added.¹⁰

The Commission must also heed similar language in Section 5 (15 U.S.C. § 717d):

Whenever the Commission, after a hearing had upon . . . complaint of any State, municipality, State commission, or gas distributing company, shall find that any rate, charge or classification demanded, observed, charged, or collected by any natural-gas company in connection with any . . . sale of natural gas, subject to the jurisdiction of the Commission . . . is unjust, unreasonable, unduly discriminatory, or preferential, the Commission shall determine the just and reasonable rate, charge, classification . . . or contract to be thereafter observed and in force, and shall fix the same by order . . . Emphasis added.

Ever since Phillips Petroleum Co. v. Wisconsin, the Commission, even against its own will, has had a judicially recognized duty to assume "jurisdiction over the rates of all wholesales of natural gas in interstate commerce"¹¹ to insure that all such rates comply with the statutory standard.

A.

We cannot accept the Commission's argument that it may shirk this duty. To the extent that the Commission argues that Justice Clark's dicta in Hunt imply that exemption of a class of producers from the statutory standard would be permissible, we note that reliance cannot be placed on the NLRB as a model. The National Labor Relations Act specifically permits the Labor Board to decline to exercise its own jurisdiction.¹² In contrast, as evidenced by Philips, the Natural Gas Act does not give the Commission any such power. Only this year the Supreme Court specifically contrasted the FPC and the NLRB, suggesting that the former's jurisdiction will be broadly construed so that there are no "gaps" in the Natural Gas Act's "comprehensive and effective regulatory scheme."¹³ Further, the trials and experimentations which this court has previously approved have always been trials of new procedures consistent with the terms of the Natural Gas Act, not experimental attempts to amend, avoid or ignore these provisions.¹⁴

The Commission relies heavily on Permian Basin Area Rate Cases¹⁵ to support the proposition that it may exempt small producers from certain requirements. However, the "exemptions" approved there were from detailed filing requirements, not from all regulation. The Court in Permian specifically noted that "the exemptions created by the Commission" were "fully consistent with the terms and...