Texas Eastern Transmission Corp. v. Federal Power Com'n, 26477.

• Decision Date: 20 June 1969
• Docket Number: No. 26477.,26477.
• Parties: TEXAS EASTERN TRANSMISSION CORPORATION, Petitioner, v. FEDERAL POWER COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Fifth Circuit

414 F.2d 344 (1969)

TEXAS EASTERN TRANSMISSION CORPORATION, Petitioner, v. FEDERAL POWER COMMISSION, Respondent.

No. 26477.

United States Court of Appeals Fifth Circuit.

June 20, 1969.

David T. Searls, J. Evans Attwell, Lynn R. Coleman, Jack D. Head, Vinson, Elkins, Weems & Searls, Houston, Tex., for petitioner, Texas Eastern Transmission Corp.

J. Calvin Simpson, Mary Moran Pajalich, Lawrence Q. Garcia, San Francisco, Cal., for intervenor, People of State of Cal. and Public Utilities Commission of State of Cal.

Harry L. Albrecht, Washington, D.C., for intervenor, Ind. Natural Gas Assn. of America.

Jerome L. McGrath, Washington, D.C., Donald Blanken, Paul Auerbach, Philadelphia, Pa., for intervenor, Philadelphia Elec. Co.

Peter Schiff, Sol., Federal Power Commission, Israel Convisser, Richard A. Solomon, Gen. Counsel, Abraham R. Spalter, Asst. Gen. Counsel, Washington, D.C., for Federal Power Commission.

Morton L. Simons, Washington, D.C., for intervenor.

Kent H. Brown, Albany, N.Y., for Public Service Commission of N.Y.

Edwin F. Russell, Barbara M. Suchow, Brooklyn, N.Y., for intervenor, Brooklyn Union Gas Co.

Edward F. Mannino, Dilworth, Paxson, Kalish, Kohn & Levy, William T. Coleman, Jr., Robert W. Maris, Philadelphia, Pa., for intervenor, Philadelphia Gas Works Div. of UGI Corp.

Before BELL and THORNBERRY, Circuit Judges, and CHOATE, District Judge.

BELL, Circuit Judge:

This case involves the disposition of refunds resulting from the disallowance under § 4(e) of the Natural Gas Act, 15 U.S.C.A. § 717c(e), of rate increases collected during the period 1961-64 from Texas Eastern by its suppliers. The increases were paid and absorbed by Texas Eastern in the sense that they were not passed on by Texas Eastern to its customers in the form of rate increases. The refunds, held in escrow by the suppliers and amounting to more than $10,000,000, were claimed by Texas Eastern. The claim was rejected by the Commission on the premise that the refunds should flow through to the distributor customers of Texas Eastern for the benefit of the consuming public.

The sole issue before the Commission was the entitlement of Texas Eastern to the refunds. Texas Eastern, an interstate pipeline carrier of natural gas, purchases gas from producer-suppliers. It, in turn, sells to distributors who sell to the consumer. The producer-suppliers are not involved, their rate increases having already been disallowed; hence, the creation of the refunds. On the entitlement hearing, Texas Eastern, of necessity but indirectly, was asserting such equities as it had to the refunds as against the right of consumers to just and reasonable rates.

In Texas Eastern Transmission Corp. v. Federal Power Commission, 5 Cir., 1966, 357 F.2d 232, the court dismissed, on the ground of prematurity, petitions for review of the Commission orders directing the suppliers to retain the refundable amounts until the question of entitlement as between the pipeline and the customers of the pipeline could be determined. Judge Wisdom, speaking for the court, adverted to the novelty of the question presented as follows:

"The novel orders of the Federal Power Commission attacked in these proceedings mark the Commission\'s decision to take a new and close look at its jurisdiction over refunds generated under Section 4(e) of the Natural Gas Act. * * * Does the statute permit and does sound policy require the Commission to control the disposition of refunds? To what extent may the Commission require the flow-through of refunds from natural gas producers to jurisdictional pipeline companies to nonjurisdiction local distributors and, indirectly, to the ultimate consumers for whom, the Supreme Court has said, the Act provides a `complete, permanent, and effective bond of protection\'? * * * To obtain the answers to these and related questions, the Commission ordered United Gas Pipe Line Company to retain certain refunds, reflecting excessive earnings, `subject to further order of the Commission after a hearing directing the disposition of those amounts.\' These retention orders state that their purpose is to enable the Commission to determine `whether United\'s immediate customers, or the customers of such customers, are legally and equitably entitled to retain the refunds\'." 357 F.2d at 232-233.

The hearing and orders which followed that decision form the subject matter of the petition to review now before us. The Commission's approach was twofold to the extent that it was concerned with refunds and thus with past activity as well as with prospective procedures.

Under past policy of the Commission, when a supplier rate increase was disallowed, the refund went to the pipeline unless the pipeline had increased its rates in response to the supplier increase. Where the pipeline had increased its rates under these circumstances, it would be required to flow through refunds to its customers. The policy adopted in these proceedings, for prospective use, was the requirement that a pipeline, to claim supplier increase refunds, must file tracking rate increases. Since Texas Eastern was not, at the time the Commission entered its refund orders against the suppliers, able to file tracking rate increases for the years 1961-1964, the Commission afforded it an opportunity to make a factual showing of entitlement to the refunds in question.

The burden imposed on Texas Eastern evolved into showing that it earned less than a reasonable rate of return in the years in question. No proof was offered for the year 1961 and the proof for the years 1962-1964 was such that the Commission concluded that Texas Eastern earned more than a reasonable rate of return. Texas Eastern's claim was thus denied.

The Commission justified its policy departure on the ground that the primary purpose of the Natural Gas Act was to protect ultimate consumers of natural gas from excessive charges and that the Act must be applied so as to protect their collective interests. Thus, the Commission said: "* * * we find that under the Act the ultimate consumers of natural gas are proper beneficiaries of our disposition of the subject refunds." Texas Eastern points to the hiatus in power in that the Commission lacks jurisdiction to see that the refunds will go to ultimate consumers; that its authority can extend only so far as to give the refund to distributors; and that there is no assurance that ultimate consumers will in any way benefit. Thus, Texas Eastern argues that the dispute is between itself and its distributor-customers, and that as between these two all equities lie with it.

Of the several issues presented, the foremost is directed to the question of the power of the Commission to order these refunds. This, in turn, depends on a statutory base. Assuming a statutory base, a further issue is whether the Commission was barred from adopting the new policy by its past actions. Texas Eastern also asserts that as to the refunds under consideration, the Commission's order is barred under the reparations doctrine, and, as to some if not all of the refunds, by its 1961 settlement agreement with the Commission, and by final orders entered by the Commission disposing of certain supplier rate increases. The last issue, assuming statutory power and no bar, is whether the Commission's order, including its new refund flow through policy, was rationally based.

I.

We will first consider the question of power. We find the necessary statutory authority for the action of the Commission. The statutory language is as follows:

"* * * Where increased rates or charges are thus made effective, the Commission may, by order, require the natural-gas company to furnish a bond, to be approved by the Commission, to refund any amounts ordered by the Commission, to keep accurate accounts in detail of all amounts received by reason of such increase, specifying by whom and in whose behalf such amounts were paid, and, upon completion of the hearing and decision, to order such natural-gas company to refund, with interest, the portion of such increased rates or charges by its decision found not justified." 15 U.S.C.A. § 717c(e)

This statutory authority to require refunds must be coupled with the fact of the overriding purpose of the Natural Gas Act to protect consumers in their purchase of gas to the end of keeping rates as low as possible. This purpose appears expressly in the Act, § 4(a),¹ and in the Supreme Court decisions. See, for example, Federal Power Commission v. Hope Natural Gas Co., 1944, 320 U.S. 591, 610, 64 S.Ct. 281, 88 L.Ed. 333; Atlantic Refining Co. v. Public Service Comm. of State of New York, 1959, 360 U.S. 378, 388, 79 S.Ct. 1246, 3 L.Ed.2d 1312; Federal Power Commission v. Tennessee Gas Transmission Company, 1962, 371 U.S. 145, 154, 83 S. Ct. 211, 9 L.Ed.2d 199.

Texas Eastern argues that the statutory language must be construed in light of the accounting provision of the Act,² and that as thus construed, it appears that refunds are to be paid to the one who is out of pocket. Thus, it is urged, since Texas Eastern paid the increased costs to its suppliers without passing such costs on to its distributors, it is the only party entitled to restitution through the receipt of the refunds. Texas Eastern finds support for its accounting provision argument in Federal Power Commission v. Sunray, DX Oil Co., 1968, 391 U.S. 9, 24, 88 S.Ct. 1526, 20 L.Ed.2d 388, where the Supreme Court held that the Commission could not order a refund in excess of certificated rates. This was because, in reading the refund and accounting provisions of § 4(e) together, a refund could not exceed amounts received by reason of the increase; otherwise, the court said, would be to sanction reparations. Texas Eastern urges, based on Sunray, that § 4(e) and the accounting section read together, allow disposition of refunds only to those persons in whose behalf such amounts were paid. We are unable to find this restriction in the applicable...