Sun Oil Company v. Federal Power Commission

266 F.2d 222

• Court: Court of Appeals for the Fifth Circuit
• Decided: June 3, 1959
• Docket: 17040_1
• Status: Published

Opinions

JONES, Circuit Judge.

Sun Oil Company, herein called Sun, made a contract bearing date August 26, 1947, with Southern Natural Gas Company, herein referred to as Southern, for the sale to the latter of natural gas to be produced by Sun from the Gwinville Field in Mississippi. The contract provided that it should be in effect for ten years commencing on the date of the first delivery of gas by Sun to Southern. This date was September 3, 1947. The contract provisions as to price were in these terms:

“Subject to the provisions of Article VI hereof, providing for a possible adjustment in price, Buyer agrees to pay Seiler for all gas purchased hereunder a price

(1) of seven and one-half cents (7%?0 for each one thousand (1,-000) cubic feet of gas during the first five (5) years of the term hereof;

(2) of eight cents (8‡) for each one thousand (1,000) cubic feet of gas during the second five (5) years of said term.”

Immediately following the foregoing was this proviso:

“In this connection, it is understood that by this agreement Seller is not dedicating to Buyer, or to Buyer’s market outlet, any portion of Seller’s gas reserves in the Gwinville Gas Field or any portion of the gas produced by Seller from its wells in said field, but that Seller is simply selling and Buyer is purchasing the quantity of gas called for in this agreement on the terms specified in this agreement and for the price set out above; * *

Subsequent to the Phillips Petroleum case,¹ decided on June 7, 1954, the Federal Power Commission supplemented the provisions of the Natural Gas Act, 15 U.S.C.A. § 717 et seq., by issuing its so-called No. 174 series of orders² which required independent producers of natural gas to file rate schedules and apply for certificates of public convenience and necessity. Sun applied for and procured a certificate of public convenience and necessity authorizing the sale of natural gas to Southern. It filed the contract as a rate schedule under Section 4 of the Natural Gas Act.³

Prior to the termination of their agreement Sun and Southern made a new agreement in 1957 which was to become effective upon the expiration of the 1947 agreement. This provided for continued deliveries of gas in the same field and with the same facilities. The contract was, for the most part, substantially the same as that which it succeeded. The primary difference was an increase from 8f/- per Mcf to 20‡ per Mcf of gas. Sun then applied, under the new contract, for a new certificate of public convenience and necessity and filed the new contract as an initial rate schedule. The Commission rejected the application and filing on the ground that, the same service being involved, any new certificate would merely duplicate the earlier certificate which was still effective and outstanding and the proposed rate filings were of rate changes rather than initial rate filings. Protesting the Commission’s order and reserving its right to contest it, Sun resubmitted the 1957 contract as a rate change. The Commission then, as is authorized by Section 4 of the Act, suspended the effectiveness of the rate change for the statutory period of five months. At the expiration of the five-month period, the 20 ‡ rate was placed in effect and Sun undertook to make such refunds as might be required. Sun has petitioned this Court to review the order of the Commission rejecting the application for a certificate and an initial rate filing, and the order suspending the rate change. Although a number of specifications of error are made, most of them are hinged upon the proposition that the rate set forth in the new contract was an initial rate filing, and the collateral doctrine that the certificate of public convenience and necessity wdiieh was originally issued had expired and become functus officio upon the date fixed for the expiration of the first contract by its terms.

It is “rates and charges” that are subject to regulation.⁴ The method of filing and regulating rates has thus been succinctly stated.

“The Act requires natural gas companies to file all rates and contracts with the Commission § 4(c) and authorizes the Commission to modify any rate or contract which it determines to be ‘unjust, unreasonable, unduly discriminatory or preferential’, § 5(a). Changes to previously filed rates or contracts must be filed with the Commission at least 30 days before they are to go into effect § 4(d), and, except in the case of industrial rates, the Commission may suspend the operation of a new rate pending a determination of its reasonableness. § 4(e). If a decision has not been reached before the period of suspension expires, a maximum of five months, the filed rate must be allowed to go into effect, but the Commission’s order may be made retroactive to that date.” United Gas Pipe Line Company v. Mobile Gas Service Corporation, 350 U.S. 332, 76 S.Ct. 373, 377, 100 L.Ed. 373, 12 P.U.R.3d 112. In the Mobile case United was obligated by contract to furnish gas to Mobile at a fixed rate during the contract period of ten years. There was no provision for any different rate nor was there any provision made for changing the rate during the contract term. United undertook to effect a rate increase by filing a new rate schedule with the Commission. It was held that the Natural Gas Act gave no power to put unilateral rate increases into effect, and that United could procure a rate increase, if at all, only by an order of the Commission entered in a proceeding under Section 5 of the Act.

It is urged that the decision in Mobile recognizes a freedom of contract in rate making applicable alike to new contracts and to renewal contracts. The “philosophy of Mobile”, as it is referred to, is such as to require, it is contended, a holding that when a contract has, by the law of contracts, terminated, the parties are permitted to fix rates for the continued service, free from Section 4 regulation, in the same manner that might have been done before the passage of the Act. We do not think the doctrine of Mobile applies in a situation such as is before us here. In United Gas Pipe Line Co. v. Memphis Light, Gas & Water Division, 358 U.S. 103, 79 S.Ct. 194, 3 L.Ed.2d 153, rehearing denied 358 U.S. 942, 79 S.Ct. 344, 3 L.Ed.2d 350, it was held that Section 4 procedures were available where rate increases were proposed pursuant to a “going rate” provision in the contract. The purpose of Congress was carried out in framing its regulatory scheme “not only by preserving the ‘integrity’ of private contractual arrangements for the supply of natural gas, * * * (subject of course to any overriding authority of the Commission), but also by providing in § 4 for the earliest effectuation of contractually authorized or otherwise permissible rate changes consistent with appropriate Commission review.” 358 U.S. 114, 79 S.Ct. 200, 3 L.Ed.2d 153.

The same doctrine has been applied where the contract contained a “favored nation” clause and it has been held that rate increases under such a clause are subject to Section 4 of the Act. Mississippi Power & Light Co. v. Memphis Natural Gas Co., 5 Cir., 1947, 162 F.2d 388, 71 P.U.R., N.S., 182, certiorari denied 332 U.S. 770, 68 S.Ct. 82, 92 L.Ed. 355. So too it has been held that rate increases pursuant to the escalator clause of a contract which predated the Phillips decision of June 7, 1954, were rate changes subject to Section 4 of the Act and not initial rates subject to Commission review only under Section 5 of the Act. Bel Oil Corporation v. Federal Power Commission, 5 Cir., 1958, 255 F.2d 548, 24 P.U.R.3d 512, certiorari denied 358 U.S. 804, 79 S.Ct. 46, 3 L.Ed.2d 77. It necessarily follows that where, upon the termination of a contract fixing a rate which was the subject of an initial rate filing with the Commission, a new contract is made between the same parties for the same service as was provided by the terminated contract but at a higher rate, the new rate is a rate change and subject to the provisions of Section 4 of the Act, including the provisions relating to the suspension of the rate. The rate fixed by the new contract is not an initial rate which could be changed only by order of the Commission in a proceeding under Section 5.

The foregoing disposes of the principal question presented. Other questions remain. The Petitioner contends that since its certificate originally issued authorized the sale by it of natural gas “as more fully described in the application and exhibits”, and since the certificate was issued under an order providing that the certificate “shall be effective only so long as the Applicant continues the acts or operations hereby authorized,” it must follow that the certificate expired with the contract and the rejection by the Commission of the application for a new certificate was invalid. This contention is based upon a misconception of the purpose and effect of the certificate. The authorization of the certificate is not only for the sale of gas pursuant to the contract but pursuant to and subject to the provisions of the Act and regulation pursuant thereto by the Commission. The Commission has the power under Section 7(c) and (e) of the Act, 15 U.S.C.A. § 717f(c, e), to issue certificates of public convenience and necessity of limited duration. Sunray Mid-Continent Oil Co. v. Federal Power Commission, 353 U.S. 944, 77 S.Ct. 792, 1 L.Ed.2d 794, 18 P.U.R.3d 320. Whether, in this case, the Commission could have granted a certificate limited to the life of the contract, without abusing its discretion, need not be decided. We find nothing to show any intent of the Petitioner to apply for a limited or conditional certificate, nor do we find anything to indicate that the Commission intended to limit its certificate. The matters to which the Petitioner points do not permit of the inference which it would have us draw.

The Petitioner asserts that because of the rejection of the application for a second certificate without a hearing after notice there was a violation of the administrative requirement of Section 7(c) of the Act, 15 U.S.C.A. § 717f (c). The Petitioner makes a like contention with respect to the rejection of its second contract as an initial rate filing. Where, as in this case, there could be no right to have a certificate of public convenience and necessity issued which duplicated a certificate outstanding and operative; and where, as here, the second contract was a nullity as an initial rate filing, it was proper to reject them without notice and without a hearing. Cf. United Gas Pipe Line Co. v. Mobile Gas Service Corporation, supra.

The Commission suggests that the orders which Sun brings before us for review are interlocutory and that administrative remedies have not been exhausted. To support this view reliance is placed upon Shank, Trustee, v. Federal Power Commission, 5 Cir., 1956, 236 F.2d 830, 15 P.U.R.3d 408, certiorari denied 352 U.S. 970, 77 S.Ct. 361, 1 L.Ed. 2d 324, and Lee, Trustee, v. Federal Power Commission, 5 Cir., 1956, 236 F.2d 835, certiorari denied 352 U.S. 970, 77 S.Ct. 361, 1 L.Ed.2d 323. In the cited cases the orders were mere procedural steps in the administrative process. The orders which we here review are “of a definitive character dealing with the merits of a proceeding before the Commission” and, as such, are reviewable under Section 19(b) of the Act, 15 U.S.C.A. § 717r(b). Federal Power Commission v. Metropolitan Edison Co., 304 U.S. 375, 58 S.Ct. 963, 82 L.Ed. 1408, 24 P.U.R.N. S. 394; Magnolia Petroleum Co. v. Federal Power Commission, 5 Cir., 1956, 236 F.2d 785, 15 P.U.R.3d 364, certiorari denied 352 U.S. 968, 77 S.Ct. 356, 1 L. Ed.2d 322. We see no need for the holding of a formal hearing and the taking of testimony where no fact issue was presented. Although the orders before us are, in a sense, procedural and interlocutory, they make a final disposition of questions of grave importance in the natural gas industry. The orders were formal determinations of rights of the petitioners and the effect of the orders was not contingent upon future administrative action. We have no doubt that these orders should be passed upon by this Court.

Sun urges that its contractual relationship with Southern is only for the sale of natural gas, that it engages in no service and renders no service, that it does not propose to abandon any facilities, that it has no facilities subject to the Commission’s jurisdiction and hence it is not subject to Section 7(b) of the Act, 15 U.S.C.A. § 717f(b). Our decision in Continental Oil Company v. Federal Power Commission, 5 Cir., 266 F.2d 208, is controlling on this issue. A like contention was made before the Court of Appeals for the Third Circuit and its well reasoned conclusions are contrary to the position urged by Sun. J. M. Huber Corporation v. Federal Power Commission, 3 Cir., 1956, 236 F.2d 550, 15 P.U.R. 3d 434, certiorari denied 352 U.S. 971, 77 S.Ct. 363, 1 L.Ed.2d 324. The principles there announced are sound and are applicable here. The decision of this Court in Deep South Oil Company of Texas v. Federal Power Commission, 5 Cir., 1957, 247 F.2d 882, 20 P.U.R.3d 469, is not in conflict.

It follows that the Commission’s orders should be and hereby are

Affirmed.

1 . Phillips Petroleum Company v. Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed. 1035, 3 P.U.R.3d 129.

2 . 18 C.F.R. §§ 154.91-154.102, §§ 157.23-157.31.

3 . 15 U.S.C.A. § 717c.

4 . Natural Gas Act, § 4(a), 15 U.S.C.A. § 717c(a).