Mobil Oil Corp. v. FPC
417 U.S. 283 (1974)

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U.S. Supreme Court

Mobil Oil Corp. v. FPC, 417 U.S. 283 (1974)

Mobil Oil Corp. v. Federal Power Commission

No. 73-437

Argued April 17, 1974

Decided June 10, 1974*

417 U.S. 283

Syllabus

The Federal Power Commission (FPC) instituted a proceeding in 1961 to establish an area rate structure for interstate sales of natural gas produced in the Southern Louisiana area. After extensive hearings, the FPC in 1968 issued an order establishing ceiling rates for gas sold by producers in the area and ordering refunds of rates in excess of the maximum that had been collected prior to the order. The Court of Appeals upheld the order, but declared that the affirmance was not to be interpreted to foreclose the FPC from making such changes in its order, as to both past and future rates, as it found to be in the public interest. In response to petitions for rehearing urging that the FPC's authority to modify its order, after affirmance by the court, could be exercised only prospectively, the Court of Appeals stated that

"[w]e wish to make crystal clear the authority of the Commission in this case to reopen any part of its order that circumstances require be opened,"

that "[t]he Commission can make retrospective as well as prospective adjustments in this case if it finds that it is in the public interest to do so," and that, if

"the refunds are too burdensome in light of new evidence to be in the public interest . . . , the Commission shall have the power and the duty to remedy the situation by changing its orders."

The FPC thereupon reopened the 1961 proceeding, and, after considering a settlement proposal that had been agreed to by a large majority of the parties, issued an order in 1971 establishing a new rate structure for the Southern Louisiana area superseding the 1968 order. This 1971 order established, inter alia, (1) higher ceiling rates for both "flowing" or "first vintage" gas (gas delivered after the order's effective date under contracts dated prior to

Page 417 U. S. 284

October 1, 1968), and "new" or "second vintage" gas (gas delivered after the order's effective date under contracts dated after October 1, 1968); (2) two incentive programs, one providing for refund workoff credits based on a refund obligor's commitment of additional gas reserves to the interstate market (the producer being required to offer at least 50% of the new reserves to the purchaser to whom the refund would otherwise be payable), and the other providing for contingent escalation of rates based on new dedications of gas to the market; (3) minimum rates to be paid by producers to pipelines for transportation of liquids and liquefiable hydrocarbons; and (4) a moratorium upon the filing of rate increases for flowing gas until October 1, 1976, and for new gas until October 1, 1977. The Court of Appeals upheld this order as an appropriate exercise of administrative discretion supported by substantial evidence on the authority of Permian Basin Area Rate Cases,390 U. S. 747.

Held:

1. The FPC had the statutory authority to adopt the 1971 order, notwithstanding the Court of Appeals' affirmance of the 1968 order. Pp. 417 U. S. 310-315.

(a) Under circumstances where the Court of Appeals' affirmance of the 1968 order was not "unqualified" or final, and such order had not been made effective, but was stayed until withdrawn in the 1971 order, the Court of Appeals' action in authorizing the FPC to reopen the 1968 order did not exceed the court's powers under § 19(b) of the Natural Gas Act "to affirm, modify, or set aside [an] order in whole or in part," or constitute an improper exercise of the court's equity powers with which it is vested in reviewing FPC orders. Pp. 417 U. S. 310-312.

(b) The fact that the settlement proposal lacked unanimous agreement of the parties did not preclude the FPC from adopting the proposal as an order establishing just and reasonable rates, since the FPC clearly had the power to admit the agreement into the record, and indeed was obliged to consider it. Pp. 417 U. S. 312-314.

(c) The fact that the Court of Appeals' opinion on rehearing regarding the 1968 order authorized modification of the 1968 refund provisions if the refunds "are too burdensome in light of new evidence to be in the public interest" did not require the FPC, before revising the refund terms, to find, based on substantial new evidence, that the refunds "would substantially and adversely affect the producers' ability to meet the continuing gas needs of the interstate market," since the opinion on rehearing was explicit

Page 417 U. S. 285

that the FPC was to have "great flexibility," and could make retrospective as well as prospective adjustments; moreover, the Court of Appeals flatly rejected

"the notion that the label 'affirmance' could possibly impair FPC's ability to alter or modify any of the provisions, particularly the refund provisions"

of the 1968 order. Pp. 417 U. S. 314-315.

2. Petitioners' challenges to the established price levels under the 1971 order are without merit. Pp. 417 U. S. 315-321.

(a) Mobil's attack on the FPC's evidence of costs is clearly frivolous, since the FPC took extensive evidence of costs in its 1968 order hearings for flowing gas and in both its 1968 and 1971 hearings for new gas, and since the fragments of the record cited by Mobil do not sustain its heavy burden of showing that the FPC's choice was outside what the Court of Appeals could have found to be within the FPC's authority. P. 417 U. S. 316.

(b) With respect to Mobil's argument that inclusion of refund workoff credits and contingent escalations in the just and reasonable rates indicates that producers unable to gain part or all of their share of such payments will receive merely their "bare-bones" costs, which constitute illegally low prices, the Court of Appeals did not err in deciding that it was within the FPC's discretion and expertise to conclude that the refund workoff credits and contingent escalations could provide an opportunity for increased prices that would help in generating capital funds and in meeting rising costs, while assuring that such increases will not be levied upon consumers unless accompanied by increased supplies of gas. Pp. 417 U. S. 316-319.

(c) New York's contention that the 1971 order rates for flowing gas are excessive is predicated on an erroneously limited view of the permissible range of the FPC's authority. Where the FPC's justification for increasing the price of flowing gas was the necessity for increased revenues to expand future production, rather than new evidence of differing production conditions, the Court of Appeals, against the background of a serious and growing domestic gas shortage, could properly conclude that the FPC might reasonably decide that, as compared with adjustments in rate ceilings to induce more exploration and production, its responsibility to maintain adequate supplies at the lowest reasonable rate could better be discharged by means of contingent escalation and refund credits. Pp. 417 U. S. 319-321.

3. The claims of all three petitioners, with respect to both the contingent escalations on flowing gas and the refund credits, that

Page 417 U. S. 286

even if the 1971 rates are sufficient to satisfy the Natural Gas Act's minimum requirements as to amount and, on the basis of the FPC's chosen methodology, are supported by substantial evidence, they are nevertheless unduly discriminatory and therefore unlawful under §§ 4 and 5 of the Act, are also without merit. Pp. 417 U. S. 321-327.

(a) Concerning Mobil's argument that undue discrimination results because producers who had not settled their refund obligations will receive advantages from the contingent escalations and refund credits that producers like Mobil, which did settle its obligations, will not receive, it cannot be said that the Court of Appeals misapprehended or grossly misapplied the substantial evidence standard in concluding that the FPC's assessment of the need for refund credits, compared to the costs and benefits of some other scheme, was adequately supported. Pp. 417 U. S. 321-325.

(b) Though New York and MDG argue that the refund credit formula discriminates against pipeline purchasers because it permits producers to work off refunds by offering 50%, rather than 100%, of the new reserves to pipeline purchasers other than those owed the refunds, the Court of Appeals did not err in holding that the refund credit provision, the purpose of which was to increase the supply of gas, was within the FPC's discretion, since the FPC could reasonably conclude that the producers' incentive to explore for and produce new gas in the area, could result in their dedication of new reserves that would exceed in benefit the amount of the refunds. P. 417 U. S. 325.

(c) With respect to New York's argument that some producers might abandon their normal business of exploring for and developing new reserves and yet enjoy the increase in their prices for flowing gas if other producers contribute substantial additional reserves, the FPC's belief that producers already operating in the area will continue to do so is at least an equally tenable judgment, and New York offered nothing to overcome the presumption of validity attaching to the exercise of the FPC's expertise. Pp. 417 U. S. 326-327.

4. The Court of Appeals' conclusion, contrary to Mobil's contention, that the FPC's fixing of moratoria on new rate filings was supported by required findings of fact and by substantial evidence, did not misapprehend or grossly misapply the substantial evidence standard. Pp. 417 U. S. 327-328.

5. Mobil's argument that the FPC improperly failed to provide automatic adjustments in area rates to compensate for anticipated

Page 417 U. S. 287

higher royalty costs, is hypothetical at this stage and, in any event, an affected producer is entitled to seek individualized relief. P. 417 U. S. 328.

6. The Court of Appeals did not err in concluding that the FPC "acted within the bounds of administrative propriety in abandoning" as a pragmatic adjustment the distinction in maximum permissible rates between casinghead gas and gas-well gas so far as new dedications are concerned, even though casinghead gas was formerly treated as a byproduct of oil, and therefore costed and priced lower than gas-well gas. Pp. 417 U. S. 328-330.

7. In arguing that the minimum rates provided by the 1971 order to be paid by producers to pipelines for transportation of liquids and liquefiable hydrocarbons are not supported by substantial evidence, Mobil has not met its burden of demonstrating that the Court of Appeals misapprehended or grossly misapplied the substantial evidence standard. P. 417 U. S. 330.

483 F.2d 880, affirmed.

BRENNAN, J., delivered the opinion of the Court, in which all Members joined except STEWART and POWELL, JJ., who took no part in the consideration or decision of the cases.

Page 417 U. S. 288

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