1. The issuance by the Federal Power Commission (FPC) of a
temporary certificate of public convenience and necessity under §
7(c) of the Natural Gas Act, authorizing the sale of natural gas in
interstate movement pending determination of an application for
permanent certification, may be conditioned in the FPC's discretion
upon the maintenance of a prescribed price during the period of the
temporary authorization. Pp.
376 U. S.
515-521.
2. The procedure of § 4 of the Act for the filing of proposed
changes in rates is available to the producer only after the
issuance of a permanent or an unconditional temporary certificate.
Pp.
376 U. S.
523-527.
306 F.2d 334, reversed.
MR. JUSTICE CLARK delivered the opinion of the Court.
The issue in this case is whether the Federal Power Commission,
when granting an application for a temporary certificate
authorizing the sale of natural gas in interstate commerce, can
impose a condition that the applicant shall not increase its
certificated price pending a hearing on the applicant's petition
for permanent authority. Each of the seven applications involved
here requested temporary operating authority to sell natural gas in
interstate commerce on emergency grounds, as provided by § 7(c) and
(e) of the Natural
Page 376 U. S. 516
Gas Act. [
Footnote 1] In
each case, the Federal Power Commission conditioned the temporary
grant of authority upon,
inter alia, the producer's
maintaining the initial price, without
Page 376 U. S. 517
increase, during the period of the temporary authorization. On
appeal, the Court of Appeals set aside this condition, holding that
it was beyond the power of the Commission and conflicted with the
right of a producer to initiate a higher contract rate under § 4 of
the Act. 306 F.2d 334. We granted certiorari because of the
importance of the question to the enforcement of the Natural Gas
Act. 375 U.S. 810. We conclude that the Commission can impose such
a condition in granting temporary authorizations under § 7, and
therefore reverse the judgments.
I
While this case involves applications for seven different
temporary authorizations, the essential facts as to each, save the
dates and gas fields, are the same. Since the parties and the Court
of Appeals have treated the sale by the Hassie Hunt Trust as
typical, we shall do likewise.
The Hunts are producers of natural gas in the Alta Loma area in
Galveston County in Texas Railroad District No. 3. In July, 1960,
the Commission issued a permanent certificate authorizing sales of
natural gas from the Alta Loma and other areas to the Peoples Gulf
Coast Natural Gas Pipeline Co., 24 F.P.C. 1. The authorization was
conditioned upon the producer's filing
Page 376 U. S. 518
an amended contract providing for an initial price of 20� per
Mcf., with an escalation of 3� after 10 years. The original
contract had allowed four 2� escalations at four-year intervals.
The order was found defective, however, because the Public Service
Commission of New York, which sought a lower initial price, had
been refused intervention before the Commission.
See Public
Service Comm'n v. Federal Power Comm'n, 111 U.S.App.D.C. 153,
295 F.2d 140,
cert. denied, sub. nom. Shell Oil Co. v. Public
Service Comm'n, 368 U.S. 948. Thereafter, the Commission
vacated its issuance of the certificate and ordered a new hearing
on the question of initial price. 26 F.P.C. 689.
In the meantime, after the issuance, but prior to the vacating,
of the July, 1960, certificate, the Commission issued General
Policy No. 61-1, 18 CFR § 2.56, 24 F.P.C. 818, which fixed the
guideline for initial prices for Texas Railroad District No. 3 at
18� per Mcf., 2� below the initial price allowed in the July, 1960,
certificate.
Thereafter, on February 27, 1961, the Hassie Hunt Trust applied
for a permanent certificate of public convenience and necessity
allowing sales from a new well in this same area to Natural Gas
Pipeline Company of America, the successor to Peoples Gulf Coast.
It also applied for temporary authorization to begin service
immediately under the emergency provisions of the Commission's
Regulations issued under § 7(c) of the Act. 18 CFR § 157.28. The
emergency was alleged to result from the "necessity of paying
shut-in royalties and the incurrence of drainage through sales by
others to pipeline companies other than Natural." The new sale was
covered by a 20-year contract, dated December 15, 1960, with
provisions identical to those of the earlier contract,
i.e., an initial price of 20� per Mcf. with 2� escalations
at four-year intervals. The Commission, on April 7, 1961, granted
the temporary authorization subject to
Page 376 U. S. 519
three conditions: (1) that the total initial price not exceed
18� per Mcf., and thus be in keeping with the guideline rate set
for Texas Railroad District No. 3, (2) that within 20 days
supplements to the contracts be filed consistent with this price,
and (3) that the temporary authorization be accepted in writing
within 20 days. Deliveries were commenced by the producer on April
19 before these conditions were met. On May 5, a conditional
acceptance was filed reserving the right to seek removal of the
conditions imposed and tendering an amended contract providing for
an 18� initial price for 30 days with 20� per Mcf. thereafter. The
Commission rejected this conditional acceptance and subsequently,
in order to make clear its position, specifically provided that the
initial rate was to be 18� and that there was to be no change
therein pending the hearing on permanent authorization. The
proposed 20� rate was rejected, and thereafter this review
followed.
The Court of Appeals sustained the 18� initial price, but held
that the Commission had no power to condition temporary
authorizations so as to preclude the filing and collection of
increased rates pursuant to § 4 of the Act.
II
Once again we are confronted with a question solely of the
proper interpretation of the Natural Gas Act. This time we must
determine the interplay of §§ 4 and 7. These sections are the
avenues through which the natural gas producer may, by contract or
otherwise, initially propose the dedication of his natural gas
supply to interstate movement (§ 7) and, once so dedicated by order
of the Federal Power Commission, thereafter initiate changes in
existing rates (§ 4). We will proceed with separate analyses of
these two sections.
Section 7(c) came into the Natural Gas Act in 1942, and provides
the method by which gas may be dedicated
Page 376 U. S. 520
and certificated into interstate commerce. It prohibits a
natural gas producer from engaging in the transportation or sale of
natural gas
"unless there is in force with respect to such natural gas
company a certificate of public convenience and necessity issued by
the Commission authorizing such acts or operations."
In order to secure such certificates, applications are filed
with the Commission, and, in due course, the applicants are
afforded a hearing. Sections 7(c) and (e) of the Act command that a
certificate shall be issued if the Commission finds it "required by
the present or future public convenience and necessity" and if the
applicant meets certain tests of reliability, such as ability and
willingness to perform. In issuing such certificates, the
Commission has
"the power to attach to the issuance of the certificate and to
the exercise of the rights granted thereunder such reasonable terms
and conditions as the public convenience and necessity may
require."
§ 7(e).
Hearings under § 7(e) for permanent certification are
time-consuming. The Congress, realizing this, provided in § 7(c)
that
"the Commission may issue a temporary certificate in cases of
emergency, to assure maintenance of adequate service or to serve
particular customers, without notice or hearing, pending the
determination of an application for a certificate, and may by
regulation exempt from the requirements of this section temporary
acts or operations for which the issuance of a certificate will not
be required in the public interest."
Pursuant to this authorization, the Commission adopted a
regulation which sets out standards for emergency authorizations
and requires the applicant to file "a statement of intention to
invoke this section." 18 CFR § 157.28(c). The Commission grants the
temporary certificate, where it deems necessary, without notice or
hearing. Under the terms of the regulation, this authorization
continues until final Commission action under §§ 4 and 7, "without
prejudice
Page 376 U. S. 521
to such rate or other condition as may be attached to the
issuance of the certificate." 18 CFR § 157.28.
It must be noted, however, that § 7 does not stipulate that the
Commission must find the initial rate to be just and reasonable,
but simply that the service proposed is required by the present and
future public convenience and necessity. Nor does § 7 grant the
Commission power to suspend the rate authorized in permanent or
temporary certificates issued under that section. Once a permanent
certificate is granted, the Commission can correct an improper rate
only under § 5 of the Act, 52 Stat. 823, 15 U.S.C. § 717d, which
likewise has no suspension provision. In the light of this
inability to suspend the initial rate granted under a § 7
certificate, the Commission attaches conditions to the certificate
of authority which it deems necessary to afford consumers the
"complete, permanent and effective bond of protection from
excessive rates and charges" for which we found the Act was framed
in
Atlantic Refining Co. v. Public Service Comm'n,
360 U. S. 378,
360 U. S. 388
(1959). "The heart of the Act," we said there, was in those
provisions of § 7(e)
"requiring initially that any 'proposed service, sale,
operation, construction, extension, or acquisition . . . will be
required by the present or future public convenience and
necessity,' . . . and that all rates and charges 'made, demanded,
or received' shall be 'just and reasonable,' § 4, 15 U.S.C. §
717c."
In this case, the Commission concluded that, when granting
temporary certificates, it must look even more carefully to the
present and future public convenience and necessity and interpose
such conditions precedent as would, in its view, fully protect
consumers from excessive rates and charges.
Section 4 was included in the original Act of 1938. 52 Stat.
822, 15 U.S.C. § 717c. It provides in part that
"no change shall be made by any natural gas company in
Page 376 U. S. 522
any . . . rate . . . except after thirty days' notice to the
Commission and to the public."
§ 4(d). Whenever such new rate is filed, the Commission may,
after notice, hold hearings to determine whether the rate is
lawful, and may suspend its operation, but only for a period of
five months. § 4(e). If the proceeding is not concluded within
those five months, the proposed rate becomes effective and
collectible, subject to subsequent refund by the natural gas
company to the extent the rate is not just and reasonable. As we
said in
United Gas Pipe Line Co. v. Mobile Gas Service
Corp., 350 U. S. 332,
350 U. S. 341
(1956), the power granted to the Commission
"is simply the power to review rates and contracts made in the
first instance by natural gas companies and, if they are determined
to be unlawful, to remedy them."
And we specifically pointed out that all § 4(e) does
"is to add to this basic power, in the case of a newly changed
rate . . . the further powers (1) to preserve the status quo
pending review of the new rate by suspending its operation for a
limited period, and (2) thereafter to make its order retroactive,
by means of the refund procedure, to the date the change became
effective."
Ibid. The power granted to the Commission in § 4 does
not come into play until after the initial certification of the
natural gas into interstate commerce has been granted under §
7.
In the instant case no permanent certificates authorizing sales
in interstate commerce have yet been issued. Temporary certificates
have been allowed, and each is conditioned upon the maintenance of
the initial price. Thus, if respondents' position is correct, then
the conditions precedent to the issuance of the temporary
certificates required by the Commission can be nullified by
subsequent independent action of the respondents in filing a new
contract under § 4. We do not believe that the Congress intended
any such incongruous result.
Page 376 U. S. 523
III
We find no conflict in the directives of the two sections.
Indeed, they supplement one another, and thereby work together in
efficient conjunction to carry out the purposes of the Act. When
the independent producer knocks on the door of the Commission for
permission to enter his gas in interstate commerce, he must submit
to the requirements of § 7. His natural gas must be certificated
before it can move into interstate commerce. If he wishes to avoid
the delay incident to a hearing for a permanent certificate, he may
apply for temporary authorization, which may be granted upon
ex
parte application. In view of this, the Commission must have
the authority to condition a temporary certificate so as to avoid
irreparable injury to affected parties. This condition, once
imposed, continues only during the pendency of the producer's
application for a permanent certificate. In view of the
ex
parte nature of the proceeding, it appears only fair to all
concerned that the condition upon which the rate was temporarily
certified be continued unchanged until the permanent certificate is
issued.
Under the procedures of the Act, it is at the point of permanent
or unconditional temporary certification that the provisions of § 4
become applicable. The gas has been permanently certificated into
interstate commerce, and the independent producer is then free to
pursue the rate-filing procedure of that section.
This Court previously discussed the use of the temporary
certificate procedure in
Atlantic Refining Co. v. Public
Service Comm'n, supra. There, we indicated that the Commission
might avail itself of its power to condition the initial
certification of natural gas into interstate commerce in order to
prevent a triggering of general price rises. The language is
unmistakably clear as to the
Page 376 U. S. 524
claim made here that the vitality of § 4 of the Act is being
impaired, and we therefore repeat and reaffirm it:
"This is not an encroachment upon the initial rate-making
privileges allowed natural gas companies under the Act,
United
Gas Pipe Line Co. v. Mobile Gas Service Corp., supra, but
merely the exercise of that duty imposed on the Commission to
protect the public interest in determining whether the issuance of
the certificate is required by the public convenience and
necessity, which is the Act's standard in § 7 applications. In
granting such conditional certificates, the Commission does not
determine initial prices, nor does it overturn those agreed upon by
the parties. Rather, it so conditions the certificate that the
consuming public may be protected while the justness and
reasonableness of the price fixed by the parties is being
determined under other sections of the Act. Section 7 procedures in
such situations thus act to hold the line awaiting adjudication of
a just and reasonable rate."
360 U.S. at 391-
360 U. S.
392.
Nor is it any answer to say that the suspension power under §
4(e) will afford protection to the public. The experience since our
opinion in
Atlantic Refining Co., supra, indicates that a
triggering of price rises often results from the out-of-line
initial pricing of certificated gas. These effects become
irreversible and splash over into intrastate sales, thus generating
reciprocal pressures that directly affect jurisdictional rates. As
we said in
Federal Power Comm'n v. Tennessee Gas Transmission
Co., 371 U. S. 145,
371 U. S.
154-155 (1962), the possibility of refund does not
afford sufficient protection:
"True, the exaction would have been subject to refund, but
experience has shown this to be somewhat illusory. . . . It is,
therefore, the duty of the Commission to look at 'the backdrop of
the practical
Page 376 U. S. 525
consequences [resulting] . . . , and the purposes of the Act,'
Sunray Mid-Continent Oil Co. v. Federal Power Comm.,
364 U. S.
137,
364 U. S. 147 (1960), in
exercising its discretion under § 16 to issue interim orders. . .
."
IV
Our interpretation of the power of the Commission under §§ 7(c)
and (e) is buttressed by the legislative history. They were added
to the Act in 1942, four years after its original passage. Prior to
their adoption, the only ratemaking regulatory tools the Commission
possessed were §§ 4 and 5, and they came into operation only after
the natural gas was already moving in interstate commerce. Sections
7(c) and (e) were designed to control the certification of gas
destined for interstate movement. [
Footnote 2] The purpose of the amendments was to give
"the Commission an opportunity to scrutinize the financial
set-up, the adequacy of the gas reserves, the feasibility and
adequacy of the proposed services, and the characteristics of the
rate structure . . . at a time when such vital matters can readily
be modified as the public interest may demand. . . ."
House Committee on Interstate and Foreign Commerce,
H.R.Rep.No.1290, 77th Cong., 1st Sess., 2-3. Its counterpart in the
Senate likewise reported:
"Provisions of the Natural Gas Act empower the Commission to
prevent uneconomic extensions and waste, but it can so regulate
such powers only when the extension is to 'a market in which
natural gas is already being served by another natural gas
company.' Thus, the possibilities of waste, uneconomic and
uncontrolled extensions are multiple and tremendous.
Page 376 U. S. 526
The present bill would correct this glaring inadequacy of the
act. It would also authorize the Commission to examine costs,
finances, necessity, feasibility, and adequacy of proposed
services. The characteristics of their rate structure could be
studied."
Senate Committee on Interstate Commerce, S.Rep. No. 948, 77th
Cong., 2d Sess., 1-2.
Clearly, the Commission was given the power to lay down
conditions precedent to the entry of the natural gas into
interstate commerce. Moreover, the Commission has long recognized
this obligation, and has required modification of many tariff and
contract provisions as a condition to the granting of a
certificate. [
Footnote 3]
The existence of broad discretionary power in the Commission to
condition temporary certificates appears to us to be vital to its
ability to hold the line in pricing. The extent of that power in
permanent certification is not before us now, since each of these
applications is for temporary certification. It is said that the
condition of the Commission's docket transposes, for all practical
matters,
Page 376 U. S. 527
temporary certificates into permanent ones. This claim arises
due to the delays incident to the issuance of a permanent
certificate. We spoke of the "nigh interminable" delay in § 5
proceedings in
Atlantic Refining Co. v. Public Service Comm'n,
supra, at
360 U. S. 389.
There, delay operated against the consumer. Here, it operates
against the producer. The Commission has been making efforts in
this regard, through the establishment of guidelines for
determining initial prices and other administrative devices. 43
F.P.C.Ann.Rep. 13, 119-120 (1963). However, we again call to its
attention the dangers inherent in the accumulation of a large
backlog of cases, with its accompanying irreparable injury to the
parties. Moreover, consumers may become directly affected thereby
through the reluctance of producers to enter interstate markets
because of the long delay incident to permanent certification.
Procedures must be worked out not only to clear up this docket
congestion, but also to maintain a reasonably clear current docket
so that hearings may be had without inordinate delay. In this
connection the techniques of the National Labor Relations Board
might be studied with a view to determining whether its exemption
practices,
see Guss v. Utah Labor Relations Board,
353 U. S. 1,
353 U. S. 3-4
(1957), might be helpful in the solution of the Commission's
problems.
Reversed.
[
Footnote 1]
Section 7(c), 52 Stat. 824, as amended, 56 Stat. 83, 15 U.S.C. §
717f(c), provides:
"(c) No natural gas company or person which will be a natural
gas company upon completion of any proposed construction or
extension shall engage in the transportation or sale of natural
gas, subject to the jurisdiction of the Commission, or undertake
the construction or extension of any facilities therefor, or
acquire or operate any such facilities or extensions thereof,
unless there is in force with respect to such natural gas company a
certificate of public convenience and necessity issued by the
Commission authorizing such acts or operations:
Provided,
however, That if any such natural gas company or predecessor
in interest was bona fide engaged in transportation or sale of
natural gas, subject to the jurisdiction of the Commission, on . .
. [February 7, 1942], over the route or routes or within the area
for which application is made and has so operated since that time,
the Commission shall issue such certificate without requiring
further proof that public convenience and necessity will be served
by such operation, and without further proceedings, if application
for such certificate is made to the Commission within ninety days
after . . . [February 7, 1942]. Pending the determination of any
such application, the continuance of such operation shall be
lawful."
"In all other cases the Commission shall set the matter for
hearing and shall give such reasonable notice of the hearing
thereon to all interested persons as in its judgment may be
necessary under rules and regulations to be prescribed by the
Commission; and the application shall be decided in accordance with
the procedure provided in subsection (e) of this section and such
certificate shall be issued or denied accordingly:
Provided,
however, That the Commission may issue a temporary certificate
in cases of emergency, to assure maintenance of adequate service or
to serve particular customers, without notice or hearing, pending
the determination of an application for a certificate, and may by
regulation exempt from the requirements of this section temporary
acts or operations for which the issuance of a certificate will not
be required in the public interest."
Section 7(e), 52 Stat. 824, as amended, 56 Stat. 84, 15 U.S.C. §
717f(e), provides:
"(e) Except in the cases governed by the provisos contained in
subsection (c) of this section, a certificate shall be issued to
any qualified applicant therefor, authorizing the whole or any part
of the operation, sale, service, construction, extension, or
acquisition covered by the application, if it is found that the
applicant is able and willing properly to do the acts and to
perform the service proposed and to conform to the provisions of
the Act and the requirements, rules, and regulations of the
Commission thereunder, and that the proposed service, sale,
operation, construction, extension, or acquisition, to the extent
authorized by the certificate, is or will be required by the
present or future public convenience and necessity; otherwise such
application shall be denied. The Commission shall have the power to
attach to the issuance of the certificate and to the exercise of
the rights granted thereunder such reasonable terms and conditions
as the public convenience and necessity may require."
[
Footnote 2]
The Commission did have authority with reference to the entry of
a natural gas company into a competitive market, but not into new
and unserviced markets.
[
Footnote 3]
See, e.g., Florida Economic Advisory Council v. Federal
Power Comm'n, 102 U.S.App.D.C. 152, 251 F.2d 643,
cert.
denied, 356 U.S. 959;
Northern Natural Gas Co., 22
F.P.C. 164, 174-175, 180,
aff'd sub nom. Minneapolis Gas Co. v.
Federal Power Comm'n, 108 U.S.App.D.C. 36, 278 F.2d 870,
cert. denied, 364 U.S. 891 (certificate conditioned upon
removal of clauses permitting cancellation depending on price
relationship of gas and competitive fuels in gas purchase contracts
upon which feasibility of pipeline project depended);
Transwestern Pipeline Co., 22 F.P.C. 391, 394-395,
modified on rehearing, 22 F.P.C. 542 (minimum bill
provisions of proposed tariff required to be modified);
Panhandle Eastern Pipe Line Co., 10 F.P.C. 185 (conditions
requiring inclusion of interruptible rate schedules in tariffs);
Trans-Continental Gas Pipe Line Co., 7 F.P.C. 24, 38-40
(commencement of service conditioned upon filing of new tariff
satisfactory to Commission because of disapproval of certain terms
of service);
Alabama-Tennessee Natural Gas Co., 7 F.P.C.
257 (commencement of service conditioned upon filing of tariff
satisfactory to Commission).
MR. JUSTICE HARLAN, whom MR. JUSTICE STEWART joins,
dissenting.
While the result reached by the Court may be thought desirable,
I can find no justification for it either in the Natural Gas Act or
in any of the prior decisions of this Court. The matter is one for
Congress. I would affirm the judgments below substantially for the
reasons given by Judge Brown in his convincing opinion for the
Court of Appeals. 306 F.2d 334.