1. A Court of Appeals granted review of a Federal Power
Commission (FPC) order concerning a contract performed in its
circuit involving natural gas produced there by two respondent
natural gas companies incorporated outside the circuit, the
principal place of business of one (A) being within the circuit;
that of the other (B) being without. Respondents proceeded under
§19(b) of the Natural Gas Act, which provides for review in the
court of appeals wherein the aggrieved natural gas company "is
located or has its principal place of business."
Held: The Court of Appeals erred in failing to dismiss
the petition of respondent B for lack of venue, since the term "is
located" in §19(b) means more than having physical presence in a
place, and refers in the case of a corporation to the State of its
incorporation. Pp.
377 U. S.
37-39.
2. Pursuant to §16 of the Natural Gas Act and § 4 of the
Administrative Procedure Act, the FPC, after a hearing given to
interested parties, including respondents, at which they were
allowed to submit their views in writing, issued regulations
providing for the summary rejection of contracts with pricing
provisions other than those specified in the regulations as being
"permissible." Under § 7 of the Natural Gas Act, which includes a
provision for an FPC hearing, respondents each submitted an
application for a certificate of public convenience and necessity
to supply natural gas to a pipeline. Since the applications
disclosed price clauses impermissible under its regulations, the
FPC rejected the applications without a hearing. Its order on
review was set aside by the Court of Appeals.
Held:
(a) The "hearing" satisfied the requirements of § 4 of the
Administrative Procedure Act. P.
377 U. S.
39.
(b) The requirement for a hearing under § 7 does not preclude
the FPC from specifying statutory standards through the rulemaking
process and barring at the outset those like respondent A whose
applications neither meet those standards nor show why, in the
public interest, the rule should be waived.
United States v.
Storer Broadcasting Co., 351 U. S. 192,
followed. Pp.
377 U. S.
39-41.
Page 377 U. S. 34
(c) The present regulations pass on the merits neither of any
rate structure nor of a certificate of public convenience and
necessity; they merely prescribe qualifications for applicants. P.
377 U. S.
42.
(d) The FPC need not proceed on a case-by-case basis where its
policy outlaws all indefinite price-changing provisions. P.
377 U. S.
44.
(e) A plenary adversary-type hearing under § 7 of the Natural
Gas Act and § 5 of the Administrative Procedure Act would have been
necessary had there been an adjudication on the merits as to
whether respondent A could qualify for a certificate of public
convenience and necessity. But the only determination made -- after
the adequate rulemaking hearing under § 4(b) of the Administrative
Procedure Act -- was not one on the merits, but only that
respondent A's application was not in proper form because of the
impermissible price-changing provisions in the contract upon which
the application depended. Pp.
377 U. S.
44-45.
317 F.2d 796 reversed.
MR. JUSTICE DOUGLAS delivered the opinion of the Court.
The Federal Power Commission, in its regulation of independent
producers [
Footnote 1] of
natural gas, has required them
Page 377 U. S. 35
to file their contracts as rate schedules. This was done by
regulations which evolved as a result of a series of rulemaking
proceedings. [
Footnote 2] The
pertinent regulations presently provide that only certain pricing
provisions in the contracts of independent producers are
"permissible," [
Footnote 3] any
other being "inoperative and of no effect at law." [
Footnote 4] The regulations go on to say that
any contract executed on or after April 2, 1962, containing
price-changing provisions other than the "permissible" ones, "shall
be rejected" so far as producer rates are concerned, [
Footnote 5] that a producer's application for
a certificate of public convenience and necessity under § 7 of the
Natural Gas Act "shall be rejected" if any contract submitted in
support of it contains any of the forbidden provisions, [
Footnote 6] and that, so far as
pipeline certificates are concerned, any producer contract executed
after that date which has that
Page 377 U. S. 36
infirmity "will be given no consideration in determining
adequacy" of a pipeline company's gas supply. [
Footnote 7]
These regulations were adopted pursuant to the provisions of § 4
of the Administrative Procedure Act, 60 Stat. 238, 5 U.S.C. § 1003.
General notice of the proposed rulemaking was published in the
Federal Register as required by § 4(a) of that Act. The Commission
also gave interested parties a "hearing" under § 4(b). [
Footnote 8] No oral argument was had,
but an opportunity was afforded for all interested parties to
submit their views in writing, and the two respondents in this case
-- Texaco and Pan American -- along with others, did so.
Later, each respondent submitted an application for a
certificate of public convenience and necessity under § 7 of the
Natural Gas Act, to supply natural gas to a pipeline company.
Section 7 provides, with exceptions not presently material, that
the Commission "shall set" such an application "for hearing."
Since, however, the applications disclosed price clauses that are
not "permissible" under the regulations, [
Footnote 9] the Commission without a hearing
Page 377 U. S. 37
rejected the applications. 28 F.P.C. 551; 29 F.P.C. 378.
Petitions for review were filed with the Court of Appeals, which
set aside the orders of the Commission. 317 F.2d 796. It held that,
while the regulations are valid as a statement of Commission
policy, they cannot be used to deprive an applicant of the
statutory hearing granted those who seek certificates of public
convenience and necessity. The two cases are here in one petition
for certiorari which we granted because of an apparent conflict
between that decision and
Superior Oil Co. v. Federal Power
Comm'n, 322 F.2d 601, decided by the Court of Appeals for the
Ninth Circuit. 375 U.S. 902.
I
A preliminary question, which concerns Texaco Inc., alone, is
whether venue to review these orders of the Commission was properly
in the Tenth Circuit. The governing provision is § 19(b) of the
Natural Gas Act, which provides:
"Any party to a proceeding under this Act aggrieved by an order
issued by the Commission in such proceeding may obtain a review of
such order in the court of appeals of the United States for any
circuit wherein the natural gas company to which the order relates
is located or has its principal place of business, or in the United
States court of appeals for the District of Columbia. . . ."
The term "is located" would have an ambivalent meaning if venue
lay only in "any circuit" where the natural gas company "is
located." But, in the context of § 19(b), "any circuit" covers
either the place where the company
Page 377 U. S. 38
"is located" or where it "has its principal place of business."
Hence, the main argument of Texaco derives from the fact that "is
located" was substituted for "resides" in an early draft of the
bill [
Footnote 10] which
later emerged as the Federal Power Act, from which § 19(b) of the
Natural Gas Act is derived. The Court of Appeals found that change
decisive, but we can only conjecture as to why it was made, as no
explanation appears. The bill in which "resides" was used gave
review to "any person aggrieved" and the bill substituting "is
located" for "resides" substituted "licensee or public utility" for
"person aggrieved." Since the latter language was changed from the
personal to the impersonal, it may be, as the Commission says, that
the Congress was trying to use common legal parlance that a
corporation "can have its legal home only at the place where it is
located by or under the authority of its charter," as stated in
Ex parte Schollenberger, 96 U. S. 369,
96 U. S. 377.
And see Neirbo Co. v. Bethlehem Corp., 308 U.
S. 165,
308 U. S. 169.
However that may be, we think that "is located" means more than
having physical presence or existence in a place, since the
alternate venue referred to in § 19(b) is "principal place of
business." The Court of Appeals recognized the overlap between the
two clauses inherent in its construction, but resolved its doubts
in favor of Tenth Circuit venue because the gas sold by Texaco
under the contested contracts was produced in that circuit, and the
performance of the contract took place there.
The Act with which we deal was enacted August 26, 1935. At that
time and down to the 1948 amendment of § 1391 of the Judicial Code,
28 U.S.C. § 1391(c), the only residence of a corporation for
purposes of federal venue was the State and district in which it
had been incorporated.
Page 377 U. S. 39
See 9 Fletcher, Cyclopedia Corporations (1931), § 4385.
That theme runs through the cases.
See, e.g., Shaw v. Quincy
Mining Co., 145 U. S. 444,
145 U. S.
449-450. We conclude that, although "located" sometimes
is used as indicating a place of business (
Mercantile Nat. Bank
v. Langdeau, 371 U. S. 555), in
the setting of this Act, "is located" and "resides" are equated,
and that "is located" refers in the case of Texaco to its State of
incorporation. There is symmetry in that construction as the
choice, so far as circuits are concerned, is then left between that
State, the "principal place of business" (with no penumbra of other
places of business, as here), or the District of Columbia, where
the Commission sits.
Texaco is a Delaware corporation, and there is no claim that its
principal place of business is within the Tenth Circuit. The Court
of Appeals therefore erred in failing to dismiss its petition for
lack of venue. There is, however, another respondent, Pan American,
whose principal place of business is within the Tenth Circuit. We
therefore proceed to the merits of its application.
II
The main issue in the case is whether the "hearing" granted
under § 4(b) of the Administrative Procedure Act is adequate, so
far as the price clauses are concerned, for purposes of § 7 of the
Natural Gas Act. We think the Court of Appeals erred, that the
present case is governed by the principle of
United States v.
Storer Broadcasting Co., 351 U. S. 192, and
that the statutory requirement for a hearing under § 7 does not
preclude the Commission from particularizing statutory standards
through the rulemaking process and barring at the threshold those
who neither measure up to them nor show reasons why in the public
interest the rule should be waived.
In
Storer, the Federal Communications Commission,
pursuant to its general rulemaking authority, limited
Page 377 U. S. 40
permissible multiple ownership for radio and television
stations. Storer, which had seven radio stations and five
television stations, was under that rule automatically disqualified
for further licensing. To surmount that barrier, it argued that the
Act required a license to issue where the public interest would be
served, and that, before an application could be denied, a hearing
must be held. We said:
"We read the Act and Regulations as providing a 'full hearing'
for applicants who have reached the existing limit of stations,
upon their presentation of applications conforming to Rules
1.361(c) and 1.702, that set out adequate reasons why the Rules
should be waived or amended. The Act, considered as a whole,
requires no more. We agree with the contention of the Commission
that a full hearing, such as is required by § 309(b) . . . , would
not be necessary on all such applications. As the Commission has
promulgated its Rules after extensive administrative hearings, it
is necessary for the accompanying papers to set forth reasons,
sufficient if true, to justify a change or waiver of the Rules. We
do not think Congress intended the Commission to waste time on
applications that do not state a valid basis for a hearing. If any
applicant is aggrieved by a refusal, the way for review is
open."
351 U.S. at
351 U. S.
205.
In the present case, as in
Storer, there is a procedure
provided in the regulations whereby an applicant can ask for a
waiver of the rule complained of. [
Footnote 11] Facts might conceivably
Page 377 U. S. 41
be alleged sufficient on their face to provide a basis for
waiver of the price clause rules and for a hearing on the matter.
Cf. Atlantic Refining Co., 28 F.P.C. 469; 29 F.P.C. 384.
But no such attempt was made here by Pan American, the only
respondent to which the present point has any immediate
applicability.
The rulemaking authority here, as in
Storer, is ample
to provide the conditions for applications under § 4 or § 7.
Section 16 of the Natural Gas Act gives the Commission power to
prescribe such regulations "as it may find necessary or appropriate
to carry out the provisions of this Act." We deal here with a
procedural aspect of a rate question and with a certificate
question that is important in effectuating the aim of the Act to
protect the consumer interest.
Federal Power Comm'n v. Hope
Natural Gas Co., 320 U. S. 591,
320 U. S. 610.
In a rate case under § 5(a) of the Act, the Commission can pass on
existing contracts affecting rates, can find that particular
contracts are "unjust, unreasonable, unduly discriminatory, or
preferential," and thereupon has power to determine the "just and
reasonable" rate or contract and "fix the same."
And see United
Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.
S. 332,
350 U. S. 341.
And where, as here, applications for certificates are made under §
7 of the Act, the Commission, under § 7(e), is required to control
the terms and conditions under which natural gas companies, such as
respondent, may initiate sales at wholesale of natural gas in
Page 377 U. S. 42
commerce.
Atlantic Refining Co. v. Public Service
Comm'n, 360 U. S. 378,
360 U. S.
389.
Pan American does not disagree on that score; it insists that
those changes and adjustments can be made only after an adversary
hearing. To that, there are two answers. The present regulations do
not pass on the merits of any rate structure, nor on the merits of
a certificate of public convenience and necessity; they merely
prescribe qualifications for applicants. Those qualifications are
in the category of conditions that relate to the ability of
applicants to serve the consumer interest in this regulated field.
They are kin to the kind of capital structure that an applicant has
and to his ability by reason of the rate structure to serve the
public interest. It must be remembered that, under this Act, rate
increases are initiated by the natural gas company, the Commission
having the burden by reason of § 4(e) of the Act to initiate a
hearing on their legality, with only a limited power to suspend new
rates.
See United Gas Pipe Line Co. v. Mobile Gas Service
Corp., supra. Natural gas companies that seek to enter the
field with prearranged escalator clauses and the like have a
built-in device for ready manipulation of rates upward. Protection
of the consumer interests against that device may be best achieved
if it is given at the very threshold of the enterprise. At least
the Commission may so conclude, [
Footnote 12] and
Page 377 U. S. 43
the legislative history makes clear that its authority reaches
that far. H.R.Rep.No.1290, 77th Cong., 1st Sess., pp. 2-3,
states:
". . . The bill when enacted will have the effect of giving 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 in
connection with the proposed construction or extension
at a
time when such vital matters can
Page 377 U. S. 44
readily be modified as the public interest may demand.
. . ."
(Italics added.)
And see S.Rep.No.948, 77th Cong., 2d
Sess., pp. 1-2.
To require the Commission to proceed only on a case-by-base
basis would require it, so long as its policy outlawed indefinite
price-changing provisions, to repeat in hearing after hearing its
conclusions that condemn all of them. There would be a vast
proliferation of hearings, for, as a result of
Phillips
Petroleum Co. v. Wisconsin, 347 U. S. 672,
there are thousands of individual producers seeking applications.
See Wisconsin v. Federal Power Comm'n, 373 U.
S. 294,
373 U. S. 300.
We see no reason why, under this statutory scheme, the processes of
regulation need be so prolonged [
Footnote 13] and so crippled.
Pan American finally argues that the "hearing" accorded it under
§ 4(b) of the Administrative Procedure Act [
Footnote 14] did not comply with that Act, nor
with the Natural Gas Act. It points out that § 7 of the Natural Gas
Act requires a hearing, and that § 5 of the Administrative
Procedure Act provides, with exceptions not relevant here, that a
full-fledged adversary type of hearing be held in "every case of
adjudication required by statute to be determined on the record
after opportunity for an agency hearing. . . ." "Adjudication" is
defined in § 2(d) of the Administrative Procedure Act as "agency
process for the formulation of an order"; "order" is defined as
"the whole or any part of the final disposition . . . of any agency
in any matter other than rulemaking but
Page 377 U. S. 45
including licensing." And "licensing" is defined as "agency
process respecting the . . . denial . . . of a license." § 2(e).
What the Commission did in these cases, however, is not an
"adjudication," not "an order," not "licensing" within the meaning
of § 2. Whether Pan American can qualify for a certificate of
public convenience and necessity has never been reached. It has
only been held that its application is not in proper form because
of the pricing provisions in the contracts it tenders. No decisions
on the merits have been reached. The only hearing to which Pan
American so far has been entitled was given when the regulations in
question were adopted pursuant to § 4(b) of the Administrative
Procedure Act.
Reversed.
[
Footnote 1]
See Natural Gas Act, 52 Stat. 821-833, as amended, 15
U.S.C. §§ 717-717w;
Phillips Petroleum Co. v. Wisconsin,
347 U. S. 672.
[
Footnote 2]
See Order No. 174-B, 13 F.P.C. 1576, 18 CFR § 157.25;
Order No. 232, 25 F.P.C. 379, 26 Fed.Reg. 1983, as amended by Order
No. 232A, 25 F.P.C. 609, 26 Fed.Reg. 2850; Order No. 242, 27 F.P.C.
339, 27 Fed.Reg. 1356; Reg. § 154.91
et seq., as amended,
18 CFR (Cum.Supp.1963) § 154.91
et seq.
[
Footnote 3]
Section 154.93 defines the "permissible" provisions:
"(a) Provisions that change a price in order to reimburse the
seller for all or any part of the changes in production, severance,
or gathering taxes levied upon the seller;"
"(b) Provisions that change a price to a specific amount at a
definite date; and"
"(c) Provisions that, once in five-year contract periods during
which there is no provision for a change in price to a specific
amount (paragraph (b) of this section), change a price at a
definite date by a price-redetermination based upon and not higher
than a producer rate or producer rates which are subject to the
jurisdiction of the Commission, are not in issue in suspension or
certificate proceedings, and, are in the area of the price in
question. . . ."
[
Footnote 4]
Ibid. For a discussion of escalation clauses
see
Pure Oil Co., 25 F.P.C. 383,
aff'd, 299 F.2d 370.
[
Footnote 5]
Ibid.
[
Footnote 6]
§ 157.25.
[
Footnote 7]
§ 157.14(a)(10)(v).
[
Footnote 8]
Section 4(b) provides:
"After notice required by this section, the agency shall afford
interested persons an opportunity to participate in the rulemaking
through submission of written data, views, or arguments with or
without opportunity to present the same orally in any manner; and,
after consideration of all relevant matter presented, the agency
shall incorporate in any rules adopted a concise general statement
of their basis and purpose. Where rules are required by statute to
be made on the record after opportunity for an agency hearing, the
requirements of sections 7 and 8 shall apply in place of the
provisions of this subsection."
[
Footnote 9]
Pan American's contracts provide (1) for a one-cent escalation
in 1968, 1973, and 1978, and (2) for a redetermination of a "fair
market price" in each five-year period commencing October 1, 1983,
but in no event for less than 20.5 cents per thousand cubic
feet.
Texaco's contract contained price clauses to become effective at
definite times or upon the happening of definite circumstances in
the future,
e.g., the passage of 5, 10, or 15 years,
increased taxation on the production, severance, gathering,
transportation, sale, or delivery of gas or as a result of
renegotiations undertaken six months prior to the beginning of the
third (1974) and fourth (1979) of the four five-year periods into
which the contract term was divided.
[
Footnote 10]
See § 313(b) of the Federal Power Act, 49 Stat. 860, 16
U.S.C. § 825
l(b);
cf. S. 1725, 74th Cong., 1st
Sess.,
with S. 2796 of the same session.
[
Footnote 11]
Regulation § 1.7(b), 18 CFR (Cum.Supp.1963) § 1.7(b), provides
in relevant part:
"A petition for the issuance, amendment, waiver, or repeal of a
rule by the Commission shall set forth clearly and concisely
petitioner's interest in the subject matter, the specific rule,
amendment, waiver, or repeal requested, and cite by appropriate
reference the statutory provision or other authority therefor. If a
rate filing is accompanied by a request for waiver pursuant to this
section the thirty-day notice period provided in section 4(d) of
the Natural Gas Act and section 205(d) of the Federal Power Act
shall begin to run if and when the Commission grants the request.
Such petition shall set forth the purpose of, and the facts claimed
to constitute the grounds requiring, such rule, amendment, waiver,
or repeal, and shall conform to the requirements of §§ 1.15 and
1.16. Petitions for the issuance or amendment of a rule shall
incorporate the proposed rule or amendment."
[
Footnote 12]
The Commission, in making the last amendment to the regulation
now challenged said:
"Protection of the public interest is the touchstone of our
regulatory powers under the Natural Gas Act. The Commission's
obligation under the Act to the natural gas companies, as one
segment of the public whose interest is to be protected, does not
compel it to acquiesce in the use of contracts which carry
provisions incompatible with a scheme of effective rate regulation.
To be sure, the proposed rule will have impact upon contractual
practices which have been fairly widespread. But the real issue is
not one of 'freedom of contract'; the question is whether the rule
is rationally related to a condition which requires correction if
regulatory objectives embraced by the statute are to be achieved.
See American Trucking Associations v. United States,
344 U. S.
298. In our view, the rule we adopt fully meets this
test."
"We held in the
Pure Oil case [
see note 4 supra] that indefinite
escalation clauses are contrary to the public interest, and
restated this conclusion in Order No. 232A. Increases in producer
prices, triggered by indefinite escalation clauses, have resulted
in a flood of almost simultaneous filings. These filings bear no
apparent relationship to the economic requirements of the producers
who file them. The Natural Gas Act contemplates that prices, to be
just and reasonable, be related to economic needs. The elimination
does not, of course, cut off other avenues does not, of course, cut
off other avenues by which a producer may make provision for filing
for increased rates."
"Filings under indefinite escalation clauses have created a
significant portion of the administrative burdens under which this
Commission is laboring today. The Natural Gas Act contemplates that
rate increases shall be sought when there is economic
justification, but not that there shall be a chain reaction in a
wide area whenever one producer in the area negotiates a contract
at a new price level. The Act requires the Commission to give
precedence to the hearing and decision of rate increases, but the
complexity of indefinite price clauses requires it to spend an
undue amount of time in their interpretation and application at the
expense of making a prompt determination of the rate issues
involved. Accordingly, in protecting the public against waves of
increases which have no defensible basis, we also serve the need --
when we believe we should take into account -- of making the tasks
of regulation more manageable."
27 F.P.C. 339, 340, 27 Fed.Reg. 1356, 1357.
[
Footnote 13]
In one recent case, seven years elapsed between the date of the
new rate filing and the close of the review proceedings.
Shell
Oil Co., 18 F.P.C. 617, 19 F.P.C. 74,
set aside sub nom.
Shell Oil Co. v. Federal Power Comm'n, 263 F.2d 223,
rev'd
sub nom. Texas Gas Transmission Corp. v. Shell Oil Co.,
363 U. S. 263;
on remand, aff'd sub nom. Shell Oil Co. v. Federal Power
Comm'n, 292 F.2d 149,
cert. denied, 368 U.S. 915.
[
Footnote 14]
See note 8
supra.
MR. JUSTICE STEWART, dissenting in part.
I agree with Part I of the Court's opinion, holding that the
petition of Texaco Inc. should have been dismissed for lack of
venue. I cannot agree, however, that a gas producer's application
for a certificate of public convenience and necessity can be
rejected without the full adjudicative hearing to which § 7 of the
Act entitles him. My reasons are substantially those expressed in
Judge Breitenstein's opinion for the Court of Appeals. 317 F.2d
796, 804-807.